Transcripts For CNBC Squawk Box 20131025

Microsofts earnings and revenue topping expectations. Results were helped by shares of its offices and server sales. Were going to talk to an analyst who covers the company at k67 40 eastern time. Amazon reported results, as well. Sales grew by a better than expected 24 which investors say bodes well for results this season. We will talk to an amazon analyst in just a few minutes, as well. Lets take a look at todays calendar. The Commerce Department will release two reports. Durable goods for september. Coming up at 10 00, we can wholesale trade inventories and Consumer Sentiment is worth talking about. Andrew, good morning. Thank you, becky. We have corporate buzz this morning, including wa joe was talking about, including twitters ipo is now pegging the valuation of that company at a modest 11 billion. They want to he avoid a repeat of facebooks troubled debut. Maybe theyre pricing it on the low end. Twitter plans to sell 70 million between 17 and 20 apiece. The stock could begin trading as soon as november 7th. So mark your calendar. In other ipo news, i dont know if this is a sad one or not. Alababa has now reportedly abandon its plan to sell shares anywhere in the near term in order to let the heat die down over its controversial class structural. St the chinese ecommerce talking, his comments leave the door open for a alibaba listing in the future. Finally, dupont announcing its going to spin off its titanium did i oxide unit within 12 to 18 months. Theres been pressure on the company to divest the volatile business. The ceo on with cramer last evening. This is the next advancement in our transformation. I think its the right thing to do for our company. Its going to create two strong companies. You know, im out with investors all the time. They have a lot of ideas about what we do well and where we could improve. And im sure theres several of them over the next few weeks who will say that this was their idea. We will call this a win for nelson peltz this morning. He disclosed a stake of about 5. 8 million shares in dupont, saying the stock was undervalued and had potential to grow. Many speculated he bought that stake to break up the company or spin off major units. And to toot our own horns, remember, we first reported his investment at cnbcs delivering alpha conference. I learned literally in the past two hours that you have just amassed and are continuing to amass a very big stake in dupont. Can you comment on that . Andrew, you asked me in the green room about ten minutes ago. If you say dupont, what comes to mind . Remember, i told you, i said, paint. And there it is. Paint. Hes the winner this morning. And nice going, mr. Peltz, if youre watching. And i asked myself, honestly, just to try to gauge that alibaba story, to try to see whether i was sad about that. And i gave it a fair shot. Seriously, i asked myself objectively. You know, i listened to what you said. I said do i feel sad . I do not feel sad about that. You said you dont know whether to feel sad about it or not. I dug deep, deep, deep, deep, looking for some sadness. Yeah. Nothing. Im sorry. Im sorry to hear that. Im sorry to hear that. I dont feel anything. I feel i think the alibaba people might be sad. I am numb. I guess. Because did you feel any sadness . You know why i have such emotion about it . Because i was just in hong kong and that was the issue. Thats your excuse, okay. And everyone is desperate for alibaba the crown except the jpmorgan deal was the issue. All right. Thank you, becky. Its friday. You flew to hong kong and back. You forget. Lets check on markets. Go the god forebit theyre down. Theyre up. Because i dont need any more sadness this morning. Andrew did fly to hong kong and back. That would make me sad. Youre one of our favorites. Anyway, there is the craziest stuff times. There is the dow. What a day yesterday. No reason. No rhyme. It must be earnings or something. And then you saw amazon come out, just like was said, it lost money. And everyone was fine. Revenue up 24 . That is not sad. That is a good story. And theres its 97 on crude right now. Lets look at the tenyear, which has been under 2. 5. Now its over 2. 5. But you have to call that kind of quiet. Weve got to get this euro down quick. Are you planning that trip, still . If there will be one, it will be in the summer. But anything over 1. 30 or 1. 35 is, you know puerto vallarta, here we go. Disney. Go down to orlando. Universal studioses is always a great destination. It is. Either one. The one in orlando or out in ron meyer i think theyre owned by some friends of ours. Oh, i always forget about that. Theres gold down 8. At 1,342. Time for the Global Markets report. It helps to check the rest of the globe. Ross, were in charge here. Our markets are doing pretty well. Hopefully you got the message. I see some red, but i see some green above your head. How are the markets over there this morning . Well, you have to remember, joe, weve been up ten out of the last 11 sessions here in europe. So if were a little red today, its against the trend of what has been a steadily rising European Equity session so far for the month, really. Yeah, decliners currently outpacing advancers by around about a ratio of 63, Something Like that on the dow jones stoxx. Had quite a bit of data out today, as well been the ftse 100 has been fairly flat, in modest positive territory up 11 points at the moment. We had the export of gdp in the uk. Came up 1. 5 percent on the year. This quarter in 2012, up 0. 8 quarter on quarter. That is the strongest year on year growth since the First Quarter of 2011. Construction doing fairly well because the government has a help to buy mortgage scheme going on at the moment. Xetra dax is fairly flat. We had the first tick down in the Ifo Business Climate index for the first time in six months today. So just ties in with the pmis yesterday. Slightly weaker economy than we might have thought, although still expanding, of course. The cac 40 is down 0. 2 . French footballers are going on strike in november to complain about the high rate of tax, 75 top rate of tax. So the entire french football league, the top Division Going on strike in protests against that. The french football fans wont be able to watch any games for a week or so. And the ftse mid down about 1 , as well. We mentioned the strength of the euro. Today we had a lot more. Renault came out down 2. 35 today. Revenue had suffered from the depreciation of several emerging market currencies against the euro. Axa, the insurer, down 2 today. Blaming the strong euro and seasonal weakness in Life Insurance for a slowdown in its Earnings Growth today. And saint gobain, the glassmaker, stock is up 4. 5 , but it stalked about the stifling currently impact and it said a 1. 4 fall in sales would have been a positive figure were it not for the strength of the euro. Though investors have looked past that. The question is are they just blaming the euro for things that they could be doing better or not . But they are all talking about it. And this level up near 1. 38 that weve been, its record high for the two years is higher than the level of 1. 37 when the ecb were talking about it back in february. And they havent talk about it at all at these sort of levels. Well keep our eyes on that. For now, back to you. All right, ross, thank you. They dont like it. I dont like it. We dont why cant we all get together on this and change it, then . Nobody likes this euro up where it is. Why donts we just pick a level we think it should trade at and fix it . Jimmy carter tried that. Nixon tried wage price control. Yeah. What does Angela Merkel have to say about this . And did you see the great response from the nsa yesterday that, yeah, okay, weve done some we, like every other country, listen to whats going on. And they said were not going to comment on this particular situation, but like every other major when you get caught do they lisp to our phone calls . Do the brits listen you think everybody is listening to everybody . I think the expectation is the United States might be better at it, too. When you get caught by somebody doing this, thats a bad situation, raises problems with france, germany, brazil. France has their own problem. Theyre not even going to have any soccer because of their 110 marginal rate, which works in the 50s, as you pointed out. Anyway, amazon. Com reporting a Third Quarter loss of 9 cents a share. That was in line with estimates. Revenue topped 17 billion and that was ahead of expectations. And as the journal says, were going to talk to tom forte. Tom, the journal first line, for amazon inc, investors, a loss is just part of doing business. Every quarter, the company spends more than it takes in in sales, but it is building a huge company that will be profitable some day. Is that the idea . Yeah. The idea is that theyre taking a ton of market share. If you look at their investments, theyre investing in Fulfillment Centers, theyre investing for content amazon video. Theyre investing in servers for their Amazon Web Services. So theyre taking market shares. Sales were better than expected. Stockses will be up today. It is up today. Jeff basos, dont you think we just defer to him at this point . Wouldnt you, with money . Here it is, jeff, do you figure out what you need to you know, i wasnt really asking for that. Hes iconic. Hes if he wants to use some of my money to expand the business, i would say, give it back to me in a couple of years and ill trust you to use it between now and then. Thats not a bad idea, is it . Definitely he manages the business for the longterm and hes clearly focused on getting market share. I mean, you look and basically they have a threepronged approach. Fast delivery, low prices, thats their strategy. They keep advancing it. Its working very well. But why does everybody believe one day in the future theres going to be this moment where hes going to decide to flip the switch and when he flips the switch it actually works . The reason we believe that is in 2004, they hit their High Water Mark and their csio margin of 7. 1 . If you look at the recent announcement, you have the buy 35 worth of merchandise to get free twoday shipping. So fulfillment costs could trend down over time. They have a lot of levers they can pull. Increasing third part unit sales is high margin revenue for amazon. So the idea that over time they could return to that 7 rate from 2004. You look at these numbers. In a world where everybody complains about Revenue Growth, did you see these numbers are, like, ridiculous. Almost 17 billion no, over 17 billion. Last year, 13. 8. And in the United States, sales up 30 to 9. 5. I mean, 30 . To billions and billions and billions. Look, i they can flip the switch. They can flip the switch. Would it do it if know now, for example, prime is no longer a it used to be you could order a toothbrush and you didnt have to care. They would ship it to you and life is great. But now youre saying 35 is the minimum now . 35 is the minimum. But if youre a prime member, theres no minimum. Well, no, now amazon has somethi something. I think i recently joined to get a toothbrush. Thats how this toothbrush story came out. You actually had to leave your house. Yes. But over time, it may be theres certain items that you might have gotten from amazon that you wont in future. But maybe thats a good thing for investors. They dont want to pay to send you a toothbrush, shipping freight, right . Yes. But that goes to the revenue number, which is the revenue wont, therefore, be as high. Right, tom . Theyre very data driven firms. Im sure when they made the decision to increase the hurdle rate to 35, they didnt anticipate a significant pullback in volume. Tom, if there was a transition where revenue went down, but profitability were to increase or margins were to increase as a result, how would wall street react to that . You know, you really saw that in the forty quarter of last year. They reported their first adjusted sales growth of less than 30 in Something Like two years and a 4. 9 north american operating margin. And the stock slowed, i would say. So if you look at what determines their share price on a shortterm basis, its definitely sales growth. And number two would be unit growth. So in that scenario, becky, where you had improving margins and flowing sales, the stock may not perform quite as well. Tom, real quick, how much built into the stock is this idea that they are going to one day take over the living room, meaning aws, amazon web service. Smartphones. Streaming. The whole thing. If you look at the revenue market, the Fourth Quarter, theyre going to sell amazon fires. You have amazon, apple trying to get in there. I think theyre going to expand their hardware efforts and it makes it so much easier to buy on amazon and you dont have to worry about paying apple or anyone else. Thats bizarre, though. Seems to me i remember when Hewlett Packard decided it was going to have all these consumer devices. And compaq for a while. Are you sure . Theyre good at this. Are you sure they can develop a set top box . Look at what theyre doing with the next generation of kindle fire devices, with the may day button, making it very easy for you to access customer service. I think they have a lot of things they can do in hardware to differentiate themselves. All right. This fun to even consider. I hope it doesnt turn into a sad story some day. I just dont think i could take that at this point, tom. Anyway, tom, thank you. Appreciate your time this morning. I dont need it. I dont need it at this point in my life. Just be happy. Okay. Weve got a lot coming up this morning, including is the clock to blame for productivity issues in spain . A little tease. But first, squawk news, the st. Louis cardinals have earned have evened now the world series at a game apiece. The cards beat the red sox 42 in boston last night. And thursday night football, the tampa bay buccaneers, they lost again, find themselves 07 for the seventh time in the teams checkered history. Cam newton threw two touchdown passes and ran for another score to secure the win with for the carolina panthers. The final, 3113. But first, the weekend forecast coming from the weather channels julie martin. Julie. Hey there, good morning. Well, the big story, you know that crisp, cool fall air, millions of us are going to be wishing we had some of that because its getting replaced by winter. An arctic blast across a big section of the country. In fact, you see here what im talking about. Weve got cool air coming from the midwest into the deep south over the next few days. And were looking at temperatures even below freezing for many of us. Rain and snow around the great lakes today. Some rain in places like new mexico and foggy conditions here in the Pacific Northwest for seattle into portland this morning. Taking a look at the weekend, cool continuing again. Across the deep south. Cool air coming in from canada. Were looking at temperatures now that are going to be more like late november. So more like thanksgiving instead of halloween. That includes here in the deep south where were looking at 30s across the region this morning. 