Transcripts For CNBC Squawk Box 20140730

Last quarter. And the fed wraps up a twoday meeting. Theyre widely expected to taper its monthly asset pure chases by 25 billion. Investors will look for hint on any timing of future rate hikes. A lot to digest this morning. Michelle, over to you. Lots of stock moves this morning, too, becky. Twitter shares soaring huge move after hours. Earnings and revenues beat the street and the microbloging site halted a slowdown in the user growth in the quarter. Among the catalysts, the summers world cup. And were going to talk to the analyst who covers this company in just a few minutes. But take a look at that interday chart from yesterday where you can see the after hours moving. 30 . Holy smokes. American express posting a 9 increase in profits. The companys cfo says card members spending as the economy recovered. And Dreamworks Animation posting a bigger than expected loss, revenues falling short. The Company Announced the s. E. C. Is investigating the wipe down of film inventory on turbo, which is a movie about a garden snail that races in nascar. One of the more interesting investigations today. Ive seen some clips for that. A couple other stocks to watch today, including panera. Its casual dining change earnings, profit did decline as they look to speed up its service at its cafe. Some samestore sales are not as strong as the street had been suspecting. The gain from a legal settlement and heart valves implanted using a less than invasive procedure. Medical devices raising its full year forecast. Amgens earnings beat the street, as well. Raising its full year profit forecast. The Company Announcing it is cutting up to 15 of its workforce and closing plants. Amgen saying its trying to reallocate resources to introduce new medicines. Lets get a check on the markets this morning. Yesterday you did see a weaker day for equities. You saw the dow and the s p 500 broke down by just over 0. 4 . This morning, youll see that the futures are indicated higher. Right now, up by about 29 points above fair value. The nasdaq are up by 11. If youre watching oil prices, crude yesterday settled down just about 0. 7 . It was at a twoweek low yesterday. This morning, prices back up a little bit. Up 14 cents for wti, the 101. 11. Yesterday, the treasury tenyear yeel was ticking lower. It was sitting at a twomonth low of 2. 46 . Yields a little higher this morning at 2. 473 . Also, lets see whats been happening with the dollar. It is up across the board. Picking up on strengths from yesterday against the euro. Right now, sitting at 1. 3401. The dollar yen sitting up up at 102. 22. If youve been watching gold prices this morning, youll see theyre down, but just barely. 1,298 an ounce. Lets talk about the roller coaster ride that is twitter. Twitter shares surging after hours as michelle was talking about earlier. Earnings and revenue both beating estimates for the Second Quarter and the ceo of costco was on cnbcs closing bell talking about the quarter right as earnings were being released. We had a great quarter across the board, id say. Revenue up 124 . Thats great acceleration year over year for us. Again, on Fourth Quarter of revenue acceleration. Monthly active users, as you mentioned, up to 271 million. That was a net add of 16 million. That leaves us the highest number of absolute adds in the quarter. I think it was the highest number of net adds in five quarters, rather. I think it was a combination of things across the country that have come together for us. Lets bring in brian weiser, a Senior Research analyst from Pivotal Research group. He covered the stock. What did we all miss, brian . Well, you know, i downgraded the stock to sell based on the aftermarket reaction. The company had a good quarter, but not that good a quarter. In terms of you said it wasnt that good a quarter. The revenues were way higher than anybody expected. Should we be paying attention to that number or should we be actually, they were below my expectations. Here is the problem with expectations. If you look at where consensus led, it was about 1 million to 2 million above guidance. Guidance was from the outset a very, very soft number. So when you beat that and nobody has, for the most part any number meaningful above guidance, its more of a question of expectations being out of walk. So you think that they just they low balled on guidance, so they can beat. Is that the suggestion youre trying to make . Are you saying that they perfectly sandbagged everybodys here is the thing. Twitter is a hard company to understand. Its harder to forecast, harder to anticipate. And so its not surprising that most people would kind of say, well, the companys guidance, theyll do better than that and just be conservative. As far as i can tell, there hasnt been a lot of work going into morrow bust forecasting services. Its type. Its a good number. I thought the core concern was whether or not user groekt was sloel slowing. Didnt it accelerate . Well, it depends how you define it. The year over Year Growth Rate in the Second Quarter was exactly the same as in the First Quarter when the stock tanked. Its really quite remarkable how short memories are on these. Twitter added some 16 million active new users. They are defining active new users as somebody who uses the product once a month or more. Is 16 million good enough . And are those active users . You know, i go on sometimes and realize so many of Brian Sullivan was here yesterday. Were looking at all these followers that people have that are not real followers any more. Theyre inactive. Sure. Well, you know, there are probably a small amount of users that account for disproportionate share. The fact that you and i are on it, occasionally, were still valuable. The real issue, its not really valuable to advertisers. The question is just how much. Lets go to how much. So how much is this companys worth . And how you even think about it . Sure. The forecast that i think the shares of the Digital Advertising market that they can capture, i get to about 2. A of that Global Market in china by 2018. Convert that back. Its all the way back. And you can relatively assess what the riskiness is and the time that theyre after. So i get to about a 38 price tag right now. So youre selling the stock. Brian, what do you think happened . Why do you think the stock was up 28 if you werent impressed by it and you didnt think it beat by a lot . Yeah, its kind of odd. It is clearly the case that the number did beat expectations. The problem is, as i said, that the expectations were wrong. So that helps. The user growth wasnt that substantial. So im not sure, somewhere between short covering, investor coming in who gave a lot of confidence in the stock and maybe some revenue trading or something. But i do think that, just to be clear, Facebook Twitter is a real company. Theres a real business there. It is really worth something. I think new shares have been too negative on the business. Again, the problem is that this converts into a bizarre and very population on the value of the stock as we saw when it hit nearly 70 recently. Brian, have you had a dollar to invest in twitter or facebook . Are you clearly saying facebook is the answer . Absolutely. Absolutely. Facebook is so much more of a mature business and its posting remarkably fast growth and converting it all into cash. Theres so much more legs of growth to go. Brian, facebook versus google for us. Well, facebook, better than going. Googles problem is that their margins will continue to compress. Their capital keeps going into diversification adventures. Google is not going anywhere. Good for them. But in terms of where the value is, its facebook. Are you a do you work in paris or are you on vacation and youre joining us . Working from europe for parts of the summer. Lovely. Congratulations. Very smart. That vacation is supported to working in a nicer place than you normally do. Brian, we appreciate it and we will let you return to what youre calling work. All right. In other headlines this morning, the New York Times reports that steven cohen is doing well for himself. Just three months after his hedge fund entered a guilty plea to Insider Trading charges. His renamed Firm Managers 9 billion or 10 billion of his personal fortune. In the first half of the year, it generated a profit of nearly 1 billion. Close to the 1. 2 billion penalty that they paid to the government as part of his guilty plea. Apparently, though, these returns on an if you were to take into account what you would normally have to pay out in terms of fees, it is not as good as it used to be. Its materially lower. Because he doesnt have the fees that are coming in. Its just 2 right off the top. Right. But thats not how were measuring that measure was on a growth basis. People dont measure on a growth basis because, usually, you have to theres fees involved. So people would say his returns would be closer to 5 . Which would still be outperforming the other hedge funds. I think hes still incredibly wealthy. Thats the spirit of it right there. You know, theyve got, what, still 815 points. To manage his own money. Not bad. Just to manage his money. Right. Cool. Yeah, it is. Another story, too, restaurant chains taking note of a decision from the nlrb. The National Labor Relations Board ruling mcdonalds and not just its franchisees can be held liable. Mcdonalds said the nlrb decision was wrong and it will contest it. Mcdonald each says its franchise relationships did not establish a joint relationship. I dont know how to come down on that. I can understand both sides of the arrangement. Mcdonald itself can lay out strict rules of what it requires. Like you have to have the same straws, you have to have the same napkins. So if theyre going to do that, youre saying if youre going to exercise control in a lot of different areas, i can see where they would say if youre going to determine which straws have on be served, you cant see you dont have any control over the employee employer relationship. I am distressed with this on a number of fronts historically. Right. I understand that. I agree with some of those things. But on this decision, trying to think it through, i could come down to either side. The more you mettle in the labor markets, we all end up paying for it, right . I dont know what the franchisees were doing to their employees or where. I dont know enough about the facts to indicate what the franchisees are doing. In geopolitical news, the tanker has started to unload the first u. S. Export of ultra light oil in 30 years. The sale taking place after the United States eased the multi decade ban on crude exports. Holy smokes. Here we go. As a whole, weve been talking about this, you know, for the last couple of years. Can you imagine the u. S. Becoming an exporter . She doesnt want it i have for a long time thought that this if you really want an Energy Policy that takes into account our defense, what we do in terms of who we buy from, dont complain about buying opec oil and what oh beck pec is going to turn ard export it. I think theres a strong argument to be made that if you look at energy the way the chinese and other nations look at it. And hold on to every last drop. Its something theres a limited supply of. Hold on to it and make yourself energy independent. In a crisis, we can do that. I will say that my mind has been swayed at least by changing. Well, whats happening in europe leads to all kinds of other Security Problems that we cant control. If youre looking at a broader security stance, we should be looking at exporting natural gas to europe so that they can wean themselves from russia. Keep in mind, yes, i agree, but their wounds are so selfinflicted, right . Germany has decide theyre not going to use will power any more, right . Similar to what happens in japan. Theyve started raising costs dramatically forestry groups. Theyre becoming less competitive on that front. Then theyve made the decision, they have this issue which is great for the United States and bad for the receipt of the world. We in this country, if you own a piece of land and it has Energy Resources underneath it, thats your money. You can exploit that product. You cant do that in europe, right . Most of the world, you dont own whats underneath. So thats control. Somebody comes to you and says, becky, you get natural gas underneath your pool, can we drill that . You would say, what . I get nothing, right . Forget it. And so you have not in my backyard becomes a huge problem there. Those are aligned to actually drill over there. That i did not realize. So ownership of the assets under the ground, mexico has the same issue. Neckco, you can just no, mexico has the same issue where you dont own case in europe. It doesnt complicate everything. Its collective ownership. It belongs to the people. When we come back this morning, the economy is front and center with twoq reports on the way this morning. We have a fed decision, some predictions ahead with those numbers. Plus, will russian president Vladimir Putin start to feel pressure with the latest rounds of sanctions . More squawk box just ahead. Stay with us. Thank ythank you for defendiyour sacrifice. And thank you for your bravery. Thank you colonel. Thank you daddy. Military families are uniquely thankful for many things, the legacy of usaa Auto Insurance can be one of them. If youre a current or former military member or their family, get an Auto Insurance quote and see why 92 of our members plan to stay for life. When ben bernanke and his colleagues instituted that in 2009, financial conditions were in a dysfunctional meltdown. The policy was brilliantly conceived and a nobrainer from a risk reward perspective. But the current policy makes no sense from a risk reward perspective. Five years into an economic and Balance Sheet recovery, extraordinary money measures are likely running into sharply diminishing returns. That was Stan Druckenmiller making his presentation at delivering alpha. The full speech is online at deliveringalpha. Com. Todays fed meeting is part of todays economic show. The adp employment report for july will be released at 8 15 eastern time. That will be quickly followed by the first read on Second Quarter gdp at 8 30 a. M. Joining us right now for a preview, mark vitner is senior economist at wells fargo. Dickcoy is a chief economy. The number is probably the most important number well be reading for the economy today. Dick, does it matter if we look at 2. 