Transcripts For CNBC Squawk Box 20140506

Continues. Bayer will buy america consumer over the counter business for 14. 2 billion. Also the two companies are establishing a have a teemgic collaboration in cardiovascular diseases. And this will vowill involve me paying 2 billion to bayer. But again, the big headline here is the 14. 2 billion deal for mercks over the counter consumer business. Why is there so much deal making going on in pharmaceuticals . This has been incredible. Weve seen a swap from glaxo and novartis. This is a way for companies to hone in on what theyre good at. Were hearing a lot of pharmaceutical companies saying they need scale, they need to cut costs and they want to be number one or two in positions where theyre playing. So areas where theyre a little bit smaller, were seeing these asset swaps. And now of course this is all set against the backdrop of pfizer making its 106 billion bid for astrazeneca which is eclipsing Everything Else going on in the industry. But this is a big deal for merck and one its pointed to for a long time. How much of this deal is being driven by Tax Implications . By bayer, not bayer by the way i think they call it bayer aspirin. I have heard its bayer. They are the buyer. But being the buyer, in part being driven by taxes in the savings and come with if because their tax rate is lower, how much should we take away from that . Well, in this deal, they do say that theyre going to have some tax synergies, some tax savings. They will also get cost savings, about 200 million that they expect to be able to save in sippsip sipper synergies. Tax issue is huge, but mostly in the pfizer in the uk. Synergies. Tax issue is huge, but mostly in the pfizer in the uk. Reincorporating or doing a deal with better terms speaks to the tax issue. We had a guest on yesterday that said almost all of these deals are tax deals, Financial Engineering deals, that there are no growth deals out there, deals that will get people together in order to grow product lines or build plants and equipment. More streamlining. Were going to have the ceo of bayer on in just a moment. He may be ready to go actually right now. But the question to ask him is exactly that. I want to know your assessment though. Youre the one covering all these m as. Are there any good ones out there . I think there are two issues. One is the Tax Implications but there is a larger issue which is that if you can take all these brands and sell them global lig. Actually at that time footprint that bayer has, that would be an argument to build to grow the business. That time footprint that bayer has, that would be an argument to build to grow the business. But well talk about that. Wonder how much m a deals are ever about growth. It seems like if you go back 30 years or 40 years, they all seem to be 80 about Financial Engineering. What happens is your business slows down. Youre sitting here, youre saying my business has slowed down. I want to grow revenue. You do say to yourself i want to grow revenue or at least profit. How am i going to do it. One way is to buy somebody else. Thats what the game is. We have a quick programming note any chance that well have any push back from anybody in congress only because i think the minister of finance in fraps speaking out about the alston bid by General Electric, will we hear a peep from anybody in the United States . You have to take it in the contest of there is 106 billion deal going on here. I was asking rhetorically. I think the answer is no was my point. And megan will be interviewing ken frazier later today. That will be on squawk on the street in the 11 00 hour. But right now, we have a live interview from their headquarters in germany is the chief executive of bayer. Were pleased to have him right after this deal is being announced. Thanks for joining us. Maybe you can help answer the question that steve just posed at the table. I dont know if youre able to hear it. Which is how much of this deal is being driven by growth. Its a huge part of this traction becau transaction. The comment was made mercks otc business has very strong brands, but particularly present in the United States. Claratin, dr. Sholls, coppertone. Very active in the United States. Not outside the United States. And particularly the over the counter medicines can take these products and position them stronger outside of the u. S. And that is the major revenue synergy that we will be getting with this transaction. To the extent taxes are playing a role in all of this, what is your tax rate where you are relative to the tax rate that merck is currently paying and what do those savings represent. Its a factor because its an asset deal. So we pay around 24 , 25 overall Corporate Taxes. So the difference is not that big. It plays a role, but certainly not the motivation on why were doing this. This is really i think the comment was that before number one and number two in an industry that is stable, predictable with tremendous brand loimity of customers. And if you take those brands global, you can krcreate a lot syner synergy. Good is that an advantage to you that maybe the u. S. Corporations that dont find the same synergies in reverse because their Corporate Tax rate is higher . You would acknowledge it gives you an advantage. It does give us an advantage, no question, but that is not the reason just to do the deal for us. As i said, it helps, but thats why we can pay a very good price for this business, but its not the reason on why were doing. Why did racket drop out. I dont know. Youd have to ask racket. We are doing currently a transaction in a new phrma technology that is very helpful in card control gi. Merck is strong there. Were strong there. Were putting our capabilities together and that is the second part of this transaction that we will be able to negotiate con currently. This is about 21 times ebitda. And that is obviously a significant price. However, as i said, lots of synergies first of all. And secondly, these businesses have tremendous consumer loyalty. If i think about our open aspirin, bayer aspirin, a product weve been selling over 100 years now and a product like claritin and coppertone, those products create loyalty and provide consistent income and cash stream. When will this deal be profitable for you and what does it mean for employment in the United States . Well, we think that there is a very, very good complimentary match in cape abilitiecapabilit. Merck has a good presence there in new jersey. Actually our headquarters of health care is also in new jersey. So we will bring these teams together and we expect very minimum consequences for employment. Being a German Company, there are lots of reports that german industry is fighting any further sanctions against russia when it comes to german industry. Can you weigh in on your pip i dont know opinion on whether or not sanctions should be used against russia considering the situation in ukraine . I dont think any Business Leader is a big fan of sanctions. I think for us in this situation, its very important to sit around the table and to come up with diplomatic solutio solutions. You know how it is as a business. We need stable environment to really be able to continue to invest in certain countrieslike russia. Therefore im a big fan of diplomatic solution. Your website says you have 25 offices in russia alone, never mind ukraine and the other areas around it. What would it mean to your business if there were severe sanctions against russia . Well, we have 40 billion euro in sales. 2 is in russia. So not our biggest country. But the growth is very good because particularly in health care, russia is is it a big factor today . No. But from a growth point of view, really key that we keep a Good Relationship with russia. We very much appreciate you being with us. I have one final question that ive been trying to sort through for years. Why have all the Major Drug Companies in the u. S. At least tried to get rid of their consumer business . What is it about the consumer business that istractive to that you is not attractive to everybody else . Glipg i gli i think its about relevant size. If you have a big phrma business, a shawl consumer business wont help you manage the fluctuations that you get in the phrma business. In our case at bayer, we are a medium size phrma business, so therefore balancing out the Business Models is more logical. Okay. We really appreciate it. Congratulations on the deal. We hope it works out and well keep talking for you as it progresses. By the way, how quickly does it close . Well, probably second half of the year because we have to go through the authority approvals. We appreciate it very much again and we look forward to talking to you soon. I love this next story. French president hollande says general whether he cans bid for alston not accept bl. The government needs to get better offers but stopped short of saying the government would increase its stake. Right now it owns 1 . It reviewed a binding 17 billion bid for ge from its energy arm although it has not turned down a viral offer from siemens. French economy minister also came out against the ge offer on monday, but opened the door for a deal that would also combine the two companies rail businesses. Alstom shares, youll see theyre down marginally, 28. 91. And we should show you shares of ge. So a dramatic improvement. Because the finance minister was saying the deal was not going to happen, they had into national champions. So for hollande to say they need to pay more money is dramatic improvement. Its normal for the president of the country to weigh in on a merger like this . Yes. Its france. When dannon was almost sold to pepsi, oh, no, no, yogurt is a National Treasure and they halted the deal. Happens all the time. Sanofi this is a leg the minister next week said do i need to install lie detectors in my office . He told me it wasnt for sale. The president said he was pissed off can i say that on tv . Because hadnt been told about the merger talks. This was my question to meg will, was anybody in Congress Going to complain about copper tone being sold. No. Not a word. John boehner might. Thats right. By the way, much we are sunscreen in europe than they do in the United States. There are certain ingredients that are allowed in europe that the fda has not approved. If you want good sunscreen regulations are lower . Kre. Youd be amazed. If you want good sunscreen ross westgate, a man who knows a thing or two about a tan, standing by in london. Works very hard to get one. I know i dont have one, steve. Looking good, my friend. Thank goodness to makeup. Were pretty even stevens here decliners versus advancers. Pretty flat really. European equity ies yesterday finished with slims wills. Ftse was slow. Back up and running today. Want to kick off with good Economic Data out of britbritai. Services pmi, nonmanufacturing, came in at 58. 7. Hi hi shows best left of the year so far and annual level of growth at best for around six years. So uk continuing to have the best growth out of any g10 country. Well wait to see if we get guidance three. Sterlingdollar up to near five year highs. Getting ever more expensive for people to visit the uk from the u. S. Because the economy is doing okay. And looks like it will continue, as well. Talk about some of the individual stocks to look at. Barclays first up this morning, a slump in Investment Banking income hitting profits in the First Quarter for the bank. September the shares lower. Down over 4. 5 . Invest him Bank Revenues down some 28 partly due to more than 40 slump in revenue from fixed income, this ahead of a Strategic Plan which will be unveiled on thursday. Swiss bank up 1. 2 this morning. They had a net profit of 1. 6 billion swiss francs in the First Quarter. That did beat expectations and surpassed last quarter numbers. The ceo told us there are always new hurdles the Bank Must Face including economic repercussions because of the sanctions via russia. Meanwhile credit suisse, its stock down half of 1 . Reportedly in talks with the Justice Department to pay as much as 1. 6 billion to resolve the problem into the banks role in helping americans evade u. S. Taxes. Prosecutors are also pushing for the company to plead get iuilty. It would be double what ubs paid for a similar settlement in 2009. And worst performer of the day, balfour beatty, down 17. 