Transcripts For CNBC Squawk On The Street 20130124

We just. Have a couple of seconds. What do you have tomorrow . Great conversations today . Lloyd flank fine and sean parker and im going to be on Facebook Office hours, so squawk box on the street begins right now and we will see you tomorrow. You are the apple of my eye one thing investors not saying this morning after the disappointing quarter. Welcome to squawk on the street, im Carl Quintanilla with melissa lee, dajim cramer. Our road map begins with a question, will apple gap down 10 this morning. No doubt you heard of last nights revenue miss, iphone miss. We will cover the quarter from top to bottom. Doesnt include apple, which is one reason it is outpacing the s p 500, sits 3 from a record high. What is the outlook for the Broader Market on this . The best january looks like about 17 years. Netflix is almost the inverse of apple, a surprise profit, betterthanexpected outlook, a stream of upgrades and one very happy carl icahn. And rolls on tonight with microsoft and starbucks, preview the numbers as we travel to crane mer rick ka. Down sharply to the lowest level in years. Apple issuing Current Quarter guidance below census. Many firms cutting apple. Here is what crime her to say about the Company Last Week on his show, mad money. Of course, things can turn around in on a dime, my trust holds on apple can still dazzle. Until then, the threats to the Apple Ecosystem are too great. The price of the goods too high, the ardor of the customer may be gown. All in all, a tough own, a tough hold, alas, a shame. Jim, you sort of said it and added last night, dont let this stock become the eclipse that blinds you to Everything Else going on. You cant. The companys Conference Call was radically opposite of what everyone was thinking. And the company just kept going back to that mantra, listen, we have the best product. We dont really need to defend ourselves. And i think that what was happening was the analysts were viciously, viciously trying to figure out you can as the call was going on, what do you pay for a company with waning growth . What do you pay for a company not as loved by the customer anymore . The answer is we got to pay what we pay for intell, what we pay for cisco, what we pay for microsoft. A lot of investors trying to figure that out this morning as well. And their price targets, could care less at this point about that the construct is 150 bucks a share in cash, 44 a share in earnings this year. Obviously lower than had been anticipated. What kind of a multiple do you put on it . Some would say the thing is too over. Give it time. Wait for everybody to figure out what they want to do and revisit, maybe next week, not that far, see where we are is it eight, is it ten is it more . The thing that is joyous is we blew it we figure this out, we like t netflix, we blew it they still like it. Apple, we havent figure it had out, they like it us. No, they dont. What was known about apple prior to this Conference Call, it sandbagged any guidance it gave was sort of a very, very conservative guidance, which they will blow out of the water in the next quarter but this time, they gave guidance for gross margin, jim, would be if if it came in that range, a quarter on quarter decline in margins in a period which they should reap scale gains for the launch of the iphone 5 at this point. On the cop friends call, my favorite part, it was asked was the guidance before something you felt confidence in . Was it a buffer this time you are saying there is a reasonable chance you will fall within. Im trying to understand the distinction. The cfo says we are providing a range of guidance we can expect to, as best we can, report within. This was a turning point on the Conference Call, a turning point in the afterhours session of the stock, a big disappointment as well. Yeah, look. This was one of these moments where youre going through it and trying to figure out, what were they doing all along in the answer, they were sandbagging. A number easily wasnt. Now they are not. Then you got ratchet it down again. You never want to hear anyone linked to intel. 4 a con ed feel on it. Never want anyone to put it in the same paragraph as microsoft. There was a time when you realized that microsoft was slowing and you just didnt even want to say it. It was just too radical. Too antithetical to what you learned. Same with intel. We are at that time. Still seems to be hope . Yes. New products. Whether it be apple tv. Lets not forget the pos of significant return of capital this company has 137 billion in cash, 150 a share. Dont you have to address that . Ridiculous. 10 billion a year doesnt make sense. Neither does microsoft or googles. What is going on here . Apple would become the instant social. Microsoft a newer company. They announce a significant return of capital that will help. Microsoft at 30, 27. Look, this Company Needs omg and it need it s it now. Miniipad, all the things they said, constrained, ipad constraint. We want something that just says, listen, can i just get into fine arts for a second, all right, go there to spots and dots, forgive me for visiting the metropolitan the museum of modern art. Need to be got to get beyond the four walls of the canvas here. Right now, another four walls of the canvas story, something that takes the leap from rembrandt too cezanne, not happening. Not too shabby. I wasnt going klimt. One of the most profitable quarters in the history of tech, down 10 . That is silly, isnt it . Huh . It is going to overshoot. Frankly, it is now underneath the intel poll, which is galling. Its galling to them. You talk about the buy back and the buy back, they made it sound like, yeah, we got a buy back, like a like i dont have a pfizer by back going. Dont buy back stock, it felt do maybe in today. Maybe go to herbalife. Talk about things you should never put in one sentence. There was a moment where you felt, listen you analyst, listen, you do not know who you are dealing with, we are apple. Not unlike nixons speech in the cambodian incursion where he said we are not going to be humbled by a fifth rate when we were a pitiful, helpless giant. Felt like a pitiful helpless giant. It just did. What did it have to do to achieve this record quarter in their history . They had the most product launches that they had ever had. What do they have in this next quarter . No product launches as far as we know right now. Lifes unfair. These the problem. A Fourth Quarter i think down yearoveryear around a First Quarter that may be down yearoveryear. Not a Growth Company. So, thats why we have to go back to multiple analysis. What happened with intel. Intel from 10 growth, okay, then suddenly, you started seeing 6 groerkwth, people wer furiously trying to put the multiple in perspective. It does it is. So, whats the number . The 386, the 486, very excited about the pentium, each time, kept the balls in the air. Apple, no doubt, do people still want you go home tonight and you want to go buy a you go to costco, a knockoff tablet or around apple tablet . I want to buy an apple tablet but people in this world that will buy the cool pad 8060 for 100. That Samsung Phone and like the wider screen. The wider screen. The important thing is listen to the discussion we are having, about another company. I know we want to get to netflix as well. Three of six quarters i believe they have missed since he has taken over, two of the last three. Jobs was 11 straight and 19 of 20 quarters where they overdelivered. Now, put that in some perspective for us in terms of conservative guidance. When does pressure build on him . Now. Already. No . We are a long way from that. A long way. Do you think let me ask you, do you think four months ago, the company was a Better Company than it is now . No i think its the same company. Same company, right . So then why do you want to pay so much . Other companies are not the same company. Samsung is not the same company. Google is not the same company. Interestingly, to put today into some perspective, the last gap down for apple was july 22, 2008. So mornings light this dont happen lot. Also by the way, know mura low on the street, 490, a fame aci research, 270. Really . You mentioned it free advertisele. A stock, General Dynamics was yesterday was a gap down. If you divide it by ten, not as vicious, but certainly a 70 stock, 46. Look, im struggling with it, too, because i want to hear what Walter Isaacson wouldnt tell me or didnt exist when i interviewed him went stock was at 600, they have got something. They have got something. They have got to have something. It certainly wasnt evidence from this call they had. Even if they have something, jim, we dont know what it is we dont know when its going to come out and dont know at what margin cost. Supposedly dont get scale on the products except the iphone 5. The iphone 54 is much beloved. I never switched. The ipad it came out, i couldnt think of a reason for t now you have to pry my cold dead hands on t not even three years symms the ipad was introduced. See how the world changing. This account and that account and this account. Over bying on the call, went werent for the questions, say, look, a pretty good company, a pretty good stock, should not be selling at the same multiple at microsoft, it just shouldnt, it shouldnt be selling at this intel 9 and cisco nine times earnings, not right, not fair. But fairness is just really not a really key issue when youre talking about stocks. No. Overshoot it. Of the s p. A fine stock, shouldnt sell at nine times earnings, right now, that radical readjustment, stocks overshoot, but i got to have something so it doesnt make me feel what they are saying in 2015, less than now. Talk netflix, filled the whole block with apple discussion that is going to set the tone for the day. Get to netflix after the break. When we come back what do windows 8 and coffee have in some mon . Microsoft and star is bucks due with earnings after the bell. What to expect from the heavy hitters. And Brian Moynihan live from the World Economic forum in davos shares, as you know, since the beginning of last year, one more look at futures. We will see how much apple does drag on the nasdaq. The dow immune from that for now. Squawk on the street is back in a minute. How do traders using Technical Analysis streamline their process . At fidelity, we do it by merging two tools into one. Combining your customized charts with leadingedge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. We like this idea so much that weve applied for a patent. Im colin beck of fidelity investments. Our integrated Technical Analysis is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. [ male announcer ] when