9 . Thats what people are expecting to come in. Can we read anything into this or is this a rebound from lousy numbers in the First Quarter . It doesnt matter a great deal. The monthly and weekly numbers are fresh and matter more. Keep in mind, this is the average of the level of the economy in april, may and june compared to the average of the economy in january, february and march. When it was lousy. January was a long time ago. So these gdp numbers have so many components, they would give us less information than the monthly numbers, the employment report coming out, all of the numbers are much more valuable for reading how the economy is doing now than are the quarterly gdp numbers which reinterpret what happened in the past. So to beckys point, if it was so bad in the First Quarter, if we get a good number today, it actually isnt that good because youre coming off of such a low base, right . Its not necessarily as strong as it might look on the face of it. My view is its important to make a distinction between the mark to market of what already took place and your outlook from what happens from here forward. So you see these downward revisions for 2014 estimates. Well, of course, the average for 2014 is going to be low if you start with a minus 2. 9 in the First Quarter. I think were right, weve made the transition from 2 average growth to 3 average growth. And everybody is looking backward at the number from the prior period. Mark, would you agree with that . Well, i certainly hope thats true. Im not as optimistic. I and were optimistic about the economy. We do think that growth is ratcheted up a little bit. I think youve gone from 2 to something between 2. 5 and 3 . But i think its going to be closer to 2. 5 . But the gdp numbers help benchmark the monthly data. That gives us an idea. The monthly data tells us whether were accelerating and the gdp data tells us what were decelerating from. The trend rate for the last few years has been lousy, about 2. 1 . Its about twothirds of what weve averaged in the 25 years prior to the great recession. But you dont think were breaking out into 3 growth from here . No, i dont think were going to be up to 3 growth. I do think that that First Quarter gdp number will be revised away. One of the things that i like to tell people is economic is just common sense made difficult and your common sense tells you that the economy is doing better than that in the First Quarter. It feels better out there. Thats it . Were fighting for 3 . We are fighting for 3 . And one of the reasons is we have a lot of growth hostile policies and we have chosen not to adopt growth friendly policies. We still have a Corporate Tax code that is suppressant of economic growth. We havent succeeded on spending more in our infrastructure, the 100yearold water mains break, it does say are we deferring maintenance on our social capital while china is rebuildi rebuilding brand new infrastructure. We have policies that are not really growth supportive and thats why an improvement to only 3 isnt bad in the context of growth hostile policies that we have adopted. Mark . I agree with that. And the world has changed a lot. The berlin wall came down. Weve got the internet now. Its a very different world, iepts very easy for u. S. Companies to move themselves or refigure themselves to reduce their tax burdens. Do we even modernize the tax growth and policies. I wish that was happening, but its not. You dont sound very patriotic, mark. Thats like a 3 cap. One of the things helping the stock market but not the economy is that companies are choosing to lower their tax rate by inversions or by using reits for existing assets and new assets. But thats clearly inferior as a contribution to the economy to actually reforming the Corporate Tax code to encourage job creation in the United States. Do you find it frustrating that the when you talk about when you talk about these, they say there is a race to the bottom all over the world when it comes to Corporate Tax rates. And yet when the oecd comes out and says everybodys tax rates should be up here, they call it tax harmonzation. Its a wonderful thing. Its a good thing when everyones taxes are higher. And its a race to the bottom when everyones taxes are lower. Within urch, youll notice the countries with the highest tax rates are most enthusiastic about about tax harmonzation. But this is our mistake, not to reform the Corporate Tax code. We cant blame this on the french. We cant blame this on the chinese. This is america failing to pass appropriate legislation to give more jobs to people more quickly. Mark, i heard you trying to get in there. A quick last word from you. I was going to say, were america. We should be leading on Corporate Tax policy and shouldnt be following anybody else. The economy is going to do better. One of the things that most encourages me is weve had this onslaught of geopolitical events. Unlike in the past, it doesnt seem to be a big setback for the economy. Were not losing on momentum. Were continuing to see growth pick up. So im encouraged. I think were going to get a good jobs number on friday. Were looking for a gain of about 240,000 jobs. Mark, thanks for joining us. Dick, thanks for coming in. Good to see you both. Thank you. Thank you. Coming up, what advertisers are going to do to sir martin sorrell. Well tell you why hes all about a fox. Take a look at yesterdays gainers and losers. Over 1. 2 billion eyeballs are on us during the two weeks at wimbledon. True tennis fans want to know whats happening. They dont want to just see whats happening, they want to know and understand why its happening. Anybody can just put data up, but we want to get a reaction, make it far more interactive. We rely on the cloud to provide that immersive digital capability. Give fans more then just the game with the ibm cloud. The ibm cloud is the cloud for business. [ thud ] visit tripadvisor rome. With millions of reviews, tripadvisor makes any destination better. Good morning. Welcome to squawk box right here on cnbc. Im Andrew Ross Sorkin along with becky quick. Michelle Caruso Cabrera is with us today because joe is off this week. Well tell but some of the headlines this morning. Shares of humana rising with market trading. 2. 19 per share. Revenue was higher than expected. Humana saw a sizable jump in membership, thank in large part to participation in health care exchanges. We should tell you about carl icahn because hes cutting his stake in Family Dollar stores a day after the company agreed to be bought by chain rival dollar tree. Icahn says hes, quote, determined to dispose part of his stake rather than wait for the deal to close or for higher fees to emerge. And facebook is shutting down its gift service. Two years after it was launched wbl i remember getting a gift early on, a birthday gift, a thing of jam. Anyway, the Company Testing our ways to allow consumers to try products on their website including a special buy button. In the markets, futures are suggesting that we would get higher by nearly 5 points. The s p higher by a little more than 3 and the nasdaq a lot more than 13. Whats going on in europe . Flat. Nothing. Nothing. Slightly negative. Is putting it strongly. And then asia, we saw japan higher overnight by 28 points. The hang seng was higher by 91. And shanghai, even though its been screaming for the last several months, lower by nearly 2 points. As for the price of oil, which we saw move yesterday on saengsz news, wti is higher by 101. 32 per barrel. And looking at the tenyear, still below 2. 5 when it comes to the yield, 2. 47 even though we see the price of the bond off by about an eighth of a point. The dollar this morning, stronger across the board. Still is. The pound will cost you a buck 69. The euro, a buck 34. And the yen, 102. 25. The price of gold at this hour . Its just like europe, doing nothing. We are squawking about the business of branding this morning with the man at the helmet of the Worlds Largest advertising conglomerate. Its not a conglomerate, becky. Its a focused advertising services. Youre a big company. This is sir partin sorrell from wpp. Martin, one of the things we were just talking about well get to branding in a moment. But just before the commercial break, we were talking about the merger potentially between time warner actually being bought by fox, century 21. You think this is good. Why . Well, i think its good because it gives our clients truly there are very few media analysts than have a global view. They tend to be u. S. Oriented or indian orientated or whatever it happens to be. And theres no associasort of m company that has a global issue. Its always been, i think, if not the only media mogul or magnet thats taken that world view. And i think a liaison with time warner will be even more effective. It offers our clients probably for the first time, to be honest, an idea. Theres obviously content opportunities. Theres obviously a defensive quality to it. This is the antigoogle antifacebook or the counter for that in terms of combining major legacy media assets than using them to develop content and distributi distribution. Dont lose out to the Digital World . Exactly. You may remember before the news came out about the best offer, there was chatter about google looking at time warner. So this alignment between legacy Media Companies and the new Media Companies, i dont think google is a technology company. I think its a Media Company. And the same goes for twitter and facebook. Partly its offensive and partly its defensive and it mirrors what weve seen on the distribution side of at t and is it unfair to say if you were in the advertising business, you like it, do you like this because ully youre going to get more discounts, actually . Whats going to happen is youre going to bring your big clients over there, theyre going to give you one big packet, may get more market share, but i think you will get better pricing for the client. But i think theres an argument the other way. The sort of pavlovian reaction to that deal was it would be bad for agents. I would think. I say it gives us more opportunity. This would be a unique combination of assets. Explain that. I dont understand. Because of the unique combination of assets, youre just saying this is the one place you can go globally and be all in one place. To a very extreme, michelle. But directionally, thats true. They give opportunities to build content packages for our clients. Huge and global . Huge and global. If you look at whats going on in our business. One, the geographical expansion. But cant they charge more . There are recent pricing opportunities obviously where they are content, where they have the events that are productive and appealing. And this, of course, balances out the sports business in the United States. So the attacks the dominance of disney. It gives fox and it will give time warner more balance. It will give hbo i think significantly more opportunities. Do you think regulators look at this scam . Your friends in locallywood will not be happy . My friends in hollywood . The people in hollywood probably wont be happy about it. Whether it be at t and directv, comcast and cable, i think the regulars will be almost overwhelmed by this and its going to set out a number of issues to be dealt with. But cnn obviously will be sold if the deal is to happen and maybe some other assets and fallout. You see rationalezation of sky, which i think gives sky an interesting opportunity in germany and elsewhere. Twitters earnings are better than expected. At cannes, we did say we were doubling our spend from this year to well over 100 million. And how much did you spend with facebook or google . Facebook this year will be about 600. Were starting 650 million and google 3 billion this year. 3 billion four kool google, 100 million for twitter. If fox and time warner come together, they will be bigger than google. In terms of its span . Yes, investment span. And where at the better return. You cant always tell. But on the new media side, it will give lots of opportunities. Having said that,essy is a very resourceful xhfb and very resoes soersful when you say very resourceful, i mean, you dont put against rupert. Doesnt mean theres a chance this time it doesnt happen, but i would bet on this deal going through. In a we, its a built i just hasnt done too good a job. Because of the low . It made it more digestible from a time warners point of view. Its been a stunning run. Look five, ten years out. Not that there will ever be a final state of media, but sort of after a digital traditional world, is it all combined . Well, i think, you know, some of our competitors that might make i think a valid point that you cant distinguish between old and new meeting. We say 36 of our revenues on are you giving any money to time inc now . That spun off time inc. . To you look at that company and say theres a good future there or consumers 45. In her latest data which would be looked at hopefully, they spent 45 of their time on mobile. Digital. . Consumer spends 6 of this much time. This is traditional. What do we spend . 