Transcripts For CNBC Squawk Box 20140519

Last night, a couple different issues. This puts them as the second largest tv company in the country. 5. 7 million tv customers at at t, 23. 3 million in the u. S. As becky said, its a 10 premium. It is actually a 30 premium when you look at the price relative to when rumors of the deal first came about. And let me tell you a couple thing that is randall told me last evening. He said mike and i have talked about this deal on and off for quite some time. They have been, quote, trying to assess the regulatory situation as it relates to this transaction. And he said the more we peeled back the onion, quite frankly the better we felt about it. Heres a standalone tv business and we are for all intensive purposes in mobile and broadband business, we are not, and he said this several times, we are not in the standalone tv business and we dont even really sell that product today. He also said they have been talking for years but interestingly enough they stopped at one point. They didnt do the deal sooner because of the antitrust laws. He said, quote, the American Airlines lawsuit caused us to pause. Once that case got settled, it caused us to relax a bit. He also said the timing of the deal was unrelated to the comcast Time Warner Cable transaction. He said that multiple times. Im not sure i believe it. Its a good time to get in. If one deal gets passed, you assume the other will, too. Thats what i said. He said of the regulators, quote, they by rule have to review each transaction on its own merits of the comcast time warner deal, he said, quote, thats a different transaction. We see that deal getting done. He said over and over he sees that deal getting done. He has to say he wants it to get done. There will probably be conditions imposed upon them, meaning comcast, our parent company. He said our deal is a very different deal. We are combining a National Deal paid tv provider with a nationwide mobile Service Provider and a huge broadband provider. So we see them very different. A couple more notes, he said customers want a bundle. People say satellite is a technology, does it have a future . He said, it almost, in this case, doesnt matter. Economically, 2. 6 billion in cash they get off this thing every year. So even ten years from now you believe satellite doesnt have a future, he made the argument that both satellite does have a future because airplanes, they are going to get into the business of there are areas where you just dont have cable anyway. And its the most efficient way in rural areas, but most importantly he said bundles is what we compete in. Comcast is trying to build a wireless now comcast is trying to build a wireless capability building wifi capability. I see vodafone buying cable companies. He suggests that the customer has spoken. The customers told us they like to buy from one player, one provider, they like it to be seamless and like it on one bill and like a one customer counter interface. I definitely feel that way. You feel that way . Yes, i want one bill. A couple things to make clear in the script, that the deal by announcing all this is going to be reviewed by regulators at the same time. People close to this situation saying over and over that actually it is driven by the comcast deal. If you put them on the table at the same time, it will force the regulators to hopefully agree to both. That may not be how regulators look at things, but in reality thats life. Also, one last point. Investors and some analysts have been talking a lot about whether they should have bought dish. People think thats a Better Business in some regards. And perhaps at t would have done that, however, the view inside at t from what i understand and what the sources are telling me is they looked at dish, unclear whether they would sell, but more importantly it would probably botch their options to buy more spectrum. So theres a number of really important options coming up on spectrum. It would have made it really difficult to do that. For dish . Difficult for at t to do that. Now the big question is what does dish do . Citigroup out with a note this morning raising the question, does charlie now try to either jump into this and try to buy directv himself . What does this do to the sprint tmobile deal . Does charlie feel like he has to do something . Well speak to the analyst who points out in a slowing wireless environment, that at t is somehow up 5 on 30. Did you see that chart . I mean, at ts stock has gone up a lot in the last month or two. There it is. This puts them in the video business. But look at that. To be able to do the deal, they needed their currency to be worth i dont think they could do it at 31. Because somehow they have got top stock, i dont know how, but thats one of the analyst that is we speak to i spoke to randall last night, but just a couple of emails, but like the french law, i was uncomfortable even doing emails on a weekend. Right. In terms of you are not supposed to work on weekends. No. No. That doesnt work with the whole m a thing. Did you know the kings you didnt care object the kings and the blackhawks or any of it . I mean, how did you were you typing while he was saying all of this or were you recording the conversation . No. With a notepad . The street, no less. In the street, no less. I was having dinner with the kids. I said congrats, lets talk maybe tomorrow. If we have a chance, but the you are a deal guy. Im glad you are here for this. I couldnt help you with the mergers the week i was gone. No, you werent. Now i can help you with this. What happened with the astrazeneca deal . Its done. Its done. Altman just said no basically. Pretty much. The british rules were to come up with something by may 28th. So the clock was ticking under the deal, lie they were up against a deadline. Did you this will not, i mean, this money, a t t is paying, they still have the pebble beach at t tournament, right . Not only will they have the pebble beach tournament, more importantly, you may we do the show from out there. I dont go out there to play golf. I go out there to do the show. But you also may be able to get the sunday ticket on your at t mobile device. Right. That is actually pretty cool thing. You mean watch something other than xfinity. I dont know what you are talking about now. Watch something other than comcast . You just complicated things. I would never watch anything that doesnt come through my comcast system. Why, do you . No. I would never. I would never. But on your mobile phone, which is you are an at t man . Can i say yes . I dont know what they have up here. Do you know . I have one of each. Yeah. Okay. Lets get more on the mega media lets get more on the let me try this, the broadcast news, this is where i get nervous with the illiterate mega media merger between at t and the company, joining us is kevin smithen, Senior Telecom analyst. Theres something to be said that we have not mentioned yet in latin america. Latin america is huge. 18 million subscribers. Doesnt that lower the amount of free cast flow that at t has to spend on maintaining the dividend, too, kevin . We think the primary reason for the deal was that it secures the dividend for next several years. I think the concern that we had had and that many investors had had was that the payout of their Free Cash Flow, which was estimated at 11 billion this year, the dividend was about 9. 5 billion, it was kept very tight, especially given tall wireless speck strum they have to buy in the auction over the next couple of years and they have to build that out. And wireless usage is growing at almost 100 for year on at ts network. So very capital intensive and was tight into the dividend coverage. So this deal is doubledigit on Free Cash Flow per share. Almost immediately. And we think that that is going to protect the dividend and secure Randall Stevensons legacy here. Thats the primary reason people own at t stock with the dividend now secure, we think thats really important. The second thing is that it drives video usage on mobile devices. You know, not only are they getting content savings, which i think we have been surprised in the market of how much a difference in content costs. We initiallilly estimated 5 to million per month, but i think it will be more than that to what applies 10 plus per month in content energies. And i think that the video is what is really driving usage in mobile with pricing coming down in mobile, you need to drive up the usage running 2 gigabytes per sub and highdef video in sports is really the way to do that. And directv, thats really going to be important for them on the mobile side to have that content, to have the sports, and to have that video, which theyll be able to access over your at t tablet, as as you said, the connected car and all the partnerships with the auto eoms in play, which is more of the east market, but distributing that content anywhere you are, and at t will be really in a good position to do that. But do those same contracts stand when the deal goes through like this . I would think that all the franchises from all the sport franchises would get paid more with more access to their information or to their sporting events. Theres going to be amendments for overthetop content in mobile. That remains to be done. I mean, for example, today verizon has the mobile rights to the nfl. Thats coming up for renewal. Given directvs position in the nfl, i would expect at t to bid aggressively on the new nfl contract. So it will be a good time to be the content owner in this period, but that being said, the leverage that they have now with over 25 million subs is a lot better than the leverage they had, which is 5 million subs. Kevin, randall goes to a great length and told andrew and actually says that the deal, this deal was not even similar in this view to comcast and time warner. I mean, is that is that a fact that these deals are not similar and shouldnt they be looked at at the same time . And do you think either deal has a problem . I mean, thinking to let the free markets work is usually the way we do things, but i dont know, in this administration, i wouldnt assume anything at this point. Well, we actually dont think theres going to be significant regulatory opposition to the at t directv deal. At t is a relatively small player in the video market. There could be some new verse subs of directv subs within the uverse region, but thats not going to be a deal blocker here. So i think it is very different than the other transaction, which i dont want to comment on, but we generally think that at t and the directv deal will get Regulatory Approval with minor concessions that wont the early impact the value of the transaction to at t. All right. Okay. Kevin, thank you. A lot of other stuff going on today, but well revisit this every hour on the hour. On the hour. Im sure well talk about it quite a bit. I think that astrazeneca has to do something. Who is left . Isnt it like theres no chairs left, the music has stopped . You go buy sprint. Yeah. You go buy tmobile, i dont know. Yeah, right. Thats all you got left. You can go buy a Cable Company or charter. You could. I dont know, it all seems all right. Well, well youre saying that randalls contention is this is all about watching tv on your phone . Content wants to bundle. But this is a mobile video. This is mobile video, multistream video, this is how it all works. How much more people are using mobile video every single year, how much faster and how much more stuff needs to be done that way. He made the point that directv has amazing carriage deals already of most of the content providers between cable and satellite, they have a lot of longterm deals with most of the big networks already and most of the Cable Operators already are locked in for a particular amount of time. Even with a change of ownership. Now it is unclear to me, for example, if i said, will you be able to see the sunday ticket on your phone, i assume at some point you will, but i assume you pay for more that, but at least they would already be under the tent in the way they are not now. The content providers are going to love this because it will drive up the bidding when you have verizon and at t. Netflix is not, i would doubt, to come out against Something Like this. You would take looking at the landscape, which is so uncertain and daunting and prices, you know, you would think then in a free market economy that there would be no problem with either one of these deals, but can we count on that at this point . I dont count on anything anymore. The question is who comes out against it . So usually when a deal this size happens on a sunday night. A competitor, you mean. A competitor shows up, consumer groups come out. Your paper will definitely show up. Deal or no deal, your paper is going to write an editorial. Dont you think . I dont know. In fact, i would argue that now both of these deals happening at the same time could make it more likely for deals to happen. I looked today already. I dont usually open this paper in the morning, but its a beautiful look at those pages. Thats artwork. This couldnt have happened to a nicer group of people. We read the New York Times every day. I have to. I read i need to know what all the papers are saying. Every mother jones, too. I read the i lied. Okay. But im aware of whats going on. As we mentioned, british drugmakers s astrazeneca reject the offer from pfizer. First up, do you think its a final offer . Socalled final offer. You mentioned earlier the deadline at tend of may under british takeover law. So pfizer is saying this is the final offer. And its not going to go hostile with shareholders, but saying in its offer today that it raised the bid by 15 . Offering 45 in cash, 55 democrat the stock. A much higher percentage than it offered before in cash, but also saying encouraging friendly shareholders of astrazeneca to come to the table to encourage astrazenecas board to engage. Now this comes after a long weekend of discussions. Pfizer and astrazeneca talking on friday and apparently pfizer put on the table 55. 