we built the cadillac ats from the ground up to be the worlds best sport sedan. People noticed. The allnew cadillac ats 2013 north american car of the year. For a limited time, take advantage of this exceptional offer on the allnew cadillac ats. Netflix posting surprised quarterly profit. The Subscription Service added almost 4 million customers in the u. S. And abroad. Netflix said it had a strong holiday season, tablets, smart tvs and other Electronic Devices boosted subscriptions. The ceo spoke with our own julia boston about growth. If you look over the last year, we grew from the beginning of year to end of year, nearly 10 million screaming subscribers, we want to keep making the Service Better and better. Some quarters, we come in above forecast and some below, more a forecasting issue than a business issue. What is happening is internet tv this click andtch, the control you have, being able to watch on an ipad, all of those things are just very powerful and more and more people are doing that. Jp morgan and raising the stocks so now the Virtuous Cycle for more subscribers, ability to attract better content, that has started once again. Once you have one, you can get the other. Talked about the disney deal, how important that informs terms of cementing reputation. This is about streaming additions here, blew out the quarter in terms of the expectations how many subscribers they would add in terms of streaming service. Talking 27 million or more at this point, almost a tenth of the u. S. Population, we will start to hear about how far they can penetrate, get two subscribers in one household . That may be an issue. International better than they anticipated, at least better than people who follow the company had anticipated. The question, can they make it . 13 am makes, 13 cents, netflix makes. Apple a going to b. People love a d goes to b. This was a great call. Izvestia kind of part of t right for it. What i loved about this, honest to god, what i loved, listen, we are better than network tv. Dont have to advertise 8 p. M. On a thursday night to tune in, tune in wherever you want. Maybe people 18 saying, you know what the tablet was made for netflix. The mini, i have watched things, so that they are the winner. They are the winner in the migration. This was a great call. It was a great quarter. They are slowing down international, also something investors were hoping for, because we have talked about how much money they are spending there. You know, we make fun of analysts all morning long, a long time bear who went buellish last week, late last week, ahead of a quarter, not that much certainly not 30 . Carl icahn what a move. Wont have to worry about potential activism in the company at this point. Mr. Icahn, who is brilliant, i can tell you probably, hey, i dont know, they like to watch tv. Can you call in tonight . Going to be good. I like it. Those are thinking im going to star have to live with good wife, right . cause that was that was a performance. On the stand. Amazing. Thank you. But im not in u. S. Development saying sell, sell, sell. How are those ries sid wall checks . 37. I was an ironman. I got a hat. Can you imagine ironman, i thought it would be a dud, i got a. What everyone else got like 100,000. I got a hat h why bob iger sent me that statuette. Bad for me. Story of your life. Exactly right. A few moments to the opening bell. Cramer is going to make sure you are ahead of the curve. Hear what he has to say in the mad dash. From calf voerks glenn hutchings, cofounder of Silver Lake Partners in the middle of a potential buyout of dell. One more time before you can get to the bell, you got to go through the mad dash. We are here with jim at post 9, what you are calling a battleground over bed bath. People have been saying over and over again, dont get involved with this thing, cause its gonna be amazoned. In other words, this is another one of those retailers, like best buy, you can get most of the stuff at amazon. This call is very interesting, listening, maybe we have reached the bottom of the kurig cycle. People buy the Green Mountain kurig there and it slowed. You know what, this is one of those stories, it has got a beautiful Balance Sheet. I have often jested to david neighbor theyre bed bath would make a natural leveraged buyout. He has questioned how much equity you have to put up in it. The Balance Sheet is clean and the company does not like wall street. Look at the Conference Calls, like, here, take that, i cant do an icahn. I know we have a good icahn imitator here it has missed. It is a good, sheep stock. You have to have great faith. Love to shop there but they coupon the heck out of the placesome it kohls, is it gonna be amazon . Line in the sand it is a total battleground. A day after the coach debacle, watching tiffany . I think again, we are stuck here with the notion, these are our parents brands and we, therefore, think they should be our brands. The next generation, i dont think they are going to tiffany. So you have this paradigm, people were saying, wow, tiffany, spending is not that good, coach, the spending not that good. Maybe the consumer is weaker than we think. No. Thats no longer. These now Julius Caesar stocks. The fall in them is in themselves, not the stars because the jobless claims were so good, i think the stars are bright right now. Isnt there like also a very key element of japan when it comes to tif . Overseas, supposed to save them, that has been important. But you know something, in the end, you need fifth avenue, you need flagship. You need flagship. I feel badly about this. This is one of those icons, an icon, this is an icahn and icon there are no overbarometers. Coach and tiffany, overseas, coach is good in china, by the way, but they are not barometers of the u. S. Economy anymore. And nordstroms would tell you that nordstroms is doing fabulous. Do not extrapolate coach, do not extrapolate tiffany. Same thing you said about rails yesterday. Union pacific, beautiful number. When we come back, the opening trade on am following earnings last night, how low will the iphonemaker go . Down 10 premarket. Later on, julia boorstins interview with Reed Hastings of netflix, soaring on the unexpected private. [ indistinct shouting ] [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. Watching cnbcs squawk on the street, live from the Financial Capital of the world. What a morning, watch netflix, apple, 3 m, other names. The dow if its up today, makes it 1011, we have not done that since a 1213 streak, guys, in april of 2010. Which has some people believing other things going right, a lot of those people in am, not afraid to desert it, because there are other pastures, so to speak, to graze from. A big source of funds. A lot of capital. Look, i think we are getting decent earnings season. Not that bad. When you down the have good earnings, you brought your earnings down if you beat them, norfolk southern, 18, 19 , the stock just flies, it is a very forgiving period, accenture reported a terrible quarter. Now well above. [ opening bell ] cycle for survival, indoor team cycling event taking place nationwide to raise money for rare cancer research, over at the nasdaq, ringing the bell remotely from the davos, the site of the World Economic for vum nasdaq ceo. When he does ring the bell remotely, he likes to have a oh, right. Bad things could happen. Be careful. Davos. Used to that i think very similar. He is next to a guy with a giant snowball coming down toward him. Apple 458, a decline, 11 out of the gate. Analysts were harsh, if we had seen the wave of bullishness higher as stocks are higher, seen the pessimism sink in this morning. Knew muras growth, starting of the x growth area, not positive. Isi banking on the possibility of lower price iphone that would be detrimental to margins. One more. Cooking up something, skunk works. Suppliers caught in the down draft yesterday. Used to thinking about broad com, travel trust owns that, not down that much. Very zero sum, one thing im hearing, david irk not like the growth there for the Smartphone Market anymore either. Zero sum. Samsung takes, am a few years ago, cell phone numbers very small. Now a lot of people have smartphones. The r. I. M. , the blackberry users, another way to look at it where are they going . More to samsung than i phones . Not just apple, samsung anymore. Chinas market, four domestic suppliers outselling apple. Mentioned the cool pad, 8060. A fraction of what the ipad costs in china. Competition that apple is facing around the world, not just the United States. Spate of new products. The blackberry 10 launch days away, Steve Liesman held in his happened. Should it trade through the multiple of intel and microsoft . He said if am closes today below 483, it will see 425, his price target pretty quickly. Ultimately, he does believe that apple is fairly valued in the 300s. Yield there. I dont know. He is known as an extraordinarily good fixed income manager but he has waded into equities. I dont know if it is reflected on his fronts. Five times earnings, i dont know. Bethlehem steel two times earnings two years before it went bankrupt. Isnt that something two years before. The multiples shrunk. Or would love to get apple five times earnings, three times earnings cash. Like to get cash. Sure, why not . I got to believe that conversation is going to it the multiple too low here. Netflix, largest gains since 2002 when it rose 40. 8 . Best day for that stock in a decade. That was a Conference Call that was there was a guy on that Conference Call, said listen, hatehood you guys forever, really delivered, some very funny quotes, one of those where you sit there and say, wow, said it was loved, apple again, and then this moment where Reed Hastings talks, facebook, facebook board member, people say facebook will buy them. Facebook will buy them. Not that long ago, looking at the content cost of netflix and looking at the subscription additions that they needed to have in order to meet those costs and wondering how it was all going to balance out. That argument has been solved. Very important. Remember, they point blank said no equity deals, also made you feel good. Seemed certain a year or two ago, they would have to continue to issue. You think apple is overshooting the downside and netflix overshooting the upside . No one wants to hear that could i argue that 458 not a bad price to step n my goodness, i said something good. Not going to sell at six times earnings, just not. Here is another 10 decliner in todays session, nokia, down 10 , 4. 