Transcripts For CNBC Squawk Box 20140724

Getting reports on home sales. Andrew, good morning. All the way down at the stock exchange. Facebook shares getting a boost hitting record highs. The social times beating the street. The company says it saw an increase for both advertiseres and users during the Second Quarter. Well have more from analyst dean munser. Second Quarter Results fell a bit short. Cheaper Service Plans offered to customers without subsidized cell phone cut into margins. Were going to talk to an at t analyst in the next half an hour about that. There could be a bit of good news in there, too. Qualcomm Beat Estimates on the top and bottom line. The Current Quarter profit forecast came in below estimates. In unrelated news on the company, a Chinese State run newspaper reports china appss antitrust regulators report qualcomm has a monopoly. Also, gilliad, take a look at this, posting betterthanexpected earnings in revenue after the close. The company says its new hepatitis c drug has sales of 3. 5 billion in the quarter. That Beat Estimates. The 1,000 treatment has caused controversy with some questioning whether the high cost will place a huge burden on governmentrun health plans and private insurers. Two more stocks to go through here. Shares the customer reviews websites achys list hit hard in extended hours trading. Earnings missed the mark. The company spent more a sign of customers and its revenue forecast fell below estimates. And the final stock to watch this morning, trip adviser, its a company i use all the time, the Online Travel Research Company reported a lower than expected quarterly profit as selling and marketing costs rose. Those shares as youre seeing right there up following on that news. Joe. I just dont know. China, if they accused me or a company wouldnt you immediately take that as sort of a grain of salt . Youd say that proudly. Thats a term you might not want to use today as much but with a big salt lick. And then gene munster was one of those top guys when we had spitzer on and he was talking about the ranking of analysts, not based on ii, but hes i think on the board and they look at whether these guys can pick stocks or not and how they do medium to longterm. That might be a better thing. Yeah, yeah. So we were able to get him. Yep. You are down there. I am. We were not really saying why, but youve got ive decided if im ever youre going to be on jury duty. Jury duty later today at 9 00 a. M. So you get to be here. And the courthouse is just a tenminute walk. But i was driving in thinking about it. No rest for the weary, by the way. I was just thinking theres no way theyre going to excuse you. Because if the defense attorney starts talking to you, hes going to see you couldnt convince anyone of nil anything unless it was a lawsuit against a corporate ceo or a corporation. Then the prosecutors are going to want you on the jury. So either way, tier going to want you pup wouldnt convince any of the bad guys, but you will definitely go after can you come down to the courthouse this afternoon and just tell the judge about all my various issues because i feel like that might help me get out of this. A character witness. It depends on the case, on whos picking and which way it goes. Andrew, are you going to criminal court or a grand jury potentially . First of all, if its a grand jury, i dont think im allowed to tell you if it was a grand jury. Am i . I dont know. I dont think its a grand jury. I think you are. You cant tell me if youre on one. Yop. If its a criminal case, i know youre going to go back to the Early Childhood and see if theres anything that would excuse the person for whatever theyre doing now. But then again, if its a whistleblower against a corporation, i feel bad for you know what i mean . In washington news, senior white house Officials Say president obama is going to support antiinversion legislation proposed separately by congressman sandy levin in the house and senator carl levin in the senate. The legislation would mandate the Companies Must be more than 50 owned by a foreign entity. The president supports making this retroactive in may. The topic of tax inversions could be a major part of Steve Liesmans exclusive conversation with president obama today and the two will sit down for a conversation. You can see that exclusively at 5 00 p. M. On cnbc eastern. I saw long strings of this last night. But the best that this will do the best it can do is maintain the status quo because no one else can leave. But all the corporations that are doing business over there with their facilities and all the loopholes that are already in effect, it doesnt solve any of those things. So its not like actual reform. It will keep anyone else from doing it and people will say, well, thats the best we can hope for now. Well, youre not going to get this. They say we cant do big reform because we cant do that. Your point is you might as well go for the big reform. But in this cynical age that were in right now, i can just tell you with an election coming up in november, if you are the party on the side of raising the minimum wage and on Holding Corporations to paying taxes, someone in the white house could definitely say this is an issue. Well come down on this side. And its cynical. It might help in the election, but it doesnt help us. It doesnt help the country and it doesnt help us get beyond this 2 growth that were stuck in. And no one wants to cry for corporations right now. All youre doing here, andrew, its almost like someone who commits a crime, youre going to say im going to put them in jail so they dont commit the crime any more. But you cant educate them and but someone who cries out for help and tries to commit suicide, you can go and make sure you take away all the sharp objects and take away all the drugs, dont let them on the third floor of any buildings. But if you went in and your point is its not dealing with the problem. But youre going to see it and they know exactly what youre doing because its another way to try and id like to point out if you cant get it done and youre acknowledging that, you might as well go fosht overall tax form. I think it would be a positive thing where capital wants to come here. Joe, theres one sense of cynicism, and maybe im misreading it here, i dont think the president or anybody i know doesnt want some form of wholesale reform, broadly. The question is, you have the basht and you can put on a bandaid or let the patient die. Youre thinking youre going to get the house to go along with the bandaid. Youre not. Its not going to pass. Andrew, its just another how many of the this is not new. Ive seen six years of this where you know its not going to happen, but it allows you to talk in this grandios way that you would like to do if those other people werent stopping you. The first thing i said last night is fine, lets attach this bill to the next Obamacare Repeal bill. Theyve done that 50 times, knows it wouldnt pass, put these two together. And maybe that will you know its not going to pass. You know its not. Maybe it wont pass. Not maybe. Its dead on arrival. Well, then weve decided that everything in washington is and basically nothing can get done. Basically, that is true. If thats the case, maybe we are in trouble. You know what . Were arguing and were just talking at each other again. Its going going to be decided with an election. One side or the other, the leadership is going to have to change. The people are the only people that can do it. We had that conversation two or three years ago and the last election we said well have an election and then therefore the next four years nothing changed. Nothing change. Nothing changed. Nothing changed. It got more republican in the house and this time around it may even get remember in the senate. Well see. Is and once that happens, you may need another two years. But at this point, the two sides are not going to come together on anything, on any of these issues, anyway. I dont disagree with you. So what i would do is hope for leadership on both sides so you could say, ive suggested 25 28. Lets do this quickly. If were going to stop them, lets tie it to something that makes us within three months youve got to come up with something that addresses the you know, that were not territorial, that this global think of the money that could come back in. If youre happy with 2 growth, thats one thing. But like a lot of thats the other thing. People dont tie the slow growth to corporations not doing well. They say corporations are flush, look at the stock market, but then the job market should be better. We should expect more than twothirds of new jobs being parttime. Its not a plush market. But it wont create jobs. The last time they allowed a temporary corporation holiday for these things, it was called the jobs act and their point was it actually ended up going we didnt lower Corporate Taxes, though. It was ta temporary holiday. Were way above everybody else and thats youve got to theres no time like the present. I can only hope the leadership we will see what the president has to say later today. Unfortunately, he doesnt after all this, me and you and we have no influence on any of these things. Liesman, either. Hes on his own. I think we have a little more influence than you think. The president is coming on our network hopefully for a reason. Lets tell but other news now, joe. The faa has listed its ban on u. S. Flights to israel. The faa made that decision yesterday. The faa ban was criticized by the israeli government. Martin fletcher joins us now from tel aviv. Martin. Hi, andrew. Yeah, so the faa overthrew the ban. Not all the airlines have resumed their flights yet. Of course, the europeans who follow the faa in banning the flights, about 30 airlines altogether, International Airlines stopped flying into and out of fell avetel aviv. Now theyre waiting to see what the european advisers instruct them to do. There were more rockets fired from gaza which came towards tel aviv. Again, they fell harmlessly into the ground. Some were interrupted, intercepted by the iron dome. But it does pose a continuing slight threat to the airport. Now, the former mayor of new york, michael bloomberg, is here. And hes taking some of the credit and, actually, some of the israeli analysts are giving him some of the credit saying that he was a very loud voice in israels favor, telling the faa to overthrow the ban, toying on the American Government saying its unfair and unnecessary. Hes saying if there was a threats to nfj mroom bloomberg is get can credit for focusing the attention on that issue. All of this is taking place in the back drop of focus on the talks of john kerry. Hes a very important part of aimed at reaching some kind of ceasefire agreement. As we were reporting yesterday, it does seem to be firming up the idea of a fiveday humanitarian ceasefire, during which a longer ceasefire would be worked on. But the two sides, hamas and israel, are still far, far apart, the fighting is intensifying. 30 more palestinians killed overnight and israel saying it needs time to take out that rocket the panel infrastructure which is so threatening to israel. So pressure put towards a ceasefire, but intensified in fighting, andrew. Martin fletcher. Becky. Andrew, lets focus on the markets though morning. We did see a mixed session. S p futures are up after 2 and a half. Dow transports were at a record high. You did see a drop for the dow yesterday mostly because of boeing. In the oil markets, its down by about 42 cents. 102. 70 is where wti stands. And the tenyear note, yesterday the yield was down to the third day in a row to 2. 46 . This morning, a little higher, 2. 482 . Yesterday the euro was down for the fourth straight session to below 1. 35. Continues there today. The euro is trading at 1. 3475. The dollar is up against the pound, too. Finally, take a look at whats happening with gold prices. 1,390 an ounce. Back to the big tech story of the morning, facebooks shares hitting record highs. Joining us now is gene munster. And i wasnt here yesterday, gene, but joe was just talking about one of the best records weve seen out there. I appreciate it very much. What was happening, where you call the stock. Kind of a low barging, but congratulations. Thank you. Ill take it. Gene, you looked at facebook. These were monster earnings. You had to be impressed by what you saw, too. Absolutely. Theres two things going on and working for facebook. Their core business is phenomenal. Pricing is up over 50 user on year. And the second piece thats going to drive this stock in the future is they have a number of shots on goal of products theyre not monetizing today. So you have a good, strong core business and you have opportunities in the future. And i counted seven Different Things that they have that arent baked into the street number thats theyre going to get into in the next few years. So investors are always about the future and thats the unique set up about owning facebook, even up 6 this morning. Yeah. In fact, right now, its up 7 . It keeps pushing higher. I know that you have an overweight rating on this, but as a result youre raising your price target . Thats right. And right now, we assume a 27 multiple on next years earnings. I think that that multiple, the longterm earning eggs growth rate is probably going to be 20 or 30 . So i could see that multiple increasing. I think given the number of things that they have in the hopper, you know, whether its video or instagram, theyre getting into commerce with a buy button. They have whatsapp, i think thats going to continue to power that Earnings Growth rate which will keep that for the foreseeable future. What is your growth rate . Were at 90. What was is before . 77. So its already sitting at the price target. Thats why youre decreeing numbers. Was there anything in the report that concerns you or does this look like its firing on all cylinders at this point . Theres nothing thats concerning. We surveyed 12,000 teams twice a year and their engagement has been fading with facebook, increasing with instagram, increasing with whatsapp. So thats still kind of this was going on in the younger demographic. I think the reality is they grew users 14 year over year and they have a lot of room to increase, engagement and monetization with those users. I saw yesterday, it was a comment that zuckerberg made in the Conference Call where he said there are over a trillion posts now to try and get your head around how many that is. I was trying to figure people in a stadium, how big that stadium would have to be. Does that matter or is that not even a metric that you look at . No, that matters. I dont have anything to put it into context but it does matter and that plays to engagement which all gets back to with that big engagement, they can find different way toes make mopney. They have strong leverage pricing which gives them room to slowly move into these other products. When you say slowly, theyre not going to corrupt the experience. So i think theyre in a unique place to continue to grow the business based on that. Gene, last week we heard from janet yellen who made comments about some of the areas in the stock market that could be overpriced. One of the ones she mentioned were some of the technology areas. Of course, people start thinking of social media. Other stocks in this arena. Did any of that resinate with you . Do you agree with any of the sentiment . I think just some of the vertical moves in some of these tech names is always concerning. I think at the end of the day, as we look back at the ones that have had big moves, the real core businesses, the ones that will be around for a long time like google and apple and facebook and amazon, those moves higher dont concern us. Its some of the Smaller Companies that dont have the Management Team and the moves that are more concerning. You mean some of the ipos that have recently come out . It could be some of the ipos and some of the ones that havent done so well. I think i would just say this, stick to the core strength names and i think you cant go wrong, even if theyre up at alltime highs. So all four of the ones that you just mentioned, you like amazon, apple, google . Yes. We like them all. Gene, i want to thank you very much for talking to us today. Great talking to you. Thank you. Coming up, were going to till what twitter is doing. Theyre releasing their diversity figures. A new study ranking the happiest and unhappiest cities in the nation. New york where em right now, taking one of those titles. Well tell you which one when squawk box returns. Es, if it becomes simpler. If frustration and paperwork decrease. If grandparents get to live at home instead of in a home. The gap begins to close. So lets simplify things. Lets close the gap between people and care. 