Transcripts For CNBC Squawk Box 20131028

Also, toyota talking about under the hood, keeping its top spot in auto sales rankings so far this year topping rivals gm and volkswagen. Japanese car sales topping 7. 4 million vehicles. Thats up. 1 from a year ago. Strong sales in the u. S. Offset slowdowns in thailand and china. Joe, whats going on in washington . In washington this week the redskins are probably dealing with what was a disappointing because they were ahead. They were ahead by two touchdowns right at the beginning of the second half and things went south quickly. So you only saw five minutes of the jets game. No, i know what happened. Congratulations. Thank you. Im not looking for congratulations really. Its been a long time. People are talking about 25 years since the joe montana beat when the bengals got and i asked my kids to watch. They were watching when Carson Palmers knee got blown out on the first play. They were watching last year when houston killed this really they really looked good yesterday. Typical of the new york papers, it was geno. It was genos two interceptions. It wasnt the 49 points. Gosh, if geno. Its always so selfcentered. The jets brought this on themselves. It wasnt 49 to they really looked good. Andy dalton. In washington this week, i asked andrew, is there anything i can talk to you about. World series, nfl. Anything but henry sorkin in central park. Homeland from a week ago. Not a single nfl game. I saw my children and i saw captain phillips. My children were there. We did a lot together. We skated. We did a lot. We did some tennis, indoor tennis. Indoor . Indoor tennis. It was cold outdoors. In washington, budget talks set to begin. An editorial in the wall street journal caught my attention. Do you have a column tomorrow . I do. Is this your column . Im going try to get you to write this column because we need to try to i really do want to rise above and i really do want to win the u. S. Back. How do we rise above the worlds other economies . How do we compete with the other worlds economies . How do we win the u. S. Back in terms of manufacturing and jobs . What got me this weekend was a report highlighted in the wall street journal called u. S. Corporations pay 35 . The reason for this is that the myth still persists that we have a 35 rate but nobody pays it. Heres one of the reasons why. There was a study done by the gao that focused on 2010, one year, came up with 12. 6 . Go back down. Im going to read it. Dont panic. Senator carl levin, a one man wrecking crew, this is in it, of american i like that. Senator carl levin, a one man wrecking crew of job creation, declared that this study that came out of 12 declared that americas large profitable corporations are paying a lower tax rate than our teachers and firefighters. This went back and said, look, this isnt the way to do it, not one year, because it followed the recession. It followed 2008 and 2009. You remember ge and other corporations . The entire Financial Sector had a lot of writeoffs. He did a different study. He went back and did 2004 to 2010, he counted all taxes paid worldwide, including state, including foreign, and the effective tax rate of all u. S. Corporations exceeded 35 from 2004 to 2010. The other thing he found out was since 1997 all the leading economies of the world, 31 out of 34 have cut their Corporate Tax rates to attract job. Did you say that includes foreign taxes too . Includes foreign taxes. I mean, dont we only care about taxes paid here in the United States . Why, because thats all we collect . Yeah. It doesnt matter if we collect, it matters how competitive it matters if youre looking at u. S. Tax receipts. If youre looking at u. S. Doesnt it matter whether u. S. Corporations are tax zblabl it matters if theyre paying in the United States if thats what they produced and paid in the United States. Youre talking about the tax rate that theyre paying globally. A lot of their operations are outside the u. S. We dont control whats outside of the u. S. Theyre going to say theyre basing themselves in the what they collect has nothing to do with what the corporations are paying. In the United States . Theyre paying above 35 total. Just so were clear, youre saying theyre paying above 35 everywhere in the world on average . On average on money they make theyre pay 35g . Then youre not going to like this comment. If their ultimate rate is over 35 globally, the argument that you need to then lower the rate in the United States to be competitive becomes less less important. No. Theyre paying you look at what were paying on what we earn in the United States. Right. Our Corporate Tax register everywhere else is closer to 21 total. Ours is 35 total. Our guys have to pay 35 around the world. But if youre saying that with the global so like apple if the global average is 21 but theyre pay 35g does that mean theyre paying 45 here. The rest of the countries, thats what theyre paying on their total earnings for investments. Were paying 29 . Im he not saying im not looking at receipts and saying theyre not paying their fair share here in the United States. There are reasons why they have operations in other parts of the world. We know thats true. Theyre paying taxes in other parts of the world. I dont understand why we include foreign if youre looking at what u. S. Corporations are paying. Thats the only part that we can control though. If its stuff that theyre paying to other nations and things that go in, i dont understand why we would because youre trying to see out of total earnings we dont control what they pay to foreign nations. Thats nothing to do with us. Thats foreign tax laws. Ours is 35 here. If you want to look at what they paid, i wouldnt include foreign. Id love to see what they pay to the u. S. And other nations. They dont pay stuff to the u. S. Because were but were induced to move our operations over there. I would like to see the breakdown between what theyre paying here obviously they pay less on average in Foreign Countries but the total that they pay us means they pay above 35 here in the United States. Right. I would love to see the breakdown. See what i mean . Like but they cant be competitive. They cant be competitive with the rest of the world until we pay i think that is a smart study, 2004 to 2010 to see what they were paying. Wouldnt do any good to look at what they were paying in the United States. Sthant what the 2010 mums are . Just the u. S. . Look, the 35 plus is what youre paying on earnings. Right. The rest of the world is not paying 35 plus. I would like to compare apples to apples. If it comes out above 35 with lower agreed. I would love to see the actual numbers. The 2010 i thought it was just u. S. That carl levin was looking at. I would love to see the just u. S. Its lower than everywhere else. Youre talking actual versus effective rates. Its a problem and were never going to be competitive. I would like to lower Corporate Tax rates. Thats the one thing that we should do is lower well i agree. U. S. Corporations pay 35 ive got to study it a little bit more. Study it more. Instead of borrowing more money from china, all the things that we think of that were going to do, borrow more money from china to build bridges to nowhere, borrow more money, doing all of this, the one thing the government can do, if you want to close loopholes, fine. Im in favor of that. Close loopholes but lower the Corporate Tax rate. Simpson bowles said that too. Theres a lot of Different Things you could do if you close the loopholes. Some corporations have fought back and said you cant close those loopholes. That would be the argument. When apple was getting grief in front of, again, i think it was carl levin apple pays more taxes than anybody. But theyre also paying what they were arguing is theyre not paying any taxes to these foreign there was outrage that they werent paying taxes to Foreign Countries. You have to add up all the taxes you pay everywhere. It makes no sense to if half of your profits are coming from abroad, youre not going to pay taxes right. So if you do the calculation, why would it make sense to look at a corporations tax rate just on what they pay here other than you saying youre looking at the receiving end but not the paying end. But when people look at ge, for example, it was about the u. S. Tax rate, not about what they were paying. No, it was their total tax rate. They were saying zero. They were paying a lot of taxes worldwide. Right, but it was zero here in the u. S. Zero here in the u. S. Exactly. It was also 2010. I completely agree with you. Thats why i like the idea of the broad based study. What if only 20 of your profits come from the u. S. . If 20 why would you look at the u. S. Its interesting the u. S. Tax rate versus other places. The competitiveness of the entity itself. If you only pay 20 here, it doesnt matter that only 20 you dont look at what the receiving end, youre looking at the paying end. The amount here versus the other nations. The reason its 80 is because of the lower taxes over there. If youre paying 35 and your rates are lower elsewhere, what are you paying here . 45 and beyond . It must be much higher. It is. Average state taxes 4 , 35 is the federal, you get to 39. Across the pond is where were going to get a little bit of news from the Global Markets this morning where i believe the effective tax rate at least in the u. K. , ross, is well, is it lower or is it higher . Ross, do you want to help us with that . Well, the top rate of income tax is 45 . Corporate. Corporate rate, ross, what is it . Corporate rates, well, theyre coming down. The governments dropping them down to around 20 in a couple of years. 35. But then people say we dont pay 35, but we do pay 35. Thats the thing. Thats the whole point. Piece. You do pay 35 globally. Right. Okay. Ross . We have different rates as well for Smaller Companies and bigger companies, but theyre trying to set corporate rate taxes as very competitive within the g10 is the cameron governments view. Meanwhile, here we are, guys. Just over two hours into the trading day. We are, by the way, an hour earlier. We changed our clocks. Theres only four hours between this week between us and you. Were closer in terms of time difference. Pretty even stevens. Five to five theyve outpaced. Nikkei rebounding from its big fall on friday. Up 2 today. Doesnt really follow through in europe. Little bit of caution. The ftse 100 was up eight points on friday. Slim gains. Just up four points. Ten points for the xetra dax. Cac quarante. Couple of stocks weve heard. Lets get with tnt, logistics company. Ups was trying to buy this company in january. The European Committee blocked it. They may be working around it and the stock is up 4 . They say the european economy is recovering and its fragile. Bankia, they had possible bailed out. They had a 19 billion euro loss. Theyre back into profit. The bread and butter lending business still suffering. Low Interest Rates eking into margins. Credit decline. That stock down 3. 25 . A storm blew here yesterday. Up to 100 mile an hour winds in the u. K. The last time we had storms of that magnitude was the friday before black monday 1987. Fortunately things are a lot better today than they were back then. Joe, heads up for you. Listen in on this. For the desert that is european sporting action, as you have rightly pointed out, we had some rain yesterday. 49ers playing the jaguars at wembly. Thank goodness we had some decent sport to look at over the weekend. I know you were concerned about that. That really wasnt a Football Game yesterday, ross. In fact, the jaguars kind of played like a soccer team. What was the score when it was all over . I think it was like 4210 to the 49ers. Oh, their record is like they havent won yet, have they . I dont think yeah. That was mean. The one we sort of send you the worst game. Its like we dont even care whether that game was played here, you know . The 49ers are in the super bowl last year and i dont think jacksonville, one of the last is there anyone else undefeated winless . I think may be the last winless team, i think. I do have give you a taste throw the ball forward though. Youre allowed to do that. The weird thing, you can catch it with your hands, you know, instead of like you know, who even thought of that . You can only hit it with your head . Thats like i dont know. You can use your hands. Do you have hands, you might as well use them, right, ross . Theres a lot i dont under just the forward thing. Anyway, it was nice. It was nice. Nice little cut away. Better game for you. You had an earlier won in london that was a better game. Thank you. Yeah. Both those teams had lost their first five games of the season. Yeah. All right. Well, you know, were not goings to send you our best games. We wouldnt give you the bengalsjets game. 499. Did you watch that . I was busy watching the redskins lose. I watched that. They had a stlot. They did. Did you notice how many dropped passes. A lot. They looked bad. In the second. In terms of the receivers. Griffin didnt look great. There was a punt too, the guy should have caught it. Should have been a first down. There was a shank. A 15 yard punt. It got ugly. Depressi depressing. Do you understand my point here . Of course. Does it matter what the receiving end i went back and looked at it. Carl levin, it was foreign included. They paid 16. 9 with foreign taxes included. Youre talking about total whether the corporate you guys are love you know, you worry about what the government takes in. Receiving end. Im talking about how much youre paying to be competitive. How much youre paying in the u. S. And other places. No, how much our companies are paying to stay competitive. If youre paying 35 plus total, 35 of your total earnings are going to taxes. My question is if youre looking at broader terms, what was it 2004 to 2010 they paid what . 35 plus. 35 plus on a worldwide basis. Right. The question still becomes what are they paying in other nations and what theyre paying here because the competitiveness is what youre paying here versus other places. Thats why theyre moving so much off shore. Those numbers didnt exist there. It didnt say what they were pags here versus worldwide. What this is for 2010, they paid 12. 6 in the United States. If you include foreign stuff, they were paying 16. 