17, better than expected net cash is maybe the one bright spot out of the quarter, they did suspend their dividend. Obviously, that is heavily weighing on the stock at this hour. The ceo said Competitive Pressures remain intense. Will remain intense. It was a profit after six straight quarters of losses. It doubled yearoveryear. People like nokias spec. I am just thinking that apple is trying so hard to stabilize right here. Very interesting, stabilizing, microsofts multiple. Journal, a couple of nice things about the earnings that we will get tonight from microsoft. X cash, 7 1 2 times . Yeah. Something ridiculous like that. They say try not to get mesmerized by the complications of windows 8. Would youen willing to step in front of that . Too many other things going on . Dominion. Utilities, right . Utilities, Microsoft Windows 8 utility. Match it against highquality utilities i. Better than southern, better than first energy. Not being facetious it is becoming a utility. I believe you. Do you win you over on that . Absolutely. All you needed to say. I feel better now. No being facetious. In everybodys computers it is in the wrong computers. I keep waiting for skype to be mon tides. Keep waiting xbox, very good product, but theres no needle move, we dont have you need you know, you need cloud. They have minor cloud. You need social. They have a minor social. Someone has to buy twitter. Speaking of clouds. What . I was going to make my keen sense for the obvious, apple is almost going to lose to exxon mobile as the largest market cap company, how far it has fallen. I think exxonmobil 415, like to keep track of the numbers. Sorry, carl. Rate of exxon . Not so hot. 600 billion, man. You just cant once you breach that. Large numbers. We took people to task what do you mean large numbers . They are still growing, et cetera, et cetera. Here we are. Just went through microsofts multiple, now starting to talk about got to remember that. People Start Talking about trillion dollar price targets, note to self next time. 1111, which got lowered to morning to 8888, the price target of topeka capitals bryan white, which been the highest on the street finally has come down, all the way down. All the way down to 8888. A lot of joking, chinese clue, lucky number in china . Someone said that herman cain lowered his target to 999. Clever info space, i dont know if you recall i do he came to my office at henke fund, said my company is going to be 1 interest. And i found that did you short it right away or not . I immediately turned to berkowitz, i said short ceo tells you great time to get out. 455. That hold ended. What i do look like, carnac the magnificent . I like i havent heard carnac invoked in so long. We should do that. Get a hat for david. An envelope. Some envelopes. Do you remember this one . Trotsky, what is russian prune juice. Actual 1973 ed mcmahon. Nas show. Carson. Lets check in with Mary Thompson in for bob this morning. More on what is moving on this morning. Good morning to you. Good morning, melissa. As expected, see a split market. The s p 500 has just turned positive. Keep in mind that the s p is up for the last six trading sessions. If we end higher today it would be a sevenday winning streak. The dow just off the highs of the day, up 32 points. Basically, what we are seeing today is concerns about apple offsetting very decent Economic Data we received, jobless claims falling to you a fiveyear low and good manufacturing news out of china and germany as well, the manufacturing numbers from france were a little bit weak. This puts the s p fiveyear high the dew is within striking distance of the alltime high, 3 below those levels. Also at an alltime high the transportation index. It continues its record run right now, up 47 points. Again, at an alltime high. A couple things behind this. Take a look, Union Pacific came out and reported stronger than expected earnings, the fourth railroad to come in with betterthanexpected results. Even though shipments fell by 2 , it benefited from higher fuel charges and higher rates it has imposed on customers. Airlines also coming in with betterthanexpected results. Ual as well or continental united, i should say, along with southwest. Their earnings not exactly blockbuster or as will in the case of continental united, however, they did beat estimates, their stocks moving higher as well in todays session. Southwest did see a decline in passenger revenue, but also had smaller gains from some of its fuel hedges in the last quarter. Lets take a look at apples suppliers because, of course, we are seeing weakness in the tech sector on the heels of those disappointing results from apple, earnings beat sales miss. Sky works and broad com under pressure. Western digital came out with earnings today and they were better than expected. The disk drivemaker benefiting from gains in its enterprise segment. Lastly, touch on one stock that represents a Group Performing well that being Stanley Black decker, the company saying that its Current Quarter results, betterthanexpected, did benefit from an improvement in construction and the also that doityourself sales which, of course, we have seen benefiting on the dow component home depot. Stock under pressure in todays session. The dow now up 38 points but the nasdaq actually off its lows, down 17. Jim, back to you. Yeah, mary, that is interesting. I thought had the quarter was terrific too whirlpool off, flag one, tighter float and also ruling about dumping. Yeah, Stanley Works i think should end up stanley, black and belle decker deserves to be higher. The latest energy go to Sharon Epperson at the nymex. Traders are here trying to figure out how much the snag on the sea way pipeline is going to cause disruptions in the oil markets. We told you yesterday about the sea way pipeline, recently expanded pipeline that as of two weeks ago, had expanded to 400,000 Barrels Per Day, taking crude from curbing, oklahoma, to the texas coast. Yesterday, enterprise and embridge, the two companies that on the sea way pipeline, said that the deliveries at the key delivery point along the texas coast had reached a Maximum Capacity and they had to be reduced to 175,000 Barrels Per Day. This came as quite a surprise to the oil markets. We saw the worst decline in wti prices in a month, the percentage decline and also saw the spread between brent and wti prices blow out to 17. That spread has come in a bit. Seen oil price reese cover a little bit, u. S. Oil prices. We are still waiting to see what the supply and demand picture looks like with the weekly Inventory Data from the Energy Department that is the data point that traders will be looking for next and that will come up live at 11 a. M. Back to you. Thank you very much, Sharon Epperson. The apple swoon and the netflix surge. We stay on top of the action involving both tech companies. Also ahead, what a hot stock and cold weather have in common a live interview with bank of america ceo Brian Moynihan from the World Economic forum in davos. As we head to break, look at this mornings early movers on wall street. Pcp a big winner on the day, up 4 . But we can still help you see your big picture. With the fidelity guided portfolio summary, you choose which accounts to track and use fidelitys analytics to spot trends, gain insights, and figure out what you want to do next. All in one place. Im Meredith Stoddard and i helped create the fidelity guided portfolio summary. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. [ male announcer ] every car we build must make adrenaline pump and pulses quicken. To help you not just to stay alive. But feel alive. The new c class is no exception. Its a mercedesbenz through and through. See your authorized mercedesbenz dealer for exceptional offers through mercedesbenz financial services. We want to take a check on shares of am, they are, as you can imagine, down sharply on the session, down by just about 10 at this hour. The last time apple slayers fallen 10 was on the may flash crash, may 6, 2010. Prior to the flash crash, if you just take into account straight earnings, the last time it dropped that much was october 2008. So more than four years ago. We should note too that at this level, apple lost a third of its value since the september highs. 52week low was exactly one year ago. 41955 on january 24th of last year. If you had bought am then, you would be up roughly 14. 15. Jobs price . Sorry . Say again . Jobs was alive . Yeah. A check quickly on the suppliers, flagged them in on the session, broad com supplying some of the chips, go into am devices, open down pretty sharp, down 2 . But pared the losses back, 1 the decline. Take a look at shares of qualcomm. They are just down ever so slightly. And thats very different picture from what we saw in the afterhours session. Let me ask you something. Apple is Something Like 420, 430 on the chart. Where does like im looking at trying to figure out where weather there are some people up sophisticated blowing it out. Down the expect it to go to seven times earnings, i guess it is going to. You want to know, technically speaking, i would guess, i dont know the answer, would you want to know where a lot of people got n yes. You want to know where they will be made whole and mass selling. Another way to look at it other than the multiple. The multiple is no longer working, unless apples radically going to have a shortfall next year, you country use both on analysis anymore. No longer producing it. Dealing with a stock that many would say is overowned, so to speak, was as we ended last year and wondered whether there was selling for tax reasons and things of that nature and the people i have spoken to this morning, who do manage money, say the same. All right. Lets watch it today. Let it weed out and then perhaps revisit it in a few days. A couple of dividend. You talked about how that could help, maybe they actually go in and do a buy back of monstrous proportions. That could be around the corner. Their next meeting, board meeting, is february, when they initiated the dividend f thats catalyst thats a catalyst. Isnt it sad to think this was once the go go Growth Company and now looking the a possible dividend or buy back as the next catalyst for the shares . My how things have changed. That requires a management that thinks theres something wrong with the stock. Requires a management to hit the stock, maybe they are, maybe they are not. Buy back or a dividend, acknowledgments . So clear the stock was blowing up during the Conference Call. Very clear, but the company was talking about good product, good product. Companies dont want to acknowledge they are no longer growth. Thank you. Thank you. This may still very well be a Growth Company. Microsoft to your point earlier, doesnt want to acknowledge t been 15 years. What im afraid of. You want to incite not incite, incense your employees and get