3 Pounds Per Share or about 113 billion. Astrazeneca saying they needed 10 more than that to engage. But at least they put the number on the table of where they would engage. Now pfizer not quite meeting that coming back in with the 117 billion. So the question now is, do astrazeneca shareholders try to convince the board to start negotiatie negotiating. We just looked at the astrazeneca shareholders, that could give the shareholders the push against the board there. That could be what pfizer is counting on. The floor is pretty low for where shares could go if they dont accept the offer, so trying to get the shareholders to say, hey, guys, we need to Start Talking. At least open your books and let pfizer look at them. But they are saying this is a final offer, but there could be wiggle room. That may 26th date, though, by which the time they need to Start Talking. I dont understand the rules. May 26th, what has to happy then . Pfizer has to make the final offer and they have to start it seems like they have to have an offer on the table. That astra okayed . Astrazeneca has to say, we may okay this offer. I read theres a sixmonth period which pfizer cant come back to Start Talking about against astrazeneca waves that. Is that a poison pill for all British Companies where you dont have people continually coming through to pushover companies . Such a better rule. It comes under the cadbury craft. It makes all the rules very transparent. If you have a bid, it cant sit out there forever. If there are rumors in the marketplace, you have to publicly disclose that you are in talks. And it puts deadlines on things so that you can actually hopefully the idea is that the market can see whats happening. It is more transparent of a process as opposed to back and forth in the u. S. Some people think what they do is okay. It looks like pfizer is aggressive in the bid. Raising the bid 18 over the course of that. But since they have to make it public, it seems more aggressive than it would seem if they didnt have to disclose they were in talks. So it kind of changes the dynamic a little bit when everything is out on the table. Okay. Meg, thank you. Tell me about this its a notebook . Its a reporter notebook. You flip it. You do. Come on. I kid you not. With a pen . How do you do that . He was at dinner, so he was scribbling down. I put the thing in my pocket and knew i was going to talk to you at 5 45. Actually, im wrong, i put headphones on. I had my apple headphones on. You just have one reporter . Do you have like a valerie jarrett, so when she calls do they get mixed up when the Administration Calls . I have a pile of them. I had already used a lot of it and was looking for blank pages. You have more than one so it can get confused. I have stuff on one side and valerie on the other. There was no space, and then i started riding on the hard i mix, which is half the problem, as you can see. Youre right. Coming up, everybody i have never owned one of those. Well have to get you one. Could California Chrome be the first triple crown winner . His chances could be squashed by nasal strips. Like the breathe right. I saw the clip. I took the one that finished third. I forget the name. Have you used breathe right nasal strips . No, i have not. Okay, we are back in a moment. Security solution to ker Information Safe secure. Century link. Your link with whats next. Carstheyre why we innovate. Century link. Your link with whats next. Theyre who we protect. Theyre why we make life less complicated. Its about people. We are volvo of sweden. Time to take care of business with century links Global Broadband network and Cloud Infrastructure. We constantly evolve to meet your needs every day of the week. Welcome back. Disneyland announcing increases to the park prices. The park hopper to enter two parks in california rose 9. 5 to 150. The price to visit just one park rose more than 4 to 96. And nielsen is adding demographics to tv ratings. They hope this gives advertisers a better idea of who to reach through tv ratings. 80 of those who tweeted about the nfl were men but the ads were targeting 50 female. The voice tweets reached an audience 43 male with many of the ads for women. Once you get the demos i still cant figure out how much to take away from twitter. In terms of what value add there is . The value add but how representative it is of viewership. It clearly represents engaged viewership of some sort, but beyond that, in terms of total numbers, i think its sort of people sort of look at tweets now and think that if something is trending, is that trending nationwide or really representative of a sliver of the population. There was a great study of what trends politically, by the way. There was a study out recently. Much more liberal than conservative. I would guess that, yeah. Would you guess that, joe . Yeah. Make up demos of the twitter sphere. It is interesting in the type of people and what they are engaged in on a relative basis. I have seen when a conservative tries to use twitter to do something. I have seen the twitter sphere at the unwielding attempts to you know. Its a very east coast west coast thing. Its not the middle of the country kind of thing. The twitter stuff . The twitter stuff. Yeah, i every once in a while i will do something. Im not really sure what to use it for, if it really helps, are we Building Brand . I dont know. Do i need to change it to my name instead of joesquawk. I changed my recently. Does it help your brand . I chopped off four characters. Four less characters gives you other people use it purely for business and keep it very straight because if you start in this world, you can Say Something that you thought was okay before, and i just i tweeted pictures from my vacation last week. I do that once in a while. Twitter is not a happy place. Sometimes it is. I dont think it is either. I dont think it is a happy place. The only reason people use it is to snipe or hate. I think it is critiquing. And a little bit of a brand builder. And the anonymity of it allows people to think i just cant imagine they would look at you in the face and say the stuff they say on there. But thats true of email. I dont look at those anymore. I dont look at those anymore either. Its not a good idea. Ciscos ceo John Chambers is urging president obama to curb nsa surveillance activity after evidence surklating showing them intersecting cisco equipment. He called for new standards in the conduct and how the nsa conducts their viewing. We simply cannot operate this way, our Customers Trust us to be able to deliver to their doorsteps products that meet the highest standards of integrity and security. And letters show nsa staff opening boxes of cisco gear. Hes right. Its outrageous to think the government is putting american businesses at a disadvantage on getting involved in Something Like this and intercepting the boxes. But even when they have said in like a quarterly report, they say were seeing someone asked, is it material . No, its not really material. We cant really point a finger, but we feel like it could be affecting well, i think it is something that has an impact. Youve heard it even with the french not wanting to do business. They would rather have a german company. It comes down to brass tax if you want to buy a cisco server. You are not going to buy it because i think you might. Where would you buy it . There are people who were talking about how it is fundamentally reshaping how people are operating and it is helping ibm. It is having an impact, im sorry. Why is it helping ibm . Because they can divide clouds up in a different way. Ive heard a little bit about it in a report. Its weird because you have rand paul on the fringes of both it makes for strange dont you think the other companies are doing it and we dont know it. Sure. I think Business People know that, too. Anyway, when we return, weve got big housing data along with several key retail reports on the calendar. We have a preview of the trading week after this. Right now heading to a bank, look at last weeks winners and losers. 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. You wouldnt have it she any other way. Our toes. But your erectile dysfunction it could be a question of blood flow. 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Tdd 18003452550 open an account and earn 300 commissionfree online trades. Tdd 18003452550 call 18886486021 to learn more. Tdd 18003452550 so you can take charge tdd 18003452550 of your trading. Good morning. Welcome back to squawk box here on cnbc. Im joe kernan along with becky quick and andrew rosssorkin. The u. S. Company pfizer failed to make a compelling, strategic case. Ouch. Thats what shareholders are saying. Pfizer says the new bid is final and wont go hostile. Technically if thats true and they go past the may 26th date, theres six months as they cannot come back with another bid. The other big deal of the morning, at t is buying directv for 95 a share in combination of cash and stock. There may be a few anticompetitive hurdles to clear from regulators, but we will see. Deutsche bank, meanwhile, is raising 11 billion with the help from, if i say gutter, people wont know what im talking about. The old word was qatar. If you put a q without a u, it will confuse people from the start. And the german banking giant, deutsche bank, says the decision to seek new Equity Capital is due to up certainty of the regulations and the funds needed to invest or expand its Investment Banking business. And the deal news keeps coming. Variety reporting Googles Youtube is in talks to buy Live Streaming Video Game Service twitch. The price tag of a billion dollars. It would be an allcash deal. The largest ek we sigs for youtube, though youtube is really a unit. Google bought the Video Service back in 2006 for 1. 7 billion. Perhaps the best deal. That could be one of the best deals for google. Maybe the best deal ever done, even though we thought it was overpriced at the time. And facebook is working on a video chat application to compete with snapchat. It is called slingshot that gives users the ability to send short video messages. The app could be launched later this month. Right now its time for the monday morning strategy session. Joining us now from chicago is lou breen, and onset with us is michelle girard. Lou, we are sitting at new highs for the s p, for the dow. Youre looking at the levels, what makes you nervous about this, though . The one thing, like you say, we are just a couple percent off the high for the s p. The thing that makes me a little nervous on this is that the nasdaq and various biotech and things have ramped up a lot and have come off 8 to 10 reminiscent of what happened in 2000, except it was the other way. The dow peaked in january of 2000 and fell about 18 to 20 while the nasdaq went up a final 25 in just two months. Also, i think as we sorry, as we discussed before, the fiveyear anniversary of this rally. And over the last threeandahalf decades, five years has been a limit for rallies, so im keeping an eye on that as well. When did you start getting nervous, lou . Im always nervous. Additionally, things, other market things that may be indicating a little bit of trouble is the tenyear note at 2. 5 . And the yen at a recent low around 101. 20 this morning. And thats sort of up dindicatif people pulling back from risk. The tenyear is something that has perplexed us all for over a year at this point. Thats part of the issue, everyone came into the year expecting we were going to see the yields move higher, perhaps sharply higher. And the pain trait, if you will, is the fact that the yields have continued to stay low even edge lower. People who didnt want to be in this market, didnt want to be buying at these levels are just getting frustrated at being forced in because they need yield. Why do you think we are now in this position of 2. 