37 in atlanta for tomorrow morning. 31 in nashville. Well be going below freezing. We have those freeze warnings and advisories up. Sunday morning, another very cold one here in the south, as well. Only 41 in savannah, georgia, and 43 in atlanta. Keep in mind, a lot of these southern cities right lane going to climb out of the 50s through the weekend. More squawk box when we come back back. Tdd 18003452550. You see opportunities. Tdd 18003452550 at schwab, were here to help tdd 18003452550 turn inspiration into action. Tdd 18003452550 we have intuitive platforms tdd 18003452550 to help you discover whats trending. Tdd 18003452550 and seasoned market experts to help sharpen your instincts. Tdd 18003452550 so you can take charge tdd 18003452550 of your trading. Time now for the executive edge. Sh our daily segment focused on giving Business Leaders a leg up. A lawsuit against silicone valley hiring practices has been given class action status. In 2011 been five Software Engineers sued adobe, intel, apple and google among others regarding hiring practices. It alleged a broad conspiracy by not posting each others employees. Some of this was started based on emails back and forth between steve jobs and eric schmidt. This idea, by the way, more broadly has been true of silicone valley for a long time, or at least the contention that there is almost a cabal that five, ten Venture Capital firms and five or ten major employers in town. This has fwon on or theres been questions about its weird to say that thats improper business. What youre really saying is, hey, wait a second. Youre not stealing each others employees. Its not fair that youre not poaching each others thats weird to say theres going to be some legal action youre subject to because youre not in there stealing other poems employees. That would be bad for us. If there was no other business network, that would be bad. And then what would the employees do . They would have no other opportunities. No resource. You know, there have been some pretty active packages put out to lure employees back. Remember when dan loeb sent an email that was published to ken griffin, when he was stealing his employees and how they almost had a truce. Is that a good thing or a bad thing for them to call each other and say, dont take my people . Its like when do you remember when you buy an Airline Ticket and every air line, there were like 12 of them, 3. 89. 15. Its weird. Wow, just what a coincidence. Yeah. So its probably bad if all these people get together and say dont hire, keep everyone. And lights like any cartel. Anyway, the fda is now recommending tightening access to hydrocodone painkillers. Regulators want the drugs reclassified as more restrictive products. That would make it harder to obtain both by addicts and legitimate patiences. Emergency room visits were like 500,000 a few years ago. And that had doubled. A serious problem. Do you remember when we had barry meyer come out here and oh, he wasnt here. He was from new york. He was talking about all these drugs. Openaiates are so addictive. Whatever reason its prescribed in the first place and the best intention people can end up like with a habit, which you dont need. We definitely dont need. And, you know, ive told but the down sides. Literally of oh, yes. I remember that segment with i only took it for three or four days after i had my appendices out. And youre going to learn about loss. Remember that was from cape feared. But youre going to learn about youll learn about constipation. Youll learn what it is, what can happen. Okay. Its breakfast time. Imodium. No, no, you have to attack it from both ends. You have to attack it from both ends and then it still takes okay. Lets just say theyre bad. Yeah, theyre bad. For a lot of reasons. For a lot of reasons. Finally, hoe, lets talk about a entrepreneur in spain would says it can be a pain to keep up with the clock inside country. Productivity he thinks is being zapped. Thats why he is now calling on the government to abandon the Central European time and turn the clocks back by an hour. Theres a piece in todays wall street journal that says spaniards generally start the day around 9 00. Then they live the rest of the day on solar time. That means they lunch around 2 00, businesses close in the afternoon for to to three hours for a siesta. Most people dont stay those naps. Businesses stay open until 9 00. No, but they go out and drink. Ive been there. Prime time tv doesnt start until 10 00. Nobody eats until 10 00 over there. Correct. You think its cool. Yeah. I think its cool and, b, i dont understand why show up for squawk box with that schedule. You know why they started it, though . Franco who is still dead. Decided that he wanted to be on the same time with hitlers germany on this entire thing. Even after hitlers regime fell, they never changed it back. That is weird. I didnt realize you change the time, all of a sudden its a cultural thing to take a siesta. Yeah, but one of the major employers, an Electric Company or something, one of the major employers that did go to six to nine with an eight avenue hour work day, they noted productivity gains. People got in earlier, got out earlier, they got to go ohm with their families and his argument is this will boost productivity, give people more time at home. With 30 youth up employment, does it look like you know, there are some things that probably need to be addressed. Probably. At this point. Dont you think . And the time could be one of them. The time. Do you remember, this just in, franco is still dead. Do you remember that . I dont. I think that was weekend update, the original chevy chase update. Because he had died in the 70s, i think. So they would come on and it would be this just in. Anyway, that was the guy who decided the move things around. I always think of jane line, jane, are you ignorant . Yeah. But i can confirm, he is still dead. Still dead. When we come back, disney is moving to china. Plus, markets are on track for a threeday winning streak. First, though, it is friday and that means its time for a new blog. Go to squawk cnbc. Com and get the full story on what happened on and off the air this week. Thank you orville and wilbur. Amelia. Neil and buzz for teaching us that you cant create the future. By clinging to the past. And with that youre history. Instead of looking behind. Delta is looking beyond. 80 thousand of us investing billions. In everything from the best experiences below. To the finest comforts above. Were not simply saluting history. Were making it. Good morning and welcome back to squawk box here on cnbc. Im joe kernen along with becky quick and Andrew Ross Sorkin. Making headlines, disney plans to open its first china store. Shanghai. Its expecteded to be its larnlthest ever. Analysts say the move underscores the need to indicator to the growing middle class. Walmart says its going to he up 110 facilities in china in 2014 to 2016 in addition to the 30 its opened this year. Boeing has secured commitments for about 200 of its 737 max aircraft from multiple chinese customers. The deals are worth a combined 20. 7 billion at list prices, but they still have to be approved by the chinese government. And one more story out of china, the country launched the new benchmark lending rate today. The new prime late will guide bank lending for its banks. Its another step towards letting market set the cost of funds in an attempt to reduce distortions that have led to excessive investment and overcapacity, that hopefully never comes home to roost because the whole world is dependent on it really not coming home in a bad way. Lets talk about the markets this morning. Were talking earnings, the economy and the fed and much more. Lets start with Larry Summers comments on closing bell yesterday. Its wrong to be relying on Monetary Policy as the main driver of the economy when youre in liquidity trap. Its wrong because were not sure how large the effect he of it are. We havent been in this territory with quantitative easing and forward guysance and the like before. Joining us now to talk more about this and more is zach carabow. We also have michael hansen, senior u. S. Economist at bank of mishg global research. Good morning to both of you. I want your comments on larry, but i also want your comment on this. I am told that you think that we are so far from being in a bull market and the fact that we talked about being in a bull market is completely you say were touting a bull market that is not real. Until you invested 100 of on your money in 2009, in which case, it is. Its been a 13year period from march of 2000 where markets have essentially done nothing. The market is still 20 or more below its peak and this is much more like a period in the late 60s and the mid 70s when they were 50 office off. How do you think were not in the early stages of a bull market . My point is, to say its getting long in the tooth it sounds like its a positive. I am simply saying that you cannot make a statement, that this has been a forthy well, then you can never say you would hoel hope someone can take were in a bull market before youre looking back at the end of a bull market. This is where green span was absolutely right. Its very hard to do that. The nipts, a lot of people were saying that at the time. A lot of people were saying if it is, i wish you would say it was. I would if he felt like we were but if its going to be a great market for the next five years, i need you to tell me that now. Not five years from now. I think they will continue to be. Michael, do you buy that . All things being equal. I think as we go forward, its obviously were going to be in an environment where growth is going to be better and that has to be is in the stock market. And how much of this is a function, i know you think, but ill ask you, how much of this is a function of mr. Bernanke, now ms. Yellen . I think it helps give support, gives a lot of confidence. But on a sequential basis looking better. Well see pent up demand, a fiscal drag. And you dont care whether she takes it away . Well, i think theres going to be a challenge there, theres no question. But i think its going to be a bumpy ride. But i think we have some fundamentals that are going to support the Company Moving forward. I would agree with that. Another issue is the u. S. Economy and markets or even the Global Economy and markets are some sort of parallel exactly in sync universe. I think you have had and you still have very strong physically equity markets and Weak National economies. National economies bear all the costs of being alive. Health care, elderly, benefits for retirement. Companies bear very few of those costs and many of the benefits. Therefore, National Economies lag. Would that be different in china were to slow down substantially . If the United States were to implode, that would have massive consequences and would indeed be a crisis period of substantial proportions. Im not going to venture to say what would be on the other side of that, but i dont see that happening. Okay. Hold on. For the past couple of months, we complained bitterly on this program and elsewhere that the government is slowing down everything, right . When, in fact, we have this big campaign, we keep talking about it. And yet there is the other side of that argument, which is the companies are playing through rain, right . They just dont care. Do you agree with that . Well, theres certainly some evidence that theres heightened levels of uncertainty are having adverse impacts. Its been pretty flat for the last year or so. And do we blame washington on that . No. I think Washington Play aes role. But havent we bm been blaming uncertainty for whatever roles we can 12347. Isnt it a different situation if youre looking at some of the big multi nationals, they are still investing and they still have high cap spending. Not currently, no. Which is greenspan. After longterm kacht yab investment but i think mid sized businesses and smaller business businesses, i think it has a much bigger impact on them. But theres uncertainty and theres certainty. Were certain that theres a lot of regulation right now. There are headwinds your argument is theres certainty that theres uncertainty and no, my argument is that theres certainty that regulations are way too high and corporate taxes are way too high. But small and mid sized businesses get stuck. Not to continue the conversation about whether fracko is dead, but the reality is there has always been uncertainty. Feeling better every day. Doug cass already sent in the video and a very politically incorrect totally nonexpansive in a second. Because are you a is this some kind of red sox thing with the no. When do you shave . Well, i think if the yankees were to so your beard has nothing to do with the red sox . No. Its there because i like the way it looks and so does my wife. Does it hiding something . No, its not. I hide very little. Theres always been uncertainty. Americans for a time had the fiction that we were going to grow and the government was going to be responsible. But its not like certainty has ever been a part of the human condition than now. You talk like a philosopher. Ddp you were looking at the expectation of better gdp. And weve had better expectations that havent been met now. Talk about risking the debt until recently. Theres definitely a level change in the amount of brinksmanship in washington. The conventional wisdom is that we will not have this debate gen again in january and february. We didnt have it back in january and february of this year, right . We had much, i think, more benign resolution of the fiscal cliff than a lot of people were fearing back in november and december. You have the midterm elections ahead of you in november. I think leadership really theres, of course, a chance youre going to have factions on either extreme drive a wedge again. But i think leadership doesnt want to replay this. It doesnt come at anyones benefit. Thank you. Appreciate it. Never wear socks. Who is not wearing sock ones . The philosopher king never wears look at that. What do you do in the winter . Its getting cold. That would have been vaguely invisible on camera. Its getting cold out. But i much prefer the cold to heat. Why not wear i know what you should wear. Pants . No. Spanks. Spanks. Now, thats interesting. They dont keep you warm. You know, you cannot tell women to wear spanks. I was just trying to help that lady we had on. I thought it was a great idea. If you cut out the this squadward moment is brought to you by joe kernen. Dont your spanx make you warmer . Im not wearing spanx. No, i have that tshirt, but its a regular tee on shirt. Its not for your butt . No. Really . Sandra bullock was wearing was she . I havent seen that yet. Were going to look at the whole Boston Red Sox thing. I looked at the boston americans in 1903. Not one. They won the world series. They beat the pirates. What happened . Oh, that makes you look normal. All right. You work here. Its time to take a break. Well get the streets reaction to microsofts Quarterly Results right after this. Shares up nearly 5 in early trading. First, though, take a look at Quarterly Results, rubbermaid posting betterthanexpected earnings. Rev nay came in better than expected. That stock is up in the premarket. Eaton met earnings expectations. Revenue came in a little short. Finally, simon revenue results topped the isntance and the company is raising its quarterly dividend. Well have results after after this. vo you are a business pro. Maestro of project management. Baron of the buildout. You need a permit. To be this awesome. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above, and still pay the midsize price. aaron purrrfect. vo meeeow, business pro. Meeeow. Go national. Go like a pro. Microsoft reporting profits better than expectations. Revenue topped street estimates coming in at about 18. 5 billion. Kurt is an analyst at evercore partners. He upgraded the stock to overweight. Kurt, you went against what a lot of wall street was thinking here. With microsoft, they were expecting the death of the pc and the drop in sales was really going to hit them hard. What happened . How did they beat . I think pcs, especially on the business side were better than they expected. The commercial side is still tough. And i think when we upgrade the stock in august, one of the things we said is you dont have to like the windows to like microsoft the stock. I think one of the more underappreciated assets of microsoft is that the commercials of their business generates close to 70 , 75 of the profits. So while were discuss pcs, well discuss mobile a lot, the reality is that what moves the profits for microsoft at this point in time are their commercial lines, server and tools from their cloud offerings. So what i think this quarter related was the commercial business is still up 10 and the consumer side wasnt quite as bad as wa people were expecting. So i think that combination is sort of what is feeding to the upside at the time mom. I think the cloud is important, but its a relatively small slice of the business. Do you think thats going to keep growing quickly . It will keep growing quickly. And its tiny for a percentage of overall revenue. I think it brings back a story that people want to talk about, right . Just like amazon has gotten a little bit more of a story around aws on top of Everything Else theyve done. For microsoft, it brings investors to the table to hear about a part of the business growing at is 100 . Now that theyve broken out the revenue mix differently to show you how the commercial side is growing versus consumer, i think youre able to see that growth a little bit more clearly and that helps. Priced at 38 . 40. It was 38 in august and you raised it to 40. I raised it 40 bucks. This stock has not been to 40 since, when, 1999 . A long time. And its tried so many times. Its kind of a that is sad. That is a sad story. This is a sad story. If it is 40, i will faint on the air. I think that is i think that could happen. Wouldnt it be unbelievable because you can see how many times its you know, they do a deaf depd, they give cash back to shareholders. And its tried and tried and tried. And earnings have gone up, revenue ves gone up. It was 58 in 1999. I think whats changed is that the mix of business is back in their favor. For the last ten years, what youve seen is that shift from the consumer side driving everything to now the commercial side is revenue, its consistent, its growing at 10 . So i think what you see today is youve hit that inflexion point where even if the consumer remains difficult, and it is, revenue has an up hillside in mobile. By when you look at the commercial side, its a pretty good story. Wait a second. Its just that they broke it out differently . I think what ice allowed people to do is you could always see the server and tools. What you werent sure about is how much did commercial Impact Office and some of the products that span both consumer and business. This is like their operating different, theyre just telling wall street is a different story and thats helped . I think it helps investors understand the Downside Risk of the consumer side. Wall street knows the consumer side has issues. Thats not a big deal. Theyve known it for years. What you can do is say heres the Downside Risk you have. If you can cap that, it helps. But is it really just different story telling . Its not different operations, its just okay, heres the risk were just telling you whats also different is more transparent. I think theyre being more clear on guidance. I think the new cfo has done a great job around disclosure and what theyre doing on guidance. It takes tail risk out of the story. But thats amazing that you can tell the story differently and show people, its not as bad as they thought. And perhaps its oversimplify it. The company is becoming more rad cat in nature, b moving to a more Services Oriented model. That creates consistency. And i think what microsoft hasnt done ov earlier this week they were going to start giving away their operating system for free, they were going to be giving apps for free. And people wrote these stories as if the world had just changed. Does microsoft care if so much of the business is a commercial business anyway . I think do i care, yeah . I care that the consumer Business Needs to not fall off a cliff over the next couple of years. But the reality is, youve seen, you know, theyve been behind in mobile. Youve seen that impact occur. Youve seen the pc market has been a disaster over the last year. I think what you see with microsoft youre at the point where if the news gets less bad on the consumer side, i think where the stocks priced, its kind of in it. And when you look at the company on a bit of a sum of the parts basis and put a fairly average enterprise multiple, youre getting a lot of the Consumer Products for free in terms of how the stock trades right now. If you do see the mobile if you see pcs even flatten out, i think the stock goes higher. Does apple take market share with this new policy . I think in business, its always going to be a little tough. Modest amounts of share, but theyve taken share. The trade was always and i can remember our guest hosts, five or six of them when google was at 400 and 500, they would say i would go long microsoft and short google. And then it was apple at 150, 200. If i was going to buy a tech stock, i would buy microsoft at ten times earnings. It never worked. Apple went to 700, google went to 1,000, microsoft went to 34 again and again and again and again. So well see. That was always the trade. I remember the guy, im not going to mention the name. Still ahead, the cfo of consumer giant procter gamble. Thats why i will faint if it goes to 40. Plus, you want to achieve the investment success of the oracle of omaha . The author of the Warren Buffett way has an idea or two for you. Hell join us at 7 30. Its true that we just had the oracle himself on for three hours, but were going to talk to somebody who is going to tell us what warren thinks. But anyway, looking for weekend reading, the latest edition of the talking squawk blog. Read about kid rock when he threw madonna under the bus. And see what i would look like as kid squawk. I look like that Crazy Software guy. You look like breaking bad. No, thetware guy. Mcafee. Yes. All you have to do is go to squawk cnbc. Com. Still to come this morning, were expecting to see those numbers any minute. Plus the companys cfo first on cnbc. And as we head to a break, take a look at the futures. Right now things have barely budged but the markets are on track for another week of gains. Squawk box will be right back. My mantra . 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. Sometimes they just drop in. Always obvious. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Procter gamble out with the results. Discussing the dow components earnings. Investing the buffett way. An investing author out with his third edition of the most widely read books on the oracle of omaha. Find out if his vision still works in this unclear market. And generac knows a thing or two about generating profits. The second hour of squawk box starts right now. Good morning, and welcome back to squawk box here on cnbc. Im Andrew Ross Sorkin along with joe kernan and becky quick. Take a look at the futures. We do have green arrows, the dow looking like it would open up 10 points. We have some news, though, that joes looking at. I am. And, you know, im like a. G. Oh, yeah. I forgot. 1. 05, right in line with expectations, organic sales up 4 . First quarter sales, 21. 21 billion. 21. 21 billion that was better than what the street was expecting, i think the street was right at 21. The stock at this point is indicated up about well, you can see it there. Its up 30 cents at 80. 61. We are going to talk to jon moehler. We talk to him every quarter. We talk about the organic Sales Forecast and its usually a range and then we check the past quarter to see how that range was. And you think about procter gamble. And if its 50 basis points, with what they sell around the world, 50 basis points can be an unbelievable amount of stuff. The First Quarter results were consistent with their plans and expectations, puts them on track to deliver on their goals for the fiscal year. Also said they have good market share momentum, a number of innovations. And cost savings from productivity efforts that he says will continue to build. From what i can tell, all of the 2014 estimates, net sales, organic sales, core eps, its all the same range. 1 to 2 , 3 to 4 for organic sale. Earnings per share growth, all in earnings per share 7 to 9 . So pricing was unchanged, organic volume also up by 4 . They remind me of mcdonalds in some way because can you invent anything else . You know. They got to continually innovate. Mcdonalds can be a contrary indicator, right . In terms of innovation. Right. What is mcdonalds going to bring out. Now theyre trying chicken wings. With procter gamble, theyve got pods well, hes saying theres more innovation coming. There is more. Ill give you the innovation. Amazon setting up the headquarter. Thats innovation too. Talk about supply chain innovation. There were people that said we didnt need a Patent Office after 1870 because everything had been invented. That was wrong. It was wrong. And will always be wrong. And there are people who say were going to run out of copper by now too and oil and all these thin things. And you are free to and this looks like a relatively happy story for you. So i dont have to be sad. No, dont be sad. No tears. Now its actually not up anymore. Well see. We also have Morning Headlines for you, including a little bit of innovation. Twitter expected to price the ipo on november 6th and begin trading the next day. The company tends to sell 70 million shares, priced at 17 to 20 a share. That would value the company up to 11 billion, considered a modest valuation. Well see if that those shares pop. Obviously the company trying to avoid the facebook situation. Maybe we could call it fiasco, i dont know. Anyway, amazon. Com jumping in premarket trading, lost 9 cents a share for the latest quarter. Matching estimates and everybodys happy about it, but the revenue was above consensus and gave indications of momentum heading into the Holiday Shopping season. Also microsoft, higher ahead of the bell. Earning 62 cents per share, beating estimates by eight cents, saw improved sales for Server Software as well as the software sweet. Suite. Lt. Maybe well do this first. Weve been taking a look at the macro view of the markets this morning. Global director of the Global Strategies fund at fidelity investments. Ian shepheardson. Welcome to both of you. Thank you. Weve been talking the last few days, maybe even last few weeks about how the fed seems to be the only story at this point. Ian, youre looking even further than march before you think the fed starts to taper. Yeah. The economy right now is unclear. Weve got a data backup because of the shutdown. And when the data does start coming through, the shutdowns going to distort it until december. So we wont get a clean read on the labor market until january. That doesnt leave a lot of time if the feds going to taper in march. That seems to be the consensus at the moment. My guess is theyre going to want to see more data. I dont think the datas going to be great and theres not enough of it by march to get moving. What do you think about this . I agree. Weve had this environment for the last year. Very slow, but stable growth. Very easy fed, no inflation and the fed, of course, tried to tee everyone up for a taper over the spring. We were talking about it back then and then at the last minute they had the free option to do it and they didnt take it. And, you know, makes you wonder, a, about their communication strategy because it really was quite muddled. And i think the bigger question, i agree with ian, it could be march or later. I think the bigger question is how will they do it when they do it . Will they see this preannouncement doesnt work, lets go ahead and surprise the market. No, janet yellen is miss transparency. Thats her whole policy. Yeah. Shes been the architect of the transparent policy. Im very interested to see what shes going to say. Shes been silent for months now. Now shes going to get the job. Shes got to say something. My guess is what shes going to do is to push us away from focusing on the unemployment rate. Its been coming down, down, down. And instead to broaden things out and look at a much wider array of labor market numbers. The broad health of the labor market, which is what shes been focused on for a while. And by doing that, you give yourself more room for maneuver and more time for maneuver, as well. The employment ratio and the various other things shes talked about in the past, theyre not improving like the unemployment rates improving. And gives her cover, then, to continue the policy. You know, headline on employment is great, but all of these numbers are and were going to wait. I think they must also be getting concern just about the size of the balance sheet. The market accounts like 3. 