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. Breaking news, we are getting reports of a missing plane that was flying from a west african country to algerie. Contact has been lost with the flight. It has 110 passengers and six crew members aboard. Company officials are trying to find out what happened to that flight. We will have more details as soon as theyre available. Right now, its time for the executive edge. Twitter releasing its diversity figures. Nearly 90 of twitters workers in the u. S. Are white or asian. Men make up 70 of all the staff and 90 of technology staff. Twitter is taking steps to diversify its staff. This follows what weve heard from yahoo and google who first came out with some of these numbers. Yeah. I dont how does a does it surprise you that an Engineering Company and a Technology Company i guess theyre saying you have to be proactive. Because the company organically grew into what it is for whatever reason. Now its in a position where it needs probably to foster diversity and actually take proactive steps. You dont just end up with the perfect diverse workforce. But their numbers were not as good as facebook or googles, i dont think. Now, youre right. Its a smaller work tors and google and yahoo probably have other employees that theyve pulled in. Its tougher to find engineers and it takes a much bigger search to fit that profile. The engineering issue is a larger issue just in the country in terms of actually just being able to find the talent first, but then also just the education issues and sort of you look at sort of the skew of how that even looks right now. The one thing that usually you come out here and spend, you know, four or five hours. And i can see your mood lighten when you get out of new york city. And today, i just figure as the most miserable city on the planet for people that live there, the most unhappy and i dont know why. You can step in dog crap. You walk out your doosh, people dont you know, there could be someone ready to throw you under a subway train at any stop where you are. All 18 Million People packed together on top of each other. I dont know why you people are miserable there. But normally we can count on you to come out here and spend a little time just to get away. Its almost sad. Is it that he has jury duty or i said that im not getting im sad im not getting to sit next to you. But thats a break. Its a respite. Its manhattan affective disorder. Its called m. A. D. And its something that you usually deal with by coming out to the garden state. Which is named very aptly. Let me read the story. You deserve this for what you said about new jersey in the past. We havent explained what the story is. Were going to fully explain sglipt you dont need to explain it. People know people are miserable in new york. Let met just read you what the story is and get into it so you can understand it. It says the city that never sleeps has now been ranked the unhappiest city. The study asked people here is what the study asked people. In general, how satisfied are you with the your life . It ranked answers from Income Housing prices and age and other factors that might influence how people could be. Lafayette, indiana wab was prompted to be the happiest city in the country. However, i would suggest to you the way the questions were posed, new york city is a city of strivers. Nur oeurotocism. Whatever theyre doing, sitting next to the cows. Im just happy im here with the cows. Not in new york on a fast track where if you can make it there, you can make it anywhere. So annoying. Yeah, just too dumb to know. Joe . What . We are here in the bastion of capitalism. You hate capitalism. Thats why youre unhappy. But this is the city of strivers, this is the american dream. I did miss you two while i was gone, i have to say. It really isnt the same not getting your mornings off to stop the presses. People in new york are miserable. The new study, people in new york might be unhappy. The problem is its how you define happiness. No kidding. If youre drinking 1 sthous bottles of wine at night, its a pretty good place. Otherwise, youve heard of the concrete jungle . Have you taken the subway in august . Can i just read you the subway in august is fine, too. This study says our interpretation of the fact is that individuals do not aim this is in new york to maximize selfreported well being or happiness as measured in the surveys and they willingly endure less happiness in exchange for higher incomes or lower do you want that for your children . I want any children to be happy. Now youre arguing for the 1 big fat cats. Now theyre striving for now theyre striving for success. Make up your minds. This is the american dream. Im living in it right here. This is a nightmare for me just listening. Anyway, m. A. D. , seasonal affective its heard of s. A. D. , not m. A. D. Thats manhattan affective disorder. I cant even say that with auto straight face. Its cured by coming out and taking a ride down the turnpike down that soprano drive. Your ride home every day. I was thinking that when i drove down the other day, i said you know what . I see what joe is talking about. You put on the blinders and you go and we do, all that waste that comes from the 14 mm Million People, we do take it away from you and take it somewhere. 14 million or 18 million . 12 million at night, 18 million or is it 12 and 8 . I forget. Usually you get to come out here and i can see your mood lighten. Now youre not going to get that today. Im lighter than light today. You have to go to jury duty. Jury duty is a little too much. Are we still doing this . Do you want me to read this . Okay. Four square is rebranding itself. The social media app is best known for letting people tag their locations, apparently. The Company Unveiling a new app today. Tun branding will shift the app away from checking in instead. And the goal will be to help users search for nearby places and better compete with local search platforms, like yelp. That was one of the things where i read it and really dont know what i was saying. Andrew, i will say last night i learned how to on my iphone, double click the button to where Little Things come up and you get rid of them. And i had, like, 30 things that were on and open. Yeah. And im told that that hurts my battery and that i need to it doesnt hurt your battery. We can talk about that during the commercial break. It doesnt hurt your battery as much as you think. But looking on the bottom of your screen, Quarterly Results just hitting from ford. Phil lebeau joins us now. Andrew, ford beat the street in the Second Quarter earning 40 Cents Per Share versus the street at 36 cents. Revenue from the Automotive Division coming in light of what it was expected at 35. 3 billion versus 36. 3 billion. Record quarterly profit any quarter for ford in north america, 2. 44 billion. And in europe, which has long been a problem not only for ford, but all of the auto eshg mas. First quarterly profit in over three years, 14 million, and they expect to lose money in the second half of this year, but that is important that they have finally posted at least one quarterly profit in europe. Five of six regions, they posted a profit. South america continues to be a problem not only for them, but all the automakers. And they have raised their cash flow guidance for the year. It was expected to be substantially lower compared to last year when they brought in 1. 6 billion in cash flow. Now theyre saying its simply going to be lower. So a little bit of improvement there. Full year guidance has not been changed. Were going to be talking with bob shanks coming up in a little bit. Ford beating the streets, coming in at 40 cents a share versus the estimate of 36 cents. Guys, back to you. Phil, great. We will talk to you about the events coming up in just a little bit. When we come back, the story behind at t, cheaper cell phone plans taking a bite out of revenue. Tonight, dont miss Steve Liesmans exclusive interview with president obama. Catch it at 5 00 p. M. Eastern here on cnbc. As we head to break, take a look at yesterdays winners losers. Eli lilly will be reporting results. We are looking at numbers above expectations. 68 cents a share versus 65 cents in the year ago period. And the revenue number was 4. 9, 4 billion. Thats above estimates, 4. 899. The company acknowledging that the results were hurt by patent expirations of cymbalta and another drug. The Company Earned 68 cents in the year ago period. Revenue was down 17 n Second Quarter. They say it was partially offset. This is what theyre dealing with. The numbers that the Company Earned last year for 2013 was 4. 15. Thats the Company Makes its numbers this year, it will earn 2. 78. So 4. 15 to 2778. This is not unique to lily and any Pharmaceutical Company thats in the business has probably had its share of patent expirations. Its hard to replace a drug. You have it for a certain amount of time. Its probably unique. I guess the difference is a drug company is expected to have a constant pipeline and be constantly replenishing with new innovation. Its a tough battle. It would be nice if you could patent a smartphone so no one could compete, but you cant. With drugs, it takes so long to develop them, you get a patent protection for a while. Like a razor. We would still be using one blade instead of 14. Who can get a close shave with one blade . Oh, andrew. Were going to talk at t. The Telecom Giant reported yesterday, craig is joining us now. The surprise for you, given that they did seem to miss estimates, i would say marginally, but i dont know where you come out here. Well, look. The results are actually a little worse than they appear because the accounting treatment of these new equipment installation plans is much more favorable. So the surprise isnt just that they came up short. Its that with the big accounting benefit or the tailwind from accounting, that they actually didnt do much better than they did. So really the discounting is actually quite severe. And my understanding is that the argument they are trying to make is that they are making a deliberate shift away from subsidies. Is that whats happening here . Well, only partially. Its true that they are. But there are about 16. 5 million customers by our calculation that have effectively been given the discount as if they were paying the full price for their phone when, in fact, they were still on subsidy plans. It turns out thats a temporary price cut, if you will, because sort of what at t has done has griffin the last half of what the customer owed on the last phone they got. But it is aggressive discounting. Thats why youre seeing better retention is because youve cut customer surprises. Im trying to see the Silver Lining. Im thipg thinking this is higher lifetime revenue if they can keep these people. Well, not exactly. Look, the switch from paying for a phone via subsidy or paying for a phone via up front price isnt terribly significant, right . It just takes 20 a month, say, from the price of service and moves it into 20 a month for the price of equipment. The accounting treatment is very different. So what at t is doing is theyre giving that 20 a month discount on service to 16. 5 million customers who actually didnt buy their own phone. Theyre just cutting their prices. Greg, between at t and ver vison, you like verizon better . Yeah. Verizon i think is operating much better. The challenge for verizon is theyve been able to maintain much higher prices. And the question is with everybody cutting underneath them, will they be able to sustain that price umbrella . Two things, the iphone in the fall, how does that change the game for you . Is it a better thing for verizon, better for at t or does it matter . I dont know what the change in the way customers buy it is going to be that significant. I think a lot of people have been worried that the transparency of pricing under the new plan may be harmful to hand set sales. Id make the court case. In fact, when customers are paying full price, eye croironi they calk out the door paying less thats they can finance the whole thing and that may accelerate the sales of smartphones. And finally, directv, does this make sense to you . Not to me. Youre taking two platforms that have fundamentally separate cost structures, two separate sets of delivery equipment, two separate sets of workforce, and youre trying to cut the price on the bundle of the two of them, but there are no cost savings to support the integration. So strategically, its very hard for a combination of a phone company and a Satellite Company to truly be competitive against a Cable Company where they do everything that they do on one cost structure and one platform. Greg, its a longer conversation and a greater debate. For now, were going to leave it there. Thank you. Appreciate it. When we come back, we have veteran auto reporter paula grossi joining us to talk about results. And ahead, gm which is expected in the next hour. Stick around, squawk box will be right back. Will mean making it lighter. One day, factories will work with the cloud. One day. Is today. We stathat the kid on thehought back of the bus might have a song that he has in his head but he just cant get out. With the technology of cloud, we change all that. I can sing something into my device, up to the cloud it goes, back down it comes, sounding better. We break down the walls of creation and we give music creation for the masses. Unlock the creativity in anyone. With the ibm cloud. The ibm cloud is the cloud for business. Ford motor posting betterthanexpected earnings minutes ago. Joining us, paul androsi, managing director at reuters. But so much more, so much more. You are mr. Autos, youve written books, youre one of our goto guys. What are your thoughts on, you know, with youre seeing . Its better this year, i think, than anyone thought just in terms of total vehicles. Well, yeah. Absolutely, joe. I mean, the i think the most amazing thing from the ford results this morning is that the First Quarterly profit in europe in thee years. Now, look, its a small profit, but given the fact that europe has been a huge drag on forward earnings for the last few years, theyre all coming out in north america. What it means is that all their cost cutting and their painstaking work that was done under steven odell who heads their mid east operations has finally paid off. Gm already makes money in europe, dont they . No, no. Opal is still a problem. So europace a problem for both of these guys, then, right . Yeah, it has been. It has been, definitely. I guess they make money where does gm do best . A lot of buicks are sold in china, right . Yeah. Gm is still ahead of ford in china. Although i was surprised that china ford is gaining momentum in china after a late start. And that is a surprise because theyve come on stronger faster than most people expected, considering that gm was in the market years ahead of them. Now, gm is still outpacing ford and china, but the gap is starting to close. Andrew, are you with us . I dont know if andrew is with us. Im going to