518 . A couple things. I will say, all year we have been a little more of a range trade. We werent in the camp that yields were going to hit a lot higher in part because we didnt think the growth was going to be so terrible, but we didnt think we were going to see the 3 plus that many other people did. We didnt think up nation was going to be a problem. There were a lot of problems where yields would stay lower than higher. And a couple other things have been going on. People have been getting more concerned about the economy. I think somewhat wrongly, but we have had data that disappointed. Theres a lot of talk about the new neutral and maybe the neutral fed funds rate is, you know, 2 . And thats got people thinking, well, hey, even when the fed starts to raise Interest Rates, maybe theyll stay lower than we thought. Theres a lot of things feeding into this. Is it the canary in the coal mine for the equity markets, though . I have to say, its funny the two seemed to diverge. We have been talking about one reason is some of the expectation with the economy being tempered and yet the equity market is fine. We have seen the divergences due to the fed. A lot of times yields rally because its almost the good news is bad news and vice versa where when we think the economy is not so strong, we get weaker data. I said it is bad news is almost good news for equities because of the fed channel that comes through. So we have actually seen this kind of thing before where lower yields are actually a positive for the equity market. And it may not necessarily be in the coal mine. How do you read that 2 . Is this another situation where the two can diverge . Well, they have diverged, in essence. Since the beginning of the year, we have seen the tenyear fall from 3 down to 2. 5 now, but since the bottom, since the recession ended in the middle of 2009, the average tenyear yield is about 2. 6 . So were not very different there. When the stock market bottomed, the tenyear yield was 2. 85 . So we have not gotten anywhere, so the idea that the inflation and Inflation Expectations are the key for the bond market, more so than any of the other factors. And the stocks have rallied in part on that profit margin, the less wages versus corporate growth. And so that less wages is one of the key factors for inflation. So long as inflation and Inflation Expectations remain low, i think so, too, will the bond yield. And i think that when you look back over this whole period since the bottom, the nominal gdp, the wages, the pce and the tenyear have remained at or historic lows. Michelle, where does the tenyear head from here . Joe used to say 2. 25 and i thought you were nuts. No, but someone said we were at 2. 6 and we started to worry. And then they said 2. 4 or 3. I will say that i do think that there are some Technical Levels down around that level, but right in this kind of range, 2. 47, 2. 48, theres a lot of resistance. This is a tough level to break through. German bonds arent going down, the yield will probably be lower than it is. Exactly. That keeps a lid on our bond prices. But people will pay a lot of money in bonds this year. Its crazy. We were talking about it with the equity market. For some, this has almost been economically back to the kind of perfect scenario for both where youve got an economy thats growing moderately. Exactly. And inflation is not a problem. So were not worried so much about the fed. Thats why both of these or about up nation moving higher, its a way both of the markets can hold in. Im not sure well get to 2. 25 on that kind of scenario, but you can hold in at least a range of 2. 5 to 3. You dont have to worry about yields shooting sharply higher. Talking about the economy in turn. If there wasnt such a thing as inflation, it would be nice to hit zero Interest Rates all the time. It would be nice to have free money all the time. But the problem is you look at inflation, we talk about it like Consumer Price inflation. But what always has gotten us this decade or so has been the asset price inflation. Thats what ends up being you hold easy money because you say, sere 0 inflation, but if theres no inflation problem, we could keep the zero rate. Meanwhile, the stock market as asset inflation. The same level at 2. 47 on the bonds, the thing to watch as far as indicative on the stocks might be that dollar yen. Thank you for joining us, louis. Michelle, thank you for coming in. We have a lot more coming up. Much more on the monster deal between at t and directv. The monster rejection of pfizers mega bid for astrazeneca. Plus, a Monster Box Office for godzilla. They beat everybody on squawk box. Check out whats happening in european markets as we speak. E financial noise financial noise financial noise financial noise alright, that should just about do it. Excuse me, what are you doing . Uh, well we are fine tuning these small cells that improve coverage, capacity and quality of the network. It means youll be able t post from the breakroom. Great did it hurt . When you fell from heaven awkward laugh . A little. laughs im sorry, i have to go. At t is building you a better network. Welcome back, everybody. We have been watching the u. S. Equity futures at this hour. If you take a look right now, youll see red arrows for the dow futures and the nasdaq futures. Dow futures look like they would open down by just over 42 points. Right now the nasdaq futures would open down by 11 points, but the u. S. Futures are close to 2 points. No the headlines, the Monster Box Office figures for godzilla. This makes it the second largest opener of the year with 93. 2. Did you see it, joe . No. Wasnt there already a reboot . There was. That was 16 years ago. I remember it smashing new york. Yeah, it was that just shows you that you can never tell. They bring it back and there it does 90 million. Coming up, triple crown controversy. California chrome could be the first horse in 36 years to achieve the feat, but a rule in new york could derail his chances and it deals with nasal strips. Breathe right. 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. Theyre the days to take care of business. When possibilities become reality. With centurylink as your trusted partner, our visionary Cloud Infrastructure and Global Broadband network free you to focus on what matters. With Custom Communications solutions and responsive, dedicated support, we constantly evolve to meet your needs. Every day of the week. Centurylink® your link to whats next. Are we still on for tomorrow . Tomorrow. Tomorrow is full of promise. We can come back tomorrrow. And we promise to keep it that way. Csx. How tomorrow moves. What a day. Cant wait til tomorrow. California chrome became the 34th horse to win the derby and the preakness happened on saturday. Overwhelming favorite sweep the second jewel. Here to discuss the race is the cohost of nbc sports dash. What is it with teenage girls and horses in im going to have to buy them one of these days. Not one of those. But some kind of nag. California chrome almost cost 10 grand. Its an amazing story. Did you watch every single person, all the experts the week before, two weeks ago had picked. They all went with California Chrome except one who picked social inclusion. But California Chrome, we were watching. Did you see where espinoza had him it was clear to me halfway through it hes going to win this thing. He was in the perfect position. Yeah. And all the credit goes to victor espinoza, the jockey for the way he handled California Chrome. He did get into a little bit of trouble. A couple other horses were able to strategyize to get him off track. Really he had it in the hand all the time. There was a point where social inclusion looked like he was going to come up and take his place. Thats where he had to go early and run him a little bit earlier than spoeftedly he want ll lly wanted to. He had a great story himself. Coming from a goat farm where he used to ride donkeys in his childhood. Now he is working with these others who have this horse that didnt have that much money. Ever since he put him on that horse, its been a game changeer in terms on of his production. We are objective but we both work for nbc. As it was happening, werent you just like because of the belmont. Of course. The sport needs a triple crown winner. It hasnt happened in 36 years. This is a horse that has a shot. I was growing up then. And i remember three of them. Seattle slew. Affirmed. And i remember secretariat. Three in ten years. The 70s was horse racings heyday. Horses used to run a lot. Now it is set up against a triple crown winner because the way the races are spaced. For example, the last eight horse toss win the belmont, which is the race thats coming up, havent won one of the previous legs of the triple crown. They either havent run in the derby or the preakness. If a horse doesnt win the kentucky derby, which the last five runners up took the preakness off and got ready for the belmont. So in other words, they call them new shooters. They will show up at the belmont. You will see danza, wicked strong. I love that name. Danza is name after tony danza. It is an uphill battle for a horse to win a triple crown. Okay. I was headed out to there. To scratch when you have won the first two is like it was like almost i couldnt believe it was happening. Heartbreaking. Its health. It might happen with these strips. That wasnt why he pulled out. No. It was his leg supposedly. Will the new York Racing Commission stand by . I cant see how that makes a difference. It would be really silly. If it just spreads out the muscles. Its not like a drug or something. What were talking about is a breathe right strip for a human being that would sleep and help open the nasal passage. A lot of trainers dont even think they add much value. For some reason, this particular group, art sherman had said maybe they will make the decision to not run him in the belmont. I dont think thats the case. I think that was maybe something he said to get new york thinking and moving. It would be really silly if they decide to keep this in force. We are almost in the same situation with ill have another before he got scratched. For some reason, California Chrome thinks this is something that could be helpful. He won the last six races. Its going to come down to tomorrow. Well learn a little bit more about what they decide. I would like to see a triple crown winner. Well, you know, like i said before, horse racing needs a shot in the arm. They need a new life. They have new ownership. You cant run unless you run in a bunch of races. I dont know. I think its going to come to that. What it will come to is spacing the races out so you dont have to run the derby and two weeks later run a preakness. Three weeks latering when you have run two races in a month, compete in the preakness. The logical thing is to space it up so people can make the decision whether they want to run or not. Big brown was supposed to win. He was last or something. We have had a lot of disappointments here. Better not be a nasal strip that ruins it. Talk to them, will you . Well, i dont know how much power i have. Im going to start wearing them on the show. Coming up, much more on the mega deal and mega rejection. Worries about Economic Growth. Are they overblown . We will kick off that discussion with mark zandi when we return. Cars are driven by people. Theyre why we innovate. Theyre who we protect. Theyre why we make life less complicated. Its about people. We are volvo of sweden. 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. A merger monday for the markets. At t and directv announcing a nearly 50 billion deal. Will it fly with regulators . Astrazeneca rejects a monstersized offer from pfizer. Do mega mergers in big phrma mean better drugs . Whats next for the economy . Our guest host is moodys chief economist mark zandi. The second hour of squawk box begins right now. Good morning, everybody. Welcome back to squawk box right here on cnbc. Im becky quick along with joe kernen and andrew ross sorkin. So far it looks like a mixed picture. Dow futures opening down 48 points. Nasdaq off by 13 points. S p futures are indicated slightly higher. Up by less than a point right now. We have been watching the 10year. Thats where things get interesting. Take a look at the yield this morning. 2. 512 . In our headlines, astrazeneca rejecting a sweetened 116 billion bid from pfizer. Uk drug giant calls the offer in adequate and says it would present significant risks for shareholders. Well have more from meg in 15 minutes. Googles youtube is in talks to buy the Video Game Service twitch. And at t directv deal. 95 per share. Andrew has more on that story. Thank you, becky. Thats a 10 premium over fridays close. 30 premium since the transaction was first announced or first rumored rather. I spoke to the ceo last night about the deal. He said a couple of interesting things. He said he had been talking with directv ceo on and off for some time but didnt do the deal sooner because of antitrust laws. They said the transaction that got blocked or temporarily blocked between American Airlines and usair, that lawsuit had stopped them in their tracks. When it got settled, the talks went back on. Sources tell us, however, that the decision to pursue this deal between at t and directv now is in fact, the comcast Time Warner Cable deal thats on the table. And the timing related to that, putting both deals on the table to regulators might mike it easier for both of them to go through. However, we should say Randall Stevenson believes the deals are different. And suggests, they by rules, this is the regulators, have to review each transaction on its own merits. Of the comcast time warner deal, he said thats a very different transaction. He said, we see that deal getting done. There will probably be some conditions imposed upon them. We are combining a big nationwide standalone provider with a nationwide mobile Service Provider and huge broadband provider. So we see them as very, very different. He justified it by saying customers want a bundle. A couple of quick notes on the breakup because of the regulatory issues, at t does not have to pay a breakup fee if regulators block the transaction. Which is different than when at t went after tmobile. However, if directv were to walk. Or if they came in, directv would be to pay 1. 