Transcripts For CNBC Squawk Box 20170719

Decemb december k putting together two companies that in terms of programming are similar. Its not like were going from one network that does reality or that type of programming to sports or lots of scripted work or whatnot this is putting those two things together the question is are you better off putting those two together or in this new age of media trying to go into scripted gore into a premium thing scripted. Scripted. But this has been bandied about. For a long time they were two sort of theyre not like outliers that deserve to get together. If it was going to happen, would put these together for scale thats where the synergistic value is some analysts would question this how much more power does a discovery scripps together have in terms of carriage agreement Going Forward . How much value proposition, if you want this channel you have to take this channel that was more scripps problem than a discovery problem zaslav yesterday admitted we are managing through the new times, daunting for all Media Companies, but the oldtimes were great the dual revenue of the cable, advertising. We will deal with what we have to deal with now in this new environment. But the old days were great. Its tough its tougher now tougher to grow, tougher to set yourself apart and Everything Else talking to him about we got this on facebook, this on snap, any of it making money some day you know, a lot of eyeballs. A lot of eyeballs. But its not the business. Maybe it will be eventually. This is why its tougher. This is why facebook or more snap or twitter could ultimately have create a cablelike model where they actually end up having a carriage no guarantee. This is not something that Mark Zuckerberg is preexposed to becky is not just off today shes working on assignment. Her birthday, she didnt tie one on, right . On assignment she fsh shes not just off, oh, my head when we say joe kernen is off its so bad where you cant sleep. You need to sleep, but the hangover god, i wish i could sleep. God, i cant even sleep. You feel that, right no i try not to. Not during the week i know what you mean. Other deal news, mccormick is buying Reckitt Benckiser Food Division for 4 4. 2 billion that move adding products like franks red hot, cattlemans Barbecue Sauce and french mustard to the portfolio the deal coming three months after Reckitt Benckiser put its food unit up for sale. And another deal to tell you about. Tower operator crown castle buying privately held lighttower for 7 7. 1 billion in crashash. It helps expand the fiber footprint in the northeast i wish i had thought about the Tower Business a private company, 7. 1 billion . Here we are. Another mistake blah, blah, blashgs h, letst up some towers 7 billion cash are two guys splitting that . I think private equity at this point could have been us. Could have been get your amex card out. We could all go in together. Lets check on the markets and where we stand yesterday record highs for the s p as well as the nasdaq. Nasdaq on a winning streak here. Looking to add to that up by 21 in the premarket dow jones lose being 4 points. S p losing about 2 in ashark its been greia, itss across the board the biggest gains in shanghai, up 1. 4 . Over in europe, the session gets underway green arrows except for spain. That is down by a half percent the crude picture influenced by inventory numbers, but still within the range 46. 56 the trade on wti, brent higher by just 22 cents at 49. 06. Harkening back to what we were talking about at the top with all these snaps and facebook, et cetera, news out from our Parent Company, Nbc Universal. Nbc news is launching a show on snapchat it will post two news shows each weekday lasting three months a piece nbc assembled a staff of 30 people for the show that will be shot at the newsroom in 30 rock. It will sell ads and share revenue with snap. You may or may not know, Nbc Universal made a strategic investment in snap at its ipo which included a partnership to create more for the snapchat platform and one of the big numbers out last night andrew or melissa, in the tech arena, ibm. Is that still thats tech absolutely. Servers, sure what chltwhat call that. You look at the last 21 quarters it is tech but its old tech. Legacy, mainframe theyre dealing style with trying to 21 quarters. You figure the business would shrink revenuewise. You pointed out theyre trying to weed out Ginni Rometty would say we are trying to get out these empty calories we want higher value calories. You saw that chart. Did you check out the tax rate yeah. One of our friends sent it to us, said they already had tax reform yes cut Corporate Taxes down to much theres the revenue. I said i was going to figure out how many years 21 quarters was i did not do that yet. I figure its five times four, five years lets talk to someone. The tech giant reporting a drop in Revenue Growth for the 21st straight quarter not a drop in Revenue Growth its an actual drop in revenues. Right . Mmhmm. Not a drop in Revenue Growth. Its a drop in revenues. We can say it. Ibms first Quarterly Report since Warren Buffett announced selling a third of the stake in the company. Joining us is james kissner. Does the explanation that the company has put forth 21 times does it still hold watt er you may know i have an underperform rating. I look at this quarters results, not a lot changed it was consistent with history. They missed revenue expectations, adjusted down 3 though they beat optically on the bottom line. Taxes really helped. If you back that out, thats 18 cents. Then in addition to that, looking at the ip income stream, thats been thats not a sustainable revenue stream thats been elevated as well if you back that out, we think the sustainable earnings power is 2. 60, below the 2. 74. We think the Earnings Quality continues not to be impressive yeah. Could anyone have managed this environment better than Ginni Rometty . Was she dealt a hand where shes playing the best cards that she can . I think the company missed some opportunities if they had been aggressive and acquired sales force years ago, that might have been something they could do. At this point the ship has sailed i think they admitted a couple years ago that the transition to the public cloud, amazon, azure, they expected a sloer trawer transition and they got caught flatfooted. Given the market developments, they didnt play their hand optimally. How do they keep lowering the tax rate at ibm . Thats complicated accounting they themselves say they cant forecast these discrete items. I might quibble with how they choose to flow those through reported earnings. Its a big complex company things change quarter to quarter. Because they flow those tax changes through the operating eps, its hard to predict. We think thats reflecteding poor Earnings Quality. A lot of Companies Might choose to pro forma that out. Thats how they report it. Lets be clear, the tax rate on ibm now is mid single digits, which is greatly lower than the vast majority of the other Companies Paying out if you jack that tax rate back up to what it has been historically, lets say for argument sake 15 , what does that do to earnings . They said if you back this discrete benefit out it was back close to 15 that was the book rate they call it the underlying tax rate. Backing that out, there was 18 cents of benefit from that they reported 297, they get you closer to 274 of consensus if you back that 18 cents out like we said, we think the Earnings Call here, if you back out income as well, its below the street you have yun perfohave under, too, right thats correct. So do you i like the way that works if the market goes up a lot, ibm can keep going up. This will not be as good as the market can i ask you where you think the stock should be . What you think fair value for ibm given the way its being run and given the future environment, what is it . Is 150 fair . O our rating is an absolute rating good for you. Yeah. Our price target is 125. Wow thats nine times earnings, just given the earnings trajectory, the poor Free Cash Flow yield that is 6 . Thats not attractive for a company that had declining earnings heres the thing james, anybody out there trying to short this stock over the past several years has gotten burned, in part because its been a dividend story, its been a Share Buyback story. Buffet got into the stock. So those who were playing this fundamental game they havent lost money im saying if you you havent lost money. Youve not made money they paid out the dividend, too. If you bought that company and shorted it even when it was 190, its 150 today, you have still not made money youre right. My question is when you think about if youre long you havent made money either. I agree with that actually youre probably you probably have not you havent made money but you havent lost money thats the funny part about this stock. My question for james, when you think about it going to 125, what kind of timeline do you think thats on . If youre a short does that make sense right now . We have a oneyear target thats when we think it will happen most clients that do short stocks are net neutral or net long theyre long other things. They make money on the spread. I would say a big chunk of the performance last year is all cheap stocks, value stocks, dividend stocks rallied. James, before we before we let you go just being generous about this if you look at the Free Cash Flow, it grew 2 2. 6 billion, up 23 from a year ago. Up 136 from last year do you look at that and say theres a good sign there . What about the potential of watson part of me desperately wants to believe watson is going to save the day one day. Okay. In Free Cash Flow, its lumpy. Cash flow is important for the company. But theyre guiding flat for the total year that reflects a modest mid single digit Free Cash Flow yield. Watson, we wrote a 50page piece last week on this. We spent a lot of time on it we think that watson is not going to Movement Needle the whole Cognitive Software market for Artificial Intelligence was 1. 5 billion last year. That will grow as we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment, ibm is an expensive solution they expect a lot of Consulting Services to be attached. Theres a ton of competition out there. Looking at the war for ai talent amazon has ten times the job listings that ibm does we think it will not move the needle the competitive environment does not favor them here. We dont think watson is the saving grace to ibm. Its nice you give credit to watson he doesnt give a crap for you he has know emotion. Some think theres a lot more to it youre clinging to your humanity you need to let that go. Hes a machine you wont get any type of if he takes over the world youre sucking up to a computer kiss up to the computer now you always cover your bases got to kiss the ring. With watson youre right, he can turn off your life support. Hes probably listening now. Hes always listening, hal. Theres a reason hal was ibm, go one letter back, hal james can tell you that. Hes worried about what watson will do to him. Yeah. If he goes after anybody, it will be you, james, 125 price target. Political news to bring you. President Trump Holding a lunch meeting with gop senators in a lastditch effort to repeal obamacare. Eamon javers has the latest from washington tough day for republicans yesterday on healthcare as it became clear they wouldnt have the votes in the senate to pass the repeal and replace effort theyve been working on. The white house trying to regroup today. They invited all republican senators to a lunch that will happen at about 12 30 this afternoon at the white house to plot out next stops. The president had the opportunity to talk to the media a lit yesterd a little yesterday here is is how he described healthcare as it all went down im certainly disappointed. For seven years ive been hearing repeal and replace from congress ive been hearing it loud and strong when we finally get a chance to repeal and replace they dont take advantage of it thats disappointing im very i would say im disappointed in what took place. It will go on. Well win. Well win on taxes well win on infrastructure and lots of other things the president suggested yesterday that the best course of action at this point might be to let obamacare fail. Then he suggested that the democrats might come to him to want to renegotiate. He said he is not going to own this political defeat. He wont own the failure of obama care politically and republicans are not. Some reporting yesterday afternoon about a second encounter between President Trump and Vladimir Putin, the russian president in germany at the g20 a week or so ago heres what we know about that meeting which was not previously disclosed by the white house it occurred at a private dinner guring tgu i during the g20 for World Leaders and their spouses only trump was not accompanied by staff, it was him, Vladimir Putin and the russian translator the russian translator was the only other person on a staff level who participated in that conversation as far as we know the president suggesting the reporting on this is much to do about nothing. In a tweet he says fake news story of secret dinner with putin is sick. All g20 leaders and spouses were invited by the chancellor of germany. Press new. Thats not exactly correct the press did not know the president had an encounter with Vladimir Putin at the dinner theres conflicting reports about how long it was, ranging from just a few minutes to nearly an hour in the scrutiny of the Vladimir Putin and donald trump relationship, a second encounter between them at the g20 is of interest other World Leaders were reportedly surprised by the interaction and it was plain to those leaders that putin and trump were spending quite a bit of time together well wait and see what the house has to say about that for the rest of the day today. Okay. Eamon javers three meetings now is that what were up to yeah. We know there was the encounter that went long at the g20. Then there was this one. There was an initial handshake meeting. So thats three encounters at the g20 that we know of. That different than the meeting i heard ian bremer talking about . This is the one the second one at the dinner that was by bremers account, an expert on International Affairs and involved in think tanks, reported this yesterday for the first time putin and rose had this nearly hourlong encounter as he describes it the white house not giving us an indication of how many minutes it was there is no official u. S. Government readout of this normally if theres a pullaside at the g20 or a formal encounter, we will get something from the state department about why they were pulled aside, what the objective was. In this case we dont have any of that. Okay. Eamon javers, great to see you you bet coming up, housingings repo market agenda and United Airlines posted an Airlines Beat but theres a warning about Third Quarter revenue. Oscar munoz will join us at 8 00 a. M. Eastern time. Stay tuned its so. Quiet. Is it, too quiet . Its awful. Yeah. Feel at home, pretty much wherever you are. Tmobile is americas best unlimited network. Welcome back to squawk box. Joining us now is karen calf kne cavanaugh and sam stovall yesterday we saw another record high for the nasdaq. Whats interesting is this morning bank of America Merrill lynch said the nasdaq is the most crowded trade but thats the trade that keeps working where do you stand on this conundrum . It is a crowded trade were seeing a wide spread between the best performing sector, technology and the worst, and youre finding people are placing heavy bets one area over the other technology is doing well from an earnings perspective double digit growth, expectat n expectatioexpectatioand were not looking at overvaluation in tech today as we did back with the tech bubble. Take out the f. A. N. G. Stocks, s p earnings would be about 6 lower. Thats just a few stocks, not the entire sector. Karen are you concerned about the financials and how they performed . We are expecting Morgan Stanley earnings later this morning. So far whenever we have gotten the reports no matter what earnings have been, for the most part theyve been good with the exception of a couple lines of misses within various earnings reports, the stocks trade lower. What you said is correct. The financials are beating and were seeing positive growth, especially in the banks and in the capital markets. The Consumer Finance is under pressure overall the earnings are good. So investors are reacting negatively to that i think financials are a great spot to be in. We have not seen tax cuts. We have not seen the trump agenda taking place. When we do, i think financials are going to be a great spot lets assume the trump agenda doesnt happen its hard to trade on the promise of policy, especially in an environment which were seeing now taking that out, all the reasons that have lined up, ccar with 90 billion there buybacks to come, what are the reasons to be here, the stocks are faltering on the release of earnings well, the earnings are moving pore ward. We are s forward and were seeing a tick up in yields as Global Growth does better and the u. S. Growth is continuing to move forward. Its not growing by leaps and bounds and were not seeing a steep yield curve but yields are starting to increase, thats good for bank stocks quick question, sam, on energy the growth in earnings for the Second Quarter, half of it is supposed to come from the Energy Sector will we see that given what oil prices did in the Second Quarter . Oil prices on average in the Second Quarter of this year were 0. 