Transcripts For CNBC Squawk Box 20140801

The dow is now negative for the year. Its accelerated throughout the day and the major averages closed at the lows of the session. All 40 dow stocks finished in the red yesterday. 97 of the s p 500 and 96 of the nasdaq closed lower. All ten of the sectors were down at least 6 . Heavy volume throughout this. We saw 4. 3 billion sharls that were traded on the nyse. More than a billion more than the average. And as for volatility, take a look at the vision. Youre going to see right now that the vision is up about 27 . 16, almost to 17 at this point after these incredibly low volatility rates. We knew that when things changed, they would change in a hurry. Yesterdays selloff means that the dow and the s p had their first monthly decline since january. The dow and the s p dropped nearly 2 in month of july and it doesnt end there, folks. If you take a look at the futures this morning, youll see there are more red arrows. The dow is now indicated to open down by triple digits. A decline of 113 points below fair value. S p futures off by about 14 points. And take a look at the tenyear. This is what weve been watching so closely. At this point, the tenyear is yielding 2. 752 . Picked up steadily. We have a lot of people were going to be talking to today, including mark grant, who is betting for a yield of 2 or lower for the end of the year. Steve, over to you. Overseas, stocks in europe are in the red in early trading. Do we have a boy, yes, we do. Down 1. 4 . Traders are taking cues from yesterdays selloff on wall street. The eurozone factory growth down to accelerate as expected. Growing tensions in ukraine on sentiment. In asia, stocks are mostly lower. The nikkei down 0. 6 . The hang seng down about a percentage point. Shanghai down 0. 75 . But there was some bullish Economic News out of china. Pmi there showing manufacturing rose to the highest level in more than two years. Lets check on the Broader Market this morning. The dollar, up against the pound, down against the euro. But its been stronger against the euro the last several weeks. And the yen, its up against the yen, 102. 93. Looking at oil, the selloff continuing there. Wti crude down about a puck, 97. And brent down 40 cents, 105. Natural gas down across the energy spectrum. Gold, up 2. 50 after a selloff to 1,285. 40. Lets talk about an explanation for the market in just a moment. Corporate news first, i dont think there is an explanation for this, but thats a different story. A number of stock toes watch this morning, earnings reports that came in last night, lets run through a couple of the big movers. Teslas earnings beat the street. Revenue nearly doubles. Shares rose on the news before falling. Were going to talk more about the veteran Auto Industry watcher named paul engracias. 6 50 a. M. Eastern time. You dont want to miss that. The nations automakers will be reporting Monthly Sales today. Sales hit an eightyear high in june, rather, and analysts are looking for another positive set of reports. Chrysler out with its numbers. Its sales were up 19. 7 in july. Thats its best july numbers in nine years. However, that was slightly below forecasts. Shares of gopro, we talked about this right at the top, punished big time after the Company Reported Quarterly Results for the first time as a public company. The action cameramaker beating the street, but that was not enough to appease investors. Were going to talk to an analyst about in about 20 minutes. Youll see that stock off about 12 now. And then one more stock to watch, expedia, better than expected Quarterly Results. Among the reasons, higher hotel and flight bookings and i think i might have helped contribute to that a little bit. Are you expedia . Occasionally expedia, occasionally i used to use it. No more. No more . When you have problems, the airlines wont help you at all. Because they say you didnt buy through youre a third party and youre on your own. Youre a third party and you dont matter if you have anything that goes wrong along the way. There you have it. The countdown is on to the july unemployment report. The markets expect another big jump in job creation. Joining us now, Michelle Gerard and managing director and jim osullivan, High Frequency economics chief economist. Were looking for 230, michelle . Yeah. Were very close. Yeah . Yeah. We have a stronger number. Im at 235 and 225, pretty much the same thing. Were close to the trend. Were hovering around the yeartodate trend. A little a little on the higher side. But my model is not complete. Where are you . 270. 270 . Yeah. I got a crazy idea that there may be an increase in government by the private sector, 264. One of the reasons im softer is this idea that perhaps some of that june strength came from the influx of workers, you know, a lot of kids finished with school. The ability for firms to actually find some people to hire. Because what we keep hearing from companies anecdotally is that it isnt easy to find workers and that may explain why we had an outside gain in june. But a lot of that supply was taken up and in july they were kind of back in that same spot where it was hard to fill some of those positions when they settled that trend. Jim, whats the risk here . I mean, if we get our are you concerned that your if your number is wrong, its too low . No. I could go either way, frankly. I think either way, whether its above 225 or a little below, anything up in that territory is more than enough to keep the Unemployment Rate coming down. So i think for the markets perspective, the focus has to be more and more on the slack and labor cost parts, you know, the payrolls are up 200,000, 250,000, even 150,000, its more than enough to bring demographics down. Unemployment rate is down more in the last 12 months than anytime in the last 30 years. I think the question now becomes do we start to see pressure in the wage numbers . Can i ask a totally different question. If we get a great jobs number today, does the market rally on that somebody . Can i ask why you guys think the market is down . Were looking at markets down triple digits. I have to say, i mean, yesterday even i wondered to the extent that that eci number, theres a lot of things going on, obviously, geopolitical and things along those lines. But i also think the market is to some extent becoming unnerved about the potential if, you know, we had better gdp numbers than expect. We had a higher eci number. The employment context. I think theres some thought that maybe the fed isnt going to be able to stick with this guidance of lower for longer. Thats key. And if we see a good jobs number does that in turn is it it feels like given yesterdays route, which to me made no sense, but i dont want to cast aspersions. It just seems to me that you could get a great number. And then if you get a bad number, does that number go up . Clearly, the fed has been willing to take 200,000 plus a month in payroll, unemployment keeps falling. At what point does that push the fed to move quicker . And the key has to be the wage numbers. If you got a 250 on payrolls, a zero on average Hourly Earnings, it would probably be a good tafrg Hourly Earnings is going to be the key. That is what the fed is watching the closest. Its also month to month yesterday, the more reliability quarterly indicator. But nonetheless, its the best we have on a monthly basis and over time we get that. The Unemployment Rate, as well. Its already at 6. 1. But lets talk about if the market is wrong on the fed, how long could it be . The average expected fed funds rate at the end of 2015 is 1 . If we get stronger growth right now, what could be the upper limit of where youll be on the funds rate end of 2015. Well, you could easily get 1. 5 for sure. But i would go beyond that. Look at 2016, look at 2017. Youre talking about a tenyear treasury yield, expect the funds rate over the next ten plus years. The end of 2016 when the markets have basically got a 180 price stand, fed officials themselves in their projections at 250, thats a pretty big difference. I would argue that 250 is too low. I would say the same thing. The fed has a neutral rate up around 3. 75 . But, you know, the other thing that we keep bringing forward actually is that even the level that the fed will ultimately be able to stop at, i mean, people interchange the long run, thats going to be the highest that well get this cycle. But we sat at zero for an awful long time. And the idea that inflation, for example, that may not even be able to stop at that level. None of this is in the market but thats why so this is not just a reset of next year, its the whole trajectory. So this month and i think increasingly over the next several months, the focus is not going to be on how much water were taking out of the bucket, but in how much water is left in the bucket. And by that i mean the amount of slack in the economy. We were talking about slack for the economy. Glad you confirmed that and its going to look at things like people working parttime for economic reasons, the unemployment. The last number i calculated yesterday was nearly 20 million americans. Maybe 3 Percentage Points extra in terms of the labor force of slack out there. Which means that if the fed is too low, it doesnt have to move very quickly, does it . Well, first of all, i actually think theres probably less slack than the fed or but i think getting back to what jim said, ultimately, well know when theres slack or not or how much slack when we see wage pressures. And i think this is what even the fed has acknowledged. I can say all i want i dont think this is much slack. But unless wages start to pick up, its hard to make that let me try and make this come back. Are you no, i want to get back to the urgency of the markets. We are talking about a major market selloff here. And i want to figure out what you guys think is really happening, what the market wants to hear, how big of a down turn this is, if you think this is the beginning of a pul big pullback that everybody has been looking for. Weve been waiting forever for a 10 market pullback. Is this the beginning of Something Big or do you think this is a one off, michelle . The one thing ill say, even i dont think the fed is going to slip as quickly as perhaps the markets are worried about. I think this fed is going to continue with their message, even if things look better, were going to move slowly. Theres no urgency. I think we will continue to hear reassuring messages from the fed. And i dont actually think the data are going to be as challenging theyre not going to be so strong that they are going to force the fed and i know youre all economists, but when you look at what happened yesterday, do you have a lima reason for yesterday . Do you have a line of reason for this morning . Part of the reason is is the fed outlook changing . And the other way, the fact that the bond market didnt rally, i think it tells you something about the rethinking of the fed outlook. What does that mean . Well, no, i mean, the markets are starting to think more about the possibility that the fed will be tightening a bit sooner and a bit faster than has been expected. Clearly, there are some geopolitical issues and markets are volatility areas. Steve, you pointed this out this weeks talking about the fed futures jumping up. There was a big jump in gdp moving things forward, just expect but i dont get what jim is saying because in that world that you described, yields should be rising. And then the stock market pulling off pulls them back again. They were up yesterday in the first couple of hours after claims in ecb reported and as the equity market that puts you back to flat. But youre still up 10 basis points or whatever in the last couple of days, despite the equity markets being down. So i think once the equity market stabilizes, then theres room for the bond yields. We saw 2. 6 at one point during the trading day. So you would expect to see bonds pushing higher . I would think ultimately if the economy keeps improving and we start to get some wage pressure, then yes. That drives me nuts because the metaphor here is you get out of the way of the oncoming truck into the way of an oncoming train, right . Thats essentially if you sell stocks because youre afraid of the fed and you go into bonds, then you get right in the way of the oncoming is that not a the equity markets shouldnt be tumbling. If the economy is growing, the fed is in no rush to tighten, when they do tighten, the policy is going to be easy for several years. Earnings region price earnings ratios are extreme. Theres not an equity market for the standpoint to tumble. Should it flatten out relative to what weve been seeing . Sure, in a world where bond yields are rising. But the back drop is not for the equity market right now. I do to some extent blame the fed a little bit for this nervousness. One of the things that theyve done is in trying to justify their reason for saying so easy is to suggest that we have to be, we have to be this easy because the economy needs this kind of support. And theyve kind of sent this message over and over to the markets that we need to be there, we need to be there. So theres nervousness about what happens when theyre not there. And i think theres going to be i think to get past this first tightening, actually, its to show that we can you know, we can handle these moves, we can get off zero and the economy can still keep growing. And i think well ultimately be very positive for the economy. But its going to be a very nerveracking time here as we make this transition. If joe were here, i want to guarantee he would be talking about this concept of weak hands and strong hands and i think he will be talking about this idea that stocks would pass from the weak hands that dont want to hold stocks in an environment of rates to other hands that may want to hold the environment of a better economy and the holders may be different rye now, people who are going to make an idea to buy stocks for one reason and and the question becomes to what alternative and thats where your metaphor comes in very well. What alternative do you have to equities . Right. And i have a different question, which is how much does the trading yesterday is generated by human beings, make good stigzs and how much were made by model . Thats why i would expect to see a bounceback on a morning like today. When you see triple digits down again, that makes you stop and pause. Usually the humans would be stepping in in the meantime. Well win do think if we get numbers like jim and i are looking for, i think that that will be somewhat common. Because i think that does not suggest that this urgency for the fed to have to move a lot quicker and sooner, i think if you get a number up close to 300 again or even in the high 2s that will feel or high earnings, Hourly Earnings number, that would weigh on the markets. But i think the kind of numbers that were looking at might be somewhat calming that suggest the fed can stay the course a little bit longer. And not necessarily that they have to keep rates at zero forever, but that they dont have to move away from this gradual normalization of policy. Thank you. Thank you. Thank you. When we come back, more on the markets and the economy is front and center all morning ahead of that jobs report thats coming up later this morning. And the futures right now are still looking like they have some heavy losses. Dow futures down by about 98 points below fair value. S p 500 futures down by 12 and the nasdaq off by 27. When we come back the honeymoon is over for a hot ipo. Gopro shares, is now the time for investors to jump on the stock . Squawk box will be right back. Gopro earning 18 cents for the quarter, two cents higher than expected. The stock plummeted in extended hours trading. It