Transcripts For CNBC Squawk Box 20140708

Register receipts at the retailer. Dont miss the walmart exec on cnbc later this morning at 11 45 eastern time. Samsung is on track to have its worst results in two years. The company says it saw Better Business conditions in the Third Quarter, but cautions it faces slowing Market Growth and intensifying price competition at the lower end and a looming threat of apples next iphone. In other tech news, at t announcing it will be the first carrier to sell the lg smartwatch. It answers to voice commands. It goes on sale friday. I saw this the first thing this morning when i opened up the wall street journal. 125 years. What a great editorial page. Three people, freeway markets, ideas for renewing americas prosperity, really good stuff. Articles by peter huber on Molecular Medicine and paul on getting out and away and, you know, peter darker saying listen to peopler drucker. But really good for the environment were in right now which apparently is spurring young people to become conservative. According to the New York Times. What were thinking oh, here is what i was going to say. You know, i saw that and i was thinking, i dont know, incident doesnt man youd like one of those. It looks like youre carrying a tv set around on your wrist. It may be functional, but see how they put it with some bangles. I feel feel like you theres two different back pages on the journal today. Oh. Yeah. They have to figures this out, dont you think . Three pages samsung paid for. But you dont want to buy the first one. That is hidzus your wrist. I wouldnt be caught dead with that thing. Not that id care. Not that i would care whether i look good or not. But theyre trying to say, hey, wear this and you can wear it with your bangles and people are going to say, thats good. But that is ugly. Anyway, a new Government Survey finds roughly samsung is going to be a sponsor . Did i just not any more. Let me just rethink this. No, i would never unless its comcast or universal. 4 out of 10 people have dropped their landline and now use only cell phones. The report finds that the pace of dropping landlines does seem to be slowing. We move to another place. We did not do anything with the phone line. No landline . No landline. So were fully a wireless the only reason to have a landline is during a blackout. Even then, you need to have the original old style phones that will work you need a landline. You need a lapped line. A landline and a glock. You dont even thinking youre allowed to even imply that that would be okay these days, so im going to take it take it back. No. Second amendment still in force . Is it . Theyre saying because he wants nationally to look more conservative, but he says he looked at it and thought about it long and hard. I love that. You know who i have for delivering i do. They dont put him i mean, those are good people, but im sorry, who do you have carl. How did you get him . I have pull. You must be doing late afternoons. Hes a closer. No, but what i mean about later, he doesnt get out early because hes up every night. I love carl. But, you know why christine . Thats awesome. Thats unbelievable. Lets check on the markets this morning. A lot of people talking about 40 points yesterday and having a hissy fit on 40 points. It bridges us down on the dow to 17,024. We do have to talk about this New York Times piece, which im not immediately going to dispassenger, by the way. Are you going to give it a few seconds . Im not going to say theyre wrong. I think its interesting that from stock to farmland to assets, everywhere around the world yep. Where he surprised inspect giv . Given the question of how this money has been spent this is what they ask. Is this equities i wouldnt say that. I think they make a legitimate observation. I think its interesting that the journal, on the same day its a 125 year anniversary. But the journal focusing on where he righting the ship in terms of getting back the private sector and small government. On the editorial page. On the editorial page. And at the same time theyre related. The reason that the New York Times is able to write this story in a Balance Sheet recovery, this is a Balance Sheet induced recovery, right . That doesnt cause productivity, doesnt cause wage growth. I thought walmart, be careful what he says. Because the consumer doesnt have any money. Its like, what do you pay your people . Theyre immediately going to ask that question. You have a million employees youre paying just above minimum wage. And you wonder why the economy is not better . And a question in the context of that, here we are at 17,000 plus on the dow. How can this be . Is it justified to be where we are relative to the where the economy is and how people are filing fwhr own existence . Every time she does that, you dont know whether thats addressing the problem or causing the problem, right . Or leading to this. This is an incredible urban office towers, fireland, you name it and it is trading at prices high by historic standards relative to fundamentals. Thats the New York Times. Holy smokes. On the same day they write among people might be done servive. Thats not just an observation, thats a warning. We need to do something quickly to stem this. Yes. We need to do something quickly to make sure it doesnt contin continue. Where is our New York Times defender . Youre not sorkin. Nope. Youre wapner. Thats really weird. Okay. No, i think he and becky are out for the rest of the week. You dont mind getting up . Thats another story. President obama did they present it to me as a choice . President obama is heading out west on a threeday trip with stops to denver and washington where on thursday hell deliver an economic speech. I know this morning opening up all the paces. You got the journal. Then youve got the New York Times with this asset bubble story, which i often wonder what the times, john, i understand if theres some horrible event that that becomes the lead. I dont know how you decide to make this the lead. What causes this on any given day, now were going to watch the lead story that assets are too high . How do they determine that, when to do that . Youve got New York Times on the brain, man. Can you just answer the question . Youre obsessed with decisions made by the New York Times. This is a financial network. Theyre saying every asset is overvalued and ready to pop. What do you want to talk about . Maybe get the Approval Ratings up a little bit . What do you want to do . I want to see whether washington is going to do anything about this Child Migrant issue and also about the va. Weve got what hearing about whist whistle youre going to have this back and forth about whether or not we have to change the Immigration Law to slow the flow of children coming from Central American countries and did you read the front page of the New York Times . I have the New York Times on the brain, john, but they actually do a big article on the surge in children isnt that theres more children, its an unintended consequence of this trafficking legislation which gives them more. So its not that theres more kids, its just that, i guess, we dont do to them what they used to do to them. Well, its a bunch of things. Its the law, its maybe that the consequence of the administrations to stop people. So its a whole lot of things and its an argument for why we need comprehensive immigration reform. Were not going to get it soop, but the pressure over time to make that happen, whether its under this president or earn the next president. Every time he is thats coming. Going to do something. Every time seems to know that. Hes got an argument with some members of his own party as well as republicans, Dianne Feinstein in the story that michelle was just talking about mention dollars that she believes there is discretion theyre saying if you got into the company through central america, lets say, you have the right to the least possible. The Administration Says no, wait, we have not procedures for sending those people back. The secretary says most of those kids will not meet the humanitarian guideline toes stay. Does the administration need a laub to send them back or can they do it on their own . Weve seen the authorities do this. Now theyre going to do so now we dont quite know. There are numbers about what previously how many what percentage had been sent back and recently had been september back. Is that as simple as whats happening . Well, the trick has started over the last few years. So its not just since years out. What knows what countries are wondering and trying to get across the border while president obama is in office as opposed to a different kind of president on or someone with a different policy. I cant pretend to understand exactly how this slow is going and i dont care the administration starts, either. John, how does the white house manage the Political Risk in all of this . Mainly the president picking a fight with his inn party. You know, theres Political Risks everywhere you look for the administration these days. The diane fine tien Social Security congress to handle it, to beat up the proceedings. Reb, the criticism of them, which has now come on a broad front, which is when it comes to foreign policy, was going on in syr syria, whats going on in iraq, when it comes to the veterans administration, when it comes to this situation, the administration is unable to command and control and its being sort of overrun by events and its not confident elite. We saw that in the last poll, the minority of paying they cant how old are your with it within john . Service southbound 20, 24, why teenagers today may grow up conservative. Now, i dont know what type of values youve instill theyre at an age where theyre probably making some decisions. Im doing my what are you trying to do . Just trying to in still inst market, private sector, small government. At the end of the century, the 20th century, it was 7 of gdp zb john. It seems like weve expanded a little bit here. But i says theyre, team are look young to remember w. Bush. They instead and youre not going to like this, john, they instead are coming of age with the democrat president who often seems unable to fix the world each problems. And as a result, in her consumer. But although at what ronald regularace said pa years ago. Hispanics are republican, rejust dont know it. I think most when they have a chaps to do much better with the latino vote for the reason that Ronald Reagan taungd about. There is an underlying and michelle can speak to this better than i can, but theres an underlying yes. Conservativism. If they think republicans are not on their side, theyre not going to activate those sentiments. Interesting piece in the in, times this morning, john. Anyway, doesnt he workport did. I take my queues from my own experience and not necessarily from the front page decisions or inside the paper decisions. Were going to focus on your daytoday at 7 00. Fairway wsh Risky Business for the ce of of bernburge ron,. During the cadillac summers best event, lease this all new 2014 cts for around 459 a month or purchase with 0 apr and make this the summer of style. News on the m a front this morning. Doug buergeron, founder of opis Global Holdings is joining us. Hes executive chairman of hyperios. Good to have you on. Good morning. Hyperios is the leader in third party oversight, which is a real gel were doing there. We just adwyered them. And they allow the fortune 500 to have better oversight, included oversight over their third parties. If you look at companies likes goldman sachs, they have 20,000 or 30,000 Third Quarter that do their core business for them. Interesting. So its comply wrans with compliance based on those third parties. You dont actually run those businesses, yet they bring with you because youre doing business with them. Its the concept of a few things. Number one, american corporations have joutd sourced almost everything but their Core Competencies to pb if they dont what you say youre going to do, theyre going to fine you and put you in jail. Its an ability to model and see what your third party is doing. I got a little depressed riding about your company. I got excited reading et no, alcoa, charles schwabb, condoleezza, microsoft, you a those people i get involved with. Hyperios is heading for a number of other companies. Was opus anything before you you put it together recently. Sure. So was it like a shell backed by private equity to ir choir things and build something new . The management started off with a 4 billion fund in chicago and myself. And weve been looking for hot fast growing risk and compliance assets for the past month. I would like to start a firm where me, with your money, they decided to do illustrate. Do you dream for an elizabeth warrant compliancesies . The concept of it makes me a little bit ill. But i think we are living in a world where fines are increasing, regulations are increasing, and penalties are increasing. But its tough to live in a big Builders Society as a corporation when youve outscattered showersed everything. Big brother is watching everything youre doing, but what youre doing isbying done by others and youre responsible for it. How much do you have left to buy other things or is this going to be your main asset . No. Were going to redy employ 500 million in capital. Other companies that you want to buy inspect. The interesting thing about risking compliance is most of the new companies are smaller, theyre just gaping transaction, theyre under 100 million in revenue because of the most requirements are new. Todd frank is only a pew presence. I dream of creating a great broad shouldered pits. Between facebook, apple, twitter, haas has the biggest chance of making a dent. Apple has the largest number of users. However, to predict that apple is going to do from the outside is absolutely impossible because theyre so obsessed with privacy and keeping things to themselves. But i think apple perhaps they i dont think twitter. Dealing with compliance regulations, its different than writing them and enabling them. Thats like a firm that does your tax work, making them for the taxes or something. The poor guy feels ill and im handling that. They give you as much i thought it was weird the other day when the president said we need to reign in financial firms. Didnt they do that already . I hear lots of stuff out of washington that just makes me turn in fact, they i think its cool to be able to. We could go together and we celebrate our sickness, we do. Thank you. We should buying a hoagie together today and split it. Weir hungry. Coming up. The bulls, will they get next to the area. The wall street journal turns 125. Were mark that occasion at 7 00 a. M. Eastern time. As we head to break, we take a look at yesterdays winners losers. horn, ding, ding how long have i had my Car Insurance . I dont know, eight, ten years. I couldnt tell you but things were a lot less expensive back then. If youre 50 or over you should take a new look at your Auto Insurance. You may be overpaying. Actually that makes a lot of sense. Old policy. Old rates. 