Transcripts For CNBC Squawk On The Street 20121010

there. our road map starts with earnings and we've got more warnings. alcoa which beat estimates cut its outlook growth because of cry in a and cummins cutting forecasts. >> the consumer appears to be holding up, costco beats thanks to higher membership fees and brisk gas sales and yum skram brands raises earnings growth targets. >> steve ballmer's bonus, is this recognition the company's got more to do for the shareholders. >> the war between walmart and amazon continues to develop, now walmart offering same-day deliverly f ly for a flat fee o. alcoa earned three cents a share for the third quarter compared to expectations of a break even quarter. alcoa lowered global aluminum forecasts citing a slowdown in china. cummines is cutting its sales in profit forecast, announcing plans to cut up to 1,500 jobs by the end of the year. so mishmosh of earnings data, some people may feel good about alcoa but it is what they say about the global economy, what they're seeing in the end markets and how did you interpret that? >> got to go case by case as klaus klein loves to detail case by case, a ceo finally been able to explain the real economier have sups tversus the aluminum company. you buy aerospace and autos in the u.s., ford is challenged by europe, gm is challenged by europe but autos are strong. construction up in the air, actual sheet rolled just okay. most importantly, i felt was he gave you hope about china. he didn't just take it away. he's talking about china doing better. trucks are horrible, we knew that from cummins. ebitda not so bad but cash flow not that hot. >> you couple it with cummins, lowering for the year, going to cut 1,500 jobs, going to start cutting work weeks, is this just cyclical slowdown? they say when the cycle inevitably comes back, these cuts will leverage them for better performance. >> the truck population is not young anymore. so i'm not saying, i want to say it is cyclical. people are very much underestimating what's happened in this country, primary truck demand in this country came from trucks to move sand for fracking. we have shut down natural gas drilling in this country. i don't expect it to come back any time soon. the rest of the truck engines are good. china is terrible for trucks. i found it was little surprising people were surprised by cummins. they told new july things weren't that good. calls in question caterpillar. i like cummins as a company but don't like the stock. >> they haven't really shut down natural gas drilling. i was down in texas talking to a number of people as you might imagine involved in the business. there's a lot of oil and the natural gas comes out of the oil. >> the oil is ramping up, but they have to transfer where the rigs are, got to go to eagleford and bach and away from the classic haynesville, however there's a story in the bismarck paper that's frightening. >> one of the first things i opened. i already know what you're talking about. >> frightening story. >> i read that every day. >> he told me the man who is in charge of permitting for fracking is saying the epa will shut down fraccing in january, period, end of story. will shut it down. >> a lot of people looking at the marcellus shale in pennsylvania, new york. >> utica shale. >> i don't mean to diverge, we want to get back to alcoa but i've been curious, there seem to be two differing opinions here about are we really -- we may be drilling less but still active. >> we're drilling like mad for oil. the rig count is very, very low in this country and if you listen to haliburton and baker-hughes you'll come away shaking. tlls' tremendous offshore drilling, thank you, brazil, a differential between west texas and brent, so brent is terrific but we have an amazing glut in oil and we are burning off more natural gas in this country than we are using, which is extraordinary, if you go to a site, no oil company wants to tell you this, but they're sitting there, you see the flames. they're sitting there burning off natural gas because they have no place to put it. >> i assume you think nat. gas trucks, all of these stocks are fulcrom stocks? >> natural gas $3.50, get a colder winter i think it goes higher. there's not enough refineries being built. dow chemical can't build them all. way too much methane, it's not cows for you people telling me in the jim it's cows. i want to emphasize this. >> moo! >> if they shut down fracking, you are going to want to be in precisely what you didn't want to be, which is natural gas stocks. >> meantime on the consumer front, yum! brands said it earned 99 cents in the quarterer, it exceeded forecasts, raising guidance after sales in china held up in the face of the country answer slowdown and costco rising in the premarket, beating the street with quarterly earnings of $1.39, same-store sales up 5%. let's tackle yum! first. it was said this morning the most unnecessarily complex financial statement of any large company in america. >> whenever you long at long john silver's system wide growth and a&w's all-american you'll end up with difficult -- of course the conference call has not happened yet. china was good, it was supposed to be bad. the whi per was plus five t went to plus six, same-store is very good. let me give you a standout. it's too funny. we had the value conference, chipotle, talking about, this was amazing, taco bell was strong. >> seven. >> plus seven. chipotle plus eight. now advertised on tv is what looks to be a healthier entry for taco bell, but the stuff that was blowing out the doors was the fattest, worst for you. >> the real price for yum! brands china wasn't as bad as expected and the u.s. continues to show signs of an uptick and you mentioned david einhorn in terms of the khcantina bowl fro taco bell stealing shares from tmg. sales for taco bell were strong thanks in part to that and also the well-known and well loved apparently doritos shell taco. >> the execution has gotten much better. i tend to actually gravitate far more from taco bell to maybe you do, too, to chipotle although i have taco bell. kentucky fried chicken remains to be a standout, still a family staple but it is where you get married in china. >> it is. >> seal of approval and they don't like dying from their food there and kentucky fried chicken has proven to be an antidote to that. >> they've got an all-day menu in china, they have breakfast offerings that get people into the kfcs, they sell a lot of local chinese items for breakfast, for instance, and they sell burgers which they sell a lot of at the kfcs in china. >> are these a reflection of chinese consumer demand, in other words these significant issues in same-store sales in china? what is this reflective of in terms of the population in the country? >> bears say wait a second, how about nike. nike was weak china. when i drilled down nike in anticipation of what i thought might be a good number with kfc. you come back with the retail stores were long, they ordered badly, they have way too much inventory. they were cutting price. the inventory glut of shoe in china is very consumer oriented, and the strength of kentucky fried chicken. >> china was up six, they did add 192 new units in china. the same-store number doesn't reflect a lot of the strength and operating profit, up 22%, much more than six. >> tier seven cities the size of philadelphia, tier one, two, three, i love the tier one, tier two, tier three. >> costco. >> $1.39, beats $1.31, same-store sales up six, x fuel, where you made your money from 1981? >> yes. they were furious i didn't -- i haven't upgraded executive. it is my bad. i've been time constrained. >> a lot of discussion about how expense self they are relative to a walmart or a target, is valuation the main theme here? >> well, the stock is expensive priced for perfection. they deliver perfection, carl, as you know, it was perfection, a lot of people thought that post jim senegal they couldn't deliver, remarkable and not losing as much money on the big screen tvs as i thought. the 60 incher was under $2000 by best buy but you have an insulation problem and it's heavy and i need some guys. >> walmart years ago gave up giving us same-store sales. target is going to do that but costco still does, not worried about it at all and people say it's because everybody's so short term focus, we don't want them to be. this is one of the longest term focused companies out there. >> they have the security of the membership fee which was higher this year, e pence control pretty good, margins up 20 basis points, the valuation call seems to be the biggest argument the bears make. >> there's more room, kfc adding, there's still more room for more costcos, the lines are still i think the biggest problem. they're too long, even though they've worked on tremendous technology at the register, i come back and say give me more costcos and i think that i am not alone in saying that. obviously in california, liquor as you said, huge, if we could get liquor in the east coast costcos, wow! liquor and tobacco, not that i want to encourage smoking. >> it brings to mind what we mentioned at the top, the war between amazon and walmart getting spicier here, first they stopped selling kindles, shot across the bow, same-day delivery. >> kindle was an interesting sign, a number of people focused on. what that means for kindle competitors as well but there's no doubt amazon competes with walmart. >> walmazon? >> it may be. >> or the age of ama-mart. >> whatever it takes. come on, jeff. >> david's pickup line. >> i'm trying. i'm trying. >> it is a tough sell. >> there's a great deal of interest in amazon given how many different things it's doing. >> let's talk about microsoft this morning, ceo steve ballmer has seen his pay package fall by 4% for the fiscal year the company trimming his bonus because of a drop in windows revenue. ballmer sees microsoft becoming more like apple. he points to online hardware and online services as microsoft's future adding the company may eventually make its own phones to build on its soon-to-come surface tablet lelet pc and cur xbox gaming console. >> is there a customer they don't want to compete against? steve, listen to me, you don't make a lot of money going up against everybody who you are supplying software too. you don't want to read the last few pages of steve jobs book, he said ballmer wrecked the company, whatever was left after gates. bumped into joel klein last night at the argo opening, where by the way the stars, i mean, that thing was like -- hey, you got to bring in a constellation. it was a planetarium. >> get affleck, damon and clooney in the same roone, i'm spooning, baby. >> joel klein was the top of that. when they decided that joel klein representing the u.s. government in anti-trust when they decided he was one more civil servant, that was the top. government plays for keeps, and never mess with the person who works because they care, i suppose, for the money. >> unlimited check and a lot of lawyers. >> one certain wells fargo lawsuit? >> i thought that was a very -- wells fargo, i think the world of management there has stunk but michael corleone explained to us earlier when he saw that man blow himself up in cuba you cannot go against people who play for free and care, that was still one more great business lesson from the godfather, the greatest business movie of all-time, "godfather ii" the good to great, great to better. "you broke my heart." >> we'll talk more about wells and get more clarity on the quarter, david, coming up on friday. >> yes. meantime after surging 40% this year, home depot getting a downgrade. we'll talk to the analyst making that call. also ahead wall street and main street waiting for apple's mini version of the ipad. does it have something in common with pizza and sex? we'll meet the guest who says absolutely. take one more look at futures, a little bit of weakness around the globe, "squawk on the street" is back in a minute. ♪ a little "godfather" music for you, jim. microsoft's ceo steve ballmer suggests the company may one day make its own phone to build on its upcoming surface tablet t would look similar to perhaps something you may have already seen. apple's integration of software and hardware in its successful iphones and ipads. in his letter ballmer said this is a significant shift in what we do and how we see ourselves as a devices and services company. so that brings us to this morning's "squawk on the tweet" and it is -- oh, cheer here at the stock exchange. fill in the blank if microsoft wants to be more like ap. tell needs to do blank. we have a new handl handle @squawkstreet. we'll share the responses we get throughout the morning. any suggestions? >> hire 18 and 20 years old and figure out what's cool. because microsoft to them is lawrence welk. >> the software and hardware companies trying to reformulate and reinvigorate themselves, they become more like apple. hewlett-packard wants to be more consumer oriented. this takes years to develop and already -- >> things move so quickly. yesterday you and i spoke to a senior executive at one of the big firms, somebody i've known for many years. he made a point which i thought was interesting, you can't assume the same multiples you did historically in terms of technology, things change so quickly. we are always going to have to have more dispoucounted pes of fast things go. will you know in ten years you'll have that pad in front of but >> do i have to go to the apple store this weekend, it was too crowded last weekend in order to put in for the new macs. i don't think there's people sitting around saying do i have to act now to get the new unit pack? >> or the new surface tablet. >> i do need to get into the store, do i need to go online? hewlett-packard is the definition of a company that you don't necessarily want to be affiliated with if you're younger, and you go to college and you find out that the i.t. programs only support apple and you come in with a hewlett-packard and you think wow i'm coming in with something the school doesn't support anymore. these are incredible things. >> has there ever been a company that held sway over consumers the way apple has? i can think of maybe the walkman, sony in the early '80s. look where they are today. >> it's interesting, in 2011 in the isaacson book, i'm referring to it as if it's king james version. >> it's a bible on jobs. >> that book, isaacson was reaching the conclusion an open system by microsoft would prevail because the market company with microsoft and market cap of apple roughly equal and apropo of your point, a year later we decided the open system doesn't work and the closed works and maybe the executive last night is right, yesterday that we spoke to. two years from now maybe we'll decide the open system is better again. it happens so quickly. >> it does. coming up next you have yet to hear it all from cramer, what does he think about a particular stock that's worthy of your attention? find out with his mad dash, that he's next. later on we'll hear from stubhub's founder, running a social video company taking on google and find out what he thinks his venture is just the ticket. we'll look at futures as we head to this wednesday open here on wall street, the dow looking to give up a little bit. much more "squawk on the street" straight ahead. when you take a closer look... ...at the best schools in the world... ...you see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... ...so they can inspire our students. let's solve this. we create easy to use, powerful trading tools for all. look at these streaming charts! they're totally customizable and they let you visualize what might happen next. that's genius! strategies, chains, positions. we put 'em all on one screen! could we make placing a trade any easier? mmmm...could we? open an account today and get a free 13-month e ibd™ subscription when you call 1-888-280-0149 now. optionsxpress by charles schwab. [ male announcer ] how do you turn an entrepreneur's dream... ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece? ♪ whatever your business challenge, dell has the technology and services to help you solve it. ♪ i'm pickin' up good vibrations ♪ ♪ she's giving me excitations ♪ i'm picking up good vibrations ♪ that song released today in 1966, jim, been a long time although the beach boys live on forever. time for "the mad dash." true religion described at the end of "squawk" as a small cap name. >> who wants to buy them because they indicate people were going to do this. now my story with true religion, i bought my kids a $200 gift certificate. my daughter said dad that's a half a pant. these are $400 jeans so the question is, would vf corps be interested, ready for another deal after timberland. i have weisman on that. pf corps ready to do a deal after tommy hilfiger, or in the end is this a company hanging around for a long time and people feel there's room for $400 jeans. when you put yourself up for sale these days and you're in a power brand people want you. ralph lauren, pbh, bf corps three of the strongest stocks in the market. i'm curious to see who is behind this. >> talk about what bernstein is staying about viacom. >> downgrade from hold to sell. david says the stock is like almost every day hits a 52-week high. this is weakness in mtv. you know what? if this is weakness and this stock does this, who knows what would happen if things get better. i was surprised that mtv was not so strong. that was on top of maybe knick loadian coming back. "jersey shore" a one-time spur. i do not want to go against anything involving something in redstone because the buy-backs have been positively auto zone like in terms of being there every single day. i don't want to sell this thing, i don't know why they do. it's been a real bad sale. >> the power of snooki as somebody said today. >> she's having another? i don't know. >> is she? she just had the first one. >> you never know. >> we're going to take an early break. well mart holding an investors' meeting. should the slogan be make money, live better? we'll drill down on the chapter with the latest earnings showdown. it's coming up after the opening bell in just a few minutes. we don't call this our company, we call this our mission. green toys teaches children that if i have a milk jug and i stick it in the recycling bin it can turn into something new. chase allows us to buy capital equipment to be able to manufacture in the states to the scale we need to be a global company. with a little luck green toys could be the next great american brand. find what's next for your business at chase.com/mainstreet oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. now save 50% on banners. a short word that's a tall order. up your game. up the ante. and if you stumble, you get back up. up isn't easy, and we ought to know. we're in the business of up. everyday delta flies a quarter of million people while investing billions improving everything from booking to baggage claim. we're raising the bar on flying and tomorrow we will up it yet again. and his new boss told him two things -- cook what you love, and save your money. joe doesn't know it yet, but he'll work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. he'll start investing early, he'll find some good people to help guide him, and he'll set money aside from his first day of work to his last, which isn't rocket science. it's just common sense. from td ameritrade. here we are getting ready for the opening bell on wall street, just about a minute away. one stock that will be in focus today, as it is every day, apple. yesterday it broke the 50-day moving average to reach 10% down correction territory technically on apple but it did come back and it was on heavy volume. >> there was a battleground yesterday and scott wapner's unbelievable show, is this -- can apple keep going, slice through 623, i know down 10% i thought we issued a bulletin saying down 10%. we don't care anymore. if you want to own it for investment you can do it. this is controversial, doug cass saying this is wrong, i remain convinced when we see the apple iphone numbers we will be impressed, not depressed. >> so own it before the quarter. >> speculation about an ipod mini going out as early as this weekend. it has lagged the s&p by 600 basis points since august. >> that's a tremendous disparity, when you say look, i believe in the future of some of these. one of the things doug cass was saying, who doesn't know it's cheap? the answer is many, because you have $630. [ bell ringing ] unfortunately for a lot of people who don't do the math that's a $63 stock that sells at ten times earnings. general dynamics, i think that apple's market is more robust than general dynamics. >> opening bell, nature foods celebrating at the nasdaq, cunb celebrating its listing day. >> robust, the food market that is natural foods has remained healthy week on cnbc, you and i, and sur prized how robust the healthy food business is in the world, conagra saying the healthy choice business really making just a tremendous move because people want single serve healthy food. >> absolutely. >> they also want cars that don't catch on fire, toyota recalling. >> wasn't that amazing? >> 7.4 million cars around the world, 2.5 million in the u.s. alone, a problem with the power windows, where grease was applied unevenly, you add all kinds of common lubricants to that by accident perhaps, they catch on fire, no injuries or deaths yet but it's going to cost them more than $100 million, the biggest recall since '96. >> astonishing. the biggest recall since ford in 1996, and that is i mean, that was a memorable recall. toyota not only dealing with the recall but also dealing with declining sales in china and a situation that is growing worse by the day with the pboc governor refusing to go to japan for a meeting and that is seen as really escalating the tensions between the two, and with that as a back drop, toyota saw a 40% decline in september sales and exports to china specifically. >> we'll look overall asian exports but it's an interesting component, japanese exports to china down sharply as a result of what you're discussing. >> yes. >> did want to mention walmart holding its 19th annual meeting for the investment community, essentially an analyst meeting of course that they're having down there in arkansas, and mike duke, ceo saying positive things, many of which hit the wires. the stock is up a little over 1% right now. strong, getting stronger, have momentum in our business, producing top and bottom line results, we're delivering on the productivity loop and more disciplined about operating expenses and capital spending, also talked about continuing to return money to shareholders in the form of dividends and the like, really nothing negative in here in terms of the release that at least went out encapsulating the comments he is making to the analyst community talking about discipline and how walmart spends money, 11 quarters of leveraging expenses. >> remarkable, these are big retailers. i see macy's doing well, my friend stephanie link a stat up on yum! we have 58 restaurants per million in the united states. >> 58? >> 58. the restaurant and retail group remains an incredible place to be, perhaps again people are trying to figure out how could employment be so weak in this country while our retailers, they are mining the resilience of the american consumer and just remarkable how well the consumers are. remarkable. >> speaking of big boxes, oppenheimer takes a cautious view on home depot. we heard from owen s corning. is this reinforcing cautionary call on housing? >> it's a wrong call. owens corning was disappointing. owens corning has become disappointing, unlike scotts miracle gro, can't shoot straight. i think home depot, this is a question of their execution, and home depot was a miracle in the way they run. can we just be proud for a second? he turns around home depot remarkably, duke has done a fantastic job, senegal left a great legacy at costco. these people are the greatest merchants no, offense to mickey drexel who is also a great merchant. >> owens corning said home pidto was purely on valuation, the analysts talked to in about an hour's time said because the valuation is getting to peaks, 19 times is the peak valuation for home depot. you expect to stop the trade around, pull back and see buys. >> tepid. >> a tepid takedown. >> we see too many of the valuation downgrades. remember, blake on the conference call does the remarkable what percent of the consumer gdp is spent on home and it's still way below historic norms and i think that you downgrade this one when it finally exceeds historic norms, the home depot conference call is a thing of beauty and once again some of our companies, whether it be klaus kleinfeld at alcoa or blake at home depot you read through their conference call you will know everything you need to know whether that stock is in a peak. on lowe's execution, not as good but they can come back, too. >> i at the lo of jokes about that how long klaus kleinfeld can talk because the call went on and on and on. you talk about granularity. >> memo to klaus, you're funny than you were on the call. work in the east german humor t is subtle and sly and worthy of you. >> oh, yeah, east german humor. i love to read those books and the east german jokes. >> that was a comedy for you. >> i like to watch that when i'm feeling blue because it lifts me up. >> klaus is remarkable. he comes on at 4:02 with maria and bingo, got the whole rap and the idea he has to break up the company he really just puts it to rest in the conference call. i like him. doesn't mean you want to own the stock but it's good. >> down 1.75%. >> look at the free cash flow. just reminds us that you want to know the real cash position and it's a downer stock if you think the world is slowing. >> right. dow down some 21 points, let's get to bob pisani watching what else' moving on the floor. >> happy wednesday, hi, guys. it's early to talk about trends in q3 earnings. there's two trends that seem obvious to me, the first is consumer is holding up pretty. you talked about costco beating, yum! beating and raising guidance, good news particularly the u.s. consumer. the other one is more troubling the other main trend, slower global growth it seems to me is causing a number of companies to cite the fact that their customers are delaying orders, capital expenditures in some cases. this is take larry impacting the techs and the industrials right now. here is my example for today, adnet a good company to watch, a global computer partsmaker, they make data storage systems and servers as well, they're all over the world particularly in europe. good company to watch. what happens, they came out lowered their revenues and guidance as well, and they specifically cited slowdown in the americas region. so you're not just going to blame this all on europe. about 25% of their revenues are in europe but they specifically cited slow done underdodown in customers delaying new tech investments. that's a theme you're going to hear a lot about. we've heard about other weakness from component parts makers, heard intel talk about it. jabil circuit stock dropped because they cited weakness in new orders as well. it's impacted arrow electronics down, ingram microhas been down as well. this theme about being more reluctant to put in new orders is impacting industrials. we saw that with cummins this morning, had disappointing commentary, they are also specifically cited that customers were delaying orders. i think we'll see a theme here. of course they talked about the weakness in demand in china, the ceo went out of his way to talk about that. look for that particular trend about lower capital orders. i want to comment on the oppenheimer downgrade on home pi depot. it was a great call. the stock has been up 110% since august of 2011, it's been an absolute monster. they're still bullish on housing, in the early stages of a prolonged recovery but right now the valuation is at a premium. they want a little time for the price to catch up for the fundamentals to catch up with the stock price. here's the thing that made me a little crazy, guys, you didn't mention he raised the price target. he raised the price target from 61 to 67. downgrades the stock and raises the price target. i think this happened because it hit the price target. home depot closed near 61, that was the old price target so he raises it to 67. nonetheless when you talk to him you might want to ask him about that one. guys back to you. >> i got to tell you, bob, that avnet was stunning and i ma'am on "mad money" every quarter and they are the best barometer, the whole foods and safeway of that business and when they say things are not that good, things are not that good. interest rates, the euro, high yield hedging all on the front burner. rick santelli is at the cme in chicago. let's hear it, rick. >> jim, we were in a range for a couple of weeks where the closes were between 161 and 166 yield in tens and by the way 1:00 eastern we auction 21 billion of the ten-years. by the two-week chart you can see we've jumped the range a little bit, at 1.73. 