was down by about 10 . You can see right now, 43 a share is the last trade, thats a decline of almost 5. Joining us right now to break things down is charlie anderson, Senior Research analyst at dourdty and company. Thanks for joining us. Thanks for having me. Were you caught by surprise, as well . Yeah. You mentioned expenses. That wasnt the surprise to me. Its their debut quarter, its a hot product. Im surprised frankly they didnt beat by more on the sales. I think as we looked through it the culprit was europe. America was up 50 . Europe was up only 7 . That was surprising. So it looked to us like there was too much inventory in the channel in europe and that was the result of not a larger beat. Do we think thats a problem with the company in terms of getting the same excitement in europe . Do you think thats a fixable problem . I think it is. I think these are mostly selfinflicted wounds. We have to remember this Company Started getting large three years ago. Theyve been staging their distribution. They sell mostly through distributors in europe, versus direct in the u. S. , so you dont see these large best buy implementations in europe. So i think thats something that will bloom over time. Its just early in the maturation cycle. What did you think of this company and this stock before the earnings yesterday . What do you think now . Still, were downgrade to go neutral today for valuations reasons. We had a buy going in. We thought there was a potential for a great upside in the quart he. It was good, but not good enough to make us need to take our estimates up significantly higher. At that point, the valuations didnt make that so were going to neutral now. This stock ran up very quickly since its ipo earlier this year. Was that surprising to you . Yeah. I mean, looking from the ipo price, we thought in some ways, it was justified by the fact that this thing was doing really well going into the quarter. But at the same time, youve got to step back and look at, you know, just historically, its trading at much higher multiples than apple ever has, than garmin has. It was a small float, right . So some of it was supply and demand. Okay. Charlie, i want to thank you for joining us today. Thank you. Why dont we take another look at whats been happening with the futures this morning. If you are just waking up, you saw yesterday the dow was down by 317 points. You may have thought you would see a rebound this morning. That is not the case. If you take a look, there are more red arrows and some significant declines in the futures. Dow futures down by about 114 points below fair value. S p futures are off by 14. Nasdaq at this point is looking like its down by 31 points. We have a big jobs report coming up this morning and that is going to be a key focus. Weve been talking this morning, trying to figure out what exactly the market wants to see. A good number or a bad number . Because the concern from a lot of people are saying that, look, the reason youre seeing the market at this point is because there is an expectation that the fed will be forced to move earlier than what the market was expecting. What happens if i tell you that good or bad is still bad . Thats an interesting theory. If its bad, the market is not going to go up. You never get excited about a bad number. And if its good pb maybe you still have your bad problems. And i guess you can look into the real details within as we were just talking about the last time about actual wage, average hourly wage which is going up, too, and what that signals. If its good, its just good. More people working is good. Higher wages are good. And if you keep your keep your focus, you dont really get i would tell you that one of the problems were going to fix here, theres a bit of a fed vacuum, right . We know how the fed felt back before 4 gdp. But we dont know how theyre going to go if but we have Richard Fisher coming up and we can ask him that. But we dont hear from the fed leader until the he of the month when we get to jackson hole. My opinion is janet has to talk to stan. Stan . Janet has to talk to stan publicly. Because stan has this idea that how can you possibly be so below normal with the economy so much closer than normal . I will tell you, we have mark grant coming up in just a few minutes and he has some interesting thoughts on this because his point has been that people have been far too focused on the fed and not focused enough on whats been happening in other countries. If you look at the italian tenure, if you look at the spanish tenyear, thats where you get some the low bubble since the 1400s and we didnt even know that they yeah, sure. What agency was doing that . There are actually records of that. There were records of loans that were given to yes. Coming up, were going to talk wait. Okay. Coming up, the eurozone in the danger zone. The major european averages plotting again this morning. How deflationary worries across the pond could sell big trouble for the markets. Plus, tesla putting the pedal to the metal for 2014 production. Is this stock darling going to see more acceleration or not . More squawk coming up. Or if power could go anywhere . Or if light could seek out the dark . What would happen if that happens . Anything. 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. Good morning and welcome back to squawk box here on cnbc. Im Andrew Ross Sorkin along with becky quick. Steve liesman is here. Joe on vacation. He missed a big day yesterday. Investors are waking up to another morning of red arrows. Lets tell you whats happening. Dow off about 107 points. S p 500 opened off about 13 points. Nasdaq looked like it would open off about 29 points. That comes, of course, after what has to be described as a route yesterday, erasing the gains for the entire year. By the way, my favorite sentence, weve been trying to make sense of this, ben whites favorite sentence, too, in the times, the reasons for the losses on thursday are not entirely clear. Thats about the most honest thing you could say. We will have people on today who will do just that. And theyre going to try to hopefully help us figure out what to do about all this, as well. These futures could turn around. Depending what happens at 8 30, polled forecasters say the economy likely added 230,000 jobs last month, down from a gain of 288,000 in june. It will be the sixth straight month unemployment has grown. We havent seen a stretch this long since 1997. Unemployment Holding Steady at 6. 1 . Dallas fed president Richard Fisher, hes going to join us sclus ofly for an hour starting at 7 00 eastern. As steve said, this will be one of the first opportunities for us here, a little bit of the inside the room. What people have said or are thinking about all this in a post 4 actually, since the meeting. Since the meeting. And we heard about 4 . And how the fed will process stronger growth. And i think we know what Richard Fisher thinks. I think he thinks that the fed ought to move even faster. Certainly an inflexion point. We also have a lot of red when it comes the europe and asia. Those markets reacting in kind. You can see that the ftse is down by 1. 4 this morning. The biggest decliner, its the dax in germany, off by 2 . But 1 to 1. 5 declines for many of the major markets. Overnight in asia, the declines are more muted. The hang seng was off by 0. 9 . You saw lows for the nikkei and the shanghai. If youre looking at oil prices, crude oil dropped nearly 7 for the month of july. That was its worst month since may 2012. Now you can take a yeah, for anybody driving and filling your car up. Take a look right now, its down another 87 cents for wti, 97. 30. Look at the tenyear, yielding 2. 578 . Its been stuck in a range, as Rick Santelli was telling us yesterday, between 2. 4 and 2. 64 i think was the range that weve been sitting and looking at for a long time. A lot of players trying to figure out if its going to go up or down from here. Were going to talk to mark grant in just a moment. But quickly, the dollar at this point, the euro saw its biggest monthly drop versus the dollar since february. July, down by 2. 2 . Dollar down this morning, euro is trading at 1. 3398. Dollar yen at 102. 93. Gold prices are up slightly, 1,285. 70 an ounce. Is the eurozone falling deeper into deflationary traps . Lets talk about the possible implications with mark grant, managing director at southwest securities. Mark, before we get to any of that, what do you think is happening with this market selloff . I think its really just a correction having to do with how much the market moves. Theres a tremendous a lot of leverage in the market. I think people began to get nervous and a lot of private equity firms recently have cut down on their positions and i think thats because of it. You mean there are certain players looking for any reason to get out . Certainly players that have gotten i think very nervous. As you know, i deal with a lot of very large institutions all over the world. And there are a lot of guys that are nervous about equities at these levels. And what makes them nervous . Is it watching geopolitical events . Is it watching how far weve run . I think its the combination of the valuations and a lot of specific stocks. I think that theyve gotten all theyre going to get out of them. Also, i think the geopolitical events are making people nervous, especially in the mid east, the ukraine. Mark, why did it take until thursday, if thats the case . Youve had the geopolitical mess around for the past two or three weeks. What was it about the past 24 hours . I honestly think there is no particular, to use beckys word, inflexion point. What i think it was is people began to get out and this ive seen over all my decades on wall street, the herd starts moving, people get nervous and follow the herd. Are you nervous . No, im not nervous. I think that the Interest Rates, as you know, are going to continue to decline. And i think thats going to put a a barrier, if you will, underneath the markets to present any kind of serious correction in equities. So you think equities in particular are still going to be the place to go, that there arent going to be decent alternatives in other places . Well, i think the long end of the bond market, if im right and we have 2 yield on the tenyear is going to be a very good play. To date, the treasury market has outperformed the equity market in terms of appreciation since the beginning of the year. So i continue to think the bond market, especially on the long end, is a good place to be. Mark, what youre saying is very counter intuitive, but ive known you long enough to know that i ought to understand what youre thinking. Tell me, in an environment of an improving economy, which is aus tentbly where were going here, how do we get and why do we get from 2. 6 down to 2 on the tenyear . Okay. Ill tell you. So the first is the what the fed is doing, in my opinion, and not really opinion, they have an arsenal of 4. 75 trillion bullets. So they can push the bond market down and that equate toes about 39 of the treasury market. Too, you have relative value in play the same lets say you look at the fiveyear. So we have the spanish fiveyear that about 34 less than the american side. The italian side is 29 less yields than the american fiveyear. So theres a lot of relative value. Come in tomorrow over the american markets. The final point i would make is that the gdp number is driven and one is driven to a great extent by lower Interest Rates. We have better values in real estate, much lower mortgage rates, and the gdp number. What happens to the stock market at this time when the tenyear moves from 260 down to 2 . The stock market is avoid, as Interest Rates begin to go down lower, many will come back out of the bond markets and go back into the equity markets. I think its going to help the equity markets as we go lower in the yield. And then fill in the final piece of the puzzle here, mark. What should the if he fed do during this time period . Ostensibly, qe rolls off. What happens to the fed funds rate during this scenario youre laying out . I think the fed funds rate might come up a little, depending on peoples perception of the markets. However, i will also say that as yields go down, its better for the american economy, obviously, no matter how you look at it and it helps equities. And i do not think the fed is going to let loose of its 4. 75 trillion. They can stop and the taper can end. But they still have a tremendous amount of buying power and i dont think theyre going to get rid of it. Hey, mark, i understand where you think Interest Rates are going to go. But do you buy into the argument in terms of what happened yesterday and the way people think about the stock market today and perhaps even the way they may think about the jobs report today that if we get a hot number, a good number, that that actually could be bad news for the market in part because the fed pulls forward . Even though i know you dont think they will, but that is going to be the perception because were playing one massive gain thats psychological exercise at this point . I think they think the bond market slightly, and if it moves slightly, because of the economic numbers and that may be true on a very shortterm basis with the jobs numbers. And i think unless youre, you know, trying to play fast money, an investment for the longer term that its going to work would out well regardless. What happens in europe with inflation, mark, and how important is that to the United States . We know that the numbers came in lower than expected. It seems like they built a deflationary story here. And if you dont mind, the euro has defied expectations. Its been sort of defying newton when it comes to gravity. Its down a bit, 1. 33 and change but somebody will figure out a way more towards 1. 20. The reason there is a simple one that most people have talked about. Oil and energy is sold in dollars. The contracts, major purchases, to europe because of the rate against the dollar. Gets the discount of about 35 . So its been good for europe up until recently. Now with their deflation rate, it also with their slowdown in exports, theyve decided they like to try and lower the euro. And i think mr. Draghi and company are playing with that notion now. All right, mark, it is great talking to you. Thank you so much for joining us this morning. And keep us up to date as you see things coming in, okay . Thank you, becky. My pleasure. Guys, we are less than two hours away from the main event of the morning. The july jobs report will arrive like clockwork at 8 30000 a. M. Eastern time. Right now, the futures remain under pressure following through on the selloff from yesterday and the squawk newsmaker of the morning an exclusive onehour with dallas fed president Richard Fisher. The fed meeting just days ago, we take on the fed actions and markets and health of the economy. The first word since the meeting only on squawk box when we come back in just a moment. 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. Welcome back. Everybody. Yesterday the dow was down 117 points. Take a look. Youll see the futures are indicated lower once again. In fact, the dow futures are down almost by triple digits. They have been down triple digits at points through the morning, but right now, dow futures look like they are down by 97 points below fair value, s p futures off by 111. 5 points and the nasdaq is down at this point about 25 points. The losses we saw yesterday in the markets were significant. Youre talking about wiping out the gains that weve seen to this point for the dow. Youre talking about the first negative month for the dow and the s p 500 since january. So some significant declines yesterday and it added up to some weakness for the year and the month. If youre taking a look at whats been happening in europe, red arrows there, as well. In fact, the dax is down by almost 2 at this point. Decline of 183 points. The ftse is off by 1. 