20 , in a sense. Longterm. So the answer to your question is theres going to be a rebalancing. So that 25 becomes 45. You know, our objective is to get digital revenues if theres a distinct. If i opened a news week, would i miss this . You might miss this. More and more relevant. In terms of their individual strategies, as well, what is driving them is to look to explore the content opportunities online. Can you give us a quick report card on yahoo . Where is yahoo or where is aol . Some of the past names. Actually, to be fair, both are relatively less important than google and facebook. I was in both china and brazil recently. Whats interesting is the growth of google against the legacy media. The legacy media is still very dominant in those markets, but the growth rates is it sipsble for a yoohoo to buy all this content, trying to become a pseudo mini netflix . Its where the investor, the other 11 , we have about 5 , 6 of the screen. Both of which are subject, according to market rumor, to potential build. People are very focused right now. There are others looking at that, yes. It is not solely dependent. Because the rumor is about time warner. Yes. Well, no, its not the only rumor. There are about two or three. Oh, theres more . These are rumors. I dont indulge in rumors. Martin, very quickly but its not dependent, as i understand it, on time warner. Before we let you go, quickly, a view from around the globe. How are markets holding up . Stock mcs . No. Its tough. Were eeking ought. Thats like for like. Our Digital Media environment is on fire. But net sales, its just about 4 . So were reaching out for growth acquisitions and another three currency a crippler. Currency is a big challenge, particularly forl a sterling, reporting company like ourselves. So eeking out growth and therefore theyre very focused on costs and the procurement finance challenge remains very, very strong. I think next year will be similar to this year, maybe a little bit better. And then 2016 well have well have an olympics in brazil. I think it will be a good event. You really think hillary is going to be our president . Weve had this before. I can say i may harang you you. Thank you for coming in. Coming up, an update on whats going on with about 100 million in kurdish crude sitting off a tanker off the coast of texas. And sharknado 2. The star of the movie will be our special guest. Sharknado returns in just a moment. We do . I took the trash out. I know. And thank you so much for that. I think we should get a Medicare Supplement insurance plan. Right now . 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During the cadillac summers best event, lease this 2014 ats for around 299 a month and make this the summer of style. Welcome to squawk box. Its the latest on the kurdish oil controversy that weve been telling but this week. The high stakes dispute over a tanker sitting off the coast of texas filled with oil from kurdistan. A u. S. Judge said she lacked jurisdiction given the ships distance from the texas shore, International Waters and argued that the case should be settled in iraq. Another expectation maybe kurdistan is going to file suit. Where its going at this point, we dont know. You had said that there are four tankers. They loaded up four tankers. One got sold to israel. One is sitting off the coast of texas. One is sitting off the coast with no buyers and theres another one, im not sure where it is. Israel is the only country that has said yes, well take it and well buy it from you . Not the country itself. We think its some country in israel. But they dont have any fear of backlash from baghdad. When we return, the efforts to take a bigger bite out of the russian economy. The latest round of sanctions, will it get Vladimir Putin to bend . Thats coming up next. There are new economic sanction on russia. Yesterday the European Union reached the deal to impose sanctions targets these industries, oil industry, banking and dual use goods and sensitive technologies for use in the oil sector. They could have a bigger impact because the eu does ten times as much trade with russia than the United States. The United States slapped more sanctions on certain russian companies. Joining us now is a partner and an expert on economic sanctions. Good to have you here, again, jason. Let go through quickly, very simply, explain how these worked. Export controls a. Senior state Department Official said yesterday that, basically, u. S. Companies, now European Countries arent going to be able to sell or countries arent going to be able sell key equipment for arctic drilling, shale drilling, deep water drilling. Russia really needs this to expand her to sector. Are these meaningful . Michelle, good morning him theyre limited in the contenlt of what we could be imposing, i gress. In the case of euro you can say after four months of the downing of an airliner they are doing something. They target a unique sector moving forward. They didnt touch liquified natural gas. They didnt do that because they feed that gather. Those are the times of decisions we have to start making as a unit. The United States and the eu have to really refocus their strategy because the peace and economic stability of europe are at stake here. Russia is fighting with guns. Theyre being extremely aggressive. We are doing an enkremtal rollout of sanctions. Frankly, there is something we are queing up because russia can now respond, deals, for example, visa and mastercard said these deals wont impact them. The Morgan Stanley Oil Transaction unit sale will probably by a proved here in washington. So these are very targeted. It will be a long process. Its a good step. The banking sanctions, people generally assume, they hear sanctions, we are used to hear about them talking a bank. They sanctioned this bank, european entities they cant do that. Its targeted. You cannot own maturitys in these banks that are longer than 90 days . Very, thats it, very limited. Transactional bonds, for example, moving forward. Again, very, very limited. A lot of these banks feed to raise money on the International Capital mashlths. Now they cant do it in europe and the United States, is is that meaningful . Its meaning. I think putin and his inner circle have been planning for. This we have been telegraphing, this is what we were going to do, it would have happened but for the downing of that airliner. Its good europe came towing. More is feed. What would have happened if we started freezing accounts if london of some of the russian billionaires. Who knows, it depends on how he is manipulating this process. If you could get to it. We freeze it. Do we know where that. Is . I think the Treasury Department can figure out where that is. Putins. . I dont work for the government. But i think we can track it down the we want to track it down. Every time there is a round of sanctions, reporters ask, why arent we going to putin . The answer is to sanction a led of state the a huge, a bridge too far at this point. Like declareing war. It pay be targeting putin. Im not saying its what we should be doing is there why isnt a bridge to far . There are certain steps the u. S. Government can take that wouldnt cre that it that level of tension. There sa lot o that has to happen with russia that hasnt happened yet. We have to come together u. S. And the eu to move beyond this. If we have to wait for russia to shoot down the planes to get up and do something, this will be a long dragged out process. You will see incellal target itself sanctions that dont work over the long haul unless theyre backed up with diplomatic and other measures. Thank you for joining us. Thanks for having me. We have the adp employment report and a first read on Second Quarter gdp also coming up at 8 00 a. M. Eastern time the rising cost of Held Health Care and what it will take to get it ound control. Mark betterollini is our guest host. More squawk box after this break. The second hour of squawk box, the second one, begins right now. Sharknado. [ music playing ] good morning, everybody. Welcome back to squawk box here on cnbc. Im becky quick, joe is off this week. We have been watching the futures. This morning it looks like if it were to start here, the market would be up higher. The nasdaq is up by 14. Also trngs tenyear watching that yield yesterday, it hit a twoyear low at 7. 6 . We have three significant events for investors to be watching today. At 8 00 a. M. Eastern the report for july. Economists are looking for private sector jobs for the month. 15 minutes later, the gdp numbers and at 2 00 eastern time, the feds policy statements, cutting the bond buying program. And if automotive news, a record first half for toke. It says it sold 1. 5 million vehicles from january through june. It will be a close race for the yearly sales found with tobacco slightly ahead of vol, wagon and tobacco. A dozen were tested. Performing well were bmws mini cooper and countryman modem. The poorest of that group was the mazda 5 exact men fivan. Im still on this justin bieberorlando bloom story. Lets talk about twitter. Early candidate, twitter shares soared. The social Media Company halting a slow down in user growth in the quarter driven in part by the summers world cup. Twitter ceo on cnbc closing bell yesterday. If you look at our apps on ios or on droid now and compare to a year ago, you would see theyre frankly extraordinarily different. Yet, we have been able to make those changes as a cohesive set of product changes over time without disturbing or intrupt disrupting this growing core over 271 million monthly active users. And im proud of that. We will talk to an analyst who covers the company in a few minutes and get his thoughts on what this means. Michelle. A decision by the nrlb could have a big implication for fast food chains, ruling that mcdonalds, not just its franchisees can be held liable in comments that they violated employee rights. Mcdonald says the decision was wrong and will contest it. It says its relationship does not establish a joint employer relationship. In a tensiongrabbing story in the New York Times today about europe, bank rolling al qaeda and one example germany budgeted money as humanitarian aid, but the cash was really headed for a group of islamic extremists who are holding 32 european hostages. An investigation found that al qaeda and its direct affiliate versus taken in at least 125ple in revenue from kidnapping in 2008. This is an incredible story. Unbelievable. And when you dig deeper into it. The United States and the united kingdom, we refuse to pay. So as a result our people die, but thats the thing, because europe keeps paying, more kid napings keep happening. I mean, its a really difficult its a successful strategy. Its like trying to stop the somali pirates. You have incentivized them to do more kidnappings. When you read the officials, they are furious, they are causing more kidnappings to occur. I wouldnt be surprised if they start to get smoort and say let pe see your passport, for the, are you not worth bothering with you. Well take europeans only. I mean, its really unbelievable. That they would lie and say its humanitarian aid. Its taxpayer money. They come out and bucket for it. You cant say ransoms to al qaeda on the budget line for those things. Unbelievable. This is unbelievable video out of california. What a mess. A water pain break sending massive amounts of water in and around the ucla campus. A faeyearold 30inch water pain failed yesterday afternoon releasing an estimated 8 to 10 million gallons of water. Officials were able to shut off the main not until three hours after it broke. Portions of the athletic fa sims were inundated with water. Two underground parking structures, there were for the reported injuries. Wow its not often. I guess im surprised you dont see stuff like this happening more often. Thats amaze. You drive around here, it hams auld all the time. Fork city, new jersey, water pains are breaking all the time. They havent invested in them. Lets talk a bit about the markets t. Stockmarkets will have a lot of data they have to contend with. Joining us is marcus ryan here on set steven asxs, gentleman, the markets. Yes we seen a little downturn, if you have been looking at the market, they have been unbelievably resilient. Is that what we are seeing with earnings . We had this conversation over the last four quarters, five quarters, if you look at top line and bottom lean ref few grout for if quarter once again, you got about 80 of the s p 500 beating estimates. You got an environment were coming into this quarter, you had revenue estimates going down, bottom line estimates mostly flat and this lower bar, companies are not having trouble beating it. There is just a lot of good fundamental underpinnings of this market. It continues to drive that peltup if you will. Not the least of which companies are doing it and beating on revenue in a lot of cases, too, this is not stuff where companies are cutting to the bone. Theyre actually doing okay when it looks at what theyre selling. What we are seeing is we got Revenue Growth up 3. 