1.75 is psychological. the euro, everyone was trying to decide how long it would stay over 1.30. it is sliding a bit and we can see what's going on with europe, some of the imf comments regarding over 4 trillion of alsets may need to be sold at some point by the european banks, so these stories loom large. now, there's been a lot of talk about high yield how it correlates with the s&p, how the base is widening, everybody's in love. maybe that is true. the etfs give us a different glimpse of that. investment grade year to date is pretty good. this is price, not spreads. the high yield a different scenario. many say that's where the selling is going and some of the buying seems to go in the actual securities issuance side. jim back to you. >> thank you, rick. check out the latest moves in energy. sharon epperson? >> jim, oil prices are holding pretty steady after the huge gains we saw in the previous session. we have brent crude above $114 a barrel, nymex wti crude about $92 a barrel, and we're talking about three weeks highs here for the brent crude price and nearly the highest price in a week for wti. we're continuing to watch what is happening in terms of the geopolitical situation with u.s. sending military troops to the jordan/syria border and of course tensions between syria and turkey have been escalating. we're also looking at some of the fundamental data, the latest report from opec in their monthly report saying there will be ample supplies through 2013. we'll wait to see what the international energy agency and the u.s. energy information administration have to say in their monthly reports later this week. in terms of the gold price, that $17.60 to $17.65 level has been a key area of support and a lot of traders say there is consolidation here as we've seen a firmer dollar, not much news to move gold in one direction or another but they're looking for a big move, either to the 1800 level or perhaps to 1650, got to go one way or the other and those are the key points to watch. back to you, david. >> thanks very much, sharon epperson. we've been talking about china of late given this morning yum! results and alcoa in that conference call. i've mentioned a pronounced slowdown in the growth of asian exports and i'm not just talking china to u.s., although that's an important component, i'm also talking within asia, japan to china for example, which we just mentioned but take a look at some of the numbers themselves. i think we could start with nomura's leading export index, which takes in broadly a lot of the measures we're talking about. remember, in terms of growth, so the growth is obviously slowing and slowing with some significance of late. when you look at chinese global exports you get a similar story, we're almost, in fact, kind of getting close to zero percent growth and that may be speaking to well at least what some say, is it possible that there is a looming recession? i know hard to imagine when you're talking still even what imf has growth at.8% for china, it is the leading economy there. look at japanese exports to china, we were talking about that, cars of course an important component of that, and melissa pointed out the geopolitical tensions that continue to rise, questions about whether there is really going to be even more to say about that, but toyota certainly has a lot to say which is hey we're not selling as many cars here, reflected in that chart. we can go on to japanese exports to the u.s., just to take it away from china and move more broadly, they're negative and then we get back to all right what's going on in china, what are we really seeing? i think we have taiwan exports as well to china before we get to the overall sort of question about the chinese economy. we have that? they're negative as well, gives you a sense and then finally the old chinese electricity production up against gdp growth, talking about 8.8% industrial production, even though electricity is only growing 1%, either they're getting a lot better in terms of energy use or there's a mismatch here. china isconundrum, i know, there are so many different statistics, it's hard to know but it is increasingly important for some of the investment decisions we make here. you point out there are plenty of companies you can buy that have nothing to do with it but plenty that do. >> and china, the stock market. >> i didn't even put up the shanghai index. >> it's acting quite well. >> although when you look at where it's been -- >> well when you look at where europe's been we could make the same case back june/july. >> that's pretty frightening. >> i refuse to be as negative as you are. >> china is an economy that's turned away from exports, and is more of a domestic consumption story and so taking a look at export growth only will give you only one side of the story, maybe it's a smaller side than it had been five years ago. >> that's the question, the ability of consumers to step up. they don't have the same safety net we do. there is an incredible savings rate in china, always has been. >> the retail sales for golden week, they were good, they're 17% compared to 19% last year. and so that will really tell you that the chinese consumer during that holiday week was still out shopping, still out traveling even though we're seeing headline numbers on gdp coming down. >> some use that as a bearish number, the 17 versus 19. also interesting both countries face a huge sort of bipolar political decision in the next, uncertainties i should say in the next couple of months and our market when you compare the two, jim, behaving a lot differently than shanghai. >> i would point out for the longest time there was a secular shift story rural to urban in china, that had been behind a lot of washing machines, toasters, just using it as consumer appliances. i am not a believer that we should be a seller of china. i am more interested in buying china. the stocks have gotten cheap. i know there's financials. you could argue the financials are all lies. i can't go there. i do point out that joy global has been saying the electric numbers have stabilized. >> yes. >> i'm just giving you the other side of the trade. >> i'm glad. we'll be following it. >> that's what makes the market. home depot shares up more than 40% this year but is the run coming to an end? we'll talk to the analyst who is downgrading the dow component this morning. and in his letter to investors, microsoft ceo steve ballmer is looking to take a page out of apple's playbook. fill in the blank, if microsoft wants to be more like ap. teple needs to, tweet us, twoo. as we head to break, look at the early numbers on wall street. "squawk on the tweet" for wednesday morning, in an annual letter to shareholders, microsoft ceo steve ballmer suggested he sees the company becoming a little bit more like apple. this morning we ask to you complete this sentence, if microsoft wants to be more like apple first it needs to do blank. bluemont writes, microsoft's ballmer needs a turtleneck and a hoody. >> twiga gets mr. ballmer on to retirement. duck writes get gates away from buffett and move back to work. >> i was in elliott house, the house of kings. >> you can talk that way. >> ballmer is my agent and there's a lot of time left. i don't know if, remember mr. donald, i guess it was howard came back at starbucks, i don't see that happening here. i think that gates enjoys his role very much of being a world class humanitarian. >> you don't see it happening but would it be the best thing for the stock if it did? >> i don't know. i mean we could be having this discussion about intel. it's not that avnet is telling you -- everybody got it wrong that wasn't apple. maybe i'm being too defensecy for ba defensive for ballmer but people don't like the software, they don't like the hardware. intel is a 22 -- >> 352-week low yesterday. >> yeah, not just ballmer. the fault is not necessarily in ballm ballmer. it could be in the service. >> absolutely. when we come back, apple expected to launch the ipad mini later this month but is smaller better? we'll explore the pros and cons. but first -- ♪ >> coming up, cramer has stocks to critique, and he has just seconds to do it. ♪ in 60 and he knows it find out if he can, when "squawk on the street" returns. smart comes with 8 airbags, ♪ in 60 and he knows it and the world's only tridion safety cell which can withstand over three and a half tons. with can ♪ [ male announcer ] the exceedingly nimble, ridiculously agile, tight turning, fun to drive 2013 smart. ♪ tight turning, fun to drive 2013 smart. at the guaranteed's lowest price.attresses plus, pay no interest for 3 years on the best brand-name mattress sets. get your best rest ever from sleep train. ♪ your ticket to a better night's sleep ♪ ♪ simon hobbs here to tell us what's coming up at 10:00. >> good morning to you carl. we'll look at whether the $10 same-day delivery from walmart makes it more like amazon. can you profit from that announcement? we'll look at yum!'s earnings, still potential there and you've doubled your money in home depot over the last 14 months. is now the time to take money off the table with home depot? that and more in the next hour of "squawk on the street." >> in the meantime "six in 60." dollar tree. >> i like this call my neptune dollar tree and south have never looked better. >> monster beverage. >> if you're going to put the calories on the sodas look out. this is not what i think the health care officials mentioned this, this is not good cardiac wise. >> morgan stanley downgrading barrick. >> the gold stocks are terrible. plain and simple good call. >> johnson controls downgrade. >> this stock is way too expensive. wouldn't surprise me if it went down to there. >> credit suisse recommended by imax. >> they need growth in china. raffle lauren, pbh, don't forget, pbh is great, ralph lauren is doing terrifically well and eric weisman the king of retail because the f corps, pbh bf. wow. >> for more, sots.cnbc.com, you've dropped more names in one hour. >> it's pretty amazing, and george clooney was there, matt damon, ben affleck, we all hung out together. not! >> speaking of name dropping who is on tonight? >> we have ron sheikh. this is about go healthy, it's healthy week but more importantly about their kiosk strategy and making their businesses on fire, two people who would say be careful about panera same-store sales. >> nasdaq had its worst day in a long time. third of the s&p tech sector at three-month lows and negative again today. >> avnet is the barometer of tech because they sell everything and this is worrisome. it may be apple versus the world now. >> it's true. see you tonight jim at 6:00 and 11:00. when we come back, do costco's results mean you should join the club? that and a lot more straight ahead. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. hey, it's sandra -- from accounting. peter. i can see that you're busy... but you were gonna help us crunch the numbers for accounts receivable today. i mean i know that this is important. well, both are important. let's be clear. they are but this is important too. 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costco beating the street's estimates as fourth quarter earnings up 27% on some higher membership fees while yum! brands brushes off some of the china fears. >> walmart going straight for amazon's jugular in time for the holiday season. it will launch same-day delivery for goods purchased online so as the rivalry grows, who will come out on top? >> toyota recalling nearly 7.5 million vehicles around the world. u.s., japan, europe and else where, on the basis of a faulty power window switch, so as toyota's turn-around story, is it now in jeopardy? first back to the consumer rebound and a big earnings within the space. costco trading higher after fourth quarter earnings beat estimates. brian nagel and michael yoshika any, founder and ceo of destination wealth management and a cnbc contributor. michael, good morning to you. >> good morning. >> i read a headline describing the results as solid but not thrilling. i wonder if you agree and the stock is obviously up more than 20% this year. >> it takes a lot to be called thrillings nowadays. is a talled report. the fees are increased, sales are up and it's pretty clear to me that the treasure hunt philosophy is still working for costco. this is all the stuff in the middle that they make you walk by as you get to the milk in the back of the store. the other thing i want to make a point of, carl, costco is the kind of company that is going to do well in a difficult economy and if you believe the imf, if you believe slowdown is coming this is a type of retailer that will capture market share. >> because of the fees, because of the demographics? are you arguing their audience is less affected by a downturn in the economy, given their relatively high income level? >> i think the fees are a given. they are continually trying to drive membership fees. what i'm arguing is the demographic that they serve is going to be more cost conscious. i think that all of the stores, i heard jim talk about dollar stores, i think all of the stores basically work to try to deliver goods to consumers at a cost effective way are going to capture market share than the so-called standard retailers. you're seeing exactly the same thing with outlet malls capturing business from shopping malls. >> brian, i want to get to you and we'll talk about your home depot downgrade in a moment. part of that downgrade, the crux of it actually is a valuation basis. when it comes to costco we're looking at a stock trading about a 29 pe, about a 26 forward pe. help us understand historically what the peak valuation for costco is and where you put that in terms of its peers, because its shoppers are not the walmart shoppers out there. they're more like the nordstrom shopper. >> that's exactly right. so i look at, my only concern with costco is valuation. that's the reason i have not been recommending the stock for the past several months is valuation. the company is performing well. i disagree with your other guest. i think they offer a good value proposition but like you're saying, costco does appeal to a higher income consumer. that's really the reason they're so insulated in this environment, they're going after a high income consumer with a decent value proposition. >> michael, obviously gas prices are a real factor here, they tend to sell at a loss, it affected the quarter, this quarter. is it your view that will continue to be at least an influence on results in 2013? >> yeah, that's the thing that oftentimes investors don't recognize that gas does influence costco. oftentimes they strip it out when they're talking a little bit about, when they're talking about what their earnings look like. i think it will be under pressure, although it's hard for me to imagine gas at $5 a gallon doesn't have more downside than upside and a quick comment, if i was unclear, i completely agree with the other guest. i think they are going after a high-end consumer that is trading down, as i think melissa correctly pointed out. they're going for nordstrom's consumer, looking to be more efficient. >> and yet at the same time, michael, just to ram home that valuation point, it's twice as expensive as for example target or walmart in terms of what you're paying for the earnings. >> yes, i think that's something you do have to be cautious about. i think costco obviously has had a huge run. we've done very well on the name. i saw that jim a couple days ago said you probably want to be taking profits. i certainly would be peeling off profit at this point but i think costco is a kind of name, like a disney, that i think could be a core holding for an investor portfolio, just make sure you take the profits as a stock run. >> as some people have done over the past couple of days. brian, quickly, your home depot note evaluation call, downgrading even though the price target. can you characterize your level of worry, even if it is specifically about the stock price? >> look, i've been telling our clients all morning, the only reasons behind our downgrade are near term valuation and the recent momentum in the stock price. i've been a big believer and remain so that the u.s. housing market is in the early stages of recovery, and that home depot is well positioned to benefit from this. i think the stock you're basically going to see for the next couple months, three months or whatever this is a period of consolidation as the earnings grow into the premium valuation. >> so even though you're raising your price target to 6 which would put home depot shares at a 52-week high you're telling investors to be cautious prior to that price hike. i'm trying to understand why not ride that stock to 67, if you're in it, to a new 52-week high before you take the rating down. >> the way my team and i look at our companies, our recommendations all the time, and what basically happened home depot crossed our prior $61 price target. when this happens my methodology as we look at the earnings, say given all that's going on in the world, how are we off in earnings? we're probably light on earnings near and longer term, and then we say how much do we pay for those earnings, and so i'm looking out to 2014, i think a 17 multiple basically makes sense for home depot and its recovery trajectory that gives you a $67 price target. i was looking at the stock, $61 to $67, that's not enough