people excited. A little less exciting we can youre like, wary fine but not going to be doing much. We are only focus on the best product, steve jobs man tracks great with the stocks going up. Not a great call to action when the stocks going down. Not a private company. This is not j crew, board member mickey drexler. J crew tired of the analysts nitpicking, tired of us talking about the price. Listen, take it private. Cannot take it private. Too big. Not yet. Just a joke. Joking. Your sense of humor defies logic. Yeah. Yeah r this is the problem it is a public company. Youre on the call and talking about no one is going to say hey, listen, guys, we dont like the new itunes, guys, i dont like the two chord situation, this is one where they are saying putting out the best possible product, doesnt matter what happens to the stock. Okay. Well this is what happens if it doesnt matter. One of the transports hit alltime highs, Railroad Operator Union Pacific looking to keep chugging along after posting earnings. We will talk profits and the economy with the cfo. But first coming up, theres no doubt that this market can be rough but there are ways that it can be tamed. One of which is just ahead. Six stocks in 60 seconds when squawk on the street returns. Mr. Los angeles is back and in the house. Simon what is going on . The weather turned, felt i would come back to the east coast. The man who could take dell private in the matter of days will be live from davos. Glenn hutchings from silver lake and have Union Pacific cfo. They have beat opinion expectationsing, talk transport notice next hour. Also ahead on the program, more to that have exclusive interview with Reed Hastings at netflix. Stock up, wow, 44 . Back to you. Thanks a lot, simon. Welcome back. Time for six in 60. Six stocks in 60 session. Safe way. Good commentary on the analyst. Thing was up yesterday on the leveraged buy outruler ares, immediately someone down grades, analysts way behind the curve. Pacific crest downgrades mel la knocks. This is a big data chip play, just relentless, still stay away. Any excuse to say bristolmyers. Better than expected quarter, before the drug, the diabetes drugs are working and i got to tell you you melanoma drug for real this thing much hire. A couple names we dont talk about a lot. Gall. People want airline stocks, how about a Brazilian Airline play, goldman recommends, 7 to 14. Brazil well. Buckeye . The partnerships, little hype per bolly, every time they have done an equity deal, the right thing to do call your broker. Jpm ups conning a graham. Cheapest in show, still gary rod kin, amazing, equity higher. How about tonight . Of a net, find out how the actual chip business is doing. We should stop talking about coach in china but tim kin. You are killing it this week. Very exciting time. It is. Thank you. 6 and 11 tonight. Two takes on apples earnings around the selloff, where the stock goes from here, a Company Shareholder around an analyst each weigh in on the iphonemaker, plus Brian Moynihan of bank of america live from davos. Do not go away. Overmany discounts to thine customers [old english accent] safe driver, multicar, paid in full a most fulsome bounty indeed, lord jamie. Thou cometh and we thy saveth what are you doing . We doth offer so many discounts, we have some to spare. Oh, you have any of those homeowners discounts . Here we go. He took my shield, my lady. These are troubling times in the kingdom. More discounts than we knoweth what to do with. Now thats progressive. [ male announcer ] you are a business pro. Omnipotent of opportunity. You know how to mix business. With business. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above. And still pay the midsize price. I could get used to this. [ male announcer ] yes, you could business pro. Yes, you could. Go national. Go like a pro. Welcome back to squawk on the street. We are here with the leading Economic Indicator number, should be out any second now. Consensus around looking up fourtenths, three tenths and its up a half a percent. So, another decent number after market pmi this morning. A lot of good macro pictures, the pmi, eurozone pmi, stuff there state side. A quick check on the markets reaction this morning, the dow free of any weight around its ankles in apple, up 56. S p up 3 1 2. The nasdaq clearly suffering with some tech weakness, down about 10 and change. Sales of both imac and the iphone, street cutting their targets acrosstheboard. Shareholder and analysts. Plus, shares on shares for the largest intraday gain on record after they posta blowout Fourth Quarter for netflix. Sit down with Reed Hastings for his his first interview in a year and a half. Bridge those comments to you in moments. And the man in the middle of the dell buyout buzz, Glenn Hutchins to join us from davos. Apple shares getting pummelled. Off the session lows, down 9 , close to 10 on the disappointing First Quarter report. The street losing its enthusiasm for the tech titan with the slew of price cuts here is what Jeffrey Dunlap told me on fast last night. A broken company incredibly overowned. Again, the fact that we are talking acrosstheboard in the media so much about this indicates that its still very, very in the forefront of investor psyche, i dont think bottoms happen with that type of sentiment. David roth a long long time apple shareholder from wedgwood partners. Good to speak with you. Good to be here, thanks. He essentially said the pendulum swung too far in terms of the optimism on apple and specifically cite ready the 1111 price record put on the stock a while back. Do you think the pepped lum has swung too farther other way at this point . Yeah, i think it has. You go back to september, stock at 700. I agree, it was overowned, there was talk of 8, 900, the stock overshot and it was overowned. If you look at the pepped lum today, it is 450, 460, talk of 400 or 300 with is what dunlap is talking about i think overshadowing the downside. The simple question we are asking ourselves today, forget about the past, thats prologue is this a broken Growth Company . We dont think it s if it is and trading three times cash, lets start dimming the lights, laying off the tense of thousands of employees, put it in runoff mode, pull in the can cap x and start giving all the cash back to shareholders. David, you still believe it is a Growth Company, even though we have seen we have seen four sequential quarters, we will, if apples forecast Gross Margins for the Fourth Quarter holds true, which they say it will now giving guidance that is within the realm of them coming in, does that sound like a Growth Company to you . Tough define parameters. 700 a share with the expectations that the growth was going to be huge with the big beat and the big raise. That is over, time for a reset, new chapter i couldnt help but catch jim cramers comments in your previous sector segment, humbly suggesting valuation doesnt matter. Seven times charge. Cash, eight times x cash, one at a day, valuations going to matter wander believe that wall street is serving up a very, very fat pitch even if is flat growth, single digit. We will continue to be Share Holders in size. Are you adding to your position . Which are taking a hard look at it now. We have to admit, our thesis has been challenged. We were wrong. We held inside when it was 700 a share, our view is that we would see supply and demand come much more in line and the company would scale faster than it is now. We have been wrong, but to sell down here, we think would compound that mistake. David, hold on, we want to bring in glenn young, Semiconductor Analyst at citigroup, lowered the target from 575 to 500. Glenn, thank you for being with us. Good to be here. Is apple a growth story still . I think no i guess is ultimately the answer. The way to think about it is they are losing share in the phone market and i think that was evidence in the Quarter Results on a yearoveryear basis, even when you adjust for the extra week in last years quarter, thats point one. As you point out, gross margin down four quarters in a row, i make the case that apple owns about 65 market share of the global profit pool in the industry but only about 9 market share of units. They are no longer in our leadership position. No longer gaining share, i would argue it is very hard for them to keep the profit pool percentage they have and think any tech company we see slowing growth and margin issues, not to say there isnt value in the stock but hard for stocks to go meaningfully higher when those things are an issue. We want to draw your attention to the s p 500, first time we have seen that number in quite a while. Recall some price targets that seemed a little bit bullish, maybe too bullish not too long ago, languishing around 1370. By the way, 10 of 11. Not done that since april 2010 when wed 12 of 13 streak r keep an eye on the major indices. Big Cap Technology despite apples performance in todays session helping to lead the charge higher, microsoft higher than 1. 6 . Cisco, amazon booking nice gains here. Glenn, at this point, you know, i think whats interesting are, when a lot of the bowl bulls were trying to defend apple on the way down last year, they were pointing to some of the scale that am will be able to gain and the iphone 5 goes into the sixth month, fifth month of production why do you think that we wont see that . According to the guidance, doesnt seem they are reaping the scale of iphone 5. People defending middecember, we downgrade the stock, wasnt a function trying to argue against this issue of scale. Here is what i would say about t fair to say that, you know, yields were low in the december quarter. They are bound to be better now. Should be good for Gross Margins. The issue is am said they are prolific in new products. Anticipate they will continue to be in 2013, 14 and beyond. Two things, one, the more products introduced, harder to execute, as the volume gets bigger, bad execution, tougher time in growth margin what we saw in q 4. The other thing is it is likely that apple diversifies into a broader range of phone offerings, like samsung. Apple is 13 damage points above the operating for phones and if they diversify, hard to keep the margins where they are. David, from what you said earlier, do you hold your position in am all the way down. If that is the case, now looking at that, but what have you learned from that process . Why did you stick in am all the way down . Where we were wrong, our expectations of growth as they would be embedded in the toing price. I have been in the business 26 years, hard to think of an example of a company with flat growth could see its pe on a trailing basis be cut by a third from 15 to ten. On that score, in