3 as is the cac in france. Italy, the ftse down by just over 1 . Okay. Coming up, riding with you on tesla, rolling out results after the bell. The Company Breaking ground on new battery factories. Is it wise to bet against the man, elon musk right now . That is next. And then at the top of the hour, getting inside the center bank. Dallas fed president Richard Fisher will join us for a squawk exclusive starting at the top of the hour. A perfect guest with everything going on in the market. Squawk returns in just a moment. Welcome back. Weve been talking about the selloff in stocks with a junk bond market telling the story. Prices dropping sharply after todays investors ran the risky corporate debt. Reporting a third consecutive weekly decline in junk bonds. Check out this high yelled bond spider etf, down more than 3 . 30 . Is it 30 . Down more than 30 . Im sorry. Down 33 right now, a drop of 13. 50. 27 bucks last check. Lets talk tesla, coming under a bit of pressure. Lets bring in paul, the managing editor at reuters who has written extensively about the Auto Industry for 25 years. Call last evening. He says, i never heard one say this, we can drive demand up at will. Who says that . I can drive up demand at will. Are you are you a buyer of this stock . Well, you know, the question i guess, this stock makes at the current valuation, this stock makes sense, really, only if you believe that in 2017 their new model 3 can revolutionize the car business by being the first careenbly priced, 35,000, that goes 200 miles to a charge. And so were not going to really know until 2017. Meanwhile any hiccup is going to hurt this stock. What do you believe . You follow this stuff. You know the technology. Is it a reasonable assumption theyll have this in 2017 . It is a reasonable assumption but look its like if you go to the racetrack, okay, and you put a long shot bet on some long shot bets pay off. A lot has to go right between now and then. Now look, its also true that this company has come a lot further than anyone expected. So, you know, theyve delivered so far. Theyve also say that, you know, by the end of next year theyre going to have be building cars at the rate of 100,000 a year. Thats before they get that mass model model 3 on. So, its its just its a big bet but is it a crazy bet . Maybe not. Paul your colleagues at breaking views suggest that the stock should really be worth about a third of its current price. Reuters breaking views, they did an item yesterday, after the earnings came out. It was a very smart item. It basically said look, you know, no matter what this company does, its not going to escape the valuations of the Auto Industry. And again, they said its really based on Current Conditions and everything, instead of a 28 billion market cap, it ought to be closer to a 9 billion market cap. Right. So really youre paying for that price now is that industry disruptor factor. Really disrupt the industry. One other Technology Question for you. Elon musk is betting big on batteries. Toyota is recently coming out with a Hydrogen Fuel cell. This is sort of the holy grail. Is that real . Right. Is that vehicle going to compete, and does that mean that actually that would be the next technology after batteries . Well, maybe even before batteries, to be honest with you. So elon musk has derided the Hydrogen Fuel cell idea. But the truth is, the man behind the fuel Cell Development at toyota is mr. Imada the father of the prius. This man has credibility. Hes done it before. Hes revolutionized the Auto Industry before and i would not rule this out at all. Okay. Paul, thank you for joining us this morning. Helping us through this. Great to be with you. Appreciate it. See you soon. All right joining us right now on the squawk news line, jeff sout the chief investment strategist at raymond james. Jeff we need your opinion. Whats happening here. Were seeing declines once again this morning in the futures after the big selloff for the markets yesterday. Is there reason to be concerned if youre an investor . I dont think theres a lot of reason to be concerned if youre an investor because i continue to think that were in to one of the multiyear secular bull markets. That said you hit the upside target zone of 1950 to 1975 that was generated by the reversal day that happened on april 15th at s p 1816, so you overshot that upside zone a little bit. But, were in to the 64, 65th month if you study the scheme of things over the years, they have been difficult and topping months for the equity markets. Ive always maintained on your show that sometime this year we were due for a 10 to 12 decline. Whether this is it, i dont know. It kind of feels like it to me. The troops have been retreating. I. E. The russell 2000, while the generals were advancing the s p, the volatility index has picked up here, and i have learned one thing over 44 years in this business, never on a friday. And that means that once these markets get in to a funk like think did in this week, they rarely bottom on a friday. They give the investors over the weekend the chance to brood about their losses and they tend to show up the first part of next week in sell mode. All in all just like a heart attack patient doesnt get right up off the gurney and run the 100 yard dash. Would you tell people to be buying on this or would you say wait, because i think theres a bigger decline to come . I have told people since the first and second week of july they should be weeding out stocks in their plel yos that have not performed in this 40 plus rally that weve had since june of 2012 without a 10 pullback. So, no, i would not be buying right here. I do think we have a decent chance of having this s p pull in to the mid 1800s. Can you explain this . Were going to get the jobs number at 8 30. A good number is going to settle this down or not . If they get a good number i think theyll try and rally because the mcclellan oscillator on the New York Stock Exchange is pretty oversold right here. I do not trust it. I think theres been a psychology change on shortterm to intermediateterm business basis and i think we have some more downside here before we level out the loss of supply and demand. Jeff, thanks for calling in today. Great talking to you. You bet. Up next results from dow component Procter Gamble and the first on cnbc interview with cfo john muller. Before that, though, heading to the squawk set we have dallas fed president richard fischer. He will be joining us for the next hour. We have a lot to talk about, a lot of ground to cover after this weeks fed meeting, the gdp report, the recent state of the markets. Squawk box will be right back. Good morning, everybody. Welcome back to squawk box im becky quick along with Andrew Ross Sorkin and steve liesman. Joe is off for the week. We do have some breaking news this morning. The Global Markets continue to be under Major Pressure this morning. Taking a look at the futures theyre down again. You might have expected a rebound after the big declines we saw yesterday. This morning the dow futures down by about 93 points below fair value. The s p futures off by over 10 points. Nasdaq down by 23 points. In europe this morning, some of that bleedoff continuing. The dax in germany down by 2 . The ftse down by 1. 5 . And in italy the mib is down 1 . In asia red arrows there, not as big as the declines that we saw in the United States, where the s p yesterday was off by 2 but you did see the hang seng down by about 1 and declines with the nikkei and the shanghai, as well. Weve been watching the tenyear note because this has been the interesting one. The yield at this point sitting at 2. 582 . This of course follows a major selloff on wall street yesterday. All of the things wed been watching. No one seemed to know what happened. 97 of the s p 500. 96 of the nasdaq 100. And 100 of the dow 30 components closing lower. Volume and volatility, both back with a vengeance. 4. 3 billion shares traded on the nyse yesterday. More than a billion above the average that we normally see. See, the whole sell in may thing if you sold in may you missed those gains. You had to wait until the end of the july to really sell. Real quick. Lets bring in john brady as managing director of r. J. Obrien for his thoughts on the selloff. Help us here. Explain it if you could to us, john. What do you attribute it to. Andrew i think theres a confluence of events taking place above and beyond the obvious which is the geopolitical tensions both in the middle east, and ukraine, russia. I personally think that the economic is at an Inflection Point and specifically, we noted that the equity market selloff really accelerated yesterday following the report of the employment cost index, which as you know for q2 came in at plus 0. 7 much higher than most expectations on the street. Theres a real battle going on within Monetary Policy and the yield curve and specifically the nexus of where volatility in the markets will most likely come from next. And the problem is, or the challenge is, is that fed policymakers are having a difficult time determining exactly how tight the labor market is. We have one of those fed policymakers at the tail. Were going to get to him in just a moment. But if you could help me with this. If we get a good jobs number, even a hot number, is good news good news . Or is it possible that good news is bad news because the view will be that the fed is going to act sooner . So, good news is bad news in the short run. Good news is good news in the medium and longerterm. This is what the fed wanted. This is what the markets wanted. They want a tightening labor market and upside inflationary pressures. Remember the last four or five years have been dictated by inflationary fears. So inflation is easier from a Central Bank Perspective to chase and to bottle than trying to battle the deflation demon. So in the nearterm, a very strong number today will probably limit further selloff in equities. The natural correction. But in the longerterm. You know, an economy thats showing strong job growth and higher wage growth is a longerterm positive. John . Yes. So final question, is your sense and we just have an analyst on earlier that suggested we could be in for a 10 correction here. That this is just the beginning, this is just a blip. Where are you . Andrew, listen, i think that its important to remember that lets say in the s p 500 your low in may was 1854. 50. And we trade 1913 a quarter now. I think another 5 is much more logical and accepting. I think 10 is a little bit of a stretch. You know you get down to the kind of levels around 1853. You got your 200day moving average as well. Fabulous buying opportunity. But in the longerterm, equity still are not overly the valuation matters are still not stretched. So we use it as a buying opportunity. Were going to leave the conversation there. Thank you for helping us through this this morning. You bet. Lets tell you quickly, Procter Gamble out with earnings this morning. Looks like theyre coming in with he of 89 cents. Street was looking for 91 cents. Revenue at 21. 6 billion. The street estimate the consensus was for 20. 48 billion. So thats slightly below what that consensus estimate was. You do see the stock dunn about 1 in the premarket. A dow component. Not surprising given the pressure were looking across the board with some of these. Were going to talk with john muller the cfo of Procter Gamble in just a moment. One of the things they talk about is the 2015 guidance. Theyre saying Procter Gamble expejts organic sales growth in the low to mid single digit range. Net sales growth expected to be in the low single digit range including a negative onepoint impact from Foreign Exchange. Obviously currencys been a big impact on any of these multinationals. They note that the earnings for 2015 will be heavily influenced by the variation of Foreign Exchange impacts from period to period. They expect the most significant negative impact from Foreign Exchange in the july to september 2014 quarter. So thats what were in right now. At the current spot rates, Procter Gamble expects Foreign Exchange to be youvely neutral in 2015. Well have more on that in just a moment. Looks like that stock is up by 1 at this point as people dig through that earnings report. As we watch the most widely watched jobs report, Richard Fisher is the president of the Federal Reserve bank of dallas, and richard its great to have you here. Thank you, becky. Always wonderful to see you. Weve been trying to figure out why the markets down and one thing weve heard from several people, this is just one of many reasons, theyre concerned that the fed is going to have to raise rates a lot faster than theyd been anticipating, a lot faster than people thad been expecting at this point. Are Market Participants right to think that . Well, first i thought andrews explanation reading from one of the newspapers this morning was that nobody knows why the market is down. Theyre confused. But your question has to do with our policy intentions. And as you know, i can only speak for myself. Sure. You know what my views are. And at the last meeting i felt, as i listened to the discussion at the table, that my views were being digested by more and more participants. And that is, the numbers have been better. Weve had, if you look at moving averages which we like to look at the Employment Situation is better. You just saw the employment cost index come out yesterday. So it would seem to me, and i have been arguing this, that the date of socalled liftoff has been moved forward. Were seeing the risk of deflation and all the things we were worried about as a committee and you were hearing from Business Leaders in the private sector, that has begun to evaporate. It hasnt disappeared. But it has slipped way off the radar scope. So, things are better. Its what we wanted. And were moving in the right direction. And its up to the market to discount whatever they think reading through the entrails when the minutes are released three weeks from now they can decide how they feel then. But you know what that you but the numbers have been positive. This is the most important point. Good news, andrew, is good news. And we care about the real economy. What you said is very telling, though. You have felt this way for awhile. But eventually someones right. Eventually ill be right. You said that you feel like others around the table are digesting what youre saying. Im speaking for myself. My sensibility, sitting through those meetings for two days, as i do, as a full participant, as a voter, i was rather pleased, by the way, with the statement as it came out. Because you know what my views are. I gave a speech on this on the 16th, the wall street reprinted it on monday. At least some excerpts that they pulled out of it. And i thought i expressed myself thoroughly there and i was encouraged with our discussion that there seems to be a sense that we are, indeed, moving in that direction. Liftoff has been moved forward. I didnt say that. What i said was that i think we are moving in the direction of if the numbers continue to show this kind of good behavior, then one would expect that we would lift off a little bit earlier than we thought just the last time we met when we released our economic projections. You said in your oped in your speech which was excerpted, you were increasingly at odds with your colleagues. Right. After i dont feel at odds you feel less at odds with your colleagues now as a result of the meeting . Well said. What well i dont want to put words in your mouth. What specifically from that meeting, puts you less at odds with your colleagues . Again im not going