to justify an outperform rating. there's still upside in the stock, it's more likely to be muted than what we've seen over the past several months. >> even with those valuation worries on home depot, those worries don't carry over to costco, at least not at these levels? >> it's a bit of a different animal. they're both so to say high multiple stocks but the way i look at home depot is home depot is operating decently off of peak operating levels so there's still earnings and sales slack in that business model. the other big positive for home depot is that they are really in my mind one of the best plays on the housing market recovery in the united states. now costco on the other hand is really a company that's to their credit operating at peak levels. so there's not as much slack in that business model. so you can't really, in my view, line up both multiples next to one another even though they're both high. >> interesting, too, really interesting stories. thank you for your time. >> thank you. let's go out to rick santelli, he's got some joemlts data in chicago. >> august job openings, the ultimate number 3.561 million, down 32,000 from a very larger vision last month at 3.59, but if the original number would have stayed that was released in july at 3.664, this would have been down over 100,000, expectations were much larger at 3.74 million. so we jolts continue to see interest rates creep up not a lot, ten-year knocking on of 1.75, of 21 billion more of them. >> rick santelli when i hear about the job opening data i think of course to the unemployment report that we got on friday, and all the conspiracy here toists out there, and i don't want to stoke that but if the job openings were basically unchanged, i'm sure people are wondering out there, how can that be? >> yeah, they're worse than unchanged. if you look at the revisions, anywhere from down 32 to down 103, no matter how you want to benchmark it. this is a big issue in my opinion for a while, that the feel or the flavor of the economy doesn't match up with the metrics that give us the substance that underpins the economy, whether it's equity prices, whether it's what's going on with how cheap aer capital is showing up in high yield or investments that maybe are questionable and especially on the jobs scene. yes, these numbers don't paint a very bright picture and when you factor in the great conversation you had about what's going on with the autos in japan, based on relations with china, what's going on with europe not only from the fact that they have to export, but also their own domestic consumer demand, it starts to paint a picture that i think once again it's flavor versus substance. >> rick, thank you. we should note this day is for the month of august and the jobs report was for the month of september so okay. walmart going the straight for amazon's jugular with the loss of same-day delivery service in time for the holidays. it will be enough for the big box retailer to steal key market share? and we'll talk latest venture, a direct threat to your local google plus hangout. stay with us. [ mujahid ] there was a little bit of trepidation, not quite knowing what the next phase was going to be, you know, because you been, you know, this is what you had been doing. you know, working, working, working, working, working, working. and now you're talking about, well you know, i won't be, and i get the chance to spend more time with my wife and my kids. it's my world. that's my world. ♪ ♪ good news in retail this morning, walmart is going to launch a $10 same-day delivery regardless of the size of your order. that as the company comes through with its shareholder meeting today, and a conference call at 5:00 this afternoon, clearly a lot of questions still about the bribery scandal in mexico, to be answered. courtney reagan is at the walmart shareholder meeting with the latest. >> hi, simon. i'm here in englewood cliffs. when the bribery allegations surfaced in april walmart said it would have an update on the investigation in roughly six months. it's roughly six months, no updates so far from today's investor meeting. walmart's ceo mike duke says the additional store approval steps are now in place in mexico, duke hinted walmart will reveal ways it plans to increase its capex discipline like it has with merchandising expense. it takes a direct hit on dollar general and general grocer competitors encouraging consumers to bring in their receipts and compare prices. mcduton noticed back-to-school was strong and sees it continuing for the holidays. walmart is doubling its ipad orders for the whole day season and focusing on social media engagement projecting three times as many impressions this year, 100 twitter elves will be helping to suggest gifts and provide customer service. walmart u.s. ceo bill simon briefly touched on the 12 location test for same-day delivery from store merchandise this pits it directly against amazon. yesterday analysts toured stores and met with executives, traffic trends at walmart u.s. remain up with grocery, apparel, toys and more and help from cold weather and early halloween sales. >> thank you very much, courtney reagan. let's get more on walmart. joining us from the walmart investor meet something joe feldman, senior analyst at telsey advisory group. the session it's up by 2.6%, as far as what you are hearing from walmart management what makes you optimistic about the stock? what stands out to you? >> well i think the momentum in sales are continuing, they are well positioned for the holiday season and doing a lot to control expenses. even walmart accelerates store growth they are going to shrink capex by $500 million and that's something investors wanted to see as well. >> how do you put in the same-day delivery model into your model in that, do you think it will ultimately cost walmart money to float this idea out there? >> we've been arguing it's something walmart should go after. they have 4,000 points of distribution in the united states and why not try to leverage it better, why not get that customer the product in the easiest, fastest way possible and ultimately it becomes a value and volume play for walmart and i think that the incremental sales would certainly offset the expense to do it. >> are you sure about that, joe? the analysis seems to be it's three or four times as expensive to ship from a store to a local area than it is to actually ship from a centralized command and control warehouse. these are apples and oranges. they're not comparable, are they? the headline is great and it's boosted the stock, one of the reasons we're higher but they don't compare. >> no, you're absolutely right. it is more efficient to ship it directly from a warehouse to the customer, but this is the customer convenience and if the customer is online and wants to buy something and have it delivered to their house same day, doesn't have a chance to go to the store to pick it up, doesn't want to wait an extra day or two for another outlet, why not do it what is best for the customer. >> but joe, i'm a member of amazon prime so i pay my $79, $80 a year, most of what they ship me is free. if i'm with walmart i can ship as much as i like with $10 but it's not the same comparison, not the same product they're offering. >> look, i think it's a market test and they haven't figured out exactly the best way to operate it. one of the markets hasn't launched yet, the bay area and you're actually right, how much money is amazon making on that amazon product? >> a loss. >> exactly. so i think walmart is trying to devise a way to be somewhat neutral. they'll come to it. they'll figure out if they need to drop the price and not even have any shipping costs on it, they'll figure that out. they'll get there. >> joe, they always stress a few themes at this meeting. discipline on cost is something walmart stresses. what else struck you this morning in terms of the presentations? >> well, i think the enthusiasm around the walmart u.s. business, it was interesting the first note i wrote, bill simon who runs the walmart u.s. decision wrote "sounds a little peppy." he was in a good mood, confident and looking well for the holiday season. >> joe, in terms of how they are set up for the holiday season, what are you getting a sense in terms of inventory and how they're stocking up. some analysts get the idea walmart is goingor a higher price point, one example was the keurig brewer, at $229, traditionally a higher price point than what has traditionally been in the home goods category and addition of beef with no anti-biotics. do you think they're trying to go that higher end route? it didn't go so well a few years ago when they tried it. >> i don't think so. i think there's some key items that are popular out there that everybody wants, an ipad, everybody would like to get an ipad, and with lay-away program there's a way to do that for a customer spending $600, $700 on it. the same thing with all of the different products they have a lot of them are key items that will be on lay-away. earlier in the segment you mentioned the ipad orders this year, that is a lay-away type item, and so i think starting lay-away a month earlier they say that they've already exceeded the volume they had last year, so they're doing a good job in building that up. >> joe, a pleasure to speak with you. thanks for your time. joe feldman joining us from the walmart analyst meeting. >> toyota recalling nearly 7.5 million vehicles in the u.s., japan, europe and else where due to a faulty power window switch, so if another crisis surrounding vehicle safety, is toyota's story jeopardized for good? still ahead could china's economic slowdown hurt large caps, whether or not the businesses should be to your portfolio. speaking of cli in a takehi listen to this. >> here are five items you can find on a pizza hut menu in china, fried cod, black pepper steak pizza, barbecue chicken in fried rice, mushroom chicken tarts and oolong tea. over three and a half tons.td small in size. big on safety. oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. 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[ male announcer ] the endlessly customizable 2013 smart. ♪ news this morning of the biggest vehicle recall in almost two decades. toyota announcing it's calling back 7.4 million vehicles globally. the automotive maker says it needs to fix malfunctioning power window switches which may emit smoke. the toyota recall clocking in as the industry's biggest since 1996. phil lebeau, doesn't sound good. >> it isn't, simon but in the whole scheme of things, this is not a huge deal in terms of the cost to the company, no injuries associated with it. it's still a massive recall. look at the numbers we're talking about here, as you mentioned, 7.4 million vehicles worldwide being recalled, 2.5 million in the u.s. the list is too long to read off. it's between '05 and '10, the camry, the tundra, check out the website, cnbc.com, we have a complete list of those and no injuries or deaths linked to the fire hazards, so toyota says the power window switches may overheat and they may spark a fire. toyota will spend about $128 million all together fixing these switches. it's not a huge repair that they have to do, but the questions that this raises are many. first of all, toyota initially told federal government investigators that the faulty switch was not a defect, clearly they've had a change of heart in that regard, it is the largest recall by an automaker in 16 years and as you take a look at shares of toyota, keep in mind that toyota owners will be notified about this repair, if it's needed on their vehicle later this month, and it should only take about an hour to be fixed so guys, in terms of comparing this with the unintended acceleration scandal and recalls that we had two years ago, this is nothing. this doesn't compare. but when you recall this many vehicles, it does make people sit back and say what's going on with the reliability at toyota, any automaker that has a huge recall like this. >> how does a window switch overheat? presumably you have to keep playing with it. >> initially toyota told investigators there was concerns, they were talking about the grease that's involved within the component there, that perhaps there was some cleaning liquids that were applied when people were cleaning their vehicles that might have caused the sparking, and this sparking, it does happen with these types of components, simon, so in the whole scheme of things, have there been major fires that have been a huge problem? no. but there has been enough sparking and the potential is there, and that's what's behind the recall. >> wow. it would have been fascinating to see the memo from the lawyers and the engineers, phil, about whether or not to go ahead with this recall, because it does sound like the bar to actually start a fire is pretty high. >> well, true. the bar to start a fire is high, but remember, to declare something a defect, that bar is not as high, and when you have enough complaints that have been registered and there are several around the world, at some point you sit there and you say not to play on the pun, if there's smoke, there's fire, clearly there was a defect here and that's what toyota said. to fix this for $128 million, that's a drop in the bucket for these guys when you're talking about this size of a recall. >> fair point, where there's smoke there's fire. you could write headlines and talk cars, too. phil, thanks so much. >> you bet. >> phil lebeau in chicago. from toy yo to the tech world. microsoft wants to be a bit more like apple. the ceo steve ballmer suggested the company may one day make its own phone to build on its upcoming surface tablet. he said "this is a significant shift both in what we do and how we see ourselves as a devices and services company." brings us to this morning's "squawk on the tweet" question, fill in the blank, if microsoft wants to be more like apple, it needs to do what? tweet us and we'll get your responses later on this morning. world oil demand for the remainder of 2012, after several days of whip saw moves what is next for the oil trade? well, if it isn't mr. margin. mr. margin? don't be modest, bob. you found a better way to pack a bowling ball. that was ups. and who called ups? you did, bob. i just asked a question. it takes a long time to pack a bowling ball. the last guy pitched more ball packers. but you... you consulted ups. you found a better way. that's logistics. that's margin. find out what else ups knows. i'll do that. you're on a roll. that's funny. i wasn't being funny, bob. i know. make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account. plus get up to $600 then don't miss sleep train's wbest rest event.st ever? you'll find sleep train's very best mattresses at the guaranteed lowest price. plus, pay no interest for 3 years on beautyrest black, stearns & foster, serta icomfort, even tempur-pedic. and rest even better with sleep train's risk-free 100-day money back guarantee. get your best rest ever from sleep train. superior service, best selection, lowest price, guaranteed. ♪ sleep train ♪ your ticket to a better night's sleep ♪ one hour into trading. some of the stories we're squawking about, 7:30 on the west coast, 10:30 on wall street. fedex one of the biggest gainers on the s&p up 5%, package delivery company announcing plans to cut cost at its express and services units. fedex is aiming for $1.7 billion in annual profit improvement in the next three years. shares of walmart and costco rising to new