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You wont drop me, you take care of me as well as my car, and you offer savings to switch. Its unbelievable if youre 50 or over call now to request your free quote. Im gonna call. Im calling. Im calling. Im calling. Call the hartford at the number on you screen to request your free quote. Well even send you this free calculator. Call now. Why wait . Good morning and welcome back to cnbc. Joe kernen with scott wapner and Michelle Caruso cabrera. Becky and andrew are both off today. Homeowners have received about 1. 3 billion in cash under the federal mortgage settlement. The firm settled over alleged misconduct in the processing mortgages business that may have resulted in foreclosures. It sounds like a big number, but how much did they collect . I was going to say, i think its a small percentage of the outstanding fines. Where did the rest of it go . To risk and compliance, im sure. I often wonder. Because the fines have been huge. Bnp, 9 billion. Jpmorgan, how much was the total of fines there . Where did that go . They need to administer things. You know what . Theres no limiting if i ask if i ask somebody else, i would get a more ill have to ask you. You would get a less clear, less honest answer. So people might not share this perspective, there may be scott, step up to the plate, buddy. I thought it was my read. Today, washington street will become only the second state in the country to allow people to buy marijuana legally without a doctors note. Lines are forming in from the stores that got lastminute approval to sell. Eventually, there will be more than 300 recreational pot shops across the state of washington. But only about six licensed stores will open today. First mover advantage. Stock markets closing lower on monday with the dow and the s p 500 logging their biggest oneday trop in about two weeks. Despite the s p nearing the 2,000 mark, they say they wont scale that level until the end of the next year. Dave is joini ining us now, jim russell, as well. Its great to have you both with us. David, ill begin with you. Were not that far from 2000 on the s p. Was 17 resistance for a while on the dow . I think 2,000 on the dow and the 17,000 for the s p. I dont think the s p makes it to 2000 in the next several months. I think its at the end of the year or early next year. My official target is that we dont hit 2000 until the end of 2015. Really . Yeah. I think the market is a good year ahead of itself. I think we have a few years of climbing to the equity market to do. But i think its ahead of itself and i wish i its largely a valuation issue. And the val you auuations are a premium to history. And i cant find any signs of sales growth likely to exceed historical norms. Its Interest Rates. The equity market standing on the shoulders of bonds. Its fearful that we could have a longterm jump in rates. They say booming its 2000. But, yeah, no, i dont think its a bubble. I dont want to be lumped into that category. I think the market is just in need of a no. Its the indicators. It is contrariacontrarian. They were right that central bankers have orchestrated a huge move. Well, that is my concern, that there are too many investors that believe the emergency monetary policies or the zero Interest Rates theyre going to monitor that. Without an uptick in the participation rate, i think well have less than 6 unemployment and i think the fed will talk about hiking rates earlier and faster than the market believes right now. That might be good. Theres a lot of metrics that if you were to measure, they should have already i agree with that. And then you look at, you know, you wonder why, when they intimated that labor was coming, you saw what happened in the emerging markets, theyre awash in this liquidity too. Its scary. If they are behind the curve and it should be higher than they are, when they start, if they go to a quarter or something and it really should be at 3 or 3. 5 , the market is going to tell them, youre still way behind the curve and it could go up much more quickly than people think. Thats precisely my concern and why im being vocal about it lately. Maybe the new normal tenyear treasury yield is four, not five or higher. But when they start hiking, it could be faster and to higher level us because they need to make up for being behind the curve. David, how do you see things . We look for a higher s p 500 probably peaking in the Third Quarter. We think that the fed discussion regarding higher rates is going to matter. We think its going to be a headwind psychologically to wall street, probably beginning in the Fourth Quarter this year perhaps the First Quarter next year. Unemployment rate falling dramatically, so we do think the fed enters the discussion probably in a negative way for the markets before too much longer. Our price target is 2030 for this year, we see ta being achieved sooner rather than later. Before the end of the year . Right, before the end of the year. Perhaps even peaking in the Third Quarter, again, with a little choppiness in the Fourth Quarter. What were cognizant of, though, is that everybody is talking about the fed. Were all wondering about what they do and when they do it. Were wondering if so much focus represents a surprise. Theyve already we do have geoPolitical Risks. No question about it. And we think that the Second Quarter earnings matter very much and, of course, what the guidance is for third and Fourth Quarter. Specations for third and Fourth Quarter earnings are pretty heightened relative to where weve been. Democrats might have some Political Risk in 2014. Im not sure that that equate toes risks for the country as a whole, though. I know i got my man there. Did you sweep milwaukee or just two out of three . Now five games out, have you noticed . Yeah. Certainly we have noticed. We have a rivalry with them. It was two out of three with milwaukee. Theyre playing good ball. Well see what happens. Even the cups at 94 is just that just seems mean to do. Theyre in last place. The last time they were five games out, and they were four games above. 500. Hes going to be rookie of the year, hamilton, dont you think . They have two against the cubs today. Awesome. You know, i need something and im going to theyre both sides and im back on board. There you go. And brazil plays one thing about soccer and thanks, jim and david. One thing about soccer, i dont know how they did it, but the four best teams are the ones that are left. Have you been watching the world cup . I have. I know, i happen, it takes a village. Im a liberal in terms of i need contact. Still to come, restauranteur and tv personal jim love and vyi against each other. We have a sneak peek at a cool cnbc show in just a few minutes. Welcome back. Time now for the squawk planner. At 7 30 a. M. Eastern time, mark will have some fed speak to deal with this afternoon. 1 00 p. M. Eastern time. Rich manned fed president Jeffrey Lacker expected to give a speech on the economy. And one of the times earnings season is almost upon us once again. Expected to roll out results after the closing bell today. Thats todays squawk planner. Joe, back to you. Thanks, michelle. Coming up, a popular bakery chain crumbles. Plus, are you impressed . They invest. Restaurant startup premiers tonight. He will give us a taste of what we can expect, coming up at 10 00 a. M. Eastern time. Imple question in retirement, will you outlive your money . Uhhh. No, that cant happen. Thats the thing, you dont know how long it has to last. 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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. Take the next step. Talk to your doctor. This is humira at work. Welcome back to squawk box. C cup cake lovers across the country are crying this morning. Crumbs is closing its stores. Crumbs will file for chapter 7 bankruptcy liquidation. They were dry. They were terrible cup cakes. Theres a reason. They were huge cup cakes. They were terrible. Nobody is crying. Are there some in new york . Yeah. Never had one. Never . Never. Magnolia is great. I like red velvet. Speaking of trying to do this, which, you know, restaurants are tough, but so much fun to watch, it happened. Cnbcs newest edition, its prime time reality lineup, restaurant startup debuts tonight at 10 00 p. M. Eastern. It stars texas native tim love, typea personalities vying against each other to invest their own money and food ideas they believe will make them millions. Uhoh. First one down. Boom. This is the signature dish in the middle. Pork belly adobe. Give us a minute. Enjoy, guys. All right. This is the signature cracking conji. We did our best. The last dish goes out. The emotions are running hard. Its my fault. I let you guys down. Oh, man. Were a team, doug. Joes right. Were three [ bleep ] blind cooks from seattle. We proved it today. Its a hard pill to swallow. I love the consistency of this, the contrast of the flavor, the acidity. Fullon power. Flavor of that is awesome. I would eat the whole bowl. This is the best of the day. I love the seafood brianiness it has. On one hand you have the food. On the other hand you have those three guys. And between those two realities an Investment Decision will be made. I dont think theyre going to invest. I want them to. But i feel i let them down. I let my family down. Joining us one of the stars of the show celebrity chef tim love. First thing we got to talk about, tim, to have it on melrose, every time you do it, i used to live in l. A. , and thats like if its on melrose youre going to get a shot, but thats where everybody goes to eat. So thats just a great concept to start with. Then im trying to figure out how you do it. Is it all about whether the food is good . Or you got to have the goodlooking people at the door when youre going in . Is it about the service . Because, you know, you got to have people that are sufficiently snooty to make you feel important to be there, right . I mean theres a lot of things that go in to running this, arent there . Yeah, theres a lot. I agree. You know, opening a restaurant is a combination of all those things. Like you said. And its really for me its always food first, and youll hear that on the show a lot. I talk about the fact that the foods got to be good. And you start there. And then theres a million other things that you build from. But you know, the foods terrible then clearly you cant have a restaurant with terrible food. Okay. So you got to get your suppliers right. You got to make sure that the guy is a decent chef but he cant send out food that takes like 35 minutes to make, either, right . I mean thinking about trying to do this as one of the chefs. I think thats whats compelling about the show. Most people have seen all these food shows over time which weve kind of almost become numb to and the fact that, you know, we know that this cook goes versus this cook and which food comes out better. This show is not about that. This show is about making a smart investment into a business that weve always looked at as being sexy but not as a business. And restaurant startup actually shows you why its a business and what it takes to really make it happen. Im shocked the show doesnt exist already. It seems like such a natural. So Many Americans dream of starting a restaurant. Thats right. You know, it is i said the same thing when we shot the show. Its such a simplistic concept of what were trying to show people the world and what it is to open a restaurant. This is not a show about, hey, whos got the sexiest food. This is a show about looking at taking a look at people who have a dream of opening a restaurant and going you have the talent, were going to give you the money and were going to make some money with you. Thats what were going to do. Its here to show how to make money in the Restaurant Business and also shows very easily how you dont make money in the Restaurant Business, which happens a lot. We saw im sorry joe. We read the story leading up to the interview with you, tim, about crumbs closing its doors. I mean if thats not a wakeup call for how difficult it is to succeed in the restaurant or food concept business, thats a slap in the face right there for everybody. I agree. You know, crumb is a wellcapitalized business that grew quickly. And but the problem, and i look at Something Like crumb as youre looking at a concept thats based on a trendy food. And trendy foods are not restaurants that succeed. Restaurants that succeed are ones that build on a basis of very Good Business, knowing what your costs are, and expanding on a slow basis to make things happen quickly. When you look at a business like a cupcake business, you cant base in the food world on a trend because trends change every day in our business for sure. Just like you watch the market and the market trends, right . In the food world you need to start a business based on things that are successful, and that people like over time. And you can slowly build that better and better and better. Yeah. I mean everybodys been warned. You know, do not be a passive investor or youre going to lose your shirt. Doctors and dentists. Most of the time then you look at mario if you dont think you can get rich in the Restaurant Business you havent been to babo or i cant keep track. It can be done in a big way. L. A. I was thinking about it, though, i was joking about the, you know, the aloof sort of people that you need to, you know, to deal sufficiently bad about yourself. In an l. A. Restaurant. Do you do you interview . Its a different place l. A. Than maybe somewhere in the midwest. Right . A little bit different. You know, every section of the country is different. So when we have these different concepts that approach us, because were shooting in l. A. , they have to transcend into that crowd a little bit so when they open up that day theyre feeding people from l. A. , not feeding people from say, seattle, or from portland where weve had concepts from new york. Some from st. Louis, like, so, and thats really where joe and i are great together and the fact that he is from the coast and im from middle america. So we understand different things. I want to talk, i was going to bring up l. A. Story because youve probably seen it. Steve martin is going to go to la id yolt which is on melrose and he has to have an interview before he goes to dinner to get a reservation and captain piccard is there saying what do you think youre going to order . And he goes duck. And hes looking at his Financial Statement and going oh, no, no, no, youre not ordering duck. Youre getting chicken. Tim, thank you. Well be watching tonight. Sounds great. Thank you very much. Join tim premiere tonight on restaurant startup at 10 00 on cnbc. This is l. A. s historic district. Some of these buildings are 20 years old. Coming up the wall street journal celebrating its 125th anniversary, editor in chief jerry baker will be our special guest. On his way to the set right now our guest host for the next two hours star wood capital chairman and ceo Barry Sternlicht. When squawk box returns. 