Transcripts For CNBC Squawk Box 20140616

The gas business and mitsubishi would look into the turbines. And pipeline Williams Company is acquiring midstream for 6 billion. This will give them Master Limited partnership. Andrew, a lot of activity out there. That is. It was a crazy, busy weekend. To believe all those deals are happening. Plus well talk about the inversion step. This deal is different from the ones we have seen before in terms of why the Tax Implications are what they are. This is more about the money being abroad and not bringing it back. And well also talk now about other Corporate News because a rough sunday was had by target. A glitch in the retailers customer checkout systems ended up causing huge delays, long lines at some stores in five different states. And social media blew up everywhere with complaints of the backups. The company says the glitch is not related to a security issue, but nonetheless, if you have read the twitter feeds, you would think other things. Well, the global markets, meanwhile, continue to Pay Attention to whats happening in iraq and other places. Oil prices again called higher. And cnbcs chief International Correspondent michelle can russa cabrera is joining us from Northern Iraq. The oil prices are not going the way they are supposed to go based on maybe getting more supply, which was sort of the contrary view that you gave us last week. They are headed higher. Reporter yeah, theres still concern whether or not there will be disruptions in the south and consistently we see analysts say, theres no disruption coming from the south, but it remains to be seen just how far the militants can get. Can they get south of baghdad . They have taken another town overnight. Tal afar 50 miles west of mosul, 100 miles west of here. At the same time, the Iraqi Government says they are now fighting back. Theres video from the Iraq Defense Ministry they released showing aerial assaults on military positions north of baghdad. The bombings were said to have targeted radical sunni locations and vehicles in the city of mosul. And the video shows vehicles and small buildings exploding. This is Iraqi Television video. It is not possible to verify what they say. Theres a gruesome development overnight as the islamic militants in iraq and syria isis released photos showing them executing hundreds and hundreds of iraqi soldiers. Nbc news has not been able to independently verify these photos, but the Associated Press reports they have spoken to an iraqi Army Official who believes they are real in a tweet believed to be controlled by the militants, they say they have killed 1700 soldiers, but again impossible to verify. And of course, security in baghdad is very intense as they increase checkpoints there and as the u. S. Embassy begins moving out employees as the state department announced that they would do yesterday. We are in kyrgyzstan, the northeastern part of iraq. We are here because when middle east experts talk about the possible disintegration of iraq, they are talking about this here, kyrgyzstan, a semiautonomous area with its own court system and education system. And they have long wanted to be independent. When we talk to leaders here, they say, they say that they would very much like to stay a part of iraq but only under certain conditions. Conditions such as them being allowed to export oil, conditions such as baghdad getting its act together. And thus far neither one of those two things look apparent. So still the bigger question remains as to whether or not we are going to see iraq as we know it finally come apart as a result of whats happening here and the sunni shia fighting going on in the northwestern part of the country. What we are talking at over the next couple of days as we show you the Oil Facilities here in kyrgyzstan, one Government Official says by the end of next year they will have double production and be exporting 1 Million Barrels we are day. They are convinced they are going to do it despite the u. S. Not wanting them to do it and baghdad and the government of iraq not wanting them to do it. Back to you. Michelle, its hard to tell from here, but the scene behind you looks like a relatively normal situation, is that the case on the street with cars moving behind you . Reporter that is absolutely the case in kyrgyzstan. They have their own military. Which are very wellknown. Pesh merga are the ones that took over the city west of here when the military abandoned it. So they have their own military which has maintained stability and peace in the area when the rest of iraq has not been able to do so. And as you say, as you notice, they have got an economy. And its hard to tell whether it is mostly Foreign Investment because they have an investorfriendly policy here or whether it is a lot of spending by the government. I have not gotten clear answers on that, but certainly this is a very different place than baghdad and the rest of iraq for sure. All right. Reporter which is why they want to be independent. Michelle, thank you very much. Well check in with you later. Joining us is retired u. S. Army colonel jack jacobs, and chief correspondent john harwood. Colonel, i heard a report this morning suggesting if iraq were to fall apart completely it wouldnt happen in three neat pieces. There would be a much messier scenario, what do you think . It would be a lot of people killed, of course, because there are spillover areas with sun knsunni and shia and kurds, so there would be many people starving to death in camps and so on. I think this is all pointing toward exactly Something Like that. One of two things, its certainly going to be a civil war. And if its not now already, then i would say you can say already, but its going to be one that probably lasts six months to two years. So a lot of people killed. And one of two things happens at the end of it. Youll have these loose pieces where the people of polarized and are in areas that wont be any government except local government. Or in the alternative youll have a bloodthirsty decembspitee place. We are heard some of the areas are welcoming the insurgents coming in that are largely sunni, but then over the weekend it was suggested that within a couple of days they had started shooting people that they thought were not going along with things, that sets up very difficult islamic law. Do you think the sunnis are still welcoming the insurgents . They are just scared. These are terrorists. And so terrorize everybody in the way that you my point is normally an army wouldnt brag about slaughtering 1700 of the troops on the other side. I mean, they would make a pretense of taking pows and then treating them these guys want people so they are not an army but a bunch of terrorists. And also there are not a lot of them at the moment. No matter how bad the iraqi army is, they are larger in numbers and have better weapons and all the rest of that stuff. So if you really want the iraqis to melt away, the best way to do it is to if you are an iraqi soldier on the fence and would like to stay in the army and fight for things, but then you saw that, who is not going to drop their rifle and you just mentioned Something Else. I mean, we make the assumption that the iraqi army really wants to fight for almaliki. They dont. Hes a corrupt guy, hes bad news and everybody hates him except the people close around him. So the iraqi soldiers who would otherwise be fighting for iraq are not going to fight for almaliki and thats why they run away. Let me ask the question to the Administration Official that met with the white house yesterday said whatever air strike happens needs to be conditional on the political plan to heal the secretarian rifts. Is that even plausible to say aloud . They have been pressing as the Bush Administration did for nuri almaliki to provide a government that tried to heal some of the rifts and unify the country. He hasnt been interested in doing that. Is it possible that he could do that . I dont think anyone believes it. So then the question is, is it possible some other leader can come in and do that as opposed to what jack jacobs just said, which is some sort of blood think thirsty tyrant. I dont think anyone is optimistic that a good solution will be found, but for now the administration as an alternative to getting involved militarily is trying as a first step to push very hard for the government to do, to take some steps they have not taken before to try to take some of the edge off of the secretarian strife. Is there a way looking back, i dont think Saddam Hussein necessarily wanted to attack the United States as far as terrorists. Could another bloodthirsty despite get in there as his chief goal allowing terrorists to attack us . Yes. We could get another they will find somebody to control everybody through terror centrally organized from baghdad. Otherwise youll have terror we prefer that. Strategically we do. The most surprised guy in the world when we invaded iraq was Saddam Hussein. He said, wait a minute, im the guy holding off iran and youre trying to get rid of me . Thats another angle. He could be cooperating with iran. Thats another angle. We are asking around and talking to them about what to do in iran. Iran is offering to assist us in trying to save iraq, but i dont think its going to happen any time soon. And i think a messy battlefield where lots of innocent people get killed is the way its headed. Do you think almaliki being a bad guy is why the u. S. Is not getting involved or does the u. S. Not want the potential of boots on the ground. We dont have the political will to stay there to make iraq into a real country. So we decided we are not going we melee off some bombs there. We have to put special operations guys there on the ground to decide who to bomb. The president says no boots on the ground, but dont we need some advice. We are going to have them there soon. Did you see this essay tony blair wrote over the weekend . I saw the video but didnt see the essay. Hes suggesting it wasnt me, it wasnt all the things we did, he says its the people in power now who completely screwed this up and turned this backwards do. You agree with him . No, he has no idea what hes talking about. Like i said, the whole thing about iraq reminds me of the observation of bill cosby about the game of golf. He said, golf is a really stupid game. You put a ball on the ground, take a stick to hit it as far as you can as long as you can and then you chase after the ball. You had the ball. We had iraq. Saddam hussein had iraq. And as obnoxious as he was, he Department Control most of the area with a relatively independent kyrgyzstan and kept iran at bay. We had the ball and we let it go. You cant export, we now know, to places that cant handle it. President bush said everybody wants democracy. Well, not everybody wants democracy, and if they do, they are not willing to fight for it necessarily. We have had 240 years worth of experience and were relaxed about democracy, but nobody else does. Well see horrible things happen. Well probably see women not going to school anymore under sri law. If it were to be an islamist state. Where is the permit to live . They are shooting people at random in the streets. I understand the tension, but it is not lasting what they are trying to do. No. So what youve got is almaliki who is a crook but weak. Before Saddam Hussein was a crook but strong. But he has not let sunnis into power and not sharing money with them. It is not all about the oil but it is about oil and the revenues and actually having some sort of equitable distribution of power and the largeness in the world. Hes a crook and not doing it. John, what is next step for washington . I think the next step is to wait. I mean, one of the things the president did on friday was buy time. While he had his advisers assemble military options and they did see the advance of the militants slowed over the weekend. It gets tougher when you move from the sunni areas toward baghdad where youve got a lot denser population of shia to slow them down. I think its worth talking to allies and is worth trying to see whether some sort of diplomatic process can be put together, but as jack jacobs just said, this is a horrific mess. And i think there arent good answers and thats why the administration is going to be very slow to cross the line to revolve the United States military in some campaign. We did have someone suggest last week that this is the perfect opportunity. That the insurgents were out in the open. This is the one time you could have the option to use bombs. Well have a lot of other opportunities. We have intelligence capability to identify four nations of isis people. I mean, it is easy to see them when they are in groups. Just as john said, we have to make the decision where we are actually going to launch precision guided ammunitions that will require people in the intelligence and people in the air or on the ground in order to control the assets, but we can do it. You agree time is not of the essence. You cant slow things down to see where things are headed. No, unless you want to make sure that you wipe out isi sirks, which you wont be able to do. Time is not of the essence. People say we need to start bombing people everywhere. They dont know what they are talking about. Some of these guys are the same ones we were thinking about helping in syria, right . That is correct. Thats the other thing that sort of slipped by. We were talking about sending arms and ammunition, weapons, all kinds of support to people in syria because we really hated assad. And im not breaking my arm trying to pat putin on the back, but he would say, are you guys nuts . Do you know who the people are . We hate those guys. You will really rue the day you gave arms and ammunition to these guys to overthrow assad. These are the same guys. Is that a similar situation with Saddam Hussein . You want a powerful guy, even if hes a crook . It was harry truman that once said and was talking about nicaragua 100,000 years ago. Unfortunately i was already alive, which means it was a long time ago, and somebody was talking about something and said hes an s. O. B. And harry truman said, hes an s. O. B. But hes our s. O. B. Its not going to be pretty. Colonel jacobs, thank you for coming in. Coming ahead on squawk, Market Reaction under the situation in iraq. And later bill george will weigh in on the deal of the day. And in case you missed it last night, the santon Antonio Spurs beat the miami heat in just five games. And earlier in the day, Martin Kaymer he would not have gotten that. Martin kaymer captured the 114th u. S. Open shooting 9under par winning by eight shots. More on the big fathers day weekend and sports in the next half hour. First you get hit by psoriasis. And now you get hit again. This time by joint pain. Its a double whammy. It could Psoriatic Arthritis a chronic inflammatory disease that attacks your joints on the inside and your skin on the outside. If youve been hit by. Find out more about Psoriatic Arthritis. Take the symptom quiz at doublewhammy. Com and talk to your doctor. Comcast business sponsored this. Yep. Did you see the building . They are trying to change the name. It will be smaller and will have the peacock. Plus they are going to get a new, what is it called at the bottom of the tonight show, what are those things called . A marking. But it was so funny reading the academics that control what you get to put up there. Selfpreservation. They are like, you know, i didnt like it when they changed it from rca to ge. And if we go back to rca, i would be okay. But if it is ge, we might as well let