9 . They were paying higher stuff in other nations if you included that. That was 2010, that was when there was a bunch of writeoffs. Its not fair to look at only 2010. Hes said he would do it. He said 28, didnt he . For the corporate rate. They talked about doing it. You get into the loophole discussion. Were going to do gun control, immigration, climate change. I think you need corporate and individual. Immigration. Hes already raised hes raised the rate on individuals. Do something with corporations. I think it would be a fantastic idea. Of course in this country. You want lower overall theres no argument about that and how you get the overall rate. It would be fairer for smaller corporations that cant afford to have the accountants. You should write a column on it. Whats your stupid column on today . You should write a column on it tomorrow. Im preparing it now. Jamie dimon. Youre leading him. I saw the headline. You couldnt get this through your editor. I can get any no. Not arguing for lower Corporate Taxes. Thats easy. By the way, if you havent figured it out already, were joined by ben white. He is morning moneys politicos hes my only ally. Youre beltway ben. Morning money. Youre wrong. I agree with the whole argument. Im looking at the statistics. Its the overall burden that matters. A lot of it is based in the u. S. It would be to our competitive advantage to have a lower rate. It matters what samsung is paying. If its an argument about competitiveness you want to be less. We are higher than most places and its not helpful. The other thing we want to talk to you about this morning is whats happening with the health care law. Again, it looks like there are some major glitches over the weekend. All 50 states got shut down over the weekend. What happened . All the ones that are on the federal exchange. Healthcare. Gov went down yesterday. This is not the first time weve seen significant problems with the federal website. State exchanges went okay. You have a pretty disastrous situation at the federal level. You need to start running up the numbers on people signing up before the march 31 deadline next year because Insurance Companies need to start racking up premiums so they can insure a lot of folks, the sicker folks coming on. The biggest problem is you need a lot of young, Healthy People signing on to make the numbers work. Theyre not going to do that if they come to a website that doesnt work ever. Theyll give up on it. Now you have a lot of democrats saying we need to delay the individual mandate, the open enrollment. You have a series of technical problems and fundamental problems that are creating serious questions about whether this thing is going to work. The front page of the wall street journal today says its an issue because theres nobody whos in charge. There is a lack of direction. A lot of different places. Is Kathleen Sebelius ultimately in charge . Not really. She doesnt seem to. Now its jeffrey zions who is sort of the hedman at the white house to get the thing running again. Sebelius doesnt have all of the answers on the technical side. I dont know the extent to which she knows whats going wrong on the technical side. Youre right, there was no one contractor in charge of making sure this was fully operational by day one. You cant penalize someone if they cant they cant buy it, right. They have to delay this. You have Senate Democrats who are running for reelection, you know, mary landru, mark prior, folks who are in stuff red states saying lets delay this. The white house is terrified of delay. They think it undermines the entire thing. It will start falling apart if they delay. Youre absolutely right. How do you require somebody to buy something you wouldnt require somebody to buy a book on amazon if they is this a good headline or bad headline. Obama unaware. Its a terrible headline. Every time theres a problem in the Administration Obama is unaware. Hes mad that he didnt know. Hes mad about obama care. Hes mad about that we were spying. Mad about the irs scandal. Mad about benghazi. If youre obama, what is the answer on the merkel phone . What are you supposed to say . Our bad. Are you supposed to say our bad . Personally to her you say our bad. The germans are furious, truly furious. By the way, since we did find out since he did find out about this they canceled some of them but not all. Right. Thats the funny thing in that story. Now and in the future. Were not doing merkel but we wont say we did it in the past. No question. The germans dont do it. The germans dont do it. They say they dont do it. When youre in International Espionage a lot of this stuff goes on that nobody says they do. Be a big boy and say, you know what, life is what it is. Chinese do it, germans do it, french do it, we all do it. Theres outrage. Its an important ally. The germans the french, i think, are feigning outrage. You saw the story listening to previous german leaders talk. There are things going on we wanted to know about. Right. Did you read that . We were glad we were listening to some previous german leaders. They were getting schnookered by enemies to both countries. The idea that the president wouldnt be knowing what was going on in the german chancellors phone . Hear no evil. Nobody tells you how they got the information. Its a report that we have the information. He knew generally generally that we spied on some foreign leaders but not necessarily he knew in 2010 and didnt do anything. Theyre saying that thats not true. I would say he should yeah. For five years george w. Bush. All bush he hasnt gotten rid of any of the other stuff. We wont embrace him yet, you know, bush and cheney are squishy. Very squishy. Cheney is all over it right now. Ben, thanks for coming in. Thank you, beltway ben. I could. Stick around for a little bit. Can i just sit in your chair . Weve got to go. When we come back the hacking stories continue. Well talk about the british tab blo bloid business thats going on trial. That and a whole lot more when we come back. Time now for the executive edge. This is a daily segment focused on giving Business Leaders the leg up. We start out in london. Thats where two former top editors from rupert mourdocks empire go on trial. Rebekah brooks and andy coulson go on trial. It could lead to more revelations with the competitive world of british tabloid journalism including relationships with the political elite. One is whether weve learned somehow that this is connected in a way of the mourdock family in ways that we didnt appreciate. Connected to the nsa . Is this about phone hacking . This is about phone hacking. We know and dont say anything. Whether this touches the mourdock family, does Rebekah Brooks try to rat out the family . I dont think so. Becky, in the u. K. Do they change the laws around the press . Theres been some talk about trying to beef up the laws. Some things that would protect the press in good ways but other things that would make it much more difficult. Are we tamer here than mourdocks tabloids . Yes. We are until we know otherwise but i think we are. This couldnt have been more ridiculous. Thats . The new york snoes. Genos interceptions cause the post, you love it . Theyre one step above blogging. Its an early read every morning. Fiction. Thats fine too. When we come back, were going to take a look at the markets and this weeks fed meeting. First, a very happy birthday to bill gates. The microsoft founder turns 58 today. 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. 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Hes chief investment strategist at Raymond James who was right but got you got less bullish recently, didnt you . Well, we had some timing points in mid july. Yeah, say yes. Just say yes because i remember. You were right before then. Yes. All right. All right. Well, okay. Well talk in a second. On the economy, bob joins us on the set. Hes co director of the jorhns hopkins financial center. You dont think of Johns Hopkins as financial. I have to go defend my thesis and one student said, i thought at hopkins you are a med student or a stupid lacrosse player. Ive known you for too long. Last time the bengals are in the super bowl i think i knew you. Well before that. Early 80s. I was kidding, jeff. You were very bullish and right when a lot of people were not. When did it was about was it four, five months ago you thought maybe we were going to have some tougher sledding . We did, i guess, for a while. We reconciled a lot of that with congress and everybody else, now were higher. Explain what your thinking was and what it is now. The timing model showed there was a window of vulnerability in mid july to mid august. I was looking for a 10 window and we didnt get it. Vladimir putin pulled barack obama out of a tight place. I think that arrested the decline. We have another timing point coming up in mid november. I dont think that will be much weakness either. I agree with jeremy. I think stocks are going to trade higher. I got back from a week in canada and every Portfolio Manager wanted to increase their exposure to u. S. Equities. We say it like its so obvious. Dont fight the fed. If there was ever a time to not fight the fed. You have an 85 billion looking for a place to go. I got that right on your show for last i guess july and august. I said no taper in september and i doubt theres any taper this year. I dont think the markets are going to pay much attention to the economic reports over the next six to eight weeks because of the shutdown and debt ceiling debate. Bob, when would there be a taper in your view . It has to be next year. The data will be weaker because of the shutdown. I also think things have changed. They tried to sell us a story that said if we taper, its not tightening because were still buying, and thats an interesting theory, its just not the way the markets trade. They have to understand now that taper is tightening and do they really want higher rates . Probably not at this juncture. Theyd love to keep rates where they are and stop buying but i dont think that option presents itself to them. People that dont want to worry say that a lot of this and i said the 85 billion is looking for a place to go. It doesnt necessarily go if theres no demand, it can be taken back. Well, i think, you know, its always been true that the feds been in the business of trying to get people to buy risky assets when the economy is weak. Thats always been the game. Thats why you drive the overnight rate down. The complication here is obviously they dont want to keep swelling their balance sheet. Asking people to take risk is generally the tactic that the fed uses. Yeah, but when rates go up and the feds sitting on all of these bonds and they get huge losses, is that going to be an issue . I still think thats less of an issue than when rates go up. Does it hamper an economy that hasnt shown us any great muscle yet. We have another situation with budgets and debt ceilings coming up. Yeah. Yeah. Although i people are talking. Theyre being nice to each other. Mcconnell said that, you know, you dont learn anything from getting kicked in the head by a mule the second time and i think i doubt that theyre going to want to be kicked in the head by a mule the third time. You know also, jeff, the obama care, right after we finally settled everything, then we knew it was going badly, but we know now that maybe it wasnt ridiculous to say maybe we should be delaying this a while either. Its almost like you could make the argument that some of the stuff the republicans are asking for maybe not a year delay, but it wasnt going to be rolled out very well. They werent totally out to lunch on that, were they . Oh, no. I think some of the principles were the right principles. Im an independent. Idea fend each side of the equation. I think what is transformative is that the republicans are no longer bargaining away their budgetary votes to repeal obama care. Theyre bargaining away to get spending cuts and tax reform. I think thats transformative. Thats going to be my thing. I dont care if they do anything else. Just jobs. I want new numbers, too. 2004 to 2010 doesnt seem fair either. Id like to see a decade at a time. Show me a decade at a time. I think its valid but id like to see the data. Still includes but it still includes the 2010. It does include 2010 but it includes big boom years. I think if you look at a decade at a time. I want to see the statistics. I bet you its above 35. Simpson and bowles have signed this off. Youre pining for the 50s. 90 . Theres no soccer in france. 92 . 92 . No soccer in france. 92 . Coming up, we are going to check in. Squawk is going to be checking into some Choice Hotels to check on the state of the consumer. They have free wi fi. Its a growing trend in business do more with less with less energy. Hp is helping ups do just that. Soon, the worlds most intelligent servers, designed by hp, will give ups over twice the performance, using forty percent less energy. Multiply that across over a thousand locations, and theyll provide the same benefit to the environment as over 60,000 trees. Thats a trend we can all get behind. 