7 higher than in the Second Quarter of 2016. Our Energy Specialist did a study and found there was a 93 correlation between Energy Earnings and i should say oil prices and Energy Earnings yeah, we get upward pressure because of oil prices, when you deal with a 300 gain, you can easily see a slip one way of the oth or the other. Okay. Thank you both coming up, former trade rep Michael Froman will join us. First a look at yesterdays. And the wolf huffed and puffed. Like you do sometimes, grandpa . Well, when you have copd, it can be hard to breathe. It can be hard to get air out, which can make it hard to get air in. So i talked to my doctor. She said. Symbicort could help you breathe better, starting within 5 minutes. Symbicort doesnt replace a rescue inhaler for sudden symptoms. Symbicort helps provide significant improvement of your lung function. Symbicort is for copd, including chronic bronchitis and emphysema. It should not be taken more than twice a day. Symbicort contains formoterol. Medicines like formoterol increase the risk of death from asthma problems. Symbicort may increase your risk of lung infections, osteoporosis, and some eye problems. You should tell your doctor if you have a heart condition or high Blood Pressure before taking it. Symbicort could mean a day with better breathing. Watch out, piggies child giggles symbicort. Breathe better starting within 5 minutes. Get symbicort free for up to one year. Visit saveonsymbicort. Com today to learn more. Welcome back youre watching squawk box live from the Nasdaq Market site in times square. Its early, isnt it for that good morning u. S. Equity futures at this hour well take a quick look. I dont know what, we were down yesterday, though the nasdaq was really look at the nasdaq again today. The nasdaq indicated up 19 dow indicated down by 5. Ibm is not helping in the dow. But the nasdaq marching to a different drum their momer thisg the s p is up by 2 the Trump Administration rolling out the list of objectives for the north American Free trade agreement. Changing nafta was a topic hit again and again and again as a candidate. But its a discussion with many potential pit falls. Joining us is Michael Froman good morning to you. Good morning. Ambassador froman, we can talk about the pit fall pitfallw you think this should be framed up the document that the administration issued in the last couple of days is general in nature. A lot will depend on what the details are that they go after at first glance it looks very, very familiar. A lot comes directly out of the Transpacific Partnership, the kind of issues we negotiated there. Canada and mexico were part of that so, it should be those issues should be ones that theyre familiar with and comfortabilley with and can agree to quickly. There are a couple areas where the administration wants to go further. Trade remedies, they want certain tools to keep out imports from canada and mexico more easily. And they highlight how central getting the trade deficit down is to their negotiating objectives they dont say how theyll do that, but they say they want to see the trade deficit in goods be reduced of course we have a trade surplus in services, and services is four out of five americans work in the Service Sector is there a risk here . Well, theres a risk that because of politics in both mexico and canada or by the administration insisting on provisions that would be unacceptability to othunak se unacce unacceptible to other countries that they dont reach an agreement and theres a risk that President Trump goes back to the idea of withdrawing from nafta altogether i would say theres a Political Risk im not sure anybody fully thought through what it means for a new nafta to come back to congress for a vote. Im not sure theres enthusiasm in congress for having a vote on nafta. Those are the major risks. Is there a piece of this, is there one single piece of this you wish you could have negotiated yourself . They flagged something we tried to get done. Which is called dominimus. When you cross the border into another country, you can bring 800 worth of goods with you without making duties. Its great for Small Business and ecommerce its something we tried to get done canada in particular was opposed to it. They dont like the idea that their citizens cross over whenever milk prices go up in canada people cross over the border and buy groceries in niagara falls. They dont like that if they can get that done, thats good for Small Business and ecommerce you just talked about ecommerce and a larger trade question its something we raised yesterday. For all the conversation we have about steel and dairy and bringing things across the border, theres very little conversation about whats happening to our Silicon Valley companies in europe right now. Im curious as to what you think we as a country should be doing to stand behind them or not. Well, our approach had been to very much put forward rules for the Digital Economy to get other countries to agree to rules that would very much be part of a very innovative ecosystem that support not just Silicon Valley countries but every manufacturer is now a data company. Every manufacturer relies on software or relies on the free flow of data across borders. Having rules where countries agree to have that data flow across borders when you look at what the eu is doing for google, how big a deal is that for you i think its a very big deal. Whether its the tax, the data, the antitrust kind of criticisms that were getting out of the european union, they dont like our Big Internet Companies coming out of Silicon Valley and playing a dominant role. That a bigger deal than steel prices i think for the future, absolutely its not just about the four or five very Big Internet Companies. Its about the broader Digital Economy and everybody relying on cloud computing. Is this enough of a conversation, meaning i i feel like were not having this conversation in washington i think thats right. In the nafta renegotiation objectives they mention the Digital Economy. We did a lot on that in tpp. I hope they will build on that and continue that effort the more countries we can get to agree to our view of the rules of the road that promote innovation, the easier it will be to get the europeans to come on board ambassador froman, appreciate your time and perspective. In some other political news, former utah governor jon huntsman is President Trumps pick to be ambassador to russia. He served as ambassador to singapore under bush and ambassador to china and pr president obama. Coming up, Discovery Communications and scripps rekindle merger takes. And the gop budget proposal, and the gop budget proposal, the committees john yar anew roads and bridges. Osal, the committees john yar will join us new mass transit. New business friendly environment. New lower taxes. And new University Partnerships to grow the businesses of tomorrow today. Learn more at esd. Ny. Gov the power of innovative thinking. The power of 100 of the worlds top companies. The power of an etf. The power of qqq. The thinking we put in, clients get out. Power your clients portfolio at powershares. Com qqq. Before investing, consider the Funds Investment objectives, risks, charges and expenses. Call 8009830903 for the prospectus containing this information. Read it carefully. Distributed by invesco distributors inc. Welcome back our top corporate story, Discovery Communications is in deal talks with scripps. Julia boorstin has the details id like to think this happened in sun valley. The moguls were meeting. But its been going on for so long, probably not exactly both the ceo of Discovery Communications and the ceo of skrips were in s scripps were in sun valley and were in talks. Discovery worth about 15 billion, nor scripps worth nearly 9 billion would comment on the report. The two Companies Held merger talks back in 2014 theyve long been speculated about as a good potential match. Discovery which owns Animal Planet and tlc, scripps with hgtv and food network make exclusively nonfiction cable shows and are among the true pure play cable tv content companies not part of a conglomerate discovery Ceo David Zaslav yesterday weighed in on the pressure to evolve we have a choice. We can hold on to our existing business or try to do some of these new forms of content or figure out how to disrupt ourselves. The question is not how much money, the question is can we be relevant on all platforms . If we are, we will be rewarded by shareholders. If discovery and scripps merge they could offa a streamig Service Direct to consumer or have more leverage with cable carriers what happens is up to the Scripps Family and john malone who controls 30 of discoverys shares other big media news story hitting this morning, at 7 00 a. M. , nbc news is launching a new show on snapchat called stay tuned. The shows will be two to three minutes long posting new episodes at 00 a. 7 00 a. M. And p. M. And breaking news updates thats in combination to the 15 other shows that snapchat runs nbc hired 30 people to work full time, it will cover national, international news, politics and pop culture. This follows Nbc Universals investment of 5 500 million int snap in its march ipo. Nbc universal is cnbcs Parent Company saying it would launch snapchat shows to build on the success of the olympics snap channel. For nbc this is an opportunity to reach younger viewers and advertisers targeting them for snap joe, back over to you. All right zaslav, ken lowe is still there. He was out there in sun valley yep those guys ken was there along with zaslav they have known each other for a long time. They had the same talks back in 2014. But things have changed since 2014 theres been more skinny bundles which may not include their channels more direct to consumer streaming options like hulu, youtube tv the world has changed since 2014 we were talking earlier, this clearly wouldcripps in terms ofg their mote, how much does it help discovery is there more value in doubling down on content or diversifying into more scripted nfor discovery, its a massiv International Presence they have sports rights overseas here stateside we think of discovery being about Animal Planet and that nonscripted reality tv ornate cho nature programming. Overseas they have moved and diversified into sports. It would give scripps great diversification. There is the question how you can bring content direct to the consumer with an app, with a product that will be over the top and outside the bundle if two companies could Treatment Team up they would have a lock on that type of food or travel, and make that nonfiction content figure out how do that as a standalone product. That could be beneficial for discovery the question is whether or not they need scale to have that negotiating leverage everyone else is bigger than them now fair enough julia boorstin, thank you very much well see you in just a little bit. When we return, the nfr says the reports that retail is in trouble are overblown. We will talk to nrf ceo matt shea next. First a quick check of european markets right now. Mazing thing. But as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. Thankfully, the breakthrough in prevagen helps your brain and actually improves memory. 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Vice president mike pence addressed the National Retail federations retail advocate summit yesterday in washington heres what he to say on the Corporate Tax rate and the impact on the sector our outdated system of worldwide penalizes companies for being head quartered in america, but not for long. President trumps plan is to slash the business tax rate to 15 . Well enact a territorial tax in line with the rest of the world. Well cut taxes on the trillions of dollars locked away overseas so that American Companies can invest those dollars in american workers, american jobs, and americas future for more lets bring in National Retail Federation President and ceo matthew shea good to see you. Hi, melissa seems like tax reform would be a push and pull for the retail sector. A Corporate Tax rate cut would be beneficial, bun of the most divisive pieces of the platform is a border adjustable tax which could be negative. How are you viewing this fight that could be coming down the pike on taxes . We were grateful to have the Vice President come visit with us yesterday he said a lot of things about the policy agenda ahead, the way we get the country moving, create jobs, get america back to work and generate gdp growth that we have not seen for several decades. When it comes to the tax issue, we pay the highest Corporate Tax rate of any industry in the country. Were playing 35 , plus state and local taxes, it gets close to 40 its our number one priority to get tax reform done and bring relief the border adjustment component in the house blueprint that got proposed last summer, its a year old no one expected it to go anywhere. I think most people who looked at this concluded this is not the right way to go forward it creates too many winners and losers it picks between industries. Many folks inside the Administration Made that point theres not a lot of appetite for this the message from the administration is that its not happening . I think you heard secretary and say this isnt somethingpre. Gary cohn, as well as well as others theres no appetite for this at all in the senate. So i think what we need to do is go back to the drawing board, look at the things that can get done some of the things the Vice President talked about and some of the things that folks like larry kudlow and steven moore have talked about, pick the things that make the most sense, bring back some of those offshore earnings, and reducing the rate, broadening the base but border adjustment tax is too complicated and its going to hurt too Many Americans and raise prices on the working class. Matthew, if i can pivot just a bit and talk about amazon whole foods that proposed merger im wondering how the National Retail federation views that people would say that maybe the ftc and actually a congressman has said that the ftc should look into this merger, this could really decimate retail in the future if you let amazon go into these businesses time and time again whats the view . Is amazon a member of the nrf . Amazon is a member of the nrf and so is whole foods. And so are walmart, and you know, so its what were seeing here is one more chapter in the Rapid Transformation of the industry and if you think about the walmart and jet deal last year, and now the amazon and the whole foods announcement from a few weeks ago, you know the sort of flip sides of the same coin. And both of those things demonstrate that the consumer is changing and in order to reach the consumer where they want to be reached, the companies have to change the way in which they deliver their products and services thats going to continue i dont think that, you know, whether its amazon, whole foods or anyone else, walmart, its going to continue, because thats where the consumer is headed and what the ftc does, what the department of justice does, what the congress does, we talk about these things generally speaking, but those are regulatory issues for the regulators to discuss. Matthew when people talk about employment in the retail world i dont know if youve paid any attention to some of the research that people like Michael Mandel, economist and others have done, suggesting, maybe for the first time, that perhaps were not accounting for retail jobs properly, and that if you look at all the Fulfillment