comcast do it because we let ge. And we are not going back to rca. It is long gone. Why do they because they want nothing to change. It is not just that. I do understand not wanting things to change. You dont like to change either. Why would you have the panam building. Because i see flight attendants, i see actually, that was a i dont know if it is even that anymore. I think it is the metlife building. But metlife is in a different building. It is not as cosmo, right . It is very madmen. I think if the peacock goes up there it is better than ge. Sorry, guys, you sold us. Welcome back to squawk box. It is time for the executive edge. Starbucks is rolling out an Online College program for its workers. The coffee change is partnering with Arizona State university. Employees who work at least 20 hours a week will be able to earn an Online College degree from the school at a discounted rate. Starbucks will phase out its existing Tuition Reimbursement program. And that setup gave workers up to 1,000 a year for education at schools. Is this cheaper . They are going to save money at this, probably. Im going the opposite direction and am going to give them the benefit of the doubt. To me the way i read the program is this is the first time any major employer in this country has tried to educate its staff for free. So all you have to do is be there for two years. Then you get a discount. No, if you are a barista or better for two years, you get the education fully free. Its totally free. And Harold Schultz is quoted saying his view is, and it doesnt depend on you staying, you can leave. If you stay for two years so i can start and takeoff and finish my education somewhere else . Totally. He says, i think ill attract more talent and get better people. Its better for the country and the world. And i think potentially if this is done right, its business taking the issue into its own hands and changing things for the better. Now, its an online education. I dont know if thats as good as Something Else. Online education is developing pretty rapidly and College Education is rising too rapidly. Theres going to be some breaking point. But to have an employer who is paying they pay better than minimum wage. But thats the way if you can go on and leave and still get your education thats the way it is proposed. If you are under two years, they will pay for only part of it. In terms of if you have been there for less than two years. They must have a lot of turnover. I assume they do have a huge amount of turnover, but thats why to me its a great thing. No matter how many people will be there for two years and will take advantage of it. But the people under two years can still take advantage of it at a discount. You just dont get it for free. Thats still pretty good. Theres always an unintended consequence from corporations trying to you are against this . Im just saying i hope, i want my barista to focus on making sure i get the right latte, okay . So if were going to have if theres any babies crying in starbucks, im throwing them out, too. Because i should be able to be in there on my commuter without hearing from little brats. They are also in first class. Just to ban babies completely. Or tape them across the mouth. I am putting this on you because i would expect to see i love babies. You love them. That is really something. Lets talk about delivery alpha because the countdown is on to delivering alpha. The investment communitys top leaders are going to be gathering for the Fourth Annual Conference Held by cnbc Institutional Investor kate kelly. She has the winners and best picks since the last conference. Good morning to you, kate. Good morning, andrew. Its hard to focus on this with the discussion you just had, but the industry lineup at delivering alpha should be great. Its a combination of familiar faces from past years including carl icahn, Ann Nelson Peltz who was your guest last year, but ken griffin and jim breyer are newbies. John paulson has done well with his 180 on housing from being infamously short before the housing crisis to now. He made about 63 returns in 2013. For example, on his companys recovery fund, which invested among other things in mortgage companies, insurers and other financial stocks hinging in part on his new thesis that the housing sector is bouncing back. Carl icahn has done well since last july on his herbalife as well since the stock rose 20 since talking about it at the conference. That said, most of the gains would be last year because so far this year the stock is down. Icahn recently noted that hes the nutrition supplements biggest shareholder as of late march. His Investment Fund returned 31 last year. And finally, leon cooperman has trade picks trading higher in double digits than he recommended at the cops inference. This is not unusual for cooperman. His topical qualcorp up 55 since last july. And in addition to hearing those investors best ideas and hopefully also some mac macroperspective on whats coming next, well hear from a key number of public figures including governor Chris Christie who has been through bridgegate and other tough resulting questions over the last year. And jacob blue helping us preserve our tradition of always kicking off delivery alpha with remarks from the delivery secretary. Well hear remarks on the tentative recovery when we talk to him in july. Okay. Kate kelly, im told that we have to go. But its great to see you. We look forward to the date. July 16th at the hotel. Mark the calendars. Well be there. We will all be there at the pierre hotel. Kate, thank you. When we come back this morning, more details on the megadeal between medtronic and covidien. Well set it up for the next week. Squawk box will be right back. Did you know a tensecond test could help your business avoid hours of delay caused by slow internet from the phone company . Thats enough time to record a memo. Idea for sales giveaway. Return a call. Sign a contract. Pick a tie. Take a break with mr. Duck. Practice up for the business trip. Fly to florida. Win an award. Close a deal. Hire an intern. And still have time to spare. 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. Means keeping seven billion ctransactions flowing. G, and when weather hits, its data mayhem. But airlines running hp endtoend solutions are always calm during a storm. So if your business deals with the unexpected, hp big data and Cloud Solutions make sure you always know whats coming and are ready for it. Make it matter. We stathat the kid onhe thought the back of the bus might have a song that he has in his head but he just cant get out. With the technology of cloud, we change all that. I can sing something into my device. Up to the cloud it goes. Back down it comes sounding better. We break down the walls of creation, and we give music creation for the masses. Good morning. Welcome back to squawk box on cnbc. Im joe kernan along with becky quick and andrew ross sorkin. The Managers Group is near a deal to buy a stake in a hedge up fund, remember this, d. E. Shaw from the estate of lehman brothers. Its kind of cool it is called the estate because the company croaked. The journal puts the price tag at more than 500 million. A deal would value d. E. Shaw at more than 2 billion. And oil demand in the United States grew the fastest pace in the world last year topping china for the First Time Since 1999. Can you say suv . Hes got like six of them. I have two. Who has two suvs and a car . And a minivan. For when you want to step out in the minivan. And in the annual review of the annual statistics, bp reports the United States also recorded the largest annual rise in production for a second year in a row. In the key driver of that, the shale boom. Fortunately, it stuck where we are getting it because we are not allowed to build any pipe lines. Aside from that. Medical devicer medtronic in a deal to buy covidien. They paid 93. 22 a share, thats about a 29 premium to where covidien traded on friday. They will reincorporate in ireland to be eligible for the lower tax rate. Keeping the headquarters here in minnesota here in the United States. Medtronic was the latest standalone medical maker. But they say this is not about taxes as we have heard before in these aversion deals, but they say the two companies will make it stronger. This is a trend in health care we are seeing with the tax aversion to get the lower tax rate abroad but consolidation among medical device companies. We saw zimmer bought biomet earlier this year for 13 billion. And the tax inversion we have been seeing pfizer trying to buy astrazeneca for 120 billion. But also earlier last year we have seen hospitals try to cut costs under the Affordable Care act. We are seeing a lot of pressures in the industry, a lot of people im talking to expect this to continue. So not just in medical devices but in drugmakers. Bill george is coming on a little later. And the notes i was reading from him, he says this has much less to do about the tax rate. But it does have a lot to do with the hospitals and trying to be able to better negotiate. Absolutely. They are trying to pay more than last year, but its a 14 billion they got over there. But once again, i was furious reading the New York Times again this weekend. I dont know if you saw the Weekend Review and the elite editorial was how not to use repatriated money for the highway bill. Harry reid introduced it as a bipartisan idea. But just the stuff that the people say, you need to take them aside in the hallway and talk about it. They said the reason that you cant bring any money back is because it increases wealth disparity because it goes to shareholders. Thats what i said to you. Thats the argument that they say on the left. Last time it was a disaster. Why, because more people are doing it again . We are doing it because you still can do it. The problem is we have to get rid of the vacation and simplify the system. I cant remember who they wanted to tax. Both sides wanted the dudeification. But the ceo of medtronic quoted today saying its not about lowering taxes and says the difference is this combination medtronic gets access to Free Cash Flow that covidien gets and deploy it in the u. S. As if buying covidien they can use the cash for innovations in rnd that they have not been able to do. And im thinking to myself, how is this even possible because we are having this conversation about taxes and then hes trying to suggest cash if hes being taxed how to bring it back and use it here . Exactly. They said they would invest 10 billion in the United States technology. How did they get their rate to 18 . Already a lot of drugmakers have 18 . But they are an rnd, but mostly because its a blended rate and leave a lot of stuff abroad. But the idea of leaving it over there is better than letting it go to shareholders in this country because it might a lot of shareholders are not individuals. They are Pension Plans and Everything Else. Its just maddening. And the other thing that infath infather rainfu infathi infuriated me, the New York Times had 20 articles written on that book. Do you know what has been number one the entire time . Not a single article written in the New York Times about that book, why . You should send them a letter. I can do it here, cant i in not a single piece written about maybe they are not watching. They dont watch you . I feel like i have to read it, you know what i mean . But then it just ruins my weekend. It ruined my fathers day. Im sorry to hear that. Thank you. We can give you a pass. Anyway, lets get more on the week ahead on wall street joining us now, allison dean, Senior Adviser at asset manager. And jeff sout, the chief advantage strattist at raymond james. The lead story in the journal, allison, said all these certain things are starting to come home to roost. We have all these fresh fears about things that could be oil, it could be geo politics. Once again, we are trying to find an excuse to finally get that correction, i think. Will we have it this time . You know, geopolitics, we could have some type of correction if things get significantly worse, although my sense is thats not very likely. So i think it needs to be much more serious on the economic front and that doesnt seem to be happening for us to get a significant correction. I mean, for us to go significantly further from here we need to have Stronger Economic growth news than we have had so far, but correction, i think the news has to be more negative on the economic front or the geopolitical situation to get much more dire than it is right now. Jeff, what are you looking at, macro or just sort of all systems go based on just corporate profits and multiples . I think corporate profits are going to continue to come in a little bit better than people expect. I think that the margins are going to remine wider than most people expect. When you have the intraday reversal on april 15th, i was on your show, the target was at 18. 20. We reached the target price a week ago friday and i wrote the following monday that upside from here will be very tough in the short run. I dont know if it will spill over to a 10 or 12 correction due sometime this year, but you get a little kaucautious here. Do we just double or try to hang on to what we have . I think youll be over 2,000 by the end of the year probably near 2 1rkz 100. Really, so that is what is that, you look at what people said, 8 , 9 , 10 , Something Like that. Yep, that is about what should happen here. And what about next year as you talk about it . Well, the bottom operating earnings estimates out of s p next year, some were clustered near 137. Depending on what kind of multiple you want to put on that, i mean, if you want to put a median multiple on it at 16 and change, youre still talking up in the low 2,000s. If you want to expand, you have a pretty decent upside. Alison, do you agree with that . One of these days will we go into a market that goes down for a couple of years . Hopefully not. That would probably be very bad geopolitical situation or a weakening economic scenario. It feels as if globally with us being a little bit ahead of other parts of the world on the Economic Situation starting to improve, i think the trends are positive but not robustly positive. Im not sure i can argue for a higher market multiple than 16 to 17 times, but i think theres the potential for a positive earnings surprise next year if the pace of recovery continues to improve. Okay. Well stay if people listen to both of you, stay long and add positions if we go down. Thank you. People are writing in, what about a cvs university to educate pharmacists . Im not sure of educating more baristas, a twoyear degree, what kind of degree do you get from the online . You can get a lot of different degrees. It is not learning to be a barista . No, you know that. Because i dont think we should spend a lot of time educating people how much foam and cinnamon frappes, is that part of the curriculum . A quick twoyear program. It doesnt seem like it would take that long to teach someone how to make a latte. I think it would be better to educate pharmacists that a bunch of baristas. I dont think the future is that great. Anyway, coming up, how to deal with the crisis in iraq . The former director of the National Terrorism center will be our guest at the top of the hour, and securing the futures with thomas fanning, chairman of the the Southern Company. More squawk box, next. So what im saying is, people like options. When you take geico, you can call them anytime you feel like saving money. It dont matter, day or night. Use your computer, your smartphone, your tablet, whatever. The point is, you have options. Oh, how convenient. Hey. Crab cakes, what are you looking at . Geico. Fifteen minutes could save you fifteen percent or more on car insurance. Welcome back to squawk box. The dow is opening 33 points dow. The nasdaq opens 5 points off, and the s p 500 off as well, down 4 points if the market opens now. Well talk about some headlines this morning. The comedy jump street winning the box office with 60 million. That was its debut. The sony film starring Channing Tatem and jonah hill as a bumbling undercover officer trying to bust a drug dealer. In second place, how to train your dragon 2 opening with 50 million in sales. Guys, i saw the fulton of stars over the weekend. I cried. The performances are spectacular. It will make you rethink everything important in life. From a movie. It was tremendously touching. So your children didnt make you do that, it was the hollywood sometimes you read a book, you watch a movie or something and it speaks to you and you your own experiences in some way. You need to get out more. And therefore anyway. I think you need to get out more. Its nice to see, though. Thats nice. Im recommending this picture. Joe, i actually think i cant believe they would remake a movie called how to train your dragon. Coming up, a huge weekend in sports. The stanley cup finals, the nba finals, the u. S. Open, the world cup. A crazy couple of days of live tv. Well check it out in the winners and losers on and off the field, next. Inrmation safe secure. Century link. Your link with whats next. When folks think about wthey think salmon and energy. But the energy bp produces up here creates Something Else as well jobs all over america. Engineering and innovation jobs. Advanced Safety Systems technology. Shipping and manufacturing. Across the United States, bp supports more than a quarter million jobs. When we set up operation in one part of the country, people in other parts go to work. Thats not a coincidence. Its one more part of our commitment to america. [ male announcer ] if you cant stand the heat, get off the test track. Get the mercedesbenz youve been burning for at the summer event, going on now at your authorized mercedesbenz dealer. Hurry, before this opportunity cools off. 