to talk about what others said at the table. Oh, sure. I think the general tone is were getting confirmation through the data, and the anecdotal evidence we get all of us talk to Business Leaders around the country, thats our style now. Im very happy about that, by the way, because i started doing that a long, long time ago. Other colleagues do it very well. Theres a little more confidence out there and again the downside, deflation, zero growth, slipping in to negative growth, you dont hear much talk about that anymore. Either outside when we consult with people. You dont see it in the data and you dont hear much discuss about it. There was a new concept introduced in to the statement. It had been out there, obviously, in the in the world for awhile. This idea of labor slack, essentially. Right. In your opinion, how much of it is out there . And is it something that you think is significant for policy its not clear how much is out there. We dont know what the natural rate of unemployment, which weve been looking at always has been. The Congressional Budget Office has gone back to the very critical year of 1949. Ill tell you why its a critical year. Its the year i was born. They went back to 1949 and weve had a change, its never gotten below 5 , and its been up to the high 6s in periods of stress. So particularly during the Carter Administration and so on. Were moving in that direction. Its hard to drive an economy below the natural rate without creating inflationary pressures. The real test will be in terms of the wage data that shows us the cost of labor. We saw some numbers yesterday that showed a lift. Its very hard to tell what Spare Capacity is. But it clearly is starting to narrow. And the direction and sign is whats important. When you say that you hear anecdotally, i know you talk to Business Leaders and have for a long time. Is there less concern . Are they more willing to put their money where their mouth is and increase Capital Expenditures . Thats the key and where. So lets get on my favorite hobby horse. You cant ask for more accommodative policy than weve provided. We made money dirt cheap and abundant. The question is how does it get utilized to create more american jobs. Then we have tax and other fiscal and regulatory disincentives for business to put their work here in this country. You have to parse through the report was it here . Thats the interesting part. Where is money being made and where money is made is where you put money back to work. As far as looking forward. So having said all that, we are seeing progress here in the United States. Here in britain in particular. I think were the leading race horses on the track. Youre pretty calm and cool right now. I mean ive seen you im cool calm ive seen you a little more agitated. A little bit more concerned about where policy is. Yeah. After this meeting. You feel like its going your way and youre not concerned that the fed is on the verge of a major mistake of being too accommodative. Is that fair way to characterize how you feel this morning about policy . I am very comfortable with the way janet yellen chairs that committee. I wasnt as comfortable with ben. I think shes been extremely thoughtful. She pulls out of everybody their exact thoughts and then she summarizes in a way that even has taken bens great ability to do that to even higher art form. So, yeah, im very pleased at where we seem to be moving this is again my own opinion and as i expressed in that piece i didnt feel the need for example to dissent at this meeting. Because what i heard and then what we stated for the most part, there might be some wording differences i had you pegged as a dissenter. I thought your comment hes so cool. Hes like cool as a cucumber. Its amazing. Usually a cool guy. What was what was the change in the language that made you feel good about it . I think the way that we describe described being closer to 2 target on inflation. In the first paragraph discussing where things were some wording changes took place. So and if you remember, chair yellen just testified a couple weeks ago, so this is hard for people to understand, theres a limit to what you can change when youve just appear before congress. So the point is the movement, the gradual movement, and as you know, i feel personally that were closer to liftoff than we were, people felt we were, the market assumed we were, sometime late in 2015. I believe personally weve moved that forward significantly. You cant speak for the full committee significantly . To you there was a very different tone and there were keys that people should look to to say yeah, we are recognizing whats happening with the data and were trying to make sure you realize that . I am happy with my position im sorry, that word significantly really sticks out at me. What is of course it does. Lets save it for after the break. Save it. What is significantly mean . Its a significant question. Thats right. Well go to the Oxford English dictionary and find out. Richard fisher again well be talking to him throughout the hour. Well have much more when we come back. Also Procter Gamble releasing Quarterly Results just moments ago. Earnings of 95 cents exitems beating the street by four cents. Weve got the cfo when we return right here first on cnbc with a look inside those numbers and as we head to that break check out the futures. Crazy day after yesterday. Dow looks like it would open down about 99 points. But we do have the jobs report at 8 30 and everything could go in Different Directions then. In a world thats changing faster than ever, we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back to squawk box everybody. Again you hear the breaking news there because we are keeping a close watch on whats been happening with the futures today. Under pressure once again. Dow futures at this point down by about 87 points below fair value. Its a big number but its off the worst levels of the day. We had seen down by about 117 points at one point. That comes after what we saw yesterday, a decline of 317 points for the dow. The s p futures are also down this morning, down by just over 10 points. Nasdaq off by 23. Time now to take the pulse of the consumer. Procter gamble posting Quarterly Results just moments ago. They reported earnings topping analyst estimates. Joining us now is the cfo of p g and also a member of c innocences global cfo council. Still with us dallas fed president Richard Fisher. We still want to make sense of what youre seeing globally in terms of how youre feeling as a company and also as a consumer. Lets go through the numbers first, john. On your earnings you beat on the bottom line you missed by the two about 300 million on the top line . Thats right. We just completed our fiscal year. On our fiscal year basis we were up 3 on the top line. 5 per share growth. 14 per share growth on a Constant Currency basis. We increased our dividend for the 58th Consecutive Year up 7 repurchased 6 billion worth of stock. On the quarter, organic sales up 2 . Earnings per share up 25 on a Constant Currency basis all of that reflecting the strong earnings underlying earnings power of our productivity and cost savings program. Tell us just broadly speaking about the globe tell us where youre seeing strength. Tell us where youre seeing weakness, and tell us on a morning after the markets, and i know the markets dont matter to you specifically, where theres a little bit more anxiety than there had been the way youre looking at the world. Well, it obviously varies by category. We see opportunities globally, quite frankly, developing markets continue to grow for us 7 last fiscal year. 7 last quarter. But there are also significant developed market opportunities. Market growth rates in our product categories have come down about a point over the last year and have come down sequential sequentially. But markets are still growing 3 globally, mid signals to high signals in developing markets where 45 of our volume currently ships. So its a mixed bag but generally, manageable. You said at the i dont know if it was you but the company said that the Deutsche Bank Global Consumer conference about your objectives by the end of 2015 in enrollment reduction goals which basically means job cuts. Where do you stand . On that front . Well, we announced in february of 2012 a 10 billion five year cost savings program, a cost all elements of costs. Costs of goods sold. Marketing expense as well as overhead expenditures and were going to accelerate and exceed those targets. So were very happy with where we stand. Thats what allowed us to overcome significant Foreign Exchange head winds and still deliver good numbers on both the year and the quarter. But my understanding was that the company you guys had said that you would cut 8750 rolls about 15 of the workforce. But my understanding is the target is 16 to 22 . Yeah, and it as of july 1st were at 16 . So were within target and thats happened over the last two years. And well use those savings now to fuel both bottom line performance as well as top line growth. John is that you are those u. S. Job cuts . No thats global. So whats the u. S. Portion of that . I honestly dont have the breakdown. But you should assume its proportional. What is the job market like right now . I assume inside the overall cuts theres hiring going on, as well. You hear from a lot of executives that its difficult to find skilled workers and that you have to pay more for skilled workers. Are you guys finding that . Well, were in maybe a little bit of a privileged position. We have almost a million applications a year for about 3,000 jobs. So we continue to hire very qualified candidates across the globe and are pleased with the quality of talent did you say did you say a million applicants for 3,000 jobs, jon . Youre like tougher to get into than harvard. Yeah, i couldnt get hired today, becky, thats for sure. Score one for janet yellen on that one. Talked about labor slack. So youre not let me ask you a separate question. Are you you know, theres a Big Conversation going on across the country that somehow we cant find enough talented people in specific sectors. Of your if youre getting a million resumes, are you having that problem . No, were not having a problem sourcing talent. Were very happy with the quality of the talent that were sourcing on a global basis. Of course, there are always pinch points here or there or in individual markets. Broadly speaking its going pretty well. John, whats it feel like oh, im sorry. I was just going to ask, whats it feel like . We just had a 4 gdp number. Does it feel like in the u. S. A 4 economy . To me it feels a bit choppy. As you all know, the prior gdp number, prior quarter was minus 2. And so theres a little bit of it feels, in my seat, a little bit choppy, and i would say thats true across the globe, with some of the geopolitical events, et cetera. But, against that chop, continued opportunity for growth on both top and bottom line. Jon, i dont know if you know this, but your team sent us some razors, and i have here the gillette i dont know what you shaved with this morning. This is the gillette fusion pro glide power we talked to him about it last quarter. Its got a battery. Is that five blades . Five blades. What is the price tag of this . This razor. Its actually very reasonable. About 10 for the razor. We launched that around fathers day in june. In the month of june the male razor category, the category in the United States was up 30 points. And we started to see cartridge share grow as well so this product is ten bucks and by the way its not the razor its the blades. It only comes with one obviously theres five little blades. Weve got more of those, andrew. One cartridge, thank you. How much does a cartridge cost . It depends on exactly what cartridge you buy and what configuration. But on average, shaving with that razor, which is the best available shave, will cost about 1 a week. 1 a week. Okay. There you have it. Jon moellor thank you for joining us. Cfo of p g. Thank you for the razor. For more on our global cfo Council Check out cfocouncil. Cnbc. Com. Coming up the countdown to the jobs report, including the search for jobs and cnbcs top state for business. And again, red arrows this morning in the u. S. Futures. Right now the dow futures down by about 97 points below fair value. S p futures off by 12. 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Switching to progressive can already save ye 500. Snapshot could save ye even more. Meat maiden bringeth to me thine spiciest wings of buffalo. 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. 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 this morning. Our top story, the Global Market selloff. Futures pointing to a sharply lower open again on wall street. Although futures are off their lows of the morning but the dow looks like it will fall sharper into the red for the year right now dow looks like it would open off close to 90 points. Nasdaq off about 24 points and the s p 500 off about 11 points. The dow and s p had their first monthly decline since january, both down nearly 2 during july. Todays test for the markets, the july jobs report. Thats just about an hour away at this point. Forecasters say the economy likely added 230,000 jobs last month, dawn from a gain of 288,000 jobs in june, and we will try to see whether good news is good news or good news turns out to be bad news. All right lets stay on the topic of jobs. In the competitive world of global manufacturing, every minute of down time is a dollar lost. So companies are always looking for ways to cut costs, and improve efficiencies. This is where ats comes in. Mary thompson joins us from augusta, georgia, with more. If you recall georgia topped the cnbc list of top states for business. Mary, how you doing today . Good, becky. Were here at a specialized vehicles plant where for the last eleven years theyve been using advanced Technology Solutions to repair and maintain the machines they use to make these easy go golf carts as well as the curbman vehicles and the bad boy buggy allterrain vehicles made here at this facility. I guess you could call it domestic outsourcing. But peoria based ats says demand is growing for its services. Heres ats vice president. Since our inception in 1985, weve actually grown to 3,000 employees and had an annual average growth rate of about 18 . I would say the demand for our product has been accelerating and it really is this skill gap issue thats one of the primary drivers. Along with just global competition in the manufacturing environment. Demand is so strong ats is hiring 500 workers this year. Its technicians are trained to fix and maintain the multiple machines youd find on a clients factory floor. The Value Proposition to a client being if you put the maintenance in ats hands it frees the client up to focus on doing what they do best. Like producing this light transportation vehicles at augusta. And the cost side, we are just more efficient. We bring to bear better processes, and tools, and disciplines, and through our predictive services, we prevent things from breaking, and its a lot less expensive to prevent something from breaking than fixing it after its broken. Ats employees can be found at more than 100 factories in the u. S. , uk, canada and mexico. 