terms of where the potential downside of a new valuation metric, we were wrong on that as well. Glenn, let me ask you one final question, is apple has it been in a status why by it is a longterm stock that you could buy on weakness like a Johnson Johnson or a cocacola or Great American titans or because it is in consumer electronic us in a sense destined to fail, play is seen with blackberry, nokia or so many other companies . Are they a different breed of investment . I think the answer ultimately will be yes, not because of anything other than the fact the industry in which nokia and r. I. M. Participated in when they failed has changed. We are now an ecosystem business, where, its not just hardware, not Just Software but the totality of those things i as well as services, apple has a strong and longlasting ecosystem. I think the issue in the intermediate term, a better place to put your money, given theres so much ownership of the stock it may become a source of funds not fundamentally nor is the stock performing and something you want to hold onto other opportunities in the market. You made the point yourself, market very strong, is this the best place to be at this point . David and glenn, going to leave it there thank you so much for your time. We appreciate it. Thank you. Speaking of tech could microsofts earnings after the bell distract from apples miss . Jon fortt has been working on apple all night long but joins us to talk about microsoft, too. Hey, john. Possible the earnings could distract, likely to be to be more in line with expectations, microsoft wouldnt give disappointing quarterly guidance, because they dont give any. Dont count out the pcs, Windows Division do well despite the fact that 6 drop in pc sales. Revenue over 5 billion there driven by businesses buying windowsbased 7 pcs. Dont forget about the entertainment and devices division, xbox, Windows Phone and other access source. Analysts have trouble forecasting this one and underestimate t healthy kinect sales and sales of xbox as an entertainment hub could have helped this unit with the expect. If you are looking to microsofts report to take your mind off apples, interesting market call. No sleep last night, john no sleep tonight as well. Thanks a lot. Jon fortt out of san jose. Netflix posting a blowout Fourth Quarter. Shares up, as you can see almost 40 , hasnt done that in a decade. Ceo Reed Hastings spoke us to in his first tv interview in a year and a half. Those comments next. Bank of americas ceo Brian Moynihan live from the World Economic forum in calf voechls b of a shares doubling since the start of last year. So, whats next for the big bank . As we head into the break, just take a look at major apple suppliers and where they are trading in the wake of apples earnings last night. How do traders using Technical Analysis streamline their process . At fidelity, we do it by merging two tools into one. Combining your customized charts with leadingedge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. We like this idea so much that weve applied for a patent. Im colin beck of fidelity investments. Our integrated Technical Analysis is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. [ male announcer ] dont just reject convention. Drown it out. Introducing the allnew 2013 lexus ls f sport. An entirely new pursuit. If you are just joining us, a few minutes ago, hit 1500 on the s p, the First Time Since 2007, the intraday high i 1511 on that day. Some of the winners, netflix leading the charge. Some of the losers as well. Dan greenhouse, our good friend over at btig points out if you bought the s p in 2007, your fiveyear analyzed return is zero. As for the dow, we are just over 300 points away from the alltime closing high of 14164 with the dow up 75. Shares of netflix skyrocketing after the company beat on earnings and revenue in the Fourth Quarter. Julie boorstin sat down with Reed Hastings for a rare interview it was the first interview in, what, a year and a half . About a year and a half. Thats right, melissa. And yesterdays earnings sent net flick shares back to levels the company hasnt seen since mid2011 when the stock started plum heeting when netflix announced plans to split off its dvd business into qwikster, hiking prices. Ceo Reed Hastings tells me that debacle was a wakeup call. We were too aggressive about going towards streaming. For us, we got too focused on streaming, streaming, streaming, we stepped back, canceled the quickster. Wary swing for the fences kind of company. We want to do great things. Occasionally, if you swing for the fences, we will strike out. Qwikster was that strikeout. But we are still swinging for the fences. House of cards . Its an incredible, big production. You know, you just have to move forward. This year, netflix will be defined by its investment in original shows, including house of cards, which costs an estimated 100 million. Hastings says these shows could be be a game changer. The tipping function that gets them to join. For other people, sets a base, when they hear about some other show, then they are finally gonna join netflix. It helps us both with members and nonnebrasmembnonmembers. If it hits that will be the upside. Maybe hit slowly, maybe that it hits quickly, the first time we have done it, no good way to estimate it. He predict all digital distributors, hulu and amazon will become more like hbo and showtime. Next hour, squawk on the street will bring you hastings take on carl icahn as well as the s. E. C. s investigation into his potential reg fd violation. Great stuff, julia, thanks for that julia boston in san jose. Speaking of netflix, get to this mornings squawk on the tweet, what movie best describes the netflix come back . Im sure give the ideas. Tweet us at squawk street and we will get your responses later in the morning. A stunning year, as you are aware, for the transports, shout nations largest railroad doing . Union pacific through again, beating expectations today. Famed out when the companys cfo joins us live in the first on cnbc interview on the back of those rules. Up next, the vice chairman of the joint economic committee, senator robert casey of pennsylvania will join us live. Try running four. Ning a restaurant is hard, fortunately weve got ink. It gives us 5x the rewards on our internet, phone charges and cable, plus at Office Supply stores. Rewards we put right back into our business. This is the only thing weve ever wanted to do and ink helps us do it. Make your mark with ink from ch president obama expected to announce the nomination of Mary Jo White to lead securities and exchange commission, according to a white house official. White previously served a as u. S. Attorney for the certain district of new york, the first woman to hold the position, developing an expertise in financial fraud and securities crimes as well as a reputation as a tenacious prosecutor. She is currently on the other side of the courtroom as a white collar defense lawyer. The announcement is slated for later today during a ceremony in a state dining room. We will have complete coverage of the event for you here on cnbc. The house passing debt limit legislation yesterday with that socalled no budget, no pay provision. Now the spot slight on Senate Democrats to make a move on the debt ceiling. Joining us this morning, senator bob casey, a democrat of pennsylvania, vice chairman of the joint economic committee. Senator, good morning to you. Good morning. Good to be with you. So the house says no budget, no one gets paid. You have introduced legislation if theres a shutdown, no one gets paid. Why dont we stop paying everybody and just call it a day . Well, look, i think its important that we have measures introduced to hold folks accountable for what i think would be irresponsible behavior to allow default. But i think we are moving the right direction now. There is action by the house, theres a positive step. We have to build on t but i think it will pass. And it give, i think, some certainty on this specific question of the debt ceiling and the question of default, because we know from 2011, the adverse impact 2,000 points in the that the dow lost. We know the Consumer Confidence took a sixmonth hit because of the debt ceiling fight. So, to take that off the table as a big washington fight helps a lot, i think. Certainly, the markets, a lot of people pointing to one reason, you have had a pretty nice string of gains here that debate, at least the deadline pushed back a bit. Where does the conversation now begin when it comes to real reform . Who instigate it is and how constructive do you think its going to be . I think we can build upon some of the previous efforts. We had an agreement in 2011 which allowed us to reduce spending and we can do that again. At the end to of this year so the called fiscal cliff deal i think was further evidence when you get 89 United States senators voting for that end of the year agree respect, the deal was perfect and had all kinds of frustrations associated with it, but we have to keep building upon what is some good developments in bipartisan consensus. I cant speak to the house but i think there is a willingness on both sides senate to build on those efforts. What do you think happened at that gop retreat . Schumer made jokes yesterday they had soft music and massages and so forth. But why do you feel that they took a step back in demanding one for one and giving us these three months to address reform . Im not sure i can anticipate what happened at the retreat, but i do think theres a sense of urgency to deal with a lot of major fiscal challenges that we have. I think thats bipartisan. I think it comes to the question of default, democrat or republicans, you have to weigh the consequences, the gravity of fee fault and as verse impact you could have. I think that was part of what was discussed at their retreat, good development. I dont like the fact that we have another challenge coming up in may, but this is certainly preferable to a late february or early march fight that would be that would be very difficult. Yeah. A couple nittygritty questions. Obviously, a lot of investors still reeling from all the debate over a dividend tax, carried interest tax to what degree do you think those are going to be on the table as we try to work out some larger bargain . Difficult to itemize or list what will be on the table. I will say, this the finance committee has worked for many months now to try to come to a consens consensus, early efforts just in this month, chairman baucus, talking to him yesterday, about this, reporting on where they are. So, i think theres a real sense of urgency now to get a consensus on tax reform, to have a simpler and fairer