5 . Builder saying 2014 profits going to be significantly lower than expected and ceo left with immediate effect. Thats where we stand in europe. Thank you very much. As it stands now, only andrew can afford to travel to london for vacation. Because what have is happening with the pound. Ten pounds is 20 bucks. Wonder if ross has an extra room. We can stay with ross. Air b and b. Highest earning Hedge Fund Managers for 2013 in todays executive edge. Its fascinating to see these numbers. Mind blowing. Big numbers. David einhorn makes the cut and now hes unveiling a new short play and that stock is getting slammed. We have the name when squawk box returns. Box returns. Olate is very indi. White chocolate lovers dont like dark chocolate. Milk chocolate lovers dont necessarily like dark or white. Before we couldnt really allow the consumer to customize their preferred chocolate. We needed the scalable Cloud Solution allowing them to see all 800 products and select what they are looking for. Now there is endless opportunity to indulge. Sdafd in hodavid einhorn re stock hes shorting, calling Athena Health care a bubble stock and that the potential of the companys future proper gukt ducts are being overvalued by other investors and company could fall 80 or more from its peak. Share price of more than 200 earlier this year. The stock down sharply. You can see stock off almost 12 already. So a stock to watch. Athena health weve talked about that company, had the ceo on our air a number of times. We should try to get them back. In the meantime, Hedge Fund Managers and how much they made last year. That is the focus of this mornings executive edge. Lets get over to dominic chu. He has numbers you wont believe. There is rich and then there is the rich list rich. Each year Institutional Investor magazine puts its list of the best paid Hedge Fund Managers out there. These are 25 people and over 21 billion worth of earnings. So who made the cut . Coming in at number three is john paulson. Raking in 2. 3 billion this earnings last year. Paulsons earnings have increased get this 920 from 2012. So that is a big deal. Next up here, number two, sac Capital Adviser steve cohen with 2. 4 billion. This is cohens final year on the list, cohen was at the center of charges last year has agree tood shut down sac capital and convert his operations to a family office. Coming in at number one with 3. 5 billion is david tepper. Since 2010, tepper has returned a whopping 5 billion toen investves investors. This is his second Straight Year on the list and third time in the last five years. So a nice run here for david tepper. There are other notable names on the list. If take you a look at some of the highlight, number seven is leon cooperman with 825 million in earnings. Plus a host of notable activist investors. Number nine, dan lobe with 700 million. And nelson peltz at 375 million. Number 21 is david einhorn. 350 million in earnings there. And then there is bill ackman comes in 28th, but still number 28 is worth 265 million. Andrew, a nice list of folks making a heck of a lot of money. So come over to the table here. Hang out with us just for a little bit. I want forget your views on some of this. Editor of alpha magazine put the list together, okay, can we talk about steve cohen . 2. 4 billion. What did he pay again, what was the settlement fee . 1. 8 billion in total. Civil and criminal fines. So less than a years worth of business for him . Yes, he could write a check for 1. 8 billion. And dominic suggested hell be off the list in the future. Hell be off a public list. But i assume on some private list somewhere hed be on that. For our purposes, you need to be a Hedge Fund Manager and actively managing outside money. Does anybody do Family Offices yet, is it possible to monitor Family Offices . For goreorge soros, you coul. Once he converted Soros Management for a family office, we took him off. What is the margin for error . Weve been doing this for a long time. The writer we work with, steve talb, hes been doing this for over 20 years. I personally have been doing it since 2006. And were pretty confident these estimates are accurate. Biggest loser. I want to know who was on the list last year and now cant be found. Or at least fallen down the list. Mark lazerly is usually on the list. What happened . Just low performance. The bottom 25 at 175. I was thinking for myself ackman complaiant have had suc great year. Still did pretty well. If you got the money this is money hes returning to investors. No, no, this is what he earns. This goes in their pockets. Lets talk about what a guy like david tepper does for 3 abo3 . 5 billion. Took enormous risk. Physically do . Physically do. You have to understand the methodology here. Part of it is based on the fees that they earn. Management fees and performance fees. The other thing is the extra return on their own capital. And so for a guy like tepper who is worth billions and billions of dollars, much of which is invested in his own funds, he was up 40 in his funds after fees. And how do you go up 40 . One thing he did is he made a very big bet on airlines which had been pretty much most people had pushed them aside and not really thinking much about that business. And he made a big bet on airlines, financials. Hes been big in equities. Hes a debt guy originally. Where are you going with this . Well, i like the fact that like its interesting to me that he took risk and he was rewarded. And part of it, just exceptionally accepting a token or a fee. I look at these large numbers of money collected, and if joe were here, hed have a fit. But michelle will take that role. But if i translate that into automobiles created, where is the economic value added . Are they exacting rent from the system . Are there inefficiencies that theyre close something what is the societal good that they make . Are you crazy . Why is that crazy . The answer is arguably that hopefully most of these folks are managing money on behalf of Pension Funds and others. So there is a societal benefit. If youre asking how are they able to charge these remarkable rents, the problem is its the 2 . No hedge fund will run awroud and if my marketing was im cheaper than the other guy, im the walmart of hedge funds, that is not and at rack difference w track difference yourself. Theyre helping beat the fact that you complaint get anything in savings. Interest rates are so low, the Federal Reserve pushes peoplege in savings. Interest rates are so low, the Federal Reserve pushes people into alternative assets. I would dispute that. They would not be getting nearly the money. No way. Steve company help when and both making money before zero Interest Rates. They cant do it in other ways. Steves why why they can charge what they charge is a real question. But you must make a return. Higher than normal rate of return could not stand. It should be whittled away. That is the essence of capitalism. Its the same reason why Investment Bankers are not compressed. Nobody walks in and says im going to be the cheap alternative for certain types of things. People say im happy to give it away. Here is my question. I would argue that fees and hedge funds have been compressed. But not for the top earners. Exactly. So when you have an apaloosa that outperformed like crazy, you can charge the 2 up front and 20 of profits. But i would argue most hedge funds out there especially the ones trying to start up are only able to charge look at tepper. His performance is remarkable. Over 21 years, hes returned after fees 29 . Its striking. That has to be three times what the s p did. Just amazing. So he can be rewarded. Thats why investors are willing to pay him. Joe says we slaughter ourselves with mr. Pickety. Coming up, growth forecast moving hire. What will that mean for the markets and the fed. The results coming up on the milli mi millionaire survey. Millionaire. If i told you that a free tensecond test could mean less waiting for things like security backups and file downloads youd take that test, right . Well, what are you waiting for . You could literally be done with the test by now. Now you could have done it twice. This is awkward. Check your speed. See how fast your internet can be. Switch now and add voice and tv for 34. 90. Comcast business built for business. 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You should not start humira if you have any kind of infection. Ask your gastroenterologist about humira today. Remission is possible. Anbe a name and not a number . Tor scottrade. Ron im never alone with scottrade. I can always call or stop by my local office. Theyre nearby and ready to help. So when i have questions, i can talk to someone who knows exactly how i trade. Because i dont trade like everybody. I trade like me. Thats why im with scottrade. Announcer scottrade proud to be ranked best overall client experience. Welcome back to squawk box. Becky and joe have the day off. I was going to say its coming up on 6 30, but i think were a little late today. Bayer is buying merck including claritin and coppertone among others. Government will be reporting march trade deficit at 8 30 a. M. Economists looking for 40. 2 billion shortfall. That would be down from februarys 42. 3 billion number. And french president hollande says ges bid for alstoms Energy Business says its not good enough. But he says alstom itself is still in the process of reviewing the 16. 9 billion bid and also looking for overtures from siemens. Hes a banker now. Amazing. Will he get his percentage . Now he wants low taxes. Now a deal for more money. You see, this is like hes talked to joe kernen. Im getting yelled at. You guys are chatting and im getting yelled at. Treasuries have been declining in yield, ten year now currently yielding 2. 62. Here to share their outlooks, Jim Osullivan and greg mcgreedy. Jim, lets talk about whether or not thats a oneoff deal and second of all the despair itity between that kind of number and what is happening in the treasury market. Certainly the trend is not 4 just as its not zero. You look at the ism surveys, up around 55 or so. Those sort of numbers are typically associated with a little over 3 in terms of a trend in growth. So thats where id see the trend more so. But were deal for catch up for sure. As far as treasury yields go, roll back the clock and think about 2013. Ten year yield started at 1. 8 . They were down to 1. 6 basically this time last year. And you finished at 3. You went through the whole taper episode, but i would say its early days. If people are predicting 4 , why is the ten year going lower . At this point certainly latest growth number was on the weak side, so theyre not necessarily going to respond to a forecast. I think the fact that the Inflation Numbers have been as tame as they have been has been a big factor. Last week we got a weak gdp mum. On the other side a pretty good employment report. But i think the biggest news last week for the short term at least for the bond market and fed outlook was the very tame labor cost numbers which very much in contrast to your story earlier about the hedge fund pace. Lets do the math for people at home. You say there is a pickup in growth. Its closer to 3 . Its debatable of course, but that would be my view. Greg, lets take the 3 growth number which is a real number. So 3 and give me an inflation number. 1. 5. Which means between the 4. 5 nominal growth number we need a white board. Very simple. Nominal yield plus inflation sorry, real growth plus inflation. Anyway, there is a disparity. 4. 5 nominal, it should be more even. I dont think they should and ill tell you why. We agree growth will pick up in the second half of this year. But i think what really has issing for on, long term growth potential. So this is longer term. Has to go down. If that goes down, that implies fed fund rate has to follow that. That put as cap on where treasury yields will go. So youre saying you fewer people working means the economic potential of the country is lower, means the ten year reasonably priced for that kind of an environment. Thats correct. And the other thing going on is every time Interest Rates go up, there is a huge buying community that comes into the market. Pension plans, a huge increase in their funding levels. Reducing equities and go into buy bonds in order to hedge their risk. Theyre still passive when it comes to being able to manage their risk post the financial crisis. So youre seeing a lot of other impacts in the market that are keeping treasury rates down. The fed hasnt given up on the u. S. Economy the way greg has. Theyre not be leavers in this idea of low potential growth. Does that mean were headed for an environment of higher inflation if they keep pushing on the u. S. Economy to do more than it can . I do think they have adjusted down their estimates of potential in the short run. Employment rate has dropped a lot and theyre not saying it is entirely because of people temporarily dropping out. You look at longer term projections, its closer to 2. 