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. First up, lots of weekend sports action from the stanley cup finals on friday to the u. S. Open. Or yeah and last nights nba finals. Joining us now to talk all things sports, dave briggs host of sports dash on nbc sports network. Number one im a little bit concerned about the ratings for the u. S. Open. Tiger already wasnt there. I think there should be concern for that. And for the nba finals. Yeah. Lack of drama. Lack of competition. I thought they were really going to 16point early lead for the heat. But the spurs are the greatest organization of our generation. I mean i watched it, and you could tell when they cut it to seven, i knew this was going to be over. It was over. I mean you look at the way that they were described as exquisite basketball. Its beautiful watching them. But i dont know how many people did. They won all four games by 15 or more points. So thats finished. Hockey is finished. Im looking for something, british opens coming up, ryder cup is going to be amazing. But in the meantime. This dude from argentina. I watched messi. Yeah. And i watched the lead up to that game and they were talking about this guy who, i dont know that much about football this kind of football. But hes supposedly the best player ever. And then he did do something in that game that was just out of control. Didnt look great until that goal. Really . But probably the greatest player in the world. One of the greatest players of all time. U. S. Opens tonight. And you have to like the drama of this because if the u. S. Comes out and lays an egg against ghana, theyre done. Forget it. Werent they good last year . Ghana beat them the last two world cups. If you lose this youve got portugal and germany. Forget about it. If you want something to watch tonight. Ive got a friend from ghana. From what . From accra. Accra . Its the capital city. Ghana is a great place youve been to ghana . No i just hear about it. Ive read about it from my friend. Who is your friend . He is making this up . No my friend. I see him every morning. I think the u. S. Wins. What time does it start tonight . 6 00. Theyre a better team now that ghana. It starts at 6 00. That works for me. You can stay up. Your bedtime is what 8 00, 8 30 . 8 30. Just in time. What did you think about the open . Martin kaymer, eight shots clear of the field. I likened it to mcilroy a couple years. These good players that get in a zone. Its weird. Its weird to watch. Because theres them and theres everybody else. Martin kaymer was number one a couple of years ago. Number one at 2011. Then fell out of the top 50. But hes very good. And you know, i wont make any stereotypes about germans necessarily but hes all business, is he not, when he is he could stay he reminds me of bernhard langer. His idol. He could get back to number one. Hes 29 years old. Yeah, hes got that kind of game to stay on top. A great story if you watched it andrew, maybe you would have gotten like you did for that movie, but the guy who came the guy who came in second. He did not like this movie. The guy who came in second. Erik compton. Would it make me rethink life . It would. He had two heart transplants. This is news to you now. You didnt know two heart transplants. The first when he was a child. The second one five years ago. There was tears there and very emotional because he finished second. He parred the last hole which was he had a bunker shot. He needed to get up and down. Hit a 9 iron, and unbelievable. And wins more than 700,000. Qualifies for the masters. Which he didnt know until they told him. And next years u. S. Open. Have you changed your philosophy of life . No, no. These two actors look so sad that they were supposedly dying of cancer, that it was i mean it was when you think about this kid. How hard is it to stare over a tough par putt when youve faced two heart transplants. Youre not going to sweat out missing a putt. You know who i like a lot who has come in to remember he wears those weird hats and clothes, Rickie Fowler is a man. And hes 25 now. And hes someone you really want to butch harmon. Tigers former coach, the one that turned his game around, hes got the bright orange, the puma clothes. Kids love him. They do. Wears the hats. Golf needs that. Golf needs fowler. In the fasters, he was played really well. Hes going to be among the top ten now. Hes going to be consistently in the top of the leader board. Hes a fun kid. Cool guy. He is. You should have him on this program. And you know what . The kaymer was talking about with him and bernhard to the they can do the german slam if someone wins the british open, because the german slam . Because pga, u. S. Open, bernhards got two masters. If kaymer wins the british open then to the they have all four. Kaymers got that british open game. Pinehurst no. 2 plays like a british open. Europeans have won five of the last seven u. S. Opens. Germans europeans have dominated the tournament in the last ten years. But kaymer is the first okay. Youre talking about mcilroy as a european. Well be back. Thanks, dave. Weve got to roll. Americans are struggling. Right. If youre living with moderate to severe crohns disease, and it feels like your life revolves around your symptoms, ask your gastroenterologist about humira adalimumab. Humira has been proven to work for adults who have tried other medications but still experience the symptoms of moderate to severe crohns disease. In clinical studies, the majority of patients on humira saw significant symptom relief, and many achieved remission. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira, your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your gastroenterologist about humira today. Remission is possible. Crisis in iraq. What is the next move . And is baghdad at risk . Well have a live report from inside the country. Securing Americas Energy future. Thomas fanning the ceo of power giant is todays guest host. And a mega deal for medical devices, medtronic and coindividualian striking a 43 billion deal. Former medtronic ceo is going to weigh in as the second hour of squawk box begins right now. Good morning and welcome to squawk box on cnbc im joe kernen along with becky quick and andrew ross sorkin. The futures are indicated a little bit lower. A lot of things happening in the world that this makes people a little skittish. Oil prices one of them because of the turmoil in iraq indicated up 106. 107. If we get up 110, 120 and above youd have to think that that would be construed as even more negative. Michelle carusocabrera will join us from iraq in just a few minutes. A newlywed in iraq. Our International Correspondent. Shes got to do what shes got to do. Thats right. In our head lines, nearly 43 billion deal in the medical device industry. Medtronic is buying ireland based covidian. The newly combined company will base itself in ireland for tax purposes. That move is sure to reignite the debate takes place over u. S. Corporate tax policy although medtronic says its u. S. Operations will remain in place. Were also keeping watch on another potential takeover deal. Gtech says it is in talks to buy International Game technology and that its hired advisers to help it negotiate a deal. Igt also acknowledged it was in talks about a strategic alternative although it did not mention g tech by name. Lotterys youre not going to make a comment . I guess, you could say if you want to vicariously say what if i win and what would i do. You dont even have to buy a ticket. For a dollar. Just fantasize about if it were going to happen. Because its not going to happen. It makes the fantasy so much more real. If it was 1 out of 100,000. I know your chances are next to none. I get that part. Its not next to none. It is none. But do you think it is next to none. You still have a chance. It is none. If you dont play you have no chance. If you play you have no chance. Germanys seemens and japans heavy industries are to present their bid today. Although the french government has been concerned about that french officials are said to be expecting a higher offer. Lets talk about iraq. Get over there. Iraq in a state of crisis this morning. Amid an al qaeda inspired insurgency, cnbcs chief International Correspondent Michelle Carusocabrera joins us from Northern Ireland with the latest this morning. Michelle . Yeah, were in Northern Iraq, andrew, and about 100 miles west of here the rebels, the insurgents have taken another city. This comes as it appears that the Iraqi Government is finally mustered enough troops and power to try to start fighting back. Theyve started releasing video on Iraqi State Television supposedly showing their efforts to do so. Theyve showed assaults on military positions north of baghdad, of the militants, and they say the bombings are targeting radical sunni militant locations and vehicles in the cities of salahuddin and also mosul which is 50 miles west of here. Video shows vehicles and small buildings exploding. This is Iraqi State Television so its hard to verify unless youre there on the ground. Theres some grave developments overnight. The islamic militants who go by islamic militants in iraq and syria or isis have released photos on their website which they say shows them executing iraqi soldiers. Nbc news has not verified them. The Associated Press reports an iraqi Army Officials thinks they are real. And a twitter account believed to be controlled by isis blames at 1700 iraqi soldiers were killed. As you have been talking about the price of Oil Continues to rise. Not only real disruptions yet but on fears about the possibility. Take a look at the chart of Oil Production for 2014 for iraq. It peaked in the early part of the year 3. 4 Million Barrels per day. Then the pipeline in the north was attacked by the sunni militants. So its dropped back. In the south things are still fine. But lets give you an example about how wall street is thinking about it. This morning citigroup took luca oil the Russian Oil Company off the focus list. They were taken off the focus list because lukoil has a 5 billion in the west quma field in southern iraq. We dont think thats going to be impacted by the fighting. However the tail risk has gone up substantially in the last week. So people are really waiting to see whether or not the Iraqi Government can hold back the rebels north of baghdad. Most of the fighting is about 100 miles west of here. The northwestern part of the country. Guys were in kurdistan, which is an area of the country that would very much the Government Officials dont say they want to be independent but they sure act like they do. And they would very much like to export their own oil. Theyve tried in the last three weeks for the first time to actually load up some tankers with millions and millions of barlgs and they havent been able to sell it because theres legal disputes about whether or not they have the right to do so. But when you see its fairly calm here compared to the rest of iraq. Its one of the reasons they say they would very much like to have a lot more autonomy than they do right now in the current state of iraq. Michelle carusocabrera in iraq. Joining us michael lighter is former director of the National Counterterrorism center and nbc news terrorism expert. Hes also the senior counselor to pallinger technologies. Former senior director for middle east affairs for the National Security council, managing director at the Washington Institute good morning to both of you gentlemen. Im going to start with you, michael. Just lay out if you could for us the options as you see them this morning. Very limited. We do have the options of manned air strikes, Aircraft Carrier moves in to the persian gulf, but i think the president is very clear that hes not going to use air power, either for manned or Unmanned Aircraft unless Prime Minister maliki tries to make the government more inclusive, and unless the Iraqi Ground Forces are reconstituted. I think theres some chance of that. But my guess is maliki is going to be very hesitant to go as far as the president wants. And because of that although air strikes are a possibility i dont think were yet there. Michael singh when you hear Administration Officials reported over the weekend saying we will do some air strikes but we need to make sure theres some kind of plan in place. Is there even plausibly a plan that could be in place that would bring the country back together again . Andrew, this has been years now in making. Obviously, Prime Minister maliki has gotten a lot of sort of complaints from the sunni minority, as well as from the kurds about the way hes governed. And that has its roots at least in 2011 and probably even further back than that when it comes to this government. So the idea that somehow well have a plan in place and that plan will be accepted quickly by the sunnis and kurds is probably not likely. And i think what the iraqis are saying in response to president obamas statement that there needs to be a political plan in place before theres air strikes is the air strikes are needed now and the political plan is going to take more time. Michael singh youve heard there is some kind of window that people inside the white house believe exists right now. What is that window . I think whats behind that is that we see that isis, this radical sunni group, has made lots of advances. But now perhaps theyre looking