get him to ask you about hyundai. Because i like the way he says it. You just want me to pronounce it. Im here, voe. Youre sandbagging me. Now i just said it the right way, so now you know. Did hyundai report, as well, paul . Yes. Hyundai was out this morning in asia time and, look, this is their biggest quart ily profit decline in several years now. Theyre down about 7 . And one of the things thats hurting them is the flip side of whats helping the american producers is the strength of the korean currency, the would n, whereas the dollar is not strong on international market. So what is helping hyundai is hurting detroit. I know that i watched the korean report when did you get fios . I moved to this. Oh, temporarily. And i dont like it. I dont know how to use it. I have both. Look, if i brought my family in and let them talk about verizon, we would be in trouble. Theyre throwing stuff and yeah. Ill tell you what i worry about, paul, more than anything. That is that weve thrown everything we have at the economy and its worked pretty well with housing and auto sales. I worry that we dont have any dry powder if things were headed the other way. We cant go back to qe. Auto loans are people look at those and think those are scary. Well, thats one possibility. Subprime lending has moved from house to go autos. So that is one issue. I think, you know, one of the things that really is happening now is that the age of the fleet, the average age of the american car and truck on the road is still 11 years. But, you know, a year or two from now when that average age starts to decline, people could keep their cars longer. That could hurt sales momentum. The other issue frankly for these Companies Overseas is what about an emerging market like russia where there is its at a growth area, but the political turmoil there is an issue and also thats having an effect on the russian economy. You know, paul, we said that you were going to tell us whether we should buy these stocks. I dont know if you do that as a reuters guy. But ford has kind of been you know, not a lot has been going on with any of them im not go buy or sell, but i will say this, one of the interesting things about ford is, they have invested a lot of money in the last couple years in a major new product offensive that will start being unveiled this fall. With a new ford mustang, and especially the new f150 pickup truck which is really a largely allaluminum body. And thats its a lot more expensive to produce, but much more lightweight. So theres a lot riding on that pickup truck, so to speak. And if that takes off, i think ford would be definitely worth a look from an investment standpoint. All right, thanks, paul. Appreciate it. Okay, see you guys. When we come back, starbucks is set to serve up results. Well get a preview right after this. S that man . Dad hes our broker. He helps looks after all our money. Kid do you pay him . Dad of course. Kid how much . Dad i dont know exactly. Kid what if youre not happy . Does he have to pay you back . Dad nope. Kid why not . Dad it doesnt work that way. Kid why not . Vo are you asking enough questions about the way your wealth is managed . Wealth management at Charles Schwab welcome back to squawk box. Starbucks set to report right after the bell today. Joining us right now is morningstar consumer equity strategist with a bit of a preview on whats to come. Rj, just sort of head line numbers, what should we be looking for . I think theres a couple things to focus on. I think looking at the u. S. Comparable store Sales Numbers probably the most important thing. Been a story of have, and havenots this quarter. Weve got the likes of chipotle knocking the cover off the ball. Starbucks will be one of the positive traffic growers for the quarter. I also want to see how their food and beverage program, some of the expansions theyve done there. Looking for about 6 comps out of the u. S. Segment. I think thats going to be a key number there. Also looking at the Channel Development segment, thats a higher margin business than the Retail Business thats been growing at an accelerated pace. Like to see some acceleration there, possibly above 10 . And lastly looking at the operating margin for this company. I think 200 bips of Margin Expansion is possible. I think these are the key things to look at. They raised prices over the past year, in part because coffee prices or coffee bean prices have gone up. How much should we focus on that . I think its something to keep a look at. But i think some of the attention has been a bit overblown. Coffee costs represent about 15 to 20 of the overall cost good sales for this company and only 10 at the store level. So i think that, you know, its something that obviously will have an impact. But i think its something that they could mitigate through pricing increases and other levers they have at their disposal. The other thing is theres usually a lag effect because the company locks in prices, usually 12 to 1 months out. Not going to have much of an impact on fiscal 2014. Might be an impact on 2015, particularly in that Channel Development segment. But something that they can offset with price increases and other things going on. R. J. , real quick geographically, they had a great quarter last year in china, or the last quarter was great in china. I think youll see continuation of that progress in china. I think that theyve struck a chord with the younger audience, younger demographic in china. I think thats going to drive it. Europe will be an area of improvement for that, too. I think theyll be one of the winners for the russian spaces. R. J. , thank you for being with us. When we come back were going to talk, because Morgan Stanleys greg fleming is going to join us and eli lillys ceo is going to join us, as well. Announcer ] theres a gap out there. Thats keeping you from the healthcare you deserve. At humana, we believe if healthcare changes, if it becomes simpler. If frustration and paperwork decrease. If grandparents get to live at home instead of in a home. The gap begins to close. So lets simplify things. Lets close the gap between people and care. 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Could help your business didavoid hours of delaynd test 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. Squawk box gets behind the wheel of earnings central. Quarterly results from ford and General Motors. And a first on cnbc interview with the cfo of gm. Plus, an earnings season house call from the ceo of drug giant eli lilly. And, an earthmoving conversation with the chief executive of caterpillar. The second hour of squawk box begins right now. Good morning, everybody. Welcome back to squawk box here on cnbc. Im becky quick along with joe kernen and Andrew Ross Sorkin who is down at the nyse today. Our guest host for the next hour is greg fleming. He is the president of Morgan Stanleys Wealth Management and Investment Management divisions, and greg, it is great to see you. Great to see you again, becky. Thank you for coming in. We wonder when he comes in, he decides this is like the big victory lap. Morgan stanleys results, which were great Wealth Management. Its all him. That were actually we dont do this just to reward you although it is a plumb thing we do it because who knows more you will be able to tell us about what the people that you serve, the Wealth Management, how theyre feeling, whether theyre, you know, whether theyre still worried. Whether theyre fullin and think the markets never going down, and that gives us a good read on consensus. Where we are in terms of the age of this bull. It does. We have 16,400 advisers, 4 million clients and 2 trillion of client assets so we have great insight into what people are can they get through to you . All the time. Im going to call and pretend im somebody. See how long it takes . We should do that right after the show. Did i say what its concerning mr. Mr. Fleming is currently busy. Can i hes a little busy right now. Make sure you leave the legitimate callback number. Honestly, how are people feeling right now . What is the sense you get from your clients . You know, i think that the u. S. Economy is improving, and that ripples through what our advisers are seeing and what clients are seeing. You know, theres really two pieces to it. The underlying economy, which people are feeling better about, at least here. And then markets, which are challenging in the sense that the fixed income side of the equation, rates are clearly going to go up. So the Asset Allocation around that remains a big hurdle for advisers and clients. Some day slowly. But the concern being out there for a Financial Adviser counseling a client, youve had a very good run in the stock market. Youve got Interest Rates at effectively zero. So that calculus is a challenge for our advisers and clients. High net worth clients what is the average that these people have under your management . We have many, many clients with more than 1 million with us. And, frankly, it cycles up from there, 10 million, even beyond that. Youve rewarded brokers for getting bigger clients and try to weed out some but you still have mom and pop people, serviced by your Financial Adviser. Totally, joe. In fact, we have incentives for our advisers to grow. To get more. But youre not going to turn anyone away. It just might not be as lucrative for Morgan Stanley Wealth Management if youve got over 16,000 Financial Advisers, its a big umbrella. We have a lot of our advisers that are now working with their clients in an advisory capacity. We have over 760 billion in these advisory accounts. But we still have the old Commission Based model and were happy to have both. It is challenging because one, when you do Asset Allocation and you need diversification to minimize your risk, a very powerful part of that is usually mfixed income. You almost feel handcuffs which pushes you out the risk curve where you could be way too heavily exposed on the equity side. Its very challenging. The exact challenge. This is where investment professionals, whether its institutional, hedge fund, our Financial Advisers, think is the big challenge across the investing landscape. Were going to talk more about that in just a moment. But we do have some something to talk about a developing story at this hour. Were still awaiting more details on that missing air algeria flight that was bound for algiers. Swiftair is the operator of that flight. It says it lost contact with the md83 jet which was carrying 110 passengers, and six crew members. Company officials are still trying to determine what happened to the flight. By the way the faa has lifted its ban on flights by u. S. Carriers to and from israel. That ban had been first put into effect on tuesday after a hamas rocket landed near tel avivs bengurion airport. It was extended up to 24 hours yesterday afternoon. But the ban was lifted last night. Also, we should tell us, automakers are in the spotlight on a very busy morning for earnings. Ford reporting Second Quarter profit of 40 cents a share, four cents better than the street was expecting. Revenue did come in a little on the light side. The company posting, though, its first year profit in three years and a record north american profit that stock is up by about 12 cents. Andrew . Also were talking tax reform today. Senior white house Officials Say that president obama will support antiinversion legislation proposed separately by congressman levin in the house and senator carl levin in the senate. Legislation would mandate that Companies Must be more than 50 owned by a foreign enity to escape u. S. Taxes. The president also supports making this retro active back to may. Now the topic of tax inversions will be a major part of Steve Liesmans very big, exclusive conversation with president obama today. The two will sit down for a conversation you can see exclusively right here only on cnbc at 5 00 eastern time. Joe . Start saying were talking tax reform. This certainly is not tax reform. Its a form of tax reform. I guess. We would like to have a larger tax reform package for all of the Corporate Taxes, and possibly even individual taxes would be nice to actually instead of just putting in more disincentives, it would be nice to incentivize things. Its a fully its a negative halfempty approach to what were doing. At best it maintains the status quo and we should do so much better, which is what we should hope for, andrew. Did you see no, anyway. Lets move on. Eli lilly, Second Quarter earnings beating the street by three cents a share. Revenue also topped expectations. Eli lilly stock has been doing well, even though it dealt with some daunting patent expiration issues. But its done well this year. Outperforming the rest of the Broader Health care index. Lets get more on the companys Second Quarter. Joining us now, were going to call you doctor today, dr. John lechleiter, chairman and ceo of eli lilly and our host greg fleming continues with us, as well. It would be nice to get this little period out of the way, wont it, john . In terms of, you know, earnings being below last year because of the patent expiration cliff that youve had to deal with . Joe, weve had several years, as you know, first of all, good morning. Thanks for having me on the show. Weve had several years starting back in 2011 with our product zyprexa, which we lost the patent late last year and through this march where we lost evista. Weve had several years where weve lost patents. Its been a roller coaster ride. We said we would continue to invest in r d, we would continue to advance our pipeline. We launched cyramsa a couple of months ago. We have other launches planned, Regulatory Filings planned so were working our way through this period and we aim with these new product launches to begin to resume growth as we come out of this year. You know, we have had a discussion lately about a lot of things. I want to talk to you about pfizer and inversions and things like that, as well. But first i want to talk to you about this controversial not controversy, but a debate about what a drug Company Really should be when you look at the allergan situation. There are people that say its so hard, and takes so much to develop from really from a lab bench to the bedside, so hard to do that that if you want to be a Profitable Company that maybe you ought to let that happen at universities, or at Public Private partnerships, or even at the nci or Something Like that. And then once you see that theres potential, then go in and maybe develop them. But, you know, theres two ways of approaching Drug Discovery now, and pharmaceuticals do you ever feel like youre spinning your wheels by spending so much money on research, john . No. By no means. I mean, i think there are different ways, joe, of approaching this. Certainly a lot of interesting ideas, a lot of interesting concepts. Targets, even molecules come from academia. Come from small companies. You know, over its history, lilly has had many, many of its products as a result of partnerships. Insulin, which we launched in 1923, was a result of a partnership between lilly and university of toronto. So i think we all exist in this ecosystem but we really believe that lilly we need a Strong Research organization, external researchers want to work with a company that has experts in the field, whether thats diabetes, alzheimers disease, cancer, so were going to have to continue to invest in research. But i think the way that we do research is changing. You made acquisitions that were very important to the growth of lilly, though, too, and i would imagine those will continue a biotech companies, a Research Company . Weve made acquisitions, we bought icos in 2007, we bought imclone in 2008. Theres going to be at least two molecules out of that imclone pipeline that will launch and become products for lilly. So it is a combination. We will continue to look for opportunities to do those smaller kinds of acquisitions, and