Centers, and third Party Retailers that have that have emerged in this new ecommerce economy that, in fact, perhaps were creating more jobs than are actually being lost in traditional retail do you buy that . I heard some people say wow that math makes a lot of sense. Ive heard other people say thats completely illogical. I love it i could kiss him i could kiss you finally someone is telling the truth about whats going on in the industry weve got secretary from the Labor Department coming over to talk to us today the bureau of labor statistics only counts retail jobs as those jobs that exist in Retail Locations in which a sale occurs so if you work at a distribution center, warehouse, logistics, supply chain, finance, accounting, design, web technology, none of those retail jobs get counted because they arent in a selling location so one big problem is the fact that the bls counts jobs the wrong way, they dont account for them properly. Were trying to get that fixed i think the bigger issue is this whole narrative is if you dont see someone at the store front as an associate its not a retail job and the truth is there are thousands, hundreds of thousands, millions of jobs that arent in sales, and the truth is the vast majority now, were at that Tipping Point where more retail jobs that are not Sales Associates than there are. So part of it is the way we perceive things. Part of it is just the way were looking at the numbers so i think that what theyve done is right but weve got to give them more ammunition by changing the way the government actually accounts for the jobs matthew, let me take it one step further which is to say it may very well be true that were creating more jobs in Fulfillment Centers today, but five years from now, ten years from now, you think about the kinds of investments that Companies Like amazon are making in robotics and a. I. , are those jobs here to stay . Well, you know, then we have to get into the bigger question about the elon musk gloom and doom of what a. I. And robotics and Machine Learning does, or do you believe, you know, that i think the more traditional view which is, as we become more productive as human beings, and we divide labor properly, and so the low skilled types of things that can be done by machine are done, that frees up human beings to do the higher things that require different kinds of learning, different skills, so it ought to make us more productive it ought to create better jobs in the industry and in other industries as well so i think at this point what we ought to be doing is recognizing that, were not going to turn back the clock on a. I. And Machine Learning, were going to retailers are investing massive amounts of money in those technologies theyre going to continue to do that and if they do the jobs are going to be created and theyre going to create more jobs in other parts of the business that should be good for everybody again and again and again, thats been the case you go all the way back to, you know, the machines that, you know, out in the field that did something with either grains or, you know, all those people are going to lose their jobs but, as you say, you the labor that can be done automated and with machines is not going to last anyway and youre able to do bigger and better this is the optimistic view. Did you see this were going to talk about this tomorrow people, reporters do not have an optimistic view of the world robots are taking over no ones going to have a job anymore. All this progress is going to end up, you know, the machines are going to, you know, cut off our life support i have a very optimistic view, hes 100 right that we dont want to i know it would be very nice for robots and a. I. To take over the mundane tasks, the things that we dont want yes, so you can soar. So you can soar. So you can being spectacular. I want to see you soar. Recognize that theres a transition cost and thats okay. But and some people are going to benefit and some people are not. Did you invest in a Buggy Whip Company is that what happened that made i wasnt around for the buggy whip oh, i it worked well. You were at globe records at the mall where they sold lps, you think that, you know, we cant move beyond that we need those jobs anyway thank you for putting up with andrew joe, im wondering where the whole thing on Michael Mandel to kiss me trying to answer you know, without, you know, getting frustrated and you know we should be optimistic we should be looking forward this is going to be better its going to be a period of disruption but that happens in every industry for generations it might be different this time when the machines really dont need us. Thats my only worry i mean, flesh and blood and food and waste and everything they dont, you know, so well see. But hopefully not. Maybe well have a default Software Program or something. Anyway, coming up, thank you matthew. Coming up the trump policy agenda well Talk Health Care tax reform and the gop budget with douglas holtzeakin, and then jason furman, next and then later House Budget Committee chair diane black will join us live from washington we have the great prospect that optimistic prospect of budget talks in this Current Congress how great is that going to be . When this bell rings. It starts a chain reaction. Thats heard throughout the connected business world. At t Network Security helps protect business, from the largest Financial Markets to the smallest transactions, by sensing cyberattacks in near real time and automatically deploying countermeasures. Keeping the world of business connected and protected. Thats the power of and. slow jazz music fly me to the moon and let me play bell ring sharks are circling at description. Now reports Discovery Communications has the your honor to merge which comes first the budget or tax reform well get the latest out of washington from House Budget Committee Ranking Member john yard mouth and the craze boosting business for five below what happens when sales stop spinning well ask the ceo as the second hour of squawk box begins right now. Live from the beating heart of business, new york city, this is squawk box. Good morning, welcome back to squawk box right here on cnbc were live at the Nasdaq Marketsite in times square im Andrew Ross Sorkin along with melissa lee and joe kernen becky is on assignment today, back tomorrow. The futures at this hour, quick look see whats going on dow looks like it would open off about ten points off close to 11 points right now, s p 500 looking to open a little bit higher 1. 5 points. Nasdaq up about 18 points higher we have some news to bring you right now. Morgan stanley, the latest Financial Company to report results, just moments ago. Wilfred frost joins us with the details. Wilf andrew, yes, so yesterday we saw Goldman Sachs basically beat on every single line apart from mixed income commodities and currencies Morgan Stanley have managed a small beat on every single line. So eps has come in at 87 cents versus expectations of 86. Revenue 9. 5 billion versus expectation of 9. 1. Lets dive straight into that trading because its the really juicy talking point in terms of the fixed income performance came in at 1. 2 billion. Estimate was 1. 1. Equity, 2. 2 billion the estimate was 2 billion. The clear beat there coming on the fixed income line because others had done well on equity, theyre really stand out on fixed income and really important, though, how they differentiate from Goldman Sachs. Not just the others, because one of Goldman Sachs excuses more last quarter than this quarter was that they had a different mix than the other universal Morgan Stanley and Goldman Sachs were pretty similar client mix but Morgan Stanley beating on fixed income where Goldman Sachs missed quite significantly Morgan Stanley has a slight gain yearonyear by a couple of percent. That stands them out on the overall trading performance but particularly their most comparable rival Goldman Sachs down 17 yearonyear in terms of equity plus fixed income trading. Investment banking is also a decent little beat 1. 4 billion actual versus 1. 2 billion estimate Goldman Sachs did, in fact, do quite well there themselves. Theyve got a small beat on Wealth Management and a small beat also on Investment Management, so across the board a solid set of results in terms of r. O. E. They did reiterate their target of 9 to 11 . Up just within the range of 9. 1 so as i said really across the board, solid set of numbers. The big differentiator here, is a decent fixed income number where theyve managed a small beat many of the others missing but particularly Goldman Sachs missing on that very heavily yesterday. The shares were before these stats came out about half a percent down in the premarket theyre jumping as you can see, 1. 2 , albeit very thin trade throughout this earnings season we have seen the banks move a lot in premarket relative to what they actually open at but certainly been taken well by the market at this stage that number, wilf, thats a feather in James Gormans cap in that he set out the goal of four straight quarters of 1 billion revenue in that business, right . Absolutely. And you rewind it a little further 18 months of course they made cuts in this area and in the last three or four quarters have started to see it perform and of course, on the flip side, Goldman Sachs didnt make cuts and yet theyre not performing in this area thats still that very old question we heard it repeatedly yesterday from marty chavez the cfo that there was a cyclical issue, that will impact client activity, and if we rewind an extra quarter the excuse Goldman Sachs was given was that they didnt have that corporate exposure to some of the universal banks but both quarters in a row now Morgan Stanley have delivered in fixed income when Goldman Sachs havent and they do have a more similar client mix than you could say against universal banks. So its a big question mark continues for Goldman Sachs in fixed income, Morgan Stanley shares up in reaction. And as a volume increases premarket it will be interesting to see if the stock reacts to that r. O. E. Number which came in below the midpoint as you pointed out. Wilf, thank you, wilfred frost at headquarters. Ibm is one of the stocks likely to weigh on the dow today. The company did Beat Estimates by 23 cents, with Quarterly Property of 297 a share but revenue fell short of estimates and declined for the 21st consecutive quarter. Two cable channel operators may be getting ready to join forces Discovery Communications which operates Discovery Channel and Animal Planet among others is in merger talks with food network and hgtv parent scripps. Thats according to the wall street journal which said terms could not be learned and another bidder may still emerge for scripps. Google is unveiling a new version of its mobile search designed to give users a stream of personalized links. But google says its not trying to duplicate facebooks news feed United Continental is out with numbers beating on both the top and bottom lines the airline says that profits were up 39 from a year ago. The stock, however, trading lower based somewhat on the outlook and announcing that revenue in the Pacific Region was down 5. 5 in the Second Quarter. A lot of weakness that were talking about from china where the United States faces stiff competition from newer chinese carriers and were going to talk about this the united Ceo Oscar Munoz will join us today in a cnbc exclusive right at the top of the 8 00 a. M. Hour about an hour from now a big day on the hill today as republicans begin debate on in committee i should say on the 2018 budget republicans need the budget to unlack tax reform. Ylan mui joins us with more. The committee will be marking up the fiscal 2018 revenue and spending proposal. The biggest slash point will be the 203 billion in cuts in mandatory spending programs. Democrats are planting to offer 28 amendments. That is the maximum that is allowed. And among their key issues are made cade, medicare, pell grants, the border wall, immigration, and of course health care. Meanwhile, some members of the house caucus are refusing to support this budget until there is a more detailed plan for tax reform another point of contention, the budgets Economic Growth the proposal prejekts 2. 6 over the next decade. Thats less than the white house had promised of 3 growth but both democrats and budget hawks say that is still way too optimistic that growth rate is important because the Budget Committee estimates an extra 1. Le trillion in revenue over the next ten years most of that money would go toward reducing the deficit. But the budget carves out about 300 billion to help pay for tax reform without that rosy growth estimate analysts say the house budget probably would not balance. So this document is expected to fast out of committee today, but its far from guaranteed all right, ylan, thank you. Joining us now, jason furman senior fellow at the Peterson Institute for international economics. And president of the American Action floor i tell you how i think we should do this, jason, and doug, lets start with the postmortem on the republican attempts with obamacare, and then well go and move on and see what the prospects are for tax reform in this wonderful congress, this bipartisan this kumbayah congress that we have right now and what the process are jason you say that republicans wasted seven months on health care, and that legislation to tweak obamacare would have been welcome but isnt necessary, because the laws stabilizing on its own. You didnt see any benefit whatsoever to trying to reform medicaid, in some respect, and the growth that were going to see over the next ten, 15 years, if nothing is done there was no benefit to that in your view . Look, i was on your show, you know, seven months ago, saying they should do tax reform and infrastructure first those are the most important things for our economy this is a distraction. The Health Bill Failed in part because it was bad policy. It would have taken us back to the Health System that people didnt like. And in part because it was a bad political strategy, which is to do something with republicans only, lock democrats out from the very beginning, that gives you such a narrow window to work with in terms of medicaid, medicaid growth has been enormously slow. Its actually been negative. Its fallen in real terms on a per capita basis so theres a lot of our Health System the capita is the problem jason. Look, you know what . Im really gratified because it sounds like youre ready to work with the president and republicans now on tax reform. I cant wait to see your editorials, i cant wait to see i had one in the wall street journal two months ago talked about the performance well you need we dont even need doug today to argue that side. Doug im now irrelevant . Weve got jason on board. I think maybe so you just heard that about the a. C. , i just heard that the journals lead editorial, these guy got all worked up over these nine republicans that, you know, i dont know, what would you call that, they cant adopt the good in the famous words of miracle max, Health Care Reform is mostly dead but its not totally dead, because the problems remain. The reality is that the individual market is not stable. Were seeing double digit increase in premiums were seeing insurers leave. Lots of places where there are going to be nobody, towns with one insurer. Somethings going to have to be done and this year in fact. The journal points out that you put an entitlement in, for seven years, and the idea of getting reforming it or getting rid of it is almost you almost have a zero percent chance and how close they actually came, these last two guys, if lee and moran hadnt held hands so that neither one of them would take the blame, this had a chance of actually passing. Sort of a narrow politics of the moment, i mean this was a lesson in politics not in policy. There was never going to be a perfect bill that got everyone on board it was about coming together to fulfill a promise, coming together to prove the republicans can govern getting something to advance the president s legislative agenda they didnt get it done. Thats not a good day for republicans. Thats all there is to it. Going forward the problems remain the individual market problems are there. Despite what jason said, medicaid is, medicare are you optimistic now . Weve got jason on board are you optimistic its over weve got jason on board. About tax reform . Weve done every, what, 50 years . 