systems to deal with areas were theres consensus. Believe it or not, despite all the fighting in washington, theres a great consensus that we need tax reform and i think theres a growing consensus about even the elements to it. Well, tax reform, the question is the tax tape, do you thank you obama is shifting the debate now, that there is going to be far more taken in greater taxes for the wealthy and far less in spending cuts because that is the cret rick . Difficult to predict. Here is where we are right now. In terms of what has been enacted in 2011 and 2012, we are more than half way, hand this is conservative, i think, more than halfway to the socalled 4 trillion level. Of that of that effort in 2011 and 2012, what has already been inenacted in terms of savings, its a disproportionately weighed on spending cuts, about 7228. We need more spending cuts, without a doubt we need that i think we have got to try to make sure we get the balance right r just ask you one more question, sir, do you think there is a risk that president obama wastes his Political Capital in the view of most americans . I mean, the rest of the world is here issing, Climate Change and carpet emissions in the inaugural speech but not what most americans seem most to care about. Its usually jobs and growth. Its difficult for me to analyze that, from a political perspective, but i will say this. I think what will be important here for investors, for taxpayer, for the American People generally, and i think even for folks around the world is how we deal with these issues, the sequences of them and if they see us working on tax reform, getting a bipartisan agreement there, working on reducing spending in a bipartisan way, i think the sequential of that before we get maybe get to some other issues might help a lot. Senator, always good talk to you. I imagine we will talk a lot over the next few months. Thanks again. Thanks so much. And we are keeping an eye on shares of netflix after reading on both the top and bottom line notice Fourth Quarter, shares on tack for their largest intraday gain on record. We will get the analysts take. Th thats next. [ man ] ive been out there most of my life. You name it. Ive hooked it. But theres one. One thats always eluded me. Thought i had it in the blizzard of 93. Ha never even came close. Sometimes, i actually think its mocking me. [ engine revs ] what . quattro welcome back to squawk on the street. Im Sharon Epperson with breaking news. Natural gas supplies fell by 172 cubic feet, down by 172 billion cubic feet. This is less of a withdrawal than what analysts were anticipating and we are watching natural gas futures basically flat right now to where they were trading before the number came out. They are losing a little bit of ground. But they have really lost a great deal of ground since hitting a sixweek high on tuesday. We saw prices at 364 almost 365 on tuesday. The cold weather we have been experience, coldest in the northeast in definitely helping to spur that rally. Plenty of natural gas out there, this decline less than what analysts were predict, the decline of 172 billion cubic feet for the week and less of a decline we have seen for the fiveyear average, around 176. So, continue to watch Natural Gas Prices now, losing more ground here, approaching are the 3. 50 level. That is going to be a key support level for natural gas. See if that can be maintained. The reaction to the inventory numbers, as we mentioned, dow, 14,000, wow, that is in the sights here of investors, just about a few hundred points away. S p did cross 1500 mark a short time ago, up a third of a percent. The nasdaq feeling the weight of shares of am, down 10 now. The nasdaq is down by 7 points or a quarter of a percent. Within that netflix shares surging today after the company blew past earnings estimates last night. Director of research at albert freed and Company Joins us to break down the numbers. Good morning. Good morning. How are you . Well, im concerned. Youre not following through on this rally. I read that it was supposed to make a loss of 13 cents a share, made a profit of 13 cents a share but youre unimpressed. Why is that . The first call estimate, the average estimate was 90 days on a lot of people havent upgraded their estimate in 90 days. When we initiated coverage, we initiated with 13 cents, 11 cents, came in at 13 cents. We were right in the ball park. The variance to all our estimates, the stock was up 100 prior to our launch. Stock up 38 . Ing . Is not following through. Why we have this strong isu shortcovering rally . I think part of it. A big Short Interest in the stock. People havent ignored the fact that netflix content liabilities escalated to 5. 6 billion the nearterm base circumstance content liabilities due in the next 24 months 81 a share versus between to be fair, rich, they are talking about spending a lot of money, especially the First Quarter as well, for products like house of cards for their original programming, in addition what they spend with all the licensed deals but talking about talking about becoming Free Cash Flow positive after that after the big ramp up in the First Quarter. Why would i have to be concerned about further dilution from an equity raise, talking about this longterm lie way in the they face, stretches out over years . 5. 6 billion is 560 million a year, right . Its escalating. At the end of five years, it could very well be 7, 10, 8 billion. Same time what is escalating, investors are embracing, more and more subscriberses. Time warner, liability 10 billion, 100 million subscriptions and a lot of Free Cash Flow to support that liability. It is on Balance Sheet. Part of the problem here is i think investors arent really grasping the severity of the problem because its off Balance Sheet, right . They had this 5. 6 billion sitting off no somewhere. At some point, hollywood wants its money. They are getting it over time. They are paying the providers of their content when they ask to be paid and when they are scheduled to be paid. Make the next movie, right, you cant make the net movie on an iou from netflix, right . So, at the end of the day, what validates, in my mind, my you know, my thinking in the stock, is, you know, while earnings, you know, first of all, earnings are down 93 yearoveryear. Okay. Second thing is we had eps of 13 cents, but we had a negative free cash outflow of the company of 3. I mean, thats massively large number. And even if it turns around the end of the year, our estimates showing 50, 100 million of Free Cash Flow versus 3 billion that they owe this year. So, rich, carl icahn has made almost half a billion dollars with the stake that he took in a very short amount of time. Right. He obviously is looking potentially for it to be bought and Reed Hastings said too julia overnight they are still having constructive conversations with carl icahn. Account company be bought out at this price or does that now knock that possibility out because the valuation is too high, in your view . I think in terms of the hewlettpackard problem that boards are going to look real long and hard over accounting issues, because there you had a company that had an accounting issue that destroyed not only the 10 billion that hewlettpackard paid for autonomy you are talking about . Auto mir, but also about 14 billion in Additional Market capitalization of hewlettpackard, right . So talking about 24 million billion swing. And so as you look at netflix, you know, what kind of company is going to be that high on the model yet calling it down to 68, not zeer flow so there is obviously value in the company, as far as youre concerned . We are looking at this from a perspective that they will get back back to the peak earnings of 2011. We apply a discounted can a shall flow to that. Nch want to send it to Kayla Tausche at headquarters. Watching bed bath beyond, one of the biggest movers to the upside on the s p 500, an upgrade today at oppenheimer. Brian neagle increasing price target to 71 from 67. Investors in the stock have seen it go down, down, down in the last year on very cautious guidance for the back half of last year. Even though its up today, its call it 59, 59, 52wee high maybe this is a bet on the consumer. Interesting chart of lower highs and lower lows. The president and ceo of bank of america, Brian Moynihan joins us live after his companys stock saw a 60 gain in 2012. We are back in a couple of minutes. [ male announcer ] when it comes to the financial obstacles military families face, we understand. Our Financial Advice is geared specifically to current and former military members and their families. [ laughs ] dad dad [ applause ] [ male announcer ] life brings obstacles. Usaa brings retirement advice. Call or visit us online. Were ready to help. Learn more with our free usaa retirement guide. Call 877242usaa. [ male announcer ] when we built the cadillac ats from the ground up to be the worlds best sport sedan. People noticed. The allnew cadillac ats 2013 north american car of the year. For a limited time, take advantage of this exceptional offer on the allnew cadillac ats. [ male announcer ] how do you turn an entrepreneurs dream. Into a scooter that talks to the cloud . Or turn 30million artifacts. Into a hightech masterpiece . Whatever your business challenge, dell has the technology and services to help you solve it. Rob, it is great to have you with us. It is my pleasure. You highlight core pricing gains as one thing that certainly helped you in the quarter. By how much did you raise prices and are those price increases sustainable and can they even go higher in the year to come . Our core pricing gains were between 4 and 4 1 2, 4 in the fought Fourth Quarter alone. We have been getting that kind of level or higher the last five years. We are confident we are able to get pricing to the marketplace. Like so many other Railroad Operators, you reported a decline in coal revenue. No surprise there a 7 decline in coal. Wondering if you see signs this could reverse or looking at something more permanent, a switch to natural gas, remain somewhat intact . Yeah for us, potter river basin coal is more attractive than other coals. Fourth quarter alone, our volume in coal was down 17 yearoveryear. Year to date, 14 . The factors that will drive our coal volumes Going Forward will be weather, number one. If we have a hot summer thats long, that helps our territory and gas prices, right now, we are projecting that gas prices will be in the 3. 