7 trillion now. Thats an argument to start tapering, to continue. Yeah, so at some point, theyre going to be at 4 trillion by the end of the year and 5 trillion next year. Someones going to say this is too much. Their communication strategy, i think, has been really impaired. Their credibility has been. And so theyve got to figure out a new way to do this. What does this mean for the market . If youre talking about march or even june or beyond, i mean, to this point the market has bought in and said, okay, this is the scenario, we get to have our cake and eat it too. Is there a point where the market turns on that . Yeah, but not yet. As it dawns on the market weve got a longer period where were getting 85 billion a month. Its hard to fight that. Its hard to make money by going the other way. I would guess that actually we can see the rally continuing for a bit longer yet. But we are going to see real dislocation when the day comes as it will eventually come when new chairman says, by the way, the partys about to come to an end. I think itll be longer than people think. Were going to get more through the show. Theyre joining us as our guest hosts today. Check out the shares of procter gamble. Joining us after the break. Squawk box will be right back. Coming up, power profits from generac, the companys ceo joins us to talk business as we approach the oneyear anniversary of superstorm sandy. Plus, is wall street buying what amazon is selling . We get the streets reaction to Quarterly Results. Squawk box on cnbc. Tdd 18003452550 trading inspires your life. Tdd 18003452550 life inspires your trading. Tdd 18003452550 where others see fads. Tdd 18003452550. You see opportunities. Tdd 18003452550 at schwab, were here to help tdd 18003452550 turn inspiration into action. Tdd 18003452550 we have intuitive platforms tdd 18003452550 to help you discover whats trending. Tdd 18003452550 and seasoned market experts to help sharpen your instincts. Tdd 18003452550 so you can take charge tdd 18003452550 of your trading. At a ford dealer with a little q and a for fiona. Tell me fiona, whos having a big tire event . Your ford dealer. Who has 11 major brands to choose from . Your ford dealer. Whos offering a rebate . Your ford dealer. Who has the low price tire guarantee, affording peace of mind to anyone who might be in the market for a new set of tires . Your ford dealer. Im beginning to sense a pattern. Get up to 140 in mailin rebates when you buy four select tires with the Ford Service Credit card. Whered you get that sweater vest . Your ford dealer. Procter gamble out with quarterly numbers. Reported earnings in line with wall street. Joining us now to talk through the results is jon moeller. Jon, its good to see you. He had to go. Dusty baker, i think. I mean, you know, you lose six straight. Are you with me on that . Were looking forward, joe. Were looking forward. Oh, are you . Okay. So these numbers i looked at everything and in the past when youve been on, youve noticed how a stock sometimes here we are right near a 52week high. Is that an alltime high too, jon . I havent checked. Yes. Alltime high. It would be an alltime high. Youre right there and you can see some of the weird stock movements. Because people really do go into your organic Sales Performance and they want to see you hit exactly where you say youre going to hit or they dont like when you lower the low end or any of that stuff. Is everything going as planned that you told us last quarter . Everything is going as planned. Organic sales growth came in at 4 . We held sales in each of our reporting segments, we grew 8 in developing markets, also grew in developed markets in the u. S. Which is the Largest Consumer Product Market we grew 2 , grew 11 in japan. And earnings where we expected them, as well, which is why were able to reconfirm guidance for 3 to 4 in the fiscal year, 5 to 7 earnings per share growth which importantly is 11 to 13 growth excludeing foreign exchange. So were right on track. I mean, at p g, we were talking about this earlier. The amount, the sheer amount of stuff that you guys produce and sell around the world and then you come on and you usually dont miss what you say by like a basis point. Its a little bit scary to me. Was the wasnt the 4 . What was the was that in the middle of the range . Was that the high end of the range . Well, we dont provide quarterly guidance. So our fiscal year guidance for organic sales was 3 to 4 . So thats a high end . I can quickly deduce if its 3 to 4 . Is that not to the high end . It is, indeed. Take a lap. Take a victory. Dont tell me that was good, right . That was at the high end if you do it for the rest of the year, youll hit the hype end of the guidance . Absolutely. Did you could you notice that europe is a better place than it was a year ago. Ive seen some of the commentary from the others talking about a potential bottom in europe. I wouldnt say weve seen a bottom. It seems to us to be going a bit sideways, but hopefully that turns positive soon. You know, and then in developing markets, were still seeing very strong rates of growth even though theyre a little bit lower than they were last year. And the u. S. Is holding up fairly well. So its not its not a bad operating environment. When did a. G. Get back . What day . Got back in some time in may. Can you watch how going to say everything is unbelievably great. Can you point to yeah. Yeah. Can you point to things that are different . Can you just give us a couple of examples about how things are different since he got back . Well, hes tightening our focus. Hes ensuring that the consumer and customer at the center of everything we do. Hes working with us to accelerate and exceed our productivity targets and hes emphasizing Consumer Value and share owner value as key deliverables. And those are things that make a difference. Wow. Those were good terms. Do you do you know who is being anointed . Can you tell . Who are the top three guys, you think . How long do you think hes going to stay . Well, as a. J. Said when he came back, were going to be criteria driven, not time driven on succession. And look, weve got a very deep bench of talent. I dont spend a lot of time, frankly, worrying about whether its person a or person b. Are you raising your hand . Got a he will of a cfo. Not raising my hand. Hes on the short list, we know that. But hes tall. He is tall. Jon, we were talking about it earlier in the show. Amazon, tell us about this deal and what it ultimately means. Also whether other Companies Like amazon, other retailers are going to come to you and say they want to do the same thing. Or can they . Sure. So, you know, we want to be available for consumers. We want our products available for them wherever, whenever, however they want to shop. And we have ongoing tests with the variety of retail channels to ensure were providing a good both customer and user experience. Anything that we do, whether its a product, brand, distribution opportunity is available to all customers. But how much amazons making a Huge Investment in building these warehouses right next to yours in terms of shipping capability. Yeah, building Fulfillment Centers within our facilities. And if i called up tomorrow and said i want to do the same, how much product would i have to move to be in that same short list . Well, there are qualifications, but wed talk and wed love to, you know, wed love to have that conversation with anybody. All right. Jon, do you know recently, has anyone come running into your office saying, oh, my god, look at this do you have anything we dont know about for innovation thats going to have what can you tell us . Well, we just went through each of the product categories and did an extensive innovation review as a. J. Came back and were very happy with the status of our product pipeline. Theres a lot of very exciting things for consumers in that pipeline. And were in good shape. All right. You cant give me anything special. You could tell me anything. It could be a lotion or a deodorant or a diaper or anything. Its a competitive industry, joe. It is, right . Youve got those little pods. Didnt that transform the deterrent business. Teeth whitening stuff, right . Yeah, those are good examples. The tooth whiteners weve talked before, weve built shares for 41 consecutive months. Fusion proglide is another example. I said diapers. Were at different points in life. The diapers youre talking about. Anyway, go ahead. I have a question about what youre seeing in china on your sales and business in general. Growth rates in china continue to be pretty strong, actually. High Single Digits and we dont see that ending. Our business, were sequentially improving our market share performance, we still have work to do but generally very happy with our china business. Okay. All right. Were going to go. You know you got the jets coming in to town. Looking forward to it. Are you . 52 versus 43. I cant tell whos playing above their potential at this point. Whether its the jets or the you know you bengals won the last two in overtime with a field goal. Last one was in regulation, but, yes, close game. Do you like the cardinals because they were better in your division than the reds . Or do you like do you want boston . You remember what happened in 75. I still take a lot of satisfaction in that world series. Id kind of like to see a midwestern team pull it off. I do too. I dont want to see duck dynasty meets zztop come in and beat these clean cut every teams going to start growing. Every game is going to look like a civil war reenactment if these guys win, everybodys going to be wearing a beard from now on. Watch what happens with the boston fans what i hear about now. Thank you, jon. Have a good day. Great sports city, chilly city. Im supposed to go there. You are. In december. Youre welching on that. Legg mason chief strategist adding some revisions to his book the buffett way, were going to talk about buffettstyle investing. Squawk box returns after this. Time now for todays aflac trivia question. What percentage of American Adults do not use the internet at all . The answer when cnbcs squawk box continues. Ready to run your lines . Okay, who helps you focus on your recovery . Yo, yo, yo. Aflac. Wow. [ under his breath ] that was horrible. Pays you cash when youre sick or hurt . [ japanese accent ] aflac. Love it. [ under his breath ] hate it. Helps you focus on getting back to normal . [ as a Southern Belle ] aflac. [ as a cowboy ] aflac. [ sassily ] aflac. Uh huh. [ under his breath ] i am so fired. Youre on in 5, duck. [ male announcer ] when youre sick or hurt, aflac pays you cash. Find out more at aflac. Com. [ male announcer ] when youre sick or hurt, aflac pays you cash. Sometimes they just drop in. Always obvious. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Now the answer to todays aflac trivia question. What percentage of American Adults do not use the internet at all . The answer, 15 . Wont you please welcome the legendary james taylor. O beautiful o say can you see yeah, weve all had moments like these. Senior moments, ive got to cop to it to. Thats james taylor. He was singing prior to last nights game two of the world series in boston. He was going to start out with america the beautiful, this was the song he was singing for the beginning. You saw him kind of catch himself. The first time i heard it, i didnt realize because he was so smooth. Right. Trust me, if i could read prompter this well, i would take that in a heartbeat. He did sing america the beautiful eventually, but man, anybody who can catch a save like that. I didnt even hear it the first time. And the chords, i dont think it starts the same. He managed to just kind of wind right into it. He did. Well done. Game two of the world series was all about power pitching and fielding failures. The cardinals even the series at one game apiece, beating the red sox at fenway 42. Michael wacha gave up a twoone homer in the sixth. Making it 21 sox. The cardinals then scored three runs in the seventh. Matt carpenter hit a simple sacrifice fly. But a pitcher Craig Breslow made a wild throw to third allowing john jay to score. Nice. Giving st. Louis a 32 lead and the cardinals added one more on Carlos Beltran single. And another run. This makes it much more interesting, 11 going into the weekend. Absolutely. Every series should go to seven. So i went back the 1903 boston team. I figured they probably have more beards than, you know, because back then wait a minute. Yeah, theres a mustache. Not a single beard. Not a single beard on the boston americans. They, by the way, were world champions, they beat the pirates and were called the pirates and won four more world series. By 1918, they won four more until the curse of the bambino and had one of the longest droughts ever. And then you come to these guys who joe do you think we should do this . If they win i cant. Maybe thats why im saying all this because i dont think i can get a beard like that. I think we should try. If they win, everybodys going to start doing this. And like i said, its going to look like the battle of antietam and look like the reenactors that dress up on weekends. And there was a time when we didnt have technology that p g gives us. Are you going to be off christmas week . I think you could start trying to build, you know its going to take you a couple of weeks to grow it in. Part of the red sox dna to be scruffy and scratchy. You can taste your soup three days after you ack. Thats what little bill said. He also said. Anyway when we come back, were going to talk about keeping the lights on for investors. Generacs ceo joins us to talk about business conditions. And then, is this market getting frothy for you . The chief strategist of legg mason, the author of the Warren Buffett way will join us. Squawk box will be right back. Bny mellon combines Investment Management investment servicing, giving us unique insights which help us attract the industrys brightest minds who create powerful strategies for a countrys investments which are used to build new schools to build more bright minds. Invested in the world. Bny mellon. Welcome back to squawk box this morning. In the headlines, key economic report ahead of the opening bell this morning. The government set to release september durable goods orders coming at 8 30 eastern time. Economists expecting a 4 rise. Were going to watch for that. Also european leaders angry with the u. S. , yes, they are over the latest reports of spying on allies. Angela merkel said that the incident has now shattered the trust in the obama administration. She apparently was not satisfied with a phone conversation with the president earlier this week in which he assured her the u. S. Was not listening to her phone calls. Im sure someone was probably listening to both of their phone calls. Also, dupont is going to be spinning off the chemicals unit into separately traded companies. Many had been calling on dupont to make such a move. Among them, nelson peltz. The journal got that story wrong. Remember when we were talking about it. The spinoff and then the analysts was talking about it. What do you mean . Because they were talking about spinning off the ag business and we were saying why does it make sense to spin off such a profitable business . And the guy had an answer for us saying, well why would you spin off your most profitable business . Although dupont and, you know, if you talked yesterday to dow chemicals liveris, why would you spin off either . You need the science that works across and some investment banker is going to say, this would fit in really well. Build it up, tear it down, build it back up again. I know. And you take a little bit each time. Nice little business. Little bit. Lot a bit. Exactly. Talk about generac, came out with results yesterday. The stock surging to a record high. This came in the wake of Hurricane Sandy which hit the jersey shore a year ago. The company also raising its Sales Forecast for the full year. And joining us right now is the president and ceo of generac. Aaron, thanks for coming in. Thanks, becky. Joe and i know about this well because we both have generac generators. If you look at last year with sandy where people were without power for two to three weeks and some people longer than that. Sales skyrocketed at that point. They did. Whats happened since . Its interesting when you get a storm like that. We