31 . We are seeing corporate profitability. We run out of room, we are seeing companies createdive in the ways they find ways of making. I think this profit cycle is one thats fairly long. We think that profits for the Second Quarter will wind up being up 8 to 10 . As i said before, i think with Strong Revenue grout this puts us if a continued range trading, a trend rating if terms of the higher reports this year. So steve, lets dig into this a bit. People were thinking the markets were going to run out of room. It has been the Central Banks holding this up. While they are making equities look like a better place to put your money. Is there truth in the argument the Central Banks will pull back but the real economy will take the handoff seamlessly . I think at the end of the day the mark is taking in. Globally, you look at the developed markets around the world, at the end of the day, thats sort of this underpink if you will of what the thinking is. We still got a long way to go. Right. The fact of the smatter we spent a lot of time over the last week about pairing back qe some more. If at the end of the day were still buying 25 billion worth of bonds posttoday, we still got four or five months of qe to go. Were still probably a good six months away from short rates, you know, shortened rates occur rising any significant degree. Weve got time to make that handoff. Ultimately, one of the things on the bear side of the equation. People say, well, it will be a shock to the system once qe ends and once rates rise. Possibly. Were talking about nine to 12 months from now before these events happen. We still have a lot of time and runway to continue that growth. You are not nervous about the pharaohness and narrowing of the breath the small caps rolling over, high yields gotten so ugly . Those are often whispers trouble is on the way. They are. At the end of the day, ultimately, we are long in the tooth in this bull market. Obviously, reaching lows in march of 09. It doesnt mean you have been hedging your portfolios. Ultimately, we see that as one of the biggest risks particularly for individual investors. You are not looking for that big blowup. It doesnt mean you soon be hedging or taking a part isser approach to both equity and fixed income investing. The fact to mikes point, there are a lot of underpinks fundamentally. We will stay pro risk here. I do think the cycle is rather than being towards the end of it, we have a long extended cycle. I think the Earnings Growth will continue to push the equity markets higher. I believe we feed to be selective. This is a stockmarket we have to be more careful. We Want Companies basically to position as follows. I want them geared and will benefit from the growth drivers, are not trading expensive levels, importantly, are not vulnerable to fed taping. That will include industrials and financials and areas of technology. Mike, steve, thank you both for joining us today. Thank you. When we return, twitters takeoff, the stock surging after storm results. We will talk to an analyst on that call last night. We didnt see this coming. Brian sullivan caught up with the sharknado sequel blink and you will goodness, there it is. We will put it in slow motion. You are looking at that right now. One of the stars of the scifi phenomenon will be with us ian ziering as sharknado returns. Ldg faster than ever, we believe outshining the competition tomorrow. Now, along with ibm, is to actually transfer data through a satellite. All right. Welcome back to squawk box. Checking the futures right now. They suggest we have a slightly positive open. The dow would open higher by 37 points. Boeing raising its forecast for commercial Airline Pilots over the next 20 years by 7 . The company citing aircraft and Strong Demand from asia pacific. Okay. Lets talk about twitter. Twitter out with future results after the bell. They did Beat Estimates on revenue. The Company Reported earnings per share of 2 vents verse expectations of a pen filoss, the stock took off, twitters Ceo Dick Costolo spoke exclusively on closing bell about guidance. I think the differential you are seeing in the raised guidance is due to the success over the course of the beginning of the year and our view how that will translate into the back half of the year. Joining sus a security Senior Analyst anthony, did they give bad guidance or did you have a bad analysis . In what regard . We upgraded it with a stock at 31 bucks. I thought the market was pricing in a lot of apathy with the fame. The Quality Network of twitter, i thought there was a range of outcomes must higher. The higher guidance twitter gave is a nearerterm outcomes. You see the street starts to work it down. You are not suggesting the rest of the street didnt. The pop in the market yesterday, does that make sense to you . I think you need to take a step back, how big can twitter be . Anthony noto, the ceo, yesterday talked about having the larger audience, twitter right now is less than onefifth of facebook. You asked about the stock in the after market t. Market cap pro formula i move is less than a fifth of facebook. So if you give management any credit to building this thing to a third of facebook or if a real i bullish case, maybe its 40 in terms of number of users. You get a large number of users than the street has embedded. We had Martin Sorell on earlier. He was saying he spends 600 annually, he spends about 100 million on twitter. You see that changing . Well, i think when you look at the monetization soet they put up in the quarter. The fastest growth. They talked about pricing up quarter over a quarter 18 . So twitter is seeing real pricing power. They have ad form, that brand marketers, really can appreciate and theyre really resonating. So guys like Martin Sorell, theyre spending 5x than they are on facebook because the audience on facebook is much becker. How big cmontization per user be . Right now twitter is monetizeing half of what facebook is. I think they can catch up. I think that brand markers, there are some ad format itself on twitter that res fate better in some cases with brand marketers than they do on facebook. In terms of engagement. They added 16 million new users. Thats users, not engagement. Yes. So but thats where i was going with this. Right. Were you happy, was the 16 enough and are those 16 million actually engaged . Well, they are. I mean, all the metrics that point to the improvements. It was the best of the last five quarters. Because people will ask, was the world cup a driver of engagement in the quarter . It may have been. Of course, it was. Of course, it was be you there are some curious things that twitter did to engage world cup users. Those engagement trends they expect to continue quite steadily the next quarter. Water your stock right now . 50 bucks. We had an analyst that said he was completely and utterly unimpressed by what was going on. If you had a dlaer to invest if twitter or facebook or google. He gives it to facebook and google hands down, what do you do . I recommend twitter. I agree to that 50 bucks. The easy. Has been made here. Now it gets a little more complicated. In a bull Case Scenario versus a 50 base Case Scenario, can you argue for 55, 65, 75 bucks. Facebook is with your friends, twitter is a real time Public Information network. So the use case does not overlap. So i think that you can really and google is about searching for things and proactive serving of knowledge over time. So i do think there are different use cases for these three incredible digital Media Companies. He said twitter was a sell. It was going to 37 bucks, no, 38. I think your analysis on last nights results was negative. I think thats a little close minded. The results are awesome across the board. His biggest point. He did say he wasnt all that impressed. Watching the stock jump that much, that put him off. If you are looking at the after market, its a less liquid market. Have you some technical things. Have you some short coverings going on in there. Lets wait and see where the stock settles out, lets kind of extrapolate the models. If you play around with it. We were in the office late last night looking at the user number in 2017 half a billion . Is it 450 . 600 . 650 the model on the range of outcomes on earnings is very sensitive to that. You agree 48 or 49 is expensive or not . Its expensive. Its still less than onefifth of the market cap of facebook. If you think this thing could be a third of facebook, then there is still a lot of upside from the valuation perspective. I will now speculate. You speculate with me. This is a company that is worth about 20 million. Maybe 22 billion. Is there possibly ever going to be an acquisition target . People used to say that this company was going to bet bought by somebody. Its still small enough, oddly enough, 25 billion is a lot of money. Still its not a 100 billion in this facebooklike place. Where do you put it on the list . Sample i think, you know, i think its an incredibly strategic asset. I think in terms of media and twitters ability to partner with Media Companies, its unique in that regard given the sec screen and the way people use twitter and interact with things like the super bowl the oscars, the world cup. There are plenty of characteristics if twitter that make it an attractive acquisition candidate. I dont know if the company is for sale. I think in an independent basis, its an incredibly strategic plan. Someone like google. If you look at them, its getting to a size where there is two or three technology kansas that you think of where it makes sense, google and apple and amazon, im sure they look at twitter and see the positive tech for the logical characteristics of the asset. We will keep it there. Thank you for joining us. I appreciate it very much. Coming up, a collision course, high profile and deadly accidents raising serious questions about Highway Safety and long haul trucking. Its special reports airing on cnbc all day. Eamon javers brings that up. Mark bertollini digs into the high cost of health care. More squawk in just a moment. 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. 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. 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. Welcome back to squawk box. Online okay cupid, the disclosure it misled couples of tear suitability as a test. They said it was trying to determine whether its assessment of macuability led to successful dating. In tech news, amazon is arguing lower e book, amazon is in a war, of course, with publisher in delayed deliveries and discounts of some books published. They arc you an ebook. What is the issues, this one is elastic or dynamic pricing, if you will. The ceo would score it differently. All right. Coming up. Collision course. The tracy morgan accident on the new jersey turnpike is putting a spotlight on long haul trucking. Cnbc has a special report that kicks off right after this break. You will. Break. I voted for culture. With a k. how are you . I voted for plausible deniability. I didnt kill her, david. And i voted for decisive military action. America, you cast your votes. Now, go to xfinity on demand and select the peoples hotlist to see this summers top 100 shows and movies. I voted welcome back to squawk box there morning. Making headline, slayers of Buffalo Wild Wings are under pressure the fullyear earnings forecast falling short of wall street concensus, also garmin beating the street by gpsbased fitness products t. 95gation equipment maker is offering full year guidance and time is almost umm for argentina to avoid a second debt default by the end of the day t. Country needs to cut a deal withholdout investors or when more time from a u. S. Court. Well see wams. Argumenty fas economy minister came to fork yesterday to join last ditch negotiations, he isled whoing facetoface talks with fork hedge funds who are demanding full repayment on those bonds they bought at a discounted rate after the country defaulted back in 2002. Michelle. On the heels of the tracy morgan crash and the fedex crash in Northern California that killed ten people, eupon javers eamon javers joins us now. We looked at truck safety issues around the country. What we found is it is really dang rut out there on the roads, up to 14,000 People Killed every single year. Take a look at our investigation and what we found here. There has been a horrendous collision. A terrible accident that left actor tracy morgan in critical condition. New details are emerging tonight into the investigation into that fiery bus crash. Tragedies like the tracy morgan and fedex crashes grab the nations attention. But theyre anything but isolated incidents. A very, very large explosion. Reporter happening nearly 11 tiles a day across the United States and pausing nearly 2k3450irgsly 4,000 fatalities according to national Highway Safety transportation. There are a number of causes, driver error, fatigue. Serious cause, federal regulators say 20 of the trucks inspected had problems, faultily brakes or bad tires and shouldnt be on the road at all. Thats over 2 million vehicles and more than 170,000 drivers had enough violations to be pulled from the well. Its an 80000 pound missile. When it hits somebody, its catastrophic. Reporter dan ransdale is the founder of the association of plaintiffs truckers of america. Roughly 4,000 a year are killed in big crashes with big trucks. Its the equivalent of a computer jet that has about 80 people on that plane. Having one of those jets crash and everybody on board dies. Every friday of every week of every year. Reporter anne farrow is the outgoing head of the aeft administration tasked with regulateing interstate trucking. The Trucking Industry says it checked over 600 billion for carrying 9. 