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. Jo jo welcome back. Were doing squawk ceo. Steve joyce is the companys president and ceo. Good morning to you. Good morning. Rates are going up. Occupancy is going up. Thats a good thing from the consumer standpoint. I heard your marketing costs are also going up and that made things a little tougher. Not tougher. Were working harder to make sure people are aware of what were doing. Rebuilding two brands. One is comfort inns. Theres 2000 of them so its not easy to do. Were redoing sleep inn. So both of those are really taking off. We have incredible increases in development. New ones are being done. Literally up. Comfort inn is almost over double what it was a year ago. Weve got Strong Development overall. But the marketing is to get the message out to folks that were doing some things differently and choice is a new company. For a long time we were the place to stay on the way to someplace. Right. Now were trying to be the destination as well. You want to be the destination. What is the occupancy rate total right now . It depends on were more leisure. Very heavy occupancy on the weekend, little bit less. Were in the 60 ish range and thats growing. Next year will be better. Weve had several good years. We had a Strong Quarter up 6 overall on our royal at this rates. Overall business is improving. Expecting another 2 increase next year and thats building towards a good future for the company. Look out a little bit for us because theres been a lot of questions about what this whole Government Shutdown has meant and Everything Else for the holiday season. The good thing is its back. Were seeing it rebound very quickly. Really . Temporary . It was important. This is not a pay forex err sies. Our hotels outside of the grand canyon were down 78 . Skyline drive where the leaves, the leaves dont wait for you, were down 40 . It hurt our franchisees and customers, they are coming back, were expecting strong holiday season. Similar question, obama care. Whats your percentage of full time versus parttime employees, is that changing the mix . We do not want a club of 29ers, 29 hours. We want to have fulltime employees because those are the best employ years. We a employees. Were working hard to get some adjustments to the bill. The bill is here, its the law, we understand that. There are certain things you can do to adjust it that makes sense. Makes no sense that youll treat a law firm with lawyers making 300,000 a year the way youll treat Hourly Associates making minimum wage. What we have to do is redefine what full time means. Whats your highest margin brand now . Its ascend, our new boutique historic brand. Its our highest growing and our most profitable. Because i make an issue of this, free wi fi . Absolutely. Free parking, free breakfast. Comfort inn and Choice Hotels are the value option in the hotel business. The folks at the saint regis need to listen to this. Free wi fi. Im you know what you dont want to go there. Im going to cut you slack on the wi fi. Do you want to work . Is that what you i need to do work on the wi fi. I know why you say they dont make it free. The super high speed, sometimes they need to charge you. The good thing with your 20 wi fi is you get a 60 breakfast. Thats a value for you. Thank you so much for coming in this morning. Appreciate it. Coming up, start your engines. Racing legend Danica Patrick is going to pull into the squawk box to talk about business and her hugely profitable business next. Farmers presents fifteen seconds of smart. So you want to drive more safely . Stop eating. Take deep breaths. Avoid bad weather. [ whispers ] get eight hours. [ shouts over music ] turn it down and, of course, talk to farmers. Hi. Hi. We are farmers bum pa dum, bum bum bum bum bny mellon combines Investment Management investment 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. And it feels like your lifeate revolves around your symptoms, ask your gastroenterologist about humira adalimumab. Humira has been proven to work for adults who have tried other medications but still experience the symptoms of moderate to severe crohns disease. In clinical studies, the majority of patients on humira saw significant symptom relief, and many achieved remission. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira, your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your gastroenterologist about humira today. Remission is possible. Sequential brands group announcing exclusive partnership Sequential Brands Group announcing exclusive partnership with famed nascar race car driver Danica Patrick. Joining us now, and i guess it is now nascar. Will. Its just nascar. Joining us onset Danica Patrick. And its a tongue twister. Sequential brands group ceo, ringing the opening bell at the nasdaq later this morning. So you have a relatively new company. You got some well healed investors. Its called sequential brands. Correct. One of the brands i know well is rivo. Youre going to be the spokesperson. Thats the connection between sequential and danica. Thats right. Yeah. When this opportunity came around, i was like, man, that s is when i think of it, i think of such good quality then when i heard about the quality came from a nasa engineer that took the uv protection off the satellites and made it into sunglasses. And i was like, wow, that seems like it would be pretty good. And you acquired it . We did. And weve got a very unique model, joe. Its a business of licensing. So we do is we partner our brands with leading manufacturers of retails around the world. We brought revo. We went to charlotte and sat down with danica. And she knew the brand really well. And we started talking about it and she said, hey, this is a brand not only i wear but i love. Not only are we partnering together but next year were debuting a special Danica Patrick collection. What other brands are in sequential . Cofounded with justin timberlake, ellen tracy, wellknown womens fashion brand, in places like macys and other brands, as well. A billion in sales, up from just 20 million. How long ago . A year ago . This is a year ago. So rapidly growing business. And the way we grow our business is twofold. One is, of course, we work with talent to promote and market our brands and grow our brands organically. And two is we believe weve got a great platform we can leverage by adding new brands to the portfolio. We started the year three brands, today were seven. Our goal is to be 17 by next year, two years, three years, four years. Youve got a lot on your shoulders in terms of nascar. Nascar i didnt realize was hit as hard as it was by the slowdown, by the recession. People take vacations. Sure, thats part of it. And its sponsor driven. So when companies, when its frowned upon for companies, companies not able to spend the money on advertising, you know, we get that direct hit. But ratings have been up. This year and especially here at the end of the season. I think in a world like we have now where theres so many options for people to watch certain things or go to see certain events. Its almost up. How much time do you spend on the business side of the sport . Thinking about new sponsors relative to driving with the car and everything that goes along with it. Well, ive been lucky enough to have lots of existing sponsors that have been with me for a long time and new partners. Godaddys been incredible for me, theyve been with me since 2007. Super bowl, 12 commercials in the super bowl with you. Yeah. I do spend a lot of time on it. Most of the time on racing for sure, but theres a lot of time spent outside of that. Every sponsor and every partner has their certain number of things they need out of me, whether it be advertising or promotion, or Something Like coming on tv with yall or whether it be a photo shoot. Do you ever say all yall. I say yall a lot. All yall . It works. Ive tried to do that. So youre almost the highest paid female athlete in the world, arent you . We dont want to talk about your money. But thank my great agents. Do you make more money than the guys you think of with nascar . Yeah, some of not youre right up there . Yeah. You won an indy race. Mmhmm. First woman ever to be in the pull position at daytona and almost won daytona. Youre going to win soon, you think . I hope so. This years probably running out and im a rookie this year. Next year maybe. You know, theres incredible drivers in nascar. I expected it to be hard but its even probably a little harder than i expected. The difference between a good day and a bad day is so big. And its a big challenge. Its a lot to learn and there are guys that have been doing it for decades. Whats the hardest thing . I would say youve got to have you need experience for sure. These are like our race yesterday was four hours long. So, you know, not making a mistake for four hours. And having good cars, good team, good decisions me gaining experience, theres a lot of things that go into it. Its crazy. At the cup level, there are guys that have driven in cup for quite a while, ten years at least. One of my teammates has driven for hes like early 50s, you know, hes been in the sport for over 30 years. Thats a lot of thats heavy competition for me to learn quickly. How quickly did four tires get changed . My pit crew is extremely good and they finish in about 12 seconds or less. 12 seconds, change four tires. And that matters in how you get in and out. And run from one side of the car to the other side of the car. Its not all at once. They do one side and then the other side. Each side takes about six seconds. Good luck. I just get scared. There are five nuts on it, just for those and 200 miles an hour thank goodness im not doing 200 in pit lane. That might be something to consider. Thank you. Great to see you. Thank you for having me. Im surprised he could do his job. Thank you. Thank you very much. Appreciate it. When we come back, well get a preview of the twoday fed meeting and the new controversy surrounding janet yellen. Squawk box will be back after a quick break. Peace of mind is important when youre running a successful business. So we provide it services you can rely on. With centurylink as your trusted it partner, youll experience reliable uptime for the network and services you depend on. Multilayered Security Solutions keep your information safe, and secure. And responsive dedicated support meets your needs, and eases your mind. Centurylink. Your link to whats next. Stocks have been off to the races. So as we head into the final lap of 2013, is it full speed ahead for the bulls . Or are there caution flags . An apple a day sends the doctor away. Does it keep the bears away . Tech giant apple set to pose Quarterly Results after the bell. Well have your inside line. Plus, dow component merck headlines the Companies Reporting before the bell this morning as the second hour of squawk box begins right now. Good morning, everybody. Welcome back to squawk box here on cnbc. Im becky quick along with Andrew Ross Sorkin and joe kernan. Peter fisher and charles cantor. In our headlines this morning, a lot of things going on including earnings that are continuing. Were waiting for that Federal Reserve meeting with policy makers, its a twoday meeting that concludes on wednesday and the fed is not expected to cut back on the Bond Buying Program because of the negative economic effects of the now ended Government Shutdown. Youre looking for merck . Yeah, merck is reporting 92 cents, thats an adjusted number. The Company Reported sales of 11 billion which is in line also with expectations. And then ive got a guidance which is on an adjusted basis, as well. Theyre saying theyre narrowing their nongaap earnings per share. Target 3. 58. You already had a third cent beat on one quarter. The estimates 90 cents and the company now is above where the street is. But as i say, they just beat by four cents in the current quarter. So not a shock maybe that they would be raising their guidance for the year. Cant tell where its going to trade. Looks like it is up, though, on that trade right there up about 39 cents. They break out all the different sales. If youre interested in cingular, youve got to be an analyst to know what the expectations are. I will tell you its a 3. 7 yielder. 3. 7 . And the guy in charge steered him through vioxx, and theres a good reason why hes there and his strategy was to do it case by case. And you know that anything if you take too much of can be if you, you know, what is that dyhydroxide can be fatal if you drown. So they took the ambulance chasers with the vioxx situation that saw huge dollar signs, did it one by one. And the stock got down into the teens and its back to 47 with almost a 4 yield. So merck is back and were probably all the better for it. We want the best Drug Companies and the best innovation in the world. Telling you bt about a few other things happening this week. More congressional hearings over the glitches that have kept Many Americans from signing up for Health Insurance under president obamas Signature Health care law. The one that may get the most attention comes on wednesday when secretary Kathleen Sebelius appears before the house energy and commerce committee. Also, toyota is holding on to its lead as the worlds topselling automaker. Says it sold 7. 41 million vehicles during the first nine months of this year. Gm sold 7. 25 million vehicles during the same period of that year. Jpmorgan has agreed to pay 5. 1 billion to settle claims that it and firms it bought misled fannie and freddie about home loans that sold to them during the housing boom. The settlement is expected to be part of what weve all described as a tentative 13 billion deal, but the bank is negotiating with federal and state agencies. So there you have it. We should note that 5. 1 billion number. About 1 billion more than people expected. I wonder if the total 13 stays at 13 or whether this is a different mix. Did you read the wall street journal today . I did. And the lead editorial . I did. Poor fannie and freddie. Even the democrat Led Committee that looked at what happened in the crisis, even they didnt try to say fannie and freddie were victims. Right. They may not have blamed the whole thing on fannie and freddie, but they didnt try to make the idea that, what did you do to us with these trillions of dollars guaranteed as they helped people, enabled them to get into these mortgage products. I dont want to end up on a comedy news show. But some of these things are so, you know, so obvious that i cant help myself. I think with that comment you might we might have made the comedy news show. No. This is a comedy news show. This is a comedy. Thats a comedy settlement. We also have some news out of london today, two former top editors from Rupert Murdochs media empire, theyre going on trial. Facing criminal accusations involving phone hacking and obstruction of justice. They say this case could lead to more revelations about the inner workings of the competitive world of red hair, andrew. Including the political elite. Rebecca brooks, of course was a close friend. Excuse me . That hair is red. I have a daughter with red hair. That is some red hair. Beautiful. And well see what she has to say about rupert murdoch. What team is red, joe . What team has red colors . Cincinnati. Youre talking baseball. Its six minutes into the top of the show. You havent mentioned were talking orange. Were talking orange today. 