16 of them work here at techstron. They work in teams of six to 60 depending on the type of job and the length of the contract. Out for some time weve been hearing from employers how difficult it is to find the Skilled Labor at ats needs and ats says it has been difficult to find Skilled Labor in certain parts of the country, and as a result, theyve had to pay a premium to these workers, but they say nationally, wages have been flat for the past five years, because theres so much slack in other parts of the labor market here in the u. S. Now coming up on power lunch im going to have techs trons side of the story while handing over the maintenance reins to ats was good for their business. Thats coming up on power lunch. Thank you, mary. Lets get back to our very special guest this morning to get a read on job creation in his state in a sense of the Lone Star State economy. Richard fisher is president of the Federal Reserve bank of dallas. Before we do that, though, we teased. I know. Its a big tease. There was a big tease. You used the word significant. Yeah. And we were trying to understand. You could say significant or incremental. It all depends on how the data unfolds. And as far as im concerned, in my own personal view, as ive expressed publicly in my speeches, and also internally in our deliberations, i think things are moving faster. Well see if the Data Confirms that. Thus far the data has been confirming what ive been saying. And so you could say incremental. You could say significant. The point is, if things continue this way, i believe personally that we should move up the date of liftoff. So lets drop it there. I want to drag about texas. Sorry, we cant drop it there because theres at least one more followup here. The market consensus right now is judged for example in the cnbc fed survey, im sure you follow. Every day. Well this only comes out every six weeks. Thats why i follow it every day. Its june 2015 or so. Significantly, does that mean you think its possible to begin raising rates in the first part of 2015 . Personally for later personally . I do believe its possible. And if we continue moving in this direction i believe its very possible. Beginning of next year would be the place you would begin to raise sometime early next year, yeah. Could you explain to us or give us your view on the trajectory which is also of huge interest. Once rates begin to rise, obviously data dependent. How fast do they rise . Its not only data dependent. We also listen very carefully to what were hearing in the private sector. Theres little anecdotal evidence there, too. I use the anecdote of duck shooting. If youre going to bag a mallard you have to be ahead of the mallard. You dont shoot where they currently are. So we have to anticipate. We have to see the direction of the data. The entrails of the data what its telling us. And again things are just moving in the right direction. Thats a good thing. For the real economy. And it has been enabled by uber cheap money, and abundant money. Dont forget the tenyear bond you guys talk about, its still below 2. 60. This is an amazing number historically. We have a guest who was on earlier this morning who thinks it will be at 2 by the end of the year, maybe below. That was relative close, too. In the context of europe. So were an attractive place to be. As you saw in georgia im very happy for georgia. Were becoming more like texas. Its wonderful. But theyre the beneficiary of the fact that we do have labor thats very competitive in the United States now. And china has priced itself out of the market. So were moving back to the northern hemisphere, at least. And were here, mexico, canada, the United States. Were doing better and better and better. Theres a part of the statement that you have voted for that ive been surprised voted for. Its the one that says that once we return to normal employment and normal inflation. Right. We expect rates to be below normal. Do you is that your view that you wont get back to a neutral funds rate even when employment and inflation are neutral . I think thats debatable. And future meetings. And also a considerable time as to how long it will be before we lift rates. These are debating points. These are important. And if and as if and as we change that, that will send signals to the market. I like right now personally sending signals to market through language. I think were doing that. I think the last statement indicated that we are more comfortable than we were before. Thats the reason i didnt dissent. I was quite happy with the language. It was carefully crafted by the committee. Can i ask you what your long run rate is for the fed funds . No. I can ask i cant answer. When we get the jobs number youll be gone before we get the jobs number. I wont be gone permanently. You wont be on the set with us. We should clarify. A couple of economists this morning told us watch that average Hourly Earnings very closely. Do you do that too . I think the employment cost index or the cost of employment is very important. We had a good number came out yesterday. I think these are the things to watch. One of the things im hearing from the ceos that i speak to and you know i survey them very broadly, across the country not just in my district, is people are quitting and looking for other jobs. Socalled quit ratio has been validated by my anecdotal evidence. And then secondly once somebody leaves it is hard takes longer now to replace them. And i think youve seen that in some of the other surveys that have been taken. So, these are good things from the standpoint, shows that theres a more robust labor market. Its not robust enough. Thats the point that we have made as a committee. But things are improving moving in the right direction, the sign is appropriate and proper, and i expect it to continue. Okay, richard. Were going to let you brag for a moment. Texas. About the state of texas and all the businesses there. Im very happy for georgia, first of all. If you really dissect the data that you all put out they still lag us in a couple things. One is use of technology. Were number one. And by the way weve been number one for a long time. Weve created eight times as many jobs for every job created in georgia. Its a smaller state. In the last five years. And if you look at the denominator for unemployment, ours in the number of people that are available to work, ours has grown 13 times faster than that of georgia in the last couple of years. Having said all that, when you take all the little measurements you have in there by the way the cost of living is number one lowest in texas compared to georgia. So they lag us in certain areas but this is good. I have said over and over again, steve, less cal fortunate indication for america, for texasification. George is a great place. Heres a softball. Its all energy. How can you brag about texas economy when theres an energy boom going on. What makes you better above and beyond . Were highly diversified economy. Our leading job creation, if you look at the numbers, texas is blessed with energy. But if you look at business and financial services, the health care sector, believe it or not steve, tourism is a big business in texas. So, we have 24, 25, 26 Million People. Its a large place. We produce the automatic of australia and spain. But look, all kudos to georgia. Id like to see more states do as well as we do. Even if theyre tiny little states like georgia. Did you say australia and spain . Yes. Wow. I love texas. We all love texas. But i want to read you something, this is from the dallas morning news. This because this is the critique. This is the critique among sort of the progressive crowd. Who would say texas notoriously ranks last among states for the percentage of people with Health Insurance coverage, and the share of adults with at least a high school degree. Poverty rate is worse than the national average. True. And the conditions in parts of the state, they say Rio Grande Valley where the Unemployment Rate is in the double digits are certainly nothing to brag about. What do you say about that piece of it . And what that means generationally 10, 20, 30 years from now. This is the thing. Theyre right. And yet, people vote with their feet andrew and we have a rush of people come nothing our state. By one accounting a million californians have moved to texas in the last several years. Last ten years. So, but texas has always been great about low taxes, and frankly low service. But thats been part of thats part of the deal. Thats part of the deal. You dont have to come to texas. You can go to someplace else where the low work is the route to dignity my friend. Having said that, i have been very worried about our educational structure in texas. The need to become the top state as far as education. We are lagging significantly. But you know, we had some discussion about my becoming chancellor of the university of texas system. The Texas University system has a 30 billion endowment and heres a number that will boggle your mind. If it keeps going the way its going well have a 100 billion endowment. We will set standard for higher education, Public Education in texas. Theres a good chance for the next chancellor to set the standard for america. I have to ask you an inside question about fomc meetings. Two guys named fisher on the committee. All we need is about 17 more. When somebodies says fisher do you guys both answer . Well, hes governor fischer, plus he misspells his name. He has a c in there. You have a 30 billion endowment right now . Yes, university of texas system, yes, sir. Whats harvard was because i was just looking im an overseer at harvard. Whats the number . 36 billion. Wow. Now, remember, harvard is one university. But it has 15 hospitals affiliated with it. U. T. System has six hospitals but nine different universities. So its a system for the state. Right. Okay. Very important social role and south texas is where it will play its most important role. Theres some really cool places where there are schools Like University of texas permian bayen. Proud of georgia, good on them. Keep competing for texas. Were going to have more from richard throughout the rest of the hour. Also a deal this morning. Scientific games is buying bali technologies for 83. 30 a share in cash. Thats a total of 3. 3 billion excluding debt. That price represents a 38 premium to ballys Closing Price yesterday. You could see that stocks up by about 34 . Well continue to watch the futures this morning. A lot of red. The countdown to the next test for stocks, the jobs report, right now dow futures down by about 74 points and believe it or not that is showing improvement for the first time this morning were seeing the s p futures down by less than 10 less than 10 points down about 9 right now. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. Frotheres no reasonn average 17 we cant manufacture in shuthe United States. Here at timbuk2, we make more than 70,000 custom bags a year, right here in san francisco. We knew we needed to grow internationally, we also knew that it was much more complicated to deal with. I cant imagine having executed what weve executed without having citi side by side with us. Their global expertise was critical to our International Expansion into asia, into europe and into canada. So today, a customer can walk into our store in singapore, will design a custom bag and that customer will have that American Made bag within a few days in singapore. Citi has helped us expand our manufacturing facility; the company has doubled in size since 2007. If it can be done here in san francisco, it can be done anywhere in america. In a we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back to squawk box. Take a look at the futures. See how the market is setting itself up after a very tough day yesterday. Getting a little bit better than where it was. Still not great. Dow looks like it will open off about 68 points after what was a route yesterday. The s p 500 off about nine points and nasdaq off about 19 points. Of course, we are awaiting the jobs number which is going to be coming to us in just about 45 minutes. Of course we will bring you, take a look at european markets, as well. Youre seeing the ftse 100 off a little over a percent. Everythings off about a percent. Dax is almost off 2 . Italy a little bit less so. When we come back, more from Richard Fisher. Weve been talking to him all morning long. Also at the top of the hour, moodys an letics chief economist mark zandi joins us for the rest of the show. Hell be joined by tony frat owe, Austan Goolsbee and peter bookbar. It is the key number for investors. Well be right back. Monday on squawk box, Group Chairman and ceo harry wilson. Auto sales from autonation ceo mike jackson. And the ceo of trucking giant yrc worldwide. Squawk box starting monday at 6 00 a. M. Eastern. Collection is here. 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. 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. 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 lets get back to our special guest. Dallas fed president Richard Fisher. Weve got some more thoughts from him. And richard, weve got this jobs number thats coming up in just about 40 minutes time. A lot of people are looking at this number. It is expected to be a gain of over 200,000. If that happens it will be the sixth month in a row that weve seen that. Thats the longest stretch since 1997. Thats some pretty strong numbers. We dont know what the numbers going to be. I will tell you this. We do a survey, we have a manufacturing survey, retail survey, Service Sector survey of all the Federal Reserve surveys, the one closest correlation, the highest correlation of all the Federal Reserve surveys, by the way, with jobs, is the one we do at the dallas fed. The rest of them do a better job in certain other areas. So our numbers have been pretty strong and well have to see if that falls through once again with the nations job numbers. But it would be nice to have above 200,000. And again we have to put that together with the employee cost index and some other things. And also see how the longterm unemployed are coming down, which it has been coming down. Now, i think you can go too far on this. Because Monetary Policy can only cure so many things. Without good fiscal policy we cant make up for the skills mismatch. And the lack of education. There are skills mismatches out there. You cant find Truck Drivers in west texas not because they cant just pass the drug test but because they cant do four function math. Why do you you have to read a dial. If youre a fritolay truck driver youre running an inventory on that little truck. Right. So or we have a shortage for example in my district, which is a robust growth district of auditors. Very exciting people, by the way. Of auditors, engineers, i. T. Professionals. Across the spectrum, were seeing labor and skill shortages. We cannot repair that through Monetary Policy. I do think, though, that you are looking at two labor markets. One where you have a hard time finding people with skilled jobs. One without. Right. And it seems to me, past what ive heard yellen and others speak, they think that they have to okay you say its a lack of fiscal policy. But in absence of good fiscal policy, does the fed have to maintain that status to try and make up for what they theres only so much Monetary Policy can do. And i would say this, because right now were going, as you know, we just went through hearings in the lower house about more transparency, and rules and everything else. I wish theyd just do their job. Which is fiscal policy, change the regular whatter to structures. Instead, they pick on us. We are necessary but not sufficient. Without good fiscal policy, Monetary Policy does not work. Thats the job of our elected officials in the congress, the power house and upper house. And those that create the regs, which are congress people. Richard, let me push back just a little bit and give you what some people say the other side is, which is that the biggest threat to this country right now is longterm unemployment. You have a situation where people leave the workforce, never come back, remain permanently on some form of federal funding. Or state funding as it were, and lowering the Growth Potential of the economy permanently. In this scenario the fed would be justified in running a hot economy. Letting wages run. Letting inflation run to a point that brings these people back into the workforce. I dont agree with that. I think if you look historically, if we get employment uber high level and try to cut it back, because creating inflationary pressures, inflationary pressures, every time thats been done, its not a giant sample, fortunately, but weve driven the economy in a recessi recession. You cant overshoot and then try to correct. And if you see the Unemployment Rate go up by 0. 