50 years. Its pretty easy. And, no, this is there is tax reform as a proposition is very hard. I remind people that in 86 president reagan ran for reelection promising tax reform he won 49 states he wrote the bill. He sent it to the hill and said this is what the American People sent me here to do, and it still died twice on the way to getting passed so that proves you need a lot of political will to get it done and i dont think anything suggests were in that environment. This is going to be very, very hard jason, short of i short of a president pence, what would democrats need to actually be to try to actually help in this process . You know, i think there are two really simple steps. Say that it will be revenue neutral. Which is something the House Republicans have already said. Say that it will be distributionally neutral thats something that treasury secretary has already said theres a lot of democrats who are open to lowering business tax rates. We have the highest tax rate in the world. Its something we absolutely should do. But theres no reason that in solving that problem we should make another problem, which is our deficit worse. I think its just those two things, theyre two things that each side of pennsylvania avenue has committed to its not going to bring all the democrats on board theres a lot of them still wouldnt go along with that. So i think if you did those two, you could get enough, give yourself a bigger margin of error. You know, jason, that sounds like any dynamic scoring youre going to get zero democratic support if theres the slightest im for dynamic scoring as long as its done by the Congressional Budget Office and the joint committee on taxation. Because theyve been so accurate in the past i think thats the right way the House Republicans say thats the policies and the growth, it happened from reagan, the growth that was totally unseen and unpredicted by the cbo. The House Republicans are assuming 300 billion in revenue from dynamic scoring i think with a well designed tax reform that doesnt add to the deficit thats a reasonable number to aspire to. Wow the House Republicans put in their budget but you need the right reform to do it. Its not going to happen automatically. I am going to agree with jason on that. I knew you would. But im going to disagree on another point. If you say were going to a revenue neutral, disdistributionally neutral tax reform, we end up with the same tax we have now. You have to do something thats different than what we have now its almost impossible to do anything truly disruptive right now in washington. Truly. I dont disagree with that. If you were going to try to handicap what is possible, what is doable, between now, and lets say christmas, what would it be . It would be entirely dependent on whether the white house decides to go all in on tax reform, and has a coherent strategy for delivering it but i think its all about the white house. Thats all there is to it. You need white house leadership because tax reform is going to have losers. Everyone on capitol hill is going to have to go back to their district and defend themselves and unless the president of the United States is saying i asked them to do this, this is why you elected me, this is why you went me to the white house, they dont have the cover they need its really that simple. And the white house leadership is pushing off in the direction of large unpaid for tax cuts you actually dont know that. Oh, but i heard a lot of people that have met with them who they said to them, you know, would you like a temporary large tax cut, or you know, something paid for, thats smaller and long run and problem with these temporary tax cuts is theyre unstable, they add to the problems of the tax system they dont distract from it. Theyll get reversed in the future, and in the meantime, theyll add to the deficit so thats the House Republicans i think actually have a better strategy on this, with their at least stated commitment to revenue neutrality not from the white house jason and i are on the same page on that if you want genuine pormt you need permanent changes in the tax code things people can rely on. The only way to get that is through revenue neutral reform especially if theyre going to rely on reconciliation has to be revenue neutral. And you know, thats the pace the house hold on a second, jason im jason, youre doing great today. I, you know, i am i feel like maybe there is hope when im a good influence on him no i think youre going to get yelled at. I think your twitter feed is going to explode from this new Democratic Party youre part of now when they hear what you said im part of the party thats was the first party to propose cutting the Corporate Tax rate in 30 years. Thats what president obama did. Lets not get carried away. He was a little bit he had some other fish to fry that seemed a little more important like Climate Change we did prioritize the Transpacific Partnership over that before tax reform. Well, and then you had the same problem with the democratic rank and file that the republicans are having now let me ask you this. Yeah. You got the moderate republicans and these conservative republicans, right . Are they going to be able to do any of the ones that ruined this last deal feel any remorse and feel like they need to be more conciliatory, in tax reform do you think theyll be able to get together because these two wings are really far apart they are really far apart and im not happy with people blaming one side or the other. These are legitimate policy differences and they exist within parties and across parties. The question is whether republicans find a way to be a governing party. So you did read this . You read that said that as i said before did not come to washington to hurt people. Does she honestly think so little of her colleagues in the party that she chose to affiliate with can insult every single one that was ready to go with this and then they quoted what she said when she was running for election, she was going to washington to turn the tide from a washington that tells us who our doctors are and delivers a lower quality of care and she folded like a cheap deck of cards the minute there was any criticism coming from the left on this so my point she needs a primary challenge and so do some of these others i gather youre announcing, so good luck no, my when you get to tax reform, you will find yourself in the same position. Theres no question about it its the same thing. I know. So whats going to happen be able to rise above their individual desires, and get the votes, and do something that delivers on the most important promise the president made, which is better economic performance. Its all about the economy jason i think you can act like you want it to happen because you know that its not going to happen with these people in the Republican Party and you can say hey, i was for it, dont look at me right . I mean youre questioning my motives. I worked pretty hard to Obama Administration have written opeds on it because i agree with doug, i agree with you, our tax system is untenable. Just look at the International Side of it we pretend to tax you on your foreign earnings, dont actually collect any revenue and we jason are you 40 yet . I might leave the lights on for you to come home some day. Are you 40 yet im over 40 but, joe, the question im serious doesnt he seem to have a lot of potential in terms of finally coming around. But hes the primary the gop is not the ultimately is not on that side. On which side your side which side am i on . Im not on a side. Im just trying to mediate between doug and jason im just trying to mediate im just trying to bring some peace. So, i think the key here is not about the side its about the fact that the republicans need to understand from a basic selfpreservation view they are heading into 2018 without anything that delivers on the commitment they made to have the economy perform better and if they dont do something, the objective they what did voters put them there to do . Thats the question . Whether voters putting them there to repeal obamacare . Because voters thats what they thought they were supposed to be there for and then they realized they werent supposed to be there for that they sent them there to do better than jason furman cheap shot, jason. And what theyre going to get is repealed tariffs, immigration restrictions, that will hurt American Manufacturing and growth Going Forward enjoy your free market you know what you know what . The invitations rescinded its a big tent, jason love you jason now andrew loves you see you later. Thank you. Thank you, guys when we come back, we are in the thick of earnings season find out where you should be putting your money to work from two market pros right after the break. And then at 7 30 eastern time, congressman john yarmuth is going to join us Ranking Member of the House Budget Committee is going to talk to us about budget cuts, the debt ceiling, the president s economic policy. Stay tuned youre watching squawk box right here on cnbc. Welcome back to squawk box. We dont talk about the ads enough but that sock slider is something. Im thinking about it. I dont know i feel like thats that fascinates me. Velcro sneakers, too . You dont seem like andrew, i can see it because i cant reach my feet anymore. But you can still reach your feet, right . Yeah, but you know what i have a big shoe horn, like a shoe horn not a little one so you have to bend over. I actually got one of those really long ones so i dont have to bend over we have to tell you about the futures. We have some guests here the markets, if we could, right now, dow looks like it would open off open up about nine points nasdaq looking up, a little over 18 points. The s p 500 up about a point and a half we do want to talk markets mergers and acquisitions, we are joined by the chairman and ceo and president of oppenheimer funds. Joe croft is also here the president of Wells Fargo Investment Institute and chief Investment Officer of wells fargos wealth and Investment Management markets continue to just sort of were back at a disconnect between fixed income and equities, arent we . Where, you know, yields continue to inch downward the yield curve continues to flatten which is typically a haitianer of a flowing economy and stocks just continue to flow what do you make of that . And what are you supposed to do about it ill have to give my standard stump speech here. Youre not supposed to do anything about it. Youre supposed to have a longterm plan and stick with it the main reason people underperform the market, their experience is worse than what the market delivers, is because of bad timing decisions. So you know, if you had been asleep at the switch in 2008 and done nothing youd be back to where you started from joe likes to say weve been asleep at the switch for a very long time in terms of youre still in new jersey with your thumb out. Were in georgia on the train and youre not on the train yet. For those who missed the train. There is an element of timing to all of this if you missed the train, where is the train going at this point . Id still be a little bit hesitant, andrew i think right now at 2450, 2460 on the s p, we think the back half of the year probably sets up for a little bit of disappointment we could see our year end target is 2280 on the s p so still some traction back. And what is the inflection . What pulls things back a number of things. Right now were tracking to 2 gdp growth in q2 i think the back half of the year gdp growth is somewhat underwhelming. We still have the policy disappointment element and frankly, earnings get to be a tougher year over Year Comparison in the back half so you were rip roaring bullish like at the end of last year no. Oh, so you 17 and youre still looking for the markets still wrong about what its doing . So it gives you your the fundamental story youre not playing give me your 5 pullback and where you finally get and then it will still be 10 before where you were telling people not to get it anyway why dont you just say i was wrong and i wish i had been in and now is the time. Joe makes a great point because if you wait for a pullback youll never do anything and thats what people were doing in the decline after 2008. Equities no matter what the backdrop is . No matter what train you think you see coming im saying because you dont see the train coming ive been doing this for 30 years, i was a Portfolio Manager for 25 years before i got this superfluous People Management job. Im just saying the managing money was easier than managing people but, you know, ive seen the ups and downs and i wasnt all that great at predicting them even though i was theoretically an expert. I found that, you know, you know, closing my ears sometimes, and not listening to the noise was the best strategy. So youre what youre at 2280 so if we go to 2600 on the s p, youll quietly raise your price target to something above that no one will remember that you said 2280 and you get a free pass on being totally wrong about whether you had no its not a free pass you have to, to your point you have to eventually look at fundamentals, joe, right right now were at 19. 7 times earning isnt this a story about the sfed thats the whole story look at corporate profit. Youve got to have youve got a 127 all right so let me know before you raise your price target, finally throw in the towel, just let me know. Weve got to go its great to see you, sir thank you. Discovery communications reportedly in merger talks with Scripps Network. More on that story after the break. And john yarmuth will join us to talk about theud bget 8 00 a. M. Eastern time an exclusive with oscar munoz. So thats the idea. What do you think . Hate to play devils advocate but. I kind of feel like its a game changer. I wouldnt go that far. Are you there . Hes probably on mute. Yeah. Gary wont like it. Why . Because hes gary. phone ringing what . Keep going yeah. laughs voice on phone its not millennial enough. There are a lot of ways to say no. Thank you so much. Thank you so were doing it. Yes start saying yes to your companys best ideas. Let us help with money and knowhow, so you can get business done. American express open. Your insurance on time. Tap one little bumper, and up go your rates. What good is having insurance if you get punished for using it . News flash nobodys perfect. For drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. Switch and you could save 782 on home and auto insurance. Call for a free quote today. Liberty stands with you™ Liberty Mutual insurance. Welcome back to squawk box. Thats for melissa but nice to see everybody. Welcome everybody, too. Were all welcome yeah. Theres a similar sentiments that we all have, i think. Yes, of course. Welcome, everybody right, exactly the Nasdaq Marketsite in times square among the stories front and center spice maker mccormick is adding frenchs mustard to the portfolio. It struck a deal to buy them for 4. 2 billion that price is above the range analysts add submitted Morgan Stanley beat street forecasts with the latest earnings report. The firm reporting quarterly profit of 87 cents a share, 11 cents above estimates. Revenue also beat forecast and Morgan Stanley also hiked the quarter live dividend to 25 cents a share from 20 cents and announced the 5 billion share for the repurchase program that stock is updy 2. 6 . And Mortgage Applications were 6. 3 last week according to a weekly report from the Mortgage Bankers association. Refinancing activity was particularly strong jumping 13 during the week. The average 30year Mortgage Rate was unchanged at 4. 