licensing, but we dont believe the big, largescale combinations are the right thing for lilly right now. John, its great fleming here. Along those lines, lilly and you really have stood out for doing some of these smaller fillin acquisitions, but really sticking to an organic Growth Strategy with some real success, obviously, over the last couple of years. And the stocks reflecting that. Thats something that youre likely to continue going forward, it sounds like. I think so, greg. I mean, for example, look at our Animal Health business. We were number four in the industry not so long ago. It was a 500 million or 600 million revenue business. Weve done about one small acquisition a year culminating in a large acquisition we announced in april, our intention to buy novartis Animal Health so when that closes, early next year, we will be number two in that industry, but if you look at our growth, the growth has come about half from those acquisitions, and about half from our organic internal pipeline. John, i should point out, people have even looked at you as a potential target, after pfizers deal for astrazeneca fell apart. Its something that ive seen speculated in certain places, certainly nothing that ive seen substantiated but have you heard from pfizer . No. Weve not heard from pfizer. We dont aim to be anyones target. Weve made it clear that we believe the best path for eli lilly and company is to remain independent, to continue to invest appropriately in r d, and generate the kind of growth that shareholders expect. So, weve been clear, becky, back to prozac days that we believe that theres no evidence that supports the longterm benefits of these largescale combinations. Certainly in the shortterm, you do see benefits. But our business has longtime horizons. And i think, you know, were thinking now about our products in the next decade. So, i think keeping that longterm perspective in mind is important. Im sure the people of indianapolis want to see you as an independent company. Can i ask you, though, john, what you think about some of these inversions . Its certainly gotten a lot of these tax inversion deals that have gone on. Is that something lilly would ever consider . And what do you think about some of the Drug Companies that are . Well, becky, i cant comment on the motivations of particular companies. I heard some of the earlier conversation. I heard gregs comment, look, the current u. S. Tax system puts u. S. Companies at a disadvantage relative to ous competitors. Thats a simple fact. And i think some of the companies that are acting on these inversions and doing these inversions are simply trying to level the playing field. If weve got a concern about inversions, we need to tackle our tax code. This has been something that business has been asking for for many years now, and i think its time to reopen that conversation and to move forward. Yeah, youre just you know, theyd say youre just a businessman. You know, ive even seen it put forth, john, that its not even to be more competitive. Its to have more money to buy back stock, to tie your compensation to the stock going higher, and to allow you to pay more dividends to shareholders that already have a lot of money. I just read that a couple of days ago. That was even in the wall street that its not even about competition. So its not you know, you must im frustrated at this point by the whole idea. And to just it almost seems like could you outlaw a company from moving to texas . If you were in illinois . I mean, is that next . Or can you outlaw an individual from changing his state of residency because of is that the way to handle people that move from state to state in this country . Because thats what theyre talking about doing now with you know, not allowing companies to try and go where the taxes are lower. Why not lower the tax isnt it blaine to them taxes are too high here versus the rest of the world . Well, again, i think what youre saying, and what i tried to say earlier is, you know, lets not look at symptoms, lets look at the root cause. I keep saying that, too. Palliative, but they would say, you know its they would say that you need if youre going to do Corporate Tax reform down the road, if the entire Corporate Tax base is gone by then, if its already left, then what do you have to even reform at that point . Theyre trying to make it retro active. Theyre trying to. But the house will never go for this. Its not going to yeah. Thats the argument, john. There wont be anything left at this point. But since this cant pass, and reform cant pass, if youre going to like work on something, and there could be a miracle, why not why not hope for the miracle that would actually incentivize people and do more than just the status quo . Actually bring back manufacturing. Bring back some of the money thats already moved offshore. Not just the companys redomiciling. Make the whole place a better place to attract capital. Well, certainly lilly right now is not contemplating any tax inversion move for the simple reason that you stick with lilly. A largescale acquisition. Can i jump in . John, i have one question, though, for you, as a company that is based in the United States. Do you think that you benefit at all from actually being based here . Absolutely we benefit from being based here. I think we benefit, number one, because theres no better place to find talented people than here in the United States. This is the center of biomedical innovation. Theres no Greater University system or network than we have here in the United States. We need to get the r d tax credit put back in place. We have an r d tax credit but frankly we need to look at that. Because other countries have more generous r d tax credits because theyre trying to attract what we have. So, i think this is a story in our industry about keeping something thats very valuable, where we lead the world, and putting in place policies that enable innovators to take the risks and get the rewards that are required to really bring these new medicines, these new alzheimers treatments john, is do you get the highest margin on your drugs here in the United States because there are no price controls . Well, i think the United States remains today, joe, one of the last countries where we have a modicum of free pricing. Okay . Obviously when we sell our drugs through the Big Insurance Companies here, and the pharmaceutical benefit management groups here, we have to compete, we have to provide discounts, we have to show that our medicine is better than another drug they could put on their formulary so it is a very competitive process. But yes, in general, we get better prices in the u. S. For our medicines than we get abroad. And guess what . The u. S. Happens to lead in biomedical research. We have 4 Million People in this country employed in this industry. Thats why we innovate. So maybe theres a connection there. Thats why we innovate. No innovation where theyre cut. Weve downgraded you to a mister. Just want to let you know. I didnt know why we had you as a doctor because i know youre not an m. D. , and its just thats the way thats the protocol with the media somebody said to me the other day what are you a doctor of . Organic chemistry from harvard. Im not taking that away from you. Just on tv for some reason we save it for medical doctors. But, because usually, you know, because you see some of these doctors, god they got mail order you know i dont know. John lechleiter, thank you. Thank you. Appreciate it. Andrew, he did not mention, you know, in thanking things, it wasnt he didnt say he was grateful to the government itself. I think its to the people in this country, and right. That have actually the government has actually just served the people, and the commerce that the people have the people. Have built. Everything that the people have built. Because the government did not build all of this right. But we pay the full fare for our drugs. We. We pay it. And we pay it for everybody else through our taxes. We do. We do. And each of us pays for the roads that the government finally does build if we ever do get. We do. If we ever do get a highway built. We do. Coming up, maybe we could talk a little bit about this with greg fleming. Morgan stanley greg fleming on the pulse of the investor. Check out shares of nokia. A big boost after Company Reported Quarterly Results and raised their fullyear profit margin forecast. trader vo i search. I research. I dig. And dig some more. Because, for me, the challenge of the search. Is almost as exciting as the thrill of the find. announcer at scottrade, we share your passion for trading. Thats why we rebuilt scottrade elite from the ground up including a proprietary momentum indicator that makes researching sectors and Industries Even easier. Because at scottrade, our passion is to power yours. Here we are. When we come back were going to talk to greg fleming on what investors really care about right now. Stick around. Squawk will be right back. [ male announcer ] people all over the world know us, but they dont yet know were a family. Were right where you need us. 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At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back, everybody. Our guest host this morning is greg fleming, the president of Morgan Stanleys Wealth Management and Investment Management divisions. Greg, you already told us that the clients that you deal with are feeling better about things. They do see an improving economy. But, as joe mentioned, its really tricky when youre trying to figure out what to do with zero percent Interest Rates. Where does that leave you if you cant go into bonds . Where do you see alternatives and how do you see this shaking out . Well, actually we have seen a growth in alternatives, particularly for our clients that have more wealth with us. So thats been a trend thats really been reinforced by the low Interest Rates. Things like real estate or commodities . Even the Hedge Fund Universe has been, as they say, democrat rattized so you can invest in limited hedge fund. Theres a lot of products that have done well through the cycle because of the search for yield, given where rates are on more traditional fixed income products. But the Asset Allocation around this for the advisers and clients is really a challenge. The whole experiment that the feds ongoing with, you know, qe coming to an end, and rates, joe joked before, but rates are going to go up. The question is when does it start. Whats the experiment that you just talked about, the qe itself or getting out of the qe . You su sound like you meant getg out of the qe was an experiment. It is, first time ever. Getting in was an experiment. Thats right. We dont know whats going to happen. Thats what i mean. You seem to feel okay about the whole experiment, and its not going to end badly . Well, im hoping it doesnt end badly. But i think too long . Any time you do it for any time somethings happening for the first time, this is the first time weve ever seen this in certainly modern economic history, getting out is tricky. They havent even gotten to the hard part which is how to start taking rates up and allow the economic expansion to continue. Look how sanguine you are about the economy itself and we are at once in a century accommodation mode still, zero Interest Rates, still 31 billion a month and its been five years in ary coverry. Thats what the people, and druckenmiller or grantham or whoever you want to talk about, those are the ones who Say Something is looming, but when they make a mistake and stay this long, and theyve got no track record to say that theyve anticipated things in the past. Why do you feel a couple things, joe. First of all one of the reasons they needed to stay longer was because this was a very different cycle. Right . I mean we had the biggest credit bubble pop ever. The deleveraging effect from that has gone on for years and is actually still not done and will go on for more years. And thats been a a depressant on Economic Growth and on the ability to snap out of this as we have in previous recoveries. So it is a different cycle. But i do agree with you. And i read some of what druckenmiller was saying and my personal view is that rates do need to go up. One of the things that if you fast forward a couple years down the line, at some point, and i am optimistic really. So our business can be on at ts network for 175 dollars a month . Yup. All five of you for 175. Our clients need a lot of attention. Theres unlimited talk and text. Were working deals all day. You get 10 gigabytes of data to share. What about expansion potential . Add a line anytime for 15 bucks a month. Low dues. Great terms. Lets close. Introducing at t mobile share value plans. With our bestever pricing for business. Welcome back to squawk box. We do have an avalanche of earnings hitting the wires throu including 3m and caterpillar. General motors earning 58 cents a share in the Second Quarter. That is a penny shy of analyst estimates. Revenue of 39. 6 billion. Also shy of estimates of revenue coming in at 40. 58 billion. Overall net income 200 million. Here are the two pieces of news. General motors is taking two special charges in the Second Quarter, one of them for 875 million. That will be going towards future liabilities they expect to incur for recalls of current gm models on the road approximately 50 million vehicles. Thats one charge. The other charge, 400 million, this goes specifically towards the Compensation Program for the ignition switch recall program thats being run by ken feinberg. Again, first time were hearing from General Motors how much it expects to pay out through that feinberg program. 400 million. Guys ill send it back to you because i know youve got more earnings to come. Weve got Chuck Stevens first on cnbc coming up in about 15 minutes. Guys, back to you. All right. Phil, thank you. Lets tell you about caterpillar. They came out with earnings of 1. 57 a share. That is better than the 1. 52 the street was expecting. There are some charges in this, though, looks like a negative impact of 12 cents a share. Adjusted its 1. 69 which is well above. That is well above. 1. 69 would be wow. The sales number if we assume thats the same as the revenue numbers, 14. 15 and theyre expecting 14. 46. Hmm. But sometimes like we had on yesterday where sales, may be Something Else that adds to revenue, so well see at that point. Doug says theyre pleased with the second Quarter Results. Especially the improvement and profit. They increased the bottom line to the resource industry segment which was principally mining. The three things tributing to the strength, diversity of the business, substantial success and operational improvements, and the strength of the cash flow and Balance Sheet. Wow, its down. Let me look at the outlook. Do you have the numbers up for this . The 2014 outlook for sales and revenue has been reasonably consistent with the preliminary outlook that was provided. Updated for 2014 sales and revenue, a range of 54 to 56 billion. The previous outlook was for 56 so its a little bit below also. The range of expectations is tighter and the midpoint of the outlook is slightly lower. Most of the change midpoint of the range is in Construction Industries and reflects weaker sales in china, cis and africa and middle east region. Its not mining . No. 6. 23 is the estimate. Whats disconcerting, 6. 23 is the estimate for the year and theyve just beat the Second Quarter handily did exincluding restructuring costs. They say the profit outlook is 6. 20 a share. That would be mean it is 6 20 versus 6 10. They just beat the 1 52 by maybe youd say i dont know which number youre using for the b. Excluding tempering third and fourth quarter. And its construction this time not mining. Construction industry, weaker sales in china, cis and africa and middle east region. Just leave the stock up and you can see it trading. Who wants to look at us . I dont. There it is. 1. 