17 seconds. And cincinnati beat the jets. Weve already been there. That was the last hour. And he didnt even know. That was the good part. Bingles and bangles no. Phil simms says bingles. Its crazy. As becky mentioned, the fed is going to be meeting. And thatll be one of the highlights of the week. Its a commentary on the week. Senior economics reporter Steve Liesman is here with a preview and also the story of a new controversy surrounding the nomination of janet yellen. Does it have to do with rand paul . Yeah, it does. It does. Not much change expected in the feds policy this week. Question is whether theyre going to use the time to sharpen their communications, make more clear to markets the reasons they might or might not taper. But we broke a story on friday that well be following throughout the week. Rand paul announcing hell put a hold on Janet Yellens nomination to force consideration of his bill to audit the fed. Paul notified leadership of his intentions last week and expected to make that notification formal this week to leadership republicans, democrats differ on how important this move is. Republicans point out that pauls bill has 25 cosponsors. May not be so easily dismissed by either side, they may be forced to give it a vote. A bill by his father passed the house a couple of years ago. Similar bill. Democrats say because of procedures, paul needs 40 votes to force the vote and say its unlikely hell get that kind of support. Fed officials have publicly opposed it saying it could put a political chill over the making of policy. They fear, for example, the threat of an audit on the eve of a controversial decision to raise or lower rates. The question is whether continuation of the feds current easy policy monetary regime, which will likely happen if yellen is approved is going to require some power, some concessions through the other side of the opposition here. Joe . Yeah, i dont know. I dont know how that you think we have this seamless transition with no concessions from the other side . Im trying to rise above it. I dont want to have any more arguing. Shes going to be in there, right . Why do we need to do more dances . Why not audit the fed . Why not . The whole idea of transparency. The open Market Committee meetings for almost a decade. I think this is silly on both sides. I never understood why the fed was so nervous about getting audited. Especially now they publish the minutes. It all hangs out, congress can audit the fed. Everyone on the planet can have an opinion. I thought you only got audited if you had patriot or i dont know what the gao is going to learn. Well, audited from the monetary, from what it spends. Its not like an irs. Its not like an irs. The audit of the Decision Making process. Right. I got it. I dont know if the gaos going to learn any faster. Takes them six months to write their reports. I got audited a dozen times by the gao. What do you make of the politics of this . Is it possible we go from bernanke to yellen and the other side of the opposition . First of all, i believe this bill would pass the senate and probably pass congress. Whos going to get up in front of the senate and say i dont think we should audit the fed, its a bad idea. It would probably pass congress, right . Well, it might. I think bernanke is an outgoing chair. So he can take the hit for that and yellen wouldnt have to. I think they still have some ways to argue. But i think it serves as i say silly on both sides. My nomination as undersecretary was held over some silly tariff. Senators should drop this bad habit. Youre just nodding. Youre a guest host. We just try to think through the investment implications of all of this tapering stuff. And i think its pretty clear to us that when the fed delayed the taper, it provided Market Participants with what i call a mu mulligan. Safe assets through september, treasure bonds, muni bonds, all down 2 to 4 . A rally in treasuries, the bonds have been proved in value. And the question is how are you going to meet your longterm objectives without making a change. And so given that we think, you know, best risk adjusted returns probably coming in strategies ahead of a total return mindset and youll probably make the most amount of money and long only equity strategies. And i just repeat, youve been given the mulligan, the question is how youre going to use it as Market Participants. Well, youre charles cameron. I am. You are peter fisher. Thats me. Youre not richard fisher. No. You know of him. I know of him. You are the senior director of the blackrock institute. Thats a high title youve got now, isnt it . Well, i gave up head of fixed income. At an institute. Whats the difference in your role now . The Blackrock Investment institute is how we try to get our Portfolio Managers to collaborate. Its not a think tank off in the corner, we try to get our pms talking about the challenges they face. Were going to be getting together in a couple of weeks. 60 investors talk about the outlook for 2014. Whats the hardest question right now . Well, i think it is the policy mix thats still ahead of us is one of them and whether growths going to pick up, you know, a little bit or whether were going to be drifting down or drifting up. But the policy mix. I think the fed, the markets and the fed have a dilemma here. I agree with you on the mulligan right now. But the markets have priced for the fed has given a complete pass. Did any of you guys see the cover . 20 years of 2 because of demo and i dont know how you know that, but i would say thats more than enough to get a very attractive return out of equities. I think the markets today have very low expectations. The markets not pricing. 2 a year. 2 is great. For gdp. Great. Thats because youre from over there. Thats where 2 you think thats good. Its not good here. Were exceptional here. We are exceptional. Are you a we now here . Absolutely. Im a we, we, we dont we we here. It all comes back to expectations. If you look back in time, equity returns and gdp growth are inversely related. So when you have low expectations, the market doesnt expect a lot and it just takes a little bit more than a little to satisfy. And when you have high expectations, its hard to achieve. So i think for equity holders, youll be fine. Of course we all demand more for the economy and the jobs. And the other was the opposite of what you said. Opposite. On the results. Great coverage this weekend. You know what having the stock market do okay at 2 isnt the same as getting the jobs that youd get at 3. 5 . Corporate profits and profit margins. But 2 s not enough. Were going to be and as pointed out, its bad for social harmony, as well. I think its a problem. I think it can be good for equities in the long run. I want to emphasize, weve all gotten so excited about the postponing taper, the only direction is to get disappointed reaction is for the fed to Say Something that suggests its not the free pass we thought. I would disagree a little bit. I would, as well. I would say im excited by the fact that earnings are up, revenues up 3. 5 this quarter, against a backdrop of valuations that arent to us it comes back to earnings and cash flow and theres plenty of that around. I dont know how much the markets internalized the feds promise to remain low on Interest Rates. Liesman, youre not listening to all i know, i know youve been wrapped. If i said bengals, could i stay on tv longer, joe . Cincinnati bengals. Yeah. Did you want to make a point. Just so you didnt have to wrap again. They did were going to wrap him. Coming up, apple set to report after the bell. Were going to talk innovation and what apple will or wont say tonight. First as we head to a break, watching shairs of merck. Take a look, the earnings beating the street by 4 cents. Revenue also topping expectations in the companys fullyear earnings outlook slightly above current consensus. Industry analyst will join us more in the next half hour. Back in a moment. Welcome welcome back to squawk box. Headlines, Liberty Global is selling all its International Content division. Two, amc networks. Our favorite. Amc networks, the price tag is 1 billion. We both were up to 10 00. Yeah, cant help myself, i cant risk im going to come up and find out what happened from someone. From me. From you or anyone else. So youre shocked it was carol. Dont give it away for anybody else that hasnt seen. What is wrong with you. I love you, but why i dont even know whats it Means Nothing. You dont even know who carol is. It Means Nothing to anyone. Just dont marilyn manson. Nice. Has everyone given up on homeland. I havent seen it yet. New writers this season. Is it new writers . Yeah. I heard it got really good. It got really good on season ill pay my dues. I didnt get to see last night. What really blows this year is whats that . What do you really think . Boardwalk empire, they fell off the truck or something. Anyway. Were going to talk apple this morning. Apple set to release Quarterly Results after the bell. Today, covers the company for barclays. Good morning to you. Good morning. Youre right here. You know, i thought to myself. Dont sneak up on him like that. I thought you were going to show up on the screen like a little you know how we have those little boxes. You totally jumped. Because i was reading the prompter thinking, oh, ben, im going to talk to ben over there. I thought youd be in the office. Spicing things up today. What do you think is going to happen this afternoon . I think it could be good. I think they had a better launch than expected. I think gross margin is going to be the big figure that people look at tonight. How much do we care about this whole 5c versus 5s. Better margin on 5s than 5c. Thats great news for apple that people want the higher end device. I think a lot of people are trading in old iphones and theres new contracts. You dont think apple missed it with not setting the 5c at a different price point or coming up with a product maybe slightly lesser to get you down below that sort of 100 less . I think they actually have done very well with the 5s and 5c might be a little bit disappointment. Theyre increasing the build which has higher revenue per unit and probably better margin. Do you care about carl in all this . I care. Its fun drama. Its a see it all play out. I think that apple probably surprises you on the upside on the current buyback which is a 60 billion you think you hear that today . I think we hear about better than expected pace for the buyback. They bought more than expected in the june quarter. And the best way to make carl happy is to buy more back. Should you be trying to make carl happy, though . Is that his job tim cooks job . I think thats coincidence, but i think he should be trying to make all of his stake holders happy. I wouldnt mind some tuckin acquisitions, as well. If you actually reinvested all of that cash at a 12 return, i dont know if thats doable or not. Thats another 15 a share of earnings. Wouldnt the market like that better . They would love that. And you can buy back all the stock and get an extra 3 a share in earnings too by 2015. Theres a lot of things you can do. You have this twitter ipo coming. We used to talk about maybe apple needs one of these social media did you have them buy it or no . Twitter . Im saying, theres a lot of things they could do with the money to expand their itunes franchise. Are you satisfied or unsatisfied with the ipads with all the new stuff they announced last week . I thought it was pretty good. I think theres a margin protection strategy apple has, as well, theyre keeping the upper end and letting everybody fight it out at the lower end and saying were going to protect margins, our premium brand and they did that with that launch. You dont think that represents a longterm challenge, though . That the more and more android becomes popular simply because it does take the lower end of the market that more people develop apps for android and start developing them for the apps first and it changes the sort of dynamic equation around all of this. Im definitely concerned about all that. I feel like that is the biggest threat. But one of the things is that apple needs to draw a line in the sand. And what are they going to be known for . And their products are still to this moment getting the most usage in the marketplace. 80 of all tablet usage is done on the ipad. And therefore, if thats the case, theyre going to maintain the great App Development and whatnot because you can get paid for being part of the apple eco system. Its a threat over the longterm. And were going to see how that plays out. But they actually should start to do a little better in china over the next few quarters because i think they have new distribution coming. Distribution coming for a long time. Well, this time, it feels like china mobile really is coming. All right. Thats what, 700 million subscribers . Yeah. That sounds like a lot. Well, its like a lot bigger than anybody here. Right. That could be a lot of units. Thank you for coming in. Thank you for being here in person. We could do it on face time next time, this worked out. Maybe we will. Thats what it was like. Man, dont do that. Walking dead time for a break. We all got to settle our nerves now. I dont want to live in a world where Johnny Knoxvilles movie is thats commentary. Anyway, the Weekend Box Office winners when squawk box comes right back. Capital to make it happen . Without the thinking that makes it real . Whats a vision without the expertise to execute it. And the financing to make it grow . Whatever your goal, it can change more than your business. It can change the future. Thats why, at barclays, our ambition is to always realize yours. But it sure feels that way. Because with power ports. And wifi. And inseat entertainment, for everyone on board, now when you fly, time flies too. Flight Attendant sir, were about to land. vo were adding a brand new plane, with all this, every week. Its just one way were building the new american. 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. Just by talking to a helmet. 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. [ female announcer ] today cisco is connecting the internet of everything. 