4 billion. Really . Well see where all of that goes. We were talking about the statement out from Berkshire Hathaway. Saying its a terrific transaction for all involved. We should say Berkshire Hathaway owns 34. 5 million shares. A huge stake in directv. I think it was one of the only ones both chose. 34. 5 million shares. They are very happy campers. We will break down the deal with media and technology and Walter Piecyk at 7 40 a. M. Eastern time. A light week ahead for economic data. Its a chance to take a step back and see how the economy is doing and how its reflected in the markets. For the next two hours, mark zandi, chief economist at moodys analytics. And christian weller, senior fellow at the center for american progress, professor of Public Policy at umass in boston. Mark, just looking at your comments, man, its like really goldilocks and really consensus. Is it consensus . To say it with a straight face. Were you at all . This is what you say. The economy is strong. Its getting stronger. Solid economic underpinnings. Right. Eventually Interest Rates will head up over the next couple of years as the fed normalizes policy. That will go as expected. Thats pretty well written. It is well written. It reads like im worried about housing. You are . We need housing recover to kick interest a higher gear. Right now whose fault is that . I think thats contributing to it, yeah. Thats part of it. Ill give you a statistic. So the average credit score for a loan purchase by fannie mae, the largest source of mortgage credit, is 740, 750. In typical Housing Market its close to 700. 700 is in the middle of distribution. Theres 11, 12 million homeowners between 740 and 750. They immediately got bored with you in the control room. Oh, sorry. They are trying to spice things up. Breaking news from scott. Help us, please. This is very interesting, joe. Nbc news reporting the Justice Department is getting set to unveil criminal charges against china niece government officials over economic espionage. You remember the reports a little over a year ago that the Chinese Military was hagging into u. S. Companies basically to steal intellectual property. This is being raised to the criminal level with the Justice Department expected to hold a News Conference at 10 00 this morning, according to nbc news. Pete williams has just broken the story. This would be a major ratcheting up of tensions over Cyber Espionage. There was a report last year by the Security Firm that the officials in the u. S. Government later confirmed that the Chinese Military was actively involved in hacking. The activities seemed to subside after that. But apparently has ramped up again. And now Chinese Government officials expected to be charged criminally and charges expected to be unveiled later this morning. Scott, let me ask you, are the chinese officials in china . Is this anything more than us just saying this . Is there anything that would happen . We dont know the answer to that. Presumably they are in china. It would be difficult to bring them here to face charges. But what it does is certainly raises the stakes in the issue that has been the subject of great tensions for some time. Wouldnt you expect retaliation of some sort . We do this . As becky asked the smart question, if this turns into theater so its not clear they can actually do anything about it. Theres been discussion the last year or more about what can be done besides jawboning. The first step was the report a little over a year ago and the confirmation that this was going on or the allegations that it was going on anyway. And that was sort of a shot across the back. Now they are raising the stakes even further. Well see what happens. Well see whats contained in these charges and who, in fact, is charged. Thanks. Well get back to mark. Looking at some more stuff. It really sounds goldilocks. You say that the fiscal awe stator has subsided. Businesses are actually approaching finally a field of dreams moment. What you mean by that is if you build it they will come. They will finally start to deploy some of the capital. They had great margins. All these things are in place. The only missing ingredient is confidence. Well said. Well summarized. I thought you did a great job. Im very optimistic. But youre worried about china. Christian, mark thinks things are really good i have become much less optimistic. I agree with mark that a lot of things that have helped have moved arnold. Fiscal austerity is off the table. But i think the underlying cause, income in equality and following compensation for much of america is holding back Economic Growth. And we dont really see sort of real action on the fiscal policy side, on the structural policy side towards strengthening the purchasing power and incomes for the majority of americans, which we ultimately need in order to boost consumption, the housing sector. We can talk all about easing credit lending standards. I think in the end its all about Income Growth for the africanamerican. Thats really where the action is missing. So while i think the overall parameters are there that we could have much stronger growth, i think were going to keep staying in these doldrums until we keep stagnant and falling incomes. This sounds like a chicken and egg argument. I have always thought 3 , 4 growth. Christian, ill bet you you its not a chicken and egg problem. It would be better now to raise taxes on the wealthy and do more redistribution. Do that now and get the money in the hands of the havenots. The story line is very clear. You look back at the last 15 years, we have cut taxes at the top. And what we got was rising income in equality, higher debt levels. 30 , 40 more spendable. I saw an article that tried to put that into better perspective. You know, you can look around the world. Its admittedly here the weighty have done better. Were richer than china, but that doesnt mean anything. Let me connect the dots. Thats not the story. The story line is clear. Incomes at the average level. Medium, average, have not grown. So you would use the government the government should take care of that . We can talk about policies in a second. But the story line is very clear. Incomes didnt grow. That contributed to high debt levels. That is Holding Back Investment at this point. You look at all the various trends which is lagging. This is another chicken and egg. The question is, how do reraise incomes for middleclass, lower class americans. Higher minimum wage. You extend Unemployment Insurance benefits. Those are the first things to do. Yes, we have to pay for some of these things. Heres another approach to it. In my mind the key is jobs, right . Middle income jobs. Housing is key to middle income jobs. Every housing home we put up, every single home creates three and a half, four jobs over the year. Thats construction, manufacturing, trucking jobs. Im not disagreeing with you, mark. They are all over the country. So the key the next year, two, or three, you get back to full employment. Through the Housing Market is the key. Im not disagreeing with you on construction and the value of housing. But the problem is, even if we sort of ask banks, please, please, please lower your credit or standards, were not going to see a boom in housing. The problem really is i think people are very concerned about the longterm economic future. Thief they have seen stagnant wages, cut back in employment, pension. We need to address the income first in order to create a boom in housing. That means investing in infrastructure. Sort of the ease you have on the fiscal side. And the infrastructure. It translates into higher incomes. It will ultimately boom the housing sector. Thank you. Mark will be with us the rest of the show. When we come back, could big phrma mergers lead to better drugs . Dr. Gottlieb gives us his opinion. Opinion. Peace of mind is important when youre running a successful business. So we provide it services you can rely on. With centurylink as your trusted it partner, youll experience reliable uptime for the network and services you depend on. Multilayered Security Solutions keep your Information Safe, and secure. And responsive dedicated support meets your needs, and eases your mind. Centurylink. Your link to whats next. British drug Maker Astrazeneca rejecting the pfizer offer of 120 billion. Meg has more on this socalled final offer. Good morning again. Good morning again. Pfizer increased the bid by 15 , offering 45 in cash and 55 in stock, getting up to 117 billion total. Astrazeneca has rejected this. Theres some speculation even though pfizer says it is the final offer, maybe it will get the board to engagement so thats what were looking at next. And watching the stock price today, do you think that that actually happens . Thats the question. They are down 11 , 12 . Pfizer up a little bit on this. Theres a question are pfizer shareholders happy if it doesnt happy. Or happy that they are saying this is the final offer. Reuters reporting a top 10 shareholder anonymously saying theyre disappointed theyre not coming to the table yet. They have a week to somehow get it back on track. If they dont, theres a sixmonth stand still. Thats what it seems like. We were just talking this morning. Put out a great note trying to explain the difference between the proposal and an offer. Pfizer has put this proposal on the table. Once they have an offer, it seems like both sides have come to an agreement that they will at least talk about. Thats when the time limit goes away. They have until may 26th to get to the place. But if they dont. Theres a potential sixmonth period where pfizer cant come back. Any other company that might step up . It has to be a really, really big companies. A lot of companies are looking at it. All companies can, because this loophole might close, this inversion loophole, might close, all companies are looking at option toss try to do this. But astrazeneca is a big thing to chew up. In his recent wall street journal piece titled buy quo tech lesson for big phrma mergers, you should never break up Research Teams that may never be on the drink of a pioneering drug. Hes a honor in two firms. Scott, great to see you. Thanks a lot. This is something we have been talking about a lot. What generally happens when one big phrma company buys another. We found research and development doesnt scale well. In the 90s when we thought we would go through screening, if you threw more resources people thought you would get more drugs. More research is working at doing the science. That didnt work out well. You are more productive when they are working on the discreet targets. So it doesnt scale well. There is no advantage to being a Large Pharmaceutical Company in this environment. Mergers end up breaking up the continuity of these Research Teams. Do you think that is a message thats gone heard . You put this out april 29th. Its a message thats known, yeah. The former r d chief wrote about this in 2012. So i think people understand now that the age of screenings throwing more resources, getting tools really doesnt work. This doesnt scale real well. Thats been the lesson of the biotech industry. They have been able to keep them together in perpetuity and focus on discreet targets. Another success is a company like valeant. They are very up front about slashing r d budgets, turning things around. The stock is rewarded as a result. Is that a trend or is this valeant specific . I think you will see the biotech industry tapping the Capital Markets to keep the Research Teams together for a long period of time. A lot of them dont end up winning. But some of them do. Investors get rewarded when they do. A deal like this, deal, a potential deal with tpaoeuzer and tpaoeuzer and astrazeneca, what do you think of it . Ultimately it will be empatheticalto r d. Pfizer does as well as anyone. What should we do about it if thats the case . Not this but the larger argument youre making. If the idea is every transaction that take place is ultimately worse in terms of the type you get i think you will see a large handful focusing on distribution. I think thats r whats happening is they want to monday tphop likewise certain categories. There are so many restriction toss engage in truthful commercial speech from the Justice Department that they basically dont want to compete in therapeutic categories. Ultimately its probably not good for patients. Fewer Companies Competing in spaces. We should point out you are with the American Enterprise institute. This is not coming from a place that doesnt come from free