at harder targets. Baghdad for example is more heavily defended by the iraqi army. Theres lots of shia there reforming. Their militias were active during the iraq war. So perhaps this window that the Obama Administration is referring to is there might be a lull in the fighting. There might be a lull in the advances that isis is able to make. I do think theres a risk, though, because we really havent seen isis being held back in recent days. Although i think it is likely that theyd have a much harder time taking targets like baghdad. Michael leiter its hard to predict but how does this end . I dont think it ends quickly. I do think the iraqi army does hold them back from baghdad. I dont think baghdad falls. The Army Divisions there are far more shia. I think theyre going to stand and fight especially with the videos you have of the potential mass incursion to the north. Is that with our help or without our help . My guess is there will be a little bit of our help but its largely going to fall on them. What were going to have for several years is complete instability from eastern edge of syria all the way in to iraq. The Iraqi Government is not going to push back isis. Were going to have real instability there and that instability runs a huge risk of sliding into jordan, and into lebanon. So this is a bad region for a long time. Bad region for a long time. Youve seen whats happened to oil prices thus far. Can you speak to this oil issue in terms of whats protected in the north and what is or what isnt protected in the north and whats protected in the south . I think the only Silver Lining i see is some greater opportunity for stronger independence and production out of the kurds out of kirkuk. They have stayed tied to the federal government in iraq for a long time even though they didnt want to. I think production out of there and some ability to get it out is likely to be in the future because theyre no longer going to make believe that the government in baghdad is their real controller. In the south . The south obviously also more shia. I think that production will remain. But as you saw with the lukoil risk and some of the pipeline issues, isis is going to be all over this country. You know, theyve helped fallujah for several months now. I think its going to be very difficult for then to be displaced from certain critical areas. Michael and michael. Thank you for the conversation this morning. Appreciate it. Okay, well when we return were going to talk about a couple things. I did think the apple piece is interesting. In the times. Although, it made me think, i dont know, it is going to be hard to find that next big im i was bowled over by what they did at the Developers Conference as you know two or three weeks ago. I actually have much more it was sort of an overall negative piece on tim cook. I thought. There was another piece i read in there that wasnt bad. What was the other main piece that i read . And my daughter saw that movie and loved it and told me i had to see it and she cried. All her friends cried. Even the boys cried. But shes 14. Anyway, target hit with another computer glitch at the checkout line. Well have that. 14 is an adult. Im with you. Im with you. I feel like im 14. Oh, you do . Happy to be 14. Mental age. And were going to have the details and the response from the retailer next. And guest host thomas fanning from Southern Company as we discuss the energys future. I know what youre thinking. Transit fares as in the 37 billion transit fares we help collect each year. No . Oh, right. Youre thinking of the 1. 6 million daily Customer Care interactions xerox handles. Or the 900 Million Health insurance claims we process. So, its no surprise to you that companies depend on todays xerox for services that simplify how work gets done. Which is. Pretty much what weve always stood for. With xerox, youre ready for real business. Welcome back, everyone. In our head lines this morning, alibaba naming 28 Partnership Members in its new ipo prospectus. That group will have the exclusive right to nominate a majority of the nine member board. The updated filing gives potential investors more information about the ecommerce firms operations and how things will be working afterwards. The companys initial prospectus was criticized for its lack of detail. There was a glitch in targets customer checkout systems causing delays and long lines at some stores in at least five different states yesterday. Courtney reagan joins us right now with more. Thats right, becky. If you can believe it or not another credit card issue at target. Though this time the company says it is not in any way related to security. This video shows several target locations in california that were unable to process credit or debit Card Transactions last night due to what the retailer calls a system outage. Long lines formed at many target locations across the country. Shoppers once again frustrated, taking to social media. This picture from target user taylor or twitter user, shows long lines and notes i keep shopping with you, and your Computers Keep crashing or failing. Literally just over an hour attempting to check out groceries at target. Seriously, guys, stay away from targets today. And lastly, i left the target checkout line, put all my items back, drove to walmart. Bought the same items, and it saved me time. Just before 12 30 a. M. Target spokesperson molly snyder said, quote, earlier this evening target experienced a glitch that impacted the speed of checkout at some of our u. S. Stores. Since that time weve been able to restore our checkout process. Once again, we sincerely apologize to anyone inveesed by this issue. So while we dont exactly know what happened at what part of the credit card Processing System it broke down target again says this is not related to security. But you have to believe this certainly does not help their brand image or shopper confidence. Back to you guys. Courtney, is it resolved . If you go today are you going to be waiting in line . Yes, it is resolved. As of about 12 30 a. M. Target says that it has been resolved. So everything should be fine today. But i guess well see when stores like the one behind me opens up. Courtney, thank you. Joining us now to talk Energy Policy and much more guest host for the remainder of the show tom fanning. Southern companys chairman and ceo and deputy chair of the atlanta federal reserve. Thanks, good to see you. Great to be here again. So lets talk just start big, talk economy, not a great First Quarter obviously. Its negative. So were counting on things to pick up from here. But with the situation now in iraq suddenly oil prices are headed back up. Its always something, isnt it . Value is a function of risk and return. And it looked like we were kind of on a trajectory to get a little bit better in the United States economy. They were calling for 2. 5 to 3 gdp growth and now it looks like you may be south of 2. 5 given that negative reduction in the First Quarter. Oil went to 120, it would even be worse, wouldnt it . Look the event risk around and you think about it so we have afghanistan, and we have iraq, and we have iran, and we have syria, and we have the ukraine. And we have our own issues here in the United States, right . Ive always described our pace of recovery as real but fragile. And i think were subject to event risk more than we ever have been. The beta, if you will, of the worldwide economy is going up. And i think as a result, value is going to be under pressure. Because we like it, like when oil prices go down, we think 0 oh, its bad, because we think the Global Economy is week, and when they go up we think oh, thats good. No, this isnt good. If it goes up for geopolitical, thats bad. Youre getting the worst of both worlds. Thats a loselose. You know theres a bright light in all this. That is, you know ive been talking a lot about National Energy security and the whole bit there. The United States i think has an unprecedented moment with natural gas and with oil and with coal and with a variety of other things. Coal . Were going to destroy the coal industry. Maybe youre not on joe, joe, we need to take this opportunity to keep coal alive. Youve got to get with it my friend. Joe, we developed the technology, were deploying in mississippi where we can im not listening. We can come bust coal. Coal is history. With a Carbon Footprint less than natural gas. And doesnt make sense to me. Joe it has great appeal in china and in poland and a variety of other places. I know. We can be so hydro carbon though, so is natural gas. Not renewable. We can be an Energy Exporter by 2020. The Biggest Energy producer. Now youre going to make her mad. I go back and forth on this. She doesnt want to export. She wants to keep it all right here. No, no, no. The benefits of exporting with job creation, personal Income Growth, is so much overwhelming, to the benefit of just keeping it here. Explain that. How does it work . If were importing National Natural gas and other coal or other things it creates jobs just because its people who are working on getting it because were exporting you mean. Yeah, yeah, yeah. Absolutely. And in fact, my sense is, we can create this this benefit for the United States economy. Its not just that Jobs Associated with mining or the Jobs Associated with extracting the gas out of the type shale formations and Everything Else. My sense is, that Natural Gas Prices, for example, will find their place whether we export or not. And so my sense is, lets not constrain exports at all. Lets pick up all the economic advantages, think about restoring americas Balance Sheet in terms of trade deficits and a variety of other things. You think Natural Gas Prices are going higher regardless of whether we export or not . Is that what you mean when you say find their natural place . They will. Because even at 4 50 say thats what it is today per million btu, whether you export or not they will find a place somewhere in there is my guess. Range bound between four and six is what i think. But if you dont export, what theyll do is quit producing out of the wells they already have, my sense is you create a much better benefit for growing the United States economy, adding jobs, adding personal Income Growth, its the way to go. Yeah. Take advantage of the moment now. I saw something yesterday showed green, dark green was where the most jobs were at in the country. Light green was, and they had the entire map and had what jobs had been lost. You could see it right in north dakota, south dakota, texas. Man, dont get trapped in the idea that the jobs are just associated with the extraction of the resource. In the southeast were seeing a renaissance of manufacturing. Were seeing a Something Like 2. 8 growth in industrial sales. Which is really pretty good. Job also follow that. Youre not ignoring solar, even though its still is probably the least economically so you go nuclear, you go solar, you go coal, you go gas. Youre everywhere. But so solar when you did i mean you just did a deal with turner renewable. Weve been doing that forever. So its viable. You can do a certain amount of homes with that. It helps your portfolio just to be diversified . Well, so heres the deal. Where weve done most of our transactions with ted turner have been where the Solar Resources are strongest. That is probably the desert southwest. Right . So new mexico, nevada, california, a wee bit in the carolinas. Thats where were doing that business. Now andrew what you just picked up on, were the largest voluntary Solar Program in the United States, in the state of georgia. So were doing it kind of in a variety of places. So its interesting. And are you making money or losing money doing that . Oh, gosh were making money. Oh, yeah no, that that business is what relative to every other source of energy . Its fair. Let me put it that way. So heres the deal. About 50 of the economic value of renewables is tied up tax benefits. In other words, eia themselves, i know its crazy, eia themselves have done their own study that shows Something Like for per barrel of oil, whatever, its about 100 times whats accorded gas, oil, and coal, 35 times nuclear. Well thats crazy. But, we take advantage of it just like take the tax credit out. Can you make money doing it . Not in prices in the southeast, heck no. Warren buffett made some investments in this area and hes only done it in part because the tax credits of course. Thats where the advantage wind too because of the tax credit. Ive been on here before talking about tax reform. Ill take advantage of those things as well as anybody else will. But they dont make sense in the National Energy portfolio. We need more nuclear, need more 21st century coal and natural gas renewables. Well talk about well talk about the latest epa stuff, too. Absolutely. But we got to find our way through it. Okay. Tom is going to be with us for the rest of the program. When we come back another squawk newsmaker of the morning, Texas Governor rick perry will be joining us. He is fresh off of a big pitch to get tesla to set up a factory in the Lone Star State. Were moving our company to new york state. The numbers are impressive. 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The company is going to move its executive base to ireland making it the latest deal to involve whats known as a tax inversion. Were going to talk to former medtronic chairman and ceo bill george in just about 20 minutes. Get his take on what this all means and whats it about. Also new zealand may kickstart a race to mine the ocean floor. That country will decide this week whether to approve an underwater iron ore operation if approved it would likely become the worlds first commercial metals mine at the bottom of the sea. Hmm. We continue to watch the turmoil in iraq. In fact, joining us right now with his thoughts on the latest developments and what they mean for oil prices both here and abroad, qri Group President and ceo. He is also the former head of Reservoir Management at saudi aramco. Its great to see you this morning. Thanks for coming in. Thank you. Good morning to all. Good morning. Let me ask you, last week Boone Pickens said that without the oil that we get from iraq he would see Oil Prices Rising to 150 a barrel. What do you think . Well, i would agree. Right now theres definitely a sufficient reason to be alarmed. But no need to be in a crisis mode. I do see the current escalation impact in the order of 5 to 10. If the escalation spills over beyond the borders of iraq, and it becomes a regional crisis, then of course much larger increases can be expected. So, lets hope for the best. Right now were looking at oil sitting just below 107 for wti. And thats something that certainly starts to raise brows here in the United States. But what happens with opec . Will they respond to a situation like this . Or is this still within what they consider to be a normal range . No, i think not only opec but the rest of the global suppliers will be responding. And within opec the main player is saudi arabia and theres definitely Spare Capacity there of anywhere between 1 million to 2 Million Barrels. And we have to put things in perspective, in that iraqs current production is about 3. 4 Million Barrels per day and their export capacity is about 2. 