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. Welcome back, everybody. In our headlines, the prankster comedy bad grandpa won the week box office. After three weeks in first place, gravity slipped to the number two slot. What do you want me to do about it . Yeah, there it is. When we come back, well talk about your tools of the trade. Well find out what investors will be watching as we get ready to kick off another week. Squawk box will be right back. [ male announcer ] at optionsxpress, our clients really appreciate our powerful, 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. The ocean gets warmer. W. The peruvian anchovy harvest suffers. It raises the price of fishmeal, cattle feed and beef. Bny mellon turns insights like these into powerful investment strategies. For a university endowment. It funds a marine biologist. Who studies the peruvian anchovy. Invested in the world. Bny mellon. Welcome back to welcome back to squawk box this morning. In the headlines, the New York Stock Exchange, it says a weekend test run in preparations for twitters upcoming ipo was successful. Twitters expected to go public next week. This was the first time the big board conducted a mock ipo as it gets set for the high profile offering, trying to a void the problems the nasdaq had with the facebook offering. Two former employees of Rupert Murdochs media empire go on trial today. Facing charges of phone hacking and bribery. The two have denied all the charges. And mcdonalds, theyre dropping heinz ketchup from the restaurants. After heinz chose the new ceo. The former ceo of burger king and is still vice chairman of burger kings board. What is his name . I dont know, it was in the teleprompter. I didnt want to mispronounce it. Because of bernardo. You know, you could confuse these things. Bernardo. Needed a pronouncer on ario. Because it could be ario or how do you say it . Heres my question on the heinz thing. Im trying to change the subject. On heinz, wasnt it obvious that if the folks from burger king 3g buys heinz with burger king that mcdonalds is going to say no, of course, forget about whos the vice chairman of the chairman. Ive never been a burger king guy. I like the crazy king because he scared me, but ive never been a burger king. The fries. The fries arent bad too. But why would you be afraid of the guy who ran burger king . Its not that youre afraid of him, youre mad. You dont want to do business with them. You want to put them under. If you can discern the difference between heinz and hunts in ketchup and catsup. Do you know the difference . No. I dont either. What happens when the customers revolt against the bad ketchup . With the exception of two states in the United States, i was looking at this last night, mcdonalds ketchup doesnt say heinz on it. I believe its just in the little packets. Its only two other places that its branded as heinz. Anyway, little heinz trivia. Thats almost as interesting as the what was the other thing you gave us this morning . Oh, yeah, Michael Jacksons doctor got out of jail this morning. He did. I know. Okay. All right. We have some real news besides these discussions about tax breaks. As you have proven. Meantime, we are also keeping an eye on oil and currency levels this morning. Lets get to our trading block. Joining us to talk energy is kevin kerr. We have nick bennenbrook at wells fargo. And i know the this morning has been moving towards a ninemonth low as people get really into this idea that the fed has gone away forever. Weve been talking about that this morning. Are they really gone forever . I dont know if forever. Is taper gone forever . Yes. I think certainly the taperings being pushed out well into next year. Theyre not going forever, theyve gone long enough that i think the dollar will remain under pressure for a long time. Peters point is if the fed says anything at all, theyre meeting this week. And if they say anything at all that makes it look like the taper will be near rather than farther away that the markets could react. A pretty sharp reaction today, and id totally agree with that. It would be very unexpected if we got a signal from the Federal Reserve. At the end of the day, i dont think we will get anything meaningful from the Federal Reserve this week. And the current views of easy policy are going to remain in place. Itll be a slow drift lower on the dollar, we believe. Yeah, id jump in and say janet yellen is hoping for that outcome and draghi is praying that the fed does something to turn the dollar around. The weaker dollar is worse for europe. If you see the papers this morning, the wall street journal has the fed want to have a rule for the taper, put that in play. You know theyre debating this, you know theyre anxious about kicking the can down the road forever. And i think theyve put it off till next year, but they may be under pressure when we get to next year how they talk about next year and even some of those words could give the dollar a little jump. Thats a good point. Everythings priced for the fed making it easy. Weve watched oil prices collapse. Do you think thats because of whats happened with the dollar . Or do you think thats more an issue of whats really happening in the economy . Well, in part in part with the dollar, but also weve seen two weeks of solid builds, we have lots of inventory on hand. Over 9. 2 barrels over the last two weeks. And put a lot of pressure on prices below 100 here. I think were going to remain range bound between 94 and 100 depending on what we see come out in the data this week. Weve had a little lag here because of the debt ceiling, the layoffs, the furloughs, i should say. Thats caught up with the market now and now were going to get fresh data this week. And thats going to determine where prices go this week, i think. Probably close to 100 if we get a bullish report and a bearish report could take us down. Bad news for the saudis because they have promises theyve made. Below 100 makes it hard for them to meet those promises. First of all, do they get nervous at these levels . And second of all, is there anything they can do . Yeah, they do get nervous. And below 100, every notch we go down cuts into their profit margins. And theyre rattling the sabers a little bit. Saying theyre going to cut off diplomatic relations because of syria and that rumbling comes up when the prices start to drop. Thank you for joining us this morning. Thank you. Michelle carusocabrera joins us with a story about a brazilian tycoon who lost 25 billion in the last year. 34. 34 billion . Yeah. March of last year, batista was worth 34 billion. Were expecting a bankruptcy filing any day now. He once said he had more oil than saudi arabia, he was going to be the richest man in the world. There he is, if you havent seen him, a lot of people were familiar with him because he was big on the grand stage for a long time. Listen to what he told cnbc on one occasion. And remember that mr. Batista is a former race car driver. I have created five companies that embedded resources close to 2 trillion. At very low cost to produce it. So its just a question of time. Im sorry. I dont know if im going to pass him on the right side or the left side, but its going to happen. Its going to happen. Take a look at whats happened to the stock and you can see the 2 trillion of assets are approaching more to zero than they got to 1 trillion. He got passed on the left and right side. Exactly. Exactly. He missed an Interest Payment almost 30 days ago, the grace period will run out on october 31st. Take a look at the list of the biggest holders of these bonds of ogx, one of his five companies. Theyd like to say lawyers and bankers to help them in negotiating a debt restructuring. Ashmore, blackrock, and abbott, as well. Whats startling is the rapid decline in the bonds. One of these bonds was issued last year, 2012, 2. 6 billion, it is trading at between 7 and 10 cents. Same with 2011. And a lot of those guys on the list were par value buyers. In other words, bought it full face value upon issuance. They got hammered on this deal. Jim chanos was here recently talking about how he wouldnt invest in Oil Companies because if its a governmentcontrolled company, he doesnt believe the numbers in terms of what they say with the reserves. He pointed out brazil was one of those places. Batisto was working on his own. He got concessions on those fields. Thats not even so they started drilling and it turned out that the areas they were in were a lot more geological complex than they thought they were going to be. He claimed he would produce a barrel at 15 to 18 a barrel. He thought he was going to get 15,000 a day out of wells, and not at a commercially viable price. They couldnt get enough out. If youre going to have enough oil, like compared to saudi arabia, well, you also need a shipping company. Right. Which he started. He also you also need a port 1 1 2 times the size of manhattan, which he built. Its not there. And the oils not there. The whole cornerstone of the shortlived empire is absolutely falling apart. I dont mean to put you on the spot, but you used to run fixed income over at blackrock. Any insight into this . Or just you must be startled by the rapid pace of the decline in the bonds . No comment. No comment. No comment. Im not going to go there. Im sorry. Yeah. This will be a test for brazils bankruptcy laws which are very new and really havent been tested. And im guessing the Global Investors all over the world will be watching. And itll drive our folks think about investing in their country over time Going Forward. Yeah, absolutely. And theres a lot of uncertainty. Theres broadly similar to the United States and one of the reasons im told that he needs to file for bankruptcy is the following. Theres one well left. The last great hope. But all the contractors, the servicers, they dont want to help him drill that well at this point because if he files for bankruptcy after theyve provided the service, they go into the pile with the creditors and theyve got to fight for the scraps. Once the bankruptcy filing happens, similar to the United States you can start to pay the organizations that make the concern and get to the top of the pile. Again, this is not a situation a case of fraud where he was worried about saying the reserves were there and not being there. This is a situation where he built out everything on the expectation so he is being investigated by brazilian entities. No one has said the word fraud in public out loud yet. But they are going over all of the paperwork. Except for becky. Becky. No, its extremely legitimate question. To see a bond plummet that quickly, the first word out of everyones mouth is fraud with a big f. Did he tell people these were commercially viable reserves when he didnt know they were . Thats going to be key. I think the bigger question would be if he knew they werent. Oh, yeah, absolutely. Absolutely. Believe me, there are people investigating the possibility that there is fraud and would like to sue the pants off of him if they think they can make a case. As well as the underwriters of the most recent bond issue. Well, thats my tomorrow story, thank you. Thank you. All right. Andrew. Whats coming up . Coming up, we have merck out with Third Quarter results. Well talk to an analyst and get a preview of what to expect from pfizers results all coming up in a moment. Pfizer, by the way, tomorrow, back in a moment. Cant catch squawk box on television, well, were a few key strokes away. Find the show online and on mobile. 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Every day of the week. Centurylink® your link to whats next. 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. Welcome back to squawk box this morning. Welcome back to squawk box this morning. Check out shares of roper industries, do you think it could be roper industries, joe . Could be, but it isnt. From the maker of engineered products. You can see whats going on with the stock, roper cutting the fullyear profit outlook saying growth in other markets will be slower than expected in the Fourth Quarter. You remember mr. Roper. Threes company was one of the greatest shows of all time. It was. John ritter was a wonderful actor. He was. Lost him too young. Did he really . Yeah. We are yep, we are is that true . We are patico like that. I met him years and years ago on the set. He was you were on the set of Threes Company . When i was a kid. I have a picture of all of them together signed. Was that huge was that suzannesummers or no, it was after that, with i dont remember her name. We lost three guys within weeks that were all 53 years old. John ritter, Robert Palmer and one other person. And i remember that, and thats why they get that thing. Hey, barbara. Hi, how are you . Oh, ah sneak up on me. Merck out with Quarterly Results earlier this hour. Joining us onset is barbara ryan managing director of fti consulting. Im kind of cursed with i remember like unimportant things. And what i remember is that you were never that excited about merck except as maybe a yield stock and im wondering whether youre more excited now or is it still just a yield stock . Well do you remember when you were saying that . After vioxx. Yeah, highcoupon bond. Yeah, what you said. And thats not worthless, thats pretty good information. Thats the one thing i remember. For merck. Yeah. Merck has had a long and very strong history in drug development. And has been an invader in a lot of different categories, not the least of which cholesterol, osteoporosis, vaccines. But they go through their cycles. And so merck has had a very difficult time with generic competition which is, you know, ubiquitous to the industry, obviously, and comes and goes. But the Company Continues to invest heavily in r d and obviously is committed to that. They are suffering through the last of the generic competition for singulair. This morning they beat earnings estimates, narrowed the range in terms of the forecast for the year. Lowered the bottom and lowered the top. And the company has recently n done two things. One is hire a new research director. Who had spent the last year at amgen prior to that at merck. He has come back and restructuring that organization. The company has restructured the entire organization which is pretty typical of whats happened in the pharmaceutical industry, obviously, over the last couple of years. And they do have some late stage products which the market is looking towards. One is ammunotherapy for oncology and the other most notable would be a base inhibitor which is being developed in alzheimers. Thats been a graveyard for the industry, obviously, but if there are any breakthroughs there, that would be extraordinarily powerful. Not just for the companies involved, but obviously for the public at large. How would you say that ken frazier has done it . Hes its not his fault that the research thats not necessarily the ceo not all the times if theyre former research directors. Has he got the trains running on time . Running the company well . Absolutely, i think a couple of things have happened. Obviously the generic competition which has hit them. Theyve had some disappointments in research and development. Theyve gone after some novel targets and those havent played out real well. They have some other, as i just mentioned, shots on goal. And i think merck is a company that has always culturally been very committed to the longterm. And i think there are four Pharma Companies that over the long haul, 30, 40 years have returned better than their cost of capital in r d and america has be merck has been one of them. Frazier well, ken frazier managed that incredibly well unlike wyeth where they got eaten alive by the liability. And i think that these liabilities are something that have to be strategically managed. Should they acquisition . What should merck do now . I think merck will be more in the areas where they maybe lag the industry somewhat. The company has, i think, the former and wellknown cfo of merck have once said, you know, we tolerated internally extraordinary risk and our r d efforts very little from the outside. And i think thats really changed at merck. And i do think that roger will likely be more aggressive than the company has been in that regard. Well, but do you see the Pharma Companies actually getting smaller Going Forward as opposed to larger. It would seem to me that merck has announced a massive restructuring plan. Are they going to follow the pfizer playbook which feels like you have just lots of different businesses that all come to the market over time . Its a great question. And i think theres no one size fits all. We look at the industry today. Historically the companies would all follow the leader. Now weve got companies that are diversified, whether it be novartis j j, they are diversi diversified. Pfizer, 80 of their profits came from pharma. While they were diversified, they werent really diversified. And now has a 16 billion market cap and pfizer stock is higher than when they spun that out. Theres a lot of pressure on companies that have underperformed to do that. And the question is, are those businesses better served internal to the whole . I think theyre a little bit on their back foot because the stock hasnt performed well so theres pressure to do that. Pfizer is going one step further now and theyre going to separate with three p ls, one is the innovative core and the other is consumer and we vary in trying to own businesses with a strategy. Were going to be watching about how they think about the Animal Health initiative. Does that belong in a Pharma Company or not . Theyll be pressed on the call at 8 00 this morning. Weve thought of that. People are animals, too, maybe thats what im thinking. I dont know. One or the other. I think its a transitive thing. Barbara, thank you. A lot of these companies had thrust upon them being smaller. Yeah, they had to restructure their way out. Hurts if you lose lipitor. Later, well be getting a read on the consumer from the chairman and ceo of Ethan Allen Interiors. Stick around, squawk box will be right back. 