3 and it starts moving in that direction it shifts the way businesses begin to think about their own workforce, and their own future. And it accelerates. I dont buy that argument that we should run an overheated economy to tolerate inflation highly above 2 . Which is our target. In order to increase employment because eventually it gets out of hand. Weve had experience with this before. And its a dangerous place to go in my opinion. We were talking about texas. Just a few minutes ago. And one of the things that kind of occurred to us, what happens with immigration, with the with what youre seeing with the influx of people coming in. How does that affect your state . How do you think it affects the nation . Youre talking about people from california, michigan, new york and United States. Thats a majority of our immigration, by the way. Theyre coming to look for jobs. People coming across the border to look for jobs and for safety. More people are coming from other states than are coming across the border. But it so thats the good stuff. But it is in the headlines right now. Absolutely. We have a massive influx this is the land of the free. My parents came here for freedom. So i understand it economically speaking and thats my job. Im not a politician. Thank god. They can deal with it however they wish to deal for the headlines. But the point is, from an economic standpoint, it should contain costs, by the way. And it can fulfill jobs that we cannot fulfill with our own Education System or that people just dont want to do at the low income scale. So theres a balance here. And i worry about the, you know, the politics of this. The economics of it. I think are to our benefit. But clearly we cant take everybody from the world into our country, because it is the greatest country in the world. But economically it lowers your costs, definitely. Purely economically speaking. Now again there are other issues. Theres all the issues that politicians have to worry about. Thats their job, not mine. Do you have a take or fix on the inversion craze that seems to be taking place . Jack kennedy, one of the most memorable speeches he made is we dont have to build a wall around the United States to keep people in. I dont think thats sensible. Create a better tax regime to use the Monetary Policy that is very accommodative to put our own people back to work do you think thats plausible . Id love to see that happen. Do you think its plausible that will happen over the next two years . I seriously doubt if they do this and push it too hard were going to see more people invest outside the United States than inside the United States. To me it just, its contra logical. You mean just blocking inversions al together . Yeah. Yeah. I mean, why do people do this . Because the tax regime is better elsewhere. Create a better tax regime here and again please drive fiscal policy so that people will take advantage of the Monetary Policy that we made hyperaccommodative to more americans to put them back to work. President fisher i want to thank you very much for being with us this morning. Its been a pleasure. Thank you. I want to thank you, too. Its fantastic. I want to say it was significant. Well, thats very good. Well it could be incremental. Thank you. Appreciate it. What you looking at . Oh, i have to read something here. Coming up, they always do this to me. The final countdown. The hair music thing. Investors keying in on jobs today. Its also Jerry Garcias birthday today. The Government Employment report due out at 8 30. Our panelists standing by with predictions and analysis of economic conditions. Futures were under pressure. Almost halving their losses. 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. Welcome back to squawk box here on cnbc, first in business worldwide. Steve liesman has some breaking news right now. Steve . Philly fed president Charles Plosser issuing an explanation of his dissent earlier this week. This has become common now and plosser explaining that he objected to the language in considerable time period language in the statement saying it was time dependent. Says the pace of bond buying reduction and the language, neither has changed as the economys improved. He said the setting of the funds rate remains behind what i consider, i being plosser, consider to be appropriate. Adding that the economy has improved even faster than i thought last december, when he thought that last december the funds rate should be 1. 25 by year end this year, i can tell you that i looked because i saw this, that the top forecast for the funds rate at the end of this year, is 1 . Im thinking thats charlie plosser. He says were 18 months ahead. 18 thats a year and a half of where the committee thought it would be in december. So, thats interesting, and trying to put that in context of Richard Fishers comments who thinks that if things go the way were going we could have liftoff in early 2015. We have some tape from Robert Fisher earlier this hour. I think the way that weve described being closer to 2 target on inflation, very important. That was in the second paragraph there, and the first paragraph in terms of describing where things were, some wording changes took place. And if you remember, chair yellen just testified a couple weeks ago, so, this is hard for people to understand. Theres a limit to what you can change when you just appear before congress. So its the point is the movement, the gradual movement, and as you know, i feel personally that were closer to liftoff than we were. People felt we were. The market assumed we were, sometime late in 2015. I believe personally weve moved that forward significantly. Richard fisher right here making news saying that we could be significantly earlier. Yep. Early 2015. Charles plosser says we are 18 months ahead of where we thought we would be. We have stronger gdp growth. We have a jobs number coming out in less than half an hour. I thought Richard Fisher was less agitated about the current stance of policy than he had been in the past. I think thats also because he thinks thatted fed was clearly sending signals that the language that came out this is my question. Why is Richard Fisher less agitated . Is he less agitated because as a committee moving up . He also said he thought the committee was listening to him more when he was making his points. Now again hes speaking for himself whats your takeaway, becky . Takeaway, Interest Rates are going up faster than you thought. Maybe. You have to remember these are two people who have been ahead of the curve for a long time. So you go back to, are they ahead of the curve means that they have been early and not making the right calls. They have been urging for a long time for this to happen. They seem to think theyre getting traction now. Well see. And this has got to be, by the way, a big part of why markets are under pressure. Right, exactly. We have been looking at the stock market down again, despite the big declines we saw yesterday, we are not seeing a big snapback this morning. Right now dow futures are down by about 68 points. S p futures off by nine points. If youre just waking up this is not the worst levels of the session. We were looking at the dow futures down by about 117 points at one moment earlier this morning. Joining us on the squawk news line is Richard Bernstein the ceo of the eponymously named richard beern steen advisers. Why have we seen all of a sudden this much concern in stocks . Well, you know, becky good morning, and i think its a number of different things. But i think whats very important is one has to remember that investors had been much more worried about protecting the downsides of accentuating the upside. And any time you see volatility start to rise, i wont say people panic, thats way too strong. But people are very fearful that were starting to replay 2008 all over again. This has been a consistent theme, really, throughout the entire bull market. That we have these spasms from point and point in time where people really start worrying that, uhoh, its all over, and im not protected enough on the downside. And i think thats what were seeing again. Youre talking about herd mentality. As soon as you see somebody moving extraordinary the exit everybody starts to run. But weve also had people tell us again and again that we should get a 10 pullback. Its something that hasnt materialized. Do you think thats the case this time . Is this the beginning of something . Becky, everybodys got their view of the vix and whats going on in volatility and whether it should be a 10 pullback. But theres two main factors that cause volatility to increase dramatically. And sustainably, i should say, in the stock market. One is a lack of liquidity. I think its pretty hard to argue that theres a lack of liquidity these days when most bears have been arguing theres too much liquidity. And the other is deteriorating fundamentals. You just had Richard Fisher on for an hour talking about how fundamentals are improving and people are starting to listen to him on the fed. Its hard to understand how there would be deteriorating fundamentals and a lack of liquidity that would lead to a sustained increase in the vix. Were asking our viewers this morning are you buying or selling stocks this morning and at this point its about 50 50. What are you this morning richard . I wouldnt tell you if i wont tell you one way or the other. I tell people the opposite. I wont tell the opposite but i wont say anything about what were doing in our funds right now. Sorry. Richard, fisher said, could be, if the economy continues to improve, early 2015, rate hikes. The consensus in our survey is mid 2015. Right. After fisher said that the futures improved. Im not saying fisher was responsible for that. Is there a new consensus taking hold in the markets . And is 9 market going to be comfortable dbs p g but they didnt freak out. Right. They certainly didnt freak out. Whats the consensus out there, richard, whats your view and how much does it matter . I dont know what the consensus is today. Because obviously people are rather more emotional today than anything else. But steve you raise a very important point. And the point being that the data are increasingly showing that the economy is not just gradually improving, but maybe improving a little more than gratitude little. I mean incremental improvement, if that makes sense. And i think that thats what people are beginning to realize. I mean, i think that, you know, our story has been that we thought there would be a very elongated cycle here. Largely because of all the uncertainty among investors. All the uncertainty among corporations. Right, corporations do stupid things, too, at the peak of a cycle. Its not just investors and that uncertainty would lead to an elongated cycle. Naturally in any cycle, including this one, as the cycle matures you will see both corporations and investors get more confident, and of course at the peak of the cycle theyll be overconfident. So i think what were seeing is a very normal process from, you know, complete fear to kind of interest to confidence to overconfidence. Okay. Richard we have to leave it there. We got the jobs number coming up in just a few minutes. Cool. Which is less than half an hour away at this point. Consensus calls for a gain of 230,000 nonfarm payrolls. Unemployment seen at i think its 6. 1. Unchanged. Average Hourly Earnings 0. 2 . Lets get right to our jobs panel for thoughts on yesterdays selloff and predictions for today and how the market would react. Joining us now are guest host mark zandi, moodys analytics chief economist, peter bookbar, cnbc contributor tony fratto, Austan Goolsbee is also there from chicago. Mark youre to my left immediately. Why dont you give us your prediction. 210 on payroll employment. Some pieback from the strong government gain last month. I think if theres a surprise it might be unemployment again. I think might go down to 6 . Go to 6 handle on unemployment. The Conference Board survey plentiful jobs. A lot of jobs. People say a lot of so i think it was the first time in the recovery people said jobs are plentiful than are hard to get and i think thats a tell that unemployment can move a bit lower. Peter, what your prediction is but is there a new consensus taking hold about the fed here . Well i think a new consensus coming kicking and screaming. I think the reality of the data is finally waking people up. Weve seen about a tenth of a decline in the Unemployment Rate over the past 18 months. Which just mathematically would get us to 5. 5 by year end. The fed tells us were not going to get there until year end next year. Its the reality of the math that people are waking up to that the feds forecasts for next year are going to be met within the next six months. So what does that mean for policy . Well, weve already seen the bond market take over some policy. The twoyear note yield was 20 basis points last may. It was 57 basis points at the peak this week. So the short end of the curve has already started the tightening process. You know, i go ooh im really scared. A quarter point. Its the direction of change that matters. A mean look what the markets done. Its the level that matters, too. When you create an economy in the longterm. In the shortterm zero rates and qe it doesnt change much of a of a delta to cause an impact. The important thing is the tenyear bond only up ten basis points. I mean thats the key thing for the economy. 