5 or so. They are not reconcilable views. But that said, is there risk here that the fed does push it too far. Yes. Right now the numbers are tame in terms of inflation. Unemployment keeps on falling. And of course you dont necessarily want to wait up youre at full employment before you turn around. Is your bet that they can wiped done the qe . I think Inflation Numbers will drift up over the next couple years. They are below their 2 long term goal. So hard to be too critical. I think they get out. I think it will be messy. All right. Thanks. Well talk much more about the markets and the feds next move with Jeff Rosenberg at 00 a. M. Eastern. Apple shares closing on 600 a share. Now the company is giving one of its top ranking employees a boat load of restricted stock. That story next. Welcome back to squawk box. Futures suggest a flat open in the major averages. Lets tell you about what is going on at apple. The new retail chief already has a big stake in the fortunes of the companys stock just a few days after taking the job. Shes been granted more than 113,000 restricted stock uptnit. Shell get the shares over several different vesting periods over the next four years. But we should say she is the first woman to join apples executive ranks in almost ten years. So that means she gets more. 30 less. But she was the former chief executive, very successful, of burberry group. Was she the highest paid exec . Where she killed it. So a ceo of a company, taking a job where shes not the ceo of a company. So i look at if you think there is a market for executives i was making fun of the way it was written suggested that because shes the first woman, somehow that means if a that she should be getting more money. All of those characteristics sounds like that is her market price. Right. Coming up next, the result of the millionaire survey. Most millionaires view inequality as a major problem. Interesting. We will also check in and figure out how they would solve this hot button issue. And later, Sir Richard Branson will be with us. Fame, makes a man take things over fame, lets him loose, hard to swallow fame, puts you there where things are hollow the evolution of luxury continues. The next generation 2015 escalade. Fame afghanistan, in 2009. Orbiting the moon in 1971. [ male announcer ] once its earned, usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection. And because usaas commitment to serve current and former military members and their families is without equal. Begin your legacy. Get an Auto Insurance quote. Usaa. We know what it means to serve. Welcome back to squawk box. Time to unveil the results of the cnbc millionaires survey. Youll want to hear the results, because theyre fascinating. Mr. Frank . Good morning, andrew. This is a brandnew survey. We polled people with 1 million or more in investable assets. It is split between democrats and republicans, men and women. Lots of people various ages. Throughout the day we will tell you about americas millionaires, who they are, how they made their money. How they spend it, invest us, which stops theyre buying right now. Were going to start with one of the most provocative the, how they view in equality. Many saying the American Dream is still attainable. Still a very material view of what the american view is. But more than halfway in equality is a major problem in the u. S. The chief cause they say is education. 78 saying its education. 68 said financial literacy. Half say cultural issues or family environment. They are saying the causes are more structural than choices. What is the solution . Increased educational opportunities. If thats the cause, that should also be the solution. Enhanced savings activities. Check this out. Heres the big shocker. Twothirds say higher taxes on the healthy should listen in equality. Half of americas millionaires support higher taxes on the wealthy and increased minimum wage. It all depends on your Political Party. When you get to higher taxes and weighty, minimum wage, american millionaires very split. 78 of democrats support it. 31 of republicans. Same with minimum wage. Their view on how to fix it is really just as polarized as the rest of the country. It depends more on your party than your health club. Can you go back to the first screen . I dont know if we can get it up. It may be too tough for them to do. You talk about in equality and the American Dream. 94 . There it is. Attaining what i want through hard work. Only 18 described the American Dream that way. So i always say there are two americans dreams. One is anyone who can be the next facebook, apple and have success, which is one version of the American Dream. The shoot the moon version of the American Dream. Right. The other is the leave it to beaver American Dream. If i go to school and i get a job, get a house, dog, two kids, wife. Its a little bit of paint by numbers version. I guess i dont understand the distinction. This is our survey. I know we did it. This is attaining what i want through hard work then you get prosperity and success. To me its the same thing. It would be. It depends on what your definition of prosperity is. The material success, the first category, is probably lower. Unless you have a mansion and a yacht, you have not obtained the American Dream. So whatever that is. But they have a very material definition. We could have drilled further. The next survey well see what is your definition of wealthy and Financial Success . That would then answer your question. Did you split the sample between democrats and republicans . Yes. Its evenly split . Well, it can be. It is independent. Does thwartly reflect the make up of millionaires in the country. In the survey, and in other surveys that look at the politics of millionaires, it skews republican. It skews slightly more republic republican. Ours skews more independent and republican than democrat. Thats just true with most surveys. So its representative of the millionaire sample. So what accounts for i guess the differences there . Why dont views change with wealth . Why do they seem connected so much to party rather than wealth . If you look at the life cycle, they start out with politics before wealth. 85 of todays millionaires made it by themselves. So they start out with the political view. They keep that view regardless of their wealth. They may get more concerned. When we split this by 5 million the 1 million to 5 million, we didnt, the Political Party did. It makes you aware of what you already are. Coming up, buyers big deal for consumer business. And on his way to the set to talk markets, mergers and more, Gary Kaminsky from Morgan Stanley. Keep it here. More squawk in just a moment. In. Having to fork out a lot of money up front was risky. We can launch a feature really quick, and if the feature doesnt work, we havent lost anything, and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. Lets make a detail. Bare acquiring a part of merck. Are we going to see more m and a in the consumer and power space . The call for stronger sanctions on rush shafplt can anything work against the super power . And jordans executive chairman martin franklin. The second hour of squawk box beginning right now. Good morning. Welcome back to squawk box here on cnbc. Im andrew ross sorkin. Becky and joe have the day off. Take a look at the futures. See how the market is setting itself up. Dow off 7. 5 points. S p off a little almost 2 points. Nasdaq about a point. The 10year, take a look at that, too. 2. 619 is the number. We also have a number of Morning Headlines to bring you, including a big deal. Merck is now selling its u. S. Consumer brands to germanys bayer. 14. 2 billion. They include claritin and coppertone, among others. And our own me go will have more in just a moment. Another drugmaker is in the news. We talk about this every day too. Astrazeneca in the midst of buying a new heart bill. It says it sees annual sales of 45 billion compared to 27 billion last year. Speaking of resisting buyout bids, heres whats going on in france, guys. Fresh president hollande said g. E. s 16. 9 billion bid for the ousted Energy Business is not good enough. He is now officially an investment banker. He would like a bigger price. He said the price is really up to alstom. He says one thing and means something else. What kind of commission is hollande getting . Theres something. For more on bayer the buyer and merck the seller. The big deal the of the morning, meg. Thats right. This is continuing. This big phrma deal frenzy we have seen the last couple of weeks. Merck is selling its business for 14. 2 billion to bayer the buyer. They are also establishing a strategic collaboration where merck will bei beier 1 billion. And milestone payments based on sales. A potentially additional 1. 1 billion. The ceo was on with us this morning. Hes reiterating what we have been hearing. They want to beef up their areas with leaders and step back from areas they cant compete quite as well. Bayer, with its global footprint in overthecounter medicines, is able to take these products and position them stronger outside the u. S. That is the major synergy that we are going to be getting with this transaction. Now, some of those big brands from merck will be getting claritin. They will be getting coppertone. Dr. Scholls. Thats adding to their big portfolio of brands, aleve, midod, one a day, flintstones, alkaseltzer. Consolidation just seems to continue in phrma, guys. Thanks, meg. Meg will be interviewing merck ceo on squawk on the street at 11 00. Andrew, bayer is buyer. Adidas is addidas. The dow claimed back from its triple digit loss. The entire question is what should investors make. Call it lack of a direction. I dont know. Well, anyway, the guest host. Gary kaminsky vice chair of Wealth Management at Morgan Stanley and a member of the family. We can still stay that, right . 25th anniversary last week. I reflected pack with some of my friends in the makeup room. Been here since the beginning. Looks so young. Incredible. Incredible, despite. Incredible. And phil orlando. Good morning. Good morning. You have been with us 20 25 years . 20. I missed the first five years. That reflects investment stock. You are willing to the give the first five years to minimize risk then come on. Kaminski is just full steam ahead. What are you telling us . It is a directionalist market. Im not agreeing that. I was reading it, but i didnt want to believe it. As i reflect back, if you invest in the s p 500. If you closet indexed. And you basically owned a lot you guys call them momentum names. Lets call them higher growth. You probably have not had a spectacular year. As a directionalist part. Im holding a list of the 10 top names. Im working on a project right now that we owned. Our advisers owned. 1. 9 trillion doctors. I dont see any of those names on this list. I cant share this list with you. Oh, come on. You cant sit there and bring the list here. Mccarthy did that. The point being, and phil probably knows a lot of names. If you own a lot of high dividend paying stocks, utilities, if you had Asset Allocation that included some in fixed income, youve had a very good year. It certainly hasnt felt directionalist at all. You significantly outperformed the markets. I think people felt the equity returns are in line where where they ought to be. Lets say you called me up. Im a big client. Not a client. But pretend i could. Why are you not a client . I have my 100 million fortune. Im sitting in cash. You come to me and say i want to do business with you. I say what are you going to do with my money . If you have accumulated 100 million you have done something in your lifetime to be successful. Im not going to call you. Youre going to call me. But you want my business. You know that 100 million has this negative arbitrage thanks to what the federal bank has done and the central bank around the world. Youll be seeking my advice into how can you do something to fulfill the assets. I was going to bring phil in. Bring phil in. This is very difficult. What do you say about all of this . I agree with garys point. I would define it a little bit different. Theres been a rotation the last couple of months. All the big uglies, the difficult deposited players, consumer staples, reach, utilities. Stocks have done well the last couple of months. The reason for that i think goes back to the very first point we made. That we have been sort of in this side ways market. The s p has thats an important point. We keep saying hitting new highs. Its pretty much flat. The market cant seem to get above the 1900 level on the s p. The reason for that is because of this bifurcation. Revenues have been pretty good. The economy, in terms of this hurdle we saw, has actually been coming back. Thats not what the market is focused on. The market is focused on things we are nervous about, geopolitical risks. Do you think people do you think