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. Because what you dont know can hurt you. Urance, what if you didnt know that its smart to replace washingmachine hoses every five years . What if you didnt know that you might need extra coverage for more expensive items . And what if you didnt know that teen drivers are four times more likely to get into an accident . sup the more you know, the better you can plan for whats ahead. Talk to farmers and get smarter about your insurance. We are farmers bum pa dum, bum bum bum bum help the gulf when we made recover and learn the gulf, bp from what happened so we could be a better, safer energy company. I can tell you safety is at the heart of everything we do. Weve added cuttingedge technology, like a new deepwater well cap and a stateoftheart monitoring center, where experts watch over all drilling activity twentyfourseven. And were sharing what weve learned, so we can all produce energy more safely. Our commitment has never been stronger. Welcome back welcome back to squawk box. Lets get the last word from our guest host. Just for this hour because we have another hour to go. Charles cantor has been with us and youre going to be taking off in a moment. How bullish should we really be . I think for longterm investors, you should remain optimistic. And i think its going to be really hard to meet your goals in the fixed income markets Going Forward. Fixed income have provided a tremendous return looking back 10 and 30 years. I think everyone should ask themselves not about the last ten, but how is the next ten going to shake up. And in that view and what percentage of assets would you have in fixed income . Zero . I think itll produce close to a zero return over the next three years. Fixed income is a mathematical equation. You guess where rates are, plug that in and out comes the answer. I think ive always said Asset Allocation models arent designed to work with low Interest Rates. Less versus more. Charles cantor, thank you for being here. You can comment on that when we come back. Coming up, the dows less than 500 points from Jeremy Siegels yearend prediction of 16,000. An outlook on stocks between now, january and im sure well go into 2014. Be right back. Mine was earned orbiting the moon in 1971. Afghanistan in 2009. On the u. S. S. Saratoga in 1982. 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Flight Attendant sir, were about to land. vo were adding a brand new plane, with all this, every week. Its just one way were building the new american. Green green flags for the markets. Ive got a message for all of them, right. Shake and bake. What does that do . Does that blow your mind . That just happened. Will the gains continue . Jeremy siegel will join us with an update on his bullish target for the dow. Apple reporting Quarterly Results after the bell today. Wheres the joker . I dont know. Where is he . No idea. Come on, siri. This is harassment. Were going to talk to an analyst on more of what to expect. And well get a read on retail and the consumer from the chairman and ceo of Ethan Allen Interiors. The third hour of squawk box begins right now. Welcome back to squawk box here on cnbc first in business. Worldwide. Did you listen to the words . You keep me hanging on. I dont know. I dont know why were just. I dont know. I dont know why were trying to keep them hanging on. Is that what it is. Hanging on every word of yours. Im joe kernan. Our guest host this morning continues, peter fisher, senior director at the Blackrock Investment institute. You sound more, you know, less just interested in profits and business and everything. Its an institute youre heading up now. No, this is how we get our Portfolio Managers to be smarter at making money for our clients. Its an institute. No i think youre focused on the word, no the what we do. Was it lou reed. See i only know. I guess we can play walk on the wild side. We couldve. Right now, lets get to some breaking corporate news. And kate kelly joins us with more. Thanks so much. Consol energy to sell about 3. 5 billion of assets to the privately held Murray Energy. Part of consols attempt to get in the natural gas business. Part of this deal im told within a few years time. It could be about 50 50 natural gas and goal in terms of its revenue model. In the last month or so a lot of speculation it might split into two parts. Instead, its going to sell the five coal mines in the u. S. To Murray Energy in a deal valued at 3. 5. A couple of different issues with the steel. Roughly 200 million in future payments involved. Murray taking on about 2. 4 billion in future liabilities as part of the sale. Thank you so much, the ceo of the company will be joining us at in the 10 00 hour. Hell be speaking to us on squawk on the street later. Maybe this is one we should count as a score for confidence. Merck reporting earnings of 92 cents per share. Beat wall street expectations of 88 cents. Revenue also topping estimates. And the companys fullyear earnings outlook is also slightly above current consensus. We also have some car news this morning, which is that toyotas keeping the top spot in autosales ranking. Topping gm and volkswagen. Topped about 7. 4 million vehicles in january through september. Thats up. 1 from the same year ago. And finally, a little twitter news, the New York Stock Exchange did what it is now calling a successful test run of twitters ipo, trying to avoid the types of problems that plagued facebooks offering on nasdaq. Ran a simulated ipo. They wanted to see if it would work. If it worked. Im surprised, theyve never tried that before . Does that mean that nasdaq didnt try that either . Youre not seeing the connection. Maybe the website that the government checked to see if you could log on. Oh, that medicare . Obama care. Health care . A dry run . Just once . Did you see oregon zero people. Weve got to take a quick check on the markets, take a look at u. S. Equity futures at this hour. Dow looks like it would open up about 6 points higher, s p 500, little over a point and the nasdaq up, lets call it close to five points. Squawk market master Jeremy Siegel made his call for the dow back in january 2012. He said there was a chance of reaching dow 16,000 by the end of this year. Jeremy, it was a good call, looking at how far weve come since then. Where do you think we end up this year . Well, i believe its going to be between 16 and 17,000. As you said, 500 points is only about 3 . And november and december are usually pretty good months and i think i think the economys going to hold in here, tapering has been delayed, expectation not until march. So theres no major uncertainties that are hanging over the market, at least in these two months coming up. Youve been very right. Youve been very bullish. But is there anything that kind of shakes your confidence and you look and think, okay, if this were to happen, all bets were off . Well, we you know, again, i think that the long bond down at 2. 5 , i was a little worried when it got to three. I thought that was overdoing it. 2 1 2 is a very comfortable position of the market. If they begin to fear prematurely that the fed is going to tighten. You know, i think europes recovery is i think you might be a little too bullish there. I dont the euro 1. 38 seems too high to me. But none of that, i think, is going to be really critical to bringing down the u. S. Market. I think were going to get a tail wind of Fourth Quarter comparisons the last year. One of the good things about rising Interest Rates is that the Pension Funds are a little bit better funded this year than they were last year. And that was one of the things that dragged down Fourth Quarter earnings last year. I think we get a little tail wind on earnings, year to year comparisons are going to be looking good. Dividends up 10 to 15 per year and still rising strong. This is a very favorable climate for equities. Our guest host today is peter fisher and what do you think about what jeremys saying right now. If we end the year where you think at 17 and going into january, let me get you to give us a prediction for next year. Dont have a lot of good news priced in if we get to 17 by the end of the year, dont we . Well, i say between 16 and 17. Okay. 17, thats i think thats a little bit of a stretch. I thought there was a chance of doing that. And clearly there is, i mean, if im going to give a point, i would say 16. 4, 16. 5, and another 10 to 12 . I think next year because my feeling is that gdp is going to accelerate next year, 3 to 3. 5 from the 2 were stuck in this year. And thats going to make a good climate for growth. Dont you think the feds going to have to move a little faster than we all expect . If you get 3. 5 gdp next year. If we can get 3. 5 gdp, the market could take a tapering down to zero. Dont forget, the first rate hike is not expected right now. If you look at the futures market until april or may of 2015. So, you know, fed funds at 0 to. 25 for another year, year and a half, i dont care if they taper down, thats a favorable climate. Did you get worried when we saw last week the ten year falling back down to 2. 4 . Would that worry you if it fell below and started moving back towards two . Well, thats a sign that a real slowdown is coming. Obviously youve got to worry on that side. But with all this uncertainty with the fiscal, you know, the tax increase, the Government Shutdown. I mean, looks like about 2 Third Quarter, 2 , Fourth Quarter, fiscal drag, you know, you guys have been zandi and others, i agree with that, about 1. 5 this year. Take away that fiscal drag and you get 3. 5 next year. Im on record saying theres going to be no slowdown in january or february of next year. A whole year with a committee thats going to be appointed january and february to look in the entitlements. Thatll be off our plate and thatll be a very, very positive factor First Quarter 2014. I did see you were a little worried, though. You thought it was a long shot. If the u. S. Debt was downgraded again, you would think that could be incredibly bad news for the markets. Oh, yeah. If it would and theres another standoff and gets more serious. You know, theres still 2 trillion, 3 trillion abroad and sovereign wealth funds. If they get nervous, boy. You know theres going to be a market reaction. But my feeling is theres not going to be a shutdown and were going to push that limit back much earlier than we did last month so that id regard that as a strong possibility. I cant remember if it was in the New York Times or the wall street journal, but just the idea that inflation is running at a lower than desirable pace, thats a huge concern too. Does that bother you . Thats an interesting point. I did read that New York Times article. You know, going down too much on inflation could be as damaging as going up on inflation. Theres an awful lot of debts in the economy and, you know, if we ever get to a deflationary mode, thats one reason why the fed is so intent on avoiding that. The debt burden becomes very, very strong. 2 , and, remember, we had several express worry that was going too low during the last meetings. So they are aiming for that 2 . If it goes down to zero or one, i wouldnt be surprised if they increased qe. I dont think thats going to happen. But its not out of the question. All right. Thank you very much for joining us this morning. Its great talking to you. Again, our guest host peter fisher is here, with us for the rest of the program. And coming up, we heard the bullish case, but could red flags in china derail the rally here. Up next, were going to talk to two china experts about inflation and the real estate bubble and investment. And a read on the American Consumer from the chairman and ceo of Ethan Allen Interiors. Check out the squawk box market indicator. 