4 million. So, recognizing that there is going to be a diminished capability of exports, say maybe up to 30 , that can be certainly mitigated through various means, through the Spare Capacity coming from saudi arabia. Nansen this is tom fanning. Whats your tense as to the time value of this dislocation potential . How much could the United States make up in what time frame . Well, the u. S. Is producing all it can. Right now its production is around 9 Million Barrels. Texas itself is producing 3 Million Barrels per day. So definitely the u. S. Is part of the global market. And more importantly, is part of the Global Energy market in that the u. S. Is the Number One Energy producer in the world. Just exceeded russia. It produces 22 Million Barrels Oil Equivalent on a daily basis. So its a major, major player, and its production hasnt peaked yet. Certainly in the years to come in the months to come its production is going to increase. So the u. S. Place is a very important stabilizing factor in the Global Energy markets. You know, nansen our International Correspondent Michelle Carusocabrera is in Northern Iraq right now and shes been talking about how the kurds would like to be exporting their own oil. Maybe they dont say it out loud in terms of wanting to be independent but do you think that that is a likely situation . That the kurds would be able to continue exporting the oil coming out of those northern fields . Well, as you know, right now, their export capacity is significantly diminished because the kurd jline pipeline which is a capacity of 600,000 Barrels Per Day has been out of commission since march. So its true that they have a significant production capability right now. Maybe 25 of the total production from iraq comes from the kurd area but the actual export capacity is limited to basically trucking. In the long run theres no question that given the reserves in the kurdistan region, theyre going to be a major player. It all depends on the total instability in iraq and the ability of the kurds to protect the infrastructure that allows them to be major suppliers. In the current crisis, they cannot be a major player. Most of the iraqi production right now its coming from the south unfortunately theyre not very much affected by the current hostilities in central part of iraq. And nansen just quickly, can you tell us what russia and the tensions weve had with russia, and ukraine, what that adds to the picture . Well you know, thats a very interesting play in that people are talking about worse Case Scenarios. One worst Case Scenario would be its almost like a perfect storm. If the crisis between ukraine and russia escalates, its going to be another anxiety among the Worlds Energy markets. So, hopefully thats not going to happen. The worst Case Scenario is that escalation of hostilities between russia and ukraine concurrent with the spillover effect in the middle east, then definitely youre going to see price increases well beyond the 5 to 10. In the short term i dont think these are likely scenarios. The most likely scenario is a relatively limited limonished capacity in iraq, about a 5 to 10 premium over and above whats happening right thank you. Nansen, thank you very much for joining us today. We appreciate it. Youre most welcome. Always a pleasure. Tom you agreed with that. You said that is one of the worst Case Scenarios, where you see much higher if there was renewed pressure drgs Energy Security breeds National Security, breeds economic security. This is just another fact that says we need to pursue a different course for Energy Policy in america. Thank you. Coming up. Let the game of lets make a deal begin with the man behind Morgan Stanleys biggest transactions. Making his way to the table, Morgan Stanley vice chairman. Hes going to be our special guest when we return. Being able to pay as we go is crucial for a start up. Having to fork out a lot of money up front was risky. We can launch a feature really quick, and if the feature doesnt work, we havent lost anything, and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. [ male announcer ] if you cant stand the heat, get off the test track. Get the mercedesbenz youve been burning for at the summer event, going on now at your authorized mercedesbenz dealer. Hurry, before this opportunity cools off. Thats keeping you from the healthcare you deserve. At humana, we believe if healthcare changes, if it becomes simpler. If frustration and paperwork decrease. If grandparents get to live at home instead of in a home. The gap begins to close. So lets simplify things. Lets close the gap between people and care. Lets close the gap between people and care. Means keeping seven billion ctransactions flowing. G, and when weather hits, its data mayhem. But airlines running hp endtoend solutions are always calm during a storm. So if your business deals with the unexpected, hp big data and Cloud Solutions make sure you always know whats coming and are ready for it. Make it matter. 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. In a morning of takeover deals anothers been struck. Communications Services Provider level three is buying networking equipmentmaker tw telecom for 40. 86 in cash and stock. Thats a 12. 4 premium over fridays Closing Price for tw telecom. Stockholders will receive 10 in cash. And 0. 7 of a level 3 share for each share they hold. Is this called Something Else . Twtc before. Its a huge deal, right . I do not know. We should say 2014 of course been shaping up to be acomback year for m a. Joining us is rob kindler, Morgan Stanley vice chairman and head of m a. Youve been involved in a lot of these transactions that have taken place over the past couple of weeks. Can we start with inversions . Sure. Sure. How many more are we going to see . Do you think this is a good do you think theres a policy response . What do you think is going to happen here . Look at the end of the day, inversions, theyve been around for awhile. We did one of the earlier ones with cooper eaton. It still comes down to fundamental value with the deal. People dont do deals just for inversions. The fact is if youre a target company on the other side of these inversions you want some of that value in the deal. So its not exactly like, you know, that for the buyer its all just upside. Does seem like theres a lot more of them. I know theyve been around for a long time. Seems like theres this huge boom. Is that a reflection of u. S. Tax policy . I think theres a lot to that. Heres the question i have. When youre in the board room talking about an inversion, somebody has to decide that the tax policy in either ireland or the uk or wherever, because you worked the pfizer and astrazeneca deal. Im sorry the astrazeneca and the pfizer deal. Somebody has to decide that somehow that regime longterm will always be better than the regime here. At least for the next ten years. What does that math look like . How do people talk about that . Remember these Companies Still pay taxes in the jurisdictions where the income is generated. The issue is in that case pfizer will continue to pay taxes for income thats generated in the u. S. The difference is that there are ways that you can reduce taxes on the cash thats trapped overseas. Do you think there should be a policy response . I dont think its likely nearterm. I really dont think its likely nearterm. Maybe the policy response should be to reduce Corporate Taxes in the u. S. Youre now involved with this valiant transax action. Right. Youre working for valiant. Thats correct. Weve had the ceo of valiant on, do you have an issue or even a question mark about the approach of having an activist investor attached to a corporate in a hostile transaction like this . Well, its part of the strategy and the deal. But the acquire here is valiant. Valiant has been one whos been out front and theyre the one whos buying the company. Do you think were going to see more of this . Bill ackman says hes friends with carl icahn. Do you know of instances where carl or bill or others are talking to companies strategically and saying lets go after x company and do it this way . Ill buy up the shares in advance, well do this . No. Youre a ceo. What do you think . I think its pretty rare. I think thats crazy. You do strategic deals because they make sense. Because there are synergies between the companies. Youve got to think longterm. You dont do deals because you think Interest Rates are low. You dont do deals out of tax policy you do deals because they make sense longterm. I totally agree with that. It all comes down to Intrinsic Value. The fact rates are low doesnt have much meaning. You have to pay the money back. Now the fact is also that the market likes m a because they feel that companies cant get organic growth. But thats still not a reason in and of itself to do it. You know we had Scott Sperling from thl on last week of private equity. He said when he looks around he thinks strategic buyers have a big advantage over private equity at this point. Im not sure why he thinks that. Is it because premiums have gotten so high you better find some synergies in order to make things work . Premiums over market are relatively low by historical standards. Like 46 theres a couple of them. If you look at the average for this year between 25 and 30 . The reason that premiums are lower. The covidien deal this morning was 29 , the reason the premiums are lower is because the market is up. But multiples are up. Multiples of cash flow are clearly up. And the strategics can absolutely pay more than the private equity. Valiant, just back for one second, jim chanos came on. He was short valiant. What does he know that you dont . That was the other piece. From the times. Botox and allergan that was the other piece. Sorry. No segue. That was the other piece. You have to watch the show. It wasnt that positive about allergan. They act like theyre this big r d company and really all theyve done is commercialize botox for everybody. Making your face smoother. Look at that smooth face. You have to put things in context. Its very hard to do a hostile bid. Its just hard to do. And circumstances where you can succeed is it first of all, you are pretty convinced that there arent any White Knights. Which clearly seems to be the case, at least thats what everyone says, with valiant and with allergan. And secondly, if the target has some gap in its takeover defenses which, of course, allergan does, and these things take time and a lot of people are, why is this taking so much time . Look at sinofi, took seven months to get done. There were no White Knights and that companys board could be thrown out. So here its just a question of tell me who the White Knights are. There arent any. This premium is a lot larger than the premium that was paid even today in covidien so the end of the movie is clear. Its just going to take some time. Have you ever done an analysis of how much value at the end of the day created for shareholders via hostiles . You mean from the target perspective . Yeah. Well, look at the end of the day youre going to have a combination out of hostiles with a great big premium you need to earn return on capital. From the youre absolutely right what you said before its all Intrinsic Value. At the end of the day you have to do the math and these things have to be it cannot be financial engineering. It has to be Intrinsic Value and again look at the sinofi transaction. That was tremendous for them. Last time you were on cnbc i think with david faber you said the market m and a market was going to the moon. What does it look like by the end of this year . So far its been driven by large deals. Volumes are up over 60 . Total number of transactions only 10 , 15 . But i think its going to continue to be a pretty good year. By the end of the year well be up 40 to 50 in volume and 15 to 20 in deals. Animal spirits are back. Thank you rob kindler. When we come back we go from deal making to the deal of the day. Former medtronic chief bill george will give us his assessment of the covidien deal thats reviving the Corporate Tax debate. What we were just talking about. Squawk box will be right back. Last year we shone a spot light on whats app disrupting mobile joints by helping its then 250 million monthly users avoid carrier fees. Nine months later it is facebooks largest ever acquisition by far. The social Network Buying messaging service whats app for 16 billion in cash and stock. Today it has more than 500 million users. Whatsapp is a Great Company and its a great fit for us. With a mega deal pending, whatsapp is trying to reassure users their personal information is safe. And that its not interested in launching ads. Who will be next . Find out when we reveal the 2014 cnbc disrupter 50. 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. So i can reach ally bank 24 7 but there are24 7branches . Ork. Im sorry im just really reluctant to try new things. Really . Whats wrong with trying new things . You feel that in your muscles . Yeah. I do. Drink water. Its a long story. Well, not having branches lets us give you great rates and service. Id like that. Experience a new way to bank where no branches great rates. Ally bank. Your money needs an ally. Welcome back to squawk box. A big wean and for deals. A nearly 43 billion deal in the medical device industry. Medtronic is buying ireland based covidien. Joining us former medtronic chief and now Harvard Business professor bill george. Good morning to you, bill. Good morning, andrew. Heres my question for you. You put out a blog last night and i read it. You have come out historically against a lot of these inversions. So the pfizer astrazeneca transaction for example i think youre probably against the valiant allergan deal perhaps for similar reasons. And yet, you seem to be for this particular deal. Why . Well, andrew, i think rob kindler said it well. Its Intrinsic Value. In this case its a totally friendly deal. The ceo of covidien approached medtronic, its my understanding. Its got a perfect strategic fit. They just fit like a glove here and its going to have great value for earnings per share, and Everything Else, and medtronic is planning to use covidien to greatly broaden its position to enhance its r d to spend more, and the issue is to finance the deal they have some 13 billion, 14 billion in cash trapped overseas and they wanted to free that up to use that. Thats money thats earning 1 or less. And i think a lot of Companies Face that. Theres some 2. 