7 billion tons of freight in 2013. Truck crash versus gown 18 . Why are the fatal accidents going up instead of down . We see it as a combination of economic growth, the health of our economy, intensified traffic on our roadways. Any other industry that had 4,000 People Killed, youd see regulators shutting the whole industry down. Why isnt that happening in trucks . The industry practices, themselves, has resulted in a decline of truck crashes from about 5,000 a decade ago to 4,000 today. Which you are absolutely right. The increase from 2009 to the present has continued to tick forward and tick upwards. Reporter just who is to blame for the growing number of truck crashes is a subject of a fierce and ongoing debate between the trucking lobby and advocacy groups. The top lobbyist for the american soaks dave osi eki. 70 of the crashes are initiated by someone other than the truck driver, the suv driver, so were responsible for about 30 parts of those crashes. What are people doing wrong out on the roads driving with trucks. Motorist whos aggressively pass in front of trucks who tailgate trucks and who linger on the sides of trucks. Reporter the executive director of an ad Vocation Group for victims families and truck crash survivors. He thinks its the big rigs more often to blame. Unfortunately, there is a cultural aspect that this industry has too high a tolerance levels for deaths and injuries. We need to work on it. Squawk in the streets will help us prevent these truck crashes, for more on our special report called collision course. When you talk about an 18 increase from between to 2012, thats kind of stunning him. Were there any major changes . Were trucks heavier, bicker . The biggest thing we see is the economic recovery, good economy means more stuff moving, more products getting to market. Trucking is the backbone of the american economy. Was there a huge drop in 2008 . We saw a decline generationally over decades weve seen a decline, since 2009, its bouncing back up. You see 4,000 People Killed. Any other industry that had 4,000 fatalities a year, wed have a huh pan cry. We dont see that in this industry wind chill ve a cultural sense that accidents happen on the roads, we kind of live with it. For some of the families we talk to, entire families wiped out. I talked to a lot of victims, its heart breaking. In terms of what we can do, i dont want to suggest are to blame. You have to stay away from trucks in all corners. What the Truck Drivers hate, they, themselves, dont want to get in a fatal accident or hurt anybody or hurt themselves. They leave a big buffer distance because they need more time to stop and a lot of times especially in heavy traffic when we make a little distance and get a little space ahead, people cut in front of them. That slows down their ability to make that stop. They cant stop in time. Its just as bad as being on the back side, if he comes to a full stop, you run into him . Right. I think you could be beheaded. Relative. That mount on the back which looks like a stair on the back of a tractortrailer. That can be dangerous for cars liting into the back of a strorl. What reformers and Safety Advocates say one thing we could do to reduce them is build a reenforced mount to the bottom of the tire that way if you crash into that car, your engine block will hit it instead of your head. It becomes a survival accident. What about the sides . The sides stay away from, too. Righthand sid or all sides . All sides, if you cant see him, he cant see you. Weve all done it. Weve all been out there on the highways, you drive alongside these trucks, its terrifying. After reporting on this package, im looking at it in a whole different way. I will give them a lot more distance than i used to. Thank you. Arnie sorenson on the companys Quarterly Results the expansion of africa and the state of the Business Traveler and the premier of scifi sharknado airs tonight. Ian ziering will be coming up next. If you have a face off, which one would it be . Believe it or not, we had a ten minute conversation about this yesterday. Getst to cast your vote. 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. Welcome back to squawk box. Checking the futures right now, they suggest a positive open for major averages here in the United States. The dow opens 45 points the s p by five. Making headlines this morning. The export import banks internal watchdogs say there is no evidence of widespread fraud within the agency. The comments come as contradiction of the xm bank point to a wider probe. Four xm employees have been fired amid allegations of gifts and kickbacks. Becky. All right. Marriott out with Second Quarter results after the bell yesterday. Earnings came in better than expectations. Revenue, though, was short. Talking about the Summer Travel trends is arnie sorenson, marriotts president and ceo. Arnie, tanks for joining us today. Good morning. Your earnings were better than expected. You said you are feeling bullish for the year. What makes you feel that way . We do. We got great momentum at marriott. I think we are at a great stage of the cycle. We had a lot of good news. They came in for q2 at the high end. We brought up the numbers for the full year and one of the things were proudest of is we announced we signed about 12 hotels a week in the First Six Months of the year. 295 hotels to date. You are seeing bookings better tan the beginning of the year . We are seeing group business, International Business and Leisure Business all strong. I think its a sign the economy is, in fact, growing, probably growing better tan it has over the past few years, building on strong years coming on the recession. Is that just in the United States or around the globe. You refer to that technical phrase. Thats essentially our store sales. We see in markets like shanghai theyre up in the high single digit itself which is fabulous. You look at a market like thailand, were down 20 . Thats driven by the political crisis in that place. But absent political crises, most of the world is doing better this year than last year. Is it a big problem, arnie . We are now looking at the world in turmoil . Madeleine albright called the world messy. You are looking at 130rs living in war torn areas, does that affect you at all . It is a messy world. You look at crises all around. In many of the crises areas. Theyre not a big destinations, theyre not places where we have big hotels. But theyre concerning, obviously, so you are looking at the ukraine crisis. It will be interesting to see whats happening in russia you see reports before the sanctions went into effect . Thats right. I think were the Biggest International operator in moscow. Really, what we see is that the Leisure Business this summer not surprisingly did not materialize, so that is highly discretionary and folks can go some place else. So that business is down. The Business Travel into places like moscow and other russian markets is more solid. Yeah, theny is weaker. By and large folks are going in, there is no real sense of lack of safety on the ground in russia. This is a political crisis, not a threat to personal safety in that market. So well see that market continue to move along, albeit probably not grow from year over year until it settles down a bit. Did you say you sign about 12 hotels a quarter, that what . 12 hotels a week. A week . Weve signed 295 hotels about 45,000 rooms in the First Six Months of the year. Where . That includes 110 roughly in subsaharan africa. Thats a part of the deal we have taken over. It includes the atlantis, which will be a part of the autographed collection, thats about 3500 rooms. But were signing hotels, deals in china and india, United States, to be sure. Again, were at a good growth stage in the cycle. Is the market getting bigger or are you taking market sare . How does this work . There is a new hotel. You say we can manage this better tan these other guys . We think, we talk about full service and limited service. Full service would be luxury and marriott renaissance would be our primary brands in that space. Of all the full Service Hotels in the United States under development. We think almost half are headed towards our brands. So most of it is that were taking sare. By the way, that half compares to a current share of about 10 of the total u. S. Lodging business. So were clearly taking more than our fair share. By and large those are not the best uses of Residential Real Estate from those markets. Those sound like aggressive buying. Why so aggressive . Do you feel good about things . Do you have the capital . Everything we do, we do with a real estate partner. So by and large our Real Estate Partners are betting with us. Theyre betting our brands will deliver better returns for them because of driving higher revenue for their hotels that our competitors would do. Thank you very much for joining us. When we come back. A special hour with ceo of aetna Mark Bertollini will be joining us for the remainder of the show. Squawk box will be right back. I voted for culture. With a k. how are you . I voted for plausible deniability. I didnt kill her, david. And i voted for decisive military action. America, you cast your votes. Now, go to xfinity on demand and select the peoples hotlist to see this summers top 100 shows and movies. I voted welcome back to squawk box. Sharknado 2 the second one premiers on the scifi network. One of the stars has made it out alive. Dont forget to vote in our real time poll. We want to foe what scares you more a shark or a tornado. Becky is already voting on this one. Go to cnbc. Com vote. Can you vote as many times as you want. Ian ziering is the star of the new movie. Thanks for joining us. When you got involved with the point of view the first time, did you have any sense at all that it would become this at the tom none . 12k34r are you serious . How could you possibly know that in thats the secret sauce that every Motion Picture stoitd looks for, they spend millions of dollars trying to catch this lightning in a bottle. It was completely organic. What was the experience the Second Time Around . The first time it was a truly budgeted movie. They spend a millionandahalf dollars on it. That was all his salary, right . I wish. Did you at least get a trailer this time around. I did. I had to share it. It was a twobanger. It wasnt a star trailer. Thats okay. When you work with a low budget. You have to make allowances for the fact that there is not money there for luxuries and i understand that, i was happy for the job, working on sharknado 2 was really a gift. Because i had so much more trust not only in the film but also the director. When hes telling me to jump around and make all these crazy actions knowing they were going to paint in these visual effects, i was much more trusting. Because i saw what they were able do with the first one, so with the second once, im jumping all over the place, whatever im doing, i knew they would substantiate with a plausible. Graphic. Graphic, exactly. Thank you. We have been talking about twitter all morning because u because they had earnings, how much do you attribute to it social pedia . Social pedia is directly responsible to the success. The scifi fans, theyre very likeminded. They all tend to be very tech savvy. Because we live in a digital society, theyre all checked on these social media platforms. So when someone here in the United States gets excited about something, they pick it up in asia or europe or south america. There is a ground swell of excitement. Fortunately for us, for me the movie paid off. So it continued to spread out and the excitement grew to main stream entertainment. Now, everyone is checked through the ether that way. Its amazing. Did this take off because of twitter or was twitter, i remember the hashtag going by, what is this sharknado . Only because of twitter did i know about it . Twitter was one of the major components in the success of sharknado. Taliban lies also social pedia platforms that also were exploding. I mean, 5,000 tweets a minute. Its amazing. Can i ask you . We have a vote we are asking our viewers right now. Which one would you be more scared of, a shark or a tornado . I know what i think. You lived through both of them. I think if i was in the water facing a shark, id be a little more terrified. You know, these tornadoes though very scary, i think my chances of survival would be scary if i could arranger myself. In the water with a shark, im shark food. I am, too. I am shocked right now of a tornado meeting by 61 . That is not right. I am sort of story telling question. This seems to be a group question. You have to watch it all at the same. Also we moved to this net flicks world, where everybody sort of watches where they want on demand. How do you think about this franchise . Could it work in a different environment . Its going to work because people are laughing so hard through their First Experience with the movie that every ascent visit, youre going to pick up more. So there is lines that are throw away lines that are hysterical in this. But when i sa you the screening, everyone was laughing over the stuff that, you know, theres just a lot of meat on the bone, if you will. You can have sharknado parties with netflix, invite everybody over, you foe. Absolutely. It could be the rocky horror show success of our generation. Do you have to get 2 x . Sorry. Do you measure success, do you double the number of viewers the same number, that success . Whats the . You know, i measure success based on the smiles that i get from the people that im meeting in the street. Seeing the little kids, little kids are telling me they love this movie. When