all-time highs. it's a different story for intel, shares of the chipmaker falling to new 52-week lows again down 20% in the past six months. west texas crude spiking higher this morning, this is opec cuts its oil global forecast for the remainder of the year. what is next for the oil trade? we're joined by alan nuttman and sharon epperson. sharon to clear up what we are on, what opec is saying, the first of three reports that caused the government and them international report on friday they're suggesting that oil producing nations aren't doing enough to supply world oil, there isn't a problem. >> exactly they're saying there's ample supply through 2013 and the u.s. government coming out with their report just a few moments ago saying they believe that global demand will continue to slow for 2012 and 2013. we are seeing bearish reports coming out from opec and from the eia and yet we're looking at oil prices right now for today at the highs of the session above $93 a barrel. >> and the point here, alan, the fundamentals might be bearish but it's the unknown unknowns we're trading on, the hostility with iran. >> exactly. >> the snap election in israel and whatever is going on at the moment with turkey and syria. >> well the price action is telling us an opposite story, with call of the volatility for the last week, that's how the market has put in a near term price bottom. $90 is a key support level. we went from june at 78 up to 102 so the half way point is 90 and that's the breakup point from last december. there are so many price shock potentials that can push the crude oil market up. it's a sign of stability with the price action here and if we take out 93.84, that was the high on september 21st, with he could get a healthy bounce because all of the shorts in crude have had to be extremely nimble over the last three years because every time we bounce higher. >> sharon? >> it's important to look at where the brent crude contract is as well, because that is what many traders look at in terms of where this geopolitical risk premium is and the fact that we saw the premium of brent to wti at a record of $23, now some traders say part of the reason why we're looking at more strength here in the wti contract is a little bit of profit taking here. so watching the spread action is also key here in perhaps getting that wti level to what alan is talking about. >> alan, in today's "wall street journal," they quote experts, independent experts in washington who are suggesting that iran could produce enough highly enriched uranium for one atomic bomb in two to four months. now, if that is the case or if the headlines continue to come out like that, does the oil market become a one-way bet? can you take your eyes way as a trader from those sorts of headlines? >> right, it's really hard to sleep at night with a heavy, short position. those guys have had to be extremely nimble over the last four years. every time there's been a sell-off of more than 15% the markets eventually bounced back and made new relative highs so the risk is always being short that something could happen around the world and that's just one example, there are so many others. there's weather, there's other flare-ups around the world that reflect positively in crude oil so that's something that you have to contend with and i think a wild card is the dollar. if the u.s. dollar continues to unwind and those money, that safety money comes out it's going to go else where and i think crude oil is one of the benefactors, the last time crude oil was, the last time the dollar was below 78 and broke down to 74, crude oil was 111. >> sharon this is a shockingly different environment from the last time when the fed embarked on qe. more importantly, commodities like oil, massively, that's not the case this time. >> it's not the case this time and while traders are watching qe and saying easy money may be providing some support here, we're looking at a crude oil market that is very much operating on its own terms, you saw the strength in the dollar yesterday, and you saw weakness in stocks and yet oil prices rose significantly so right now, it really is an oil-centric story and has a lot to do with the geopolitical risk premium and also actually really inside baseball for these traders, the difference in these oil contracts. >> alan, we're at 93.90. let me get a target if i may from you on wti. >> we did take out this channel top that we've been trading in for the last three weeks. it moved to the breakout point around 97 and to get to 98.50 is about the percentage amount that if the dollar declines back down to that support base at 74, that should push crude up to somewhere around the 98.50 level. you'll see unwinding in the dollar as the theoretically the world gets a little bit more stable that that money comes out of the safety of dollars. >> fascinating moves. alan, thank you for your time. alan knuckman and sharon eppers epperson. yum! brands is a big earnings mover. time to dig deeper here with yum! shares up about 8.5%. we bring you jeffrey bernstein, senior restaurant analyst at barclays and rachel with the susquehanna financial group. rachel i want to start with you and china, because yum! is seen as a proxy by the chinese consumer. there is a top line miss in china but a big margin beat. can you help us understand what was behind the margin beat and whether or not this is an improvement in margins we'll see in quarters to come or if this is a one-off. >> obviously it's a little bit tough to tell. the company took about seven points of price during the quarter and traffic was slightly negative so it means there's strong demand underlying the fundamentals, but what you had for the first time in seven quarters, commodities were up 2% and labor up 8%. in the face of the 7% pricing they were able to drive margin expansion, which beat our estimate and consensus. the point you're getting to, does input cost inflation and moderating same-store sales growth mean further down the line we'll look at a slower overall gdp environment in china and obviously that would be up for the macro to decide but the question is out there, it's a valid point. >> jeff, when you look at the stock's reaction, up 8.7% in today's session, what do you think is behind that? is it the fact that the u.s. is continuing to show signs of improvement or more of a sigh of relief that china wasn't as bad as it everybody thought it could be? >> good question. of the two options i would definitely vote for the latter, which would be i think the shares of underperformed over the past quarter on the fears that china slowed even more than anticipated, and ultimately with them coming out with a 6% comp. in the region, while it is a deceleration, people demonstrated some relief that it wasn't worse. >> rachael, the costcos are talking about various levels of inflation and deflation, things like electronics but inflation in things like proteins and i wonder, you talk about china effect, but i wonder whether here we'll start to see some menu prices creep up at taco bell and kfc. >> i think you bring up a valid point. we had the biggest drought we've had in the u.s. history back to the 1950s and so while china obviously surprised to the upside and the u.s. saw pretty decent margin gains up about 460 basis points partially because of refranchising as we look at the futures pricing for next year, specifically in the protein category you should expect to see some margin headwinds as input costs inflation, meaning soybeans, wheat and corn are at near record highs which will translate into higher chicken, dairy and beef in 2013. >> it possible to push margins higher? in particular the doritos tacos have done extremely well for this business. >> you bring up a great point, simon. if you can drive positive traffic and take price, if the consumer demand is there, then commodities would just be another head wind but you should see some flow-through deposited of store profits. sorry, go ahead. >> i hate to interrupt you but as you look through your coverage universe, who is invoe know vating at the moment and most likely to succeed next year? >> the ones with the strongest pricing power and strongest comps, you highlighted yum! brands and we look to panera. mcdonald's are putting up low to mid single digit comps but they have the strongest i'll call it the best economies of scale so the best ability to drive a hard line on price and that should put them in a good position next year. >> jeff same question to you in your coverage universe what do you like the most? >> to your point on commodities, we think we're best positioned with the most diversified brands rather than brands that just focus on one specific product so in casual dining we highlight brinker, essentially chili's, a diverse portfolio and great momentum on comp. and margins and similar to what rachael mentioned earlier, mcdonald's, wasn't their best year in 2012 we expect a bounce-back in 2013 benefitting from improving sales trends and pricing power to protect margins. >> just on that subject there's an article out this morning about the huge price discounting that mcdonald's is going through in europe where it's two for one, two for one, from poland right through to the uk. doesn't that worry you? isn't half of their income coming from europe? >> absolutely. europe represents close to 40% of mcdonald's' profits. periodically they have to push more value and in essence that sustains traffic trends, which is definitely what they want to do in the short term and what they've found is two to three quarters out the consumer reverts back to their normal ordering habits which helps drive the average check higher and helps protect margins so it is a short term defense mechanism to keep traffic coming in the door, we would expect longer term they'd be able to bounce back from that. >> jeff and rachael, thanks for your time. >> thank you. >> thanks for having us. brian sullivan has been bearing the traffic in jersey. hello, brian. >> thanks for bringing that up, simon. anyway, sorry to be late. i should have walked. h&r block, hrb stock is falling today. the reason y the company hired goldman sachs to review strategic alternatives around its banking unit, yeah, it's a tax prep company but they also have a bank and essentially the ceo is saying listen, with dodd-frank's new higher capital ratio requirements, it's going to eat into profitability and it may mo longer simply make sense to own a bank, so they've hired goldman sachs generally when companies do this, guys, as you know, stocks tend to go up. not the case with hrb, that stock is down 5% today, kind of like my mood. back to you. >> oh, it's going to get better. can't get any worse, brian. >> yes, it can. >> thanks a lot. one ceo sent quite the surprising e-mail to employees if president obama is elected he'll have to lay off workers and downsize his entire company. who could it be? up. a short word that's a tall order. up your game. up the ante. and if you stumble, you get back up. up isn't easy, and we ought to know. we're in the business of up. everyday delta flies a quarter of million people while investing billions improving everything from booking to baggage claim. we're raising the bar on flying and tomorrow we will up it yet again. but proven technologies allow natural gas producers to supply affordable, cleaner energy, while protecting our environment. across america, these technologies protect air - by monitoring air quality and reducing emissions... ...protect water - through conservation and self-contained recycling systems... ... and protect land - by reducing our footprint and respecting wildlife. america's natural gas... domestic, abundant, clean energy to power our lives... that's smarter power today. one ceo sending out an e-mail to his staff saying that an obama victory could be damning for all of his company's 7,000 workers. robert frank has more on an office e-mail now being read around the world. good morning. >> indeed, simon. thanks so much. david siegel's the ceo of westgate resorts, sent an e-mail to employees saying if obama wins, they could all lose their jobs. the e-mail said that "if any new taxes are levied on me or my company as our current president plans, i will have no choice but to reduce the size of this company." he said he may even consider shutting down the company entirely meaning all 7,000 workers would lose their jobs. if obama wins, he says, "you can find me in the caribbean sitting on a beach with no employees to worry about." now what makes this e-mail even more explosive, simon, is its author, david siegel, the man who built the largest home in america. he and his wife, jackie, built versailles, that 90,000 square foot palace near orlando. the first story was told in the book "the high beta rich." siegel buckled under $1 billion in debt during the crisis, we to lay off 5,000 workers, versailles wanted a technical foreclosure proceedings. the house was put up for sale. siegel says he's back now, he's paid off his lenders and paid off versailles. the company is now the most profitable ever. he told me in the interview last night that he has "enough money to last the rest of my life and for my children." still siegel says he's being "taxed to death and people like me who made all of the right decisions are being forced to bail out all the people who didn't." he also told me last night he wasn't trying to threaten his employees. he was just trying to educate them. he said, "what does threaten your jobs is another four years of the same presidential administration." back to you, simon. >> i'm just having difficulty with two facts that you just gave me, on the one hand he's saying i have enough money to give up my business and for me to live in the caribbean. >> we don't know that's a fact. >> -- with my family and my children, and they will be fine, and on the other hand he's complaining he's taxed to death. given that he's come back from bankruptcy so rapidly, that seems unlikely to me. >> he wasn't in bankruptcy but you know, you put your finger on it, simon, the reason this e-mail is so explosive is this is the man who built the largest home in america, 90,000 square feet, saying the government spends too much and that he is taxed too much. he also says this is really not about his own personal finances but really about his workers. now he also told me that he had to lay off 5,000 of his 12,000 workers. he only has 7,000 left and that was largely due to obama, not because he had $1 billion in debt on the company or that they overexpanded. so it's the irony that you pointed to that's made this so explosive, and the reason it's gone viral. >> clearly it's not about liquidity, if you take him at his word, robert, you talked to a lot of wealthy americans, is his view an outlier or is there some underlying widespread belief in what he's saying? >> there is a widespread belief and again, if you look at how well the 1%, the david siegels of the world are doing, it's baffling to many people why they are so upset, so angry at the current economy and at the current administration. for most of us they look like they're doing great. they captured 93% of the growth in 2009-2010, but they say it's not about their own personal finances. he said look, i'll be fine. i can go to the caribbean, i'll move back into versailles. it's really about the workers, it's the companies that we love to build and we just don't have an environment in which to do it, but again if you look at their own finances, it's hard to reconcile those two. >> it's very hard to call this finances, it's hard to reconcile the two. >> it's hard when he's gambling with his employees' jobs. that's all i have to say. if you're going to take a stand and put the employees' jobs on the line and not your own because, i'll be fine -- >> he thinks he's going to make them vote the other way. >> and 7,000 votes will -- >> hey, florida, 7,000 votes could be the difference. >> that could be the difference. >> i'm going to work out how many you can stick in a house that is 90,000 square feet. >> yeah, i've been in that house, and you know, i was there for about three hours, i still didn't see the whole thing. it was still under construction. >> did you get lost? >> i did, many times, it's an amazing, amazing piece of property. he'll be fine. >> robert, thank you. >> thank you, guys. all right. still to come, we'll hear from stub hub's founder who is now running a social video company that's taking on your local google plus hangout. find out why he thinks his venture is the next big thing. but first, rick santelli, what are you working on for the next hour of "squawk on the street"? >> we're going to tackle a really big topic today on the santelli exchange. and that is why isn't anything getting done? we've heard all the stories. you know, it's gridlock, it's the fiscal cliff. but in many ways, those are excuses. there might be a much bigger issue of why things aren't getting done. think about it. if you knew that a solution to a problem was going to be very tough to implement, tough on the people it affected, would that be your first choice, especially if you're a politician and needed to get elected? or you're looking to get re-elected? is it really excuses? or are the solutions too big and too nasty for anybody to put down and face the public? that's what we're going to talk about after the hour. . 