5 trillion trapped. They were looking for ways to do that. And this became a vehicle for financing. Thats like number five on the list. Im very much in favor of it for that reason. And i think the real issue here if you want to correct that is, you need to allow companies to repatriate their taxes. Now andrew ironically, medtronic is doing something fairly unusual here. Theyve said theyre going to commit an additional 10 billion to innovation, over and above the strategic plans. Because they see opportunities to do that here. Theyve been a little constrained in r d. Historically you have been critical of inversion. So im trying to understand why this one is somehow different. Its different because theyre not doing it for tax savings. Look, in one other deal pfizer is looking to cut their tax. In this case medtronics tax rate is already 18 since the 1970s. Medtronic has been doing tax advantage deals first in puerto rico. We did a big one in switzerland. Then we bought abe in ireland. Thats not unusual. I think its our obligation to find the overall most appropriate tax rate for your shareholders. Its not to escape taxes. Medtronic is going to pay the 18 . Covidiens rate is about the same. Theres no tax rate savings. But i think it gives the company the ability to free up its cash flow and to use it efficiently to invest in innovation. Real quickly. They dont have to do it as an inversion then. Meaning if its really not about the tax rate you could still technically buy the Company Without the actual inversion process of relocating the headquarters and benefiting from whatever the resulting shift is in changing the status of where the headquarters is. You probably understand this better than i do. My understanding is they do have to do the inversion. Note theyre going to generate about 7 billion in Free Cash Flow. A lot of that is going to be overseas. Omars big plans is to expand geographic and emerging markets. Covidien gives him another 5 billion in international markets. There will be that ongoing 7 billion plus a year of Free Cash Flow. That also would be trapped. I think they have to have a way to continue to do that. To get those numbers, you need to do the inversion. Thats why i was saying i think so. Bill, the old medtronic, i remember those theyre like reverse theyre defibrillators, and im looking at your business at the business mix now, its down at 30 for cardiac rhythm. I assume thats pacemakers and defibrillators. Thats a lot less. The companys already diversified away from being so dependent on that single product. Youre absolutely right, joe. This fits perfectly with the mission. This diversifies quite a bit more with covidien, in a lot of areas, you do the neuromodulation now you still do stents, obviously. Looks like this would help medtronic. There was a time when the defibrillators, that was too big a business or too big a part of medtronics business . I saw that back in 96 joe. Thats why we got into diabetes and we had a weak position in vascular were like third and we had to get to the number one position. But youre right this gets us see medtronics whole strategy is how do you use engineering to implant devices inside people. Now its expanding into gi, into the neural brain the peripheral vascular all the arteries. And so thats the whole strategy. Thats why i say its a perfect fit. And i really admire omar ishraks courage to go for this big a deal. I wouldnt have thought the company would go for a 40 billion plus deal. I cant believe they had something worth 40 billion. I looked at it. When it was tyco when it was kozlowski, man, but i like the business. I didnt like that culture. Man he would have had even bigger party if he knew it was 42 billion. Joe you got to credit covidien for making a Quality Company out of it. I agree. I did a Leadership Program a couple years ago, its a whole Different Company today. Bill george, thank you for your insight this morning. Thank you. Were going to have a live report from the ground in iraq. Where reports say another city has fallen to insurgents. Plus were going to welcome Texas Governor rick perry. The Lone Star State regularly ranked as a top state for businesses. Take on the economy, politics, and more when squawk box comes right back. Weekdays are for rising to the challenge. 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. Turmoil in iraq. The gloam markets on high alert amid reports of rising violence in cities falling to insurgents. A big week ahead for the markets. Economic data and a fed meeting all on tap. And the newsmaker of the hour, Texas Governor rick perry. Go big or go home, as the final hour of squawk box begins right now. Welcome back to squawk box here on cnbc. First in business worldwide im joe kernen along with becky quick and andrew ross sorkin. Our guest host is tom fanning Southern Companys chairman and ceo. When we talk about the atlanta fed youre like the business like you tell the fed whats going on down there. Youre not really i hardly tell the fed whats going on. But youre not loading on papering and stuff like that. Youre telling them how businesses every two weeks we get a recommendation as to hat they should do with rates. And this is ultimately driven into the fomc. They dont listen. This is lockhart youre talking to . Yeah, hes a terrific guy. He is. So he listens to you. When we say youre with the atlanta fed. Youre not really with the atlanta fed. He goes to meetings. He goes to meetings. The fomc they dont have like they say okay these business guys in there. Actually, i would give the fed great credit with trying to get good input on whats going on in the economy. I think theyre terrific. Yeah . I really do. Honest and truly. And the last five years theyve distinguished themselves . Where would we have been without them . I dont know. Well never know. The question is, here again, value is a function of risk and return. How much return did we get . I. E. , how much did gdp grow because we did certain things. How much risk did we take on . Its a fair question as did we take on more risk than the growth warranted . And i think theyre unwinding now the qe position. That makes sense. So you know. You know, if they can orchestrate this perfect story and this perfect narrative then were going to be fine. But there are some people that think that the volatilitys been masked, and that theres some type of imbalances elsewhere. The asset prices are too high. I agree with that. You know, we havent written the epitaph yet on all this and it could be there are people that think its going to be, you know, theres something looming ahead of us, it could be very, very problematic. The 64,000 question no one knows inflation. Other people think it you know it could be a lot inflation is stubborn. I know. And the unemployment number that they keep targeting, they get this my opinion anyway, is a totally false statistic. Right . Because when you count unemployment you count parttime, and all the people that have checked theyre saying that the people that checked out are checked out. So theres not enough people that are going to hold down wage pressures that once we do get a little bit lower half of those people are gone for good. I think theres still then you disagree with kruger, not freddy, allen. I think theres a lot of sloppiness in the unemployment numbers, so that as the economy starts to come back, well still see some of those people come back . Some persistent kind of it would be good to get the participation back up. Look at Household Incomes. I tended to look more at those kind of numbers in terms of my own business. Household incomes arent growing at all. Why . Well for all the benefits that were seeing in industrial sales, which i think are good and will persist over time were seeing much more job growth in the Service Sector much more low paying jobs, much more people shifting into parttime as a result of a variety of external factors. Thats not good for america. Right. We need to restore Household Income growth. Andrew you going to tell people about medtronic again here . Thats assuming that people tune in like on the hour i guess. But we just had a long discussion about it. Tell them again. Yes. I just want to note Something Else. This across the wire, might have crossed the wire, allergan putting out a press release. Remember he worked for valiant, going through a list of people who have said critical things about valiant, so this is his own client. Yeah. And he writes in an email apparent i, my take away is that agn, which is allergan, is not being nearly aggressive enough in going after valiants Business Model and currency. That deal remember partially in stock. So hes saying he wrote them . Apparently he wrote that. I want to get him back on the set. Hes saying that allergan hasnt done what . Hes saying that allergan is not being nearly aggressive enough in going after valiant. And criticizing. In criticizing their Business Model and currency and yet he works maybe he means theyre not being successful. No, no well maybe. I think just reading this the way its described here would suggest something very different. Who wrote the followup . He wrote this email to allergans ceo. When . He wrote that email and to their cfo on may 13th, 2014. May. So when did he get hired by valiant . Literally last week. Well there you go. People can change their minds. People can change their minds. For a fee. All right. In any event i cant believe we found that email. If only the irs had the same Computer System so we could find all the two years of emails i did not. Clearly allergan did. Did you see this . Yeah its unbelievable. They have none of her emails. For real . Okay. Coinkydink there. Hold on it gets better. Part of what he is suggesting to allergan is to allow him to use his relationship with the media and analysts to provide a clear and detailed articulation of why valiant is a house of cards, and your investors should not want to take their stock. Fabulous. And so effectively whats happening here is hes trying to get hes trying to get the business. He can have the business, he was trying to get oh, i just wish he was here. This is just you know what this means, next time youre going to be saying recently he told david faber because hes certainly not going to come back on this show after this. Okay. Well we will endeavor im going to call rob right now. Get him on the line. Maybe we can even have him call into the show. He got hired by the other company. I understand that. But he should have something to say in this particular instance. Say i got hired. You cant come on the show the same morning that this comes out yes you can. That was a name. You change your mind. Dont you . I do. You changed your mind on apple. I did. Yes, you did. Then he should articulate why he changed his mind. You call him in in the meantime back to the situation in iraq. Global Market Reaction to that, too. Our chief International Correspondent Michelle Carusocabrera joins us from Northern Iraq. Michelle . Hey there, becky. Im in kurdistan, northeast region of iraq. And as you can see behind me, lots of cars. Looks like a normal day of work here in kurdistan. Thats because it is because this area of iraq has its own army which is much, much stronger than the iraqi army that we saw melt away and utterly fail late last week. Even though its calm here just 20 minutes away, there are hundreds of thousands of refugees on the border to the west of iraq and also on the border of syria. They are escaping fighting that continues in the western part of the country. 50 miles to the west of here is mosul which fell in the middle of last week and then 100 miles to the west of here, another city fell this morning. Talafar. City of roughly 200,000 which has been taken over by the islamic insurgents. It was a rough weekend here in iraq, as the Iraqi Government said they finally were able to start fighting back. Theyve started releasing video of aerial bombings they say theyve done in the northwestern part of iraq against insurgent strongholds and hiding places theyre saying. Theyve also increased checkpoints within baghdad to make sure that the city remains safe if possible. What is clear this monday morning, is that the long sweep or the fast lightning fast sweep that the rebels promised would happen of the capital city of baghdad, did not happen. So far baghdad remains in the control of the Iraqi Government. Well see how long that lasts, and as you recall we had guests on late last week who suggested it would be tough for the rebels to go that far that fast and hold the city. Were getting more and more reports coming out of various firms in london and wall street about what the impact is going to be when it comes to oil. Energy aspects is a big firm in london. We get a lot of data and help from them when it comes to iraqi Oil Production and they put out a note this morning and say listen, 90 of iraqs products, production and exports remain unaffected because its in the south. We think its possible that in the nearterm brent could fall from the prices that weve seen. But it would be naive to think that iraq may not may be changed forever. And what they mean by that is all these Great Expectations of much bigger production coming online in the next couple of years, the Iraqi Oil Minister in fact last week said that he thought still they could hit 4 Million Barrels by the end of per day by the end of the year. They say they think that is unlikely to happen so that big surge that a lot of people expected in production in the world in the next couple of years unlikely to happen. Right now theyre a little above 3 million, maybe slightly below it. Back to you. Michelle we had a guest from saudi aramco, or used to work at saudi aramco and say the biggest problem theyre facing right now is the infrastructure. Theyre capabilities for how much they could export versus how much they can get out of the ground right now. Yeah. Its completely its still battered from the war. And the occupation when you read the descriptions of the production facilities in the south. The Oil Companies are extremely frustrated. They say so much of it is extremely old. And creaky. And then, for example, they get production up and running, but if theres problems with the weather and they cant get export they have to shut down production because theres no storage facilities. Or not enough of them. They desperately need investment in infrastructure in the south in order to increase production. But this is certainly going to curtail that unless theres some stability in this country sometime soon. Michelle thank you very much. Again thats Michelle Carusocabrera who is reporting from Northern Iraq. And should the president , president obama, consider backing the various rebel groups in iraq instead of Prime Minister al malikis government . Our next guest thinks so. Dr. Peter mansour joins us now retired u. S. Army colonel, former executive officer to general petraeus during the surge in iraq in 2007 and 2008. And dr. , i actually was thinking some of the criticism thats been leveled at the Obama Administration has been that we werent more strident in dealing with syria and that we sort of let that, i dont know the red line kept moving we didnt help the rebels and that caused the instability in what were seeing now. But that would have meant helping the same people, some of the same people that are isis in the first place. But youre saying that necessarily a bad idea. No, no, no. Thats not what i said. My stance is that we should not support Prime Minister maliki because hes the one who created the situation in the first place with his highly authoritarian and sectarian tendencies which have alienated large swaths of the iraqi people. No, what we should do is try to work with the other iraqi Political Parties and all iraqi Political Parties to help them create a government of National Unity that represents all iraqis, and thats the only way out of this situation without iraqs splintering so other sunni groups in iraq that arent affiliated with isis and the kurds . Thats correct. Isis is a very hardline group. The sunnis of iraq will eventually pull away from it. Its too brutal even for al qaeda. It will be too brutal for the sunnis of iraq, as well. So how do we end up getting in bed with maliki in the first place . Well in 2006 we supported him because there were no other options in terms of who to select as Prime Minister. But we had more options in 2010 when allawi won the election, and yet we didnt allow him to try to form a government. Instead, in a back door back room deal in tehran, maliki was given yet another term in office. And he proved to be a highly divisive figure in that country. Can we assume that afghanistan is going to stay stable, or is that everything weve done in the past 10, 12 years, is it all going to be open to question . You mean iraq or afghanistan . Im talking afghanistan now. Is mean is there going to be a similar problem there . Potentially so. I think our great mistake in 2011 was not working harder to ink a deal to keep u. S. Forces in iraq. They were the glue that was Holding Iraqi Security Forces together. And they gave us leverage to moderate malikis worst the worst of the sectarian conduct. U. S. Forces in afghanistan form the same function. And i hope that president obamas relooking his decision to withdraw them completely by the end of 2016. Maybe he is. At this point. Isnt one of the tactical problems we have a lack of consistency in policy . In other words were in and now were out and now theres a void and into that chaos steps somebody like isis. Well, thats exactly it. You know, i was in on the National Security Council Meetings when george bush said that in the future iraq needs to look like south korea. What did he mean by that . 