the market is trading off ukraine . I think there is a lot of nervous going on in ukraine. Thats just one area. China story is two. Whats going on in terms of the economic resurgence in japan. There are a number of overseas issues would you rotate, though, out of the stocks that actually work right now . No. Thats where we are right now. We have gone through this derisking process. Thats where we are. We will stay there a while longer until we feel more comfortable and sort of flip that switch on again. Right now were hanging out in a lot of the same areas that gary is articulating. We have to take a break. Hold that hold. Were going to slip in a break. Thank you. Gary is staying with us the rest of the show. Will sanctions ever work on the super power . Will Congress Step up . Well kick off that discussion next. And a big lineup head ahead. Tenet health care trevor fedor. Squawk is coming right pack. Pa. You probably know xerox as the company thats all about printing. But did you know we also support hospitals using Electronic Health records for more than 30 million patients . Or that our Software Helps over 20 million smartphone users remotely configure email every month . Or how about processing nearly 5 billion in electronic toll payments a year . In fact, todays xerox is working in surprising ways to help companies simplify the way work gets done and life gets lived. With xerox, youre ready for real business. Good morning and welcome back. Lets take a look at the futures right now. We were in the flat to down area. We are down just a little bit. S p is down 3 in fair value. Dow jones 18. Republicans and democrats calling for stronger sanctions and more aggressive action against russia ahead of ukraines may 25th president ial election. Robert kahn, Senior Council of foreign relations. Thank you for having me on the show. You talked about causing a lehmanlike moment. Explain that. How do we do it . Financial sanctions are the most powerful tool we have. The reason is unlike a lot of earlier sanction pieces, iran, north korea, financial corporations are highly leveraged. And if you put sanctions on them you force the rapid sharp deleveraging in 2008. Thats why i called it a lehman moment for russia. We needed everyone else to go along with it for the iranian sanctions. When it comes to banking sanctions because the u. S. Dollar is the worlds currency, the u. S. Could actually act unilaterally if it wanted to without the europeans going along. Do i understand that correctly . I think youre absolutely right. The banks are, major banks, most transactions run through us. But not just the banks themselves. Its the Payment System and the fact that major transactions, whether were talking about derivatives or credit, run at some point through a u. S. Entity. Why havent we done that . What do you make of the sanctions so far . Every time they have been imposed as gone up because they werent as bad as many had expected. I think thats the policy so far, it has had an effect. As you said, markets have reacted by rallying when the announcements have been made. I think now we have to acknowledge that stretch isnt working. If you measure working by changing russian behavior. I think part of the reason we have been slow to move to full financial sanctions is concern about the implications for u. S. Businesses. I think the idea was to give firms time to start to adjust. I think also, and this is an important point. We dont want send a signal that we are sharply divided from our european allies. We can go ahead of them but not so far ahead that it causes friction much i think to some extent we have been moving at a measured pace. If thats the case, we just had an executive on from a German Company. We are hearing that more broadly from germany. Does that mean we never get there . No. I dont think we are. Theres a frustration in washington. I have pointed to Angela Merkels Statement Last week, which was a game changeer. Previously the german position would be it would take a full invasion to justify the kind of sanctions were talking about. What she said last week is that russian tampering could be enough to move ahead. And i think that kind of statement gives room for the u. S. To move a bit ahead of that and to start to move towards banking sanctions even without a full scale invasion. So in that sense i think the landscape has changed. All right. Robert, thanks so much. We will watch and see. David cohen leaving this morning to go across europe and talk about the coordination of more sanction. Maybe it does come to pass. Good to see you. Thanks for having me on. Shares of adena Health Getting slammed after david eye horn announces hes shorting a stock. What other stocks are on the move . Thats coming up next. And more economists hiking their gdp forecasts. Jeff rosenberg will be our special guest at 8 00 a. M. Eastern time. Eastern time. Fame, makes a man take things over fame, lets him loose, hard to swallow fame, puts you there where things are hollow the evolution of luxury continues. The next generation 2015 escalade. Fame live shot of the nations capitol. You were waving a list there and you wouldnt tell us whats on the list. Give us a little direction. What are the characteristics of whats on that list . The characters of the top 10 holdings when you look across Asset Management are not the momentum stocks. It is the large cap multiindustry, multinational, very seniority of predictable businesses that have dividend yields. So the g. E. S of the world, the exxons of the world. Sounds right, andrew. So, again, when you think about returns this year, total returns, including dividends reinvested, the s p 500 is essentially flat. Outside of the s p 500, it is not a directionalist market at all. More importantly, when it comes to fixed income, remember it has been a very good year for the high market, convertible market. Actually, if you just own the treasuries. We dont talk about that a lot. Hold on. Im so sorry. Im so sorry. They may be closet indexers. We dont know. Hedge Fund Managers unveiling big ideas. Kate kelly was there for all the fireworks. Was it fireworks . Did you see fireworks . They were like little pops that fizzled out. I want to talk about the skepticism. Despite the payroll numbers from friday and many other Poverty Indicators there was an air of skepticism. Jeff gundlach, ceo of Doubleline Capital railed against the housing bulls in a presentation packed with examples of how the typical indicators of singlefamily home sales often lie. They provided a long list of counter examples. Young people in general, some still living with their parents, had been shocked and scarred by the housing collapse and were highly unlikely to enter the home buying market any time soon. And some have lost touch with reality because of unexpected reactions to Economic News or because of overswraelous evaluations that were no connection to standard price modelling. And toured jones says he sometimes dreams of being a contestant on dancing with the stars because his job is so frustrating. The treasury market finished up. Suggesting despite the apparent recover, they were looking for recessionproof bets. David eye horn, probably the standout presentation at the very end of the day. Made a case that Growth Stocks are in a bubble by zeroing in on a three ta health. This is the i. T. Skwro coating jonathan bush, ceo of amazon. Thanks to overly optimistic assumption, eye horn, athena would fall 80 . Billy bushs brother on the show a number of times. Michelle had him on from the olympics. Hes been at the table a number of times. Frequent guest. When he talks about the future prospects, did he sound convincing as someone who understands the Business Model . He ends up talking a lot about politics. Good morning. Just one quick thing. On the journal today they pointed out, and obviously it was just one year. The pick of the conference last year verses the s p 500 last year, just listen and create a portfolio of those names, you have Something Like 40 . Less than half of the s p 500. Does that sound right to you . That does sound right. They did a ton of spade work to see where the investments turned out the last 12 months. Youre right. A lot of them did the not work. They didnt particularly work. A number of big best were from Hedge Fund Managers about who didnt return this year. Thats typical. They have a i different roster every year. You cant put too much stocks into the selections, pardon the pun. This outlook, the theme was a little more macro in nature. No regrets. He has been beaten down so far. Toured has done a bit poorly as well. Kate, do you understand the fannie mae, freddie mac case . Which one of it . I think i did. Hes been an owner in both fanne and freddie for a while. They believe the governments behavior sweeping all the dividend profits, not sharing with investors as they said they would when they reformed a couple years ago was unlawful. Not appropriate. And the backbone of the housing market. Without them its very unclear who would replace them. Ackman talked about private mortgage insurers not able to replace the gses. The solutions differ, steve. Im not sure if that was your question or not. He has a specific proposal he unveiled. Its a longer discussion. Yeah. I dont get how the the government is going to give those guys any money. I could be wrong about that. Thanks, kate. Yankee candle. Executive chairman comes up next. Next. First day of my life by bright eyes youre not just looking for a house. Youre looking for a place for your life to happen. Welcome back to squawk box this morning. Merck is selling its u. S. Consumer brand to germany bayer. In the u. S. We call it bayer. 14. 2 billion. It includes dr. Scholls, claritin, coppertone. Bayer is the second Largest Global seller. And General Electric now facing some resistance, continued resistance in an effort to buy the energy frenchs business alstom. President hollande said the number is not good enough. I like this guy. A little bit of capitalism in a socialist country. And from the days lonely economic report, economists expecting the march trade deficit to shrink from february levels and come in just over 40 billion. Whaeur ma chairman and ceo. He knows his way around. It is safe to say he knows a Little Something about the economy and the consumer. Yankee candle, coleman, sunbeam, mr. Coffee. None of the ones i use, shakespeare, garcia, and all the fishing stuff. Those are all his brands . All his brands. I go. I thought until i read up for this segment here. Right. That shake spear and garcia were competitors. But they are the same companies. Why are these different brands competing with each other. Well, they dont compete well, some day do. For the most part its a segmented market. We try to provide all the preferences. We have bicycles. A aristocrat. People have different preferences. So its just a different brand. They are all in the same company. Same thing about glasses. Luxotica, rayban. I have seen you skiing in one of his jackets in utah. Mormo. I love that. How is business . How is the consumer doing . It is okay. Im Getting Better i think but slowly. Obviously weather is a factor in the Consumer Behavior obviously in the First Quarter. Its healthy. Youre beginning to see maybe a little bit of wage inflection, which is going to be obviously good for the what makes you say that . We see it. What you pay your workers . Really to supplied labor. When you have a little tighter labor market. Does that mean your going for small. Youre talking about 2 type growth. When you say the consumer is doing okay, is that based upon what kind of products theyre buying, the amount theyre buying. Yeah. What makes you say that . We look at different things. The mix of what they buy, as you said. Fishing items. When the markets are healthy fishing is not an analogy. Its a very serious business. But go ahead. Explain how you manage the capital. We see so Many Companies that activists are going after. This is an example of what to do when after they say youre doing the right thing so they dont come after you. What does it say about Interest Rates and how companies should be running . Well, i would say a couple of things. First of all, capital allocation. Jarden compound 13 years has been doing this 34 . So its not just because of the types of products we sell. It is capital allocated. Correct. We do to the market opportunistically. When we dont need money. Thats the key to get the best execution. We did the convert because we just look macros. They are i dont think i think youre going to look back and say these rates were historic lows. We did a 10year a 20year convert with a 10year. So basically 10year borrowing. 