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[ man ] we are the United States postal service. [ male announcer ] and our priority is you. Go to usps. Com® and try it today. Welcome back to welcome back to squawk box, everybody. The futures have actually turned around this morning. We had been looking at the dow futures indicated up by about 35 points, now indicated down by about 16 points. Thats a drop of about 16 points below fair value. Okay, yeah. Weve heard the bull case for the u. S. Markets but could head winds in china derail the rally here. This morning to talk about, peter novarro, director of the film death by china, and the chief investment strategist. Good morning, guys. Good morning. We were just talking about you before we got to you during the break. And he had the question, im going to ask it if i could take it out of your mouth. Sure. Which is, forget about what you think is happening in china right this second. What do you think the party when they come together next month are actually going to say . And what is that ultimately going to mean to the economy . Ill start with you, peter. Well, what theyre going to say is probably going to be different from what they actually mean. Look, the problem in china right now, the only problem really is inflation and possibly related real estate bubble. The inflation is problematic because it could trigger political problems and tighter Monetary Policy which would in turn kick off the domino effect in the real estate bubble. Theyre going to say theres no problems here, everythings wonderful. But everythings not quite as wonderful. The good news is, that youve got the two biggest consumers of china, the u. S. And europe recovering smartly. And you also have the best trend, i think, in china as the emergence of the domestic consumer which will get them off their export dependency. John, where are you on both the real estate bubble issue and more importantly, economic growth, which has clearly calmed down, but the question is, where does it settle . We agree about something finally. Its the consumer. Thats a great story. Good morning. In china, when they have the meetings, theres pr after the meetings, but the government conversations are all about the recent transition of power, its mostly corruption. Theyve got a boat load of problems. But theyre sort of micro problems. Its air, water, pollution, corruptions a big, big deal. So theyre going to be heavily occupied. The economy is slowing in a sort of a long run way. Its gone down from sort of 9, 10, to 7 1 2, 8. On the way longer term to lower numbers even. Consumers are spending, incomes are a little slower than they were before. Real estate prices are up a little bit. But wholesale prices are actually falling. And so theres no i dont think theres any huge blowup story going on there. Its more of a in the clouds of dust policy. Theyre not ready for prime time. John, when you say 7 1 2 to 8 , thats where we are right now. Yeah. How quickly does it get worse . And what does it get worse to . The big story there is restructuring. Its what peter was talking about is that this quarter for the first time, spending on services in china have actually exceeded spending on manufacturing and construction. Theyre trying to get more services, less construction and manufacturing, less mining and other heavy duty things, less infrastructure spending. And that takes a very long time to do. They made a little bit of progress, but its going to take a long time more. In the meantime, theyve got to keep incomes growing for farmers so theyre happy, incomes growing for migrant workers, both are growing about 10 real, 13 nominal. Its not going to blow up tomorrow. But, yeah, the Real Estate Market there as peter said, its just like a whip saw, goes up, goes down. Always trying to pull it one way or the other. Right now, its going up. But i dont think thats whats going to blow up there. Peter . Well, i think about whether inflation and urban centers gets a little high. They want to keep urban wages growing. I think its a little more delicate to get a soft landing even in chinese terms by soft landing. Thats real estate bubble, debt problem still trying to count all the debt in china. And theyre trying to keep Household Incomes up. State and local debt, youre right, peter. State and local debts a huge story. Its where most Central Government revenue goes. And its a huge number you know, can i say one thing here . Yeah. I think the longer term problem. Were talking about investors in china, right . Thats cool for a year or two or three or four. But if youre a corporation basically offshoring your production in china, i think that has to be in the story for two reasons. One, youve got rapidly Rising Labor Costs there, and two, the costs associated with the air pollution and water shortage problems are going to be very, very significant. And the second thing is the rise of the chinese military. If you look at what happened in 2012 with the kerfuffle between china and japan, what happened to Japanese Companies in china, it was carnage. And my advice to every Corporate Executive now, dont put more than 10 to 20 of your production offshore to china. And dont put any new production there. You believe what is going to happen . Because whats going to happen is, lets say japan and china get in a conflict over senkaku islands, we are committed by treaty to defend japan. As soon as we do anything with respect to that, therell be riots in the street in china just like there were in 2012 for the japanese. And our corporations will be subject to all manner of destruction, boycotts and the like. But that thats a doomsday scenario. No, its not doomsday. Its a realistic scenario. Because china is the only country in the world, now thats really preparing to go to war against our country. And i think weve got to be realistic. Brazil we would never have this concern. Is this realistic . No, i think what is realistic is that inside china now, growth is slower than it was. Absolutely there are issues there. The the growth of china getting to be larger than the u. S. , i agree with peter, thats going to be a huge story. What about this its going to go on for decades. What about this military . Why are we pivoting to asia . Why are we pivoting to asia with our military . Ask that question. And then look at the implications if you look at that from the perspective of beijing. They see us pivoting to asia and thinking were just trying to contain them like its the 1950s against russia. Thats thats incendiary. You say the markets not ready for prime time in china. Would you put more than 10 or 20 of your production facilities in china given what he just said . Depends on what youre putting them in there for. The game to import back here is finished and manufacturing is actually moving out of Southern China elsewhere into asia right now. But moving operations in order to service that growing chinese consumer. Its a local manufacturing, local market, rising middle class story. That storys going to get bigger. I totally agree with john on that. They put all sorts of regulatory barriers to get into that market. But if youre trying to produce there to sell to europe or to the u. S. Or to africa or whatever, dont go there. Go beyond. The reason is because you dont want that exposure. Weve got to leave the conversation there. Its a debate im sure will continue. Peter, john, thank you for joining us this morning. Thank you. Appreciate it. Did you see irvine . Yep. I believe thats the only college that offers a walking dead survival online course. Did you know that . Really . Honest to god. No. Did not know. Coming up i dont know whether he knew about it. What can you take away broadly . I mean, theres a lot of reasons you may need to survive. Other news tips you need to know. Did you ever see the will smith movie, i am legend, that has nothing to do with zombies. It was the vaccine they gave everyone. Yeah, by Kenneth Browns wife i bring you news that Michael Jacksons doctor is coming back from prison. The news i want is Michael Jacksons coming back and that would be coming up, we have other news, talked about twitters ipo, but another social network may be headed for public offering. And then were going to talk to an analyst about apples Quarterly Report coming out after the closing bell. Back in a moment with more squawk. Twins. I didnt see them coming. I have obligations. Cute obligations, but obligations. I need to rethink the core of my portfolio. What i really need is sleep. Introducing the ishares core, Building Blocks for the heart of your portfolio. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Welcome back welcome back to squawk box, everyone. A popular mobile messaging service may be moving closer to the day it goes public. According to the wall street journa journal, snapchat is considering a second round of fund raising perhaps as much as 200 million. Just a few months ago, snapchat raised about 60 million and valued the company at about 800 million overall. The reported new round might value snapchat as high as 4 billion. Snapchat is a service whose messages completely disappear after a short time just a matter of seconds. It doesnt yet make money but its usage is soaring. When we come back, apple reporting today after the closing bell. Up next, well talk to an analyst for what to expect from the apples Fourth Quarter numbers. Squawk box will be right back. [ horn honks ] [ male announcer ] once in a while, everything falls into perfect harmony. [ engine revs ] and you find yourself in exactly the right place at the right time. Just be sure youre in the right car when it happens. The 2014 cclass sports sedan. Power, performance and style in total alignment. See your authorized mercedesbenz dealer for exceptional offers through mercedesbenz financial services. 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. Ido more with less with buless energy. Hp is helping ups do just that. Soon, the worlds most intelligent servers, designed by hp, will give ups over twice the performance, using forty percent less energy. Multiply that across over a thousand locations, and theyll provide the same benefit to the environment o o. Welcome back to. Welcome back to squawk box. Futures right now indicated down. I can tell you that merck is now down about 1. I was trying to figure out the broader weakness. You know, we started up with futures up about 35 points because asia ended very strongly too. Merck missed on a diabetes drug. And the estimate was 793 million and it was 702 million, and that has analysts saying theyre going to have to back off the Prior Guidance of mid single digit year on year. Its the most important drug now, diabetes drug. And that was below expectations. Thats what people are attributing or because the company just if on adjusted basis, it beat expectations. Lets look at some stocks to watch in todays trading. Reported quarterly profit of 2. 35 a share. What a stock. Somehow icahn was in here too. Beating estimates of 210, revenue above consensus driven by sales of the companys multiple sclerosis treatment. And biogen also raising the fullyear outlook. Roper industries missed estimates by 3 cents, Third Quarter profit of 1. 32 a share. Revenue also fell short. Cut the fullyear forecast saying growth in some of the markets will be slower than expected during the current quarter. And andrew met john ritter on the set of years ago. Threes company. Do you remember who follows who followed mr. Roper . There was a lot of changes. Do you remember . I finally came up with it. Who . Don knots. Loved him. Yeah. I thought about wearing an ascot back then. Oh, my god. Oh, my god. What . I had a bow tie. Thats priceless. Youve got to invite me back for that date. I dont know how to tie a bow tie and i dont know how to work excel. And crocs is taking a hit this morning. Im not allowed to go outside with them. Your wife has a lot of rules. There are a lot of rules. Theres a lot of rules. No cargo shorts. No crocs. No sex during the week. Where did you that i didnt know about that rule. Tmi. Downgraded from neutral to over because shes not home during the week. No, kidding. Neutral to overweight, which cites promotional discounts. And shares of Consol Energy lower this morning. Consol has agreed to sell a coal mining subsidiary for why are you glaring at me . Put your sunglasses on. Only during the week. Thats right, you guys got that. Brett harvey will be on squawk on the street a little bit later. To talk about the deal. You have a 2yearold. So, this is like anyway, go ahead. All right. Apple is due to report its fiscal Fourth Quarter earnings after the close of trading. Its coming after the close of trading today, the focus is expected to center on the companys guidance for the First Quarter. Joining us right now with his expectations for apples earnings is the analyst at Hudson Square research. And dan, you raised your guidance recently, or your expectations for what you think for this current quarter. Why did you raise it . Well, it was really just the, yeah, growth of the sales, they already reported on the iphone and actually issued an 8k at that time saying the revenues and earnings would come in at the higher end of the guidance. Really the quarter almost doesnt matter because theyve kind of given it to us already. So as has been the case for the last year or so, whats much more important is the guidance. And i think on that thing, were a little bit constrained because last year this time, they launched the iphone in china in the december quarter, not september, so we had a bit of the pull forward in the sales report tonight. Taking a look at kind of a step back. I think the issue for apple is tonight they report not only the quarter, but the end of the fiscal year. And earnings for the full year, i mean, down about 9 , yearoveryear. A year ago when we report the year, earnings were up 60 . So if you really want to explain why the stock went from 700 to 400 and now at 500 and change is earnings decline. They didnt slow, they declined. And so the real key for apple is can earnings grow again. When theyre going to grow again and by how much. Right now were forecasting a moderate recovery in earnings next year. But historically, when you see that kind of Second Derivative go positive like that and hit the bottom of earnings. Earnings are going back up. I think its a pretty positive story. I think that gets me kind of excited. You do think they will accelerate again . Is that because you think theres going to be new innovations . Or is that because you think they just keep coming out with similar things like weve seen this year . What happens . Yeah, i think its a combination of those things. Just from a tactical perspective. You know, a year ago, they introduced the ipad mini which dramatically lowered their gross margins. Was that only a year ago . Yeah. Wow. And now listen, the ipads only 3 years old. This is a complete change in Computing Technology and thats its still really new in the process. I think ipad has a lot of room to grow. One anecdote, we do this annual college survey. And you would think every college kid would have a tablet by now let alone an ipad, but only 40 of our kids in the college survey this year have a tablet. Whether it was amazon or googles or apples. Theres tremendous room for growth. But the ipad, next year well overlap. Were going to overlap that step down in gross margins. And so kind of resets the bar. So unless theyre introducing a lot of new products that lower gross margin than i think what we saw last week is not doing that. They actually raised the price of the ipad. Theyre bundling more software into that. But giving away all the updates for free for the mac and give you iwork and ilife for free. They raised the price of the hardware. Were seeing a bottoming of earnings this quarter, earnings start to rise gradually. Were off to the races with earnings growth. And at 12 times earnings, no ones really pricing in dramatic earnings increases. No ones really thinking theyre going to innovate again. Dan, question on this whole software bundling thing. Do you actually think the consumer says to themselves, wow, im the price of this machine went up but i get all this free stuff so its actually worth it . Or do you they say to themselves, wow, the price went up and they dont always appreciate all the addones that the software ultimately costs them . Yeah, thats a great question. And i like to believe that apple is really a luxury good. Its a luxury product. And when you go buy a luxury good, youre not expecting to have to do a lot of work for it. Youre not expecting to have to, you know, attach yourself, to have to sit there and nickel and dime or getting Leather Seats in your car or sunroof. That comes in a mercedes, that comes in an audi, its there. Youre getting the service, the sort of door to door service when your car breaks down. I think that apple was a lux luxury product. Theyre pricing it, servicing you like a luxury good. For their consumers, they do get it. But does the broad market understand whats being bundled in . And probably not. All right. Real quickly, your price target is what . The stock is trading right now at 525. Right. Well, listen, if the if apple were to trade on par with the s p, saying this is just an average company in the s p 500, 15, 16 times earnings, gets you close to 700. I dont think we get there tomorrow. But i think its definitely not an average company. I think its an above average company. But right now, you know, doesnt look like that way. Growth is expensive right now. You want growth, youve got to pay. Twitter is 233 times adjusted ebitda this year. Right. So youve really got to pay up for growth. And i think that at 12 times earnings, youre not paying a lot for apple to potentially innovate again and i think they will. Okay. Dan, thanks a lot, great talking to you. Thank you. When we come back, well get a read on the consumer. We have the chairman and ceo of Ethan Allen Interiors. Hell join us onset to talk about the latest quarters. Stick around, squawk will be right back. When we made our commitment to the gulf, bp had two big goals help the gulf recover and learn 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. 