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. Welcome back to squawk box. Todays guest host, squawk market master Barry Sternlicht, chairman and ceo of Starwood Capital. His view of the markets, the economy, and the state of leadership on capitol hill. The baby boomer effect on medications and research. Find out which companies are leading the charge. Plus, look whos turning 125. The wall street journal. Celebrating this amazing milestone. Editor in Jeff Jerry Baker on the next frontier for the news business. The second hour of squawk box begins right now. Good morning and welcome to squawk box. Im joe kernen along with Michelle Carusocabrera and wapner. Still above 17,000 on the dow but were indicated down about 18 or so points. That could change before we do see the open and the tenyear still worth watching, as we live in this weird, neverneverland of Central Bank Action around the world. Especially here, 2. 59. How that makes sense with where a lot of other things are, well we know that makes sense because the fed is buying everything that they can get their hands on most of the time. So 2. 59 you just wonder where all these markets would be i feel like they outlawed recessions. Nobodys allowed to suffer any pain anymore. You know what grant says, the fed can make things appear to look better. They just cant make things actually better. Sooner or later you just wonder. You like volatility. Goldman sachs we all like volatility. Citigroup cant make any money trading. Theyre all talking about it. I know. Your show is called fast money. Half hour report and the money molasses. Fast money and when its going like molasses is bad. Is it not . Its more difficult. Its less good. All right. Youre good. The worlds biggest retailer says consumers are still keeping a tight hold on their wallets. The chief executive of walmarts u. S. Division told reuters that despite the recovering job market Consumer Confidence has not increased enough to convince shoppers to ramp up spending. Well get more on simons view of the u. S. Economy and its impact on walmart when he joins us live at 11 45 eastern time here on cnbc. Samsung is warning that Second Quarter earnings will likely be its worst in two years although it expects improvement in the Third Quarter. San lists say samsungs highend phones are simply not selling as well because of an abundance of cheaper alternatives and the company may have no alternative but to cut prices. United airlines plans to outsource more than 630 union jobs at 12 u. S. Airports. The cost saving move affects positions including ticket and gate agents and baggage handlers. The jobs will be shifted from the payroll as the airline hires other companies to provide the employees. Truckers at the ports of los angeles and long beach have gone on strike. They say Trucking Companies have prevented them from unionizing and improperly classify them as contractors to minimize wages and benefits. So far the impact on Cargo Movement has been limited. But there could be broader disruption if striking truckers picket at the dockside terminal. In washington, news a Congressional Study finds that 76 u. S. Companies have shifted their tax domiciles out of the United States to other countries. But were going all the way back to 1983 with these inversions. Its becoming more popular, though, we talk about it all the time here on cnbc. The goal, of course, is avoid g avoiding well, its avoiding the prohibitively high tax rights in the United States. I guess you could say its avoiding u. S. Taxes. Theyre paying taxes somewhere else. Its just theyre lower somewhere else. Like theyre half other places. Right. Duh. Just saying. People move to texas and florida, too. From illinois. That tends to happen. That should be illegal. They may do it. Make it illegal. The Research Service says 47 inversions have been done in the past decade, and of course more are in the works. Were joined by two very special guests this morning, Barry Sternlicht is chairman and ceo of Starwood Capital group. Squawk market master. Like midas. He works out. Hes women love him. Men want to be him. And then and then jerry baker and then theres me. You look like brothers, actually. Wait a second. Jerry baker is editor in chief of the wall street journal and dow jones, he joins us to commemorate the journals 15th anniversary today. Hell be ringing the opening bell at the nasdaq later this morning. And i many times, jerry, i have people look at me and say god youre a journalist, man, how can you say these things . Youre supposed to be a journalist. Im not. I dont want to be. And i would just say, the journal better than ever. Its where i find on the oped pages, i read it, and i probably shouldnt come out and say but i read it and i say theres the truth that i need that i need to figure out whats happening and its private sector, its been consistent for 125 years in terms of what brings prosperity. And youre with me on this arent you . I dont want a job. You say very kind things, joe. 125 years, its great. And i think weve, you know, weve existed and weve thrived as you say i hope weve got better especially in the last people on the left say its turning into a Rupert Murdoch mouthpiece. Well, you know, it stands for conservative values on its editorial pages. It always has. Which is pretty unusual in much of the media. There arent many newspapers that adopt that position. On the news pages we tell the news as it is and we tell it straight without a bias, without a skew, and yeah i think i dont always get it right but i think 125 years speaks for itself. The top daily newspaper by circulation subscription, right . Sometimes i think the bulk of the paper, there are times i read it and i dont like the slant of some of those pieces. You could almost interchange New York Times reporters with noneditorial pages. Send me their names. No, i still theres a difference about the prism that you choose. The prism that other brand x chooses every day is one based on whatever the social issue of the day is very hot to them. As opposed to a very consistent approach to business. Yes. And profitability. With the underlying assumption that thats what leads to pros ter perty in america. And exploring all the other issues that are important to business, too. When people say oh, you know the journal does, you know, does things about arts and culture and fashion and that kind of stuff. Yeah, because actually we are reporting on the culture. Were reporting on the content of this country, particularly this country and we need to report on all aspects. Its changed from what i would to publish, the journal is great today. I always picked up the f. T. On the weekend, being american, and they had all the coverage of the arts and stuff. And even your supplements are really good. And worth saving. I save them. Its become much more general, too. I need a haircut. In the old days, the ten points seemed different, it was more about individual companies, more about sectors, and now theres definitely more geopolitical news. Thats been an improvement. Thats been more of murdoch based. But i look at like today, ideas for renewing on your 125th, ideas for renewing americas prosperity. And you got george shultz, paul ryan, george gilder, mike milken, carly fee wino, michelle rhee, but this if you get it, the main section weve got a special 125th anniversary. The editorial, a lot of readers you, joe and others will take, a look back on the editorial pages through some of the highlights, some of the things the editorials have said consistent you could find the same consistency in the New York Times over 125 years . Oh, yeah, thats right. Might be a little different. A little angle but i think youd find the same consistency. Great value. Thank you very much. You going to write this while were here you going to write this piece from stocks to farmland all assets are booming from Central Bank Intervention . As with a lot of those stories you see on the front page of the New York Times we did that one about a month ago. Sometimes when the New York Times does it, is it a sentiment indicator or a contrary sentiment indicator . By that time its become the equivalent of, you know, rockefellers equities well see. At least its hard for them to finally come to the viewpoint that all of this fed action could actually be bad for the people that theyre always reporting who want to help. Because we are finding out, every time janet yellen says if theres one unemployed person or one poor person, im doing it for them, when, in fact, the people the people that are doing well are the ones that keep doing better and i dont know if its doing anything for the people down here. For the liberals to finally admit maybe this is not the way to orchestrate a recovery. I guess thats part of the argument. I think the having thing is, you know, as we pointed out, as they point out, all assets have been booming. How much of that is directly attributable to the fed . You know, i dont know you really going to question lots. Clearly its significant amount. But actually if you look, Interest Rates are incredibly low. So things like stock buybacks, thats been driving, you know, earnings per share, its been driving the market more generally. But i think, look, the other thing is that the u. S. Is the only game in town right now. Okay. So i think if you look around the world, you look at europe, its mired in a slump. You look at japan. Well, maybe its coming back. Who knows. But its been 20 years of misery in japan and its kind of hard to get excited about that. Theres renewed doubts about the emerging market. One of the things, of course monetary policies play a role but the absence of really impressive investment alternatives also plays a role. Where else are you going to put your money other than the United States which has got pretty good pros pents, right . The energy boom has been good. To start. Doing pretty well there. But the uk an asset bubble id say clearly theres low volatility is a reflection of that. But i think the u. S. Has done particularly well and i think theres a number of factors. Okay. How has social media impacted how you guys do your job . The way that news is disseminated is faster than ever. The way that ideas are shared, via social media, you get story ideas by what you see people talking about on social media, facebook, twitter and other places . All of that is true. For me one of the most interesting ways in which its changed what we do is you really have to go out, reporters and editors have to go out and really have to promote their stories. In the past, you know, when the wall street journal started 15 years ago through most of its history, reporters would write a story and get printed in the paper and it would appear on somebodys doorstep and whether they read it or not you were reasonably happy. Now theres so much information out there and the availability of it and the access that you have to readers, through social media, is so great that you actually have to be out there saying, read this story. Because its really important. So we use social media for that, in particularly to actually to promote our journalism to make sure people are reading it. Were going to take a break. And then when we get back well i like that youre here, because, i mean, youve got money and skin in the game. You really are a journalist. Youve got it covered. So someone yeah. When someone says im not sure how much the fed is really and youre just going oh. Come again, right . I mean you have some strong opinions about how much of this is low Interest Rates. And Holding Things down. Right . And distorting the market. Market pricing. So thats what well talk about. Youre the market master. Youre just yeah. The guy who writes about it. Yeah. All right. Also coming up the Small Business putting more people to work . Were going to check the confidence level at 7 30 a. M. Eastern time and how will the boomer generation change the future of big pharma. Sanofis ceo will tell us how this company is planning for the longevity revolution. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires 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. Lets get back to our special guest today, Barry Sternlicht is chairman and ceo of Starwood Capital group and gerry baker editor in chief of the wall street journal and dow jones. We were talking about what happens when the fed raises Interest Rates what would that do to emerging markets. When we talk about real estate in the United States and all the hot markets everybody talks about the chinese and the russians trying to get their money out and buying stuff here. Big dollar stuff. Is that still true . Is it ever true . Well, first of all, money flows across boarders today more easily than ever in history. Theres a lot of disturbances in the world whether in the middle east or russia flexes its muscles or the seemingly aggressiveness or new aggressiveness of china, visavis japan. Youre seeing flight capital from all over the world look for safe havens, thats what gerrys point was, the United States is benefiting from that. With london, take a London Real Estate market, i was there this weekend, 90 of the s over over 2,000 pounds a foot are bought by foreigners. So it is a completely dominated foreign market. What struck me is all the offices are being converted to residential, and theres a million departments in london today. And theyre dark. Theyre in areas that there is no people. And all of the Office Buildings are moving out now to the periphery of the town. And thats different in new york than in the states. We dont have yet that amount of foreign capital buying residential houses. You hear about the odd oligarch coming in and buying an apartment in new york. That seems to have slowed down lately. The big factor in the next five years will be the amount of capital that comes in from china, and as they worry about that countrys slowdown or impending the great debate of whether theyre going to have a bubble or crisis in china and its implications i think these guys have gotten so wealthy theyre trying to move capital out. You must have spent forever thinking about this question, right . The situation with china . Yeah, absolutely. I was there recently, and the mood was very much, you know, people are doing exactly what barry says which is theyre hedging their bets by making sure that anybody who has a lot of money in china, almost anybody who has a lot of money in china has most of it parked offshore somewhere, whether its in London Real Estate. Canadian . Canadian real estate if they can get it. Its easier in canada if youve got connections its easy to get your money out, ironically. We have an old law on the book, Foreign Investments tax act which was passed back when the japanese were buying everything and theres been a big movement in the Real Estate Community to have it lifted. Doesnt need it anymore. It would make a major change. Its making its way through congress, the real estate roundtable and other organizations are working with congress to have it repealed. But they look at this as a tax increase. Its not a tax increase. Its ridiculous. Theres no reason we got to let that money flow here from china if they want to come here into real estate here youve got to. But then youll create but in general lets go back to your first question. Real estate is based on yield today. And since theres no yield in anything but in corporates or governments, everything, whether its farmland, timber, everything is yield proxies. And that is creating this asset bubble, junk bonds at alltime lows, corporate debt. Real estate debt spreads are crashing. It is, and people basically have given up. Theyre flowing in the towel. Theres basically complacency and money is flowing to anything with a yield. And youre seeing, we represent many sovereign wealth funds today that invest with us. And theyre anxious to get put that cash to work in some in real estate is the b beneficiary of that as is the stock market. They kind of like our quasi theyre taking money out of the debt markets and putting it into real estate, first into debt and eventually into equity. You this article is representative of where we are right now. In the New York Times. I think back to the days during the crisis, when i think it might have been a lot easier to do things but a lot scarier when you did them. And im going to let you do your victory lap on course because i remember you were on and everything i had read is that Barry Sternlicht is a greenhorn and i didnt attack you. It wasnt me the journal did a story that we had won that option. This of course is the bank failure in 2009, you wrote we beat our nearest competitor by 500 million. And there was no way it was going to work out. We bought 4. 7 billion of loans which were the assets of the failed bank for 2. 7 billion and unlike the Resolution Trust stated back in the 90s in the first claps of the savings and loans the government said were going to play with you in this sale. It was the smartest thing this governments ever done. So they bought they gave us half the money in debt. So 2. 7 billion. We paid 1. 35 billion in debt and they took 65 of the equity and our group put up 40 of the equity. Now we have about 99 of the assets have been resolved. So our investors will, its about 1. 7 billion of profit on the 1. 3 billion of equity and the government made an increment billion bucks to the 2. 7 billion. So we gave the government a billion bucks. They spent it the story wasnt a 20 return, 24 for investors compounded over four years. Thats true, 24 over four years. Per year. What the hell were you thinking . Oh, you werent there then. Oh, yeah. 24 over four years but thats more than thats nothing compared to the s p. Even the s p 72 divided by 24. Another country by the way. Congratulations. Yeah well its great for us. The government worked by the way nothing playing around like that. To do anymore. The one thing we didnt realize, we sold stuff too early. We own 2,000 apartments in florida we bought them in south beach and bought them for 150 a foot, sold them for 300 a foot. The good news is everybodys happy. It was the largest distress sale of the whole feickle with the fdic. My point was those opportunities arent here now for you. Theyre different. But theyre still okay for you. Isnt it tougher . Weve invested 6 billion in the last three months so we must be doing okay. So its different might be three million a year. Or nine. Whats happened to real estate is yields on property have gotten stuck because everyone expects Interest Rates not to be at 2. 6 which you pointed out but to be 3. 6. So cap rates are yields on property are 6 and 7 and you can finance these at 3 and 3. 5 so youre getting high cash yields out of property which are and ordinarily cap rates yields on property should fall. The spread between yields on property and the cast of debt is too great. So thats why youre getting compelling risk adjusted cash yields out of property. And thats why the real estate markets are so buoyant today. Theres not a lot of supply. Gerrys got to go. Great having you. Congratulations on 125 years. Keep fighting the good fight. Youre like a beacon in the entire media landscape. Thats very kind of you. Thank you very much. Wall street journal with a period at the end. We decided to keep it. Smart guy. Ones this place from the journal. Very talented former journal he was able to escape print yeah, some people apparently some people do. Some people go the other way. I started off in television. I had to face for television or radio as they say. Here he comes. You missed that. Mostly television. We got to go. How the generation is changing the way big pharma thinks about the future. More squawk coming up next. E financial noise financial noise financial noise financial noise when skwrk returns, fresh data from the nfib. And what will the next 15 years look like for the pharmaceutical industry with 10,000 baby boomers turning 65 each day. We put that question to sanofis ceo in the next half hour of squawk. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. Im spending too much time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast . Go to ziprecruiter. Com and post your job to over 30 of the webs leading job boards with a single click; then simply select the best candidates from one easy to review list. You put up one post and the next day you have all these candidates. Makes my job a lot easier. [ female announcer ] over 100,000 businesses have already used zip recruiter and now you can use zip recruiter for free at a special site for tv viewers; go to ziprecruiter. Com offer2. Welcome back to squawk box. Making head lines. Tesla is being sued in china for trade mark infringement. This could spell trouble for elon musks ambition to expand in the country. Chinese businessmen registered the tesla trade mark before the u. S. Company came to china. He is now demanding the company stop all sales and Marketing Activities there. Sounds like a squatter, right . Survey by the department of education finds math and science graduates earn the most money after graduation. Only 16 of students took home degrees in science and Technology Engineering or math. For those graduates average 65,000 a year compared to just less than 50,000 for those with other kinds of degrees. A familiar face to cnbc viewers is leaving wall street for academia. Banking analyst brad hintz announcing he plans to teach and write a book. He most recently worked at Bernstein Research and before that was a ceo of Lehman Brothers and treasurer at morgan stanley. The latest read on Small Business is out. Steve liesman joins us now from washington, d. C. With a special guest. Steve . Hey, thanks, scott. The fifk, National Federation of independent business Small Business optimism falling by 1. 6 points to 95. Thats capping a recent step upward and the question is are we reaching some kind of top here which would be settling down at a very low level. Joining us from philadelphia bill dunkelberg. He puts together the survey for nfib. Bill, how are you . Im fine, steve. Youre looking great. The survey is not, bill. Tell us what happened here. We were kind of marching up and were lower than the expectations on wall street which was for a 96 or 97. Whats going on with Small Business this month . Yeah, well, its a disappointment. I thought this time maybe we would be able to do more than three months in a row, the little increases. But the pattern has been, in the expansion, basically to do kind of well in the First Quarter, first half, and then fade again as the economy fades. So we kind of lost ground on all of the of eight of the ten components in the index. The good news was that the two components that did well were the labor market components. The job openings hard to fill, that went up again. And plans to create new jobs, that went up again. So and of course we are hiring more now. We have nine months in a row now that the Small Businesses have on average added new employees. So thats the good news. Bill, that doubledigit decline in expectations for Business Conditions in the next six months, thats a little scary. I mean its like everybody went and ran for cover. In caves somewhere in the hinterlands here. Whats up with that . Exactly. Your chart shows it there. 14 of the 18 not seasonally adjusted points that we lost came from two questions. One is, you think Business Conditions will be better six months from now or worse. And we have now a negative ten which means ten Percentage Points more said worse than better and expected real sales, that was a minus four. So theyre a little pessimistic about growth in real sales and those are important because those key in on decisions to invest not only in new workers, but also inventory and expand your business and so on. So, wasnt good. I dont know exactly what it is that made them more pessimistic other than the big mess that we have in washington that doesnt seem to want to straighten itself out. Bill, the capital outlets numbers were also down. What does this say about total gdp growth and what is telling you about the pace of hiring . Well, our model says that gdp growth is going to stay around the 2. 5 range. We really didnt get anything better than that out of the index. On the hiring side, of course, what we keep predicting is that the Unemployment Rate is falling. A really good predictor of the Unemployment Rate is that job openings number. And it just keeps getting bigger which means that for whatever reason and wherever it is, the labor markets are getting a little tighter, because along with that weve had a huge increase in the percent of owners reporting higher compensation. So, somethings getting tighter somewhere and thats good news for the workers. Those compensation numbers are interesting. Theyre going to be interesting to the Federal Reserve. I know they follow this survey and especially the labor compensation. Which theyre actually giving more increases than they planned to give which means theyre having to i guess theyre being crushed a little bit on the bottom line when it comes to profits. But what is it saying about the potential for Wage Inflation in the Federal Reserve, though . Well, the Inflation Numbers have been very interesting. We asked whether or not they increased or decreased average selling prices, thats what we think about inflation is average price level, and we have since december seen a 15 percentage point increase in the percent of owners saying that theyve raised average selling prices just really been on a trip here. And its starting to look pretty high historically. Somewhere out there on main street theres some inflation cooking, and i think well start to see it in the major indicators. Well have to follow that. Bill, thanks for joining us. And guys ill be back at 8 30 with the real question from this survey here, which is strong job growth but the other indicators are weak. And we have this incredible conundrum in the economy, which is gdps going to be zero in the six months that ended in june. But we created 1. 