1 1 18 coupon. As a person who is supposed to put capital to work, i could do better returns for company than the capital. I have a different question for you. When did you guys move to florida . How recently . Almost a year ago. The whole company down there . Well, we have two sets of three sets of corporate. Wire not big corporate headquarters. We have a team in new york connecticut area. A team in the boca area. The headquarters technically now in florida. You will see where im going with this. Taxes. Yeah. We have been talking about pfizer astrazeneca and inversions. Its all about inversions. People want to leave the country, find a Holding Company to lower their tax base. You have done it simply by going to florida thus far. If there was a company in another country with a lower tax rate would you do the deal . If i can do something that is value creative, of course i will do it. The reality is the problem is not the inversions. The problem is the tax code. Until america changes Corporate Tax. They are passing law toss make it illegal to do it. Im not sure thats the right answer. Create goodin sentives for Good Behavior. Have you ever looked at deals . Yes. I was called up and asked if we were going to do an inversion. Its the soup dejour. The platform which could be a candidate for inversion and jarden. The reality is jarden, we dont have the taxes in america because of our existing tax the structure. So theres not much of an incentive. What would you say, positive economic choices being made by consumers rather than the recession type choices . Like rods and reels versus bait . Its very hard for me to say what demand is going to be. In your world. In my world, the consumer is pretty healthy. We saw mostly seasonal goods. So we see Good Behavior in seasonal goods. For example, the ski business. People are buying skis this year was pretty healthy. That was good. It means the impact to the channel is healthy for the following season. This may be a silly question. Do you see any boost from camping world and obviously they sell out of colemans and have become a huge star on cnbc . No. Its been steady eddie. So camping hasnt taken off . To be honest with you, it hasnt come across. Are you taking a cabin this summer . We may go glamping . What is that. Glamorous camping. Thats the word. Are you going to get a trailer and the whole thing . No. I hope not. Tents with electricity. Right. Nice beds. Hes a triathlete. Congratulations on another awesome race you just finished. Thank you. Hes in unbelievable shape, andrew. I can tell. Gary shows up with Dunkin Donuts this morning, would you eat those . Sure. I ran 23 hours yesterday. Support for tax reform. Choc. White chocolate lovers dont like dark chocolate. Milk chocolate lovers dont necessarily like dark or white. Before we couldnt really allow the consumer to customize their preferred chocolate. We needed the scalable Cloud Solution allowing them to see all 800 products and select what they are looking for. Now there is endless opportunity to indulge. We got a fair price. Ruecar. Com,. My feeling is that. Ing. And youre like. Iyou know, the salesman icomes over. , theres no buyers remorse, you know. Im happy with my purchase. Its the truth. When youre ready to buy a car, save time, save money, and never overpay. Visit truecar. Com how much money do you think youll need when you retire . Then we gave each person a ribbon to show how many years that amount might last. I was trying to, like, pull it a little further. [ woman ] got me to 70 years old. Im going to have to rethink this thing. Its hard to imagine how much well need for a retirement that could last 30 years or more. So maybe we need to approach things differently, if we want to be ready for a longer retirement. Our next guest is an advocate for reform. The chairman and ceo of tear ebg corporation. Im going to start. What do you think of this tax issue . I think taxes are set by the politicians. We as Business People have to operate under their conditions. My job is to find the right balance for the company first. Taxes are only one of the considerations i think a ceo should look at. Look at a hole array of opportunity. One of the shocking things about the pfizer deal, and i dont know if it shocks you, at some level the board has to be making a bet not just that the tax rate today is lower in the uk but the system in the uk, the political system is going to keep that rate lower and maybe continue to get lower. Its not just a bet for tomorrow, its a bet for the next 10 years. Youre not going to do this every two or three years. Its clearly demonstrated that people dont change their taxes very quickly, right . Just look at our situation. If we were responsive from a competitiveness point of view and sought out capital, our tax rates wouldnt be way they are today. Whats the answer . You have to be globally competitive. Look at every state. They are competing for capital. To try to attract businessesment countries do the the same thing. To the extent that the rates at some level continue to go down to the point where you might have a revenue problem, right . Thats the flip side of this argument. Andrew, you say its a race to the bottom. I say a risk to the opportunity. Capital flows back to great investments. So i think theres a right range of tax levels. I just dont think the United States is why not zero . In other words, when you go down this path, right, which is we must be competitive with the rest of the world, everybody will always pivot around the number one, which is the United States. So we go to 25. They go to 20. We go to 20, they two to 15. Until we get to zero on Corporate Tax. Is that the right way to go . No, i dont think so. You can say why not zero. But i need to run my business the most costeffective way i can. Im never going to get to zero. I have to spend money to make money. What if we go to zero and tax shareholders. You know whats frustrating about this. You call it race to the bottom. When everybody wants taxes to be high they call it tax harmonization. Everyone should have the same level of taxes. When people are competing at the bottom its a race to the bottom. Right . Its ridiculous. By the way, theres a lot of great Economic Analysis between Corporate Taxes should be zero. Its double taxation. Right. Where do you get that money from, michelle . You get it from other places. Yada, yada, yada. Job creation goes up dramatically. Therefore you do it from income taxes. Youre right. You probably heard what was said in terms of fiduciary ear responsibility. I think you assemble ld one in that respect. You have to look at inversion. People say we wont do it. We have to save the jobs. I want to ask you about something. But not the country. Hes not a politician. Hes running a business. Hes been serving the shareholders serving the country. It is. Serving as shareholder is serving the country. Let me go with politics. When it comes to youre using his equipment. When you see the construction projects, we use your equipment. From a political standpoint, if there ever got momentum to do an Infrastructure Project buildout, a huge, huge expense out of washington, how can it be done so the tax payers benefit, the people who use it benefit, and you and your Companies Benefit . How can that look the right way . Its going to take some courage. A lot of capital we know is offshore. It can come back to the United States with the right incentives and be put to work to help rebuild the country. We know it equals economic prosperity. But its got to be targeted. Vei the right way. People say to me im not a good corporate citizen, i get concerned about that. I pay my taxes as appropriate for the taxes. Im employ my people as best i can. But im a global player. Infrastructure spending has been a mess. They allot money to things that never get built. We had a move about about roads in alaska. If you get into congress, forget it. It goes nowhere. I have a simply expression. Planning is always best in advance. It is well understood if we want to study it. The demographics are in place. We have to structure a proposition that says what does america want to look like . Since you have given thought to this, give us two or three projects that if you could i dont know if theyre shovel ready yet. As you just said, what would they be . The country needs vision. This has not been talked b. How about highspeed freight. Were so interested in the panama canal. What happens in panama. How about long beach to wilmington. And change the whole dynamic to get freight from china to europe quickly. Is there a huge lobby opposed to doing anything with rail . This is part of the problem. They are opposed to doing anything with anything. What we need is courage. Sufficient to lead the people to get real projects done. Mr. President. From a guy who runs a business, hes not a politician. Hes running a business. He has a responsibility to shareholders. Great corporate citizen. Theyre not different. Theyre not the same either. Hes going to come back on very soon. That you know for that. Criminoming up, tenet health. And the latest results on how the rich are feeling about the rockets. Robert . American millionaires own 80 of stocks in america. Well tell you where they are putting their money, what stocks theyre buying, and why they could be a bullish sign for this market coming up next. Mine was earned in korea in 1953. Afghanistan, in 2009. Orbiting the moon in 1971. [ male announcer ] once its earned, usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection. And because usaas commitment to serve current and former military members and their families is without equal. Begin your legacy. Get an Auto Insurance quote. Usaa. We know what it means to serve. What is this place . Where are we . This is where we bring together reliably fast internet and the best in entertainment. We call it the x1 entertainment operating system. It looks like the future we must have encountered a temporal vortex. Further analytics are necessary. Beam us up. Thats my phone. Hey. [ female announcer ] the x1 entertainment operating system. Only from xfinity. Tv and internet together like never before. How are millionaires feeling about the market . Millionaire survey results are. Robt . Thank you, michelle. Well, if youre looking for another reason to be bullish, look at americas millionaires. It asked people with a million or more in investable assets how they are investing. Most are betting the market will end this year up 5 to 10 . 16 said between 10 to 15 . A smaller number, said it would be relatively flash. When asked where this would invest, 46 said equities. 21 into fixed income. And 14 in cash and shortterm instruments. The stocks they like mostly are tech. If you look at the wealthier millionaires, 5 million and up, they are more bullish on tech and health care. 43 said they would end the year flat. One reason for this may be Interest Rates. 39 said it would end the year lower. This was a survey in march before the 10year did what it did. Why does this all matter . This group, millionaires represents 80 of the stocks in america. So when they are buying, it really moves markets. Guys . Hey. Robert, does that when you look at the optimism, does it split democrat republican . It does. We didnt post that. It amazing me even how patterson, even a dining room view of the market than democrats and independents. Im just amazed how split it is when it comes to the economy and the market. This is a theme we have, by the way, in our all america survey. This is a theory. It says every question you ask is first filtered through the political prism. No matter how much money you have, no matter your circumstance in life. Im curious. These are poor people compared to gary. He doesnt get out of bed for a million dollars. What is their favorite Investment Sector . Is that reflective of what we talked about here . I agree. When you said about equities is in fact, the case. We have seen that the last three years. Thats as a result of Interest Rates. The one thing i would differ from that poll, you said the majority of people continue to think strengths would be higher at the end of the year . Yes. 59 said they would be higher. This is taken back in march. A lot has happened since then. 1 would be favorable. The fear of deflation and whats happening in the economy, in fact, they think rates will continue to stay low. Do you think millionaires and the wealthy are better investors than the rest of america . You will say yes because they take your advice. They didnt do the so well. Should we use millionaires as a leading indicator or the smarter investment group. Not that they are smarter investors. I think they have a different time frame. Right. We have to go. Thanks. Special report at 1 00. His millionaire survey, my all america survey, put them together and see what the answers