make small, portable generators, the ones that use gasoline. People run out in a mad rush to try to find those types of products and theyre gone in an instant. What happens is, you know, when power does get restored. In this case, it was weeks later, people start to look for another solution and thats when the home standby generator category starts to kick in. Make a decision before it happens. You do. Some of the saddest scenes were people with gas cans in lines of, you know, you couldnt get gas for your car, how will you get it for your generator . They were four across going back 60 people. You need a natural gas generator. The gasoline generators are great in a pinch, but unfortunately, when you have a major widespread event. How long do they last . About three, four hours. No, you can go eight hours, but if you cant refill, thats when things get dicey. The natural gas generators are the way to go. If you can look at that product. Maintain it, you could go months if you maintain it. Months. Theyre fully automatic too. Youve got to be home when power goes out, so youve got to be able to pull them out of the garage, put gasoline in them. Did yours, sometimes you can hear it and sometimes you hear it go and you go you go like this and it catches. But when its on for 18 days, you can hear it almost cut out like but it never does cut out. When youre tuning on things in the house. The furnace kicks on or a high load appliance kicks on. And if you lose it, the idea because everybody else the whole neighborhood eegs da s dark and youve got heat. Its a great feeling. When you lose a garbage disposal, the food is in there. You cant hear your doorbell. You also have people now have the triple play with the cable phone and internet. Thats gone. Used to be able to get a phone line. I understand what these cowboys are supposed to do, what about us city folk . Thats a little tougher. Youre a goner. You cant get down in the elevator, right . When it hits the fan, get in position, put your head between your legs. Or come to jersey. Aaron, i would imagine that sales really took off right after that because people knew what they were what they were in for. As you get further away from that time point, did the sales start to drop off a bit . Yeah, what happens is weve been doing this for a while. And theres a bit of a cadence to this because its a category thats pretty new still. Only around for about 15 years, 3 of u. S. Households. Its an underpenetration story the macro thesis of the business. When you get major events, it accelerates the penetration. And it levels off back into a normal kind of cadence. Because theres still 250,000 to 500,000 people every day in the u. S. Without power somewhere. Right. Its amazing. Wind storm. Snowstorm. The heat in the summer causes so much power droopy lines. Yeah. And then you lose what do you think it is . Not everyone could afford a 10,000 generator. No, and thats something weve been working on too to bring the price down for an affordability standpoint to turn it into a mass market product. I think for us when we look at the penetration curve and what could be ultimate penetration, the first fence post in that curve is portable generators. These are people who have paid good money for a backup solution. You can get them for 250. Youre not going to power a lot. Close to 1,000 range to something youre backing up. Its a great product and pretty new still. And what people do, they bought a portable generator ten years ago, that generators old and when they go to replace it, they understand how theres a more sophisticated solution to the problem. You know there are other people courting me, at least, for my generator needs. Does cokohller compete with you . Theyre not quieter. Its you can say, theyre awful generators. Theyre terrible. They dont work. Its a plastic enclosure. Is it a plastic enclosure . Would you put anything important in your house in plastic . And ive told you before i need a quieter one because if there is a ours is quieter. Can you make one thats really quiet so if there is a Zombie Apocalypse . We can. Youre working on it. Theyre more expensive, which is why people tend to go with, you know, the solutions that theyre louder but no louder than, you know and not necessarily worried about zombies. Well, they havent seen some of the Defense Department research which has looked into the possibility of this. It doesnt have to happen the way youre thinking. One other what about what is the problem with these gas stations that lose power and then cant pump gas . Why dont they have generators . This is a huge opportunity area. Because so many businesses. Homeowners have figured it out, theres so much that in terms of comfort and security and safety and property protection. But businesses, in terms of having an extended outage, they dont understand the loss of revenue that they have, you know, if its a restaurant. If it was a if its a small guy, they say its not worth the money. And we dont want regulations that force them to do it. The supermarkets bring in the big they have to, though. They bring in the big ones. Think of the amount of loss but the small places, you should be able to have a gas station stay open so we dont have the problem we had. There was like the only regulation youve ever wanted. I know. You wouldnt have these problems if you had your power lines underground. Yeah. 2 trillion. Many infrastructure difficulties. And one of the things we do, underground power lines. You see the storms and everyone loses the power. Look long and hard. Ive been saving that one for months and months and months. Much smaller geographical area. Everything else over there. We won our last game. Thank you. Even thats not a cureall, i had a tree fall during sandy. Thats unbelievable. You got what did you do in the last day. Youre living wrong. If you have the tree fall on your generator its tough luck. Theyd have to be replaced. Couldve fallen on you. Better option there. Thank you so much for coming in today. Thanks for having me. He was cleaning up he was early. Great story. Coming up, were going to talk a little bit about Warren Buffett, his investing style with legg masons author of the Warren Buffett way. Hes sold over 1 million copies. And at the top of the hour, well talk obama care under fire. Why the next shoe to drop could be the people buying coverage on the exchanges. Were going to speak to Health Policy experts about the possibility for delays and what it means for patients. Squawk box coming back after this. I love having a free checked bag with my united mileageplus explorer card. Ive saved 75 in checked bag fees. [ delavane ] priority boarding is really important to us. 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It grabbed the patients record before we even picked him up. It found out the doctor we needed was at st. Annes. Wiggle your toes. [ driver ] and it got his okay on treatment from miles away. It even pulled strings with the stoplights. My ambulance talks with smoke alarms and pilots and stadiums. But, of course, its a good listener too. [ female announcer ] today cisco is connecting the internet of everything. So everything works like never before. Easytouse platform. No, thank you. We know youre always looking for the best fill price. And walk limit automatically tries to find it for you. Just set your start and end price. And let it do its thing. Wow, more fan mail. My uncle wanted to say thanks for idea hub. He loves how he can click on it and get specific actionable trade ideas with their probabilities throughout the day. [ male announcer ] open an account and get a 150 amazon. Com gift card. Call 18882800149 now. Optionsxpress by charles schwab. Welcome back to squawk box. Inside the mind of the oracle of omaha. Our next guest is a stock market pro who has written about Warren Buffett more more than 20 years. Sold more than 1 million copies of his New York Times bestselling book, the Warren Buffett way and out now with his third edition this week with more now on the set here. Chief investment strategist at legg mason and author of the Warren Buffett way. Good morning, andrew. We have warren on, just had him on a week ago. We think we know the way he thinks. Yes. I want you to tell us something that would surprise something you think most squawk viewers dont know about the way Warren Buffett approaches the investing world or Something Else. I cant think theres anything we dont know about Warren Buffett at this point in time. I think the thing we underemphasize or basically dont embrace is the fact hes probably one of the most rationalist investors that you could ever meet. He understands how to make money and he goes about it in a very rational, direct way. Do you think so you wrote this book literally 20 years ago. 20 years ago. Do you think his approach to investing has changed . Has size changed the way hes had to invest . No, size wouldnt change it. Now, it would change the types of things he has to go buy like Burlington Northern and ibm. But the methodology is the same as it was 20 years ago as it is today. How he goes about picking stocks, businesses, hasnt changed at all. What do you make about his investment in ibm . That is something that i think threw a lot of people through a loop. And me included. I didnt see that one coming at all. But well see this one bear fruit probably five years from now, ten years from now and much of it will come from the Share Repurchase plans that are going to be continuous. I think that stocks going to do very well for warren. We wont see the fruit for five years or more. Heinz. I think he has changed a little bit his stripes. The deal looks different to me, ibm looks different to me. Ibm, ive heard people say it looks like cocacola to them. We can talk about that at a later time, but it is different. Thats a different type deal. Well have to keep an eye on that one to see how it evolves over time. Is there the opportunity that existed 20 years ago to really follow buffett as sort of the buffett way. Does that opportunity still exist today, do you think . You know what, im amazed that the millions and millions of fans that Warren Buffett has. But im also stunned that i dont see millions and millions of professional investors that invest like Warren Buffett and thats a question i continue to ponder. Hes so transparent about how he goes on investing, but we dont have millions of professional investors that go about it. And thats a big question for me. What do you think . Why arent there more Warren Buffett professional investors out there . You talk about the idea of unforced errors. Yes. And my sense is that most investors by default have more unforced errors than theyd like to admit to. Thats a bulls eye for me. I think theres a big difference between managing a portfolio of stock prices and managing a portfolio of businesses. And when you manage a portfolio of businesses, i think you reduce the number of unforced errors. When youre managing a portfolio of stock prices, youre trying to guess the market, the economy, the sectors, youre making a lot of unforced errors that arent necessary for you to grow your capital all the time. Give me a perspective on this. When you think about berkshire, it is in large part about Warren Buffett. Sure. Theres a lot of managers that have gone to work there because of Warren Buffett. People who are done deals. Hes been able to buy companies. I would argue at less at cheaper prices because people want to do business with Warren Buffett. Yeah. In 20, 30 years, i hope hes still here, but if not, what happens to Berkshire Hathaway . It lays with howard, his son, who will be nonexecutive chairman and his number one goal and objective is to make sure the culture that attracts people to Berkshire Hathaway is maintained and the decades to come and the ceo of the executive chairman after that will have to have that same objective. People want to do business at berkshire because theyre all allowed to sell their business to berkshire but they can still operate independently. Do you think that will continue . If howard has anything to say about it, yes, it will because thats his charge from his father. Let me ask you another question which is even businesses that have languished at berkshire. Yes. Warren has been he doesnt want to sell. He doesnt like to get rid of businesses and part of that, i would argue, has been has been a successful approach in terms of being able to find other peoples he can acquire at cheaper prices because of it. Sure. Is that the right strategy . I think your point is exactly right because he doesnt sell underperforming units, more people are likely to call upon him to sell their business because they know its going to be a longterm deal. It isnt going to be if i dont perform in the next year or two warrens going to sell me. I look at the buffalo news, right . Right. Thats a business you might have thought about selling if you were trying to maximize your capital allegation. Yes. Well, to maximize the capital allegation, yes, but one thing about the buffalo news, it doesnt cost him any money, it generates a profit. Remember with Berkshire Hathaway the textile business, he did shut that down but only because it was losing money and required more Capital Expenditures over time. If even the mediocre companies can send 1 bill to omaha, hell keep that business. Thank you for joining us. Thank you. The Warren Buffett way is the book third edition. Good luck. Up next, final market bouts, in the next hour well be tweeting to look for tweet investors, the company kicking off the road show. Well have more details on the pricing and what investors should expect. In the meantime, check out the futures this morning. They have been indicated a little higher. Right now the dow futures up by about 17 points. Earnings from u. P. S. , came in with earnings of 1. 