2 million jobs. Well take a look at that and the reasons behind that at 8 30. All right, steve. Why are you down there . Im down here because im going to be talking to the government about their statistics and how they can possibly cook the books a little bit more in line with my view of no. No, joe, not at all. As you know, in our office i was i didnt know you were joking. I love that. I know you didnt know that, joe. I know. The secretary of labor was in our office with a meeting with some reporters about how they can make the data more accessible, how to improve the data. Im going to have some other interesting meetings. You know. Who was kingfish . Bob weirs band in the mid 70s. They did a lot of good stuff. You never heard of them . No, i was listening to them. It was pretty good. He wrote a lot of his best music became some of the dead music inside the kingfish. All right. Because i havent seen you. I have backup. I have questions. If you put them in email format please and i will respond to each one as you know when you write me these little lines a write six page memos. Dont do it on the air with all of our viewers going what the hell. Thats an idea. Thats one way of approaching it. Thank you, steve. Coming up the baby boomer effect. The biggest, richest and perhaps the most Influential Group of americans. Youre not, are you . Im a tail end i think im like right in the middle. I am not turning 65 any time soon. Americans are living longer, 10,000 people turn 65 every day and changing the Health Care Landscape especially in the pharmaceutical industry. Next the impact on medicine and research when the ceo of sanofi tells us how this company is keeping up with the boomer generation. Squawk box will be back in just a moment. What can your fidelity greenline do for you . Just take a closer look. It works how you want to work. With a Fidelity Investment professional. Or managing your investments on your own. 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Liberty Mutual Insurance responsibility. Whats your policy . All right welcome back to squawk box. Lets take a look at the futures coming off a down day on wall street. An implied open on the dow of down 15 so a slight decline looks like on the open the s p would open down a couple of points but the dow did manage to close yesterday still above 17,000. Making head lines, a Kickstarter Campaign for potato salad has topped 35,000 dollars. Yes, potato salad. The project started as a 10 question to make the dish and throughout the campaign the man behind the project has added new goals such as better mayonnaise and a live stream of the potato salads creation. You like potato salad . Are you a potato salad or coleslaw guy . Coleslaw. I dont really like it, and it definitely doesnt like me. Coleslaw . Yeah, you know the cabbage . Yeah, cabbage. Who needs it. Why put yourself through it. And anybody else. The potato salad, theres two kinds. Theres german and regular. Some has the skin. I like them both. But not a lot. Mayonnaise. Too much mayo . Yeah. Its not good. Go with the vinegar. Meat, fish and eggs. Meat, fish and eggs. We are continuing our baby boomer effect series this morning. Quick reminder of what this is all about. Americas largest, richest, and most influential population is the baby boomer generation. All the sex people had after world war ii. Guys got back from somewhere, apparently is that how all those babies got born . And there and theyre getting older. 10,000, 10,000 turned 65 years old every day. And theyre living longer. Barry just told me 65 is the new 45. Yeah. I believe that. This morning were looking at the impact of that huge demographic shift on the pharmaceutical industry. We have an overview for us and simply put if you can take a even if its a 100 pill, if you can take it and you dont get some horrific hospital stay, i mean pharmaceuticals can be the best deal in town. Thats the idea. That theres this Preventive Medicine that can keep people out of the hospital or get them out of the hospital sooner. Were living longer as long as were not eating too much potato salad. Life expectancy for women is up to 81. Up for men to 76. Thats up 11 overall in the United States since 1970. And of course this is a growing population with baby boomers getting over to the 65plus range. So theyve got a lot of chronic conditions. They say medicare beneficiaries, twothirds of them have twoplus chronic conditions. These are things like heart disease, high blood pressure, high cholesterol, alzheimers, diabetes, and so big pharma really is stepping into the void here. Theres more than 430 medicines in development right now for 15 most common chronic conditions affecting the aging. Thats more than double there was in 2004. So this is a really big area. A couple of those well talk about. The most common actually that big pharma is focused on are diabetes. Theyve got 110 medicines in development now for diabetes. 67 in development for alzheimers. Thats really important. 5 million americans currently have alzheimers. 36 Million People worldwide have dementia. Thats expected to triple by 2050 if we dont get new drugs that stop or slow the disease. Its been a really tough area. We dont understand the biology well enough for alzheimers. And then diabetes is a huge area. Its a 64 billion market worldwide. This is huge. Sanofi, know vor nordisk, merck and lilly are in this area. 27 of baby boomers are said to have diabetes. Thats growing. We didnt even mention cancer and high cholesterol. All of these Companies Working in these areas. You cant not focus on it if youre in big pharma. My kid has diabetes actually. Oh, really . Hes 20 now. But he was 3 when he got it. Theres two types of diabetes. Its interesting, what theyre doing with drugs. And what theyre doing with stem cell research, which are not obviously drugs. And artificial pancreases and new pressuring devices for blood sugars that you can read the fluid in your skin so you can wear a watch or inhallers. The drugs are kind of interesting but theyre probably not going to be whats going to happen with diabetes. You have to hope that theres something that can manage the disease or cure it with stem cell therapy. That would be incredible. Big. Exercise. Genes. Diet. Genes are important. All very important. Genes are important. I looked at all of those and exercise, you know, does a lot, daily exercise, absolutely. Anyway, thanks, meg. Lets bring in the crowe of sanofi chris viehbacher, its great to see you. Chris im counting on you and your cohorts in biotech as well to hit this 2040 singularity but i want to live a lot longer and the pharmaceutical industry is going to help us. Right, joe. Well im just as motivated as you are. You know, as meg was saying, obviously the big driver in this are chronic diseases. Type ii diabetes, cardiovascular disease. Over 50 of people over the age of 60 have a chronic disease. And theres basically three ways i think we have to go about it. First is we have to start earlier in life. We have to do a much better job in our Health Care Systems of preventing chronic disease. A lot of them, with some of that diet and exercise, you can avoid diseases in cardiovascular and diabetes. The second is we have to yet make it a lot easier for people to take their medicines, and really get to better outcomes. And the third is clearly what we all in our industry see as our mission and that is to develop new medicines. Theres obviously a big need for continued innovation. Theres some diseases like alzheimers which we cant treat today. Even in the chronic diseases we do know how to treat we can develop much better medicines. Those chronic diseases, you know, i think about, there are certainly theres a role for pharmaceutical companies, but i dont know what we need to do lifestylewise and the nanny state ive got on the one hand. I dont know how well the school lunch, all these initiatives work. But it seems like you could, at least 50 of the chronic disease problem could be at least dealt with to some extent by exercise, and diet, couldnt it, chris . And how do we do that as a Society Without telling people what they absolutely can and cant have . Its a tough you know, because its easy to chafe. And i chafe on the big gulp thing. That seemed ridiculous to me to try and legislate that in a city. You know, what we have to remember is that our bodies have evolved over millennia. And the fact that so much food is around is a relatively recent phenomenon in the evolution of people. So, you know, your body is telling you, you have hormones that say, you need to store energy. There are hormones that will respond to sugar, to salt, to burned fats. Theres a good reason why that plate of french fries smells a whole lot better than the splat of spinach. And so a lot of ways our modern life has driven these. What we have to do is adopt our modern life now to thinking about that. You know, how much nutrition are we educating our children about . Do we still have mandatory physical education in our schools . You know, a chair something called a ceo roundtable on cancer, which engages employers to introduce Preventive Care in the workplace. So there are a number of things we can do. How we design our cities. How easy it is for people to take stairs, to walk, to bicycle. These are the things that we all have to take into account, its a communitybased effort. We tend to beat ourselves up. Its just a question of willpower. They say there are a lot of things in our bodies that are driving us to store energy. Now, for people who do have diseases clearly we have to help them. You know, sanofis very engaged in the fight against diabetes, cardio vascular disease. One of the interesting things were seeing is some really interesting new medicines coming along. In the whole industry, really. I think ten years ago we all understood that we couldnt bring products to market anymore so we all really invested in some disruptive innovation. I think youre going to see a number of new medicines coming along that really have really revolutionary levels of efficacy. We have a new drug well get you a better trade name for it but this belongs to a class called pcsk9. We can dramatically reduce cholesterol levels compared to even people on a statin today. And when you think that cardiovascular disease and heart attacks are still a major source of mortality this could make a huge difference to people. Were just this morning announcing that a new diabetes drug has been accepted for filing by the fda. We have developed a flu vaccine specifically for people over the age of 65 because vaccines work on your immune system, and your immune system tends to weaken with age. So we actually developed a flu vaccine thats specifically for people over the age of 65. You know, we also need to help people actually manage their disease. You know, by the time youve been diagnosed with type ii diabetes, youve been Walking Around on the planet for over 50 years. Someone comes along says now you have to eat differently and exercise. Digital technology i think is going to help. Youre seeing a lot of people wearing the fitbits. We can use smartphones more as devices to provide education and monitor peoples health. So all of these things are things that certainly we as a industry and we as a company are looking at. Because, you know, clearly the incidence of all these chronic diseases is only going to grow. Chris just quickly, i was wondering do you see any correlation between education and chronic disease . Or people more well educated likely to be less have less problems . And also, is there any correlation between socioeconomic status . You know, does it affect the affluent able to take care of themselves better, buy better drugs and actually have less problems, perhaps, than less . Im just curious. Yeah, youre right on both counts. The first is, when you think about our health care system, its pretty much episodic. You go to see a physician, you go to see a hospital, and often you get a diagnosis, prescription, and you got to go home. But, in a lot of ways you have to change your lifestyle. And we dont always support people in the time between physician visits. And this is where education is so important. In really helping people to understand if we can provide people with a continuous glucose monitor where you can immediately see the impact of your glucose of what youve been eating you start to think about what youve been eating. That glass of orange juice in the morning can cause a big spike in glucose, and so if we could help people to understand cause and effect in what were doing, and on the second question of the socioeconomic status, you know, clearly people who do not have the same means are the people who tend to eat more fast foods, who dont always have the time to cooking for yourself is probably one of the best ways of really understanding what youre eating. But to do that, of course, you have to have the time too do this, and so there is a difference in the incidence of chronic diseases amongst these different socioeconomic classes. I guess you dont need to do an inversion, do you, chris, here . Youre all set. Right . Youre already in a tax friendly area, huh . Yeah, actually, from a Corporate Tax point of view, you know, its easier because you know the u. S. Is the only country, significant country that i know that actually will tax a company on its worldwide revenues, which leads to you know, otherwise you know, profits start growing, shareholders start, you know, Pension Plans do better. Just nobody needs that. Thanks, chris. We appreciate it. Take care, joe. And a lot of i understand what we need to do a lot better. Im not optimistic maybe we can do it. But thank you, as well. You all right . I just got a little cough. See you later. Coming up, stocks to watch at the open plus much more from Barry Sternlicht. Plus red versus blue states. Which come out on top for business . Scott cohn takes a closer look. Well be right back. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires 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. This is a news alert and it fits in to our stocks to watch. Abbvie is raising its offer for shire. The new cash and stock bid is 11 higher than the previous offer, and you can see that thats having a positive influence on shire today. I dont remember he they changed it, do you . It was a spinout of something with abbott labs, and hence the name. Yeah. Other stocks to watch this morning, organic grocer fresh market, downgraded itself from neutral at goldman sachs. The firm is citing increasing Competition Among other factors and shares of groupon are getting a boost this morning. The stock was upgraded to buy from neutral at b. Riley the price target raised to 9. 