87. We can leave that up and see where its trading and i can see it too and were all happy. 3m im getting a little glitch on my machine. Now i have it finally. 3m looks like 1. 91 is the bottom line number that appears to be clean of Everything Else on sales of 8. 13 billion dollars. And that is right in line, 1. 91. The estimate was 8. 087 for revenue 8. 13. So thats a little bit above. And we also have 2014 fullyear guidance of 7 30 to 7 55 and the estimate is 7 46. So most of those things are stocks down by about 44 cents, too. Thats 0. 3 so not a lot happening there. 3m recently makes a lot of those stuff that goes into tv sets, right . Theyre not just postits, and scotch tape and stuff like that anymore. They have a big division that makes electronic stuff. So the sales of consumer sales 1. 14 billion. Industrial 2. 82. And safety and graphics 1. 49. Foreign currency is going to reduce sales by 1 for the year. Coke talked about head wind earlier. Increasing head wind. Yeah. Increasing head wind. So 3m at this point down about 44 cents. Has had a nice run. It has had a nice run. Dow component, right . Yeah. Barely but it is. Heres a nice little kick for you. Lets get down to andrew at the New York Stock Exchange. He has a special best. Andrew. Thank you, becky. American Airlines Just out with earnings moments ago. Revenue a bit better than expected. Joining us now for a first on cnbc interview doug park irceo of American Airlines. I believe doug this was your best quarter in American Airlines history. Now with the merger also announcing a billion dollar Stock Buyback Program today, correct . Yeah, its great news, andrew. It is indeed the best earnings in americans history by a wide margin. 1. 5 billion excluding charges of profit was really excited about and also announced a capital Deployment Program which includes share repurchase, as well as the first dividend in American Airlines since 1980. So off to a great start with the merger. The companys doing really well and were really excited. I want to continue to talk about the numbers but one geopolitical issue but the faa has lifted the ban to fly to tel aviv. You had a flight or you do fly to tel aviv. You had said if the ban was lifted you would continue to fly. Delta has not said the same thing. Are you going to fly . We still have to assess that. The ban was just lifted. The reality is, you know, its an assessment we need to make. We the faa lifting the ban is a necessary but not a sufficient condition. We canceled flights before the faa put in place the ban. And ferried aircraft out of tel aviv on the day before the ban was lifted. So, you know, we our team is in the process of assessing it. We dont have another flight. Our flight from philadelphia to tel aviv doesnt leave until late tonight and well continue to work with it. Were hopeful well be able to resume service. But we have to make sure, as all airlines do, that the conditions are, indeed, safe. Weve been working with the faa. So of course the conditions that allowed them to lift the ban certainly give us some encouragement. And we were privy to the same intelligence theyve given so well keep working through it. Nothing to announce yet. Were hopeful that flight will leave today. Can you take us behind the scenes . Whats going to happen today for you what is the threshold, what are those conditions, what is the information that youre going to look at thats different, perhaps, than perhaps what the faa would look at . Well, first off, that its entirely safe. Obviously the faa has come to that conclusion. And were working weve been working with them on the same intelligence they have. But we also need to make sure our people have the same view. We have pilots and flight attendants that are going to be flying that route that need to be certain of the same things. Were not going to fly the flight unless were absolutely, positively certain its safe. Were hopeful that will be the case. But we havent come to that conclusion yet. Doug, fleg greming has a quick question for you. Doug, how are you . Im well, greg. Great job on the integration so far. And i think the stock really reflects that. Its been quite a run. One of the things that you have ahead of you i think over the next year or so is a systems integration. I was just curious as to how big a challenge that is in your industry . Weve come through one in my business over the last couple of years, and its quite a hurdle. Yeah. Its huge in ours, too. And indeed, one of the biggest issues still lies ahead. And were well aware of that. We certainly have a lot of work ahead. While were pleased with the results so far theres still a lot that lies ahead. Much of the system integration, like getting to a single reservation system, single operating system are the big work that lies ahead. We have a plan in place. We have a team thats done it before. But youre absolutely right. Those are the big issues still ahead of us. Weve got another year and a half or two years to get through all of that. Doug, what answer has american come up with for those annoying, insufferable screaming brats in first class that bother andrew . The ones that are under a year old, that you know, theyre smells, sounds its under 3. Or under 3. Andrew suggests steerage. Have you come up with a some type of solution for where to put these annoying little rugrats . No, joe, we indeed, you know, were our paying customers that are flying in first class, with children, are great customers of ours. Thank you, doug. Thank you. And those of us that have raised children know how hard it can be sometimes. Im certain those parents are doing their best to make sure your experience is as pleasant as can be. I know. Theres just some people that dont really appreciate that, i think, doug. Doug, let me just say this, i want to get back to the dividend issue. You have the picture up there. Because you have your first dividend since 1980. But i will say that you have now the best first class and Business Class from new york to the west coast with those new you know what im talking about, doug, right . Of course i do. By a mile. I mean, forget about delta. Forget about united. It is the best. But then, my question then becomes, if youre going to sell that product at a premium price point, you know where im going with us,. No he doesnt. I dont. You dont know where people dont think that little kids need to be in steerage, andrew they dont. Okay. Look, thank you very much for the pitch on the product. The a321 transcom product i agree is the best product in the market, and its being extremely well received. And, again and its quiet up there. As you have your own as you have your own seats try the product, its great, and indeed the vast majority of our customers are taking care of their children. Doug, lets go back to the dividend. It is the first dividend that the company has declared since 1980. How, and why, are you doing this . Oh, because the company is off to such a great start. And you know, the earnings today, 1. 5 billion in earnings. Shows the success of the merger thus far. It shows and indeed gives confidence based on our prospects, to do things to understand that we have enough capital to invest in the products, we continue to do things like this transcon product thats so popular to our products, but still return some of the capital to our shareholders and debt holders and fund our pensions at a higher level than the minimum. Its one other indication of what a good start were off to. I think also another indication of how this industry is being transformed and the fact that this is the first one at American Airlines since 1980 is telling. One that we expect that we hope to have in place for a long, long time to come. The business is much better and American Airlines is doing better than most. Doug, final sort of policy newsy question. A plane has gone missing this morning, algerian plane. We had the malaysian plane go missing earlier this year. Would you support some form of changing the way the transponders work of having sort of a consistent signal, and the investment that that would take for the airlines . Well work with the faa on issues such as that. Its, again, i have no knowledge as to the Current Situation with algiers. But yeah, it certainly is an issue that i think we need to work through as a industry as we move forward. Okay. Doug, congratulations on the earnings. Always great to have you on the program. We appreciate it very much. Thanks a lot. Check out futures after some key earnings. You can see some green arrows right there. Dow looks like it would open up 30 points higher. Squawk box returns in just a moment. Still to come, did recalls hurt gms bottom line . We go under the hood with the companys cfo in just a bit. Squawk box returns after a quick break. Having the cloud allows us to rapid prototype a lot of ideas. Being able to pay as we go was crucial for a start up. Having to fork out a lot of money up front was risky. You can launch a feature really quick, and if the feature doesnt work, we havent lost anything and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. Ideas can be tried and tried again on the ibm cloud. The ibm cloud is the cloud for business. Thats keeping you from the healthcare you deserve. At humana, we believe if healthcare changes, if frustration and paperwork decrease. The gap begins to close. So lets simplify things. Lets close the gap between people and care. [ male announcer ] if you cant stand the heat, get off the test track. Get the mercedesbenz youve been burning for at the summer event, going on now at your authorized mercedesbenz dealer. But hurry, offers end july 31st. Share your summer moments in your mercedesbenz with us. Were expecting a major onslaught of earnings today and continuing positive trend could drive market levels higher. Our guest host today is greg fleming. He has some thoughts and were in a world, greg, and you deal in Wealth Management, and we know how well people that own the assets are going. And we also know how well many corporations are doing in terms of profit margins. And yet, there seems to be something thats stuck in neutral, whether its gdp or whether its wage growth, or whether its just the feeling that were all moving in the right direction, and moving forward. And whats missing. You know, joe, i think that, again, people forget that this time it is different. This cycle is different. From the financial crisis . Yes. The credit bubble that was created was the biggest that was ever created and will ever be created in our lifetimes. It was bad in the 80s. In the late 70s the deleveraging now i heard something this morning between 2000 and 2007 the amount of Household Debt that was taken on i know. But you look at the 40 trillion. In terms of energy, in terms of a misery index of 20 prime rate. Why were coming out of it slowly and the reason were coming out of it slowly is because theres this deleveraging that goes on in the economy and continues to. The underlying economy is Getting Better. From a market standpoint it is a challenge to figure out where you are. This is why i keep talking about this. Our Financial Advisers, theyre advisers today. Our biggest Growth Business on the asset side is providing advice to clients for one fee, 760 billion in assets. Clients on lending. You need to be an adviser in a world thats as confusing and cloudy as this world. Different than transaction based before. Why was it the financial crisis that spurred these changes . Helped reinforce it, becky, because the notion that you can do your own investing, its a very complicated puzzle for anybody today. One of the fastest growth parts of the Wealth Management business, if you looked at the Wealth Management business ten years ago it was primarily the old transaction model had that existed for a long time. Whoops. Today, its did the lights go out . The lights did go out. Theyre back. The sound didnt go out. Today itses avice on the asset side and the liability side. The business looks dramatically different is that partially because the public doesnt trust wall street in the same way . They dont want to be paying transaction base because they feel like theyre getting bilked for it. I actually think the surveys that we do say that our clients are very, very happy with the advice they get from Financial Advisers many of whom they work with for decades. So whats your corporations need to get more to spend the money they have. To to expand employment . To build new facility joe stay where we are im not saying stay where we are. We could have a its rationalizing things and getting rid of people. But its something there are some top line driven deals in m a. It is changing. The tone in the board room is different. So there is increasing momentum here. I agree with you. You just wait around we could faulk about policy at a different time. Theres lots of policy particularly in washington would change. Maybe youll ask a few questions of the next guy. The chief Financial Officer of General Motors on the companys Quarterly Results and how much the recall has impacted the bottom line. In the next hour, we dig into earnings from caterpillar with the companys ceo. Plus, our recap of earnings out earlier this morning. Including 3m, eli lilly and ford. And then amazon Takes Center Stage after the bell. Did its prime service help the company meet analysts expectations . We preview tonights big report. Squawk box is back after a quick break. For more on gms quarterly numbers phil lebeau joins us with a special guest. Phil . Thank you very much, joe. I want to bring in Chuck Stevens, the cfo of General Motors s. Hes joining us from detroit. Chuck, thanks for joining us. You guys reported earnings today coming in at 58 cents a share, a penny below analyst estimate at 59 cents a share. But i think what everybodys focused on are the charges that youre taken related to the recall decrees and all the recalls youve gone through. The total impacts here, at least 1. 2 billion for those recall charges and then special charges of another 1. 3 billion . Let me start out phil by talking about the overall operating performance if i could. I think, you know, looking for the recall charges that we took in the Second Quarter along with the special charges, the key message is we had very strong core operating performance. Especially in our two key markets, north america and china. Excluding the impact of recalls north american earnings were up roughly 2. 4 billion with a margin of 9. 