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your ford dealer. welcome back to "squawk on the street." the market flash, let's talk low slung jeans and colorful pockets last. true religion, that company is spiking today. it's not earnings, it is a possible sale of the company, guys, that stock has been way down the last couple of months. sales have been slowing down. the company saying it may put itself up for sale and it has received some interested parties, though it's not talking about who they are, of course. possibly to advise on a sale, true religion, once super hot, well, sales not, but the stock certainly is. i wear lee or geranimals depending on the mood. >> geranimals. >> i match the kangaroos. >> thank you. in the meantime, microsoft wants to become more like apple. in the annual letter of shareholders, microsoft ceo steve balmer suggested the company may one day make its own phone. in his letter, ballmer said this was a shift in what we do and how we see ourselves as a devices and services company. that brings us to this morning's squawk on the tweet. fill in the blank, if microsoft wants to be more like apple, it first needs to do blank. tweet us @squawkstreet. we've got your answers next. when you take a closer look... ...at the best schools in the world... ...you see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... ...so they can inspire our students. let's solve this. ♪ ♪ ♪ [ male announcer ] introducing a reason...to look twice. introducing a stunning work of technology -- the entirely new lexus es. and the first-ever es hybrid. this is the pursuit of perfectio and the first-ever es hybrid. chances are, you're not made of money, so don't overpay for motorcycle insurance. geico, see how much you could save. tomorrow on "squawk box," our guest host is roger altman. >> we'll also be talking to the head of the rnc. >> they might have a little debate. squawk on the tweet this morning. in an annual letter to shareholders yesterday, microsoft ceo steve ballmer suggested he sees the company becomes a little bit more like apple. we're asking you to complete the sentence. if microsoft wants to be a little bit more like the fruit, it at first needs to do what? chris writes, microsoft trying to be more like apple is like your grandparents trying to be more like your parents. james writes, create one good product like a phone and then steadily decrease that product's quality over the years. and it first needs to do nothing, neither shows any innovation as of late. >> wow. >> the harsh words -- >> insults to apple. >> that's a good point. i mean -- and pointed out on twitter, if we do get an ipad mini invite, it would usually happen in the next couple of hours. meantime, i know you're watching starbucks, as people say starbucks is spinning a web around this company and they don't even know it. >> specifically for green mountain. there was a note up from a channel checking company saying that the differential in price between the k-cup that green mountain makes and the generic brand private label are so great that green mountain will not be able to continue selling these. these things went off patent a couple weeks ago. and now they're in on the game, lowering the prices, and we'll see how long they can sell k-cups at the pace they have been selling them. >> what about tonight? >> we'll continue to track the tensions. also we've got data, you probably didn't know that 29% of investors think there's going to be a huge pullback in the market. we have david tice. in the intelligence survey. so, how about that? >> okay. we'll see you tonight. and we'll talk some imf in about 30 minutes. >> looking forward to it. here's what you missed earlier on this morning. welcome to hour three of "squawk on the street." here's what's happening so far. >> what they're doing is slowing down production which lowers the rise of costs and keeps them competitive and keeps their positions in place. >> if you want to hear the problem we have with employment, that's really the only way to go. you've got to get small and medium-sized businesses hiring and hiring vigorously and being very optimistic about the future of their businesses. >> there is a tremendous differential between west texas and brent that makes it so that brent is still terrific, but we have an amazing glut here in oil and we are burning off more natural gas in this country than we are using, which is extraordinary. i think i'm not alone in saying that. obviously in california, liquor as you said, huge. if we could get liquor in the east coast costcos, tobacco, not that i encourage smoking. >> i am not a believer that we should be a seller of china here. i am more interested in buying china. >> costs that appeal to a higher income consumer. and that's the reason they're so insulated environment. they're going after a high-end consumer with a decent value proposition. >> i think the shares have underperformed over the past quarter or two on the fears that perhaps china slowed more than anticipated and ultimately with them coming out with a 6% comp in the region while it is a deceleration, i think people demonstrated some relief that it was work. >> good wednesday morning. live here at the new york stock exchange, let's check the markets this morning. the dow adding to losses after yesterday's 110-point drubing, that was the worst point loss since august 23. but we are adding to it. and now down 51, s&p down two, and nasdaq holding on relatively to the flat line, after, of course, its worst day since july. yesterday it was tech in trouble. walmart and costco hitting new highs. walmart seeing a spike after announcing it will challenge amazon. and costco up on better than expected earnings along with higher sales and, of course, those membership fees. chevron, one of the biggest losers on the dow falling sharply after earnings, slumping oil prices would cause earnings to be substantially lower in the future. let's get the road map today. microsoft ceo steve ballmer taking a 4% pay cut, but with microsoft so far behind the innovation curve, does he deserve even worse? our segments will decide. rumors and leaks about a possible ipad mini reaching a fever pitch as anticipation for the highly anticipated tablet are expected to go out today. we'll find out if a smaller version of the ipad will be another record breaker or if it's just a bad idea. then, another day, another downgrade for zynga. analysts seem to think it's worth zip. and dominating the world in social video, the founder and ceo will give us the company's newest initiatives, all that and more in the next hour. as we've been discussing all morning long, steve ballmer saw his pay package shrink by 20% while the salaries of others rose significantly. trimming his bonus partially because of a drop in revenue. and hastings is leaving the board next month. joining us is robert kaplan, professor of leadership at harvard business school, a former goldman sachs vice chairman. robert, good to have you back. good morning. >> good morning. >> so roughly 91% of his target bonus of 620,000, this is according to the proxy that was filed yesterday, and again, they're citing windows revenue, should he have deserved the full thing or not even this much? >> my guess is he might have had something to do with his bonus and that let's face it, he owns 330 million shares, so his dividends alone are $300 million. this is largely symbolic in that he wants to act like an owner, be a leader, show he's accountable. and the fact that his subordinates get paid double digit millions in bonuses i think tells you this is largely symbolic for a ceo who wants to be accountable. >> yeah. accountable for what? we all know the challenges, the pc sector's facing in general, intel's at a new 52-week low this morning, hp can't put two sentences together without getting criticized. isn't he doing relatively well in an area that's obviously hugely challenged? >> yeah, he is. the pc demand is weak. that hurts windows. he's trying to migrate the company to higher growth areas and particularly he wants to do more device and integrate device with software. and let's face it, when you have -- when you run a $250 billion mark cap company generating growth is a challenge. and that's what he's been trying to do for the last ten years. and yeah, i actually think that he's made a lot of good decisions. it's more of a dividend stock now. they do a lot of share repurchase. it's more of a mature company. and i think his bonus may be just to show people he's hungry, he's an owner, he's accountable because you want to make sure the culture doesn't become too mature or too complacent. >> yeah, it would be easy to criticize him if he got his full bonus given the structural challenges they face. what do you make, robert, though, they need to steal a page from the apple playbook? we know they've got a lot of resources. they've proven they can be innovative. they've flirted with the low 30s in the stock, which got some people excited for a while. but really, is it microsoft eco system, is that pie in the sky after years after going in other directions? >> well, they've already introduced their own tablet. talking about a smartphone, he did the xbox, they're making a migration into more devices. and what he's trying to do is go from being an installed software company that does very well in a lot of business lines to being more integrated device and services company. and that's a tough thing to do in a company this size. so i think he's describing where they're already heading and he's signaling they're going to keep doing more of it. >> we will see if that comes to pass. we know he's got a lot of energy. if anyone's ever watched him give a presentation to employees. robert, thanks so much. robert kaplan this morning. let's get our capital markets op-ed. i'll let you intro it, gary. >> lots of good stuff. glad to see my friend professor kaplan there. we've been talking about what's been happening in the market. how it's symbolic of what's happening in the capital markets in general. i'm going to show you a deal sent to us by a smart viewer. that's how you know we're in the bottom of the ninth inning, two outs and a pitcher about to come up to bat. look at this deal, joanne stores, you may know the company, took them private. they're trying to sell bonds here, ccc plus, $325 million deal, use the proceeds on this transaction to pay off the private equity shop as well as the dividend to certain employee owners. it's too complicated to explain, carl, what kind of deal it is, but you may not get the petty cash coupon, you're going to get more bonds. this is junk. this is bad. jpmorgan, bank of america, barclays trying to sell this deal. you think jamie dimon and brian moynihan are going to make the employees and bankers who are bringing this transaction to the public? you they they're going to make them get their compensation in this kind of deal? that's something people talked about after 2007. i bet you not. this is the type of deal you see at the bottom of a cycle. there's many more, this is one they're trying to place right now. it's symbolic of being at the end of an interest rate cycle. i want to tell you, this is exactly the type of thing that is happening because of qe and ben bernanke. because bernanke has forced people to buy bonds, this is the type of -- i'll say another four-letter word, i won't say it on air, but this is the type of stuff you're getting. look at this postcard. tim, come on in here, look at this postcard i got yesterday. ubs inviting me to come to a dinner they're doing, how to prepare for a rise in interest rates and utilized value investing and potentially help your portfolio. they didn't get the memo that bernanke and the rest of the central banks around the world aren't going to raise rates in the future. the amazing thing about this, carl, check this out. i hope santelli is listening too. they're going to have this meeting and they only want to invite people, it's a complementary round table dinner discussion if you have $3 million or more in liquid assets. i thought it was great. and this is the kick on the whole thing. this -- we were talking last week about a restaurant, jon corzine was there, page six reported corzine was found having dinner where you can get an $85 bowl of spaghetti. trying to invest in this environment, guess where the dinner is? tonight, el molino. >> let me know how it goes. >> if rick wants to fly in, rick and i will go together. >> and really quickly, for those who aren't aware, pick toggle is a term we used to hear all the tile. what does it mean? >> it means i'm going to make it simplistic, you as the bond buyer are taking on significant risk for very little reward. that's all you need to know. it's the bottom of the ninth and there's two outs in the junk market. >> like seeing an old friend when i got that e-mail this morning too. incredible. thanks, gary. we'll see you in a little bit. rick santelli, i know you were listening to gary just now. >> i was, i was. and when he was talking about liquid assets, anyway that he the mf guys and the pft guys have consumed lots of liquid assets trying to forget how ripped off they were. still having wining and dining of their own. but today we're going to talk about the devolving of solving. but this one is kind of one of my favorites. we have a lot of issues right now, everybody knows that. no matter where you look, there are issues. entitlements that can't keep on course because whether it's demographics, the fact they've just grown capital, you can't spend on everything. you have to start cutting some things in europe. it's the chicken and the egg, is germany coming to the rescue? or is germany the problem? should greece be in the union, or shouldn't they be in the union? there are obviously some solutions. but the problem is that the solutions, well, they're not pallpa pallidab pallidable. four years into the global economic malaise that has followed the 2008 crash, the analyst incriminations are more than academic. they're preventing us from coming to a consensus not only how to dig out of this mess but also on how to prevent it from happening again. you know what, there was a lot of finger pointing. but i think it was a bait and switch. let's look at banks and mortgages. we've helped out a handful of large banks almost at the expense of the smaller banks why can't smaller banks get in the business? why haven't we done anything with freddie and fannie. there are a lot of solutions but they take courage to implement. that's why most of the things that have gotten done are in a crisis management style. because it sets the pick for you basketball players. hey, you don't have to be accountable for exactly how horrible most crisis management solutions are. grow up, get some courage, we know how to fix things. you just have to tell the electorate you're not going to like it but you're going to be better off for it. that's called leadership. back to you. >> although, rick, i think -- i don't want to speak for mohammed, but if we can't agree on basic data, right, which has been a problem over the past 72 hours, reaching solutions is going to be a little more difficult, don't you think? >> no, i don't think so at all. i think that the debate is whether it was a conspiracy or not. i don't think anybody's debating that the jobs market isn't nearly as good as the data. so why do we spend so much time arguing about that? because there's no viable solutions. it's a diversion. >> all right. well, i think there's probably some disagreement about that too. but we'll talk more about it later. >> of course there is and i hope they write in and we'll talk about it. >> i'm sure we're getting it now. thanks. look out apple lovers, the ipad is shrinking. one thing steve jobs would not have approved it and the other thing, will it crush sales records? we'll discuss it after the break. so, i'm happy. sales go up... i'm happy. it went out today... i'm happy. what if she's not home? 