i saw justjaws the first it kept me out of the water for ten years. I cant wait for shark nado 2. I measure the success be i the fact that there is a second movie and theyve green lit a third movie. Heres the question, are you going to be known more for this in the end for this or 09 90210 she had a thing for you. I had something for jenny doherty. In the end. Why doenl we wait until the end. I feel i have a long road in front of me. I dont want to count all my chickens until i know how manyics i have. Did you say its already been green lighted . Its already been green lit t. Anticipation for three, this could be a summer event. Its going to air in 90 countries all within 24 hours. Ill be live tweeting. People can see me posting behind the scene pictures of ian ziering on facebook. You can have an annual franchise, go city to city every year. Yeah. Since were a business Fourth Quarter, is the economics of the second round so much better than the first time . Oh, absolutely. They didnt really increase the budget. Maybe a little bit. Now theres so much more merchandising. Im sure the ad revenue is going to be eformous. And its just a bigger movie. And the second script reads like a 100 million blockbuster. You got paid a little more, i hope . I got both. This is a low budget. I accept that fact. Im happy for the work. I like to do things that, you know, are the fact that it touches so many people in a positive way not just here in the United States gives me legs for a future in this industry. Okay. I know owe ho. So i dont get eaten. I am curious about all this sort of controversy. You made some comment saying Tori Spelling was a train wreck. Jenny garth came out saying she was upset. Water going on . Buy stock in chainsaws. Thats all i say about that. The media cuts everything up, uses it the way they want. Okay. There you have. Ian thank you for joining us this morning. We appreciate it. We will all be tuning into sharknado 2 tonight at 9 00 p. M. Eastern time on sky fiechl you can check out the poll at the bottom of our screen. Voting is closed. How much, guys . 10,000 votes . Who won . Sharks won. Sharks. Thats makes sense. Well see you tonight. When we come back, we get a read on private payrolls from adp. How much did the economy grow or shrink in the Second Quarter. Investors will be watching data closely as well. Coming up, a special hour of squawk box when aetnas ceo Mark Bertollini from Health Care Costs to the state of the Global Economy. We cover it all. Plus, the Cleveland Clinic president and ceo Toby Cosgrove will goin join us, squawk box on cnbc is coming right back. G on cnbc is coming right back. During the cadillac summers best event, lease this all new 2014 cts for around 459 a month or purchase with 0 apr and make this the summer of style. 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. 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. Yyyup. With xfinity internet soyour family can use all their devices at once. Works anywhere in the house. Even in the garage. Max whats going on . Were doing a tech startup. Were going public [cheering] the fastest inhome wifi for your entire family. Only from xfinity. Welcome back to squawk box. Im Andrew Ross Sorkin. Michelle Caruso Cabrera is here. In about 15 minutes, we will get the july adp employment report. Economists say it is likely to show they had private industry jobs this month. Coming up at 8 30 eastern time with eget our first read. The figure is likely to be the parks mane focus today. Forecasters say growth likely regains steam if q2 to the tune of 3 annual growth rate. It shrank in the First Quarter. The weather is something else. The afternoon, the fed wraps up its two of day meeting policy statement set for 2 00 eastern time the central bank widely tapering the monthly asset purchases to 25 billion. Investors will be looking for any hints on timing of future rate hikes. If corporate news, shares of twitter are soaring this morning. The social networking site beating wall street on virtually every key metric. Twitter active users rose better tan expected 24 . Ceo dick costolo on the First Quarter yesterday. We lad a great ref few up 124 . Thats great acceleration year over year for us again. Our forth quarter acceleration. Monthly active users up to 271ple. Thats a net ad of 16 million for us. The highest number of absolute ned ads in the quarter. I think it was the highest ned ads in five quarters. It was a combination of tension across the company that have really col together for us. Before the postearnings surge, twitter lost 40 of the market value since the start of the year. A number of analyst calls, cowan at 45 per share. Ubs up future tral from sell. Bank of america buy from a doctor 60 target. We heard from the pivotal Research Analyst earlier on squawk. He downgraded twitter to a sell and moved the target price by a dollar to 38 bucks. Aetna was out with its Second Quarter results. It raised its forecast for 2014. Joining us the rest of the hour is our guest host, Mark Bertolli bertollini, the chairman and ceo of aetna. Great to have you here. Its great to be here. We saw the rules yesterday. When i read into it. We saw them live in the morning. I thought, wow, these are good numbers. By the end of the day the stock was down, what happened . Well, i think the bottom line is if spite of record earnings, record membership, record stock price at the time, people saw the utilization start to move up. Thats a bellwhether for the rest of the industry. Utilizization, how much people are using . So the hospital sector is reporting more on bad days and outpatient visits. The pharmacies are reporting more scripts. People are saying, okay, is this a problem . Will we see the managed care stock par gin pressure as a result of higher utilization . We projected last year, we told the street, utilization will be up 50 to 1 huft basis points. We think year over year we seen an increase in utilization. Its in our high single par gins. The concern, okay, here we go. Utilization will pressure margins. The industry will have a hard time. Is it people are using more medical because of the aca, the afard obviously care act or the economy continues to improve . Two things. We have more people in the system using health care. So if you have coverage, you will use it. Particularly if you havent had coverage before and you had pentup demand, higher scripts, higher outpatient visits, thats reasonable. If you look at it at a per person base, its not up that much. You have to look at the per person, not the fact that there are more people in the system. I think the other is we had demand now four years, utilization remained relatively low. The economy will recover. Utilization and health care picks up. People get back to work. They get more coverage. What we dont want to see is a huge spike as a result and that wont happen unless we see a huge spike in employment which doesnt look like it will happen any time soon. One of the things people have to wonder with the affordable caring a. Are these profitable customers, examiners who come if and pressure your margins . We dont foe yet. We have 600,000 of those customers as a result of the afofdable care act we are know they are sicker. We know 87 of them are subsidized. We know they are older. So we expect that theyre going to use more health care. We believe we have that in our price. So we would expect the premiums should cover it. You must have projected it would be oldered and sicker. Were the footballs worse tan you expect. The footballs were worse tan we expected. By a lot . By a little bit. They werent a huge difference. I think that was because a lot of younger people came in the Enrollment Period in april and may. We picked up twothirds of our growth in april and may. It will be the Third Quarter. But we do see the demographics as skewing a little older, a little sicker. Expect higher utilization. We priced the business as lower par gins, in the three to 5 range and we expect that will mature overtime. It takes some time to get them. We didnt plan for earnings as a result of this population some we dont have that inner guidance or inner expectations. The younger people. Are they sticking with the premiums or paying . I would think there are less incentives. We are seeing attrition. The back end operating system of the exchanges is not yet up and running. So the operational accounting ask changed or delete. You cant figure it out . We can see hours but not the overall population. Do you know dem graphics of your attrition . Some. Is it younger people . We are seeing people not yet qualified either tax status dropping out because they cant get the qualification and we think thats about 20 to 25 of the population. If they get the qualification. For the subsidy . They cant verify theyre in the right tax bracket. So were reaching out to that population. So we expect that we start over 600,000. We will end up probably 500,000 by the time we are done with some attrition through the year. The bigger attrition will be when people use their health care, even though they get a subsidy that i are paying a monthly premium anywhere from 2500 to 6,000 deductible. They will say, im a healthy virksd im paying my prem yuchlt i go to the doctor. It comes out of my pocket first except for preventative care. What is the value here . That is going to change when we get to this Enrollment Period when we see rate increases, people say it just sucked up. Everybody gets rebased on january. I am seeing a rate increase in the 10 to 12 range. You hope people have the cal lalgs, okay, a huge deductible 6,000. If you get cancer. Its a catastrophic. Its a catastrophic, its millions of dollars that you didnt have to pay, potentially. As a young person, you dont think you are going to get cancer. Right. Right. You are inkrins i vincible. You are the young immortal. So there are a lot of other competing feeds. There is vacation, there is rent. Theres beer. Tears whatever it is that you do and want to ber taken yourself. All those are competing assets. You say, do i need it now . I can always sign up for it later, why should i pay for it today . Thats the key thing, can you get it later. So there is no incentive. They put in a mandate that said if you dont sign up, you pay. That mandate is 95. It wont grow all that much in the near term. Its under risk, the employer and individual mandate, particularly if the republicans take the senate. I think that starts to disappear. There is no real incentive. I think we should accept the population we are could have beening is appropriately covered. Those are people that need a subsidy, need coverage and access to health care. Lets just accept that population for what it is, help them get good access to care and stop worrying about whether or not we will create a blends rick poochl i think we are a long way from a balanced risk pool we to the we would have years ago. You said your margins on the new people signing up, you only have 3 to 5 . Its a much lower margin than your traditional customer. Right. Are there sole people that expected as it went deeper into the aca, some employers would for the longer offer coverage . They would put people into the subsidized pools, its cheaper, whatever the cost is, its a known fixed cost, its cheaper to do this. What does that do to your business if a larger and larger part of the population is this lower margin individual . Were not seeing that happen yet. So i think last Years Experience with the federal exchanges and the trouble with the enrollment, i dont think im going to do this yet. There has been a slow attrition we are are down to employers Offering Health care coverage. That drops a couple Percentage Points every year. A massive push if i will push these members if, all my employees in is not happening yet. Because the actual process the enrollment. Everything else isnt working well yet. Can i ask you aboutpy favorite topics, inversions . Its a huge trend and are you on the other side. You are paying . We are all paying to some degree. Where do you stand on all these inversions . We the feed tax reform. With reover 40 on our tax rate. Aetnas is . Your effective rate is over 40 . Its 41. 12k3w4r how do you pay. We have state, local, premium taxes, so were at 41. 2. So ill take any rate thats lower. Can you move over . No, we cant move. So tax reform has to happen and Corporate Tax reform. Do you bejuj grudge or pfizer saying they want to go abroad . I think we need to fix the tax code. That will stop all that fawn sense. If i told you the tax code would not be fixed over the federal government two, three, four years . I think we would see more inversions. Youd let them happen. What will you do to stop them . You have a number of proposals, carl levin who suggested we should pass a law. Pass a law. Capital will not move. If you say carl levin yesterday played a difl different proposal, that the government just wouldnt do business with it. Like russia. You know, i just think we should fix the tax code and get on with it. That will solve the problem. It will continue until markets find efficiency, right, supposedly . Mark is our guest host for the rest of the hour. We have a lot more to talk about with him. Coming up, private payroll data, check out the squawk box market indicator. 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 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. But what if you could see more 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. Steve. A bit below the estimate of 238 down from the prior month of 281 the fourth straight month above 200,000 for adp. They will tell us what the report will be. June unrevised at 281. 