2 which would be the fourth straight quarter of year over year margin improvement and really shows the strength of our new products given the challenges with recalls and the resiliency of the north american team. From a china perspective, earnings of about half a billion dollars in the skd quarter up 14 year over year with net margins at 10 . So again very Strong Performance in our two key markets. Relative so chuck let relative to the charges go ahead. Go ahead, phil. I was going to ask you i was going to say relative to sorry to cut you off here. But the main charge that question that i think a lot of people are going to be asking about, the Compensation Program, 400 million is what youre setting aside for the program thats being run by ken feinberg could increase by another 200 million. How did you come to that estimate in terms of thats the amount of money that you expect to pay out . Yeah, i think a couple of key points on the Compensation Program, phil. First and foremost, it is our objective to ensure that we address and take care of those people that have been adversely impacted by the ignition switch recall. That is the most important message. Second there is no cap on this program. Ultimately, the cost of the program will be independently determined by ken feinberg and ken feinberg alone. The 400 million charge that we stock in the send quarter is our best estimate of the potential exposure based on the data thats available to us and work that we did with outside third party actuaries. Theres a wide range of potential outcomes associated with that. But the 400 million is our best estimate. As we work through the program we will continue to update that exposure, either up or down based on the results. But at the end of the day, again those results will be determined by ken feinberg. And chuck one last question, and just to put a point on that you also say in your release it could increase by another 200 million. How many vehicles did General Motors sell to people who came in with a recalled vehicle and said, i dont want in anymore, give me Something Else . Through the Second Quarter, that population of customers that were imed by the ignition switch recall we have old over 6,600 vehicles to those customers. Those are people who said im done with this and i want a different, a newer vehicle. Chuck stevens, cfo of General Motors. Correct. First on cnbc from the headquarters of General Motors in detroit. Andrew, back to you. Thank you, phil. Before greg fleming goes we have a quick question for you greg. There was a story out last week this is reuters reporting that Morgan Stanley this is your group wants to cut its compensation for its Financial Advisers and i wanted to get your view on what what that story is all about and the ratio of moving from 60 to 55 and how you might try to do that. You know, andrew, without getting specifically into the story, one thing that were very clear on and ive been talking about them here weve got best in class Financial Advisers, so we pay competitively against anybody and in fact, for our advisers that grow we think we pay better than anybody. So were going to continue to do that. The 60 to 55 was a statement that james gorman my boss put out talking about how over a couple year period as we grow our banking and lending business, as we recruit less because we were not losing advisers and were not focused on recruiting the ratio will come down in and of itself. Nobody gets 60 thats not its a 40 on commissions is that a 40 . But when you add in all the different pieces we pay for growth we pay for partnership, when you add all those pieces together our ratio right now is 58 . Were going to continue to pay competitively andrew and raising the margins in this business not on the back digging in caterpillar earnings. Ceo Doug Oberhelman joins us first on cnbc to discuss results, the economy, and more. That interview is next right here on squawk box. What would happen. If energy could come from anything . Or if power could go anywhere . Or if light could seek out the dark . What would happen if that happens . Anything. In a 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. Is caused by people looking for parking. In a city thats remarkable that so much energy is, is wasted. Streetline has looked at the problem of parking, which has not been looked at for the last 30, 40 years. We wanted to rethink that whole industry, so we go and put out these sensors in each parking spot and then theres a mesh network that takes this information, sends it over the internet so you can go find exactly where those open parking spots are. The collaboration with citi was important for providing us the necessary financing; allow this small start up to go provide a service to municipalities. Citi has been an incredible source of advice, how to engage with municipalities, how to structure deals, and as we think about internationally citi is there every step of the way. So the end result is you reduce congestion, you reduce pollution and you provide a service to merchants, and that certainly is huge. Welcome back to squawk box here on cnbc, first in business worldwide. Im joe kernen along with becky quick and Andrew Ross Sorkin who is reporting from the nyse. The futures, you can see, 8 30, and then new home sales coming out at 10 00. Well take a quick look at the futures. 31 points or so. It was it was a quiet day yesterday you cant i hear that, too. Okay. Its okay. I look like i have yeah. Andrew . Weve got a developing story this morning, guys. Heres whats happening. There is a missing air al gearie flight. Its swift air the operator of the flight says the contact was lost with the md80 jet. Company officials are still trying to determine what happened to that flight. We should tell you that the faa has lifted its ban on flights by u. S. Carriers to and from israel. The ban had been put into effect on tuesday after hamas rocket had landed near tel avivs airport. And in chicago news, senior white house Officials Say president obama, hes going to be supporting antiinversion legislation that would mandate the Companies Must be more than 50 owned by a foreign entity to escape u. S. Taxes. That topic will be a major part of Steve Liesmans exclusive conversation with president obama. Hes doing that today. The two are going to be sitting down for a conversation you can see exclusively right here only on cnbc coming up at 5 00 p. M. Eastern time. Steve will join us for a preview in just about 15 minutes. Becky . Andrew, thank you. In corporate head lines, 3ms earnings matching wall streets estimates. Revenue just a little bit better than expected. That stock right now up by about 18 cents. And shares of nokia getting a boost after the Company Raised its fullyear profit margin forecast. You can see that stock is up by about 8 . Caterpillars earnings topped consensus. Joining us first on cnbc with more on the quarter is Doug Oberhelman, chairman and ceo of caterpillar. Its nice to have a company, doug, that has varied and sundry businesses. That does mean at any given time its hard to have all of them firing on all cylinders. So some of the problem or weaker parts of caterpillar in the past are better but werent you construction was pretty good awhile back and now that was a little bit weaker this time, right . Year over year construction is up significantly over last year which were happy about. Overall we had a great quarter, very solid, on slightly less sales as you said, joe, down 3 on the top line year over year but excludeing restructuring our profit per share is up 14 . I love the way our company is operating right now. You kind of mention the diversity of our businesses. Certainly mining was really tough last year and it was a miserable year for that. Construction was up. Its doing fine. Energy and transportation are doing fine this year. What were faced with here, though, is basically two years of flat on flat top line. It maybes it hard to operate. But were doing great in finding ways to be more efficient. Be lean in our manufacturing, and lots of other things operationally that will really pay off down the road. Im just really happy with where were positioned right now. Mining is better, isnt it, doug . Thats what i was alluding to. Is mining still the drag that it was . Mining is still very slow. But, what we are seeing for the first time in a long time, really, since 2012, is our Second Quarter mining business was up very slightly from our first, that might be a green shoot. And our parts sales have actually now responded a little bit quarter over quarter as well, year over year. Were seeing some of that. I think were past the bottom in mining for sure and looking forward to more. Ive been with a number of mining customers the last few months. And they are a bit more optimistic. Its not turning into our numbers yet. But at some point it will. Well be ready for them, for sure. Doug, we saw that you beat significantly for the quarter one of the things that we were looking, though, was at the outlook because when we saw the stock trading down just after the release came out we were trying to figure out why. The only thing we could point to was that the range of expectations in terms of your revenue outlook for the full year is a little tighter. The mid point is a little bit lower and you blame that on Construction Industries, some weaker sales in china. The cis, and the africa middle east region. Were we wrong to assume those were construction sales there that were weaker . Yeah, thats about right for the second half. Remember, in 2013, our sales, our total sales and revenues were 55. 7, 55. 6 billion. Its awfully hard to call 700 million out of 55 billion sales. We see softening outside of the u. S. The u. S. Is doing fine. Were looking at inching along recovery here in the United States thats continuing, and ongoing happens to be the strongest in the world, weak compared to the past. Weve seen more weakening certainly in brazil. China has fallen off a little bit from the First Quarter even with the enhanced stimulus theyre putting through to it. And i guess, thats our big question, too. Because we look to caterpillar kind of as a gauge for whats happening around the globe. Thats how you would say that the United States has been going strong, but you have seen weakness in china and brazil . Id say that, as well as kind of a flat situation in europe. Its not fallen off certainly, were past the bottom there, as well. I just dont see a lot of growth. Were seeing an engine of north American Growth not able to overcome some of the outside u. S. These are small gyrations at the moment. If you look at the three halves were looking at a pretty flat environment which, for us, is for any company tough to operate in. Our Balance Sheet is strong. We announced a big buyback at 2. 5 billion more in stock. Thats 4. 2 billion this year. Because of our great cash flow, and really the performance of our company. It was just that you beat by you beat expectations this morning by so much more than had been but you came in really strong numbers for this quarter. If we assume that you have a beat this quarter do we look for even more weakness than the street is already factors in for the second half i guess were trying to figure out why the stock is a little bit under and i guess i wonder why you think the stock is down. Not down that much anymore. Its hard to say. Im not going to judge that stock market. What were trying to do every single day is make sure that what we do within the four walls of our company is our bullet we dont know whats going to happen out there. I heard your story on the Airline Crash or missing airplane. Every day in the news theres something out there thats uncertain for us. We see it all the time. I would say that in the case of the second half it might be a little bit weaker. But were kind of splitting hairs here. Stock moving 1 or so i think is pretty neutral. Doug would you be more incleaned to bring capital back here and keep it here if we did do a fullon tax reform for corporations . You think youd have more would it net net result in more jobs in america, more facilities being built here just by caterpillar just from where you sit . There is no question joe that a comprehensive fullblown tax reform in this country is absolutely needed, and will absolutely stimulate growth. It will have all kinds of positive impacts. It has in the past. It will this time. We are so distorted, so dysfunctional its no wonder thats a big break on our economy. That should be the number one policy issue out of our legislators today, to get this economy moving. And we cant seem to get any traction on that. This idea of highest tax rate, i remember when i joined you heard me say this before almost 40 years ago i did tax analysis. We were the lowest tax rate in the world. Today were the highest tax rate in the world. That influences where we source what we were also only 5 of the worlds consumers here in this country. R59 of the world is out there. Weve got to find a way to do this better. Tax reform has to happen. You see the news of the day theyre just going to put like a stopgap measure that also probably doesnt have much chance of passing. But it will give democrats the opportunity to run on that. In november that once again you know that the republicans want to let companies leave, and avoid their taxes and they dont want to raise the minimum wage so its going to be a way of just posturing for november but its going to be put forth as something thats actually possible even though i dont think the house will ever go for it. And it also takes away what i hoped would light a fire under their collective rear ends to do the big thing if more companies watching these companies try to do this should be an indication to them that they need to change it but its not. Its just an it just means that they need to preclude them from leaving. I agree with you on the prior part. But thats not tax reform is not the only one. Our infrastructure bill, also known as a jobs bill, also known as a highway bill, is in jeopardy. Right. Weve got to get that approved. All of the contract base in this country my customers are worried about that. Can you imagine not funding roads and bridges halfway through the project . We should get rid of that fund it indefinitely and move on. Theres lots of things dysfunctioning really holding us all back. Weve somehow got to find a way to get out of this. We had Richard Anderson yesterday from delta who just once again was very clear he thinks the exim bank is unnecessary, that it helps his competitors that dont need him abroad, helps them buy planes from boeing and doesnt think boeing or airbus or any of these manufacturers doesnt think that that we need to address airbus subsidies with the exim bank. Does the exim bank help you . I dont agree with that assessment. The exim bank helps us to some degree. Were not a big user but ill tell you there are 60 countries out there that have exim banks. Export credit agencies. On a lot of big deals around the world that are tough transactions. Were up against the japanese export Credit Agency. The europeans, the skanld navians, the chinese, theyre all competing for those deals which means jobs in our country that we export, and i am mystified in this low job creation environment how many poll significances, and for that matter, anybody, would jeopardize one job over a Credit Agency that has contributed to taxpayers, its not been a drain on taxpayers, im all for going after all those other countries and wiping out their export credit agencies through wto or some other mechanism thats fine with me. But why would we shoot ourselves in the foot and give up one job here in Central Illinois for one of our mining trucks for a big deal in india because we cant speed against our japanese or european competitors. It makes no sense to me and the fact that that bank is selfsustaining is also part of the equation here. So im mystified with the entire argument. Ill tell you Something Else, joe, of all the things in washington that were picking on, why are we picking on the exim bank. This would be a perfect one for you to take on. I dont know that the whole guideline for what the each side thinks is sort of im its like a bizarro world im not sure how to interpret it anymore. I mean it used to be that republicans would the chamber of commerce or the Business Roundtable would always march in lockstep, and its not that way anymore. And eric cantor, hes out because he was so business friendly. So figure the figure that out. I think its a crony capitalism notion and we need to let the markets work. If you by example, you know, dont have subsidies from the government, where they pick winners and losers, maybe theyre just hoping that in a purist world that there shouldnt be any of this. Its just another example of crony capitalism. Thats what it is. Right . You said it a purist world. We dont live in a purist world. And any time we talk about going after punitive measures to do this, we pay the price with our jobs right here in the midwest, or wherever they are trying to export. Im with you on that piece of it. Wheres andrew . Hes gone . Oh, he went. Thats right 8 00 hes already on his way to let someone off the hook that committed a crime somewhere. Serve. Most likely. To go serve. Yeah, to vote not guilty on whatever the guy did, most likely. Yoen way Doug Oberhelman, thank you. Doug, thank you. Always a straight talker. Answers every question complete ply. Play in peoria, isnt there an expression . Youre based there arent you . Im sitting in peoria, illinois, right now as we speak. The weather is perfect. Its a great place to be today. And im happy with our company. Ill tell you that joe and becky. I love thank you, doug. American manufacturing, and you know we need it. And i just wish wed try and help out here. Dont hold your breath, doug. Thank you. When we come back, a wave of tax inversions taking place over the last couple of months. The president taking interest, and now saying that he would support antiinversion legislation. Well talk about that next. Right now as we head to a break check out the squawk box market indicator. Kid hey dad, who was that man . Dad hes our broker. He helps looks after all our money. Kid do you pay him . Dad of course. Kid how much . Dad i dont know exactly. Kid what if youre not happy . Does he have to pay you back . Dad nope. Kid why not . Dad it doesnt work that way. Kid why not . Vo are you asking enough questions about the way your wealth is managed . Wealth management at Charles Schwab but parallel parking isnt one you do a lof them. Ings great. Youre either too far from the curb. Or too close to other cars. Its just a matter of time until you rip some guys bumper off. So, here are your choices take the bus. Or get Liberty Mutual insurance. 