50 a share from 6. And apparel retailer guess been upgraded to overweight from neutral at piper jaffray. The Analyst Report suggests that the companys southern European Market is now showing some signs of stabilizing. Makes you want to wear your guess jeans that you have in the drawer still, right . You know what . I need some help with what i mean, what do you pay for jeans . What kind of jeans . I need some new jeans. And i dont want grandma obama jeans. You remember those ones he wore . Drop 150. 150 . That was really low that was really low. Im 150 over. So im part of the problem with the chronic stuff . Coming up are red states better for business . A closer look at how politics play into the economy of states like georgia and north dakota. Then squawk market master Mohamed Elerian joins us. Were back after this. [ both ] when we arrived at our hotel in new york, the porter was so incredibly. Careful. Careless. With our bags. And the room they gave us it was. Beautiful. A broom closet. But the best part but the worst part was the shower. My wife drying herself with the. Egyptian cotton towels. Shower curtain. Defined that whole vacation for her. Dont just visit new york. Visit tripadvisor new york. [ male announcer ] with millions of reviews, a visit to tripadvisor makes any destination better. He cadillac summer collection is here. [ male announcer ] with millions of reviews, during the cadillac summers best event, lease this 2014 ats for around 299 a month and make this the summer of style. Chocwhite chocolate loversal. Dont like dark chocolate. Milk chocolate lovers dont necessarily like dark or white. Before we couldnt really allow customers to customize their preferred chocolate. We needed a scalable Cloud Solution allowing them to select what they are looking for. Now there is endless opportunity to indulge. Customization is made with the ibm cloud. Welcome back to squawk box. Real estate, deal making, and the economy. Starwood capital chairman and ceo Barry Sternlicht tells squawk about how opportunities in the marketplace. Money flows across borders more easily today than ever in history. Plus, another master in the lineup. Mohamed elerian weighs in on the fed strategy. And, has some advice for the fed chair. Plus, georgia captured the cnbc best state for business titles. Now scott cohn is measuring the red dates versus blue states in the battle for Better Business. The third hour of squawk box begins right now. Welcome back to squawk box here on cnbc first in business worldwide im joe kernen along with Michelle Carusocabrera and scott wapner. Becky and andrew are off for the rest of this week. And youre here tomorrow. Youre here tomorrow, too. Mmhmm. Same people. Party again tomorrow. If youre around. You want to hang out. If you you need chorus again at the bottom. Barry sternlicht is chairman and ceo of Starwood Capital. People dont know about you. You studied at underneath one of the masters of all time. How is he doing right now . Not doing so well. You were there, and you would credit him with a lot of your acumen, would you not . Coaching. Really just a brilliant man. Incredibly kind to a great mentor, and i think most important, one of the most important lessons from richard is just do it. You know, its like the nike slogan. Just do it. You create your own success. I always refer to a guy at Business School wasnt richard who said this but a fellow to worked for richard, and he said be careful where you set your goals because you may achieve them. Right. It sounded like a trite statement in Business School which was 30 years ago but it actually is true. You reach for the stars and you just dont make it but youll probably go further than you thought. What were you roommates , John Jacobson and we all shared a beach house together when we were 20 out in the hamptons, eight guys in one room. The women were in the house. You ended the presidency for me. And then where . Where what . I lost my train of thought. Where did you make your first great deals . I was a liberal arts major at brown. I made my own major called law in society i called it lost in society. I really attribute brown for a lot of credit for learning how to think about things. I talk about theres two kinds of people, boxheads and spaghetti heads. And a boxhead is very good at linear thinking so they can do math probably faster than i can and algorithms and logs and all that stuff. And spaghetti heads think about how everything relates to everything else. I think you have to be both. Today its more important to be a spaghetti head. What impact will isis in iraq have on investing in the United States. What impact does chinese will china falls over what impact will if i parachuted you out of somewhere with 10,000, could you do it again . Its going to be harder today. What would you start with, do you think . I like the creative side of real estate. I like design and architecture. So for me, the numbers are fine. But, i like the physical and i was a trader, i was an arbitrage trader didnt know that, huh . I was 23. If i was doing it over again i probably would have been a Hedge Fund Manager just because the quality of life is so incredible and its elively easy compared to the travel. You know, we have 520 people today at Starwood Capital. And hedge funds we manage about 38 billion of assets but there are hedge funds that manage 22 billion with 14 people. So its a lot easier to manage your shop. The last three months where have you been . Ive been in europe twice. Where else . Where have you in france. You put money in all those places . Yeah, in the last three months. In the last three months weve invested in the uk. Were looking aggressively what kind of deal residential project in london, were working on we bought some Office Buildings in poland just recently, the contract. Second biggest job creation in all of europe is after london is warsaw. The people in warsaw are all capitalists now. They dont do right and the right is going left. They dont do socialism light like we do here. They did true communism. When you compare their gdp to ukraine and they have low labor costs, and the people still work and contrast to france where i spent a weekend and i went to the stores theyre open from 9 00 to 11 00 and then 2 00 to 5 00 and i went into a restaurant to eat and he said theyre closed. I said there arent any customers here. Thats because youre closed. They just shut down. Vacation is the goal of and thats funny. How does france survive they have a lot with this work ethic. They have paris. I mean they have france. They have a big buttist the greatest city in the world. Theyve been bequeathed with that all their best leave. Theyre best and brightest leave france. So do you know the story, i think its true. The president of france hollande visited the mayor of london and the mayor of london said welcome to the sixth largest city in france. There are 625,000 french people in the uk. Its interesting because europe, i was in italy and spain and you see the real reform is happening in spain. Right . Theyre lowering structural labor costs, economy is starting to pick up, manufacturing is coming back. Theyre going to work for him i think with the ceo of duty free shops the other day and he was talking go ahead. Cramer . No, its amazing the other cramer. Their goal is to follow where the chinese will travel now. It used to be where the japanese would travel because they had all the money. Now the chinese will have all the money. Italy and venice and florence will be dominated by chinese travelers. And so we think theyre interesting opportunities in travel space in those markets. Create a hotel that is catering to the chinese travel. That kind of thing . Is that too simplistic . Many of those markets are so supply constrained if you do a High End Hotel i think theyll do very well. Thats what the world is for real estate. You see it for walmart. The nation isnt doing better. There are job creation but the wages arent going up and i think you cant underestimate that certainty for the average american even with obamacare. Nobody knows whats happening in health care costs. Theres rumors there will be 20 Million People health care will get canceled when this moratorium expires. I think its frozen america that doesnt just feel secure. It is kind of a demonization of business and risk taking in the United States. And it is with all due respect to the mayor of new york, it was an extension of what obamas policies appear to be and i think it doesnt feel like a Good Business climate. People are getting less hopeful so theyre holding onto their cash. The economists said about real estate in florida the biggest drivers of real estate in florida, the president of venezuela and the mayor of new york city. The mayor of new york city. Its true. Miami will be the singapore of the United States. Miami is going to attract a lot of foreign capital and a lot of people like Eddie Lampert who it will be underwater Climate Change will ruin it. So, my view on de blasio is to manhattan, as president obama is to the United States. I would say but for manhattan hes hes a leaders deserved but thats who they vote for manhattan, and you reap what you sew. Its a dangerous i was coming on this morning, saying its so obvious that i guess somebody once said to me the guy who jumps off a building can see flying. And thats what our fiscal policy is today and our infatuation with just issuing more debt and growing the fed Balance Sheet. Its free. It doesnt nobody feels the cost of it. Nobodys paying the price for any of this. Where was it germany they issued zero debt this year . New york city for the first time it seems at the end of the day youre going to hit somewhere. Youre going to hit the ground. We shouldnt get mad if they laugh at us. They have kind of a right to laugh a little bit i guess if they issue no debt in germany and here we are. Theyre selling all their stuff the italian, were going to spend all the germanys got a very weak currency. Thats what is meanwhile the euro germany, brazil. They have their own currency. Whats the line on that game . Germanys favored now. Brazil is without somebody else, too, got suspended. I love watching germany and brazil play. Brazil was so lyrical. Germany was like boom, boom, boom. Youve been watching the world cup . You know, Something Else about it talking about this, the u. S. Olympic committee yesterday we love the world cup because it pulled the country to the again. We want to be to the. And the politics takes us apart right . And we love like all going to the bar and cheering for the United States. Were such a happy nation. And we want to have heroes. We want to have things to root for. And its just a shame that the politicians are so hell bent on ripping us to shreds. Thats true. Look how big the world cup was. Crazy. Thanks barry. When we yeah, like to be tim howard for a couple of days. Anyway. Youre fans, too. Do you have tattoos . Tons of dozens. When we return separating fact from fiction when it comes to politics and cnbcs top states for business. Scott cohn lays out blue versus red states next. And later Mohamed Elerian. And what he sees as a jobs challenge for fed policymakers. And as we head to break check out the squawk box market indicator. I make a lot of purchases for my business. And i get a lot in return with ink plus from chase. Like 50,000 bonus points when i spent 5,000 in the first 3 months after i opened my account. And i earn 5 times the rewards on internet, phone services and at Office Supply stores. With ink plus i can choose how to redeem my points. Travel, gift cards, even cash back. And my rewards points wont expire. So you can make owning a business even more rewarding. Ink from chase. So you can. Thats why i always choose the fastest intern. R slow. The fastest printer. The fastest lunch. Turkey club. The fastest pencil sharpener. The fastest elevator. The fastest speed dial. The Fastest Office plant. So why wouldnt i choose the fastest wifi . I would. Switch to comcast Business Internet and get the fastest wifi included. Comcast business. Built for business. Making head lines this morning, Small Business sentiment weakening last month, pulling back from a sixyear high. The nfib reporting firms feel less confident the economy will improve in the coming months. The ceo of walmart u. S. Says the job rebound is not spurring spending. Bill simon cautions the improving employment picture has so far failed to raise Cash Register receipts at the retailer. Dont miss the walmart exec on cnbc later this morning at 11 40 a. M. Eastern time. Michelle . Social media still buzzing this morning about a promotion at t. G. I. Fridays. The chain announcing endless appetizers for 10 per person. Sharing is discouraged. But fridays chief marketing officer says that rule will not be enforced by servers. Didnt we used to have a long conversation about diabetes and salad. Theyre going to order salad. Yeah, a couple of those places gluten free. Cheese cake factory where you get the you know for like six people. Portions are huge. Well, the comments continue to pour in two weeks after we unveiled our eighth annual list of americas top states for business. And this being an Election Year most of the conversation is about politics. And if you missed it, georgia, home of sea island, which you know something about, the phenomenal resort, was number one and i was happy for georgia. And rhode island was number 50, didnt really think much about that. Im sorry. Rhode island its not a place where you think wow where are you going this week . Newport is okay. Senior correspondent scott cohn is back to separate myth from fact and red from blue. And then ill bring him back to myth at the end. To separate the myth from fact. We kind of did this to you. We try to stay out of politics in our top state study every year. In the year where 36 states are choosing governors politics becomes the elephant or the donkey in the room. So the Republican Governors Association was quick with a press release about how states with gop governors dominate our rankings this year while in top state georgia a Progressive Group backing democratic gubernatorial challenger david carter accused of using data supplied by republican governor nathan deal. Back for the record its what do our numbers show . The top ten states for business this year six have republican governors, four are run by democrats. So red states get the edge this year. Here are the bottom ten, actually were looking at 11 because we had a tie at number 40. Five red states, including new jersey and louisiana, six blue, again slate advantage for the red. The average rank for republican states this year is 22nd. The average rank for democratic states is 30th. So what does it all mean . Well in terms of our study, and the way that we weigh this out it means that in the areas that states emphasize and their pitches to business, low cost being chief among them, republican states are performing better. But remember, we measure ten categories of competitiveness, and heres where things get a little more interesting. Eight of the top ten states for technology and innovation are blue states. Only texas and pennsylvania made the top ten. Same story for education. All blue except wisconsin and pennsylvania. In economy, which carriesed second heaviest weight in our rankages after cost, 375 points its even steven, five blue and five red. Competitive business can be complicated stuff. The true top states managed to excel in areas that often Cross Party Lines and they often have to make tradeoffs. There are a couple of things, you know who a georgia democrat is sam nunn . Mmhmm. Not all democrats are created equal. Oh, sure. We ha bob kerrey on yesterday and you should listen i said to him, hes so close to being fiscally a conservative that you know hes from nebraska. So thats one thing. The other thing i told you, your top five states all went for romney. Every one of them. What does that my point is that two years ago. And in 2008 one of your states went for obama, north carolina. By 0. 