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[ male announcer ] how do you make 70,000 trades a second... ♪ reach one customer at a time? ♪ or help doctors turn billions of bytes of shared information... ♪ into a fifth anniversary of remission? ♪ whatever your business challenge, dell has the technology and services to help you solve it. whatever your business challenge, at the guaranteed's lowest price.attresses plus, pay no interest for 3 years on the best brand-name mattress sets. get your best rest ever from sleep train. ♪ your ticket to a better night's sleep ♪ invitations for the ipad mini expected to go out today. apple's been trading lower ahead of the announcement, but it's lagged the s&p since the end of august. was steve jobs right when he said a tablet that size would be too small? >> the editor in chief of mashable. we've got a debate mehere, guys. rocco, it sounds like you think although it would be following amazon, it would be easy for apple to come in with a superior product, is that where you're coming from? >> definitely. i think apple is the kind of company that they can come in and kill a category. and i think that's what they want to do here. and i'm happy to see them doing it with what is rumored to be a $350 tablet and not a $199, you know, let's try to undercut amazon or google products. so if they come in with something premium that keeps that apple brand and the status of that apple brand, at that price point, i think they'll blow the category out. and i don't think it would be something that would hurt the image or hurt the brand too much. it's not a cheap knockoff. it's going to be something of apple quality. and -- >> with that in mind, if that's what they're doing, i'm onboard. >> something that elevates the category, lance, why do you disagree? >> that's completely wrong. this is a category apple actually didn't create. steve jobs did not want to get into the 7-inch category. they more or less ignored it. amazon comes along and basically establishes it and it has sold 50% of all android tablets with the amazon kindle fire. and $199 is the price point for a 7-inch tablet. if apple arrives with a $350 7-inch tablet, which will be less of everything than the original ipad, they're not going to win in this space. i think that would be crazy. i can't imagine that consumers who are gobbling up the $199 do everything tablets like the google nexus 7 are going to get excited about paying twice as much as it is virtually impossible for apple to innovate here. what are they going to do? the device has to be smaller. >> lance, there were plenty of mp3 players before the ipod came along. they changed that category. >> it's a very different stage. nothing, at that time, nothing really took off. everybody was trading mp3 files and playing them basically on their computers and burning cd-roms, apple essentially ended up inventing that whole category by putting it all together. this is not the same situation. we have a very, a vast, vibrant tablet category, tablet market in the 7-inch space, we have all of these competitors coming in more and more every day and real competitors, not cheapo competitors, amazon, google, big-time guys making big-time bets. the only reason apple is doing this, i believe, they now understand -- >> lance, lance -- >> you have to go in there. >> slow down, lance. you haven't even seen the product yet. and i think -- i think you're misconstruing what amazon's doing. amazon's not making hardware. they don't care about making hardware. they want to give you a device that will enable you to buy more stuff from them. they're not competing with apple. if apple came in at that price point, i don't see a point for them to come in with a $200 tablet. a $350 tablet of high quality, premium apple product will sell -- they'll sell more units in one month than amazon does in a quarter of a kindle fire. >> not at that price point. not at that price point. and by the way, amazon does seem to care a little bit about hardware pause they've just upgraded all of their devices to hd. i think you're right in one thing, amazon really is interested in selling lots and lots of content. making sure you can have easy access to their store. brilliant, brilliant idea. and we all know how important the eco system is. and amazon has an eco system, apple has one. if you put it together with a $350 7-inch tablet, there'll be a problem. >> rocco, i'll leave the last point to you. you could argue it's a derivative play, right. it's stepping into a space where they're not breaking new ground, and that for apple is relatively new, isn't it? >> i would normally agree with that. and if this was going to be, again, this would be like lulu deciding we have to sell $40 yoga pants to compete with the gap or somebody. if they did that, i would be worried. and that's why initially i was scared about an ipad mini. when i hear $350, when i hear people who i respect saying the design might be slicker than the original ipad or than the bigger ipad out there now, that excites me because they'll crush the category, they'll take the category over and that gives me hope that maybe they'll be able to continue the innovation that we know them for. >> not going to happen. the head shaking says it all, lance. we're going to find out potentially a lot more in the next couple of hours. guys, thanks a lot. when we come back, santelli's going to break down the multitrillion dollar solution for the european bank crisis. we're back after a short break. l which can withstand over three and a half tons. small in size. big on safety. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account. hey, it's sandra -- from accounting. peter. i can see that you're busy... but you were gonna help us crunch the numbers for accounts receivable today. i mean i know that this is important. well, both are important. let's be clear. they are but this is important too. 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[ male announcer ] the endlessly customizable 2013 smart. let's get to rick santelli in chicago. rick? >> well, of course i have a feeling we're both going to get in trouble today. are you a fan of the imf for the research or history of their calls? >> never. if i invested with the imf, i would have been out of business years ago. >> if we wanted to weigh in on that, let's talk about something they said. they basically said if you don't figure this out, you're going to have to sell assets, the banking system, the financial system, to the tune of only $4.5 trillion. what are your thoughts on that? >> that would ultimately be a fire sale. we know they're not going to sell bonds because they're too difficult to value at this time. what is it they want to rid themselves of? and it's a dangerous time to do this because of where we're at in the economic cycle over in europe, which is why we're seeing private equity funds over the united states load up on cash and anticipation there's going to be great assets to be had. >> the great going out of business sale. let's dig down even a bit deeper. also mentioned in the story it's written about the context of $4.5 trillion. they talked about the burn factor. in the last five months, that number is close to 20% larger. i somewhat agree with that. there is a big deterioration going on as they're all fiddling on the roof. >> no question, you know. we can't get a real reading. and the european union has a meeting every other week to decide, but again, it doesn't matter at this point in time, though, rick. because what we saw at the october meeting and going back to july 25th, 26th, you have that monetary transmission channel, he now controls the whole game. because that's based on fragmentation of interest rates across europe. that gives him the latitude to basically intervene whenever he wants -- >> the second time i'm going to allude to a basketball pick. the broken transmission was his pick to kind of take control of the situation. now let's switch gears a little bit. we're talking about the ongoing conspiracy issues regarding the number on friday and you came up with the definitive comment and it has nothing to do with that. it's about ben bernanke. tell us. >> you know what? i don't want to hear what jack welsh has to say. i don't care. i do care what ben bernanke is in this because we've seen the fed put out their forecast with an unemployment rate. so i ask the question, hypothetically because i've put on my economist hat and it'll be hypothetical. let's say we get to a 7% unemployment rate and the gdp stays at 1.5%. i haven't heard the fed weigh in on that and that's the only ones i want to hear from. >> what you're really saying is qe should be over if the data's accurate and he believes it. weigh in, ben bernanke, that's ira harris asking. >> thanks so much, guys. almost closing time for markets in europe. we'll bring it to you live, along with the dow currently down 54 points. back in a moment. copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. 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i'll leave that kind of there. you'll see the eads stock is slightly higher because it's been refreshed on the two-month chart as a result of the announcement of that deal while bae systems was doing slightly better. in the uk today, its stock surged 6% on a report of the daily mail that blackrock might launch a $5 billion bid for it. a lot of analysts -- another one i should mention, do you remember the u.p.s. is paying or thinks it's paying $8 billion to get its hands on tnt, when it was announced the stock surged and it's been in a negative trajectory. reporting next week the european union will say it breaks anti-trust rules. they will have to make concessions in order to get that through. and let me finally come back to this main question of when spain will ask for a bailout. a report i thought was really interesting and caught the mood if you like of where we are at the moment. it comes from jpmorgan who was suggesting that you may not get any formal request from spain now until next year. he goes to the timing and the calendar. it could be right into next year that actually they apply some assistance and it ultimately comes from the ecb, eventually they believe they can ride out the pressure for now. chasing this 10% to 20% chance they don't need the bailout down the line. and he's pointing out you have as a result of the announcement from the ecb it might buy bonds big time down the line. the rates are low. another thing, germany, you've seen this over the last few days is much more focused on dealing with greece at the moment than spain. so they've flipped around. they were pushing greece out of the way, now pushing spain out of the way to deal with greece more imminently. >> a lot to watch this week. we thought merkel brought a lot of these yesterday, there's more today. let's get a capital markets op-ed, gary back at hq talking about closet indexing. >> we haven't talked about closet indexing in quite some time. you know i normally carry two blackberries, here it is, iphone 5. this is probably the best contrary indicator there is in terms of the stock the fact i have an iphone 5 now. i do want to talk about apple. we have talked about months and months about the relative underperformance about not having a weighting in apple. here's where things stand. and thanks to a good friend up in scranton, pennsylvania, who sits around and scrubs these numbers, he comes out with 623 million shares held by institutions. the growth funds, those are the funds that have trying to closet index and made sure they have the market weighting in apple. we could've picked two, but i wanted to pick one big and one small. we've got fidelity fund. there's discovery fund, they owned, they've got a weighting. they've got about 200,000 shares of the $434 million fund. what do they have waiting in apple? 