16. And that stock is indicated higher. Squawk box will be right back. The American Dream is of a better future, a confident retirement. Those dreams, theres just no way were going to let them die. Like they helped millions of others. By listening. Planning. Working one on one. Thats what Ameriprise Financial does. Thats what they can do with you. Thats how ameriprise puts more within reach. Lets get some more thoughts from our guest host. Ian shepardson. Would either of you give any possibility that the next move in qe is above 85 as they go up from there . Is there anything that could happen that would cause that . Well, if there were to be no recovery from the rollover in Consumer Confidence we saw during the shutdown and that filtered through into a horrible Holiday Shopping season and a horrible Fourth Quarter gdp number, then maybe more brinkmanship in three months. That wouldnt help either. I wouldnt bet on it but its not beyond the bounds of possibility. Is it in any of your its hard to see because then the exit after that will be even more difficult. Will there be an exit . Probably not. Its like hotel california. I dont know, but there are government in the past where theres a crisis, a Government Program comes to address the crisis. Remains permanent. I think if the economy rolls over and it is a very slow stable economic expansion, if it rolls over and the fed is out of ammo other than to do asset repurchases, i guess its possible but my guess is they would play around with the communication at about when rates would rise and push that back we were talking earlier about nominal gdp targeting whether that might be something they would embrace. But eventually if the economy rolls over and theyre already doing all of this, a trillion a year, hopefully some would say its not going to matter if we do more. Are we keeping Mortgage Rates below where they would be . Yeah. We are . Yeah. Demand is still how much higher . Im not sure how much higher. And my point is that im wondering if theres anything wrong with that. Whether are we really is the money going into some big bubble that needs to be reckoned with eventually . Or are we just keeping rates low . Just as reserves at the fed. But were the economy ever to start and the money come out into the system. Of course, remember, if youve got a big balance sheet, you can shrink it quickly. Its a problem for the fed but also an opportunity because it gives them a tool theyve never had before. Some people say youre already seeing inflation in the stock market. That these are that was the unspoken objective of qe in the first place. So thats not asset inflation. A bubble. No, you cant stop doing qe because one of the things you wanted to happen when you started doing it actually happened because boosting asset prices was part of the game. We dont want it to be the metaphors are getting maddening. But we wanted to prime that the engine with qe. We dont want the Engine Running on gasoline that furnished by qe. Ultimately comes down to liquidity conditions. Thats what we saw in the spring when they started talking about tapering, liquidity conditions seized up, rates went up and Mortgage Rates really shot up. Why did they come back down . Because of qe or the economys bad . Because the market has concluded that the fed is not going to taper any time soon. So the ten years went from 3 to 2. 5 and might go to 2. 1 or so. Because of the shutdown . Thats part of it and the numbers have come in softer, the payrolls have been missing the last few months. It would be happy it came back down or worried . Well, you dont want growth to be so fast that liquidity starts to drain through a taper. But you also dont want it to grow so slow that liquidity drains because maybe banks are not lending or liquidity conditions seize up in the Financial Markets in some other way. If you were trying to manipulate the stock market, theyre doing a hell of a job because its hitting new highs every day. Over the past five years if youre stranded on a Desert Island and only one indicator to watch, it would be the even in the last month since the shutdown began and ended, i mean were up another, what 80 points whatever it was yesterday. But its like on a roll. Thats nice for everybody, isnt it . Because the markets decided the tapering is somewhere when they said in september were not going to taper this month, the immediate thought was october or december and now its, well, march, and i think june or later and thats just giving people a longer period to expect more liquidity and its very hard to fight 80 billion a month. All right. Weve got to and equities are relatively under other assets. Youre staying with us for a while longer. Coming up, were going to talk more obama care which is under fire. Why the next shoe to drop could be people buying coverage on the exchanges. Plus an earnings recap of names you need to watch at the open. And check it out, weekend reading, go to squawk cnbc. Com. On the road and we know that it goes on and on [ female announcer ] youre the boss of your life. In charge of making memories and keeping promises. Ask your financial professional how lincoln financial can help you take charge of your future. Oh, oh, all the way oh, oh ive got a nice long life ahead. Big plans. So when i found out medicare doesnt pay all my medical expenses, i got a Medicare Supplement insurance plan. [ male announcer ] if youre eligible for medicare, you may know it only covers about 80 of your part b medical expenses. The rest is up to you. Call now and find out about an aarp Medicare Supplement insurance plan, insured by unitedhealthcare Insurance Company. Like all standardized Medicare Supplement insurance plans, it could save you in outofpocket medical costs. Call now to request your free decision guide. Ive been with my doctor for 12 years. Now i know ill be able to stick with him. [ male announcer ] youll be able to visit any doctor or hospital that accepts medicare patients. Plus, there are no networks, and virtually no referrals needed. See why millions of people have already enrolled in the only Medicare Supplement insurance plans endorsed by aarp. Dont wait. Call now. Obama care, in need of a trauma specialist after technical glitches prevents people from signing up. Couldnt you just inject something right into his heart . Id love to, but we have no way of knowing where the heart is. See every human is different. Dr. Scott gotley debating the implementation of obama care. Better than expected sales growth, but can the online retailer maintain momentum into a challenging Holiday Season . And David Harding uses pattern of behavior to generate investment strategy. 60 of the time it works every time. That doesnt make sense. Were going to find out what red flags hes seeing in the markets as the third hour of squawk box starts right now. Welcome back to squawk box here on cnbc. Im joe kernan along with becky quick and Andrew Ross Sorkin. With us ian shepardson. You made your name what was the name of that other place where you worked . High frequency. Youre famous. Youre iconic. Its our pleasure to have you here. Steve liesman thinks you walk on air. He does. More from me. Lets get to some of these earnings reports weve been hearing this morning. Procter gamble reporting 1. 05 in line with what the analysts were expecting. Revenue also in line. Beating the street by a penny. We have revenue that matched consensus, up by 1. 8 . Dupont announcing itll spin off the unit into a separately traded company within 18 months. Theres been pressure on the company to divest the volatile business. The ceo, heres what she had to say on mad money with jim cramer last night. This is the next advancement in our transformation. I think its the right thing to do for our company. Its going to create two strong companies. Im out with investors all the time. And they have a lot of ideas about what we do well and where we could improve. And im sure theres several of them over the next few weeks that will say this was their idea. Well talk more about dupont with jim cramer at 8 50 eastern time. Markets are on track for another week of gains. Dow futures up by about 12 points, dows only 200 points away from an alltime high. S p 500 up by 2. 3 points. Twitters ipo, planning to sell 70 million shares. That would raise up to 1. 4 billion for the company. Stock could begin trading as soon as november 7th. Mark your calendar, november 6th is when theyre going to price this thing. Well be talking with Kayla Tausche about all of this in a minute. Is that me or you . Somebody. I think its you now. Its me now. Its changing. Speak. I dont use that term. As we speak. Or Going Forward or all eyes. Anyway, all eyes will be on this interview. The white house continues to struggle to get the plagued Affordable Care act back on track. Meanwhile, American Companies have to make decisions about their Health Insurance offerings and premiums for the next year. Joining us now to talk about this is dr. Scott gotley at the aei. University of and some other the third brother. I forget who that was. University of pennsylvania, also the former white house special adviser for health. Scott went to mt. Sinai. Where did you go to medical school . Harvard. Harvard. Both incredible institutions. Both of you, gentlemen have some similar backgrounds. Youre so different on this issue. I dont know how it happened. Im going to start with scott. Well, hes just wrong. We agree on something, zeke. Ive heard that before, im not sure who. You think its a bad law, basically, scott, dont you . Well, i think its a flawed law. I think what you youre seeing now, the i. T. Problems are just theyre small compared to what were going to see Going Forward. What problem is going to be the worst about the actual law . I think what will be the most painful in the near term, the calculations are wrong. Thats going to be clawed back from them. Bigger than that, the marketplace isnt materializing the way the administration thought it would. Plans arent getting into this market in a robust way. 2,500 counties in this country, 58 of them only serviced by one plant or two plans. Only most of them signed only one contract. Thats not a robust market. And the single thing the administration did wrong and did a number of things wrong in terms of haw they regulated it was to cap the operating margin of the insurers. That prevented new Insurance Companies from entering the markets and protected the incumbents. I think this is a High Water Mark. The number of plans and providers you see contracting, i think its downhill from here. Zeke, did you im told you didnt want to cap those margins either. I believe in the marketplace and i but thats not the real issue. Lets just talk about the real issue. Theres a lot of competition in the marketplace. All the counties hes talking about are rural. And while rural is very important, its only 20 of the population, 80 of the population are being served by multiple competing Insurance Companies. If you go to a place like california that has thoroughly embraced this law, you have 35 or 40 competing Insurance Companies in a place like los angeles that has the highest uninsured numbers in the country. Secondly, most Insurance Companies are sitting back, i agree with scott on that, because this is the first year. You dont know whos coming in, you dont know what the marketplace is like and you want to learn and so you have aetna going into 16 marketplaces, if once they get experience, theyre going to go into all of them. And the last thing i would say is the hospital network, that point that hes showing is actually a positive about the law. We are going to see a lot more defined networks, a lot more careful efficient production across the spectrum. And that is a key element of this bill. One of the things we have seen from the exchanges already is a lot of competition in places that have embraced it and lower premiums. Much lower than expected. And notice scott didnt say anything about that. The cost control, the affordability of health care is going up dramatically. Now, there are glitches in the rollout of this thing and im very disappointed in it. And it wasnt managed well. But these are technical problems that are blocking and tackling. And that will be solved and over the next year or two, its going to be a much better shopping experience. And then were all going to look back and say, wow, this was a great restructuring of the health care system. Well, and you know, one of the things here, the administration because of the regulation and i think the regulation is what stored in this market. They prevented the Insurance Company competing on all things that they traditional compete on. The only thing they can compete on is the network design. Quality. Well, they cant compete on benefit design. The only thing it can compete on is the networks and since thats the only tool to hold down costs, the way theyre holding down costs is by offering Narrow Networks. I think people are going to be very surprised by the limited choice they have. And the difficulty is once you go outside the network, youll be faced with high coinsurance. If youre a patient with an unmet medical need with a specialized condition, you want to go to a specialized institution, its going to be very hard for you to do that. There were ways to address this. You could have risk adjusted the plans you might have provided for some way to reinsure that risk. Scott, scott, what youve just said is just not true. There is risk adjustment in the exchanges. We put that into the law. And second of all there is reinsurance possibility. Theres not appropriate risk adjustment for people with really difficult conditions that are going to be expensive to treat. We dont agree on. You agree theres going to be heavy coinsurance outside these networks. The other thing i would say is, i think the Insurance Companies learned a lot from the 1990s when there was a managed care backlash. And they are going to have safety valves here. Ive suggested in print that one of the safety valves is you get a serious illness like cancer, you be able to go for an innetwork charge for a second opinion. I think those kind of safety valves and i agree with you, scott, people have to have those for rare conditions, for conditions that are life threatening. And i think the Insurance Companies are going to respond. After all, like you i think theyre going to be customer driven and theyve learned that if you lock people in too severely, there will be a backlash and it will not be to their advantage. Outside the major cities is not a competitive landscape. Im not sure theres going to be response to the consumers. Lets get to the, you know, the news of the day here. You helped design this plan. What happened when they were hiring the people to do the website you went back to pen or something and said im just going to leave this for you to do here. Because you and some of the stuff ive seen written, you realize this is bad for the whole idea that the governments competency in trying to do such a undertake such a massive project. And when it starts out like this, everyone questions whether its ever going to work. So, i think this is clearly a problem with implementation and clearly a problem of management. And i think that needs to be recognized, and i think the people who were in charge did not do what managers have to do which is assemble a good team and assemble the team that has competency in the area you need. I pointed out a big mistake, assigning this to cms which doesnt have experience integrating these complex i. T. Systems doesnt have experience in ecommerce website development, was not a wise choice. I did not make that choice, i was for the idea that we have bring in a competent manager who has and i listed out the experiences in my new times oped. They need to be a good manager, know something about the Health Insurance industry, they need to know something about i. T. And i think that was a failure. Zeke, do we have time you talk about hiring a ceo or to manage this process. Do we have time to find that person now . Or do you think ultimately for the next to get this thing off the ground properly were going to have to go with what we got. I think the administration as best as i can see has done a very good job by putting jeff zions in there. Hes a good manager, excellent people person. Hes been a consultant in the health care industry. I think he has the requisite knowledge. Hes got the job to start in general at the general economic council. For two months in the crisis, hes a very good choice. I think they have to hire a permanent person who really does is the ceo of this who will go for the long haul until everything is up and as i said, the goal has to be here. Amazon like shopping experience. And i think in the next two months, they need to identify that person and bring them in. The reality is, they will get the i. T. Issues sorted out. I think the risk is the entire market in 20 a gets repriced off the experience in 2014. To the degree youve had a difficult experience in 2014, its going to be that much more difficult in 2015 thats something we agree on. I agree. If its a very difficult market in the next five weeks they dont get this working adequately and we have a very difficult market, it could rebound its not just the patients, zeke, its the providers too. Unlikely to get in that market now or discount. Why would you do that looking at this . Im not so pessimistic about it. Okay. And therell be some doctors left. There are plenty of doctors. And remember, this market were anticipating in 2014, 7 million people. You dont need 100 of the doctors and 100 of the hospitals for essentially 2. 