3 . Okay. Well that was my only and you cant and the top ten weve got minnesota. Cant give the governors credit for the fact that harvard is in massachusetts and stanford is in california. Education is sort of a funny thing. I look at mass education. I look at the Graduation Rates from high school which is probably not what you do. Let me tell you what we look at in education. We look at across the board the number of Higher Education institutions. We look at test scores. We look across the board, test scores so performance k12. We do look at spending. Class size. Things like that. So we try and take a very broad approach. So if youre a company that wants to go to a state where you can partner with a big university, for research, if thats what your thing is, you might want to look at a state thats better in education. If youre looking for a state with a large pool of educated workers, that come out of a School System that perform well, you might want to look more closely at education. What we look at. The way that we weight these categories is what are the states selling . Red states and blue states both sell low cost. So if youre looking at that measure, the red states but just philosophically, its probably its not simple but there are two ways to look at, theres Government Solutions and theres private Sector Solutions and we know which parties we associate with it, too. And then, for people that think its a pejorative to be a corporatist or to be probusiness, the republicans get sullied with that all the time. So why cant they, if its a good thing and not a pejorative, why cant they be associated with being probusiness when its a good thing . I think they are. This study bears that out. If theyre going to take the rap or being in bed with big business and being controlled by business interest, when youre looking for friendly business states its probably not a big stretch to be republican. What a lot of the commenters talk about, and its a fair point, is what about top states for workers . And were not doing top states for workers. Were doing top state for business. I would think its the top state for business. Depends. If you dont have a job it doesnt matter what your wage is. Thats right. But, you know, but thats unemployment is an area georgias unemployment is high. If business does well and gdp grows more and its 3 or 4 , im not arguing for trickledown sounds like you. To you it does. I know that. But normally, normally a Good Business or a good economy would mean good things for more jobs, and then if theres more jobs, then to get people you have to pay them more because theres more competition for those workers. It just seems simple to me to try and make it any more complicated just doesnt make any sense. So why do you get defensive im not getting defensive i dont think. Yeah you are. You said youre not trickled n trickledown how would a state be better for workers but not good for business . If you look at things like quality of life, you look at things like wages, you know, we in the top states for business, states that are heavy union states get points off. Some workers would say that theyre going to do better if theyre in a union. So, its, you know, its two different things. But you know, were looking at top states for business, and you know, there are the results. There was a slide i was going to put on which showed the fiscal position of the states. Mmhmm. And their pension obligations. And you have illinois worst in the nation. Closely followed by my home state connecticut and then you have things like florida the other end of the spectrum. No income tax. Shockingly no issue s on tha. For those states taxes are going to have to rise. For the blue states, theyve got to do something. Top economy and only pushes people further out of the state and how does that work its one of the things we looked at. Top economy in the country is texas. Number three economy is georgia. And they run fairly balanced state budgets. Exactly. So interesting. Its death spirals in other states. Coming up,. 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. E financial noise financial noise financial noise financial noise today, washington will become only the second state in the country to allow people to buy marijuana legally. Without a doctors note. Lines are forming in front of stores, but got lastminute approval to sell. Eventually there will be more than 300 recreational pot shops across the state. Reports say only about six licensed stores will be open, as a libertarian michelle, youre sure this is the right way to do it . Absolutely. Add heroin and get rid of the infrastructure and the criminal undertones of all of those things. Well, i mean, half the criminal activity has to do with selling drugs, right . The issues we have. You dont want a nation full of stoneheads all the time. I dont think wed have a nation full of stoneheads. You already would. You can basically buy pot anywhere you know. Coming up making the case for the nations Economic Growth versus job creation. And then Mohamed Elerian with some advice for fed chair janet yellen who is facing some big challenges in the very near future. As we head to break take a look at u. S. Equity futures. Slightly negative open. vo watching. Waiting. For that moment, where right place meets right time. And when i find it i go for it. announcer at scottrade, we share your passion for trading. Thats why we give you the edge, with innovative charting and trading features, plus powerful mobile apps so youre always connected, wherever you are. Because at scottrade, our passion is to power yours. Welcome back to squawk box. Lets look at some stocks to watch ahead of the tuesday open. Abbvie has increased its offer for british drugmaker shire. The new cash and stock bid is worth about 11 more than abbvies prior offer which was valued at 46 billion. That follows meetings last week between abbvies chief executive and key shire shareholders. Pet smart shareholder long View Asset Management is calling for the retailer to consider a sale of the company. That follows a similar call last week from Jana Partners which owns 9. 9 of petshort. Norwegian Oil Services Company cdrill has offered a convertible bond offering. The potential dilution from that price. And Deutsche Bank is under pressure. The bank along with commerzbank have begun settlement talks with u. S. Authorities over alleged violations of Money Laundering rules. So bnp paribas obviously just beginning for the u. S. Steve liesman now who is in the other washington this morning. Hes looking at gdp growth and jobs. Steve . Yeah, scott, we have a Major Economic mystery on our hands. Its very simple. We have tons of job growth, but no or zero Economic Growth. I went back to 1990. And tried to find a situation like this. Looked at the most six months of job growth, and average gdp over that time period. And this stands out as an incredible outlier. 1. 26 million jobs created over the past six months. If you add it all together. An average growth is estimated to be, well, if were lucky, it will be zero with a 2. 9 decline in the First Quarter and probably going to do 2. 5, 2. 7, 2. 8 in the Second Quarter averaging out netnet equals zero. Q1 13 we had another situation like that. The first thing it means is productivity is clearly going to be crashing here. So thats an issue that has that the fed is going to have to deal with when it comes to inflation. Lets talk about what these two stories are. One story is of strong underlying growth. The other is very weak. Heres the case for strong growth. The first is the jobs up 288 last time. Three month 270 to 1. 2 million over the past two months. The ism services and manufacturing strong. The housing data looks like its been rebounding with pending home sales. That vehicle sales number you cant ignore it up 17 million at an annual rate, and stocks. The stock market seems to be buying into the stronger growth story. What about the weaker growth case . Well you have that q1 gdp contraction. Some of which looks to have been weather but its very hard to explain all of it. Looks like some of it by the way at least half of it coming from trade. So weak Economic Growth abroad seems to be an issue there. The Small Business optimism survey we report at 7 30 jobs factory orders have been pretty lame. Parttime jobs are a big part of the job creation. And bond yields are still low. 2. 61 was the yield for yesterday. Take your pick here. These are two issues out there that need to be figured out for the market. I think people care about whats going to happen. A lot of economists i talk to are still on board with the rebound, and the growth will catch up to or otherwise justify the underlying job growth. Joe . Steve, werent answers to that or some of the answers to that in that piece that druckenmiller was on, too, the fed has orchestrated a Balance Sheet recovery but theres none of the investment and Capital Formation and things that actually add to gdp growth down the road. Its sort of ef emreand i knew you didnt like that and you would find ways of saying that it wasnt accurate. I sent it to you and i said why dont you put this under your pillow and sleep on it i was about to go on vacation joe when you sent that to me. Id written a whole piece contradicting that contradicting warsh and druckenmiller. That takes some guts, steve. Being an economist with an english degree. But my point was that they needed to show some data behind what theyre saying. If theyre positing a connection between quantitative easing and a decline in capital spending, they need to look at that. I looked at the data, joe, and i cannot find i really challenge them, i said you know what . Im ready to believe what youre saying. Show me some data on this. The data i looked at credited what the two of them said that there is a connection. In fact what the fed did and when the fed comes in with qe it comes in in response to declines in capital spending. What theyre suggesting is that theres a connection between the two. Its just not in the data joe. Im happy to show you my data. No. I dont want to see it. You dont want to see it . Would you rather believe warsh and druckenmiller because theyre both rich . Is that what it is . The last data you sent me was about how you know these are actually really great jobs being created and then i saws next day in the journal had that you know, the manufacturing jobs, and that was from wells forgo who did that, joe, and what they looked at was the past year versus what the journalists was whats the answer, steve, and whats the problem . You know, when you say that you know when you say the job market is just going gang busters, compared to the last five years it is. But you remember when we would do there were days when in the 80s you did 350, 400, 5 und a month i mean. These are pretty historic. The average of 200 is historic . 272 is a big number. Steve the problem with the economy has to be seen in walmart. Theres 65 consumption of the economy and americans arent spending money because they have no confidence. And i come on here before i said the more the fed intervenes in the Financial Markets and talks about quantitative easing and purchases and stuff, the more people realize its not a safe place to be. So they hoard their cash and they dont spend and it gives business with all this rhetoric gives business no real confidence to invest. So people and then you throw obamacare on top of it and your health care which is your most important perk of your business, it just people arent feeling and that is america. Then we have 2 Million People on disability today and were missing 1. 