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That topic is a major part of Steve Liesmans exclusive conversation with the president today. The two will be sitting down for a conversation that you can see right here on cnbc at 5 00 eastern time. Steve joins us from los angeles this morning. Also joining us right now is alex brill, Research Fellow at the American Enterprise institute. But steve why dont we start out with you. Why dont you set things up for what we should be expecting for this news . You know, first of all i think mr. Oberhelman from caterpillar is going to be kind of happy about this interview because i really want to get to the issues that he was talking about and address things that are on the mind of Business Leaders out there, which is why havent we done major tax reform . Why cant we do some of the things that seem to be the ones that everybody agrees would be those that would increase output in this country, would increase jobs, would increase, the welfare of middle class americans, and all americans, really. So i think thats one place where we need to start. And this issue of tax inversion, its an interesting one. Its definitely gotten the president s attention. I think just from a strictly administrative point of view, if suddenly you see your tax base leaving the country, the Corporate Tax base leaving the country you have to address it. But joe made some interesting points in an email with me earlier which is why hand this off and as i talk to another scholar from aei yesterday why hive off the issue of just inversions. And why not go after and why not use this issue as a wedge to bring about major tax reform. And i was going to say another scholar i talked to yesterday from aei who a friend of joes, asked this question, which is, well, if youre going to do this, does that send a signal to Corporate America that overall tax reform is dead, and youre only going to deal with this one issue . So i think thats important. You know, wering with to get at issues of growth. Theres really not been, as far as i can tell, an economics reporter who had a chance to sit down about the president and try to us is out some of his broader economic views. Im thrilled that we get to use this focus the way youre talking, steve, im getting a little thierry. Im counting on you. Im thinking maybe theres hope. I want you, please, youre listening. I see that. You got to get him to try and listen. Here was the point that i finally and ive been you know i people dont wear about me and i feel like why do i even bother to try to convince people because it doesnt matter what i think anyway. Im going on vacation on friday so i dont really care. But heres heres the thing. If i dont think you can pass it the pay that theyre talking about it. But even in the best Case Scenario if you did pass it youre preserving the status quo. Youre making sure no one else goes away. But all the things that we want to do to make it better, to incentivize capital to come and to stay and to make this the best place in the world to invest and to create jobs, it doesnt its like a half empty solution. Its just the best it does is preserve the status quo and i want so much more. So much more. Well, joe, i mean i think theres always hope but you understand the political dynamic. I mean the president im sure is going to Say Something along the lines of, hey, ive been proposing broad tax reform for a number of years. I include id in my budget every year and then hes going to kind of blame the republicans and then well call up the republicans and theyll blame the democrats and were back to that old status quo. Does it have a chance of passing the house . You mean just the tax inversion part or tax reform . The tax inversion part . I dont know, joe. I mean i think i can tell you it doesnt. Well, let me just tell you that the senator levin bill which is the one i read last night, not the other levin bill, makes it a twoyear proposition so its kind of interesting along those lines in that he says this thing would expire in two years, while we do tax reform. So, whether or not and the question becomes joe and you should answer this question yourself, which is, is there something of emergency here . Do we need to katie, bar the door here, in order to stop these inversions from happening . And do it now . Ill tell you that i talked to a senior white house official yesterday, who raised an interesting question about this issue of Reputational Risk. He says that essentially, companies have not done this because theyre afraid of the impact on their reputation. And all of a sudden everybodys doing it, that Reputational Risk thing has diminished. We got someone maybe can explain it better than i dont know alex tell us, is are inversions, are you unpatriotic as a company if you go with an inversion . Thats been written. Thats been expressed. Sure, these tax deals that theres been a wave of in the last few months has picked up the activity of inversions have picked up have nothing to do with the star spangled banner, with apple pie, or patriotism on the part of ceos or executives in any of these companies. These deals are strategies to minimize tax liabilities, on foreign sourced income primarily for americas multinational corporations. For a handful of them. And they are a response to the fact that lawmakers in congress and the house and the senate and the president are sitting on their hands and effectively doing nothing about the tax code while all agreeing at the same time that the tax code is broken. So we can agree that the system is broken, the tax rate is too high, that worldwide nature of the tax code is wrong. But no one is doing anything to do it to fix it. And worse than that, i think the democrats are actively are actually slowing the process down. Why . And thats one of the reasons why democrats, i think, are choosing to latch onto this issue, and theyre saying, its not our fault that the tax code hasnt been fixed. Lets blame somebody else for whats happening somewhere else. Right. Good election issue. Whos not whos not going to say that the president s right in november on this . That hes, you know, here are these guys, theyre no better than draft dodgers. Im reading that. And hes trying to stop it. Hes trying to do the minimum wage and here are the republicans are again stopping but we deserve better as a country. This is not about a twoyear election. We need to do something that would create some jobs for people. If the president put this energy into tax reform that hes putting into these inversion deals we would have a more active and real debate about tax reform. Right now the tax reform debate steve weve seen this movie before for the past five years. Remember how many other things that were proposed that never were going to go through and here we are. And you know, the other thing that this is not about, is its not about the money. Because these bills to fix quote unquote fix or prevent inslergss might raise 15, 20 billion dollars. Steve, good luck. You know were counting on you. Thanks, joe. All right. Well be right back. Tomorrow, the president s take on tax inversions. And global risks to the economy. Steve liesman brings us the best of his interview with the president of the United States. Squawk box, starting at 6 00 a. M. Eastern time only on cnbc. We never thought wed be farming wind out here. Its not just building jobs here, its helping our community. Siemens location here has just received a major order of wind turbines. It puts a huge smile on my face. Cause im like, this is what we do. the fact that iowa is leading the way in wind energy, im so proud, like, its just amazing. In todays market, a lot can happen in a second. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the best possible price, maybe even better than you expected. Its all part of our goal to execute your trade in one second. Im derrick chan of fidelity investments. Our onesecond trade execution is one more innovative reason serious investors are choosing fidelity. Call or click to open your fidelity account today. When we return, joshless claims data that could move markets. Plus a preview of tonights Quarterly Results from amazon. Squawk box on cnbc is coming 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. White chocolate loversividual. Dont like dark chocolate. Milk chocolate lovers dont necessarily like dark or white. Before we couldnt really allow the consumer to customize their 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. The ibm cloud is the cloud for business. Welcome back to squawk box. We have a 19,000 drop. Yes, 19,000 drop on initial jobless claims. Last week was revised to 303. Didnt come out at 3, 290, 284k so we definitely see that initial jobless claims are dropping. Now, is it because weve dropped all the people in line for people that need to make claims, are they just stopping, or is this going to be a robust job market . The correlation. You do the math. Certainly seems were doing better on jobs but this is an unexpected surprise. 2. 5 million on continuing claims. Back to you. Thank you, rick. You saw Vice President biden yesterday, i think he said historic Jobs Creation that weve seen lets go to walmart and the news announcing the departure of walmart u. S. Ceo bill simon. Bill simon, right. He was on cnbc about two weeks ago. Yeah. I mean hes been with walmart for eight years. They say that theyre naming greg for inthe president and ceo of walmart u. S. Whats interesting about this is walmarts u. S. Samestore sales have suffered recently. Thats been one of the pressure points that theyve been watching in the business. I looked for the for the fourth quarter, the sales in the u. S. Were down by 0. 4 . Some people, some analysts have suggested that they have a significant decline in the companys pricing advantage that they used to have, in some markets its completely disappeared and makes for much tougher sledding for walmart to figure out what to do with that. Bill simon was part of the team, putting forward the idea of the smaller store expansion. Some of the neighborhood markets and some of the express stores. Although some on the street have suggested maybe a better way of doing that would be to buy Family Dollar or some other way of going at it but if you look at this Transition One of the things that has suffered recently is walmarts u. S. Samestore sales. All right are you gone santelli or is he still here . Im waiting very patiently, joe. On tuesday so what did biden say again . Somebody woke him up . He said something. Okay. No, on tuesday he said in his words, quoting, businesses are hiring at historic rates. Never been and people are dropping out of the labor force at historic rates. Never had this type, 52 consecutive months of private sector job growth. So and you know what . Theres some factual effort there. But i would definitely put a little asterisk or roger maris under it. How many years have we been in this funk . Of course were going to wake up. The New York Times quoted, in fact in june, parttime jobs accounted for twothirds of all the new jobs in june, according to the New York Times. Thats the historic part bingo thats historic. Yeah of course. So he wasnt fibbing and he didnt fire a gunshot up in the air when he said it, did he . No, exactly. For reaction to these numbers in the market in general lets bring in chief investment strategist at demo capital markets, and senior capitalist at bank of america global research. Have you gotten more bullish brian . No were steadily bullish. You think this is a longterm secular bull . You know all the talk were hearing about bubbles and correction necessary and you know, feds going the opposite way, watch out. You dont buy into any of that . No, we dont. I think that 2014 will end up being the transition year as we wean ourselves off of monetary policy, and move closer successfully. Successfully. And closer and closer to the fundamental rules of investing, which are, as the economy improves, the stock market improves, Interest Rates go up, and i think thats the big chasm that many investors have to really deal with the second half of the year, is to really understand fundamentally that Interest Rates are going up, because the economy is improving. And its this talk of inflation that seems to be a scary thing. But remember, inflation means Pricing Power, and Pricing Power meengs Earnings Growth and Earnings Growth means stocks go up. So i think were in a bit of a teetering point here, because stocks have gone up a lot. And we think that we need a bit of a respite. Stocks are rarely linear for long. So when i go and talk to clients around the world, and i talk about this, were five years into a 20year bull they look at me like i have three heads. I think most people are very bullish 12 to 18 months out but nobody believes a 20year secular bull. And so, given the way that we are imagining our companies, you have the ceo of caterpillar on. Youre talking about still in a conservative manner, managing our businesses and financial services, were still very, very conservative, that should make you very bullish. Where are you, michael . I think the economy is showing signs of improving. And i think that theres obviously some questions about overvaluation in various parts of the market. Im not feeling were in the midst of a big bubble thats about to burst. You just said a 20year bull based on really, if we were if it was 1981, you might be right. Well, think about this. Well, i have thought about it. In 198182 was really the last directional change that we saw in Interest Rates, right . Right. We are in the midst of the next great directional change. There were a lot of other things happening back then. We had inflation and we had coming out of a double dip recession. But what mr. Volcker had to this side pocket, in terms of a friend and a coworker was Ronald Reagan in the white house in terms of fiscal response. In this directional change in Interest Rates we dont have a fiscal response yet from from the white house. Right. Well, michael, if this were to happen, i mean, it do you would you agree that weve had a a lot of what weve seen in the rebound has been in spite of washington not necessarily being very kind to the private you think what do you think washington is doing to the private sector . Help or hurt the private sector . Theres no doubt that if youre going to have a downgrade of the debt and youre going to have a fiscal cliff and a Government Shutdown and all the uncertainty around that that cant be good for business regulations, taxes, health care . The whole thing. Its obvious washington has not been particularly friendly to the economy generally speaking. Right . The fact that washington is calm right now is probably not a bad thing. Not doing anything wrong. The fact of the matter is weve got the other side of the midterm election, this might start up again and weve got to deal with budget and debt ceiling issues shortly thereafter. Just the budget i think those have been really acute ones. You dont think not addressing entitlements i think that theres a lot of reforms that could happen. Theres obviously a lot of ways in which the tax code could be improved. I dont see it happening any time soon, unfortunately. Were stuck with what we have but its not that bad . Weve been able to grow somewhat in spite of it. The fact of the matter is we had your guest on earlier talking about how when you come out of financial crises, you have slow growth. We also layered an awful lot of bad luck on top of this, whether it was washington or europe or you know, the arab spring, raising oil prices not once but twice tsunami in japan remember back in 2010 that cut growth for a bit. Theres a lot of bad luck that happened. If we could have normal luck wed actually be okay. All right. Well, we hear the same thing from a lot of people. And thats that it may not be perfect, and it may be in spite of whats happening but the economys Getting Better, and you dont see any clouds on the horizon. Its been pretty long recovery, too. Slow and steady, however, you know, at some point were going to have a bit of a surprise that you know markets could pull back. But that does not dissuade the longerterm trend which remains very positive for u. S. Stocks. All right. Thanks to michael and brian. Up next, amazon ready to report after the bell. Were going to preview tonights report. Plus, some of the news out from walmart bill simon stepping down at ceo as walmart u. S. Greg forrin will assume that role. More on the future of the retailer. You make a great team. Its been that way since the day you met. But your erectile dysfunction it could be a question of blood flow. Cialis tadalafil for daily use helps you be Ready Anytime the moments right. You can be more confident in your ability to be ready. And the same cialis is the only daily ed tablet approved to treat ed and symptoms of bph like needing to go frequently or urgently. Tell your doctor about all your medical conditions and medications, and ask if your heart is healthy enough for sexual activity. Do not take cialis if you take nitrates for chest pain, as this may cause an unsafe drop in blood pressure. Do not drink alcohol in excess with cialis. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, seek immediate medical help for an erection lasting more than 4 hours. If you have any sudden decrease or loss in hearing or vision, or if you have any allergic reactions such as rash, hives, swelling of the lips, tongue or throat, or difficulty breathing or swallowing, stop taking cialis and get medical help right away. Ask your doctor about cialis for daily use and a 30tablet free trial. Welcome back, everybody. Amazon is out with Quarterly Results after the bell today. Joining us for a preview of what to expect is michael graham. Michael, what are you looking for with these numbers this afternoon. Good morning. I think that amazon should have a really good quarter on the top line. You know were looking for 21 Revenue Growth in the quarter. I think that should be easily achievable given some of the trends that we picked up during the quarter. I think the real sticky point for the quarter is going to be what amazon says about margins going forward. This is a company that really should be operating at a profitable level with 7 to 10 operating margins longerterm, and theyre way below that right now. So investors are really hoping that at some point in the near future we can start to see the margins recover. Investors have been very patient with amazon. Theyve allowed jeff bezos to kind of come up with this grand plan of continued expansion. What youre saying suggests, like the patience may run out. Do you think thats the case or are you just hoping for a change . You know, i think in this stage in Market Sentiment the fear from a lot of investors is that patience is going to run out for the time being, and you know, it seems pretty clear from managements commentary and from their Strategic Direction that theyre not really focused on delivering Margin Expansion any time soon. There are some longterm things in the hopper like expansion in china. Theyre bringing prices down in their aws division and these are all things that really lead us to believe that margins are not going to recover sort of this year or next year. Aws is amazons web services. Their cloud positioning. Is that why you have a hold on the stock . Because you dont think that theyll be delivering on higher margins . It is. I mean, i think that amazon is a wonderful company, theyre revolutionizing revolutionizing shopping. And i think that you know, over time theyre going to deliver a lot of value. But its this margin dynamic that worries me a little bit. I just think we might be losing patience here in the shortterm. Michael, is there a chance you could be wrong though, because investors have given jeff bezos a lot of leeway in the past. Is there a chance that they wont deliver on margins and yet the stock will keep climbing . Well, that definitely happened last year. You know, the stock had a great year, and you know, there was no Margin Expansion during the year. And i think that that call in the shortterm becomes a little bit about market psychologist, and its honestly tough to its tough to call but i do think what weve been seeing in the internet sector in particular is this has been a year when, you know, companies that are profitable and are good stewards of capital and are delivering on margin growth, those are the stocks that have worked the best. Amazon stock has had a tough start to the year. Its recovered nicely since then but you know, i think this is a sort of a key quarter for the company. When you put it in a sector, what sector do you put amazon in . Well, most people who look at the stock compare it to other internet stocks. It, you know, you could compare it to Retail Stocks. Its really not a retailer. You know their Core Competencies are building a brand,icallying customers in to the sight, and then fulfillment, you can think of it as a logistics company, an Internet Company from that perspective. Its a wide ranging enterprise. Okay. Michael thank you very much for joining us today. All right, thanks, have a good one. Coming up a new ceo Just Announced that walmart u. S. , were going to get an update after the break. Plus jim cramer from the New York Stock Exchange theres been a lot of earnings. Going to tell us which report matters most to the markets. Squawk box will be right back. Your 16yearold daughter studied day and night for her drivers test. Secretly inside, you hoped she wouldnt pass. The thought of your baby girl driving around all by herself was. 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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. Bill simon stepping down as the ceo of walmart u. S. Greg foran will be assuming that role. Courtney is here and shes got more details on whats been happening. So i spoke to walmart this morning and they said that bill simon is leaving. I think its no secret that bill simon wanted that top walmart job. The job that Doug Mcmillan now has. Doug mcmillan is a lifer. Hes been at walmart for many, many years. Mr. Simon has been there for about eight years. So certainly has had a decent run in the position that hes been in. But he has not been in the walmart family for his entire retail career. Mr. Foran apparently runs u. S. Or im sorry, walmart asia right now, and mr. Mcmillan is a big fan of him. Mr. Mcmillan was the ceo of walmart international. So presumably he knows greg foran fairly well. Seems to have a lot of confidence that hes stepping in. Mr. Simon will stay until august 9th, and then after that, will be retained by the company on a consulting basis for at least six months. They say to ensure a seamless transition. Still a lot of questions and a lot of executive move arounds, i should say, at walmart over the last couple months, under Doug Mcmillan. It has been interesting watching whats happened just with some of the u. S. Comp store sales. Theyve been under some pressure. Even recently i think in the last couple of weeks. The company saying that even though weve seen that improvement in the job market it hasnt translated into sales improvement for the u. S. Thats exactly what bill simon said when we spoke to him. I believe it was the second week in july when we were down at walmart headquarters. So a little bit of pointing the finger perhaps at the American Economy rather than what theyve done or havent done. But still those camps have not been impressive. Theyve been flat to down for a number of consecutive quarters. So that possibly could have had something to do with this. We dont know. All we know is that he left at this point. Courtney, thank you. Courtney reagan. Lets get down to the New York Stock Exchange, jim cramer joins us now. Fabers going to be in today, isnt he, jimmy . Oh, of course. You know, facebook i think is going to be worth 200 billion if it goes past amazon. Past amazon, and i think we may need a few annoying facebook comparisons from david, like boeing, plus, United Health care, plus alcoa still doesnt equal facebook or i mean thats. What do you think . I mean is this its its am. Im introducing a 3 number for 2016. Ive been using 2. 50 for 2016. I dont know how this doesnt go to 90, quite frankly. Dont know how it doesnt go to 90. I guess i should get a facebook. Do you go on there still . I do. I like twitter more but the visionary zuckerberg, said, listen, it was a good quarter. Sandberg is doing, who is using it. And then you get the nuts and bolts. Just like they figured out mobile. They do the best Conference Call ive heard of. This went from the worst to the first. Yeah. Wow. Okay. So pick out like some dow components and start adding them up and figure out what you can buy, either facebook or boeing plus intel. I dont know. Well, look, the fact is, the company is earning a great deal and amazon is not earning a great deal. Thats what people dont seem to get. Its the Fastest Growing big Capital Stock other than gilliad and somehow this company is going to meet resistance from the payers. So youre talking about a company that is an earnings juggernaut. Its not google yet visavis the ipo. But it almost being looks like its on its way, which is unbelievable. In the end, they are spending z man is spending a fortune on the next ten years. They are plowing money into current in the next two years and they are printing money. I mean, this company is just its who everybody wants to advertise with and they started out with mcdonalds and procter gamble. Weve got to run, jim. Any other capital was disappointing because of the mining. Geez, mining. The u. S. Was overshadowed. 6 nonresi. I like what they said about the United States. I think the u. S. Is being overshadowed and i dont think it should be. I hope we never lose power. That would be an apocalypse. If you cant do it trust me, remember the other power outage, the only thing people cared about was powering their cell phones. But if theres an apocalypse, boeing other otherwise. Boeing and alcoa still below. Coming up, we will have a recap of this mornings earnings. Checking out the future, youre being looking at green arrows. Dow futures are up 30 points above fair value after the s p closed at a record yesterday. Squawk box will be right back. E of what you wanted to know . With fidelitys new active trader pro investing platform, the information thats important to you is all in one place, so finding more insight is easier. Its your idea powered by active trader pro. Another way fidelity gives you a more powerful investing experience. Call our specialists today to get up and running. With diabetes, its tough to keep life balanced. I dont always have time to eat like i should. And the more i focus on Everything Else, the less time i have to take care of me. Thats why i like glucerna shakes. They have slowly digestible carbs to help minimize blood sugar spikes. Glucerna products help me keep everythibalanced. crash ugh im good. Well, almost everything. [male announcer] glucerna. Delicious shakes and bars. In a 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. Another busy earnings. Dominic chew is joining us with a score card of what we were just talking about. A third of the s p 500 companies have reported their results. Twothirds of them have reported better than expected erp. Thats pretty much in line with how earnings season has gone up to this point. One out of every five have missed estimates. Heres where youre seeing the Profit Growth come from. The top three sectors. Tech we might mention quite a bit. Its expected. Tech stocks are showing the best profit gains so far. As for the sales or topline growth, take a look at the tech sector as well. Its second Place Health Care number one there. Also, interestingly enough, consumer and discretionary stocks, despite all of the negative comments about those consumers being in a funk, the retail is posting solid revenue gains. Things are growing. Maybe thats a slight i dont know if its a Silver Lining or copper line. Or just improving picture. Picture. I guess also if you look back, i dont know what happened a year ago but last quarter you had the weather that pushed into things. Maybe that upushed some sales out. You look at the Retail Stocks and they have done well. At least you are showing that things are Getting Better than they were last year. Of course they are going to be better than they were the last quarter. What i think is interesting, though, on the retail side of things, Consumer Spending picture makes up twothirds of the economy but technology, it came out of nowhere it was like fourth or fifth in terms of performing sectors. Its also important because its a fifth of the s p in terms of market value. Microsoft could help. Amazon, do you have any idea . Thats interesting. You guys have gone through all of the expectations. For a guy like me, i go through the trading. On average, for the past eight quarters, so recent memory, amazon shares on average have been flat, up half a percent the day after earnings. But the Options Market is pricing in a 6 to 7 move in the stock afterwards. So traders are already placing their bets on what could be a volatile number here. Do people get long facebook going into this . Its interesting. You look at facebook shares and they were already on a nice run. They were on a tear in the past month or so and now, of course, we see the open record highs for these stocks. But its so important for some of these names because when we talk about facebook, it was one of those momentum stocks of those names that go up and down way more than the overall market does. All of a sudden now its showing signs that, hey, were at record times. Can i friend you on facebook . You dont have a facebook account so you cant. If i was, could you be my friend . Ill be your friend in real life, too, not just on facebook. That sounds so pathetic, will you be my friend. Rickie fowler is playing nine holes. I dont have a lot of time but its one of the ways that i can find relaxation. Did you see what i told him, that i am able to shoot my age . But you are well known as one of the best golfers. They will just put new a cyborg any way. Dom, thank you. Thats it for us tonight. President obama tonight is sitting down with steve liesman. Right now its time for squawk on the street. Good thursday morning. Welcome to squawk on the street. Im david quintanilla, jim cramer. Tenyear yield creeping up to just about 2. 5. The lowest in eight years