markets. The advantage is commercial advantages to doing it. I dont think there are scientific advantages. It is destructive to r d. Socialists at the table is going to ask the question. In the same way that the fcc can block a deal like at t directv if they want to not just on the grounds of antitrust but they think its bad for the industry. Bad for consumers in they have a view, do you think the government should have a view about transactions like the ones that were talking about . Well, they do have a view. They will force companies to divest certain products. Or antitrust grounds. Global level. Theyre not thinking about the industry and innovation the same way. I think the wave of product swaps and mergers is companies trying to own therapeutic categories. They want to get leverage on payers. It is hard tore compete commercially because of the restrictions put on commercial speech. Scott, thank you very much for coming in. Meg will see you in just a little bit. Coming up, could the at t directv deal spark more deals . Deals . E financial noise financial noise financial noise financial noise who would have thought masterthree cheese lasagna would go with chocolate cake and ceviche . The same guy who thought that small caps and bond funds would go with a merging markets. Its a masterpiece. Thanks. Clearly you are type e. You made it phil. Welcome home. Now whats our strategy with the fondue . Diversifying your portfolio . E trade gives you the tools and resources to get it right. Are you type e . In a we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Apple and googles motor hola mobility unit agreed to settle all Patent Litigation between them over smartphones. It is one of the highest profile lawsuits in the tech industry. It does not apply to apples litigation against samsung. Up next, one of the most outspoken in the airline biz. Alright, that should just about do it. Excuse me, what are you doing . Uh, well we are fine tuning these small cells that improve coverage, capacity and quality of the network. It means youll be able t post from the breakroom. Great did it hurt . When you fell from heaven awkward laugh . A little. laughs im sorry, i have to go. At t is building you a better network. Welcome back to squawk box this morning many making headlines, at t is acquiring directv for 95 per share. A combination of cash and stock. We have a lot of other deals. Astrazeneca rejected pfizers latest offer. The new bid is final. It has a week to change its mind. Otherwise, going to have to wait six months if they want to try this all over again. The Justice Department filed the first ever cyber economic espionage charge against chinese officials. They accuse the officials of using military and intelligence facilities to steal trade secrets from American Energy and manufacturing companies. Details are expected to be announced at a doj News Conference can at 10 00 a. M. Eastern time. Of course we will bring it to you. Good news for joe this morning. The average price of a gallon of gasoline has fallen for the first time in three months. Good news for everybody. A poor excuse to play this video again. The last week lundberg says the average price of a gallon of regular is 3. 69. The overabundance in supply is said to have contributed in the decline. Where is the video of us . I like that. Because the expression you make. Ryanair holdings coming out with full year results. Low cost Irish Airlines posted a net profit above previous guidance. Ceo of ryanair. He is one of ire lands wealthiest businessmen. When you come on, we will talk about you and how much money you have and all kinds of stuff. I thought you were going to call me the most handsome businessman. Combined with. Thats a pretty deadly combination. In the last six months or so, has it been atypical . You brought in a marketing guy. I dont know. I dont know why you would want anyone but you yourself selling the benefits of ryanair. Has it been different in the last six months . I think it feels different. What we have seen is a weakening price environment across europe during the winter. We were a bit surprised by it. It was below where we expected it to be. But we like those weaker pricing sraoeu environments. Carry more people. Load factor goes up. Looking forward into the summer, our forward bookings are strong. We are 5 ahead of where we were this time last year for each of the summer months. We are looking forward in september. We will start taking deliveries of 180 new aircraft from on our boeing in seattle. Are they small enough to where they are more nimble . Do you have your eye on them . I think partially. I characterize they are smaller than us. They have done a if job taking a shiitely more up market. I think we can learn from some of what they have done. They dont compete with us on price. They cant compete on cost. It is one of the things we have learnedment it may not all be pile it high and sell it cheap, which is why we are improving the Customer Experience. We are transforming the website, which used to be poor. It is very responsive. I hope were going to welcome we expect to grow from 80 million to 110 million questions the next two years. We always talk about irelands tax rate. And weve got, you know, pfizer astrazeneca news. Companies are doing inversions. We are in the middle of quite a discussion over here in the states about not being a territorial tax system and being much higher than the average around the world. People that say we dont want to necessarily start cutting Corporate Tax rates say there has been a race to the bottom. And i think they would say ireland is one of the Key Countries that has done that. Then they point to times where some companies dont do as well and the they need the deposit for help. They have this very low tax rate there. Is it a problem if theres a race to the bottom globally for Corporate Taxes, michael . Rink it is. Ireland has been unfairly singled out as a tax haven. I wish we were, but were not. What ireland has been has been very attractive to foreign investment, particularly for u. S. Companies and Multinational Companies wanting to invest in europe. Were not a tax free country. Unlike the states, theres very few writeoffs or discounts against that. Right. Most companies are buying high single digit rates of tax. The personal rates of tax are egregious. It is one of the things we have difficulty attracting, multinational. What are the rates, michael, for personal . About 58 . But you get there on about 25,000. I think were not the cayman islands. Were not some of kind of offshore zero taxes. We operate within with the european community. Yes, the Corporation Tax rates are relatively low by european standards. But everything is low compared to the french rates of tax. Thats why the French Economy doesnt work well. I want to talk to you about airlines in the u. S. If you indulge me. Sure. Are there any airlines that you admire here in the discount space . And i would note that in the discount space, prices from gone up materially, unlike your prices in europe, which have not gone up in the same way. Has competition or the lack of competition been a bad thing for the competition in the u. S. . Ultimately, theres been a degree of consolidation in the u. S. I think southwest is the model that we all started copying southwest. Its the one that we looked to. Southwest is not as low costas it used to be in the past. You have other low cost providers, spirit, allegiant doing the things. Consolidation among the majors are rising and have risen significantly. Youre getting a much better level of service from the airlines here in north america. Theres a lot less strikes and disruption that you used to have in the old days. Maybe it is maturing a bit. Fundamentally, the airlines still need to make a return, which is something they have struggled to do over the years, with the exception of southwest. We will see southwest as the one we will admire most. We will aim in europe to replicate the service side with a ryanair cost space. What makes ryanair different is nobody comes close to us in cost or price either. Were learning to do it with more of a smile and a bit of a warmer Customer Experience than heretofor. I was just wondering, you were charging at one point, people using the restrooms. Was that a joke . Look, we chased a lot of free p. R. Ideas in the last number of years when we were just pining it high and selling cheap and growing rapidly. Our rate of growth is slowing down now. Once we take the new aircraft deliveries it will uptick to high single digits. What we are building into the marketplace where price was all that mattered the more you could generate the better it was. We never had a plan to charge for toilets or to take out the seats and make people stand. Did work to get attention. It did. We generated skwraoginormous publicity. Were the number one in spain, italia, ireland. Thats not hard. We need to be a little bit more mature in the way we communicate with our customers. And explain to them that you dont have to trade away any of the Customer Experience for enormous price savings by changing to ryanair. Pilots, united and other Airlines Complained its hard to find enough pilots these days, at least in the united states, who have enough hours to fly given the rules. I dont know if the rules are different in europe. And specifically, some of the latest airlines used to require more hours than some of the discount airlines. And how as a passenger we should feel about that. Airlines like united, with very complicated fleets and mixes. They are promoting pilots on to different aircrafts. Thats complicated. If you look at the low cost airlines, southwest in the states and ryanair in europe, there is an almost limitless supply. We train our own pilots almost from scratch. Because we are so big. Because we generate so many hours every year, its relatively easy for us as it is for southwest over here to do that. But the big global airlines, it is much more complicated. When you promote a guy or girl on a different aircraft, theres different training methods. Thanks, michael. We appreciate you talking to us. Good to talk to you, joe. Hope to see you again. Thanks. When we come back, at t making a 48. 5 billion bid to get in the video business. Plus, soda wars. Pepsis answer to cokes beverage machines. Squawk box will be right back. Tomorrow on squawk box, he was a major player in the 11th hour efforts to prevent the 2008 financial crisis. Christopher flowers will join us in an extended interview. Plus, were off to see the wizard. Dr. Mehmet oz will join us on set to talk Healthy Minds and healthy bodies. It all starts tomorrow at 6 00 a. M. Eastern. Tern. Were moving our company to new york state. The numbers are impressive. Over 400,000 new private sector jobs. Making new york state number two in the nation in new private sector job creation. With 10 Regional Development strategies to fit your business needs. And now its even better because theyve introduced startup new york. With the state creating dozens of taxfree zones where businesses pay no taxes for ten years. Become the next business to discover the new new york. [ male announcer ] see if your business qualifies. [ male announcer ] since we began, mercedesbenz has pioneered many breakthroughs. Breakthroughs in design. Breakthroughs in safety. In engineering. And technology. And now our latest creation breaks one more barrier. Presenting the cla. Starting at 29,900. Big deal over the weekend. At t to buy directv. Bgi analyst rich. Rich, you had plenty of time to think about this. And your thoughts about it. Does it make equal sequence for at t and directv . There are benefits to both. Well, look, i think the main thing that you are seeing here is this is all about broadband. We are living in a brand band world. When you look at the time Warner Comcast transaction, no one is talking about how many video households they have, how much better Video Service they can offer. Its what is the potential of broadband. And that can that company do in terms of getting into a wifi foot present to provide access. When you think about directv they are missing a very important ingredient as you look into the future of the whole Media Telecommunications tech space. They have had to broadband. They played with it in latin america. In this country, they have had no broadband strategy. That was becoming a bigger and better liability. This is directv looking for a partner that could help with their biggest deficiency. Almost a mature asset. You kind of have to harvest it or do something else. You think if they were running into the arms of at t at this point . They were ending up in a difficult longterm position. They were going to start losing subscribers. When i look at the xfinity guide. Even before they leverage that transaction, the technology that cable had is now industry leading. Theres no doubt about it. They are ahead of directv technologically. That was going to have a negative impact because there was no broadband park. Walk and talking about the implications on at t. This was really missing from direct. Walter, go ahead. Whats it mean for at t . Well let you handle that side. Dividend playing is the one that a lot of people are