2 by the end of the year, right . The thing is is that you check the data. The data have been great. Weve grown 1 for the first half of the year. I think were getting way ahead of ourselves to take the Unemployment Rate when we know theres been a huge change in Labor Force Participation. And interpret that as a sign that were back to the gogo days. I think is an overreaction. I think quarter three quarter, four were likely to come back in at the sort of modest growth rate that we had in the past. Austin weve been at over 200k per month on payrolls for five months. I think part of that was the rebound from the weather in q2, and part of that is our productivitys been so slow, that its translating directly in to job increases, even though we havent we have barely had growth. Fair enough. You got to kind of koupt on that productivity growth being very low for a long time. To be fair. Thats fair. But i mean what matters for fed policy is whats happening with the slack in the labor market. So, you know, if, in fact, underlined productivity growth is slow and slowing that means we are going to get jobs, the job market is going to tighten more quickly. Were going to get more wage growth and inflationary pressures. If we get the wage pressures. Lets break up the twins here and see if we can get tony fratto going. Thanks, steve. Give us your take. Between tony and between austan and mark. Are the numbers really that good or overstating it . I think theyre better. I think theyre directionally better. We get caught up talking about the rates of improvement versus levels and we still have a lot some ways to go on levels but the argument that weve been having for really a couple years now is, Labor Force Participation and the rate is, you know, is this structural or cyclical. And were going to test, you know, the theories on that. Im more in the camp that its more weve created some structural restraint in the availability of, you know, workers here. And so were going to test wage price a little bit sooner than we expected. Others in the camp that its more cyclical, and theres more slack there. And so we have a little bit longer of a run time. So, you know, were going to test that see we should see it in the evidence of wages over the next, you know, four to six months. And that will tell us a lot. But were bullish on where employment is going to be this month, and in this period. I think weve stepped it up to, you know, from growth with a real lack of conviction, we went through a long period of growth, with a lack of conviction, and i think were stepping in to a period of growth with a lot more conviction and thats going to result in greater employment. Is good good or is good bad . Well i think good is bad in the sense that, the fed is needs to reduce their accommodation. Zero Interest Rates is wholly inappropriate to the economic environment were in. Qe was a trillion dollar annualized program in 2013. It is going to zero. That is a form of tightening in my opinion. Then the Balance Sheet is going to start to shrink. Theyve medicated us on this medicine, and its going to reverse. So, that causes a revaluation of asset prices. Because thats what the easy money has done. Its obviously lifted asset prices and we need a revaluation of that when that starts to go away. Thats a huge debate in the market. Well get the other side of that argument when we come back. An allstar cast when we come back. Of course just minutes away from the july jobs report. Here are the futures ahead of those numbers. Were going to have more Market Analysis when we return. Lets turn back a little bit worse than it was before but better than the beginning of the program. 75 dow looks like it would open off. 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. I research. I dig. And dig some trader more. Search. Because, for me, the challenge of the search. Is almost as exciting as the thrill of the find. announcer at scottrade, we share your passion for trading. Thats why we rebuilt scottrade elite from the ground up including a proprietary momentum indicator that makes researching sectors and Industries Even easier. Because at scottrade, our passion is to power yours. In a we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back to squawk box. Lets get more on this mornings market moves after a crazy day yesterday. The senior commodities trader at ii trader joins us now on the squawk news line. Help us here a little bit, rich. Your sense of what actually drove the decline yesterday and what it means for today. Listen, i think you got to key on the rates as we see Interest Rates and yields on the tenyear move higher, i think that was the onetwo punch, if you will. We know georisk is certainly out there as situations escalates and the situation with russia. But i think the rate issue is on everybodys mind. We came into the market short last night. We wanted to see some follow through with, you know, with the dax and were seeing that down 2 . Now, we have some technical damage in the marketplace, and i think this is overdue. You know, this market needs a correction. Exchange of, you know, funds, and a pullback right now were targeting about a 5 pullback from the high which puts the s p down into the mid 80s. So so rich if youre watching at home this morning and youre condemn dating calling your broker to say buy youre saying wait. I think its going to get worse. We were on fast money yesterday, we noted that the vix was, you know, six month highs. Basically with the vix as high as it was into the close yesterday, indicated another 1 to 2 . Were already seeing that. I think if we get a really stellar jobs number and this is going to sound bizarre, if we get a good jobs number the market continues lower because its now good news is bad news and rates are going to have to come up and we know that weve got some statements out of plosser, i know hes a hawk but hes indicating the fed position is inappropriate. Rich, thank you for this. Im with you. Im of the view that bad news is bad news and good news may be also bad news. Thank you for joining us this morning. We will get that number, of course, in just about 12 minutes. Steve . Up next final predictions on the jobs market. Make sure you play along at home. Who are you putting your money on to be the closest to the jobs data, mark zandi, tony fratto, Austan Goolsbee or peter book bar. Come guys, small. So serious. The right call by voting in our realtime poll. Cnbc. Com vote. And get this is taped. Oh, its taped. Its a real vote. Its a real vote but thats not them. I thought that was them. See squawk box will be right back. First day of my life by bright eyes youre not just looking for a house. Youre looking for a place for your life to happen. 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. Were just a few minutes away from julys jobs numbers. Turning back to our panel right now we want to get their predictions. Our guest host mark zandi, moodys analytics chief economist. Peter boockvar, chief analyst at the lindsay group. Tony fratto, and Austan Goolsbee who is a professor at chicagos booth school of business. Guys, lets go through this and get your predictions from each of you. Peter i think youre at the low end. 205. I think just giveback from the prior months strength. But still 200,000 will be good, not great gut good enough to get the fed to back off from what theyre doing. All right. Weve got you as the shark thats just starting to come out of the water. Who should we go to next . Mark what are you looking for im looking for 210. I think the underlying trend is 225. You guys are a little bit below because tadp was a little bi soft. Were all focused on wages and wage growth yesterday the eci report so we should be focused on that. Austan youre coming in at 232,000. Why . Well i think were getting the slow productivity growth, and weve got a little of the bounceback from the weather starting to phase out. So i think around consensus but with the Unemployment Rate dropping just a bit. Steve youre quite a bit higher at 270,000. I need to explain myself. I usually have the ism data before i do my call. Those are two of my five components. I only had three of them. Heres my guess but it may be lousy go ahead. Well tell you the model has been spot on the last two months. Right at 260. So i have to go with claims and adp and the prior, those are the big three of my five right there and the claims thing is off the charts. Yep. The claims at 296 average for the month, is telling me 300,000. I backed that off somewhat. The priors and obviously the adp is 218. Claims, adp and and the prior three months. Whats everybodys sense if any of these numbers come in what the market does as a function . Before we lets get to tony, too. I apologize. You are the shark jumping out of the water with the very high end here. 320,000 . Yeah. And let me, if steve gets to qualify im going to qualify that making i never make predictions on jobs, and i dont because i dont like making predictions on numbers that get revised two or three times. But let me just say this we put a lot of emphasis on where claims are. I think the numbers that the claims numbers have just been too good for too long and plus i do think theres some really strong pentup demand from the First Quarter thats still has to work its way through, and has worked its way through in this in the previous andrews got i also feel comfortable with it because that jobs plentiful number in the Consumer Confidence people have a really good view, i think, of what the job market is like. Its something they actually know about. Whats the job market like in your industry and they say its plentiful, i think thats real information. Andrew had the great question. Lets say any of these numbers come in . Good news is bad news. If were well above consensus good news is always good news. News is good. Im talking about the stock market in terms of the Immediate Reaction today. I dont understand actually. Markets need to price based on good information. Theyre going to get information, and whatever the number is, theyre going to have to, you know, reprise where they think the future is. So i dont i never liked thinking of news as good or bad for the market but in terms of the market, equity markets, theyre going to have to price based on what they think the future is. I guess my question is does the market look at stronger jobs number as good news because the economy is improving, or do they look at it as holy cow wait a second this is going to force the fed to act more quickly than we anticipated. Both. You think both . A lot of the hawks that are being the most vocal are themselves going to phase off the fomc next year. So i dont think we should necessarily conclude too much from what the hawks say. I think if you look at the sources of growth, and the rebound of gdp, you still have a way disproportionally strong auto sales number, which is probably not sustainable. Its just some bounceback. And you got very strong inventories number. So i think people should be a little mindful before just thinking hey, we totally turned the corner. Well i think we have turned the corner. I think in the sense that we were in a 2 world, six months ago, nine months ago, we are now in a 3 world. And i think thats the message in the jobs data and its pretty consistent. I hope youre right. I think that thats a little high. But i hope thats right. We should point out our poll has closed at this point but peter you have folks on your side in this poll coming. Theyre looking for numbers on the lower end. 45 . You came in at 205,000. Our panel is going to be back for reaction to the jobs number. We do have some news thats just hitting from citigroup. The s. E. C. Has concluded that investigation of Mortgage Securities practices without enforcement action. Well have more when we come back. Coming up the numbers, the july jobs report in just a moment as we head to a break. Take a look at u. S. 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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. 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, everybody. We are just a few seconds away from the employment report. Weve been watching the futures. They have been under pressure. Right now eamon javers from the labor department. 209,000 Unemployment Rate. Ticked up to 6. 2 average Hourly Earnings edged up by one cent to 24. 45. Private sector job growth at 198,000. Now some of the revisions here. May employment revised up from 224,000 to 229,000. June, also revised up from 288,000, to 29,000. So total job gains in may and june were 15,000 higher than previously reported. The Labor Force Participation rate also a little changed at 62. 9 . The number of longterm unemployed was 3. 2 million. The total number of Unemployed People changed little at 9. 7 million. Now for some of those key sectors. Professional and Business Services added 47,000 jobs. Manufacturing added 28,000 jobs. And retail trade employment rose by 27,000. This is the sixth straight month that job gains have been over 200,000. Guys. With that nonfarm payroll number up 209,000 in july. Back to you. Eamon, thank you. That six month streak is the longest weve seen going back to 1997. If you take a look at whats been happening with the stock market, equities futures are responding positively to this news. Its above 200,000 but its not hot news. Thats probably goldilocks scenario in the middle of the markets. Futures again paring their losses through some of this. The tenyear at 2. 5 . Down 35. Below fair value is where the dow sits right now. When we looked earlier we were down by as much as 117 points below fair value coming off the big losses from yesterday. Well continue to see more on this. Lets bring our panel back and get more reaction to the data. Rick santelli is joining us from the cme. Mark zandi, Austan Goolsbee, tony fratto and peter boockvar. Lets get reaction from rick. Whats been happening on the floor in reaction to these numbers, rick . Not a whole lot. Most people expected a weaker number. Theyre pretty conspiratorial down here. Too hot isnt good. Too cold isnt good. So its right in the middle. So we could continue to propagate the Federal Reserve activities, many traders down here pointed to the steepening yield curve. So we see twoyear notes backing off. We see stocks rallying and of course rallying from an unchanged mark with respect to the dow. Steve, what did you see that jumps out at you in this report . So theres a lot of softness in this report that i think is kind of interesting here. Obviously the increase in the Unemployment Rate. The muted increase in average Hourly Earnings. What was that . I see here earnings per hour went up all private nonfarm workers. Its zero percent chance. Now theres the one on the nonfarm production workers is up zero, too. Thats the one you follow. Thats consensus. Household survey . Thats what i wanted to talk about here. The workforce increasing by 229,000. Employed up by only 130, and the unemployed up by 197 in part leading to part the increase in the u6 by 0. 1 Percentage Points to 12. 2. And 27 weeks or longer going to 31 3. 1 million so that went up. Those longterm unemployed went up as well. Let me just take a look at hours here. So overall pretty good. Overall pretty good. Theres some theres nothing in here that says to me that the fed really has to accelerate all that fast because, the slack was not really taken up, and we get the slack from the household survey. By the way, we should give props to piotr. Our viewers were right. Didnt i say 210 . No youre right. I thought it was were playing by price is right rules. Closest without going over. Closest without going over. Price is right. You never see price is right . No. The show. You go over you get kicked out. Price is right . All right. I think zandi came in closest at 210. Hours unchanged at 33. 7. So thats not huge. Good. In terms of not not a big what happens to gdp right now . Well i think were tracking around 3 for q3 gdp. 200,000 lets put this into context. Anything over 200,000 in job growth, at that pace of job growth, even given normalized Labor Force Growth the Unemployment Rate is going to come in, you know, 0. 5 , 0. 6 per annum. Were growing at a pace double the rate of normalized Labor Force Growth. This gets back to the fed. The policy is way out of whack with reality to the data. The problem is the data is not great but its good enough that they need to remove what theyre doing. Depends on what you think how much slack is out there. If you think theres a 1. 5 , 2 points in the labor force in slack which i think is the consensus view and you take my growth projection were not back to full employment until late 2016 in. In that context whats your take here . Does the fed need to move yesterday . No, definitely not. What mark said, i agree with. And i would just point out. This is a first job number thats coming after what was the q2 growth. Which we know was strong. So thats why this month, next month, and the month after, what its telling us about end of the year growth, i hope marks right that growth gets up to 3 plus. But im afraid that its not that. Because if you take out the pentup demand on autos, and you take out the inventories, were back down to like 2. 5 and 2. 8 in which case the job markets improving, but its improving relatively slowly, so the feds approach of slow phaseout is probably right. Austan i thought i had you converted. What happened . Where did you go . You were on my side. You were like growth is here. This is peter. Data happened. Do you really think the fed should wait another year. I think the fed should do what theyre doing which is slowly phasing out. Interest rates is appropriate in the u. S. Economy right now . Theyre slowly tightening. If were only growing 2. 