22 . Discovery communications and Scripps Networks reportedly in talks on a tieup. Joining us recode managing editor ed lee. Hello good morning, good morning. More media. We had zas here yesterday he was funny. What do you think you know, they tried this a few years ago. Yeah. I think the era of sort of media consolidation, were getting there. Its a shortterm fix for a is it a shortterm fix for discovery or scripps both. Theyre both challenged. Theyre both smaller basic Cable Companies that, you know, in an era of core cutting where theres fueler and fewer subscribers every year theres less money for those guys. They dont have sports, either well, discovery does now. Euro sports euro sports right. No, thats big. Ed doesnt consider that they have the olympics in europe the economics of television in the u. S. Is so driven by sports it is true sports is a big factor in europe, as well. Its just not the same doesnt have the same writing factor is it soccer and they never score any goals. Okay so if youre right, let me ask you this, you put these things together, how much more leverage this is a leverage story. Its a leverage game, you combine these two how much more leverage does a discovery scripps have together in terms of fee agreements, given the fact that you said they dont have sports in the u. S. So, theyll get to leverage theyll get higher fees combined better than they would separately i think that those carriage fees are done every four to five years. Theyll get a nice bump on the next one, after that, i dont think theyre going to get anymore. Because, look at the pay tv universe three or four years ago, 99 million, 100 million now its 95 million. In three or four years its going to be 90 million even if youre getting slightly higher fees its just the pace of the operators, theres fewer of our customers anyway. Theyre not watching the same things theyre watching things online if you look at netflix 50 million u. S. Subscribers, they have a lot of the content that you see on discovery and scripps. Theyve got a lot of documentaries. Theyve got a lot of like food stuff already. So netflix is sort of replicating what you normally see on cable, just on one in terms of scripps programming what can they do to pump that programming through the other Discovery Networks that are global . Actually, i think discovery, 46 or about half of its business is international. I think that was really smart move on zass part the last yew years. I think you could take a lot of that sort of home, hgtv programming and distribute that internationally, extract some higher revenues. But those are all short term plays. Viacom was mentioned in the article. Viacom was mentioned. Like any Cable Network company right now, theyre trying to reformulate their content. In terms of how will it work online will it work on snapchat does scripps have any really, really hot content meaning im thinking if youre a verizon must have in other words like theres a fight for the skinny bundle. Everythings going online. Youtube has more yes, within the scripps universe what is must have what is the must have network . None of it is must have thats the problem its great background tv thats what i call it. Like food network something you turn on and you can watch, and like maybe get into it but youre not looking to watch it necessarily. Theres always going to be a core audience for those types of but im being generous for a second the food network stuff translates in a big way online it does. And a lot of that kind of programming does translate on line in a very different way some of the home stuff so i think its a good point. I think food network and those types of shows are suffering because of the way you get that stuff online the same way that like sport center and espn is suffering which is you can get that stuff online anyway. Like food network as a brand is less meaningful online than just food period. Theres so much food stuff online that you know, it doesnt really matter. People arent as brand loyal when it comes to that. Whats amazing me is that in terms of people sticking their nose in some type of screen, whether its a 72 inch screen, or whether its an iphone, its bigger than its ever been, so the pie should be bigger than its ever been for Media Companies, but for some reason, we dont know how to monetize it yet. How do you monetize it my 12yearold is a big fan of watching those tasty videos, theyre like 30 second, two minute sort of how to cook something. Not because she wants to cook it, its entertaining to her everythings just more fragmented is it the same amount of money being divided up among a lot the pie is getting bigger but its being divided then a comcast or a multichannel, you know, if youve got everything, maybe you have a better chance, because at least something you have is going to end up working. And thats why, you know, if youre just content, and youre just niche like discovery, or scripps, youre not big enough thats to survive. Thats the issue and i think especially that kind of content all the nonsports content where theres viacom, scripps or discovery is having a much harder time because that kind of stuff exists online at t thats how they made you want pieps you want content you need everything then so ive been on the show talking about the at t well get to that. Before we go. Is there anybody else you think comes out of the woodwork to try to bid on scripps . Oh, thats a tough one. These two are meant for each other i think. I think these two make the most sense if viacom comes in as a last minute sort of bidder that could be interesting but it doesnt line up the content doesnt line up necessarily. Because of what viacom does and what scripps or discovery do so doesnt happen, doesnt happen but its the most likely one. Ed lee. Spongebob is a sea creature, but not exactly like he wont fit in on shark week hes a sponge. Not a predator okay the sponge bob shark week thats i think only you could synergy you hadnt thought of the Sea Creatures but i just dont think it one is animated right . Different. Animated . The other is reality. Like like Michael Phelps racing a great white now thats reality. We have a fish in our house named sponge bob you do . Youve got tropical fish yeah. The last one was salt water. Salt water is sponge bob you got to you will learn about death with tropical fish, believe me trying to avoid that. My favorite one youre going to have to face it ed lee, thank you, sir. Thank you House Budget Committee beginning to mark up the republicans budget plan today joining us now Budget Committee Ranking Member congressman john yarmuth. Congressman, thank you so much for joining us sure. I was enjoying that conversation im sure you have a lot to add about sponge bob and the synergies there. We do want to talk about whats going on in d. C. And after whats gone on in the Republican Party with health care, you know, theres a drudge head line yesterday that congress is the least Productive Congress out of 164 years, people are willing to right now write the epitaph for the ability for republicans to get stuff done are you guys celebrating are you thinking, 2018 is going to look better for us . Well i think 2018 has the prospect of being good for us. But were not celebrating at all. I think all of us are frustrated here we came to govern. We came to try and improve peoples lives, and were not doing anything in that regard. And you know, this is a perfect example just the timing of this budget markup today. We normally expect a budget to be done by april, the middle of april, so were three months later than that. I think the latest its ever done been on the committee is may 17th were two months beyond that record and this is just another example of republicans being unable to come to consensus on their own and unwilling to work with democrats. So, nothing happens. All right so, youre late on budget. In terms of it coming out of committee, are there the votes right now to get it to the floor . Apparently there are. Now theres some thought that some of the Freedom Caucus members might try to blow it up in committee today but we dont know about that the assumption is that they have enough votes to get it out of committee by a margin of one or two. But theyre very uncertain as to whether they can pass the budget on the floor and if you remember, last year, they never brought a budget to the floor because they didnt have enough votes to get to pass it there youre talking about, you know, improving americans lives and im sure thats a goal of every person whos elected to congress whos serving at this point. So, with that in mind, congressman, when it comes to tax reform, how committed are you to working with republicans on tax reform to presumably your constituents would enjoy some sort of a tax cut. Are you willing to reach across the aisle there . Well, absolutely. I think wed want to have input into any tax reform measure that comes to congress. I think what we would be concerned about is whether the huge majority of whatever tax changes are made benefits the top 1 , or whether its spread fairly throughout the population last years tax measures, one of them was estimated 98 of it would go to the top 1 so, we want to work to make sure that tax reform does get to middle class americans and hardworking americans, as well as to the people who really dont need it. Is there anything in white house floated and granted its been limited in terms of republicans and what they perceive for tax reform, is there anything there that strikes a chord with you that you would really like to see happen and you could actually agree on well you know i think probably the most fertile area for agreement is on the Corporate Tax rate side. And i dont think any democrats are willing to go to the 15 that President Trump has proposed but i think somewhere in the 25 to 28 change would get a lot of support from the democratic side we understandthat theres a competitive Global Competitive aspect to the tax rates, and i think that again, you find support wrong democrats for some reduction in the rates congressman were going to leave it there thanks so much for you time. Thanks for having me. All right coming up the Fidget Spinner craze boosting business at five below. But sales of the stress reducing toy are slowing. The retailing ceo joins us after the break to discuss whats the next big seller to be. And then at the top of the hour sharks are circling at scripps reports this morning that Discovery Communications could ren atto iju ain a merger. Mo oth sryn st bit. She cant become a guitar legend just by playing air guitar. The babys room wont build itself. And her paw wont heal on its own. Were all working forward to something. Synchrony financial can help your customers make it happen sooner. So she can plug into her dreams. And theyll have a new addition for their new addition. Whatever youre working forward to, even if its chasing squirrels, Synchrony Financial can help you get there. What should i watch . Even if its chasing squirrels, show me sports. Its so fluffy look at that fluffy unicorn hes so fluffy im gonna die your voice is awesome. The x1 voice remote. Xfinity. The future of awesome. Challenges with buying and selling increasingly occurs online but even amazon with its bid for whole foods, and some new physical book stores clearly sees value in brick and mortar joining us is joel amundsen. Retailer of five below weve got historically low unemployment rates yet your stock is up 21 . You just a great ceo or the Fidget Spinner. Yeah, but why how . The bifurcation in real estate or im sorry in retail, i cant even tell where the dividing line is necessarily. You know winners and losers. Winners and losers, you know, retail is alive. And there are a lot of retailers doing well we happen to be on the side thats doing great and you know, i think the success factor in retail is usually got to be in the value space, or you got to offer an incredible store experience. And the retailers that do that are winning. And i think five below is doing both you go in our store, its just a store to have fun, let go, and just have fun thats not the price. Its the experience in the brick and mortar well, clearly price matters i mean, values been winning for a decade now and if you can offer value and a great store experience, youre going to win and you describe so you got to be you got to be what is it called, multichannel brick and mortar and you need ecommerce. To go but you say that the brick and mortar is the cake, and the icing on the cake is the internet absolutely. Really . Thats not what amazon would say. Right . I think amazon just bought a brick and mortar store i know. But in general thats not the cake. The key, forget amazon or anybody else, the key is, if youre going to be a retailer in 2017 youve got to have a point of differentiation and i believe our point of differentiation is value right you know, picking up spinners for a great price. What does this spinner cost right here that one there is 5. 5. And whats the margin you can make off this thing . Well, thats between me and my head merchant but really, im fascinated by this phenomena you have one and you like it everybody likes a Fidget Spinner. How long is this fad going to last is this just a summer thing . Is this a 2017 five below is a trend right retailer right three years ago it was frozen, two years ago it was selfie sticks. Right last year it was shopkins this year its spinners. How long does this last slime your buyers and merchants are saying to themselves, oh, the spinner thing its pretty cool, but by september this is over . This will be in everyones christmas stocking still i mean how do you think about that you know what we really follow the trends. Okay. Trends usually start on the coast. Okay. So we really watch where are we in the Fidget Spinner trend . I feel like final innings i think a lot of investors are concerned about the fade or the potential fade in the Fidget Spinner story so can you talk to what replaces the Fidget Spinner . Or how important Fidget Spinner has been to you . A sequinned pillow is going to replace a Fidget Spinner the sequinned pillows are so fun and its only 5 right . And i think thats whats magical with five below. Can i play with that . You can play with that. It is pretty cool you see that . How you can go both ways you can go both ways. I used to wait, wait you can play with it and go both ways. I know what you said im not saying anything can i ask you something about i love this has been brought to you by Andrew Ross Sorkin youve got eight worlds the entire score youve got style. Room, sports, tech, crafts, party, candy, and now. What would it what would it take for a ninth word . There isnt one, is there . Youve got it all right there. Youve got the whole world i think thats what makes five below so unique, you know, were not an Electronics Store were not an Apparel Store you know were not a, you know, kind of go through it. Were not a party store. But what our customers expect is this sense of discovery. And what you like a treasure hunt. And you cant do that you can do it a little bit online. Were t. M. Max for kids this is our heldly ball this is a fun item it flies no it doesnt its like a drone it really is like a drone you can put on eye out with that thing. Thats cool, too how much is that five bucks. You notice a theme here spiedman. You notice the name five below. Thats why . Its not the temperature inside the store. Not the temperature this is like the old dollar store. Everything below five some things are less than five they are. Five below. How do you like my coffee mug . All the things he got here hes trying to gouge people with because theyre all five this one is 3. 50 what the hell is that thats a coffee mug would you rather drink out of a cnbc mug or that mug ill take the cnbc mug. Im sorry on this one, joel i like the cnbc is that 5 . This sort of pashmina i brought this for melissa. You know, pineapples are hot they are. Thats the latest trend . Is that to replace the Fidget Spinner . A little kimono for you to keep you warm on the set i think andrew needs this as you were walking by him, he was like what am i chopped liver . You can share the pashmina. I already gave andrew a spinner. I want a spinner. I want the bigger spinner. Give me that one did you only bring one of those . Ive got another one right there. This is for you we brought a lot of fun things this is for you thanks, andrew. Thank you seems like we like the children to have their toys so this was cool. All right cant eat any of this stuff im hungry you dont have any we brought candy, too we have a huge candy section cramer gets his candy from five below really . Yeah. He always talks about it okay. They have the best prices joel, thank you we appreciate it. This has been fun you got to come to five below. Its just a great place for teens and tweens and families just let go, and have fun. So thanks. All right, treasure hunt. Thanks, joel thank you okay. And like inflatable pretzels weve got to go. Ouch i hurt myself hes hurting himself with the Fidget Spinner very important interview, a cnbc exclusive with United Airlines Ceo Oscar Munoz were going to talk sector sectornomics, Quarterly Results and the recent pr nightmare the airlines have faced. Futures, dow slightly off. Nasdaq and s p both up back in a bit. Shares of Vertex Pharmaceuticals soaring on positive Cystic Fibrosis trials. Meg tirrell joins us with the details. 