are. Coming up, ce of of Tenet Healthcare Trevor Fetter. Sir Richard Branson will join us. N us. Passenger road trip buddy. Lets put some music on. Woman welcome to learning spanish in the car. Passenger youve got to be kidding me. Driver this is good. Woman vamanos. Driver passenger vamanos. Woman gracias. Driver passenger gracias. Passenger trece horas en el carro sin parar y no traes musica. Driver mira entra y comprame unas papitas. Vo get up to 795 miles per tank in the tdi clean diesel. The volkswagen passat. Recipient of the j. D. Power appeal award, two years in a row. Improving everything from booking to baggage claim. Were raising the bar on flying and tomorrow well raise it yet again. [ female announcer ] theres a gap out there. Thats keeping you apart from the healthcare you deserve. But if healthcare changes. If it becomes simpler. The gap begins to close. When frustration and paperwork decrease. When doctors are better connected. When grandparents get to live at home instead of in a home. The gap closes even more. And you begin to live a healthier, happier life. So lets simplify things. Lets close the gap between people and care. Investors are getting ready for earnings in trade data. Why some economists are upping their fullyear growth forecast to 4 . And the bond market is ignoring it. The state of health care from the ceo of one of the largest operation hospitals. Trevor fetter of tenet health. And Sir Richard Branson not feeling any love for love from love field in texas. His ongoing battle for gates as the final hour of squawk box begins right now. I was a little confused in that last piece. Love field. All i know is we have branson coming on. He will explain. Welcome back on cnbc. I am steve liesman. Im certain about that. The great michelle crews can sew cabrera. Andrew ross sorkin. We are filling in for becky and joe. Former cnbcer from Morgan Stanley. Futures, we have been about the same level all morning. Down 11 points on the dow on a fair value basis. 2. 5 on the s p. Almost five on the nasdaq. The interesting story is the dollar index. The dollar index is heavily weighted to the euro. The pound also stronger this morning against the dollar. Its an interesting story to watch whats happening. It may have to do with relative growth forecast. Central bank policy. Interest rates. All sorts of things. There is your board. We have now fixed it so the yellow carows on the length are building strength against the dollar. Its been a while since i read the dollar board. So the ones on the are relative to what it is . Exactly. The dollar is down. Major currencies. Thank you, michelle. We have some headlines. Richard branson later today. He is getting screwed at love field. Its a problem. Lets tell you about the big deal. Merck selling u. S. Consumer brands to germanys bayer. I dont understand how they have two different pronunciations. 14. 2 billion the price tag. It gives the German Company familiar brands. Coppertone sunscreen. Retailer office depot. They are planning to close 400 stores. They report better than expected results. Get better than expected results and close the stores. Synergy is the basis for all the closures. Remember what happened four years ago today . Do you remember what happened four years ago today . That was the day the term flash crash entered our vocabulary. The dow plunged 1,000 points in a matter of minutes before bouncing back. Do you remember . I do. What were you doing . I was in a car leaving here, going to the nasdaq. Yeah. Emails were crazy. Yeah. And then the whole thing sorted itself out. I was on set with jim cramer. Instantly, he said this is a computer issue for sure. False bids being put in place to make it look like youre making a market when you really werent. Thats part of what his argument is all about to some degree. No . If that was the case, then why couldnt there have been another flash crash in the last four years . Im not necessary live agreeing with the thesis. Im suggesting from what i understand and from reading the book, he believes the next financial crisis when michelle and i spoke earlier today, the profits of High Frequency trading as an industry subset are down 85 . More people carry the arbitrage. At the end of the day, the people that benefited from it are buying and selling securities. The rich list we did earlier, how many guys on the rich list . Zero. Yeah. Thats true. You guys talk. I get yelled at. Do they yell at you when im talking . Its just you, steve. The audience cant hear. Bayer and merck deal for 14. 2 billion. Meg broke the story early for us. Meg . Continuing a record string of consolidation in the phrma industry, buying the over the counter business for 14. 2 billion. Positioning bayer as the number two player. We had ceo of bayer, maureen decker, reiterating the theme of beefing up areas where they are strong, where they can be the number one and number two players, getting out of areas where they cant compete quite as strongly. And some very well known Consumer Brands and even historic brands. They have tre were men douse consumer loyalty. Bayer aspirin, a product we have been selling for over a hundred years now. And claritin, copper tone. Those products have great loyalty and provide a very consistent income and cash stream. Now, in addition to those brands, bayer already sells midol, aleve, one a day, miralax, fafri, dr. Scholls. They are doing something else. They are making a strategic collaboration in cardiovascular. They will pay up front a billion dollars. Potential milestone payments of 1. 1 billion. 14. 2 billion going from bayer to merck. There was a shuffle between novartis, glaxosmithkline and eli lily. We will talk with ken frazier here in boston. Stay tuned for that. Back to you, steve. Meg, i just have a question for you. Whats the deal here . Is a company that sells in font of the counter is better off in front of the counter . And a Company Behind the counter should stay behind the counter . It is so much higher behind the counter. Well, i know that. No. Thats true. Its interesting that you ask that question. Of course you can charge amount more for the drug that you have to get prescriptions for. As the ceo of bayer this morning, companies are trying to compete in areas they are already big in. Bayers business in the Prescription Drugs isnt quite as strong as it potentially is for consumer products. Merck, of course, as you pointed out, is a very big company on top of its consumer business. Merck is staying heavily there in the Prescription Drug business. Meg, thanks very much. Thank you. Since fridays jobs report many experts raising their Second Quarter growth off the full year. Some 3 for the full year. This begs the question, why are bond yields so low and are bonds cruising for a bruising . Jeff rosenberg, chief investment at blackrock. Gary kaminski also involved. Why does the 10year remain so low relative to growth . Theres a lot of reasons. A tremendous amount of comments on this. I think the most important reason for why yields are so low, people have rediscovered the value of traditional bonds in their portfolio. Go back to what happened at the beginning of the year. You have to view this from what people are expecting. People had negative returns. They were reducing bond exposures. Bonds outperformed. People realized they did not quite have enough allocation to the longer end maturity exposures. That gave them the cheapest edge. Rebalancing from positioning is probably the most important reason. Youre saying the street was short relative to what sort of proper allocation here. It defies the expectation, right . The fed was buying 85 billion of fixed income before. About half was treasuries. It is down to half of what it had been buying earlier this year. So the fed is not out there buying. Who is out making these purchases . You mentioned the street. Its not really the street. Its everybodys portfolio. Think about the big theme last year. It was negative losses and longer Maturity Portfolio exposures. Everybody got out. That meant they didnt have enough exposure to offset the risk in portfolio. When you saw that happen, you saw a big shift back in the bonds. We saw the value of bonds in a portfolio context reasserted. So, jeff, whats the outlook. Thats where people care the most about your thoughts here. Where is the 10year . What is going to happen to interest is rates. Its interesting. Generally for the last four or five years ill be on the show. Everybody asks where the 10year is going. The fixed income is fundamentally changing. This is a year. Were going into the next year. We will have a change in monetary policy. Where is the 10year going . The economy is getting stronger. The 10year will go up a little bit more from here. You have to have a big disappointment to see the yields go further further. Theres a lot more risk of rising Interest Rates. When the fed begins to signal its changes and if the economy thinks it will bounce back from the weatheraffected First Quarter disappointments, you will see the biggest increase in Interest Rates on the front end. I agree with just about everything you said, especially about the reallocation of bonds. While it has to do with the general racial impact we are still suffering from 2000. The bond market is word about the d word, deflection and a recession, not the Economic Growth you said youre forecasting. Any thought at all in terms of possible deflation or possible recession which is what the bond market may be trying to tell us here. Certainly when stock investors see this when youre talking about deflation and recession, you have to remember the u. S. Bonds function in a global bond market. The deflation threat is not the u. S. Market. Its really the global market. Look at europe, japan, thats where you have the deflation risk. Its not just u. S. Bonds that are going lower in terms of yields, its global bonds. That happens to push down u. S. Yields at the same time. I dont think we have a recession deflation story here in the United States. When you look broad broader, you can weigh on the u. S. Bond market. Is your best bet that the they get out in a smooth fashion without causing inflation or recession . I wouldnt say thats my best bet, steve. The fed has had a challenging history. The markets have had a challenging history when it comes to transitions and transitioning from monetary policy. You have to go in with a lot more caution around how smooth that transition will happen. The fed wants it to be smooth. Of course they do. Their ability historically to manage that in a smooth way not a very good track record there. Jeff, thanks for joining us. The next time we have to talk about how you position against guarding against either one of those. Thank you for joining us. Coming up hospital operator Tenet Health Care said it was hurt in cuts from payments from the federal medicare program. We will speak to the ceo next. As we head to break, check out the squawk box indicators. Box. With all the opinions about stocks out there, how do you know which ones to follow . The equity summary score consolidates the ratings of up to 10 independent Research Providers into a single score thats weighted based on how accurate theyve been in the past. Im Howard Spielberg of fidelity investments. The equity summary score is one more innovative reason serious investors are choosing fidelity. Call or click to open your fidelity account today. Its called truecar. And truecar users. Save time and money. So when youre. Ready to buy a car, make sure you. Never overpay. Visit truecar. Com today. Welcome back to squawk box. Tenet health care reporting quarterly results. Sales fell. It was better than expected. Joining us to provide a little bit of color on this past quarter of whats going on in the health care line, Trevor Fetter is president and ceo of Tenet Health Care. Good morning. Good morning, andrew. I want to talk about where we are in terms of obama care. Affordable care i dont know what you want to call it. Affordable care act. Is that the polite phrase . Yes. In terms of earnings, how much of it was impacted to the extent that it was by whats happened over the past couple months with what i call obama care . You had several moving parts as it relates to that. Weve had cuts. Our industry has had cuts in medicare for three and a half years. And its important to remember that that is part of the price our industry has been paying for expansion and coverage we are only now beginning to see. That began january 1st. In our case the expansion and coverage took place in two senses. One was medicaid. We had expansion of medicare in four states in which we operated. People were able to obtain private insurance on the health care exchanges. Florida, texas are two of your biggest states as far