talking about. And i think its real. At t is 80 of their base already has smartphones. Soepbg they look forward and say, okay, we run out of their growth. Basically to buy additional revenue, dividend payments. Dtv hasnt done much. At t has a lot of acquisition as al communities to get growth out of latam. It could be another Growth Opportunity for at t. I talked to randall last night. One of the questions i want to ask you, when you think about satellite as a technology, if you said to me what does satellite look like 10 years from now, is it a technology you want to own . I get the economics in the immediate term. Do you see it being important a decade from now . We are moving over the top. When you talk about buying content over the top, it seems to be more about that. Getting back to richs point, maybe satellite in certain situations offload some of the data traffic they need on the broadband networks. The odd thing about this is if its about mobile video and using all these broadband, i was listening to you earlier today. You said that randall claimed dish would have prevented in abilities to buy spectrum at future auctions that doesnt make any sense to me. They could have bought dish in the existing screen. The way the auction work work, it has zero expect. That reply from randall to you didnt seem to make sense. Randall didnt say that. I talked to a number of people involved as well. Got you. A number of people said that i did not address randall on that specific question, however. Youve got another big issue coming up in this transaction, or potential driver of this driver, the nfl. Sunday ticket package, one of the big drivers of value for directv. A way they capture subscribers all year long. Normally it would have been renewed by now. The risks to directv, if they were to lose that package, that would have been i think catastrophic for directv. And more fire power to compete. Comcast and time warner have national scale. That is the number one benefit of that transaction. For the first time they can buy National Advertising on nbc. They can go after the sunday ticket. I think the nfl ends up being a real winner out of this whole multiple deal making. Are you surprised there is no break up fee on this whole transaction . Directv pays one but not at t. Im listening. This is a deal they are trying to get for dividends. First of all, i dont really think dish is coming in at this price. I think charlie talked about this on his past conference call. Charlie talked about the limitations of the satellite business going forward. Im not sure he would want to buy more of something he doesnt believe in in the first place. Where does this leave charlie, by the way . Verizon needs spectrum. We will see what happens with sprint tmobile. Most dont think that can go through. They can sit and wait to partner with those guys. There are other Companies Impacted for the need for wireless broadband pipes that we dont talk about a lot. Google, apple, amazon. You never know if they want to get into this business. Obviously dish would be a way to do that. I think its incredible were in a world where we are building finer. Google is spending billions of dollars for fiber. Old School Technology business being acquired for a very large price. Its true. Thank you for your time and thoughts this morning. Thanks. When we come back, the battle for soda supremacy heating up. Pepsi een introducing a new product to compete called spired. Spired. Time to take care of business with century links Global Broadband network and Cloud Infrastructure. We constantly evolve to meet your needs every day of the week. Welcome back to squawk box. Soda war is heating up. The National Restaurant association in chicago over the weekend. Sarah eisen was there. A little bit of a special interview she did over the weekend too. It is the Soda Fountain wars on full display in chicago this weekend. Remember the old Soda Fountain . Forget it. It is touch screen, mix and match, make your own, flat screen machines. At the National Restaurant Association Show in chicago, pepsi showed off its brandnew spired machine. It is appleesque. 1,000 or so flavors. Not just soda. Not to be outdone, cocacola showed is off its new countertop version. There it is. Thats your first although at that new cocacola machine shaped like the old school coke glass. When soft drinks sales are slowing, this is way to bring excitement to the business and build on the growth in noncarbonated drinks. And how investors should be looking at the release of this fancy new machine called spired. We can draw more top line growth. But within the food Service Account we can get more beverage sales. So its going to be a big winwin. It is all about driving growth in beverage sales. She gave me a demo, which i will show you later on. I got much more from our conversation. She addressed concerns about the underperforming Beverage Business of this portfolio. Many investors have been scrutinizing cash nateded soft drinks. We talked about that and how it all fits in with the portfolio she calls the power of wine. Yes, her demo, including her new favorite drink to the spired. A hint . No hint. You have to watch. There are 1,000 choices, literally. What color is the drink . It is clearish, i think. Clearish . Clearish. Mountain dewish . Thats not clear. Its not carbonated drink. Coming up in the next hour, the story getting bigger this morning after at t makes 48. 5 million bid. Details and the latest developments. Well talk more about it. Water, water everywhere. How can you profit from hh2o. Making new york state number two in the nation in new private sector job creation. With 10 Regional Development strategies to fit your business needs. And now its even better because theyve introduced startup new york. With the state creating dozens of taxfree zones where businesses pay no taxes for ten years. Become the next business to discover the new new york. [ male announcer ] see if your business qualifies. Does it end after youve toexpanded your business . . Rk. After your companys gone public . And the capitals been invested . Or when your companys bought another . Is it over after youve given back . You never stop achieving. Thats why, at barclays, our ambition is to always realize yours. Honestly, the offseason isnt ive got a lot to do. Thats why i got my surface. Its great for watching game film and drawing up plays. Its got onenote, so i can stay on top of my todo list, which has been absolutely absurd since the big game. With skype, its just really easy to stay in touch with the kids i work with. Alright, russell you are good to go alright, fellas. Alright, russ. Back to work hi, are we still on for tomorrow . Tomorrow. Quick look at the weather. Nice day, beautiful tomorrow. Tomorrow is full of promise. We can come back tomorrrow. And we promise to keep it that way. Driven to preserve the environment, csx moves a ton of freight nearly 450 miles on one gallon of fuel. What a day. Cant wait til tomorrow. Its all about the convergence. Another big media deal being announced as at t has a 48. 5 billion deal with directv deep changes coming to Asset Management. Mary miller joins us to talk about whether Money Managers are too big too to pay out and h 2 o. Looking for deals. We speak to the ceo of American Water. The final hour of squawk box convince right now. Welcome back to squawk box here on cnbc. First in business worldwide. Im joe kernen with becky quick and andrew ross sorkin. Mark zandi, chief economist at moodies analytics. We havent done that yet. How is it working at all . Do you have any info . Im very optimistic. I feel pretty good about things. At least a couple hundred. He is in position to know, andrew. We have not done anything with that data yet, no. We get to talk to you. And you will talk. One thing you worry about is housing and china too. But Everything Else almost goldilocks, is it not . I think were off and running. I really do. Close to 4 . Its not because of the 800 billion we blew at your urging with the stimulus you are still trying to justify spending. I got the ball rolling. Youre still saying that. That was five years ago. Was it . Considering it wasnt a single shovel ready shower you can pontiac to. That focus uses on the infrastructure. We should put you with pepper who is on the other soeud of th side of this bet about the economy. I want to hear what he has to say. We will talk about that in just a moment. Merger money. Shares of astrazeneca announced it rejected the revised pfizer offer. Pfizer says the new bid is final and it wont go hostile. A week to get something on the table there. Otherwise, they have to wait six months if they want to come back at it. At t buying direct in a combination of cash and stock. Anticompetitive hurdles to clear from regulators. We will see where that goes. We spoke to Randall Stevenson last evening. Joe was emailing with him. I got him on the phone. We had a wonderful conversation. I use we as in the royal we. Thats joe. Alliance boots has an option to buy the rest. It will allow wall green mulls to move to switzerland. They asked about the the potential for this while theyre not saying they are definitely doing it, they are also not shooting down the idea they would change their tax domicile. I dont know why washington is not doing anything about it. There has. Something in the president s budget would change the ownership at this point. Its 20 of shareholders being in that other location and another domicile to allow you to move it. Obama administration is proposing to increase to 50 . That only works if you think they get approved. This is taou. Also this morning, china being accused of cyber spying. Scott collin has more on this developing story. This is a pretty big deal, scott. It is a big deal. Allegations of Cyber Espionage have been flying around for some time now. This is certain to bring the dispute to a new level. A criminal indictment to be unveiled at a News Conference two hours from now with attorney general eric holder and his new assistant john carlin. This indictment will name Chinese Government officials accused of using military intelligence apparatus to steel trade secrets from u. S. Companies. Nbcs paoelt williams said it is in the engineering and manufacturing industries. Supposedly names we know. It is the first prosecution of its kind, criminally charging a state. They issued an explosive report. 61398 was described as the most prolific unit in business since 2006, the report says. U. S. Officials later confirmed elements of the report and the hacking seemed to subside briefly. Apparently it has resumed. This battle is about to go to a new level. We will hear more 10 00 eastern time. This is an orchestrated move. An agreement to go ahead and raise the stakes. What happens in what could we accept as a backlash . We will see what happens what is charged and where these people are. But it is an issue of raising the stakes stakes, ratcheting up pressure on the chinese. When the u. S. Government confirmed the elements of this mandian report and others last year, it was seen as jawboning, saying we know what youre up to, were on to you, stop it. It did not stop. Has the federal government ever done anything like that this is . Nothing like this. To charge a state official. This is Chinese Government officials. And really seems to confirm. It will be interesting to see what the allegations are in this indictment. Using military intelligence. What do they hope to get out of it . To make them stop is the genie out of the bottle. John carlin, new assistant attorney general for National Security mass made this a priority. There was always this gentlemens agreement, yes, nations were spying on each other, they were not using corporate espionage. China started blowing that up. This is just a way to get them to go back. Theres all kind of spying. People have charged us with doing it. No one charged us with corporate espionage. There were allegations in the snowden documents. The u. S. Government denied it saying the chinese were trying to steal trade secrets. It would stand to reason with companies that have the trade secrets they presumably need. Yeah. It all keeps on going to the next level. Scott, thank you. We will continue to hear more about this throughout the day. The 10year yield is ahead of focus. Investors concerned are warning low yields are not springing back as fast as expected. Goldman sachs chief investment officer, guest cohost mark zandi from moodys analytics. Thank you for joining us. My pleasure. Your reason why it is yielding below 6. 2 . We have been expecting rising rates. Every day it seems we have rising rates. We have been in the bound of 2. 6 to 2. 8 for a long time on a 10year note. Just the last week or so, we went through that, into the 2. 