5 yeah they should not tighten sooner or theyll drive us into recession. Behind the curve for five years of this recovery. They have lagged why would you cut off because you could potentially mute economic why would you cut off dont be made more economic thats his argument. Let me say this there is going to be a major reaction to an Interest Rates normalized. Whether its next year, whether its in 2017, 2018. Not i argue the sooner we do this the better. Policy in my opinion, theyre still printing money, even though its going to zero theyre still printing money and they have zero Interest Rates. We had 200,000 plus job gains for six months in a row. The Unemployment Rate has fallen from 7. 9 to 6. 2 . This is bad policy. Theyre repeatings mistake of the 2000s. Keeping rights too low for too long and this will not end well. Rick, i pretty much agree with peter. I dont disagree that the fed could get the timing and the scope and the measured pace on this right. But, if this is the trend if this is what were looking at, i was expecting bigger numbers and a little bit more rapid recovery here. But if thats is what were looking at the pace theyre on is probably just about right to continue to unwind and do it in a measured way. If i told you the slack in the lake market if these are the facts that theres 1. 5 to 2 Percentage Points of slack in the labor market, and the inflation rate is below target, you know, its up and down and all around but below target, what kind of Monetary Policy and weve come through the worst economic crisis in since the great depression, what kind of Monetary Policy would you be following . Youd be following i agree that the economy is only mediocre. Im just saying that Monetary Policy doesnt match up even to mediocre. This is the druckenmiller test, the idea that youre much closer to normal on the economy than you are on policy. And i think, its unfair i think to peter to say, just because you think its should be a little bit higher doesnt mean you think it should be all the way higher. Okay. Just because you think youre off from where they should be doesnt mean theyre way, way off from where they should be. Im interested in how the market would set the rate right now, in the absence of qe for example. But this is working and i dont know that in this environment it would be a whole lot more. But i think youre right. It would be the real rate would be positive. Even if the real rate was was zero. The fed funds rate would be at 1. 5 to 2 . This is so say two months ago we would have said the first rate hike is going to be in august of 2015. A month ago we would have said its july 2015. With the data were saying its may 2015. The tenyear bond has dunham from 2 i think were kidding ourselves. Thats not the right script unfortunately. The first half of the script itself were fighting the perception of what the script not what it should be or shouldnt be but what it is. If were getting back to following the tenyear on this thats where we want to be. The tenyear is going to lead on this and will do that. You should be telling tenyears, right . The first half of the years growth was only one percent if we had raised the rates six months ago i think wed be talking about maybe we shouldnt have done that maybe we drove us in to mild recession first half of this year. Guys, how much of this is out of our control though by raising rates how much of this is out of our control because when you look at us relative to where you see bonds in europe, and some of the other developed nations, some of this we can control some of this we cant. Declags from europe, spanish tenyear yields being below u. S. Earlier depressed because of all thats going on overseas. Right, yeah. It may be part i think one reason why the tenyear is where it is is because the chinese right they were nervous about their growth rate so they were trying to lower the value of the yuan. Has nothing to do with the sub normal growth at all. And by the way, we can get help on the inflation front from overseas. Weve gotten it before. Some people believe deflationary impulse is coming out of europe. Weve seen for example some of the commodity baskets have come off quite a bit. For example whats happening with oil right now has been something that okay lets say you get first of all one other thing people dont make a mistake just because wages go up does not mean its inflationary. People talk about wage inflation. The actual phrase should be wage induced inflation. Wages can rise. And i can tell you that the fed chair believes wages can rise around 3 which is a full percentage point higher than theyve been rising, and it not be inflationary. Peter do you disagree with that . In an ideal world we want to see real wage growth. Unfortunately i dont think thats what were going to get. Wages are going to follow the rate of inflation in my opinion and possibly further drive it. Its inflation thats going to move the needle on wages. But you live in a world where p government got 1 million applications for 3,000 jobs. World wide but im guessing the ratios were not crazy here in the United States. We have the quickest pace of compensation in yesterdays eci since 2008. The trend is higher in wages and that was off a huge base of the First Quarter. Services inflation huge declags. Services deflation ex after month after month after month. People want to call 2. 5 inflation not inflation i disagree. If we absorb the labor slack, if unemployment is 5. 5 and we get people back in and people working parttime for economic reasons working fulltime were going to get real wage growth, right . History is pretty clear on that. And in fact we should get real wage growth because for the last five, six years, real wages have been zero, in context of rising productivity growth. So that doesnt make sense. I hope wages go up. And thats the thats the dynamic thats prevailed historically. I think what people have to understand is fully what the fed does. Is that their policy doesnt create anything new. It doesnt create anything that wouldnt have happened on its own. All they do is pull forward. We pull forward economic growth. We pull forward the rise in asset prices. So for whatever reason this fed policy reverses, whether its slow, or quick, theres going to mean adjustment in asset prices. Whats the adjustment look like . I think give us the correction. With qe over, and looking back the last two previous times when qe ended, and now that rates are actually going to go up, sooner than people think, this correction is going to be 15 to 20 . Just as we saw 15 to 20 now . I thought it would be 15 to 20 beginning the beginning of the year. But, this is the beginning of the correction. And if this is the beginning of a tightening cycle that continues for years, this could be the end of the bull market. Can i make a point . So Monetary Policy does pull forward economic activity, and did juice up and dramatically pulls forward asset prices. Qe did work in that sense, right . So if you told me it only works on the upside. If you told me that qe juiced up stock prices by 10 to 15 above where they would have been otherwise im on board with that. What that means is argue a lot more than that. Over time. Doesnt have to come out all at once and it probably wont. Hows how leveraged the Financial System the markets are it potentially can happen quickly. A lot quicker than people think. When this kind of the qe driven market is not a methodical direction. Austan, what were you going to say . The feds forecast, the cbo forecast, have rates going up Something Like 100 basis points a year for the next several years. I think if thats approximately the rate i think the market is fine with that. I want to talk about real people here. This is my count from yesterday before this number came out. These numbers, because the u6 went up are worst today 9. 5 million unemployed, 2 Million People marginally attached. 7. 3 million or 5 Million People working part time for economic reasons. Thats 19 million americans un or underemployed. Now you tell me in that context, peter, and i know youre a good person, you want to tighten policy to keep these people from getting back to work. Lets take the Housing Market. In the feds infinite wisdom to help the Housing Market weve driven out the firsttime home buyer. Because we priced them out. So if you own a home, youve been better off the last couple of years. But if youre a freshly minted household and you want to buy a house, the fed has priced you out. So lets argue that we need lower home prices in order to bring back the first time home buyer, which would actually help the Housing Market. It would cause more houses to be built. The price of the home is irrelevant if they dont have a job. Whats the transmission mechanism between zero Interest Rates and a job . What is it . You would argue, its capex demand would be one. No capex demand has been awful the last couple years. And when i went to college it was savings equals investment. Not zero Interest Rate back to prerecession levels thanks to subprime loans. Stock prices are up. I agree with you its temporary and pulls it forward. Tony lets get back to real people. What kind of pressure is the fed he makes an excellent case for at least coming to a neutral funds rate. Neutral real rate. What kind of pressure does the fed face from washington . Pretty much the same pressure that theyve dealt with for at least the last year, right . Which is a real urge and a need for sharper growth that theyre not seeing. But also that theres a lobby here for on the lookout for inflation. Im not saying its not backed by some, you know, sound judgment on what the future ought to look like. But we havent seen it yet. You have Richard Fisher hon who has been the spokesman for this view for a long time. He has been saying for a long time that its midnight. And maybe we are getting closer to midnight. But were not really seeing it because of those numbers. Those numbers are unemployed i still like to think about them as a share of you know who is actually looking for work. We really you know we have to think of the Unemployment Rate as real and how that affects the feds thinking and wages and thats really where this is going to come down to. Until we see movement on those two numbers sharper movement the feds that going to make not going to make any big moves. I look at the numbers, looks like the market feels like it dodged a bullet. Yeah i think thats certainly the case. Futures have been bouncing around an awful lot. If we take a look at the board one more time that shows you where futures are matching up against fair value you see that the nasdaqs turned positive. The dow futures at one point were down by more than 100 points below fair value from where they were. Theyre down only 13 points. S p futures down by one. And again i think this was a case of not too hot, not too cold. I dont think the market wanted to see extremes in either direction and i think what youre watching right here is just kind of things settling out a bit. You have to remember we were coming off a very steep decline yesterday the dow was down 317 points yesterday, s p was off by 2 but this is not nearly as bad youve been concerned all morning about the followthrough. Yeah. That was your number one thing. You dont see a bounceback. When you see the market down over 300 points and down another 100 points the morning thats when you start to get concerned the jobs. Maybe it wont be the jobs today as in it maybe the jobs issue whether everything that was on the table yesterday and im not sure yesterdays move certainly faster than what i will say is that this tells me that yesterdays move in the markets was related to the fed long positive guys fed was going to its all part of nothings changed geopolitically and you still see futures kind of turning around. The faster than expected acceleration by the fed eased off a little bit. Yep. Thats what these numbers mean to the markets i think at this point. I want to thank our panel today. Gentlemen, thank you all for joining us. What a great panel. A major legal question answered at citi. That story and other headlines. Well talk more about the jobs report when we return. Please come back. No question about that. But your erectile dysfunction that could be a question of blood flow. Cialis tadalafil for daily use helps you be Ready Anytime the moments right. You can be more confident in your ability to be ready. And the same cialis is the only daily ed tablet approved to treat ed and symptoms of bph, like needing to go frequently or urgently. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. Do not take cialis if you take nitrates for chest pain, as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. 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The market was able to say we now have six months in a row of plus200,000 job growth, the longest stretch weve seen since 1997. A weakerthanexpected number but better by historical standards. And the fed says, this is exactly the forecast we want to get to the mrapath of normalizan we put in place. I think the market is going to be focused not on the number of people coming into the workforce but the amount of slack thats out there. This told us, theres a lot of it. The key is the wage growth. Yesterday we got that very important employment cost index. Thats the most comprehensive, consistent measure of wages and compensation. It was on the high side. But if you extract and look in over the year, its still 2 . When we come back, we have earnings from chevron and a deal in the gaming sector. In a worlg faster than ever, we believe outshining the competition tomorrow requires challenging your siness inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back to squawk box, everybody. The futures again improving drastically after we got that jobs number. Report of 209,000 jobs added for the month. That was below expectations but still above 200,000. Seemed like the market liked that just fine. Check out shares of chevron. The oil giant reporting earnings of 2. 98 a share. Two cents better than expected. Also shares of Bally Technologies is soaring. Its a big premium. The stock is almost all the way up to that level. Well look at that a little later today. Scientific games, that stock up as well. Coming up, mark zandi wraps things up on this interesting jobs report day. 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. 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. Who dont have electricity 400 Million People and i just figured that its time i do something about it. What were doing right now, along with ibm, is to actually transfer data through a satellite from our wind farms directly onto the cloud. I think we could create a far more efficient system across the whole network where we could actually draw down different kinds of energy based on when its needed by the consumer. A smarter Energy System is made with the ibm cloud. The ibm cloud is the cloud for business. 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And by the way, i was 1,000 off. Even with this price youre right thank you, steve, for being here. Make sure you join us on monday. Squawk on the street begins right now. Right now, good morning. Welcome to squawk on the street. Im david faber. Jim and carl have a wellearned day off. Lets give you a look at futures after yesterdays drubbing on the broader averages. The s p is looking down ever so slightly. And lets also take a look at the tenyear note yield. Perhaps it was the prospect of higher rates yesterday coupled with a lot of concerns that brought us down 2 on the s p. Down ever so slightly in terms of the tenyear