32 billion company all of a sudden it was already a 32 billion Market Company adding about 27 premarket with about an 8 billion move on these results. These were highly anticipated data they had two Cystic Fibrosis drugs on the market already. Those can only treat a portion of patients with Cystic Fibrosis, just less than half because of the genetic mutations that drive this disease. Theyve been working on triple combinations of drugs to extend treatment up to 90 of patients. You can see the drugs they already have on the market getting to about 30,000 of the 75,000 patients with this disease. So, these are mid stage Study Results that came out late yesterday. Surpassing wall street expectations improving a measure of lung function by way more than people expected between 9. 6 Percentage Points and 12 Percentage Points to put that into context, jefferies said anything about 2. 5 Percentage Points would be considered a success here. So thats why youre seeing this stock moving up. I wish we had more time to talk about is it the root cause of the disease it is these are the first drugs to go after the root genetic cause it can extend life . You know, i mean theyve only been on the market for five years. But its the root cause of the disease not just the symptoms of the disease. Thats right. Its actually fixing the biology that such a heart breaker. Its huge in biotech. All right, meg, thank you thank you okay coming up when we return ap encluxive interview with United Airlines Ceo Oscar Munoz on the companys Quarterly Results. Plus or on todays big budget unveil congressman diane black is going to join us, chair of the House Budget Committee and later senator Heidi Heitkamp is our guest your joints. Or your digestion. So why wouldnt you take something for the most important part of you. Your brain. With an ingredient originally found in jellyfish, prevagen is now the number one selling brain Health Supplement in drug stores nationwide. Prevagen. The name to remember. Well wait. What did you think about her . Morrow. Its definitely a new idea, but theres no business track record. Well, have you seen her work . No. Is it good . Good . At cognizant, were helping todays leading banks make better lending decisions with new sources of data so, multiply that by her followers, speaking engagements, work experience. Credit history. That more accurately assess a business chances of success. This is a good investment. Shes a good investment. Get ready, because were helping leading Companies Lead with digital. Media mega deal talks Discovery Communications and Scripps Network trading higher on reports the two companies will merge earnings central shares of United Continental hit turbulence after reporting Quarterly Results. A cnbc exclusive interview with Ceo Oscar Munoz straight ahead plus googles plan to outfacebook facebook. The tech giant launching a new feature this morning that might look a bit familiar. The final hour of squawk box begins right now live from the most powerful city in the world, new york, this is squawk box. Good morning and welcome back to squawk box here on cnbc live from the Nasdaq Marketsite in times square im joe kernen along with Andrew Ross Sorkin and melissa lee. Becky is on assignment put that thing down. Is it making you hes got a fooidget spinner. Makes you feel calmer. Maybe you should use one. Do i look not calm to you futures are indicated down just under two. The nasdaq indicated up about 14 and the s p up 1. 3 points at this point and weve got treasury yields, which had kind of an interesting move yesterday, big rally in the bond market. Ten year now 227 addictive Fidget Spinner. But harmless. But it is calming me down i was starting to fidget with one and you saw i hurt myself. It went flying off the i dont if you practice do you get better i why dont you guys see . Well practice. Some of the big stories were watching this morning. Morgan stanley out with earnings the firm reported quarterly profit of 87 cents a share revenue beat forecast and Morgan Stanley also hiked its Quarterly Dividend to 25 Cents Per Share from 20 cents. Announcing also a 5 billion Share Repurchase program also, Discovery Communications reportedly in merger talks with Scripps Networks while theres no guarantee the two will reach an agreement both stocks moving higher on that news discovery Ceo David Zaslav joined us right here on squawk box yesterday heres what he had to say about media content disruption before the news came out. All Media Companies on the content side are down between 30 and 40 . And theyre down because theres this question of, its a terminal value question. You come out of the tunnel, who is going to have the i. P. Thats going to survive theres 7 billion mobile phones out there. Whos going to get on those screens . Whos going to be the emerging company thats going to be relevant on all of those platforms . In the long run, content i think is going to continue to win. Right and hopefully well have the right ip discovery and scripps has discussed tying up before, two years ago. They abandoned those merger talks. Well see where this one goes. Also a nonprofit Disability Rights Organization filing a Class Action Law sought against uber claiming that the Ride Sharing Company discriminates against wheelchair riders. That lawsuit said although uber offers Wheelchair Accessible vehicles they count for fewer than 100 of the cars dispatched in new york city uber has disputed that claim saying they have expanded access for all riders including those with disabilities. Shares of ibm in the red the company Beat Estimates by 23 cents with quarterly profit of 297 a share but revenue fell short of expectations. Declined for the 21st consecutive quarter. Ibm also saw Profit Margins shrink across all of its units the stock would open here at about ninemonth lows. Telsey Advisory Group upgrading chipotle citing confidence in menu innovation and aggressive sales plans. This comes after a new food scare at one of its restaurants in virginia. Meantime a very different view over at beamo which downkraded to a market perform from outperform the analyst there saying Media Coverage of the norovirus outbreak will outweigh the severity of the incident and create samestore sales weakness that was a huge decline yesterday. Norovirus it doesnt come from the food chain which is the good thing for chipotle which is equally bad in my view. It sounded like it was a real bout of some horrific whatever the person got was not good usually norovirus is on a cruise humantohuman. 4,000 people on a boat in another stock on the move this morning get to an important interview as well. United airlines. Phil lebeau joins us now with a very special guest this morning. Phil phil . Good morning, andrew. Let me bring in oscar munoz, ceo of United Airlines the morning after your report, better than expected earnings top and bottom line beating the street the stock is under pressure in part because of your guidance for passenger revenue for the Third Quarter. Anywhere from down 1 to up 1 thats weaker than many people were expecting interesting i think good morning just to start off with we had an outstanding quarter. You did Beat Estimates. This is probably our fifth quarter in a row that the margin gap between us and the industry has narrowed and our Operational Results in a quarter were outstanding, in fact led the nation in arrival, departure and completion and we finished second in fbr so were very happy about the Second Quarter. With regards to Third Quarter guidance i think united is firmly, and i mean firmly on the right path and a quarter does not make a lot of difference the simple difference is others have guided a little higher. Part of it is that theyre cycling. Some issues, some negative issues from last year. And then its a forecast and so well see as the quarter develops we feel very, very strong about our path the other metric thats getting a lot of attention is revenue asia pacific and in particular china down 5. 5 that is such a huge market so important to united, has been for many years whats the issue there is it the growth of your competitors from china the Chinese Airlines or is it the fact that you have these developing markets which are a little lumpy in terms of developing that revenue . Its a combination of all of those things such a massive market from a population perspective that connecting all those customers from the inland aspects of china, and to the coastal areas is something that a lot of airlines are jumping in so weve got a lot of competition a little bit of softening of the economy that drives americans to china. And so the combination of that, and one of our Biggest International regions for us is causing some of our some of our degradation. And one last question and then the studio has one. Is there any indication, because initially the incident with dr. Dao being removed from the airplane, there was a lot of social media backlash, if you will, in asia. Any indication that that impacted bookings, demand, revenue at all coming out of asia no, listen. That was a concern and i personally traveled out and saw some of the highest people in government in both china and japan, just to make sure, and i have to tell you, in the course of my week there, i dont think i got one single question on the aspect its all about growth, secondary cities, demand and capacity and balances in Airport Infrastructure and growth. So it was an allbusiness conversation despite that were very concerned with that issue and making sure that, indeed, theres no lingering ish issues from that incident i know theyve got a question back in the studio okay, great, phil, thank you. Mr. Munoz its great to see you. You know, watching the industry, its not specific to any one airline. These things that these interactions with the public, which are inevitable youre running its a very difficult business to run where everybodys happy all the time, with weather, and with mechanical issues, and dealing with the public. We know about the public sometimes, you know, theyre obviously not the easiest thing to do. So, it just seems like its going to happen forever. And the most you can probably say is to all your employees, please be nice please be nice whenever you can, please treat other people like so, with that out of the way, i dont know how you things are always going to happen but what takes up all of your time right now, every day in terms of operating this airline better is it, you know, you had a merger, you had to put the Computer Systems together, you had to put employees together. What is it that united is working on each and every day that you spend like 15 hours a day working on right now well, listen, i appreciate the empathy with regards to the Customer Service aspect. Its a new era with regard to social media its just something that we have to adapt to and accept but overall, other than just being nice, we do have to train and develop and nurture a more values oriented Customer Service policy when you ask the second question, where i spend a lot of my time, part of this business, its so dynamic and complex and large that you really do have to divide and conquer and we built a great team at united and everyone has their little niche, and for me, right now, between the governmental issues, and the Customer Service issues, i think thats the area that i spent most of the time with. Oscar, one of the things that im curious about is given how price sensitive customers are, and weve now looked at this and had all sorts of guests on the show talking about the price sensitivity, literally a dollar or two here and there, will literally change the decision of a customer, and yet, then we talk about ann coulter, and her situation on delta how do you even think about that i mean the idea of that the product itself is not, these days, unfortunately, what the customer is after . That its still such a price issue. Yeah, i think one of the things that, at least i found out over and many have in the industry, is that of all the Customer Service desires, and needs, price is one of them. And in the last 30 to 40 years, absolutely, i mean price on an absolute basis is actually decreased. So what discuss mers in the Airline Industry have gotten over the past few decades is price reduction. And that is the primary driver after that you get into reliability, get me the heck where i want to go and then we have to work and part of our Customer Service training is around flexibility and information. We have such rigid rules sometimes that they can be policies and procedures that can be adapted for the moment and information when things do go wrong as you mentioned its so important that we tell customers whats going on as best as we can. And were trying to do that. We dont often know ourselves, for so many different factors, reliability, flexibility, information are the three critical Customer Service orientations and providing the right price points so people can fly. Is there another airline that you think does it well right now . You know, i think in general, the industry as a whole, the legacy carriers in particular, and some of the smaller players domestically, and sometimes abroad, i think the industry as a whole has made a huge improvement both in dynamic pricing, giving customers choice, Customer Service orientation, reliability, flexibility, and information is what were all working on. Oscar, im curious about the go ahead. Go ahead melissa sorry about that, phil. I want to ask oscar about asia pacific and specifically china phil had highlighted theres such great competition i go to china fairly often and i fly over on kacathay is there a level Playing Field competing in china against the domestic carriers . You know its a big market with lots of entrants. Visavis some other places in the world where we face very unbalanced level of competition, china would not be my first concern in that regard oscar one last question, and its with regard to the denied boardings. Youre trying a new policy as a Pilot Program and i dont think youve actually picked it off except for in a few flights here but youve noticed that youve cut denied boardings in june, with this new policy is this essentially a way for you guys to say, in advance, lets nip it in the bud before it even exactly from day one, we have to deal with the root cause of issues. And our involuntary boardings are down 88 and of course in the last couple of months so were very happy with that were rolling out up to ten things that we talked about we would do essentially nine of them are completed with the tenth any day now so were very happy about all the developments as weve always said that was the first chapter. Weve got another set of ten or so well announce shortly around the area of flexibility to make our customers life even easier. Do you find there are more passengers who want that who will say look if you let me know in advance im willing to either make changes in my plans or say sure ill pony up some extra money, et cetera the reverse auction aspect of that is thats the last remaining part of it that will be rolling out fairly soon we found and other airlines have tried it as well and i think it works. Joe, go ahead i dont like i never thought id join a club that would have me but i do go in the united club, oscar is it done at newark when its closed, its like its like for remodeling so im expecting big things like allday breakfast. Im not sure what you want to institute. Thank you im not sure about allday breakfast. Listen, we are renovating our clubs across the system. In new york, specifically, well have a new polaris lounge in the First Quarter of next year across the system, unfortunately when youre doing the renovation is a little bit disruptive to our customers. And yes you can expect the best out of us because thats what you get. Oscar before you go, just one question with the tsa. We recently heard that the feds are not going to have an extended laptop ban but theyre going to make it a little more complicated when you do go into the airport. How much communication do you have with the tsa . And what do you advocate for well you know, we worked with tsa for some time with regards to collaboration and communication, and now with Home Security with regards to the initiatives theyre thinking about. We will comply with everything thats out there there are some stations that will be a little slower because of equipment availability. But i think at the end of the day, we need to communicate to customers if, indeed, theres going to be an area where it might expect a little bit more of a delay so especially with the big travel season here in summer out to europe well make sure well let customers know if they need to get there just a little earlier on the return following up on that, we know that american has made a deal with analogic to buy some of these 3d scanning machines. Are you in the process of considering that, whether its with analogic or one of the other Technology Companies saying well pony up and buy some of these machines thats what the collaboration process is the answer is yes. Clearly we will workwith whatever suppliers are available to us. Again at the end of the day its about the customer and all these directors and issues are real to a agree, and we have to make life for our customers a little easier so well invest in the right things and collaboration with tsa and Homeland Security oscar munoz, ceo of United Airlines joining us exclusively on squawk. It says on the screen up there, joes flying out next week dont help him out just so you know oh, i cant accept any special treatment. But i actually no im kidding. Let me message you, phil let me message you thank you. Appreciate it he looks great, too looks awesome. All right. Still ahead the budget battle congresswoman diane black helped write the gops blueprint. Shell join us plus the next step for health care could a bipartisan solution be on the table . Well talk to democratic senator Heidi Heitkamp at 8 30 and later the original host of man versus food, adam richman, is taking on extreme dining and it could get messy hell join us here on set. Stay tuned youre watching squawk box on cnbc we cut the price of trades to give investors even more value. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. Lets get over to wilfred frost. He just spoke to the cfo of Morgan Stanley hey, wilf. Yes, indeed so a reminder the head line out of the results for Morgan Stanley in terms of the overall trading performance they were only down about a percent year on year. The net for the peer group down about 12 . And during the middle of the quarter when others were guiding down 10 or 12 , james gorman would say that sounds about right for us i asked whether he was being coy or whether they picked up in the final month. It was a mixture of the two. They did say there was more Central Bank Activity in statements in the final month of the quarter. That helped activity but also i think he was coy in terms of that guidance. In terms of how they did do better than peers, the important thing is they said europe was particularly strong but within the fixed income i said they were a product of their environment. That the changes they made in 2015 now allow them to do well when the quarter is strong, or do well in a defensive quarter like this one and that is a stark, stark difference to what we heard from the cfo of Goldman Sachs yesterday saying it was down to client activity. Clearly Morgan Stanley didnt experience the same thing and managed to perform now, interesting thing in the earnings that some analysts are picking up on, rwas, risk weighted assets wejt up about 7 Goldman Sachs fell so are they increasing their Balance Sheet using some of their Access Capital to try and seize the moment when others are weak to gain market share and they said that they can continue to increase the capacity, theyre very comfortable with it they have the Balance Sheet support, so they wouldnt say specifically theyre doing that on purpose to try and steal market share but it did sound like they have gained a little bit, and selectively they say they can continue to bring in more talent across the firm if they need it i asked if they were hiring specifically in fixed income and from Goldman Sachs and they wouldnt say that but just said broadly they can continue to do that interesting increases in risk weighted assets. Also dont wand to want to underplay the risk management. Revenues at 4. 2 billion and they hit the top range of their margin in that business, 25 which is the sort of target to reach by the end of the year the Wealth Management a decent area to highlight as well. A decent set of numbers and these shares up in the premarket. Okay. Thank you, for that. We appreciate it in the meantime, we want to tell you the house set to mark up the republicans budget blueprint today, but chair diane black has called the proposal a plan of action house budget chair black joins us right now good morning to you. Good morning. So, the markup begins whats the first thing thats going to get marked up well it will be our budget and our budget this year is set to increase the spending for our military because we know that the military has been decimated over the last eight years, and with all of the additional threats that we have around the world we need to make sure that our military is ready. And that were defending were making sure that our men and women that are serving have what they need to serve. We are looking at this being a vehicle for doing tax reform which is obviously one of the things that all americans are looking forward to a fairer, simpler and flatter tax code that is, i dont want to say the third rail, but it is the topic that we all have been talking about for the past year since the last election. What do you think the chances are that we actually get tax reform i think its good im very encouraged by it. Were all working to the and looking forward to working with the white house, and working with our senators. We are having meetings, and talking about what we all want and were about 85 there. Theres still a few things left to do but i think were going to have tax reform by the end of this year. In fairness to you, when we asked, i think about health care earlier in the year, and so many of your peers and colleagues, whether they thought wed get that through, they were optimistic, and yet here we are. Why would tax reform have a better shot . Well, i will say that were working together, both the house and the senate, and also the white house, and so unlike when we did health care, we didnt have that kind of dialogue that was going on and i think this is very helpful that we know right now where the issues are, and that were able to figure those out before we put them on our floor. Where do you see the fault lines, just even within your own party when it comes to taxes at this point there is some discussion about whether we should be using a deficit neutral, or idea on this whether we should many people feel that when you do a tax reform, that obviously that helps us to be able to stimulate the economy. And that you will see the taxes go up. And so some people dont believe that we have to worry about it being deficit neutral. But many of us do believe that that is the way the tax code should go so thats one of the fault lines that we have to come to that conclusion about and where are you on that fault line i think that it has to be deficit neutral. I do agree that there will be an economic boom as a result of that when taxes go down people have more money in their pockets. Theyre going to spend their money. That means that theres more services and more jobs, that are created as a result of that. And so i still believe that we should make sure that when we do that we balance it so it is deficit neutral. Congressman, theres a piece in the journal today on the debacle. The Affordable Care act debacle. And they really do take it to task to and not quite a dozen but about nine republicans that, you know, sort of, that are at least partly responsible for what happened. Are you unhappy with some of your colleagues in the senate there that were elected for a certain reason or in the past had voted when it didnt matter for this to happen, and then were didnt have the political courage to follow through on what they had done so many timesbefore whats the mood . Whats the feeling for some of your colleagues . Well, i will tell you on my part, it needs to be done. Look, weve got people that are suffering in this country. The Affordable Care act is not working, its obvious. Its falling apart on its own. In my own state of tennessee the premiums have gone up by 60 , 70 . There are some places its gone up over 100 just because someone has a card on the exchange doesnt mean that they have a service, because the deductibles are so high so we know its not working. And in my opinion, as a nurse, as someone who has been in the Health Care Field for over 45 years, i want to see people have an opportunity to have something that they can afford, something that they desire themselves, not what washington has told them they need, but something that they make that choice on this is what i want, and this is a price that i can afford. And we cant get there right now. So i want the senators to get the job done so we can move forward to help the American People and will i get mad at someone . No, i know that they have their own opinion but at the end of the day weve made this promise, and we know the American People are suffering. Lets get the job done and i dont want to give up until it is done congressman we appreciate your time today. Thanks youre welcome. Well see coming up a key read on housing in just a few minutes. Well bring you the numbers. Stay tuned youre watching squawk box. Good morning welcome back to squawk box right here on cnbc live at the Nasdaq Marketsite in times Square Google escalating its war on facebook the tech giant launching a new future this morning called google feed. Its a stream of news articles, videos and links customized for individual users using the companys app. If it sounds familiar, it is because it is similar to facebooks news feed and will include more sociallike features and the ability to follow favorite topics however, google says it is not trying to duplicate facebooks news feed. Were just seconds away from Housing Starts were watching the nasdaq looking to extend the gains up 20 points in the premarket dow looking to add 15. S p looking at about 3. 6 take a look at the 10year yield. 2. 655 actually 2. 27 here as its rounded but were down about 12 basis points for the week that is a pretty big move for the 10year yield here again expecting june Housing Starts lets get to Rick Santelli who is standing by to give us a lowdown on the numbers from the cme in chicago rick all right were waiting june read on Housing Starts and permits and looking to see how much theyve improved Mortgage Applications rose all right were expecting a number around 1. 16 million on starts we ended up with more. 1. 215 million seasonally adjusted annualized units. Thats up, i dont know, im ciphering maybe a little over 7 we did have a positive reversion, much better number 1. 09 last time upgraded to 1. 12. Pretty good news there lets look at permits, what may high ahead up over 7 . Close to 7. 5 . 1. 254 million seasonally adjusted annualized units besting expectations no revision on the 1. 16. Just about 1. 17 last time. Which gives you close to 7. 5 . As i look up at the screen i see 227 basically unchanged on the day. Basically hitting senior we settle at 2015 where we settle at 2016 was 244 so pretty much if you look at the settlements for the last couple years they proved ongoing importance with traders and the al goes. We should pay close attention to the boone yields after testing the 60 level have backed off in the mid 50s. Pay close attention to the spread hovering in the low 170s. The distance between yields the more that narrows the more potentially we could see policy getting on the same page although many question how Central Banks will accomplish that melissa lee, back to you Rick Santelli, thank you. Cnbcs senior economics reporter Steve Liesman is here. Steve whats your take on these good numbers. You know, were still right in that range and the question is going to still be asked as to when ever did we break out of the range . And i do this every month. I remind that we were up near 2 Million Units on an annual basis back in the heyday and nobody quite knows what the right number is for this situation let me go through the numbers. A strong number on the Single Family starts here 849,000. Multifamily, 366 thats been a little bit challenged and when you talk about the weakness thats happened over the past several months a lot of its been in the multifamily sector as rick pointed out, big numbers in terms of the permits, which say that things are going to continue going on. A lot of talk about whats challenging housing. This rise in rates a little bit when it comes to the federal reserve, that a little bit maybe has translated over to the mortgage market. The tariffs on lumber is something to said to reduce Homebuilder Sentiment in the data yesterday available losses just want to show you one chart that looks at demographics, which to me is destiny when it comes to housing you can see we had this huge housing boom at a time when the 25 to 44yearold population, those are the people who go into buying houses, was declining on the year over year basis and now youre back to who knows, back to normal, back to where youre in terms of housing relative to the population growth if you want to sell houses, you want to have people in that 25 to 44 year range but we built all this housing into that decline in that population can i just say this President Trump just tweeted, kind of interesting. Having lunch, i will be having lunch at the white house today with republican senators concerning health care they must keep their promise to america i dont know what that means exactly. Is it off . Is it on is he letting it fail . Is it ed clean repeal is still going to be voted on because they want people on record right the ones that arent going to i dont know if that changes things sorry, steve im pretty much done. I was going to check the fed probabilities when it comes to that Interest Rate hike. Earlier today, the third hike was trading at a record low probability for this contract just 37 remember we were up above 50 so continuing to dial out the housing numbers aligned with the Second Quarter growth of around 2. 5 . And if were lucky because thats what the house budget is building into their budget we can stick around that 2. 5 number and continue doing that and that would just some of the numbers in the house budget. You have a favorite in the open championship . Starts tomorrow. Which open championship you know, just that answer just that answer tells me how disconnected i to not even hear between my outside interests in fishing and music, joe, i dont have time. If you fish a lot you cannot play golf. Thats a terrible cast. Its called casting if you hit it right youre doing a spinning cast. Im just telling you im going to start golfing with you the golf swing and the fishing movement are not good together no its true but things like followthrough and do you lock your wrist when you i dont no, i got a plot of problems what do you do with your left toe . Thanks, steve numbers are in hedge funds had a big first half of the year, leslie picker joins us now big in terms of doing well hey its actually kind of a surprise hedge funds posting their best returns in the first half of 2017, than any period since the First Six Months of 2009 the depths of the financial crisis now, this is this is very two markets that could not be more different, for example the vix was quadruple the price and the sfund was a third of levels. To be sure, according to industries returns this year 4. 9 which is a far cry from the almost 17 returns from the first half of 2009 they also trailed the s p in the first five months of the year. Hedge funds tend to outperform that is partly why weve seen years worth of pain in the industry now whats causing this turnaround, one thing it isnt its not the computer driven strategies we hear so much about. They gained a mere 3. 2 in the first half of the year, compared with the more traditional funds known as discretionary they returned double that, about 6 so, at least for the first half of the year, you can thank good oldfashioned stock pickers, guys hmm, been awhile. What did we decide do they have any clothes just what everybody left. Everybody got out. Right did that mark thats always the way it is always the way it is. So what kind of returns are we talking about whats the best . And whats the average interestingly enough, the more equity focused strategies are doing the best activist driven, those are doing very well whats the best were looking . Activist, actually. Whats the number 6 . 