5 of the population. Well, im not im not so sure theres going to be a doctor shortage. I think youre going to see another thing we can agree on. You wont have to wait longer for a specialist. None of that well, inside the exchanges, you will. These will be Narrow Network plans. Of providers that do get in the exchanges will be fewer and far between. These plans will be austere. Even the Health Care Plans called medicaid plus. Many people, itll be a good benefit. Youre still practicing . Zeke, are you practicing . Youre coming back, zeke. Youre coming back, im sorry, we need you. Anyway, gentlemen, we appreciate it. Thank you. Thank you. Thanks a lot. I understand some of that. Its good to have two people that understand this. Right, andrew . Theres so much. So much about this. Theres a positive this is all going to work out. I think its going to be a much more niche market. Probably small. At the peak. Were also talking about twitter this morning. The company kicking off the ipo road show today and Kayla Tausche joins us now with more. Shes got some of the details. Good morning. Hey, good morning, andrew. Its one of the places twitter will be making its rounds. Giving the pitch to investors or rather the sales force of these banks that have questions on behalf of their clients and basically twitter for practice before it meets on monday. Here at goldman, they have the right to change parts of the deal. Of course we know theyre planning to sell 70 million shares up to 20 a share. But they can raise that, they can change that. We reported previously that the tentative date for the ipo was november 14th. But because the Government Shutdown ended and the market volatility slowed down, of course now we know that has been moved up. Now, steering the ship for goldman are a few key bankers who have partnered. You have david ludwig and andy fisher who has become infamous for telling facebook cfo in 2012 not to raise the price of that ipo because investors wouldnt be buying it at that price. Now, leading the goldman deal making team is anthony nodo, he was a former cfo of the nfl, before that entertainment and media analyst at goldman. Returned three years ago as cohead of tech media and telecon banking. Said to be a straight shooter that is pitching this as everything facebook wasnt. And theyve done a lot of things that have been different. Theyre trading on the nyse, for instance, doing a dry run this weekend. Pricing on a wednesday instead of a thursday. Theyre not letting any insiders cash out. And im told the three top banks, jpmorgan, goldman and Morgan Stanley will get roughly an equal amount of shares to sell to the public. Thats different than facebook. But nonetheless, youve got to find those investors. Thats what the next week will be for. And so twitter executives are on wall street practicing their pitches in earnest today, guys. Back to you. All right. Thank you. Well check in with you, of course, throughout the day. And coming up, amazon posting sales growth of 24 in the recent quarter. But can that momentum continue into the Holiday Season . Were going to ask mark mahaney next. Were going to ask David Harding what red flags he sees in the markets. Life inspires your trading. Tdd 18003452550 where others see fads. Tdd 18003452550. You see opportunities. Tdd 18003452550 at schwab, were here to help tdd 18003452550 turn inspiration into action. Ed tdd 18003452550 to help you discover whats trending. Tdd 18003452550 and seasoned market experts to help sharpen your instincts. Tdd 18003452550 so you can take charge tdd 18003452550 of your trading. I know what youre thinking. Transit fares as in the 37 billion transit fares we help collect each year. No . Oh, right. Youre thinking of the 1. 6 million daily Customer Care interactions xerox handles. Or the 900 million Health Insurance claims we process. So, its no surprise to you that companies depend on todays xerox for services that simplify how work gets done. Which is. Pretty much what weve always stood for. With xerox, youre ready for real business. Welcome back to squawk box. Amazon stock has been on fire over the past five years and shares jumping after the Company Posted revenue that beat expectations. But while it may be a favorite among american consumers, should investors still be loving the stock . Joining us now on the squawk news line, the internet analyst at rbc capital markets. Good morning to you, mark. Good morning, andrew. So revenues up, thats the good news. Still losing money, thats the i would think bad news but no one seems to care. When does the switch get flipped that everybody decides this is all working out perfectly. Well, i think the switch got flipped has been flipped over the last year as gross profits have started to reflect this company. You willed almost a 15year record high growth margin. They had the highest gross margin since the 1990s. Thats the evidence the markets been looking for that they can sind of solve their bottom line problem. Theres the series of things to work through. If theyve got the top line growth, thats starting to reaccelerate and youve got acceleration, thats enough for the market. When does that happen . I think youre actually i think, andrew, youre seeing that now, but for a variety of different reasons. Youve got this growth in the Amazon Web Services business, shipped over to Third Party Retail businesses and digital project out for me. When is the quarter well be on tv having the same conversation and instead of just announcing they had remarkable earnings remarkable Revenue Growth, im going to say, wow, we had a profitable quarter at amazon . Yeah. We think were going to start seeing margin stabilization this next quarter and december quarter. You know, 1 , 2 , well start seeing this recovery to the 6 level. Just as a reminder, this company did execute on eight years straight. And investors will be happy about this or not . And i say that only because to the extent they have had profits, the stock has come down come off or at least hasnt had the this stock has grown while the company has been unprofitable. Yeah. Thats true. Market is making a big assumption that this Management Team will be able to recover margins to where they were historically. I think the Company Actually deserves that has earned that confidence given the significant investment cycle it went through five or six years ago and recovered out of that. Assumption were going to see the same sort of recovery now. Your price target on this stock . Were at 425. Were using our price to sales multiple thats similar to what it traded over the last four or five years. One last question i asked earlier in the program to another analyst, how much do you care about the living room. Owning the future of the tv, the tablet, effectively trying to get into the business i would argue amazon and, im sorry, that apple and so many other hardware makers are in . I think the three biggest parts of the thesis, that would be one and the other two that are just as big, however, is the Cloud Business aws that theyre building out. And third is, theyre now starting to get in the consumer staples. Amazon was always a media product. Thats what it grew up on. And now youre seeing acceleration in bigger and bigger sales and much bigger than media sales coming out of things like consumer staples, fashion and apparel. Those are very lightly penetrated categories online. If theyre successful and starting to show this, that will be Revenue Growth and acceleration, not just for a quarter or two, but a year or two or three years. Thats the new bull story, i think on amazon. Mark, thank you for joining us this morning. Thank you, andrew. Go ahead. Well, i just wanted to make sure this is when ians leaving. Thanking him. I want to thank our thank our guest hosts. I got it, mack. I see the camera. Guest host ian shepardson. Theres only one camera. Hes leaving to cover some breaking economic data. September durable goods. Well be back. Thanks, ian. Thanks very much. We have some breaking economic data. Just a few minutes away from durable goods for september. And then we have squawk market master David Harding. Hell be joining us, he made billions through Systematic Trading that uses Statistical Patterns of behavior to generate investment strategy. Well ask him what patterns hes seeing right now in the markets. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. With fidelitys options platform, weve completely integrated every step of the process, making it easier to try filters and strategies. To get a list of equity options. Evaluate them with our p l calculator. And execute faster with our more intuitive trade ticket. Im greg stevens, and i helped create fidelitys options platform. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Welcome back. Were just seconds away from durable goods for september. Rick santelli standing by at the cme in chicago. Steve liesman back onset with us in the studio. I dont know what were expecting, rick. But give it to us. All right. Survey says, more than expected. Durable goods september up 3. 7. Up 3. 7. Our last look had a subtle change from up. 1 to. 2 . Lets look at the internals, take out transportation. Heres where the number goes off the rails. Down. 1 , its affected by transportation, a volatile series, important but not sustainable on a month over month. Lets look at capital goods orders, a proxy for capital investing and thats down 1. 1. Thats not good. And our last look, which was a solid 1. 5 was cut by a major chunk to remain at only up. 4 . Lets switch a minute from the orders to the shipments which has been a particular interest to many traders because its been running on the negative side. This month it is also running on a negative down. 2 . Our last look revised from 1. 3 to 1. 1. At least for august, it was a positive number. I think taken in its entirety, this report is like many preshutdown, preblaming all the various political players. It shows a slowdown that was occurring that will probably be our baseline when we look at durables and ultimately numbers like we received tuesday in form of the employment report. For more on the data, lets get to steve liesman. You concur that this was yep. Pretty comprehensive. Except for the top line, which is what has driven the number up 3. 7 is essentially boeing and boeing had a huge number of orders. And thats filtering through. So aircraft nondefense aircraft, civilian aircraft up 57. 5 . Thats not inconsequential for the economy. Theres a bit of a slowing here when you look at the transportation part. The revision to august. I had a chart that was going to look at the yearoveryear change in this Business Investment number, but i dont want to put it up because its now been revised away. There it is, they put it up anyway. And you could see it was reaccelerating, but im not sure that chart would look the same now after the revisions. Theyd have to update it. And so i think ricks most important point to me was there is a slowing baseline going into the shutdown data that were going to get some time next month. I dont think theres much more you can say about that. Computers were up, communications were up, orders were anyway. And transportation equipment up but Motor Vehicles were down as was general machinery. Were going to have to watch that stuff and watch the Business Investment numbers because that is the most important Confidence Survey on the part of business. We do these surveys for consumers, but business investing and putting new orders in for Business Investment, thats a Confidence Survey. And when that number starts to slow, confidence slows down. Now maybe its a sign that they were gearing up for a slowdown kind of thing or maybe they were just losing faith in the economy. And one other thing you find, becky, is the jobs numbers and the investment numbers, they pretty much go hand in hand. When youre building, investing in new machinery, investing in new capital and new people. Right. Those things go hand in hand. So that goes along with the slowing of seeing the jobs numbers. That makes a lot of sense. Question is just to see how to get that to turn. How to get it to turn. And again, well have a month. I think its going to be somehow affected by the Government Shutdown. Either in Business Investment or Consumer Confidence. Well get a number today at 9 55 on confidence well be watching. And i think the question becomes what was going on in the economy beforehand. What goes on during it and what went on afterwards. And those are really unclear. Hey, steve. Yeah. When we had that horrible storm sandy and ultimately congress got out of its funk and appropriated some money, i believe the amount of money for that was about 65 billion, was it not . I think thats right, ultimately. Two appropriations. After we appropriated that 65 billion, we didnt go at every number and say, oh, my god, if we didnt take that 65 billion, that hurt this or helped this. How much do they say the slowdown actually costs . About onethird of that, correct . Yeah, thatd be about right. Why are we going to bring this up after every single number. You know, i liked talking about the economy in impact. But all of these little issues arent important. And we spend so much time on them. Ultimately, we have stock markets going up towards record highs, we have Interest Rates going back down, and that dynamic, investors are so happy with is basically born of this intense rivalry going on between, you know, entitlements and spending and tackling the third rail, putting on a new entitleme entitlement. But really, dont you think its a bit disingenuous to spend so much time about that. I would generally agree with you, but this may be more important to look for trends at this point. Were also trying to look at what the fed is watching, which is to see 85 billion a month and all those things are so much bigger. But the feds going to be looking at these numbers to decide whether to taper and if it really is whats driving stock market prices at this point. Taper. You know what, you make an assumption they had any intention to taper anyway. I say they didnt. And its my word against yours. They dont