13%. another fund, a mega fund, a huge fund, the growth fund. if you take a look at that one, they've got -- take a look and we can flip ahead here, brenda. they've got five points and 9 million shares, 5.5 million shares, $25 billion assets. apple weighting, 13%. the point is very simple, carl. we've been talking about this for some time. i think if you go across the spectrum of the hundred largest funds that are trying to closet index, they have that weighting in apple. they try to not have it. they knew it cost them performance. what does it mean now? it means they're there and market weighted. here's interpretation, the guy who sits around and scrubs these numbers was to me that this means that now they are actively managing the position and therefore having seen the 10% correction we've seen since earlier in the month, they will now try to reduce decisions because the relative underperformance it cost them is now costing them another. the tale of two cities, it's the worst thing to happen when active managers try to closet index. >> that is unbelievable. >> absolutely. >> and you look at how it's lagged the s&p for weeks now, forrer more than a month. >> and i was blown away, when i got this data last night, we showed two funds because i wanted to show it. i could show you 100 funds they've all got that 12% to 13% weighting in apple. guess what? that's probably why the stock topped out in the short-term. >> that's great stuff. >> yeah. >> back in the control room as usual. >> yeah. >> bob pisani is here. i know you're taking on a longer term issue today. >> yeah. everybody's talking about this lost decade in stocks. the editorial in the "wall street journal," ceo of blackhawk, i don't think he's looking at it quite the right way. here's the source of all this lost decade comment. the s&p on a numerical basis hasn't done much in the last 12 years. september 20th, 2000, we were about 1,437 where we are now. see this? we've got a whole decade where essentially we did a lot of ups and downs and ending up where we were before. the problem is, it's not quite the way the world works. but suppose you had $100,000 on this date, september 2000, what kind of return would you have? well, let's compare it to a few things, compare it to a bond fund, the vanguard total bond fund and the emerging markets index. it wasn't a lost decade, but stocks underperformed. the s&p would be up 125%, this is what dividends reinvested. the bond fund would be up 200% and emerging markets index up 233%. so the real winner is emerging markets. but very clearly here, we're seeing stocks underperform bonds. most people, though, invest in both of them. this isn't the way the world works. they don't put $100,000 in and walk away. people invest every month. let's look at this if you have all of these and you invested $100 every month for the next 12 years. so you'd have about $14,000 over 12 years at $100 a month. now what would it look like? every month no matter what was going on, you put in $100. the s&p 500 index if you're indexed there, about a 50% gain. the bond fund, 20,600, emerging markets, there's the clear winner, $30,000. wait a minute, though, investment in the s&p and the bonds at $100 a month. the return is the same. wait a minute, it was supposed to be a lost decade. what happened? how can you have the same returns? you can have it because of the magic of dollar cost averaging. put up the s&p 500 in the last 12 years, what you do is you're buying, remember, with that big drop to 2000, 2001, into 2002, you're buying all the way down and benefitting as the market keeps going up. and remember this in 2008? s&p dropped 50%, that was sickening, i was, i know that. but you're still buying all the way down here and all the way up. that's what dollar cost averaging will get you. in the real world, people have 401(k)s and that's the way they invest. so is it a lost decade? i'm not very happy with the returns, but it's certainly not a lost decade. you're getting returns if you invest on a regular basis. i want to thank the vanguard adviser investments and the fellas who write independent adviser for vanguard news letter. that's jeff and dan for their crunching of the numbers here. and if you want to look at this, folks, carefully, go to my blog tradertalk@cnbc.com. everybody comes on lost decade, look at the way the world really invests and you'll find it's not a loss. >> yeah. even with the dow this morning down 73, some of the consumer names holding up. it's a strange dichotomy. >> the important thing about earnings season so far, the consumer's holding up well, we see that with costco, i'm worried about the comments from the tech and industrial area. they're talking about their customers slowing down orders. that's an issue. >> yeah. they're the big ones to watch today. thank you so much. brian sullivan back at hq. >> hey, carl, thanks very much. a downgrade on monster beverage, the stock is down a little bit. there is concern about slowing sales, and this stock was $20 higher three months ago. guys kind of called it, absolutely drives me nuts. people downgrading it so they buy to a hold. look at the stock price, $54, yet their price target is $73. if you think there's $19 upside in a name, why would you downgrade it to a hold? why is that a hold and not a buy? >> i got similar call out of oppenheimer on home depot. takes it to a market perform but boostst the price target. depends on your macro view. >> if your target is 20 bucks higher, i don't care your view of the company, i expect 20 bucks more, you should buy it and get the $20. >> maybe the "fast money" guys will -- >> i like -- don't get wapner involved, that's bad news. >> he's right there. another day, another downgrade for zynga adding to the stock's losses, can zynga get back in the game? and there's a new way to connect to your tv hosts and celebrities. we'll tell you what that is. up. a short word that's a tall order. up your game. up the ante. and if you stumble, you get back up. up isn't easy, and we ought to know. we're in the business of up. everyday delta flies a quarter of million people while investing billions improving everything from booking to baggage claim. we're raising the bar on flying and tomorrow we will up it yet again. if we want to improve our schools... ...what should we invest in? 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[ rodger ] at scottrade, seven dollar trades are just the start. our support teams are nearby, ready to help. it's no wonder so many investors are saying... i'm with scottrade. coming up on "halftime," is apple's momentum over? and is ceo tim cook to blame? well, the first results are in, they're not as bad as feared, so can the rally resume? and a new fight breaking out on wall street between two retail heavy weights. details coming up and the trades, as well, carl at the top of the hour. >> okay. we'll see you in a few moments, scott, thanks. after cutting the forecast last week, zynga getting more bad news. downgraded to a neutral, new target of $3 a share, zynga down 4%, and here's a look at the downgrade. mike, good morning to you. >> morning. >> looking through your report. i mean the sentence almost leaps off the page results confirm that social gaming is as unpopular among teens as we have ever seen in our survey. what exactly did you find? >> yeah, you know, we surveyed 8,000 high school students and the bottom line is that a year ago 35% of those students said they have an increasing interest in playing social games and here we stand today and only 10% are saying they have an interest in playing more social games going forward. the data's negative. and signals, i think more of a structural issue with social gaming than just bad games at this time. >> it seems totally counterintuitive when you consider what mobile is doing why you would swim up that stream. why is this happening? why is interest fading so quickly? >> you know, i think the bottom line there is there's been a lack of favorable games recently and we've seen essentially, you know, interest at that reason. mobile gaming is extremely popular, just a different genre of games. people are effective of the "ville" series of games, and they've had a tough time, you know, replicating the success that they had with those and coming up with new games for the pipeline. >> so you've got weakening fundamentals as you point out, engagement that's declining, deteriorating monetization trends on mobile. what does zynga do other than try to preserve cash? >> that's the tough part. and i think when you look at where it spans today, all they can do is try to cut costs and try to position themselves better to maintain the bottom line. that scares us, as well, once you start cutting costs and some of the development teams and things of that nature, that's going to hurt that go-forward pipeline of games and the quality we'll see with those. >> your $3 trice target, is that just cash or credit for anything else? >> we are, basically what we're assuming is that it's a five-time to ebitda, and we are giving them credit for the building they own which they purchased for around $238 million. so we're giving them some credit for that, but you know, it is trading relatively close to cash, plus the headquarters building expense, but i think it's cheap for a reason at this point. >> yeah. there's a lot of people who given the short position might be tempted to jump in there on a lark. there is a citiville 2 announcement still impending. what might that look like? >> well, i think they are going to make it, you know, a little bit of kind of edgier game. it's going to incorporate some 3d functionality, and i think it could be interesting, but we just saw them come out with a sequel to "farmville," and frankly it didn't do well. so our expectations for "citiville 2" is low. >> creative destruction in american business, we'll see where they go in the months to come. mike, thanks for your time. >> thank you. >> mike olson over at piper jaffray. the creators of the game, "words with friends" leaving the company. why they might have left, gary. >> yeah, carl, i know very little about the stock, but as far as the company is concerned, you just pointed it out they were major shareholders of the company, they were more than developers, they were behind the entire creation of that product. i'll tell you this, from what i understand, it's about corporate governance, it's about management. and i think if you're looking at the company. again, the stock i don't want to have any opinion, but the company, a real negative. a company like this really needs to keep the gems of the people that are still there and the fact they can't, that's a corporate governance and management issue and i think it's very bad. >> yeah, part of the way you keep and recruit is through stock. it's hard to do that, gary, when you're at $2.33. >> it is. and let me just say this, when everybody is not being treated on an equal playing field, it is not a good thing. and the first thing this company needs to do to try to resurrect themselves, the company is to make certain that the people that are the future of the company and the fact they can't do that, i think is a real negative. >> yeah. as we know, sold a large amount of shares. >> exactly. >> others have not had that opportunity. >> exactly. the platform taking on google is taking it one step further. how spreecast is upping their game and why google might need to worry. back in a minute. a crash management system and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety. 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[ male announcer ] the exceedingly nimble, ridiculously agile, tight turning, fun to drive 2013 smart. ♪ social video start-up spreecast, announcing it'll work with vh1 and logo tv. the collaborations come about a month after we spoke at spreecast when they raised $7 million. the company's founder and ceo who also founded stub hub, a name you might have heard of before. jeff, welcome back. >> thanks a lot for having me, carl. >> vh1 and logo, what is the news? >> yes, we're announcing today a relationship with viacom whereby a couple of their properties, vh1 and logo are using our platform really to create adjunct content and exclusive original content, as well. >> how would it work? you end up having a conversation with a journalist? or reality tv star? be more specific. >> yeah, sure. so spreecast is a social video platform that brings people together for face-to-face conversation. so what viacom is doing with spreecast is really three buckets. one is tent pole events, where things like the critics choice movie awards they're having talent and fans interact face-to-face from the red carpet and bloggers discussing the event. the second thing they're doing is really around adjunct content to some of their court tv properties. >> a good example of that is love and hip hop atlanta. where they bring the reality tv stars face-to-face with fans and have really interesting interactions. >> go ahead. >> the third category is really exclusive content that lives solely on spreecast really doesn't have a tv counterpart and they're creating sort of original content where fans can interact with talent directly. >> right. interesting. how difficult is it to get these partnerships created? and how are you going to know when you have critical mass? i mean, whether it's through media providers or even individual channels. >> yeah, so that's a great question. we're working with lots of media companies today. we've got some that are already using the platform. for example, you know, anderson cooper has been on our platform almost daily. and so we are working with lots of media companies, we have a lot of interest from the traditional media industry. we're just scratching the surface, it's the tip of the iceberg in terms of the types of interactive content that can be created on spreecast. we feel like interactivity and social media is becoming an increasingly important part of the traditional media business. >> yeah, we had you on in september. at the time you had said that in august you had more traffic than in april, may, june, and july combined. how have trends continued since the last time you were on? >> yeah, that's right, so we've been seeing really significant growth. so, you know, our user base, our traffic all of those numbers moving up to the right. at a company's -- in a rapid phase of growth right now. and we've got our engineering team just trying to keep the, you know, keep the vehicle moving without the wheels falling off. >> yeah. well said for somebody who knows what it's like to start a new business. we'll be watching it closely. appreciate you coming back. >> yeah, thanks very much for having me. >> jeff flu hahr, the founder a ceo of spreecast. >> best known, of course, for his roles on television, as well. the dad in "webster," the man who punched the horse in "blazing saddles," recently diagnosed with kidney failure and joined a lawsuit against the nfl accusing the league of not protecting kids. alex karras was 77 years old. hahahaha! hooohooo, hahaha! this is awesome! folks who save hundreds of dollars switching to geico sure are happy. i'd say happier than a slinky on an escalator. get happy. get geico. melons!!! oh yeah!! well that was uncalled for. folks who save hundreds of dollars switching to geico sure are happy. how happy, ronny? happier than gallagher at a farmers' market. get happy. get geico. ♪ squawk on the tweet this morning. in an annual letter to shareholders yesterday, steve ballmer suggested he sees the company becoming a bit more like apple. so this morning, we're asking you to complete the sentence. if microsoft wants to be more like apple, it first needs to do blank. justin writes, needs to buy a mac for all employees so their ideas don't just disappear when their pc crashes. brian buffett tweets, make things consumers want to buy not tolerate. and rick writes do something to make it more delicious, dare i say like a juicy apple? lots of good responses. let's get to rick santelli really quick. thoughts on auto sales in china and japan. we have this banker not going to the imf meeting, it's hard to separate what the macro situation is from this incredibly tense geopolitical dispute. >> absolutely. and you know, we've had so many guests talk about this threat. i think kyle bass is the one that comes to mind. that as things deteriorate, let's be frank, conditions in china are starting to deteriorate. they've been pumping in lots of liquidity through open market operations. and i think that that deterioration is showing up in a bit of nastiness. and i think this issue that started out, all of it's true, but i think it really masked what's going on here, everything shrinks on an economic glide path, i think the arguments are going to increase the intensity's going to go upment and to me, if this shows up in a much-reduced purchase of japanese cars in china, this is getting toward the trade

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