7 Million Construction workers. We have a home builder on the air, tripoint which yesterday merged with warehousers Home Building division. We cant find the workers, the housing markets softer, and home sale starts are softer because we dont have labor. We cant there are supply shortages of contractors. Theyre either on disability, which they werent on before but everybody seems to be happy on disability today. You heard about Truck Drivers earlier this morning. They cant find Truck Drivers. And the government isnt hiring which is good, actually. But the government jobs have not come back in this and wages are being held even by government sectors and states to modest increases. So you have you need if you look at the world the economys work with education is theres an educated workforce and the best example is germany right with this moan forring of companies with training people. Thats why toy have one of the lowest Unemployment Rates in the whole western economy and the u. S. Is not training people for the jobs that exist and people are not working. And you see the participation in the labor force in new york city . No but they dont like him much in silicon valley. Barry i dont disagree with everything you said. The only thing i would question is this and i keep coming back to this same question i agree with the signal value i think is what youre talking about with what the fed is doing, that creates a lack of confidence. The question is considering the alternative, which is if the fed were to not be buying not trying to keep down yields, would that have a positive effect on Business Investment . And if it would, id be on board with it. Its just hard for me to understand how if the threshold for investments is at x, adding to x is going to steve arent you surprised as the fed withdrew its purchases of ten years the feds gone the other way . Higher short rate would be to allow savings and induce people to save. My parents are older theyd like to make something on their cash. In europe youre getting fined for keeping money in cash so you have to invest it. Thats not healthy. And people know thats not healthy. Its not stable. Its not longterm. So i think rate also come down in the long end and that would be great for investment. Weve got to leave it there. Thank you. He agrees with things you say. Everything i say he tells me im wrong about. But if your parents need help youre help them, wont you . Are they living on fixed income . Do they have no theyre doing fine. My dad is 84. My mom is after younger. When my parents are great. Okay, all right. Living on fixed income somewhere. All right, when we return some advice for fed chair janet yellen. Mohamed elerian will weigh in on the strategy and the jobs challenge facing the central bank right now. Check out the yield on the ten year with its ears burning 2. 588. The stronger than expected jobs report raising some Big Questions for janet yellen and company at the fed. Joining us now, Mohamed Elerian, former pimco ceo cochief Investment Officer currently chief economic adviser at allianz. Mohamed how are you . Its good to see you. Good to see you, joe. Thank you for having me on. You know, when i think of a wedge, i think of like bleu cheese, and i think you know, i love ordering them. But your wedge, between the underlying economy, and where the stock market is, your fed orchestrated wedge, its like an allyou can eat wedge again at this point. It still hasnt we havent seen it narrow where the economy comes up or the market comes down. Are you still concerned that this is kind of an orchestrated almost a bubble in asset valuation . I am, joe. Youve been talking about it all morning. Theres two very distinct camps. On the one hand theres what you called in the 6 00 hour nevernever land where federal banks sprinkle fairy dust and you get to quote todays New York Times that you like so much, everything booms, and everything bubbles. On the other hand, you get a different view, which is the financial paradigm has changed. That is reprising all assets, and it will reprise the economy, as well, higher. Now two issues are critical. One is productivity, thats absolutely critical and the other is macropotential policy. In the shortterm the second view prevails. In the longterm we better have strong macro prudential and strong productivity. Do you believe in this macro prudential shove . Suddenly this is the new phrase. Macro prudential policies. Have they ever worked . Michelle, thats a great question. We have so much riding on that. The markets do. The view from the fed is very clear. Janet yellen said it again on wednesday, it is the first line of defense. She thinks its Strong Enough, but if its not Strong Enough, the second line of defense will be Monetary Policy. So her conviction is it Strong Enough . Evidence suggests that you know what . You better be careful, because in the past, markets have been really smart about getting around macro prudential measures. What is wrong with letting price dictate the market . Historically she doesnt want to let price and Interest Rates dictate the market. Its unbelievable. Shes afraid of that. Yeah. And you would be, too, if youve been so conditioned to believe that the market will sell off. Remember what happened in may june, one word, paper caused not just selloffs but caused market malfunctions. So the fed is very hesitant, and doesnt want to move on Monetary Policy until it is convinced that the economy but at some point, mohamed, an investor says the yield is better here, so im taking my money out of the emerging market and going somewhere else. At some point the Interest Rates start to shift, right . And does she think thats just not never going to happen that shes going to stop that that how is that possible . Its a basic decision people make when they search for yield. Yeah. And its a race michelle. Its a race between financial instability caused by too much money being put in the wrong places. Versus the economy healing. And shes saying you know what . I need to give time for the economy to heal. Its an allin bet. What if theyre doing damage to the economy . What if they are causing all kinds of issues like when you see the guy in charge of the reinsurance business say the Federal Reserve is ruining the reinsurance business because whats happened . Reinsurers arent getting paid so they werent actually underwrite the risk anymore. Now its hedge funds that are paying for reinsurance risks. Is that what we want . We want hedge funds deciding about hurricanes . Oh, we have this happening all over. The view of the fed, i dont want to defend it, im just going to explain it. The view of the fed is as long as the economy as a whole recovers youre going to be able to deal with pockets of dislocation. My view is be careful. These pockets of dislocation are getting numerous and are multiplying. So you better be absolutely right on macro prudential and productivity. And what are the chances of that . You know, in the market we trade the shortterm and for now the market is very confident about what yellen is saying. Which is im willing to take the tradeoff. Im willing to risk Financial Stability down the road for immediate economic gain and the market is happy to hear yellen say that. How does the fed bomb the deal with the fact that you know we keep adding jobs, we just come off a great jobs report yet the underlying economy certainly continues to sputter. People arent feeling great at all about where we are. How does the fed deal with all of that . Thats where it goes into problem. Productivity and competitiveness is an issue. As you said earlier there isnt enough investment. The easy way to solve that is to use the policies that address the structural issues but thats that going to happen. Washington is not going to step up to the plate. Congress is too dysfunctional right now. So the fed just keeps the game going hoping that you get enough feeling. And thats the big big bet right now that markets are all in as well. Mohamed can i ask you another question we havent talked a lot about it a lot but as a result of the volcker rule all this talk of inventories being so low on wall street that when a correction does come the gaps are likely to be very wide because to buy and sell is going to be extremely difficult because a lot of these desks just dont have the stuff anymore theyre going to go out and markets just become a lot more difficult. Oh, absolutely. We saw it in may june, if the paradigm changes as it did in may june youre not going to find the intermediaries, the broker dealers willing to give you Balance Sheet and thats why you get not just price adjustments but market dysfunction. And with the pressure of profitability of the banks right now, that provide you even less Balance Sheets so the Liquidity Risk is probably the most mispriced risk right now in mohamed, theres a case that can be made that the fed is behind the curve. If you were to there are certain things in the economy that if you were to look at them, i dont know whether or how much debt there is, or i dont know retail sales look at auto sales, if you were to put someone in a time capsule and bring them back and give them some of these positive things, and ask them where you think Interest Rates should be right now, very few would say that this warrants a zero on fed funds. Doesnt that by definition tell you that theyre behind the curve . It doesnt to the sense that they believe, they believe that the news Interest Rates both nominal and real is much lower than it was in the past. So they will say you know what you better recalibrate because when that person has been in the capsule he has not realized or she has not realized the structural changes to the economy. And thats the main issue. How much of the structural aspects are going to dictate where the longterm Interest Rates are. Im going to change topics though and ask you a question about the dollar. Its very important for investors today, especially as we invest offshore, its as i think about the next five years, and what will happen to the energy conflicts in the United States, and well be a net exporter of gas and oil probably at the end of the day, do you, and we used to send 250 billion offshore into countries that were exporting oil to us, particularly in the middle east, thats going to reverse. And it will change the current account deficit, it will change the do you think that the dollar is in for a i know you dont have an opinion on the dollar but i could sees dollar especially as you look at the euro for a long term being credibly strong. That has implications for our economy, too, because as the dollar strengthens our exports may weaken. But do you think the dollar is in for what is your prediction for the dollar . I think one of the things peel dont talk about enough is the reversal of the balance of payments as we stop the trade deficit could actually narrow dramatically, its always been my whole life weve been sending so much money on oil imports that could change. How do you think about that . So if you put a gun to my head right now and say take a position over the next two years, you cant change it, i would say dollar going stronger. Why . Because unless the euro weakens, unless the yen weakens, then those economies are going to be marred in such a bad equilibrium and the Central Banks are not going to allow that. Also the emerging markets on a better productivity issue. But in the shortterm. In the shortterm, its term, its still dependent. Over the longer term, hard to see the dollar not strengthen from here. I agree. Are you thin . I wish. I was staring at the palm drees, jealous. And grayer like youre in the sun. Are you huh . You got some time off . Tell me what is different about you, just smiling more . Youre not cleaning up someone elses oh, nevermind. Joe, i think its a different studio, probably, but im having a great time. Oh, its a different studio. Doing a lot of things and spending time with my daughter. Okay youre not on the la treen service. Why not. I cant help it. Thank you. More from the ceo after this, and tomorrow, cnbc exclusive, wendys ceo on 8 40 a. M. 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Well even send you this free calculator. Call now. Why wait . Lets get back to our guest host, a few minutes left, barry. Wheres the best police statila world to do deals, hotels and other things . Asset classes, real estate, and we have an energy group, and i have investments in my Family Office as well. Are the best values there . Risk adjusted returns i think theres more product and disstressors in europe than in the United States today. We tend to go to europe. On the macro, my view is theres a lot of come play sent si in the world and theres asset bubbles developing, and investors watch for tail risk. In our industry, in real estate, supplies in balance, but the world has never probably had more lightning points whether its isis or israel today or the separation movements of scotland and, you know, spain. Its the world think about, i think everyones levered long to a rising economy. I dont think rates are going anywhere globally. I think thats probably the whats driving this. The worlds economies are not Strong Enough. As we mentioned in the beginning of the show, emerging markets are the sub mermging markets going down, not up. Brazil, a market we invested in and have an office down there. You know, what we all missed, i think, is the education work force. They dont have the work force. We are excited about the macros to drive the middle class, but they dont have the workers. In the United States, if we invest 2 billion in education rather than war, we would be a much stronger nation today. Hows that . I was listening to arne duncan, head secretary of education, right . He said he put a billion dollars into early childhood, and thats like four missiles, not so great. He supported Charter Schools so dramatically in new orleans and yet on a national level, not as much. I think obamas done you know, id like to improve the Public Education School System so thats School Choice would be great about that, yeah. Its not just that. I mean, we have to be able to work with the unions to improve. But they hate School Choice and hate performance of teachers too. Nervous about where the stock market is . Nervous it goes strait up. The comment about liquidity in the system is real. The down will feel bad because the streets not making inventories, and i think a lot has a lot of the same trades on, whether its a lot of the trades that are Short Covering on both sides, currency and Interest Rates. Great having you in. Thanks, guys. See you soon. Join us tomorrow and squawk on the street is coming up next. Good tuesday morning, im carl quintanilla, with sarah eisen, and jimmy is back tomorrow. One of four S P Companies this week, futures weak as the dow fell yesterday but hung on to 17 k. Tenyear yield settled back a bit, and we have yellens favorite labor indicators today, the jolt survey in an hour and nearly every index in europe in the red for time being. Ro