want to. Theyll look for any excuse not to. We have an Interest Rate subsidy, we have an equity subsidy and, boy, thats going to be tough to get off. When a hurricane comes along and we spend money to rebuild it, youre right, we dont spend a lot of time counting what it is to rebuild it. Because it isnt political like all the other issues are. But when we create a storm for ourselves. Oh, you know what, a storms a storm. Deal with the market aftermath and not the politics underneath it. By the way the underlying politics, its the idea we created something no, it isnt the politics. The reason those guys cant get together is because the countrys divided and were adding a huge entitlement to an already existing series of huge entitlemen entitlements. Then you add in all the other subsidies. Amen, weve got to go, but there has not been an atlantic hurricane this year. There hasnt maybe good news. Its good lets talk about how lucky we are. Its good news unless you, you know, unless it hurts some of your i think you want to count will you work with me on this . Dont do that. No, selling sex. You have to use sex to sell in media. Theyve got farrah and rihanna and miley cyrus. We should have a segment. I tried today with this shirt and tie. Will you help me and sell some sex with me . I would love to. Lets do what we can. Me and you, buddy. Lets be sexier. Lets make a concerted effort. Its hard to imagine. How is that possible . Well, thats true. Thank you. Lets make a concerted effort to be sexier. Ive been told that more rick . You guys are stepping out on a regular basis. How about we just keep you just stay out of this. Weve got to go, were going to sell some sex after the break. Coming up too sexy for his shirt. Hes a Billionaire Hedge Fund manager. Hes going to join us to talk about systemic investing. Red flags. And if you want to know whats going on behind the scenes besides the sex, check out talking squawks blog, read about kid rock throwing madonna under the bus. Go to squawk, go to squawk. Cnbc. Com. Were coming back in a moment. Avo the volkswagen sign then drive sales event is back. Which means its never been easier to get a new passat, awarded j. D. Powers most appealing midsize car, two years in a row. And right now you can drive one home for practically just your signature. Get zero due at signing, zero down, zero deposit, and zero first months payment on any new 2014 volkswagen. Hurry, this offer ends october 31st. For details, visit vwdealer. Com today. Welcome back. Our next guest is a squawk master who is described as one of the pioneers of the hedge fund industry. He runs one of europes largest hedge funds. Were going to talk about that in a moment. Joining us right now is David Harding. The fund has over 24 billion in assets under management and is the Worlds Largest Commodity Trading adviser. And thanks so much for coming in today. Thank you very much for inviting me. The idea of Systematic Trading, how does it work . We have a lot of data guests that come in talking about doing things like that. How do you use that for trading . Well, in essence, we try to study the past to work out how to act in the future. How to act intelligent in the future. And weve got a data base of all the worlds Financial Markets, all the stocks and bonds and all the financials about them and so on and so forth. All the futures markets. And our scientists, we have 120 scientists and their job is to look back into that data base and ask questions if weve done this in the past, would it have worked . And thereby devise a Computer Program thats like a very elaborate plan for investing over the next 10 to 15 years so you kind of know what youre going to do in all circumstances and you dont have to respond every day emotionally to whats happening. Does that give you a good enough blueprint that you could actually say we think the price of gold is going to go up 25 . Or is it a little bit more complicated than that . It doesnt give us any good guidance, sadly, thats wasnt going to happen in any market at all. Our computer doesnt give up. It doesnt know when its beat, basically. It just goes on every day flogging away at these things none of which are good at forecasting markets. They have a slight edge, like a 51 edge in a coin tossing contest. Because history doesnt repeat, it rhymes. You need to base your investments on something that might rhyme, not repeat. Exactly. And you mustnt be blown off course with whats happening today. You have to have a longterm plan with investing. Then youve got to let your losers run forever, though. Thats whats scary. Then you cannot cut your losses short a lot of times. So diversified you can let them run. Because youve got Something Else running. You have to get out. But we can really bury a lot of stuff inside can you tell us any big, major macro things going on that the past has told us that we might not know about right now . No. I cant. I cant. Does the dollar lose its king dollar status eventually . No, we have no knowledge or information from our computer systems. I can tell you what were doing. This year weve been long stocks, short yen, short gold, and as is often the case, money on bonds and commodities and so on and so forth. Best you think im giving you all the winning trades. But weve made more than we lost overall which is kind of good, obviously. Yeah. But we have no longterm forecasting ability. Where we score is we often have a set of positions which are inconsistent with anything anyone thinks is going to happen. Whats an example of that . An example of that would be, you know, if you had known some years ago inflation that gold and Commodity Prices are going to soar up, then you would also have known that Interest Rates were going to go up, inflation was going to go up and bonds were going to crash. Never wouldve been long commodities. Long commodity and long bonds. No sensible economist would have had those positions and we had those positions and made loads of money from that set of inconsistent positions because the world turns out differently to what everyone is expecting. You did it based on what the computer was telling you . Absolutely. And this year weve been short gold all year, you know, in long of stocks and short of gold. And i think thats taken a lot of people by surprise. People wouldnt have been long on stocks and short on gold. Thats an odd thing. The futures doesnt work out as you continue to upgrade your computer to make it more and more and more very, very much so. We have 120 people working fulltime on that. Theyre all physical signs. My big thing is the day when computers know more than we know. Think it happens in like 2045, where computers know 1 billion times the combined knowledge of all of humanity. And then theyll start doing things that we have no idea what might happen. Scifi fans call that hard rapture. The moment of hard rapture. That sounds dirty. Wait, i just i made it sexy for you. Hard rapture . No, that was Something Else. Thats amazing. And theres a book out called the fear index modeled on the business idea by Robert Harris written a year or two ago where that happens, the computer becomes intelligent and murders its creator. Theres a lot of singularity Science Fiction. Theres a famous guy, i got one of his books that writes and terminator 2001, themes of that in Science Fiction for a while. Computers are getting more and more intelligent. Watson will show you that. He was evil. What he did to those jeopardy contestants. Did you watch that . Yeah, but within reason. He crushed them. Our computer, were only trying to give it expert in a field. Its limited very useful. Does the computer ever output something to you that doesnt make any sense to you and to the point that you think its screw ball and you say we cant follow this . Well, i have to have a pretty good idea of why it was doing what it was doing. You know, i keep an eye on it. We have a whole load of people keeping an eye on what its doing. If it said if we couldnt understand the outlook, we wouldnt follow it. If we couldnt understand why it was doing what it was doing. We havent turned this thing loose. David, youve written about manias and financial crises, and i know you have strong thoughts just about the efficient market hypothesis. We had Alan Greenspan here this week and he had to admit he had to go back and rethink things that markets arent always efficient. Sometimes you have crazy things that happen and had to do that in the wake of 2008. Well, since i started working in the markets, i got interested in history and started looking as you get older, look back further. I discovered the 1929 crash and studied it madly which is what ben bernanke has done. And i discovered, oh, the 1987 crash. Then i discovered 1873, then 1892, then 1825, mining boom, and 1720 south sea bubble then i discovered, and i discovered more and more and more manias, panics and crashes. Theres a course of literature about it. Theres a wonderful book extraordinary popular illusions. Jessie livermore. Kind of the bible of speculators. Great book. And he roots yeah. Stock operator. He roots the crashes more solidly in human behavior. Doesnt just do the bubble, he does the crusades, you know. And i would say Financial Market manias are a special case of other generalized illusions in the 20th century id include naziism and communism in the two. Which two . Communism and naziism. Bad ideas that start spreading through the population. Those ones didnt express themselves in Financial Market socialisms back, unfortunately. The japanese rabbit mania of 1872 did express itself 1872 . There was a bubble, a mania who wanted rabbits, why . Japan. Magicians . To eat them or breed them. They dont need to breed. Theyll breed. Ive heard that. People were selling them for, you know, 100 times annual earnings. I know land in amsterdam. I never heard of the rabbits. Read the book. A lot of magicians. Read the book, or just the bit about rabbits. Come back in, id love to have you back to talk longer with us. Can you do that . Yeah. Look into watson, held definitely turn off the oxygen in a space suit in the guys space suit, i guarantee you. I saw him. I watched that jeopardy. Im sorry, dave, im afraid i cant do that. He was malevolent. Id hire him. Ibm got mad when i called him malevolent, but it was clear to me this was a machine, whatever way we were going down that path, weve got to go back and go the other path because w. A. T. S. O. N. Was evil. Thank you very much. Scares me right now. Coming up, get ready to close out the week with jim cramer stocks to watch. Well head down to the New York Stock Exchange next. The partisan bickering during the shutdown have Many Americans fed up with politicians. I wish i knew how to quit you. But cnbc isnt ready to give up. Were calling for a grand bargain in washington to fix the debt crisis. Were calling for compromise. Were calling for politicians to win us back. Washington, show us that you deserve a second chance. You had me at hello. [ male announcer ] the founder of mercedesbenz once wrote something on a sheet of paper and placed it in his factory for all to see. Four simple words where the meaning has never been lost. The challenge always accepted. And the calling forever answered. Introducing the allnew 2014 sclass. Mercedesbenz. The best or nothing. Welcome back to squawk box. Lets get down to the New York Stock Exchange. I dont know we were talking about a. G. , jimbo. Its near a high again. He is good, isnt he . Yes, he is good and he is going to tackle the emerging markets. Unilever slowing down a little. Hes got to get hair and grooming better. He always looks put together. What do you mean . As a category. I think you didnt like the speekd look spiked look. My Charitable Trust owns it. Thats going higher. I have offered to faint on air if microsoft hits 40 because it just i hope it does someday you didnt put any time limits on it. Weve tried so many times. I dont know what happens. And then andrew has used the term flip a switch like six times this morning about amazon. Do they need to flip the switch to is that the question . When do they flip the switch . The stock goes down when they flip the switch. Theyve got accelerated growth in north america and in europe. Im kind of blown away by how good amazon is doing. The microsoft is a total surprise. That is one of those calls where they basically said pcs are better. They underplayed how well xbox is going to do. They talked about having a plethora of devices. That was the biggest up side surprise of the night. Andrews making a point. I mean, a profit isnt necessarily something youre looking for. If you can have revenue growing 30 and still not be profitable, that will be rewarded in the stock market, which is a limb count little counterintuitive, right . You need to harvest. You need to harvest at some point, never . I dont understand. Look, im defending what the market is doing to it. This stock along with in the flicks and tesla and solar city are not bound by any sort of reason that every other stock, including every one weve just mentioned is bound by. Thats just the way it is. There are growth stock managers who simply are not going to obey the conversation were having. You know, jim, the companies its much harder when you have like microsoft has had a great profit for years and years and years, theyve had a great profit, but its hard to grow revenues. Its almost youre in a better position if youre able to grow revenue its easier to grow profits sometimes than it is to grow revenues 30 . I mean, i can sort of see why you reward that because that is true growth. Sooner or later you can work on margins and the buildouts finish. But when all you have is profits, you cant manufacture revenues. You want profits tomorrow, they can get profits. You want huge profits, thats fine. Apple is in the fight of their lives with carl icahn. I will always tack world dom initial over engineering. Revenue is harder to get. Once youve lost it, you dont get it back. Exactly right. I get it. I think they could show a lot of profit. You got to be crazy to second guess bezos at this point. Im not going to, im not going to. Coming up, one stock you need to know before the opening bell. It is our stock of the day and its coming up right after the break. [ female announcer ] its time for the annual shareholders meeting. Therell be the usual presentations on research. And development. Some new members of the team will be introduced. The chairman emeritus will distribute his usual wisdom. And you . Well, youre the chief life officer. You just need the right professional to help you take charge. To help you take charge. 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. Im too sex see for my shirt, too sexy were going to sex it up, andrew and me. We are vowing to sex it up next week. Our stock of the day, its ups. Andrew, tell them to make sure they join us on monday. Join us on monday. Squawk on the street starts right now. Have a great weekend. Thats the way to start the show. Good morning and welcome to squawk on the street. Im david faber with jim cramer. Were live from wall street. Carl quintanilla has the day off. Were in record territory already. How about that ten. Year note deal