60 years after the korean war u. S. Forces are still in south korea but that country is a vibrant democracy and has a great economy. But it was made that way by u. S. Forces, which created stability. Yikes. All right. So, we were unable to get guarantees about leaving our forces in iraq and youre saying we didnt work hard enough to convince them. So you figure we could have, even though you know when they were being so difficult about it, i can see why we would say, okay, fine. But then its cutting off your nose to spite your face. Do you think at this point were going to send some like special Operations Force in to help coordinate either drone or bombing attacks on the rebels . That remains to be seen. I think president obama said exactly the right thing on friday when he said we are not going to support a government that just takes sides in a civil war. Were going to support a government of National Unity, and so i think that putting u. S. Forces back in to iraq is a long shot right now. Unless the iraqis can come together even advisers . Maybe maybe just use drones and i mean you can see from satellite images where these lines are. Maybe just use drones and use satellites. Actually air power without boots on the ground to target the enemy is going to be not very effective. Then its a problem then because some of our guys are going to be at risk. And if we send manned planes were going to have to worry about a downed pilot. And god knows what they do to him. Anyway dr. Mansoor, appreciate it. No easy answers. No easy answers at all. The crisis in iraq has the attention of wall street. Chief investment strategist of Charles Schwab on the biggest investments facing the markets. And then doing business in the lone state. Texas governor rick perry is going to be our very special guest. Is that the lone state . Lone star state. Lone star state. The Lone Star State. They are kind of they are alone. They want to cede. They may. Earch reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Call or click to open your fidelity account today. Thats keeping you from the healthcare you deserve. At humana, we believe if healthcare changes, if it becomes simpler. If frustration and paperwork decrease. If grandparents get to live at home instead of in a home. The gap begins to close. So lets simplify things. Lets close the gap between people and care. Welcome back, pv joining us is Liz Ann Saunders the chief investment strategist and Senior Vice President of Charles Schwab. Liz ann its great to see you this morning. Hi, becky. How are you . Good. I know youre concerned that we could face some geopolitical risks. But i think whats interesting is you also believe we could be looking at a meltup under some scenarios. Thats been one of the risks weve been writing about for much of this year. I think that sentiment is frothy enough, and theres enough momentum in the markate. Now sentiment is also forthy enough that it makes the market vulnerable in the shortterm to any kind of exogenous risk whether its geopolitical. Obviously the relationship to oil prices, or i even think the cantor news last week may have caused some problems. I think it would be healthier if the market had more of a consolidation here. If i had my choice i would prefer a correction versus a meltup. Correction of 5 to 10 or you thinking a bigger move . Something in 10 i think would be fairly healthy. It would be less than your typical Midterm Election year pullback since world war ii its averaged about 18 . Usually concentrated in the middle part of the year. And then you add in the normal annual seasonals, and this is a particularly tricky time for the market. I guess the good news is, particularly for someone who doesnt think its appropriate to try to time around Something Like that which i wouldnt recommend is that we are moving into what is historically the strongest several months for the market coming out of this both if an annual seasonal perspective as well as from an election cycle. Does that mean you think things are overpriced, its gotten frothy. Do you think that youd be telling people even though you dont say to time it to hold off for now . First of all i think its sentiment thats a little bit frothy. Valuation not so much. Word of medium valuation either on a trailing or forward basis. Bull markets dont tend to end at medium valuations. I dont think thats an impediment. With Earnings Growth close to double digits, i think those fundamentals are enough to keep the market going but sentiment is a little bit tricky. If youre itching to put money to work you may want to wait for a slightly better entry point. The problem is that some of these Midterm Election year pullbacks the rallies that tend to happen after them can happen at a fairly fierce manner so of course trying to time the market means youve got to get out at the right time and back in at the right time. Maybe keep the cards a little bit closer to the vest in the near term. I certainly wouldnt suggest taking everything out now in anticipation of some pullback. It does seem like a really unusual time in the market when you consider we just had this, you know, negative correction in the First Quarter. We have stock prices testing some recent highs. We see all this event risk everywhere. And yet we see the university of chicago uncertainty index after being very high coming down, the vix at an alltime low, or recent low, it just seems like there is an inequality as to perception and reality in the market. I think that it suggests that your kind of prediction may be true. You know the sentiment environment is really amazing. Because we talk about sentiment being frothy and we can point to things like American Association of individual investors. Or Investors Intelligence market, ratios any of those normal measures suggest that optimism is efx teamly elevated. Interestingly, and i hear this gallup does a survey, theyve been doing it since the late 1990s that asks a simple question, do you own stocks in whatever form. Individual holdings through a 401 k or i. R. A. , through mutual funds. And last years reading at the end of last year was the lowest in the history of that survey. So its almost like people have decent exposure to show that w households are a little bit overkate. Theyre not even willing to admit it. I think there is a big spread between shortterm sent imand those traditional measures that show elevated optimism and still this kind of skepticism wall of worry longerterm. I think thats what will keep this bull market afloat. The challenge there is where else do they go . Right. And thats the purpose i think of Central Banks certainly the fed is to make, you know, safe investments so yields force people out. I think from a business perspective were going to sea that. Were starting to see animal spirits kick in, ceo confidence is up. Even nfib confidence is up. I think that thats the next positive fundamental story. Maybe not imminently. But that were going to see a shift toward Capital Investment and away from just returning cash to shareholders. And i think that will be an ultimate support for the market. But nearterm, im a little cautious. All right. Liz ann, thank you, great to see you. Good to see you guys, too. Okay, thanks. Secretary of state kerry on the wires says that the embassy in baghdad has a security it needs. He says that the u. S. Is deeply committed to the integrity of iraq as a country. He says the maliki government must do a better job of reaching out to other sectarian groups and this is the one that got my attention. Drone strikes may well be an option to stem their advances in iraq, and drones are interesting. Arent they . They talk about them all the time. But strike terror in the heart of the guys here they come. I mean but as we just heard its not effective if you dont have boots on the ground. I dont know whether i believe that. I think you could see from satellites you could see columns of these guys. And send a drone in, its neat, its clean. Where is kerry speaking . Actually a yahoo interview. This is the katie couric interview . First interview online on yahoo and theres been, you know, this is her next move. Kerry says the u. S. Is open to discussions with iran over the conflict as well on iraq. Well have much more squawk straight ahead. And if i tap my geico app here i can pay my bill. Tap it here, Digital Insurance id card. And tap it here, boom, roadside assistance. Ontday ooklay, its axwellmay. The igpay . Otallytay. Take an icturepay onephay, onephay really, pig latin . [ male announcer ] geico. Anywhere, anytime. Just an aptay away on the geico appay. Coming up, the short and longterm impacts of the iraq turmoil on oil prices. Plus, Texas Governor rick perry. Hes going to join us in just a couple of minutes to talk about the economy, taxes, and the business in the Lone Star State. Welcome back to squawk box everybody. Hill shire Brands Taking another step to complete being bought by tyson foods. Hillshires board has withdrawn its recommendation that Shareholders Approve the deal to buy pinnacle foods. That was in place before pilgrims pride and tyson offered to buy the company overall. The company is going to have to pay pinnacle 163 million as that breakup fee. But again, theyre withdrawing that, and that was a condition for this deal to go through. Level 3 communications is buying networking equipmentmaker tw telecom for 5. 6 billion in cash and stock. Tw stockholders will get 10 a share in cash and 0. 7 of a level 3 share for every share that they hold right now. That deal is valued at 40. 86 a share. Thats a premium of more than 12 over fridays close. And one more deal to tell you about this morning. San disk is buying hardware and Software Developer fusion io for 1. 1 billion in cash or 11. 25 a share. Thats a premium of about 21 over fridays close. On that level 3 deal, Southeastern Asset Management is a big shareholder of both. They have been active as activist investors and i wonder and im only speculating whether they had any kind of a match made . Something going on behind the scenes. I do not know. Lets continue to talk about whats going on in iraq and monitoring the latest developments out of iraq. U. S. Secretary of state john kerry saying drone strikes, quote, may well be an option to stem isis advances. Lets talk about the impact of the situation on oil right now. Joining us, leah mccroft the head of north american Commodities Research at barclays. Before that she was the intelligence fellow at the council of Foreign Relations as an analyst at the cia. An analyst. And youre not an analyst anymore. I dont have a gun. You dont have a gun. Are you not on the payroll . Do we know . How do we know . Id have to kill you. I think you may. Thats the normal answer. So walk us through the permutations. The thing about the iraqs oil market its opecs second largest oil produce ep. Everyone is concerned if you have some supply disruption. But nowhere outside of north america can you add so much crude to the market as iraq. The iaea came out last year and said 45 of new supply growth over the coming decade is supposed to come from iraq. If Oil Companies are afraid to make those investments youre going to have a much tighter market over the medium term. Weve heard in the shortterm at least in the north we might see more production. Is that right . This is the interesting question, does kurdistan walk away with it all. Youve seen the kurds move into disputed trorts like kirkuk, which is a Major Oil Field and the question is will this be the signal for kurdistan to walk out of the Iraqi Federation . You had a previous guest on talking about kurdish exports. They have an independent pipeline to run to turkey. Two tankers loaded with 2 Million Barrels of crude. The question is is the u. S. Going to potentially get behind independent kurdistan. John kerry says no but we have to see. What would turkey do . There are kurds who live all over the region. Turkey has done more to empower an independent kurdistan than any other nation. They allowed that pipeline to be built over the objection to the u. S. We said dont build it, it will undermine the unified iraq. What are you going to do in terms of developing storage, other infrastructure, pipes, Everything Else, in order to hit the kind of numbers that youre suggesting . This is the great question. Because iraq was looking out, they projected to export. Theyre doing about 2. 5, they say they would go to 3. 4. There was no way theyd go to 3. 4 without additional storage pumping station and the question is a will the Iraqi Government devote the funds now theyre having to deal with a real insecurity threat . Will Companies Put the money in . Theyre taking their employees out right now. Give us a sort of shortterm play right now if youre an investor. Shortterm you really do not want to watch over the next couple of days if you have any threats to the Oil Facilities down south those companies are starting to withdraw those workers. If you have anything happen down there, even bombs in the vicinity, that will send prices much higher and saudi arabia has a Spare Capacity but thats about it right now. So whats much higher . Much higher you want to watch. If you have a facility go offline after what happened in algeria with that facility being attacked i think a lot of companies will preemptively shut down. So it wouldnt just be what happens at one facility its what the other companies do down south and that would be a significant move up in prices. You say significant, you want to put posit a number . Boone pickens said without iraqi oil wed see wti at 150. You would be north of 120. That would prompt spr relief in the u. S. The question would be how fast can saudi arabia bring on additional bashes . Whats the answer to that . We think saudi has an additional 2. 5. But how fast can they ramp up Uncharted Waters . Okay. What do you think of this . I sound like a brogan record. I think the United States has the ability to respond given the right Energy Policy. Build the pipe, develop the resources weve got, and make america stronger. Improve our national deficit, Everything Else. Look i think the advantages of us stepping into this void, if you will, is enormous to the United States economy. It could add 2 to 4 gdp growth, add 3 million jobs by 2020. Okay. Do people know you in the cia . Yeah, i know if you google me i used to work there. You didnt have a cover or anything . No, i was an analyst. When i would go overseas i wouldnt say hey, im an analyst for the cia. What was your cover . I cant say that. You did i said i worked somewhere else. Yes. In the u. S. Government. What countries were you in . I was the economic analyst covering west and central africa. I had another unstable, unreliable oil producers. So im used to supply disruptions. You didnt bring a gun here. Did you used to have one . No. Id shoot my foot. Was your whole body a helpen . No unfortunately. You dont know karate . No, i could write. Were fascinating by people that were in the cia. You can see that. Yeah, i know. You may still be. Your name is croft. It is croft, yes. Not related to lara croft. Not that i know of. Not that youre aware. That could be a yes. You know what to say and what not to say. Thank you. Thank you so much. Squawk newsmaker Texas Governor rick perry cia headquarters. Always working hard to attract more business to the Lone Star State including a big pitch to tesla. Were going to hear about that and more when squawk box returns. Over 1. 