16,000, thats a decline, services powering ahead at 202. The nonfarm payroll, i dont think this will cause them to clang the friday report. Joining us mark xandy moodys analytics. You said if your report you think we are on a good pace to reach full employment by 2016 . Late 2016. I think election day 2016 we will glide into full employment. You are laying down a marker here . At 200,000 a month, thats double what we need to maintain a stable Unemployment Rate at a normalized labor force. At the current pace, the unemployment race will fall. 6 of an employment rate per month. You do the aaright rithmetic. Those are declined. Trade transportation up 52. Finance activities up 9,000. What are you seeing as to broader trends as to the market . I think the broader trend is there is job growth everywhere, in every industry, increasingly in every corner of the country. If i look at other data, you can see it across all occupations, across all pay scales, earlier in the recovery, it was mostly lower paying jobs. Now its across the board and across all sides companies in the adp data, you can see solid job growth among small companies. So it feels loo tobacco me the job market is humming. This feels very good. Persistent criticism of the job market has been the quality of jobs being created. The prior government report showed a lot of parttime jobs created. There is all this talk of low paying jobs created. Is there anything that speaks to the call of jobs . Well, i think the quality of jobs is improving. Early in the recovery, yes, the first couple three years of the recovery, almost entirely low paying. As we moved towards the last couple three years, we have a lot of high paying. We have low and high. Now we have everything, construction jobs, anything related to construction is middle paying. We will start to see government jobs. Those are all middle paying. Now i think its very broad based across the spectrum of the pay scale. Laths get this back to the fed here where you started,. 6 of of report him full employment soon within a year or so. Do you think the fed is not just behind the curve but well behind the curve . No, i think its pretty, actually, i think that will be close to their forecast that we get back to full employment by late 2016. Now my guess is they dont normalize Monetary Policy Interest Rates until late twemp 2017, a year later so we will have a period of above target inflation, but i think everything roughly is sticking to script. Mark why, is the yield curve flattening then . Well, you know, its awfully wide. Right. Were at 250 on the tenyear yield, thats pretty wide. Py guess is. Still directionally, its going the other way, when you think the fed is not buying one and this morning yields are on again. Great question. So, in my view the decline is a function of two things. One is very Strong Demand from banks, because they need liquidity new requirements implemented. So they need those high quality Treasury Bonds and there has been big purchases by the chinese in other foreign Central Banks. So those two chings things have caused longterm rates to come in. A year from now, longterm rates will be higher. The yeel curve will be wider. Okay. Tanks, guys. The biggest gdp number of the year coming up. News from the middle east. Israel says it has agreed to a fourhour ceasefire, what is being called, theyre calling it a humanitarian pause starting at 3 00 local. Hamas says it will not cooperate. A hamas Spokesman Says israels ceasefire is for media exploitation and has for the value, because it exclude all of the areas along the gaza border. Coming up, back to health care, speak with Mark Bertollini and check out the futures after the adp report, about the same, slightly higher after the number came out. Coming up next the gdp as steve talked about. Squawk box will be right back. Thank you colonel. Welcome back to squawk box, everybody. Right now we hear from et fas ceo Mark Bertollini. Tell us now that we are into this what you three about the plan overall, how its working, how its not. So weve increased access for 8 Million People in the exchanges and another six to 8 million in medicaid, depending how you counts. We have a lot more people insured. Its really not an affordable product for a lot of people. So getting everybody insured should be our goal, but have you to have a more affordable system. Just a quick analogy. Elan musk wants to offer 35,000 electric car. He needs to redesign the lithium ion battery to do it. If were going to fix health care, we got to get at the delivery of care and the cost of care and make that more affordable to provide a more affordable product to everybody. The ac does none of that. The only person that will drive that will be the consumer by the decisions they make, i made a decision that i am not going to follow an alo pathic sick care model. Does it cover that . In some states, in new yorking, you cannot pay a natureopath. In. So i think we have to redesign the underlying system. We have to engage the consumer if fundamentally different ways. That goes against what we had moved towards under obamacare, right . Which was a more bigger system with more government oversight. You should have this and that and this, giving more power to the consumer says, gosh, the product is loot more expensive when its this hospital versus that hospital. We will go there instead . Thats what you are talking about . What we found private employers moving to private exchanges, when they give employers a choice, they actually buy a more Cost Effective Health Care Product when its their money to spend versus their employee bike it for them. Foeing the price of things, its complicated. I dont know until a month after i have been to a doctor what that visit costs many e. You can know it if you have an incentive to know it. Because you are pull it out of your pocket. Consumers can shop. I have that. Apparently this information is available to me, im not eulogy it if. If you go to the aetna first half gator website. Will you see the top ten procedures. Hes not incentivized to do that. You pay the same amount regardless . You pa i for that doctor. How do you transform her experience, my experience, so were hanging out on your website. Its a place we go, we dont go through an intranet site . You dont, you increase deductibles. You peak it an economic choice. I think you need to put it in cell phones, we have itriage. You can go out and look at symptoms, you are one of our members, find a doctor, make an appointment. Find out what it cost itself, contraindications. Americans dont shop with health care because its sort of been handed to us all along. We are in the flux, the reason utilization is among us is people say i cant afford this stuff and go to the doctor on the drop of a hat for a cold antibiot antibiotics dont work, they say, i didnt go to the doctor when i had a cold, guess, what im alive. People say, wait a minute, i could use it more effectively. Andrew said at the break, you said you are a bad customer. I have two kids, were if fork city. Worry probably not as price sensitive as we should be. If something happens, we rush the kids to the doctor. I thank you for that, it costs us money, but its costing you money, too. Your answer was, hes not hurting you . Hes not hurting us, you are hurting the other people in the poll who have to peck up the cost of your Health Care System. You increase everybodys premiums because of him . We dont think of these things. I dont think about the pool, right . Is question is is there a question for me to think about it . You will think about it differently if your insurer buys Health Care Insurance for you and you have to pay out of pocket. We will get to that if in jet stream in just a moment. We will continue this conversation. During the cadillac summers best event, lease this 2014 ats for around 299 a month and make this the summer of style. I voted for culture. With a k. how are you . I voted for plausible deniability. I didnt kill her, david. And i voted for decisive military action. America, you cast your votes. Now, go to xfinity on demand and select the peoples hotlist to see this summers top 100 shows and movies. I voted welcome back to squawk. Our first look at Second Quarter gdp him holy cow 14 . 4 a poor handle. I have to say it a couple times. Its much better than anybody was looking for the minus 2. 9 came down to minus 2. 1 consumption, gdp 2. 0. Now i know we have to go through the intern also. There has been a whole lot of adjustments to this set which will make comparisons to other quarters much more difficult but at least on the surface and the new reconstituted gdp with a lot of Different Things Like Services and intellectual Property Incorporated in it, it is stronger than expected. If we look at the pce advance, it was 2. 3 vs. 1. 4, back to you. Thank you, rick. We are looking at major averages higher. If we get an interday yield, it will be helpful. Lets joe to Steve Liesman and also with us our guest host Mark Bertollini, ceo of aetna. Give us highlights. Well, theyve revised do ton decline in q1 from q9 to q1. It is closer, there was not the sense that they have that big decline in q1. 4 , its a bit of a sigh of relief. What are you saying . Im looking at the fen tenyear yield. A very sharp move. We will get back to that in just a sec. The 4 in inline. I have to take my hat off with joe forf 82. He says he did a top down analysis. Looking at the numbers, strong in durable goods, up 14 . Much stronger in business investment, structures and equipment. Really reversing the weak ness on the First Quarter. Imports up strongly, exports up strongly. Housing from minus 5. 3 to 7. 5 government a reversal. Im seeing straight throughout the economy here. Whether or not this notion of a weather reversal or whatever happened in the First Quarter. Maybe there was a connonado, it ended and we have, whatever the opposite of that is . This 4 number is the opposite of a connonado. Mark perelli, you are an xhimt economist, mark, meek fiorili, you are an commitment i dont hold you to being accurate. Whoa. You thought 2. 6 . This is 2. 4 . This looks good to you . I think in terms of the Second Quarter, we did of that 4 1. 7 came from inventories. Overall when you take the Second Quarter if conjung with the upward revision, to the First Quarter the first half doesnt look nearly as bad as we were thinking prior to today. When steve was drilling through the numbers to suggest why this was better tan expected, what did you make of that . Right, certainly consumption is better tan we were thinking. Investment did reverse most of the loss we seen in 61. It wasnt quite as strong when you take out that inventory number. We did get help from the government sector, which bounces around. It has for a very long time. A lot of people think the fed is behind the curve. Is that going to cement this idea . Well, we did see the core pc price index increase faster than we were expecting up annualized in the Second Quarter. So there has been a lot of chatter about the fed being behind the curve. I think it will be important to see what we get tomorrow and friday. You will bring rate increases forward . Not on the basis of this number. We have to see, of course, what we get in the Inflation Numbers and the wage numbers. Mike, im reading a headline about inventories. I think it added about 1. 6 to gdp. Is that troubling . A lot of times when there is a big inventory build, you get less opt mick about the future rather than more optimistic. The inventory needs to be worked up, especially if it is not commensurate with the level of sales. Exactly. So as i said, that big contribution from inventories, over 90 billion pace in the Second Quarter, it probably will weigh i think somewhat on activity in the Third Quarter. So while looking back, i think this is a better than expected picture for the first half as a whole, looking forward, it pay be a bit of a head wind in terms of businesses having to destock after accumulating so many inventories in the Second Quarter. Our guest hosts Mark Bertollini, chairman of aetna, i wonder of somebody in the midst of things, seeing the numbers, how it affects your business every day, are you surprised by the revisions or the strong Second Quarter front . Sfwr we fully saw weather impact on Health Care Utilization in the First Quarter. Because there wasnt a lot going on, people do you know get to the doctors. So we saw an actual negative, a positive impath to Health Care Costs, negative reduction as a result of the weather. So this would fit well with what we saw with the gdp. We have seen some increase in utilizization, which we mentioned yesterday. Are you in a 4 world does it feel . No. I want to point out a visit to the doctor that isnt done is not never but unlikely to be recouped. It depends. It depends. Not like, you are going to buy something and you can buy it later, but a service if general. You feed an outpatient visit, a procedure, can you do sort of things like that. So it doesnt all come back. You will get well or let me tell you one of the other. So i think the, we still see layoffs in Group Attrition in a Large Employer segment. So, you know, i wouldnt say is about right, right now. There is a revision in 2012. They went back, every 84 they go back five years an revise, what was it 2. 8 growth number is 2. 3. It was revised. Instead of 1. 9 it was 2. 