50 range. We think that, as mark said before, we agree that that the economy is really in the expansionary phase. We will see 3 plus for the year. We still have pretty High Conviction that we are going to see that cyclical expansion. Why are we hear . I think a lot of it is really technical. Obviously a poor First Quarter. That got the ball rolling. Worry about growth and what the fed is going to do. But we think it is a lot about positioning. The fed is still in there. Theyre buying less bonds but billions of securities every week. Theres been a lot of talks about central banks. We dont think theres tremendous buyin from central banks. They would like to buy but at higher yield. There is some of that as well. And in tiffin vestors like ourselves and those positioning for higher rates, a lot of us had that view going into the year. Sure. I think we have been caught shore. We still have High Conviction. Moving from 3 to 2. 5 , most of that is, you would say, just people covering. They were caught in the wrong direction. They had to cover. And thats what happened. I think there is some of that. I think it started probably from real money. Socalled real money. There are central banks. You have seen this data that had been moving into bonds. Also sovereign wealth taking gains. Positioning out of bonds. So we saw a little bit of a reverse rotation there. And i think that is sort of what got it going. But i think positioning, Short Covering and Risk Management really exacerbated that. But not the economy . No. You look at what we have experienced. The First Quarter was a big negative surprise. But i think everybody agrees that was shortterm. Everything were looking at is actually very consistent with not just recovering but actually moving from the 2 we have gotten used to here in the u. S. To something that looks like 3 plus. Time will tell. But data we are seeing is actually quite consistent. The story on the front page of the wall street journal suggests lackluster earnings leave stocks on thin ice. They looked at Companies Beating expectations but only because they were rock bottom. They looked a lot s p companies. Profit gains, 2. 1 versus the previous quarter 8. 5 rise. You wouldnt consider this backward looking . Not for me. I think corporate earnings is slowing. Its come a long way very fast. Even though you are looking for 4 gdp growth. Its going to be difficult. A lot of growth in earnings has been margin expansion. I got my cost structure down. We got it since 1945. I expect Earnings Growth to be pretty pedestrian. Low single digit kind of Earnings Growth. So the stock market i dont think goes anywhere the next year or two. Im fixed so i always think you should sell your stocks. Were optimistic on the economy. You do get top line growth. As mark said, margins are really high. One of the things we havent talked about is inflation. There is, we believe some wage pressure. Were not seeing it now. We think there will be some wage pressure. Margins have been too high for too long. Theres going to be pressure there. And off set is Economic Growth and top line growth. The stock market, what did it rise, 30 . The stock market is a leading economic indicator. It is one of the best economic indicators. That is strong this year to next year. It could have of doubled off based on where we are right now. Knowing this goldilocks scenario is where it was coming. And i could actually see people who pointed out corporations have been a major beneficiary of a lot of the stimulus from the fed and Everything Else. Now they want that to flow through to workers, et cetera. That would put more money in their pockets, which would allow them to spend more. A field of dreams moment. Right. It might actually work. We are now at a point where we say i cant cut costs anymore. We have to go. Let some flow through to maybe wages go up to 6 . Theres actually demand. Ive got you convinced. You did. Mark is our guest host. He will be with us throughout the morning. John, thank you very much. Joining us to talk Asset Management regulation after the break. And then later, economic wizards facing off in new york at the 14th annual National Economics challenge. Wizards . Not really. Liesman is there. Could you see him in one of those big he sees himself in one of those. Liesman is hosting the event. As we head to break, check out squawk box market indicator, please. E financial noise financial noise financial noise financial noise welcome back to squawk box. Can Money Managers be too big to fail . It could quite possibly be the case. The fsoc is holding a public conference this morning on the issue of regulating Asset Management ahead of super tuesday. Joining us is mary miller, the undersecretary for domestic finance at the u. S. Department of treasury. Good morning to you. Lets just talk about this. When you think about Asset Managers, they sort of weather the crisis pretty well. The question is, do you think they should be, or at least some of them should be . I think its the job to monitor the entire financial landscape. We have to look at everything and see if there are any risks that deserve more oversight. What component are you looking at most . Three things i will try to cover in the public conference. How do they monitor things like liquidity, redemption risks. How do they look at risks internally. Secondly, were asking a group of panelists talking about risk that may be posed by Asset Managers. We are asking a broad list of questions around that. And finally, were asking some pretty specific questions about operational risks inside of firms. If you have to wind down a portfolio. If you have to liquidate assets in a hurried manner. How does that work . How are Asset Managers connected to the broader Financial System . And are there risks that could be posed there. Mary, i know youre asking the question today. I imagine must have some answers or thoughts about these issues. You look at blackrock who patrols 4 trillion in assets under management. There have been questions about whether that should be listed and regulated. What is your view just of size generally . Well, i dont think size is a determining issue. There are no predetermined outcomes. A whole range of ways the fsot could respond if they determine there are risks from the asset manager sector. I think we want to keep an open mind. We are using this as a way to really, again, invite in vie, academic experts, other stakeholders to raise the questions and see what we need to understand. Mary, this is mark zandi. Can you construct the narrative where an asset manager would get in trouble and it would become a systemic risk. Give us a story line on how that would work. Well, i dont think were there yet, mark, to be perfectly honest. Again, we are looking at the whole swath of questions around firms, around firms that they engage in and the way they connect to the broader Financial System. I think they will turn on issues of liquidity, redemption risk, leverage activities like securities lending, ways that shared services affect broad Asset Management, companies. So i think its just important to say this is a pretty wonky, as one newspaper called it, conference. Were going pretty deep into very substantive issues about how companies work, how they themselves manage risks and how the system should look at them. Over the years i looked at the way this business has evolved from a transactionoriented business to fee business. It seems we have made pretty Good Progress in terms of i remember what Stock Brokers were capable of. I remember a low mutual fund. Do they even sell load mutual funds and back ended loaded funds. Theres transparency there. It seems more than ever in the past that maybe the clientss interests are more aligned with the Asset Managers interesting. We could be proud of certain things, cant we that we have come a long way. I think you are making a critical point. We need to understand the Business Models. Fsop has a good appreciation of banks, Asset Managers and the way they face their customers and the kinds of protections that are built into the system. So key to all of this, key to all of this work is understanding the Business Models and making sure the risks are well monitored according to the model. Okay. One other thing i wanted to ask you about, and this maybe answers your question, mark. I dont know if you have read michel louiss book. He looks into highspeed trading but suggests a flash crash could create a problem. How much of that is something you worry about . We are certainly paying attention to it too. The key thing is we have got to make sure investors have confidence in the Financial System. So a lot of this falls within the secs jurisdiction to look at market structure, regulation. But i think how much confidence do you have . I have a fair degree of confidence in our system. But we have also seen some worrisome events that raise questions about market stability during periods of operational failure. So thats something that broadly the fsop is interested in. We need to look at how do their Trading Systems make they are there is not undo risk there. Do you buy that the market is rigged . Im not going to go there, andrew. But what i will say say it is their responsibility to make sure there are adequate representations. Coming up, well talk about some rumors swirling about a billion dollar deal for the tech giant google. Well tell you what that is and why the company is looking to jump into the goo game space. That story when squawk box returns. Returns. [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. All on thinkorswim carstheyre why we innovate. Theyre who we protect. Theyre why we make life less complicated. Its about people. We are volvo of sweden. Those little Cialis Tadalafil for daily use helps you be Ready Anytime the moment is right. Cialis is also the only daily ed tablet approved to treat symptoms of bph, like needing to go frequently. 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And facebook is working on video chat to compete with snap chat. It is called sling shot. It gives users the ability to send short video messages. That could be launched this month. If youre looking for a bit of a mental challenge today, check out google doodle. They are honoring the 40th anniversary of rubiks cube. A digital version you can do on the screen. The virtual puzzle is just as difficult to solve as the real one. When we come back, americas future economic mastermind. Steve liesman will join us with High School Contestants at the National Economic challenge. Think of it as a spelling bee for economics. Stick around. Squawk box will be right back. In a world thats changing faster than ever,. We believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. 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. The 14th annual National Economics challenge presented by the council for Economic Education taking place in new york. This years winners have outpaced over 10,500 students. Steve liesman joins us right now with some very special guests. Steve . Hey, becky, thanks. Yeah, 10,000 students competed to be right here. And im right now with representatives of the top four teams in the country. Yeah, thats right. Call it the spell bee of economics for the nation here. And i have here patrick from Bel Air High School in houston. Christine lang from carmel. Thanks for joining us, guys. Thank you for letting me play out my alex trebek fantasy here. At my school we have to take a semester of macro economics. I thought it would be interesting to take both. Was it actually interesting . Yeah. I think its a really nice way to help you understand everything that happens in the news. Its an interesting thing going on. Doug, you have an interesting story. You learned this yourself . I was really interested in the stock market. So i wanted to become a better trader. So i selfstudied economics. So you trade now . Yeah. How are you doing this year . Okay. Are you flat . Are you up . Im up a bit. Better than most guys out there on the street. Jessica, whats your interest here . For our school we have to take an economics course one semester. The e con team is big. Youre defending the trophy . Yeah. I have questions here. Let me know here. This is the sort of thing were going to ask later on when we pick a champion. The Government Bank bailout could give more incentives to make more risky loans due to a concept from adverse selection, symmetrical information, public choice, moral hazard. Ripping your buzzer. Jennifer . Moral hazard. Good. Heres a tougher one. Under a system of freely Floating Exchange rates, if the u. S. This is the sort of things High School Students are doing all over the country. If the u. S. Has a trade deficit with china, it should cause the dollar to blank and the chinese to blank in foreign exchanges markets. The dollar will depreciate. For extra points, whats really wrong with that question . Whats the flaw in that question . Does the chinese remembe really float . No. Back home, any questions for these guys. I have a comment. Its caramel, indiana. C carmel, california. What about the sweets in the snickers bar. Most spelling bees there arent six different answers for how to spell cat. Yes, youre kind of right. Well, youre you know, it would never work. It would never work for economics. So, joe, you basically want to undermine the entire Education System these kids are getting by convincing them its not something to study. Im going to give each one my phone number. I need to talk to each about their career choice here. I do. So many sciences that are real that they could go into. Were supposed to Say Something at this point. Thats the question. Definitely