2 billion eyeballs are on us during the two weeks at wimbledon. True tennis fans want to know whats happening, they dont want to just see whats happening, they want to know and understand why its happening. 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Our next guest no stranger to making head lines, including a high profile pitch to recruit tesla to build a factory in his state. Joining us now is rick perry, governor of texas. Great to see you, as it always is. And if i were tesla, ill tell you id be very attracted to doing business in texas. But the first thing i think of is that i cant have a dealer or i have to have a dealership in texas. And it would be like quid pro quo id say look i dont have dealerships. Let me operate the way i want to operate and i might build my factory there. Well, and i think thats a legitimate conversation to have. If you want to lure companies youve got to be competitive, and if you have laws in place that Keep Companies from being competitive, theyre going to go somewhere else. So as the legislature comes back in in january. My bet is theyll probably have that conversation. Interesting. So then, then you are open it wouldnt be a deal breaker if they were to insist on that. What else can you offer tesla and you can make the sales pitch right now that i think theres three other states in the running, right . At least three others. But i think its down to probably one or two at this particular point in time. The pitch has been being made now for a decade to come to the state of texas, youll have taxes that are reasonable or regulatory climate thats fair and predictable. A legal system that doesnt allow for oversuing and a skilled workforce. No place in america, with due respect to the other 49 states, has been able to do economically what the state of texas has done. So, for tesla to go anywhere else, theyll be taking less of a deal, whether shortterm or longterm, and eli musk knows that. Its one of the reasons hes looking to texas to place his launch facility for spacex as well. Nevada looks pretty good. You figure you got the inside track right now . How do you handicap it. You think youre going to get this . We always think texas is the best place to be, sure. The fact is we thought that on other projects, and they havent chosen texas. Well get our fair share. We know that. But the states are in competition with each other. Whether its rick scott who was a great guest last night, and very gracious as the san Antonio Spurs won the world championship. Oh, yeah, i forgot about that. Every day hes out there, as well as nikki haley, pat mcrory, john kasich, bobby jindal, theyre out there working host of other red state governors are to come up with regulations and policies, tax policies, that make their states more competitive. And that tenth amendment concept is what will make America Great again and make america competitive in the world market. You have a big border with mexico and you saw what happened to majority leader eric cantor. What did happen to majority leader eric cantor in your view . My bet is when you get right down to it you didnt spend enough time in his in his district. I mean, politics are local. Politics always are local. If you go in to the district and explain your positions, even though they may not agree with them, theyre at least willing to give you a hearing. When i think about what occurred across the country, Lindsey Grahams positions werent necessarily different from eric cantors. He won overwhelmingly. And he spent a lot of time in his district. Which is very good and thoughtful campaigner. And what is your solution for this . I will tell you that there are some people on the right that say that the only reason republicans are playing ball on immigration is because theyre worried about not getting the hispanic vote. And not winning another election. And in their heart of hearts they really wouldnt want to do anything. What should we do . Secure the borders . The a word. What do we do with all the people that are already here . Then you got guys like jeb bush saying its very obvious why parents want to bring their children here, because its an act of love. Where are we on this . Not we, where is the Republican Party on this . Where are you on this . Well, let me back up and address this issue of getting the hispanic vote. We do a pretty good job of that in the state of texas. I get somewhere between 40 , 45 of the hispanic vote over the course of the last three times ive run for governorship of texas. So its not out of the realm of possibility. They look at issues like everybody else. Which one of these candidates is in the best interest of my economics. Which ones going to keep my community safe. Which one is going to allow my children to have a great future by making access to Higher Education available and affordable. Those are the issues that matter to the hispanic voter across the country. Now, relative to the border, its really fairly simple. Secure the border. We have been having that mantra with this administration for literally years. We have spent upwards of 500 million augmenting the Border Patrol and local Law Enforcement along the border in sectors. When we surge into a sector we can shut down the illegal activities that are going on there, whether its the drug cartels or illegal immigration. That must be addressed first. This administration is absolutely, i think, stonewalling americans by not putting the resources on the border to stop the tragedy thats occurring there with these children and obviously all the other illegal activities ongoing as well. About a year ago, speak of eric cantor we had him on and had a little extra time at the end so i asked him about marriage equality, and he weighed in with me on his view that everybodys opinion should be honored, and his view that he was against it because, with his religion he didnt think it should happen. I said eric no ones asking you to marry a man. Why does it matter to you if a gay couple wants to get married. Now more recently, leading into your comments, im not can you explain what happened in san francisco, and just what were those comments about homosexuality with i dont think your representative was available to comment on it so i dont know if youve commented on it. But what were you talking about. What did you mean . Well, the grander conversation we were having was a tenth amendment conversation where we were talking about states being able to decide these issues. And frankly thats what i think we need to be focused on in this country. Is allowing the states, whether its these onerous epa regulations or whether its issues that deal with education or transportation infrastructure. Are samesex marriage. States should be able to make those decisions themselves. By the majority of the people in their states making the decision. The idea that one size fits all coming out of washington, d. C. Is just its not going to work. If texas decided that gay marriage was okay, youd be all right with that . Well, texas has made the decision on that already by a vote of over75 . They said that marriage is between one man and one woman. And i respect that. And i respect whatever they want to do in california, or new york. For that matter. Okay. In terms of comparing it to alcoholism. Thats what got all the play, and i dont i have a really high bar for what i would take offense to. But that would exceed the bar for me on being an offensive comment. I dont think gay marriage leads to cirrhosis of the liver or Domestic Violence or dwis. I dont see how thats similar. I understand. People have different opinions about that. The interesting thing for me is that this conversation has always been about the states rights to make decisions on this host of issues. And the idea that somehow or another washington should be given total and full ability to make i get that. But in terms of changing the behavior of someone. I dont think you wouldnt think that someone whos heterosexual, that you couldnt change them into a homosexual or someone who is homosexual, you dont think that there should be therapy to try to change them into a heterosexual . You know, i dont know. The fact is, well leave that to the psychologists and the doctors. The psychologists theyve already weighed in. Theyve dismissed the idea that Sexual Orientation is a mental disorder. And theyve told their Mental Health professionals to avoid telling clients that you can change your sexual orient i was thinking for us, conservative, if i could change big government, high tax progressives into fiscally thats where i would work. Thats the kind of people well, and thats exactly what we were talking about in san francisco. If i had to change someone and we got deflected off onto this other issue that quite frankly is a very contentious issue so i go back and talk about the focus needs to be on creating jobs, and creating the environment in this country. Right. That people can, you know, find the places they want to live. Live under the rules if they want to live, and thats being constricted substantially by a president thats basically putting epa regulations into place that are strangling this country. If you were to run again, you would not there are upstanding gay couples, good citizens that are good parents, that and you would agree with that. And these are people that are going to be with us forever. Just seems like the Republican Party is going to be forever behind the curve on issues like this. And it doesnt help the party win elections. I dont necessarily condone that lifestyle. I dont condemn it, either. Were all children of god. And the fact is, that people will decide where they want to live, if washington will respect the tenth amendment. And i think that will make america substantially happier. Happier if they will respect that and allow people to decide how they want to live and under what rules and regulations. All right. All right. Fair enough. Fair enough, governor. Appreciate your time. Like i said, i know who i want to change. Its simple. I dont care what your Sexual Orientation is or anything else, personal freedom, earned success, individual initiative, small government, low taxes. Sounds like you need to live in texas. I need to come live in texas, too. I dont know. Appreciate your time. Thank you. Welcome. Godspeed. Coming up, well head to the floor of the New York Stock Exchange and cramers there. The deal of the day between medtronic and covidien. More coming up. Fame, makes a man take things over fame, lets him loose, hard to swallow fame, puts you there where things are hollow the evolution of luxury continues. The next generation 2015 escalade. Fame thats keeping you from the healthcare you deserve. At humana, we believe if healthcare changes, if it becomes simpler. If frustration and paperwork decrease. If grandparents get to live at home instead of in a home. The gap begins to close. So lets simplify things. Lets close the gap between people and care. Lets close the gap between people and care. 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. Welcome back to squawk box. Alibaba, highlights showing that ecommerce giants top line growth slowing. Revenue rose 52 in the year ended march 31st, down from 72 in the year earlier period. Margins did improve. Shares of yahoo down on news. Yahoo hones 24 stake in alibaba and is expected to sell a chunk of that through the ipo. Lets get down to the New York Stock Exchange. Jim cramer joins us now. We had some fun, jim, earlier, we had that was classic, with the allergan valiant deal, wasnt it . Yes. Kindler on. Now representing valiant. Valiant. But was trying to get the business of allergan, sending emails to the ceo of allergan saying you should be going after valiant for its currency and other issues. That release crossed literally maybe minutes before we ended up having him on the program. We know how it works. If youre representing valiant, you see the benefit of the transaction. Youre benefiting allergan, thats what youre getting paid for, right . Theres no absolutes, are there . Hired guns like lawyers. Lawyers argue one side, find themselves the opposite on another side in the case. Yeah, its hired guns. This remains one of most controversial deals ive seen because a lot of people feel if allergan were to come out and do constantly hammer valiant, valiant stock would go down and there would nobody deal. One well be talking about for a long time. I dont know what i read the piece in the times the other day, they can be very sort of high and mighty about their own research and development at allergan. You look closely, they got botox, extended what its used for and Everything Else but its not like the rest of the company has just been a standout in developing a lifesaving therapies either, jim. They have a good on logical. Allergan was talking about challenging reagainer on, for the Macular Regeneration drug. Botox sounds like product extension but migraine, incontinen incontinence, it does have something that allergan, if they didnt spend a lot of money, may not have discovered. They spend more than any other drug company and the fastestgrowing drug company. They say its r d that makes it happen. See you in four minutes. Very good. Thank you. Coming up, more from our guest host, ceo of Southern Company, tom fanning, back with us in a couple of minutes. 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. [ girl ] my mom, she makes underwater fans that are powered by the moon. [ birds squawking ] my mom makes airplane engines that can talk. [ birds squawking ] my mom makes hospitals you can hold in your hand. My mom can print Amazing Things right from her computer. [ whirring ] [ train whistle blows ] my mom makes trains that are friends with trees. [ train whistle blows ] my mom works at ge. Let get back to our guest host, tom fanning, Southern Company, Energy Companies have a good of whats happening. What do you see from customers . Starting to see a continued, sustained improvement in industrial sales. Now what were seeing is that the industrial sector, while its growing at about a 3 clip in the southeast still is not adding jobs. All 0 the job growth coming in the Service Sectors. So what we see now is this issue of personal Income Growth which is going to sustain improvement in the economy, being relatively flat. So what we want to do is add the good, highpaying jobs in a sustainable way. Thats going to make the economy take off. I wish we had more time with you. Always appreciate when you come in. Great being with you guys. Tom fanning, thank you. See you in as spend. Absolutely. Join us tomorrow. Squawk on the street begins right now. Im willing congratulations to the 2014 nba champion san Antonio Spurs. Good morning. Welcome to squawk on the street. Im david faber with jim cramer live from the New York Stock Exchange. Carl quintanilla is on assignment. Lets give you a look at futures this morning, as we head to the first day of trading of course of the week weep lo. We look for a down open reintroduced the term volatility last week, of course, with the unrest in iraq being perhaps the leading, not the only, but the leading