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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. Welcome back welcome back to squawk box, everyone. The futures this morning are a little bit weaker. Dow futures down by about 14 points, s p off by over one point. Weak numbers from merck. And that stock has been indicated lower this morning too. Okay. Ethan allen slid 10 , reporting a drop in demand and a cautious consumer. Joining us now, chairman and president and ceo of Ethan Allen Interiors and an old friend of the show. Great to have you in because its how better to really look at whats happening in housing . And i hate this term that you start with. It really is kind of a new normal right now. Have you ratcheted down overall expectations after what we went through . Yeah, well, good to see you again. Yes. It has been some time. It has been. You know, we are actually going the other way. We have an initiative that is the largest in the last 10 or 15 years. Going from a leader in furniture to leader in whole fashion. We launched this in september and really right now in october at a time when we have had all this concern about a Government Shutdown and Everything Else. Now having said this, yes, the business has been affected to some degree. But, you know, we have to think of the future. We have to make sure that we position ourselves. Were a vertically integrated company. Six months, one year, two years from now, not whats going to happen in the next week. So we are taking a very strong but, of course, cautiously position of expanding our offerings, expanding our reach. You can hire people. Weve got to take steps and, in fact, you know, when i listen to the news, it gets you somewhat concerned and you say you better back off. But we cannot back off. We to remain cautiously optimistic and move forward and thats what were doing. There is something that what do you always say . Around this table. Around this table. We talk a lot about main street and wall street and the difference between the haves and have nots. You make the point that not everyone is doing as well as maybe 10, 15 years ago. You need to sell to the high end. Are you high enough end at this point . Well, we have to do more than that. Ive got something a present for you. We are launching a program. Our whole marketing under this brand i dont even know what that means. Ill tell you what it means. Youre eclectic, arent you, andrew . Yes. This is wonderful stuff. It means some people today are interested in color. Interested in mixing in styles. They do not really want to live in one style. So this question of being, you know, upper going to the upper end or the lower end, no. We are today reaching our core customers still a baby boomer. But what we are doing is through our efforts reaching what you call the gen xs, a Wider Consumer base. Right here, we have trying to reach you. Theyve been reaching me, the baby boomer. I have a question, which is youve looked at the success, i have to imagine youve seen the success of what Restoration Hardware has done, which i think have they rebranded themselves officially as rh now . Or is that for some of the stuff . They are in the process of using both names. What do you make of two things, one in terms of what theyve done in terms of positioning themselves and other places and two, the stocks been on a run and i imagine thats where youd like to be. Well, theyve done a good job. They have only in the last three years repositioned themselves. Their focus has been to build a great amount of sales. And i would think that profitability probably will come later. But in our case, you know, we are an 80year young enterprise, vertically integrated. We run our business for a longer term. If our objective was really only looking at the stock price, our strategies might have been somewhat different. But thats not what it is. Their strategy is different. Strategy is to build a business over the longer term. When you say this has become a fashion business at some level. That makes it harder. Fashions go in vogue, out of vogue, the styles change and they change even faster when you position yourselves as a fashion brand as opposed to a furniture brand. You know, we dont have an option. You know, we have done many reinventions. 30 years back, when we reinvented, we thought we did it for 10, 15 years, we were okay. Today the cycle has become shorter and shorter. Today, an organization, Restoration Hardware, theyve done this in the last three years, good job. Today, if we do not do what were doing, were going to be left behind. Becoming a fashion brand means you are relevant, reaching a Larger Consumer base and thats why were doing it. Are people changing their living rooms and dining rooms repeatedly . Meaning, i grew up in a house, frankly, if you go to my parents house, the dining room we had as a child is the dining room we have today. Yep. Are people every five or ten years deciding that they need to refresh the entire living room or dining room . What theyre doing is like you do in fashion. Its the accessories, the jewelry that makes it. If you take a look at what were doing. And, in fact, what i just gave the october magazine. Youll see great amount of fashion through textiles, through color, through fabrics, through accessories. Thats what people are changing, yes. I dont think many people are going to change their whole bedrooms and dining rooms. But they are going to update it as we do our clothing. Are you trying to make these investments to grab more market share . Or do you think youve got a rising market . Is your market shrinking . Well, there are a number of factors. First of all, as i said, we have to be relevant. The consumer today is eclectic, which means, today the way you dress, what you eat, even automobiles have color, cell phones have color. Color and mixing of styles has become important. What were doing is were becoming relevant in the way we reach our consumers. And then the gen xs have somewhat a different perspective than the baby boomers. They are much more willing to mix styles. The baby boomers are somewhat comfortable in living with one style. So today, whether it is fashion, clothing, whether it is home, whether it is automobiles, you have to be eclectic. Means you are comfortable with mixing styles and youre bringing color. And what we do is through our 2,000 interior design es, we provide a service unlike a lot of other companies. Youre all over the place too. Thats hard too, figure out fashions around the world, right . But fashion is becoming somewhat more universal. 30, 40 years back if you went to, lets say one of these exhibitions in europe, there was a rule for the italian fashion, french fashion, germans, americans, not anymore. And especially if you look at the younger people at the way theyre dressed, you cant differentiate. Fashion is becoming more and more universal. Some differences, but our focus is, of course, we cannot reach all the people, but certainly with the level of quality and service we are providing, thats how were branding it. Beautiful brochure. Anyway, thank you, its been a while. Good to see you too. Thank you. Coming up next, were going to head to the New York Stock Exchange, jim cramer will help us get ready for the trading week ahead. Stick around, a lot more. 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. [ male announcer ] staying warm and dry has never been our priority. Our priority is, was and always will be serving you, the american people. So we improved Priority Mail flat rate to give you a more reliable way to ship. Now with tracking up to eleven scans, specified delivery dates, and free insurance up to 50 all for the same low rate. [ woman ] we are the United States postal service. [ man ] we are the United States postal service. [ male announcer ] and our priority is you. Go to usps. Com® and try it today. At bny mellon, our business andis investments. S you. Managing them, moving them, making them work. We oversee 20 of the worlds financial assets. And that gives us scale and insight no one else has. Investment management combined with investment servicing. Bringing the power of investments to peoples lives. Invested in the world. Bny mellon. Welcome back to squawk box. Lets get down to the New York Stock Exchange where jim cramer joins us now. We could go a lot of places. Where do you want to go . Pharmaceuticals, biogen, very, very exciting stuff there. Bristolmyers as more of a cancer biotech play in the constructs of a regular phrma. That diabetes drug, i cant believe that is down. We have apple coming up after the bell. What do you do ahead of it . Your guess was right. I think a little bit of revenue and you are in good shape. This stock has got in icon bluff in that if they deliver gross margins, you can see the stock can slip back. The bar has been raised by icon, which is a shame. It is a new product story. I think they are good. I cant tell you i think it is a great trade. It has had a great trade ahead of the quarter. Do you think icahn is a good thing or a bad thing for apple . The focus is on innovation. They have an opponent, samsung, that is also about innovation. I believe with carl that you should maximize your cash position. Any eye off the ball against samsung is a second you cant have. The proposals that carl wants, by are buybacks, dont grow the company. Anything else is a side show. Carl is about discipline and doing good things in many different companies. In this particular company, you need that cash to be used for growth. The focus needs to be on the product. It just his whole analysis is so product void that it just captured the wrong soul of apple. Jimbo, will you join me . I want to rise above too. Everybody has their own vision of rising above and winning the u. S. Back. Some people think that its that were telling congress to lay down and do whatever the white house wants. I have a different take. Im talking to the white house too. The report, an editorial about u. S. Corporations. If you take in everything they have paid in taxes, 25 plus. 31 out of 34 countries have been lowering the taxes. Only chile, norway and the United States are the only ones that havent. Dont you think we would get more jobs . Isnt that the one thing . The president has been amenable to it. Thats the one thing we could do in the next three months. Lower the Corporate Tax. Yes, make a deal with the company. The president may think, harks they brought the money back and all they did was raise the dividend. But lower the rate, bring back its crazy. We have Companies Moving to ireland. Ireland is very, very robust economy now. Whats the point of that . They are still focused on borrowing more money from china and using government money to create jobs. This is the way to create jobs. Given the fact our labor costs are low and our energy costs are among the best in the world, there is really no reason not to do business here. If we do business overseas, labor is much cheaper and energy much cheaper. Both are in the squeeze box. Let them send it can ba. Start building plants where there is oil and gas. Get away from the progressive notion of punitive measures against businesses. There is a disconnect between who creates the jobs and you have got to embrace. You have to embrace Corporate America if you want jobs. When we were doing the spot, i said, why dont we have a tenpoint plan to create jobs. Neither side is against creating jobs. They both dont have any momentum towards it. Yours is a great idea. You want to create jobs, tell everybody, bring the money back n you know we are the cheapest place to build. You have to get the money repatriated. I want to cut those rates. A great call. Jim cramer, we will see you in a couple of minutes. Were back in a moment. 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. 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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. 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. Our guest host, peter fisher, gets the last word. Thanks, fed meeting this week. I think the feds put off tapering until next year. They are going to have to Say Something that tells us about the path that could disappoint to the down side. We dont want to hear anything about tapering. The markets have decided we are not listening. They are going to have to Say Something to get the other members of the committee on board. My pleasure. Thanks, everybody. Squsquawk on the street begins right now. Our our thoughts are with lou reed. Im Carl Quintanilla with jim cramer and david faber at the New York Stock Exchange the final week of october as stocks extend their winning streak to three weeks. Apple reported tonight. A fed meeting starting tomorrow. Tenyear yield above 25, we have some twos, fives, and seventh on deck