foggy to switch pages. So let me just inch the kids that we have a running debate. Joe says its not a science. I kind of say it is. What do you think, christine . Well, i mean, i would say its a study of, you know, how society works. Its obviously not like chemistry. It is a social science. Thats brilliant. Good answer. Joe, take that from christine. Who studies it . Socialists. Like you, steve. Doug, i have a question go ahead, beck. Go ahead. Make your comment first. No, i was just pogue to say hardcore capitalists also study it as a real way of explaining how things work. Where does this group come down in that sort of piketty socialist versus do you guys now about this piketty thing, capitalism has flaws in it . What do you think . I think our country definitely has a problem. I dont know exactly the way to solve it or whats the best. Well, capitalism inherently generates in equality. What we should do is promote opportunity, not destroy in equality. Doug, doug. Interesting. Interesting. Steve, when is your contract up . Bring doug in here. Im training my successor right here. That would be a good thing. Im the senior economics reporter. There are no juniors right now. Just write down what he said, its opportunity not okay. Okay. Becky, did you have a question . I had a quick question for doug. I wanted to know which stocks you invested in . Oh, well, i actually recent bought some banco which was recently sold out. Even though it has been struggling in past years, it has done well. In addition, i sold off my position in the National Bank which saved me quite a lot before it fell. Well done. What do you want to do with economics later in life . Not particularly. Though i could seeing myself going into finance using economics that way. How about you christine . I want to go into academia, become a professor. Jessica, are you going to defend the title today . I hope so. Im going to try. Thank you for joining us. Back to you guys. Thank you, steve for that. Great to see some great kids doing great things. This one just in. Convicted rogue trader, remember this guy, Jerome Kerviel spent years fighting charges from massive market bets. Close to collapse in 2008. He was convicted of breach of trust, forgery and fraudulent manipulation. In other european news, sweut voters voted the reduction of a minimum wage of 25 an hour. That is what they were proposing. That would have created the highest minimum wage. Chris christie looking to propose shifting to a 401 k style pension for a blend of a 401 k . They begin speaking to legislators about it in the coming months. He raised the issue in his speech last week in washington. All right. Coming up, the new ceo of americas largest publicly traded Water Utility. Why shes seeing to up the companys game in wastewater operations. And more military contracts. Susan story has to listen to yoko. We are all water with john in the background just going, oh, why did i let her there he is. Hes acting like he likes it. We know who was boss in that relationship. Not that theres anything wrong with that. Speaking as one who knows. Joining us next to talk about the business of water, susan story. Story. Weekdays are for rising to the challenge. Theyre the days to take care of business. When possibilities become reality. 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Soup division. And American Water works is the countrys largest publicly traded Water Utility Company Providing Drinking Water wastewater to 14 million people. 40 u. S. States and parts of canada. Recently handed over the reigns to a new ceo. Joining us is susan story of American Water works, which is something that if we dont have it when we need it and clean and Everything Else, i think it might be a problem. But we take it for granted, susan, most of the time. Thats exactly right. Would you consider American Water works at this point finished . Its been an acquiring company or an seugza acquisitionorien for many, many years. If you look at the water industry in this country, 84 of water is provided by public entities. Municipalities, other governmental industries. Only 56 is investor owned. In wastewater, that is 97 . Companies like American Water and we are looking for those municipalities, other agencies who, for whatever reason, would like to sell assets or have us operate the assets. We think about if anything is inelastic, it seems water is. How does business improve or deteriorate . What dictates how well the company can be managed . Well, in terms of elasticity, with low flow appliances we have seen some consumption reductions. However, when you look at our investment thesis there are three pieces that American Water is striving to do. When you look at the industry trends, the two big issues are aging infrastructure for water and for wastewater and also water supply and the options for water reuse as well technologies like decelenation. Continued invest in infrastructure in market based business. Two is regulated acquisitions of those entities, public or private, that we take over. Number three is our marketbased business which looks at things like privatization on military bases of water and wastewater, as well as other warranty programs. We know the entire state of california is having a pretty bad drought. Its been 20, 30 years since any of this has happened. What can you do . What needs to be done . Well, absolutely. We do have operations in california. A couple of things. One is we are working with the state regulators to basically implement the 20 voluntary conservation throughout our service areas. Number two, for example, in the monterrey peninsula, we are building a plant to provide the needed water for future generations. Also, what is critically important we are ensuring that working with Fire Departments that theres plenty of water for Fire Protection for the fires. I worry about the grid and, i dont know, solar flashes or terrorism. We dont think about the water aspect. We cant assume that that would stay intact unless it is automated. Is it totally automated . Can we sleep at night we will always have access to clean water . Well, you can sleep at night. One thing about water, and i came from the electricity industry. Water is localized. One of the things we are doing, we have our own r d and innovation group. We are working on a smart water grid. It will take smart meters, compare and combine it with our plants and look at pressure and flow meters of combination of the data will alert us if something is funny or doesnt look quite right. So people people dont think about water as being a hightech area. We are working hard to make it that way. We had global numbers. There are people involved in the water issues around the world. Matt was on with us in davos. What part of the world is able to have access on clean running water. Its a ridiculous number. We shouldnt take this for granted at all in this country. Absolutely. I think we are tporpbd in this country that we dont fully understand the value of water. I heard a number that 2,000 people die a die from waterborn illnesses, which is horrendous that we have that situation. Our job at American Water is to ensure that our customers have safe, clean, affordable and reliable water when they want it. We are very involved in supporting the water for people charity, whose aim is to look globally and look for ways to bring clean water across the world. There was an article in fortune. It says farm lands parched. What is the solution . Simple, some say Business Leaders and commitments say make people pay more for the most precious commodity on earth. Essentially, taxing it. What do you think about that . We do need to do more education. Our water sources, groundwater or surface water. We have to do more work on the water reuse, the entire cycle of water. We tend to look at it as Drinking Water, storm water, and wastewater. We need to look at it as one water and find ways to do reuse. Most people recoil at the idea of toilet to tap. Most people dont have a problem with toilet to turf. At American Water we are involved with two projects. Gillette stadium, we reuse the water for toilet plush as well as battery park in new york. We are doing the same type of projects through our market based services. Great to see. You thanks so much. When we come back, well kick off the trading week with the stocks wars. Jim cramer will join us next from the new york stock exchange. Squawk box will be right back. Tomorrow on squawk box, he was a major player in the 11th hour efforts to prevent the 2008 financial crisis. Christopher flowers will join us in an extended interview. Plus, were off to see the wizard. Dr. Mehmet oz will join us on set to talk Healthy Minds and healthy bodies. It all starts tomorrow at 6 00 a. M. Eastern. A. M. Eastern. Welcome back to squawk box. Futures have been indicated down 45 points. 43 now. Thats what we made back on friday. One story this morning, the regulator of fannie mae, freddie mac said he would not oppose to lenders having a smaller presence in the market but private capital has to be ready first. Director mel watt arguing fannie and freddie need to remain in the Housing Markets to make sure that it is liquid and resilient. And zandi, that would worry you if we immediately pulled the plug. Thats completely dead in the water. So it would make no sense at this water. It would make into sense at this point. It was still at 90 . Now it is 5560 fhas and others. Between the three of them. It is probably now 75. So then the banks make up the rest of it. Lets get down to the new york sto stock exchange. We have had so much time. What do make of that . I think you talked about a couple of thing that is are worrisome. The nfl package goes up. A lot of the tech knowledges that i know who were asked about satellite tv said listen this doesnt work in many of the ways that cable does. Look, it better be latin america. I dont want to have big exposure. This seems like you know what . We have to do a deal. And i wish there was more to it. Will pfizer just go away do you think . It looks like this is the end. As tra seneca i feel like someone has insider information. Seeing that thing goes down makes sense to me. If you look at the stocks of both of those companies, it has done better than i would have expect ped given the issue of technology. We asked stephen son about the technology being the Technology May not be the future and yet he said from a efficientsy perspective he expects to use it to get the stuff he is going to rebalance how they distribute video. When you are making your bed with venezuela and argentina, it has been a nightmare. Do i want more exposure . No. Is it a growth at any price . I think you could argue yes. Are you a chromy . For the horses . Do you think you should be able to wear a strip . Why do they have to disqualify. Cant they have horse races and not figure out this stuff . It has been a while, jim. I remember the flu, but that is 36 years, 38. And it is exciting. I went to see, seattle slow. But that whole sport has left the front pages. They ought to let it happen. What network . Thats rights nbc. When we come back we are going to talk jobs and the economy. Check out the ten year at this hour it is yielding 2. 502 . Well be right back. By the way, it was great. I watched half of it last night. It was strange. Anyway. Bill ackerman sending another letter to the board. He said the company has a disablie ining interest. He wants the company to repair the governments failures and directors of the board. We ask that the company repair the companys failures that can respond shareholders requests to the communication and meeting. Is the ceo coming . If that is the case every time. If you are the ceo you have the job. Right. That is the conflict. Always. Unless it has something to do what makes it less disabling is if you have a parachute. The one still leaves. Yes. Right. So, anyway, lets get back to our guest host mark zandy. You are optimistic. So, what do you want to do with your economics . What do you want to do with your economics knowledge when you go up . I would like to make a bigger contribution to the world if i could. You have been doing that. Dont you think though . I think you are a person that i appreciate that. That is very kind of you to say. Most liberals are well intensioned. Do you think im a liberal really . You advised john mccain but also on the other side. Most people are confused as to whether im a liberal or conservative. So, what we mentioned the fannie and freddie situation. The two to summarize your thinking. Things are good. If there is any problem it could be housing or something external like china. The thing is housing. Buying and we need firsttime biby ers. They need a mortgage. It is a pendulum right . Obviously it was over in 2006. In the opposite direction we have to move the other way. I was sweating. I have to say, i didnt catch the fact that it was a trick question. Thank you very much. It has been great seeing you. We will see you back here tomorrow. Good morning. What a morning tore ne ing for. The at t deal obviously top of mind. Futures are a bit lower ahead of a busy week. Ten year yield clinging onto 2. 5. And housing numbers later in the week as well