50 to 4 range. Anything high theyre than that would help us but gave guidance this morning we thought our coal volumes would be slightly off, down in 2013 but nowhere near the 14 drop we saw in 2012. No bottom necessarily for the coal industry at this point . Still foreseeing that volumes will decline this year . A little bit. I dont think you will see the dramatic falloff like we saw this year. For Union Pacific one of the real pluses, stepping up, filling that void, how we are able to turn in record Financial Results even with coal dropoff is the shale activity. Right. And Chemicals Business and autos drug doing extremely well now. I want to ask you about that as well, seems like backian has taken away from the coal storage, excess natural gas produced as by product, the same time, it is giving you that increase in chemicals. Is this a case where, you know, you see the decline in one and get the offset in the other and vice versa in the future . Our projections are that we will continue to see strong growth in unit oil trains, which is the shalerelated oil, a great position, our franchise, who haul both sand that goes into the drilling activity for gas and oil and hauling you the oil trains out of the shale activities. Our growth in 2012 was 80 growth. Think it will grow strong, doubledigit growth. Not necessarily a 11 tradeoff. The way we have been able to achieve the record results we have achieved without coal vol soups the strength of whats happening with shale, chemicals, autos, house, et cetera, shale is is a big part of that story. Autos, saw a big increase as well, 14 . Are you seeing those kind of gains persist . Do you think that the Auto Industry and according to some economists by extension, the housing industry, will continue to recover at this rate . Seeing positive signs and hope it continues to go in the positive direction and outlook for auto sales in 2012 is strengthening for 2012, certainly rooting for that to happen, our franchise is well positioned to take advantage of those sales in autos not only the United States but we are the only railroad that cross six Border Crossing point us in and out of mexico. As mexico auto activity grows, we are in a great position to leverage that on the housing front, again, same story, a lot of growth that we are seeing in housing we hope it continues. What is the wildcard . What keeps you up at night . In the press release, you watched what is happening in washington band what impacts Economic Growth . Is it d. C. At this point . Yeah. Our projection is and the guidance that i gave this morning was assuming you the economy operates, we expect to have net net volumes on positive sides of the lemon jer, wild card, something disrupts that, disrupts the overall economy and see Industrial Production somewhat lower than that, we would perhaps see a little bit lower volumes as a result. As long as the economy kind of has a steady growth to it you know, we feel pretty good about having overall volumes on the pos sive side of the lemon jer. Rob, thanks for joining us. Appreciate it. Thank you. Rob knight, cfo of unp. When we come back first up, five days before the Treasury Department announced it sold its remaining shares in aig, the insurance giant quietly signed up a major washington lobbying firm, marking its return to k street. Our eamon javers has more on that aig is back in the lobbying game, after you say, after a fouryear selfimposed ban from lobbying while the company was owned by u. S. Taxpayers. The firm said in 2008 it would stop lobbying after it came under pressure from capitol hill in the wake of the bailout n documents filed with the u. S. Senate, the firm patent boggs, home of tommy boggs, paid 120,000 retainer to lob boyne capitol hill on behalf of aig, those documents filed in december. The firm stayed would lobby on the proposed sale of aigs stake in the International Lease finance corporation, a commercial jet company, a wholly owned subsidiary of aig. The center for Public Integrity which alerted me to the filing said Companies Just dont want to stay in the political wilderness any longer than they have to. Now that aig regained a foothold, they are going to be back in a big watch guys, those documents indicate that aig began lobbying several days before the tax payers were fully reimbursed for their investment r the Effective Date of the lobbying registration was listed december 7th. Treasury announced it would sell all of its remaining holdings in aig three days later, on december 10th. We reached out to aig. Expecting to have a statement from them and bring that to you as soon as we have it, carl. Okay. Thank you very much, eamon. Bank of america ceo Brian Moynihan to join us from davos on the program and talk to the head fund manager, the second year in a row, posted the best performance in the industry with returns of 41 . How do traders using Technical Analysis streamline their process . At fidelity, we do it by merging two tools into one. Combining your customized charts with leadingedge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. We like this idea so much that weve applied for a patent. Im colin beck of fidelity investments. Our integrated Technical Analysis is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. [ male announcer ] some day, your life will flash before your eyes. Make it worth watching. Introducing the 2013 lexus ls. An entirely new pursuit. Executor of efficiency. You can spot an amateur from a mile away. While going shoeless and metalfree in seconds. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above, and still pay the midsize price. Now this. Will work. [ male announcer ] just like you, business pro. Just like you. Go national. Go like a pro. The s p breaking through today. If not for apple, we would be closer to 1505. The sector is leading the gains now, very different than back in 07. Back then it was energy and materials leading the runup. This rally is being driven by Consumer Discretionary and technology. The dow meantime moving to all time highs. 14,164 on october 9th of 07 and just over 300 points away from that level. Making the charge there in 07, boeing, hp, exxon, mcdonalds and honeywell. Best performing dow components in the four years leading up to this rally, amex, home depot, cat, disney and ibm. Wow. The nasdaq, no surprise, in the red. Mainly because of apple, which is down by about 10 at this hour. Sima modi has more. No surprise the nasdaq is vastly underperforming the major indices thanks to am. Shares down about 10 at the moment. Market technician telling me the next support level is 425, something to watch. When apple sneezes, the nasdaq catches a cold and so do some of its component suppliers. Here is a couple to take note of. Sirius logic down 10 , specializes in analog chips. Skyworks Solutions Works on wireless radio component nuance communications, which is said to be behind the mobile app siri and avago behind the iphone 5 and the ipad 3. And lastly, omnivision, a leader in the digital Camera Center space is said to be used in the iphone face time app. A couple the chip stocks under pressure today, look at broadcom and qualcomm, said to be behind the iphone 5. Back to you. That is the center of the storm today, thanks very much, sima. One tech company flying higher. Now to the market flash. Research in motion has been down today, but it just made a sharp reversal to the upside now, now up by about 5 . A report just hitting the wire from Bloomberg News saying that the company could be the target of a bid from lenovo, looking to bolster its flagging mobile unit. The report we should note is attributed to the companys cfo in davos. Not attributed to sources and bankers and the like. Unclear how real or gelled that would potentially be. Lenovo is a cemetery of sorts for the dying technology brands, buying ibms pc business several years ago, but lenovo could consider a bid for research in motion. Back to you guys. It is not actually down and out yet. It is not dead. I hear blackberry ten had some fans. It is not totally dead, is it . Right, but, simon, also lenovo was mentioned last year when hp was in the process of spinning off its pc unit at the time. Dual sale processors and lenovo was kicking the tires on that. You look at the technologies, unclear whether that strategy is work for them, but it has been their strategy, not to say that rimm is dead, but thats been their strategy. I get it. Not that there is anything to this, but if they consider rimm a National Champion in canada, theyre not going to sell anything more to the chinese. It is something to keep in mind if you ever want to entertain these rumors. Exactly. Kayla, thank you. To this mornings squawk on the tweet, a Little Something to do with netflix. What movie best describes the netflix comeback . Tweet us squawkstreet, your responses throughout the morning. [ cows moo ] [ sizzling ] more rain. [ thunder rumbles ] [ male announcer ] when the world moves. Futures move first. Learn futures from experienced pros with dedicated chats and daily live webinars. And trade with papermoney to testdrive the market. All on thinkorswim. From td ameritrade. We hoped to bring you glen silverlake. He had to cancel. We hope to bring him to you as soon as we can, but not today. To squawk on the tweet. Netflix making a big comeback, shares soaring after surprising wall street with the quarterly profit. What movie best describes netflixs comeback . Some obvious ones here. Kyle, of course, return of the living dead, very nice. Jessica, at the risk of being obvious, netflix comeback is like rocky 2. Was that clever . I cant remember. Jason tweets revenge of the nerds. Well see. As simon said, blackberry ten days away. Well see what the response is to that. Meantime, whats coming up tonight . Tonight, of course, all over the after hours action. Microsoft and starbucks as well as at t. All the Conference Calls going on in the after hours. We have them covered as well as the trades. And then, remember cbs, it announced it would convert Outdoor Advertising into a reets. We have a short list on what other Companies May be looking at reconversions because oftentimes theyre major catalysts for the stock. Jonathan likt will bring us that, that his specialty. For right now, s p 500, teen hundred. Thats the headline now. The majority of companies, over 60 are beating on the earnings. A vast majority on revenue as well. The earnings season is good and still may be a solution to the debt ceiling. So we have the fundamentals on the up. The technicals seem to be lining up as well. Marilyn martell had a note saying the dow transports are offering a new buy signal for the markets here and the s ps next test is 1550. My favorite story of the day is the dell dude saying they got to bring back the dell dude. Did you see that . Dove tail right into see you tonight, guys. Thanks a lot. Here is what you missed if youre just tuning in. Welcome to hour three of squawk on the street. Heres whats happening so far. Too many investors are reactive decisionmakers. You have to look ahead and say, what is the transaction . What will be determining the buyer and seller . The u. S. Energy situation, shale, fracking, et cetera. Bullish, bearish . I think it is a game changer. I think it is probably the story of Global Economic recovery if handled right. 