as i know. They are not expanding medicare. How is that impacting the business . Well, those states chose to opt out. Obviously those are two states in the United States with the largest uninsured populations. People in those states were able to sign up for insurance on the heating exchange on the healthcare. Gov website or through insurers directly. They werent able to take advantage like in the state of california. Still across our portfolio we saw increases in medicaid volumes of 17 and decreases in uninsured charity volumes of 33 . There is a strong effect very positive coming from Health Care Reform across the states. Come back and restate that. You said in terms of uninsured coming to the hospital now, what are the new rates . Well, thats been a significant problem forestry for a long time. Thats why they got behind the Affordable Care act. We saw how severe this uninsured problem was. Just to restate that, the expansion in medicaid across four states in which we operate caused there to be a 17 increase in the volume of patients that are covered under medicaid. We saw 33 decline. Thats on a smaller base on the number of charity and uninsured patients. So what that tells you is there was a significant conversion of people who were uninsured into Medicaid Programs in those states with california really leading that. What do they do, trevor . Do they come into the emergency room or use more i guess conventional health care . Well, we have been preparing for this for a long time. With the publicity around the lawn we launched a significant campaign that we called path to health. In markets where, you know, it made sense for us, we distributed flyers. We did advertising. We hosted forums that ultimately attracted 200,000 people. We really ran a campaign to try to get these people enrolled in whatever programs would be available to them. Whether it was medicaid or these Exchange Insurance plans. We made sure our hospitals were well positioned across the insurance exchanges by making sure we had a great value proposition. The question im wondering about, one of the ideas, which peter orzach said it was not true but people thought it was true. The Affordable Care act would take people out from going to the more expensive emergency room into more classic and less costly health care. Like visiting the doctor. Did it . Are you seeing that in your business . Well, its hard for us to know exactly, steve. We have visibility into when patients arrive at our hospitals Emergency Rooms or physicians. Let me tell you what we think is happening there. People have signed up for the Exchange Insurance plans are being told by the plans they are able to have one free checkup every year. They are going to see doctors. Across our employed physician base we are starting to see those visits taking place. If those people come in with some sort of condition they are going to be treated in the normal course through physician and the most effective course of venue for care. The emergency room so the question would be, are emergency room visits down . No. Emergency room visits are up. But emergency room visits have been up every quart canner for a very long time. Has the growth rate slowed . No. So its not having that effect . Thats exactly what happened in massachusetts. Emergency room visits went up dramaly. So it doesnt work. So there is a trend across the country, and there has been for a long time, of using Emergency Rooms in part because they have become more efficient. What happened in massachusettss was so many people got access to health care, health insurance, they couldnt see their doctor because there wasnt enough supply so they ended up going to the emergency room. The capacity of Emergency Rooms, we have made them more efficient and reduced the weight times. So we are not seeing that kind of effect taking place. Is there a good news for your business, which is the margins in the emergency room i thought were a lot higher . The margins are higher when youre being paid for it. To the sent you have people visiting who dont have insurance the margin is negative. Trevor, we have to run. Probably the most important question of this entire interview. Okay, andrew, go ahead. Jeb bush, is he going to run . Hes on your board. You have to ask him. I dont ask him that question. I hope that he does. He would be a wonderful president. But thats really not a far for today. Where is he on obama care . He believes that the law is flawed. He said that many times. There are many problems. But you were for it . Our company is for it. The company is for it. The board member is not for it. You can have disparate views. I was wrong. Six minutes is not enough. Never enough. So interesting. Coming up david eye horn has a new position. The stock getting slammed in afterhours trading. Well tell you what eye horn said right after the break. Then theres a battle brewing in texas. Theres always a battle brewing in texas. Sir Richard Branson looking so slay goliath. In lover at luv is the tease of the morning. The morning. Tigers, both of you. Tigers . Dont be modest. I see how youve been investing. Setting long term goals. Diversifying. Dip you got our attention. We did . Of course. Youre type e well, i have been researching retirement strategies. Well thats what type e s do. Welcome home. Taking control of your retirement . E trade gives you the tools and resources to get it right. Are you type e . David eye horn revealed a name stop hes now shorting at the investment conference. Eye horn calling athenaheating a bubble stock. He said they are being overvalued by other investors. The company could fall 80 from its peak share price of more than 200 earlier this year. The stock taking a hit in premarket trading. Youre seeing it up 11 . Jonathan bush, billy bushs procedure, has been on set many times. You interviewed him out in sochi. He was there for his entertainment show. Jonathan came out to visit him. We said, hey, come on the show. But it was mostly about the olympics. When we talk to him, we usually talk about policy more than the the company. He liens to the right. Last name is bush. Hes been on vacation. He took an extended lee. He is going pack to the company. We can ask him about this very subject. There you have it. Coming up next, Virgin Group Founder Richard Branson in dallas. He pushes to get two gates that American Airlines is giving up. A classic david versus goliath in the airlines business. He joins us after the break. I dont know. Hes pretty big. Pretty big. And what theyve been through lately. Polar vortexes, road construction, and gaping potholes. So with all that behind you, you might want to make sure youre safe and in control. Ford technicians are ready to find the right tires for your vehicle. Get up to 120 in mailin rebates on four select tires when you use the Ford Service Credit card at the big tire event. See what the ford experts think about your tires. At your ford dealer. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. 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Its a bit narrower, less than a deficit than the originally released february number, 42. 3, which now stands as 41. 9. So no real great shades here. It falls in the range, the range the last 10 months has seen 38 as the low watermark and 44 on the high watermark. Whats noteworthy today is the ongoing debate as to why Interest Rates are so low. To see so much debate questioning what seems to be obvious about the outlook of the economy. One month out of three for the Second Quarter, economists have seemed quite comfortable to call for huge rebounds in gdp. Probably they are correct. The Treasury Department is looking to a reverting type scenario. And the aspects of gdp by the end of the year according to the buy market will have a two handle. Thats where the debate will be. But sooner or later they will be right and the fed will get credit for the 7 to 10year recovery process. Back to you. Thank you, rick. Thank you, rick. You know, again, we have this pattern that we have had for improving march data, april data. Experts were down 1. 3 in february. Bounced back up to 2. 1. February, bounced back up to 1. 1 . This will probably flatter the gdp number in that the february deficit number was a little bit lower. The march deficit right in line. Okay. Lets get over to Sir Richard Branson. We have Richard Branson on. Virgin Group Founder sir richard founder sees a david versus goliath at love field in dallas. Joining us from dallas this morning first on cnbc, Sir Richard Branson himself in the flesh. Good morning to you, richard. Good morning. By my take on this, i think youre getting screwed. I would love to be able to fly into dallas love field. The department of justice has said that in order to increase competition that Virgin America should get the gates. American airlines have been told they would have to give up the gates in order to increase competition has given us at least a sign on the gates. And therefore it should be a slam dunk and Virgin American should be southwest is trying to make sure you dont get them. Yeah. Southwest, who own 90 of the gates at love field, are fighting very hard with the city to try to stop us getting them. And arguing that competition is not necessarily good for the consumer. So basically ive come to dallas to say that competition is good and that Virgin America offers a very let me guess. Are the politicians locally going along with it, richard . I hope not. Im not sure legally they can. Southwest obviously has enormous clout in dallas. What can you do to the price in and out of dallas . Southwest, who is supposed to be el cheapo, is not el cheapo anymore. They have gone up 40 in quite a short while. I think the main thing that Virgin America offers is, unlike southwest, we have a first in business class. Wifi throughout the planes. Well be flying to new york, to l. A. , to washington, to san francisco, chicago. Well be able to offer good competition. What do you make broadly of the consolidation and in fact, has done so much for the stock price but arguable the price for consumers its been a different story. Yeah. Theres no question that the Airline Industry is a much better industry today for stockholders than it was ever in the history of the Airline Industry. From the traveling publics point of view, the jury is out as to whether thats good news. When you have no competition as in love field, or less competition, fares go up. And airlines dont feel they have to spend so much money on quality. So the Airline Industry is now a good industry to invest in. Weather is good for the consumer. Richard, im sorry. There are hundreds of gates, thousands in the country and around the world. Why should anybody care about two gates in love field . I think if you live in the city for dallas, you very much care about love field because its such an easy airport to get to. Its only 10 minutes from the city. And dallas is a very important american city. Steve, if youre flying from new york and you want to go to dallas on business, you want access to love field. Thats why. Im going to answer the question for richard. It is a bigger issue. It represents a larger issue in the Airline Business which is the virtual monopolization. Does it change anything in others . I think it may send a signal. Its an honor to have you on. I would love to talk about so many things unrelated to business like add venture stuff. But lets keep it to the Airline Industry. Are you surprised that the industry you said the industry is investable. Are you surprised united, american, delta, have run the capital, the businesses the way they have so the shareholders have benefited for the first im in decades. In fact, they are not buying the new plans. Has that surprised you the last couple of years . I dont necessarily think it has surprised me. 0 theyre not yeah. Theyre not all going down that line. You know, we have certainly found united have dumped a lot of capacity on san francisco. But i think anyway, some sense but for the most part the industry never earned cost to capital. You talked about that for years. When you started virgin in the uk, you said you were going to run an airline that made money for the investors. Are you surprised the airlines in this country have done that for the last several years . Well, i think sense has finally prevailed in america. Since we started competing with american carriers 30 years ago, every one mass gone bankrupt at least once. Some of them four or five times. Some, like twa and pan am, have disappeared almost altogether. So some kind of sense had to prevail one day. Theres definitely some sense now finally in the industry. Richard, steve and i are having a private conversation. Were whispering. You guys are about to go at it here. Would it help if