6 for the first half of the year whereas markets up 17 the markets up 17 and obviously theyre more of a private equity style investment where you go in, you have, you know, very strong dialogue with the ceo, try and make changes very quickly. The challenge for activists has been that the market has run up so high and activists are value investors. So whatever theyre doing seems to be working, at least at this part of the year but not really if you could just be in the s p yes if you could be in the s p and be levered in the s p theyre still naked and most of those guys ive seen i dont want to see naked. Touche. Okay. Thank you, leslie. Thank you coming up, senator Heidi Heitkamp real good. I love this senator. Just shes got the fargo thing going. Youll see what i mean but shes very good. Very smart going to Talk Health Care, securing our future for coal shell join us right after the break. You betcha she will. Stay tuned youre watching squawk box on cnbc wheres jack . Hes on holiday. What do you need . I need the temperature for pipe five. Ask the new guy. The new guy . Jack trained him. Jacks guidance would be to maintain the temperature at negative 160 degrees celsius. That doesnt sound like jack. Actually, jack would say, hey mate, just cool it to minus 160 and were set. Good on ya. Oh yeah. Thats jack. What if we could bring you by having better values . At blue apron, we work directly with more than a hundred family farms. So instead of spending on costly middlemen and supermarkets, we can invest in the things that matter most making farmland healthier. Cutting down on food waste. And bringing you higher quality, fresher ingredients for less than you pay at the store. Because food is better when you start from scratch. Get 30 off at blueapron. Com cook youre in the match app. Now tap on the new missed connections feature. It says ive crossed paths with kate six times this week. That is a lot of times. Shes cute too yea how did i miss her . You didnt. Match picked it up for you. Check out new missed connections on match. Start for free today the power of a low volatility investing approach. The power of smart beta. Power your clients portfolio with powershares. Before investing, consider the Funds Investment objectives, risks, charges and expenses. Call 8009830903 for the prospectus containing this information. Read it carefully. Distributed by invesco distributors inc. Sfw Senate Majority leader Mitch Mcconnell huddling with republicans in hopes of finding a compromise on the Gop Health Care bill. We just heard from the president on twitter, ill be having lunch at the white house today with republicans senators concerning health care. They must keep their promise to america. Now joining us, north dakota senator Heidi Heitkamp and in a one of my fantasies, senator, i thought you might, because of where you stand politically, i thought you might actually make up for one of the rhinos that the republicans were going to lose in health care i thought you might make up for it and vote for the was that just what i called it a fantasy, not going to happen that was really a fantasy not going to happen. What should we do then . Are you willing to work in some way to to fix some of the parts of the Affordable Care act that need fixing do you think thats something that would does it have a chance of actually happening, senator . I think it does, actually you know, i got here, i didnt vote for the Affordable Care act. And i campaigned saying theres good and bad lets fix the bad and so i introduced bill upon bill, went around, tried to shop that around bipartisan, and this has been such a partisan issue what would be great is today we claim the partisan debate about health care is done, lets bring people together. And if i were in charge of this, theres ten governors who sent a letter saying we want to sit down and be part of this discussion, those governors have to administer these programs, theyre bipartisan, bring in the governors. Listen to what they have to say. And lets start fashioning this together in the other bit of good news, lamar zoalexander suggested in a press release that hes going to Start Holding hearings in the Health Committee so i think were starting to see that dam break and were starting to see ideas perk late up and id love to hear what the governors on what they think the fixes are. I have a whole list of things ive been trying to do lets sit down and work this out. So id like to say politically, lets just bury the political hatchets, and lets start doing our job here the political hatchets are still being buried, in the opposing partys heads on both sides. And its still having let me ask it this way. So the republicans decided to, you know, to not take the recess right away not necessarily for the Affordable Care or for tax reform but for all these appointments now, youre more to the center than a lot of your colleagues. Do you think senator schumer is would you be doing his job the way hes doing it right now . Or are you content with the way hes running your party in the senate do you think its helpful to the country at this point . I would love to see these nominations move more quickly. Unfortunately, were at a spot where we dont see, because so much attention has been on health care. If we say health care, take the vote, lets move these nominations in an expedition fashion i think that were being hurt in places like Homeland Security, and treasury, and hud by not having those nominees in place. So id love to see those nominees expedited when you go to work every day, and you see senator schumer, and you see you know, Mitch Mcconnell and you see whats going on, you think about, like, i dont know, what did you used to do before you were a senator is it looking good oh, its just another day in paradise every morning i wake up with a renewed sense of optimism, and it takes about an hour before im like, oh, its not going so well senator, but on this topic of chuck schumer, you can put him aside. I dont know if you saw James Carville over the weekend saying, we talked about it yesterday, that the Democratic Party doesnt have a leader right now. Do you think thats right . I think we have a lot of leaders. I think one thing we dont have and you see that borne out in public polling and when im out and about is so what do you guys stand for . What are you about and i can rattle off about 20 things that i think are critical and important. But i think the overarching discussion for the Democratic Party isnt there. And frequently the void is filled by someone who is the presumptive nominee. We dont have that and so, i think were in this process of seeing opportunity for anyone to step up, and Start Talking about what the Democratic Party stands for. And what we intend to do and honestly,ist very diverse. As you can imagine, i introduced the raa with senator portman thats not a very wasnt received very favorably by the progressive groups but i think i can make an argument that its n got to be part of our discussion i think i can make an argument that tax reform has to be part of our discussion. We just would do it differently. We have to do health care fixes. Lets have that discussion so ive always believed that good policy is good politics and so too often we put the politics and the ideology ahead of getting things done and you see it has just ground to a halt here in washington, d. C. Do you see yourself potentially voting with the republicans on tax reform . Do you think thats going to happen i mean, honestly, when its all aid sand done do you see yourself as a yes there . I dont know what it is you know, people ask me all the time, joe, you know, are you going to what do you think of tax reform and i used to be the tax commissioner so i know a little bit about it but i say, tell me what it is. And then they look at me like what do you mean and i say oh, is this where we broaden the base and lower the rates . And they go, yeah. I go, tell me what it is are we going to see expensing exchanged for deductibility of interest thats not good for agriculture. So im going to evaluate whatever proposal comes my way based on whats good for my state, and what makes sense fiscally responsible sense in washington, d. C. And for the country. I think we had jason furman on, or i know we had him on, but i think he said even if it was dynamic scoring would assume 300 billion that he would think that that might be okay. You dont need a completely paid for tax cut . You could see something thats not totally revenue neutral that you might be able to vote for if it accomplished some things with Corporate Taxation, and other things, you could go that way . I think the last time that i was on, i think what i talked about is pairing this up with infrastructure because infrastructure is just another way of accumulating debt when you dont repair the roads and bridges, and you pass them on to the next generation, thats passing on debt in my mind and so lets put these two things together, and lets talk about how we can, in fact, create a packagethats good fo the american economy, you know, its interesting because you get a lot of argument from conservatives that public spending isnt stimulus. But yet tax cuts are and so were in this kind of philosophical debate what im saying is theres a deal to be made. And id like to see the details of the deal before id ever commit to voting for it. All right senator, whens the last time you were in fargo . I got im in fargo all the time, joe, mmhmm. All the time you know those one of the things that makes it so cool to watch is those scenes of just complete bleak, all you see is just snow and a couple of like electrical and joe, thats the beauty of it youre struck by the awesome putty of it. You have to have an eye for it were you back in december or january when it was like below zero, were you there oh, im home all the time and i love it. I think its absolutely the most beautiful place. Ive never been there well, why are you dissing it all the time when youve never been there dis it . Im obsessed with it im obsessed with it, and im obsessed with your accent. This is not dissing this is love this is jealousy that im not there. Senator, thank you thank you take care, joe you betcha. You boetsch california okay see you later senator. When we return why ed sheeran is getting some hate on twitter plus jim cramer will join us live from the New York Stock Exchange well be right back once upon a time a girl with golden locks broke into a house owned by three bears. She ate some porridge, broke the baby bears chair, and stole some jewelry, a flatscreen tv, and a laptop. Luckily the Geico Insurance agency had helped the bears with homeowners insurance. They were able to replace all their items. Including a new chair from crate and barrel. Call geico and see how easy it is to switch and save on homeowners insurance. Wow record time. At cognizant, were helping todays leading Life Sciences companies go beyond developing prescriptions to offering subscriptions with personalized, realtime advice for lifelong, healthy living. Honey . You almost done . Nope. Get ready, because were helping leading Companies Lead with digital. The power of a low volatility investing approach. The power of smart beta. Power your clients portfolio with powershares. Before investing, consider the Funds Investment objectives, risks, charges and expenses. Call 8009830903 for the prospectus containing this information. Read it carefully. Distributed by invesco distributors inc. Om viewers had Harsh Criticism that the appearance jarred them out of the fictional world. The shows director now responding to critics saying he was surprised by the reaction saying he did a lovely job and he was appropriate for that part because he needed to sing. See i think they should only have actors on that show that live in westrose you should be from that world if youre going to be on that show. You shouldnt be just a person im so far behind. Well, i am too. But i saw lena heady in an Anthony Hopkins movie from the 90s. Twitter and social media, im ready to pull a kelly evans and just get off it. Is it worth something . Try one morning not logging on at all and see how you feel. I look at things. Dont look at it and see how you feel. Maybe i will. Tomorrow. Lets get down to the New York Stock Exchange. Jim cramer loves twitter. Its a functional thing for you. You use it i dont really think i use it. How about ibm . Whats what do you take away from ibm theyre really telling you its going to be the 4th quarter and a lot of people are just getting tired. 4th quarter is going to be kicking in one month is all youre going to have for the mainframe this one. It may actually do well because its encrypted and theres not a lot of ability to hack encrypted programs but you have to wait until the 4th quarter. Let me go be in facebook and this is a business of have you done for me now. Not what are you going to do for me in the 4th quarter. We got to go. Thank you for the shout out melissa on canada. Thats right. Candy. And nvidia lives. Candy might as well be tobacco. Except for cow tales. Get your forks ready the host of man versus food is taking on extreme dining hell explain next [ indistinct chatter ] [ intense music playing ] its here, but its going by fast. The opportunity of the year is back the mercedesbenz summer event. Get to your dealer today for incredible onceaseason offers, and start firing up those grilles. Lease the gle350 for 579 a month at your local mercedesbenz dealer. Mercedesbenz. The best or nothing. To keep our community safe. Before you do any project big or small, pg e will come out and mark your gas and electric lines so you dont hit them when you dig. Call 811 before you dig, and make sure that you and your neighbors are safe. 811 is available to any business our or homeownerfe. To make sure that you identify where your utilities are if you are gonna do any kind of excavation no matter how small or large before you dig, call 811. Keep yourself safe. Our next guest is hosting an event that will take it to the extreme. Joining us is adam richman hes a cook book author and food enthusiast this is an extreme cooking weekend. Whats happening it is its not very often that you get to be part of a first in kansas city barbecue but what theyre doing is creating an event called raising the barbecue and they have a dining table with five roller coaster style seats and in an effort to embrace the carnival fun barbecue atmosphere and they are in a three course meal progressively raising the dining table to a height of 40 feet in kansas at like the famed 18th and vine intersection and dixie ultra is actually proving the durability of these new plates theyre working on and im working with them on these campaign and they have tightrope walkers bringing two pounds of barbecue up each plate. Have you practiced this have you seen this in action. I am not the tightrope walking kind. Are you going to be thereupon . Im going to be sort of officiating it obviously they want to invite a lot of the local food personalities. Theres Football Players coming out but for me, part of the food that ive always been associated with whether in my cook books or the shows ive done are the fun food and the comfort food that the nation universally loves in any incarnation so for me its about sort of, look, i come from a single parent family here in new york city. I grew up watching the bottom line with a mom that was very value oriented so i never wanted to be a corporate show but i have had lots of barbecues ive had stuff fall on me and i was like if youre going to legitimately put your money where your mouth is and show theyre durable then here you go. Who gets to be in the seats and eat barbecue three seatings the first one theyre doing food influencers in the area and local chefs and things like that the other two seatings i am not sure its going to be im going to be officiating it and doing a Facebook Live at 1 00 p. M. On the 22nd but if youre in kc i think theyre going to have People Volunteer and get a chance to get 40 feet in the air. Youre involved in a thing called Common Threads helping disadvantaged kids eat healthier. Yes. What do we have to do in terms of the Food Industry to help you on that. Well, for example, i think its access to good healthy food but its also information what to do with it. Just saying organic or green leafy vegetables doesnt incentivize a child to have it when you realize that one in 8 kids can identify broccoli its about the integration of healthy foods. What about pricing . I think that there in also lies the rub i think that its local merchants will actually decrease, you know, the transport costs, the storage costs, urban gardens begin to emerge. We had a guest on yesterday doing an urban garden. But it does actually thats what Common Thread does theyll find local merchants and bring healthier foods to make it more accessible. Good luck. Thank you very much. Scared of heights. Thank you see you tomorrow make sure that you join us tomorrow squawk on the street is next