2. That will change and create debate. One more time to talk to pike. Does the big inventory number Second Quarter change the outlook for Third Quarter and Fourth Quarter of this year . Im not sure about Third Quarter, i think Fourth Quarter we have to think if this adds downside risks. Its early in the quarter so we dont have a firm sense of how the numbers are tracking, qualitatively, the Third Quarter does i think add downside. What is three is now what, mike, off the the of your head . What was three could be twoandahalf. Good point there i think generally speaking, though, most of the momentum indicators looked favorable. It looks like headline inflation kould should be softer. I think overall things are looking good even though arithmetically the number pay look lower. Thank you, steve, thank you, mark. Up next, fixing the nations Fragmented Health Care and insurance systems. A series of court rulingles hitting the affordable caring a. Toby cosgrove, ceo of the Cleveland Clinic will be joining us. Squawk box will be right back. . Its all about how fast does it run. I often sit with enterprises who ask me about how Mission Critical and hows the performance of the cloud. And i tell them, if you can make gamers happy, you can make anybody happy. Speed is made with the ibm cloud. The ibm cloud is the cloud for business. Weits not justt wed be fabuilding 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. Welcome back to squawk box, everybody. Take a look at the futures. We were looking at higher futures. We got the read on the Second Quarter gdp, it was much stronger than reflected. You see the dow futures doubling at this point. We are looking for an open up 73 points. S p futures are over 8andahalf points the fax up by 25. There is growing concern among americas top fixes about the effect the Affordable Care act will have and the strain on the medicaid system. The ceo president Toby Cosgrove joins us, guest host and chairman of aetna Mark Bertollini is still here. There were a couple rulings on tuesday what has you worried . I dont think we can tell what the ruling will be. I suspect ultimately this will go to the Supreme Court over the federal government year over the next year or so. You must have some view on what will happen here. I frankly doubt which will see a major revision of the ofordable care act over time. I think we will see a continuing revision of the act. I dont think it will be repealed. I think there is a small chance of that. What about in states where they dont have a market place, will will be a subsidy . That i cant predict i cant read the minds of the Supreme Court. How important is that . I think we are two years away from any kind of decision here. We have to continue to play. What will happen is if the senate changes, there will be some changes around the act on the edge. Right. Like, you know, mandates. But in the end analysis, nothing will change for the next couple of years. This will get tied up in the courts. Does the plan work with individual mandates in it was supposed to be the thing that made it affordable. I think we have a different public exchanges, i think we have to accept that will be a cross we need to bear as a nation to cover those individuals who cant afford health care otherwise. Explain this, does medicare cut payment by 415 billion . Sample thats right. You run a hospital system. How will you make that work . Thats a major concern for us, we realize we have to reduce our expenses and our costs we think we have to take out 15 to 20 of our costs over time. Thats a very big number and Health Care Organizations across the country are all looking at exactly the same sort of thing. You see a reduction in force across organizations, and were looking for efficiencies everywhere. I think its good to lock for efficiencies, but we know that this is going to be a major influence on employment. How historically have you been able to shift the cost to those who can pay . Ive always heard these stats when a medicare recipient pays 80 cents, a private insured person pays 1. 15 for the same amount of care is that not happening . Not anymore. Mark will tell you we have been Cost Shifting from the private insurers to look after medicare and medicaid patients. Why arent you doing that anymore . Its now 1. 40. If i have that, a recipient pays what . 80. 80 on medicare, probably 75 on medicaid. So what ends up happening is that the cost shift cant continue. Medicaid and medicare are growing. Anybody who is running a Health Care System. Wed be at a buck 80 . It wont happen. Toby, you have to cut 15 to 20 . Thats the number for you . Yes, over the next five years. Where does it come from . It comes from every place. We looked at first of all the indirect costs. We took 100 million out of purchasing last year. This is going to affect the entire industry of health care and manufacturers and suppliers, et cetera. We are looking at personnel. We are looking at every way we possibly can to be more efficient. At the end of the die, were not going to get to where we need to get to without changing the way we deliver care and beginning to change the population that were looking at. People need to have responsibility for their personal health there toby, is there any argument to be made that actually we will ultimately get better care from all of this. The whole system is so bloated and screwed up and backwards, actually, this is going to force the issue . Actually. We will get better care. We have done things on group visits where you see ten or 12 diabetics at the same. They wind up being happier about it. They untheir disease better and they, that wind up as better care. You have also seen the electronic record has transparenciant your own care and where you are and people take better care of themselves within they insurance. So ultimately, i think we will get better care. This is a huge transition for the United States. This is the biggest industry in the United States. It affects 100 of the people. Did you say you do Group Diabetes . So instead of doing, you go see one doctor, one person, you have 12 mooem people meet at the same time . 12 people get tear instructions of diabetes at the same time. Same with Heart Failure. They understand theyre not the only one was have this disease they learn from each other. They get their instructions about proper foot care, et set remarks altogether. And its much more effective. They like it better and its much more efficient. So thats just one way we are doing this. Its very popular. Hey, joe, we have been asking just about everybody we had on the show over the past couple days if not weeks about the inversion craze among drug companies, especially, just about everybody in the health care is at least thinking whether they should be working abroad or doing some type of deal you were up for the va job. The president said these deals may not be illegal. But theyre wrong. Where do you stand . Actually, im with mark. Where we are right now is hurting the United States and its hurting our industry and the United States and hurting our economic growth. So the president and the treasury secretary suggests the companies that do it are unpatriotic. Do either one of you agree with that . I think this is a matter of business. Business will go where its the best for business to go, its seeking efficiency. I think the law allows them to do that, thats the direction it will go. You are shaking your head no. This is a Global Economy and i wonder whether or not our institutions, our Political Institutions and regulatory institutions can keep up. One other question, i ask it to both of you. Have you found Foreign Health Care Companies have been able to offer you better, more competitive pricing on similar products relative to American Companies because somehow they are paying less in taxes . Either of you want to take that on in. We have seen some Foreign Companies be able to do this, but the major pharmaceuticals, no. And, you know, on the edges, but not in any significant way. I just like to say you know one of the things we touched on earlier is the influence of the weather in the First Quarter this year. It was huge. We had 10,000 appointment cancellations if one day the coldest day of the year. So that has a major effect on the Health Care System. That was a super Interesting Data point as well. Thank you for joining us this morning. Great to see you. My pleasure. Appreciate it. Coming up, stories moving markets this morning, much more from our guest host Mark Bertollini of aetna. Squawk box will be right back. With all the opinions about stocks out there, how do you know which ones to follow . The equity summary score consolidates the ratings of up to 10 independent Research Providers into a single score thats weighted based on how accurate theyve been in the past. 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Earlier this hour, the adp report showed private payrolls increased by 200,000 this month. Now focus turns to the fed. Following a twoday meeting, the central bank is set to make a policy announcement at 2 15 eastern time this afternoon. Coming up, more from guest host Mark Bertolini right after this break. You do a lot of things great. But parallel parking isnt one of them. 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. For drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. See Car Insurance in a whole new light. Call Liberty Mutual insurance. The ca illac summer collection is here. During the cadillac summers best event, lease this 2014 ats for around 299 a month and make this the summer of style. Welcome back, everybody. Our guest host this hour, Mark Bertolini. We were just talking off camera about Health Care Systems around the world. I didnt realize aetna was so involved with other Health Care Systems. Its a small part of our revenue model. But were engaged around the world to try to introduce new models of care. Coverage in those countries is largely related to having some money to get some health care. 40 per year for each chinese citizen. But the infrastructure isnt available in china to provide the kind of care you can get in the United States. So in order to build out that system, we need to build it affordable first. We have a 1950 Health Care System here in the United States. And youre saying these emerging economies are building from scratch so they have a chance to do it better . Theyre seeing what the costs are in the United States and saying, this is what sits waiting for us unless we get the Health Care System in shape today. So theyre more interested in the infrastructure and how to build a good Health Care System not like the west. So it doesnt eat up the person what does that product look like, feel like . Heres what it feels like. We should design our Health Care Systems to meet the Disease Burden and demography of the population were serving. So we should look at a population. For example, in beijing or in qatar, we started with 93,000 pregnant women in qatar as our First Health Care foray. How do we reduce infant mortality in that nation, how do we help people through pregnancy . Weve moved on to diabetes and congestive Heart Failure and on to wellness. The focus is what do the people need in the way of care versus building something and hope they come which is what we have in the United States what does it look like for the Consumer Experience . Is the government paying for it . The government is paying for it. Doesnt matter whos paying for it. It matters what were paying for. How much more efficient is it as a result . We have a lot of lessons weve learned in the west we shouldnt do. We shouldnt build hospitals everywhere. We shouldnt pay fee for service. You get paid by keeping people well. If we improve the health of these populations, we get rewarded for that versus getting paid to take care of sick people. What you just said sounds contradictory to earlier when we were talking about the consumer bearing at least some more of the burden so that they make better choices here in the United States. Right. So they can buy a policy but that policy reimbursing the doctor or the hospital should be based on wellness, on preventing illness, getting paid ill give you a perfect example. 5 of the population drives the cost of medicare. 20 of them have congestive Heart Failure over 85. A third of them die and the remaining are diabetics. These people are wandering in the system without appropriate care. Lets offer them concierge service. Make sure they get to the Cleveland Clinic. That would lower costs . Lets help them die more gracefully than the way they die today. That would lower costs . Definitely. I had to put my son in hospice. Hep graduated from hospice later on. But we had to admit he was going to die in six months. When i got back to work at aetna, i said, lets try a different program. We saw 76 of the people die at home versus 24 beforehand. We saw an 89 reduction in bed days and a 70 reduction in the life care. And a better experience for the family. Thats easy to do. But we have things like death panels and the Politics Around it that we cant introduce programs like that. So we have ways to approach each of these programs but we have to redesign the delivery of care. Thank you for being here. Thanks. Great conversation. We learned a lot. We hope to have you back. Great to see you. Make sure you join us tomorrow. Squawk on the street begins right now. Good wednesday morning. Welcome to squawk on the street. Im Carl Quintanilla with jim cramer and david faber at the new york stock exchange. Twitter surges in the premarket after earnings and we have a fed statement this afternoon. The tenyear did spike on that gdp print but has settled back just a bit. Europe is mixed as investors weigh sanctions on russia. Our roadmap begins with the surprisingly strong rebound in economic growth