airports were privatized in the United States. Would service get better . The airport experience just is so horrendous in this country for a number of reasons. Would that lead to better competition when it comes to gates, takeoff times, et cetera . Generally speaking, i think privatization is beneficial. But it does need the department of justice to intervene on occasions to make sure that real competition take place. Because private monopolies exist. You have to have the department of justice having the ultimate say on these kind of decisions. Reufpl, my question is similar but a different standpoint. Profits are doing very well in the industry. But if you talk to average people they will tell you the flying experience is the worst its ever been. Do they have to be at odds here . How do you get to a place where the Airlines Make money and the people who are flying enjoy flying. Just before i came on to do this interview, somebody said to me how can Virgin America make money with the with the quality of our airline. With everything we offered passengers. And the way we make money is by attracting more people. We win all the awards. And therefore we get the richard, is Virgin America profitable . Virgin america is profitable. Were very happy with the returns were getting from Virgin America. Its taken a while. But building a new airline in america against, you know, against the competition does take a while. Had these mergers happened before you started Virgin America, do you think you would have started Virgin America today given the marketplace . I think its unlikely you will get a new airline in america in the next decade. It will be incredibly tough for another Virgin America to emerge in this marketplace. And that must have been something that weighed on the department of justice when they allowed these mergers to go ahead. Its definitely going to stifle i think future competition. Is there any chance of the supersonic plane coming back . Yes. I think virgin galactic, after we have done the space program, we will be producing supersonic planes which will go far faster than concords. New york to tokyo, how long . Well, if we get it right, new york to tokyo could be less than an hour. You could be traveling at 19,000 Miles Per Hour orbitally. Who what will that ticket cost . And how soon can we do it . Hopefully in my lifetime. I have a wait a lifetime for this virtually . Some look, well see. Its not easy. But it is definitely doable. Hopefully ill be worth enough to pay for it. We have had people come on, ceos, bond strategists. What is your read on the Global Economy . Worries about recession . Deflation . How do you see the world right now . I see the world in a really good state at the moment. Not just sort of america and europe coming out but equally excitingly whats happening in places like africa. You have 6 , 7 growth year in, year out. A lot of people who werent on the Poverty Level coming out of poverty. And thats happening really on a global basis at the moment. So tremendously exciting time. And, you know, lets hope we can make it sustainable. Any thoughts on weve been following the situation with g. E. Trying to by alstom and how the finance minister of france was dumping on the company. Now hollande is trying to get involved talking about pricing. How do you feel europe is . Has it finally come along and realized m and a is international and supporting state champions and country champions isnt the smartest thing to do . Do you watch with frustration or how do you see it . I 100 feel the world should be treated as one world. We shouldnt put up barriers anywhere in the world. And that any country that puts up barriers and america is not perfect should be criticized for it. And weve got to campaign to try to overcome barriers. So i hope europe will behave well. And i hope america will behave well in the years to come. Richard, what is the story about you using emails about profanity . Did you see this story . You used it in your own i. T. Department kicked the email back to you . Many years ago i had a court case for the sex pistols album. We were taken to court. We found a a lynn guess particulars expert. We were told it meant priest. When i sent it it got stopped by the i. T. Department. And i said, look, i had a case on this one. You dont need to stop my profanities coming through to you. You run around dallas screaming bollax, bollax, bollax. Much more. The sectors in the market he thinks will outperform this year. Year. man speaking jananese fame, makes a man take things over fame, lets him loose, hard to swallow fame, puts you there where things are hollow the evolution of luxury continues. The next generation 2015 escalade. Fame box. The futures right now are suggesting a slightly lower opening. They have weakened throughout the morning. They are lower down 42 . General motors is offering employ yai price to go. They said they would offer 500 off the purchase of a new vehicle to affected drivers. Shares of g. M. Are higher by 25 cents. Coming up, jim cramer from the new york stock change. Well find out what investors will be watching at the opening this morning. Squawk box will be right back. Tomorrow on squawk box, we talked media, tech and earnings with aol chair and ceo, tim armstrong. And squawk box platinum portfolio tom rogers start act 6 00 a. M. On cnbc. Profit from it. Profit from it. With all the opinions about stocks out there, how do you know which ones to follow . The equity summary score consolidates the ratings of up to 10 independent Research Providers into a single score thats weighted based on how accurate theyve been in the past. Im Howard Spielberg of fidelity investments. The equity summary score is one more innovative reason serious investors are choosing fidelity. Call or click to open your fidelity account today. At your ford dealer think . They think about tires. And what theyve been through lately. Polar vortexes, road construction, and gaping potholes. So with all that behind you, you might want to make sure youre safe and in control. Ford technicians are ready to find the right tires for your vehicle. Get up to 120 in mailin rebates on four select tires when you use the Ford Service Credit card at the big tire event. See what the ford experts think about your tires. At your ford dealer. Whatswithout the thinking capitathat 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. Welcome back to squawk box. Lets get a quick check of shares on twitter. No particulars now but its hit a postipo low this morning, 36. 39 ises price tag. Thats off 6 in the premarket. What was it . That news related to stock freeing up in the lockup . That might be a piece of it. Is that enough to warrant a 6 move like that . I have not been following it closely but i believe there was stock on locking up. Lets ask jim. Jim cramer down at the new york stock exchange. Hey there, jim. What do you have coming up on squawk on the street and what do you think about the situation with twitter . Well, i think theres a ton of stock for sale, a lot of the larger shareholders committed to keeping the stock but when you have original investors with a low basis, i think the first day they can sell they will sell and ive got to tell you, i think theres big blocks being positioned right now, guys hitting the stock down, betting they will be able to cover on any sort of big block. I think this is going to be with us for some time because the stock is up substantially from where it came public, not where it opened. Jim, you and i know there are certain Institutional Investors that invested in preipo they would sell the stock no matter what the price, based on their mandate they will sell the day they can free up to sell into yeah. I mean look, it makes a ton of sense. Who would want a big gain turned into a loss. Remember theyre not thinking about wow, the stock traded to 70. Theyre thinking i have a low basis, a nice capital gain, lets nail it down. I think investors who are in twitter dont realize thats the process that you have because theres lots of people who did not pay the offering price. Jim, story in the journal this morning, facebook doing video ads of 1 billion for the bay. Is this something thats a game changer here . It had to happen. One of the reasons why i think people felt that quarter wasnt enough they didnt outline exactly what they were going to do with video. Zuckerberg has been really very stringent about who can advertise including that article, who can advertise on facebook and what the ads will be like, even on the conference call, people like our ads, nobody else can be that picky. The stock i think remains cheap on 2016 earnings. As gary knows this is how people invest. They invest on 2016. For that its cheap not on sales but earnings. The rub on this is that advertisers saying if im spending a million bucks im going to have control over what i say. Zuckerberg will retain control. The question is do advertisers go for it . He wants it to be to look good. Hes not really like determining what the copy is. He wants the ad conformative. The thing i would emphasis with facebook, the companies that advertise there are so thrilled. I have Dominos Pizza on theyre 50 digital and attribute a huge percentage of their ordering to facebook. And pat doyle came on the show and said look, this is not an uncommon experience. He has not had as good luck with twitter where he has 750,000 followers not enough to do the job. Didnt facebook have the same lockup situation and what happened in the shares after that finally . Which one on facebook . Yeah. They crushed it. Okay. They crushed it. It dropped all the way down 1718. Didnt they have a lockup expiration situation as well i would assume . It did. Im saying the insiders crushed it. They killed it. It wasnt any of the big guns but when you saw the filings you realized wait a second i have to get out. Just so you know that was a bottom. That was a bottom, right. That was the bottom. So could it be they reported a blowout quarter after that. Okay. Thanks, jim. Okay. Thank you. Well see you in a few minutes. More thoughts from gary kamins kaminsky. Keep it locked, coming up on squawk on the street, merck ceo Kenneth Frazier will talk about the companys deal with buyer. Squawk box coming back after this. This. 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Common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. Ask your doctor about axiron. Welcome back. Gary ka min ski the vice chairman of Wealth Management at Morgan Stanley. You had your cnbc career and then you had a career for a long time before that as a newberger lehman man. You have a perspective on Lehman Brothers. A number of highprofile people over the past month that have left that firm. Well, left barclays. Left barclays. Who took my question is, is the old lehman, that is over with . Whats going to happen to barclays now . Yes. The lehman legacy, other than maybe two senior people, i think eric feld is one of the last senior people skid magee yesterday. Paul parker left. The legacy of Lehman Brothers and what was acquired that weekend of 2009 is now basically gone. I mean basically if you want to go back and look at the history, barclays will say they did buy lehman cheap, did get the real estate on sixth avenue but do they get the Investment Banking business . The reaug is developing right now. Theyre shrinking the business to grow. S whos going to take that business . Is there somebody natural person out there sp. The business is not taken unfortunately. Look at the lead tables. You seen it across the street. The equities business, look at our equities business. You saw what we reported a couple weeks ago. Did other institutions are picking it up. Did bob dimon make a mistake . Youll write the next book. Im not in a position to judge it. I think history will say they did the acquisition but they did not have the competition here in the states. They did not get what they wanted to. Could they let go of it . I have no idea. Could they have done better . I guess they could have done better or wouldnt get out of the business. Okay. Thank you for being here. Good to see you all. Thank you for the doughnuts. Yep. And all the love. Love field. Make sure you join us tomorrow. Squawk on the street begins right now. Thank you michele and steve. Live your life good tuesday morning. Welcome to squawk on the street. Im carl quintanilla, jim cramer, david faber at the new york stock exchange. Futures are lower on the fourth anniversary of the flash crash. Weve got some pharma m a, merck, twitter at a new low as the lockup expires, tenyear around 2. 6. The real story might be the dollar index, the lowest since october. Europe is in the red, both spanish and italian tenyear bond yields are below 3 . Auo geez. Twitter six