3 30, initial jobless claim. Thats huge. Thats a good number. This company has 137 billion in cash. 150 a share. Dont you to address that more than thats ridiculous. If you go home tonight and you want to go buy you go to costco, want to buy a knockoff tablet or an apple tablet . I want to buy an apple tablet. But there are many people in this world who will buy the cool pad 8060 for 1. The opening bell. It is up half a percent. So another decent number after market pmi this morning. And markets probably going to continue to like this. Here at 1500, first time we have seen that number in quite a while. Recall some price targets that seemed a little bit bullish, maybe too bullish not too long ago. Good thursday morning. Breaking news on oil. Our Sharon Epperson at the nynex. Breaking news from the Energy Department. Oil supplies in the last week rose by 2. 8 million barrels. Oil supplies rose by 2. 8 million barrels. That was a little bit greater of a build than what some analysts were anticipating. We have seen a decline of 1. 7 million barrels. Gasoline supplies down by 1. 7 million barrels. That was a surprise. We were expecting to see a build in gasoline supplies and we are seeing r. Bob rally as a result. And diesel fuel rose by half a million barrels, fuel supplies up by half a million barrels. What is interesting is what oil traders will follow in terms of the data coming out of kushing, oklahoma, key delivery point for crude oil and were seeing the supplies there that were at a record level, 52 million barrels. They declined in the last week by 471,000 barrels. 471,000 barrels. So we have decline in the stocks from kushing, oklahoma. Thanks to the restart of the sea way pipeline that takes oil from kushing to the texas coast. Were looking at prices right now just below 96 for the wti contract. And were still waiting for an assessment from enterprise Product Partners which owns the sea way pipeline to tell us what has happened there in terms of the deliveries there being reduced from 400,000 Barrels Per Day to 175 Barrels Per Day as of yesterday. Back to you. Thank you very much, sharon. Were live at the new york stock exchange. A check on the markets, check out this number. Just about 1499. No, back to 1500. We keep kissing the ceiling here as the s p showing 1500 for the First Time Since 2007. The dow up 85. The nasdaq with tech weakness, down 5. Jb hunt trading at a new oneyear high after the Fourth Quarter profit jumps 16 thanks largely to intermodal. Nokia sliding after the Company Beats estimates for the Fourth Quarter, but misses a sales forecast, company suspending its dividend for the first time in over two decades. Lets get to the road map. Bank of americas president and ceo broian moynihan will join u live from davos. Plus, the s. E. C. Is set up to field tips and intel, but is it really equipped to handle all of the data that pours in every day . Well go inside the s. E. C. To find out. The Top Performing hedge fund in 2012 bet on housing. Metacapitals Deepak Narula will be here to tell us how he did it and why hes about to make the same bet again. And next flixs ceo speaks out. Find out what he has to say about the quickster debacle, what he has to say Going Forward and a lot more. Well start with am. The stock down after the Company Reports a disappointing First Quarter. Jeffrey now downgrading the stock from buy to hold, cutting its target from 800 to 500. Peter misek is managing director. He joins us on the newsline. Good to talk to you. Good morning. Thanks for having me. Sell side getting pillared after making the call. Do you feel like a lemming or not . You know, we have the data in december. We should have downgraded it then. Were disappointed in ourselves and i think well beat ourselves up much harder than anyone else could. We are disappointed we didnt do it then. We think there is more downside. We dont think it is too late. Tell me what you think the most important takeaway was from the call last night. The most important was the iphone desell ration. They talked about the iphone 5 being supply constraint throughout the quarter and exiting the quarter in a supply demand balance with inventory levels in line with typical 4 to 6 weeks. That was very disappointing. And historical launches that inventory level actually is too low, therefore build channel inventory and that to us indicated that demand has slowed. We had talked about this kind of thing in recweeks, peter. Your general thesis was that a lot of that was going to end up getting pushed into the march quarter. Is that now is that a dream deferred . It seems to be a dream deferred and the new way theyre giving guidance, used to be they give us a single point and exceed that point quite handily. Now they give us aange and th seeto be implying that range is where theyre going to land. And that range, frankly, was a lot lower than we were expecting. It appears they lost the screen size war. They dont have a 4 1 2 or greater inch cell phone and thats costing them in certain parts of the market. We got others on the street today. Milanovic, his point is the good news is this is a reset, look for some new products in the june quarter, perhaps to reignite the stock. Is that a legitimate point of view . It is a very legitimate point of view. Between here and there were probably going to continue to see margin adjustments, a march quarter frankly that we look at consensus numbers, the reset hasnt been to the low end of their guidance. Reset was mid to high. If we see any hiccups in the supply chain and certainly we saw them late last quarter that could prove to be too optimistic. Couple more points here, peter. Remember when jobs died, everybody was wondering about whether or not they would hit an innovation wall. It didnt happen apparently because the stock powered on for the past year under cook. Do you think the innovation wall is finally here, albeit late . No. We still think innovation is still alive and well at apple. We think there is awesome products. We think they made some bad choices. We think the choice on the screen size is costing them and thats hurting them there. And we look forward to a tv, we look forward to a larger screen iphone either very late this year or next year. And we think that the low end of the market is something that theyre going to have to figure out how to by low end, we mean the 200 to 300 price point. Which i guess leaves us with the final point, that is returning capital to shareholders, using your cash, buying something. Is that going to happen when the board meets next month . We expect that theyre going to actually raise the dividend and raise the buyback. They have an embarrassment of riches in terms of cash. They really cant be looking at themselves in the mirror and saying we need to build more cash. So we would expect that theyre going to significantly boost the dividend and the buyback. But, again, thats not going to save the market. We think we see 400 before we see 500 again. Pete, always appreciate you coming on, being as honest as you are. Well talk to you next time. Thanks. Peter misek at jeffries. When we come back, the president and ceo of bank of america Brian Moynihan joins us live from davos and the World Economic forum. Before we go to break, a look at markets. The dow hovering near session highs and the s p flat at 1500. Well be right back. [ male announcer ] it was designed to escape the ordinary. It feels like it can escape gravity. The 2013 cclass coupe. Starting at 37,800. The Financial Sector has seen a steady decline, outperforming the Broader Market 2 to 1. Bank of america up more than 20 over the past three months, outperforming citi, jpmorgan and goldman sachs. Were going to talk to the ceo, Brian Moynihan, live from davos in just a few moments. In the meantime, there is an incredible amount of information coming into the s. E. C. For review. Six terabytes of digital data, emails and documents every month, as part of the continuing series, Gary Kaminsky got rare access to the unit that has to dig through all of that. Incredible. Just to put that six terabytes into perspective, if the s. E. C. Actually printed out all the documents coming into them, they say enough paper to fill 250,000 boxes in a few months time. Those boxes could fill the entire capital rotunda and pile higher than the empire state building. Thats a lot of data, but theyre using new technology to sort through it faster and smarter. So if the s. E. C. Shows up with a subpoena asking for your hard drive and your cell phone records, you should know that using pass codes and even deleting those files wont protect your information. We got a rare look inside the s. E. C. s crime lab last week. Here we actually have a word document and a spreadsheet file that has a password protection over it. So were running a program to try to crack the passwords on those two files. And access the underlying information contained within. On this machine here, it is another machine that we acquired, and what youre actually seeing is what the user before they delivered the device to us, and in this case a personal computer, what they were doing on the web. Here you actually see them looking at their aol account, you see what websites, what news sites, what stock sites they might have been visiting prior to delivering the evidence to us. Next were going to walk into the cell phone room. Over here youll actually see we have a cell phone that we opened up, looks like there was something purposeful done to the cell phone in order to prevent us from accessing the information on this device. And were able to acquire information off of this cell phone. As youll sydney this bee in th is our mobile equipment lab. We put the mobile device in here and it shields from all signals. This is very important to protect all the devices from outside signals because if we turn the device on, and it is able to access a signal, somebody could remotely delete files from it, remotely wipe the device, emails or messages could start being sent in and out, and what we really aim to do is maintain the security and integrity of the information the way that we received it initially. From a technology standpoint, today, as opposed to ten years ago, are you going to be able to follow at email trail from one person forwarding it to another ten people and they forward it to another ten people, is that something you have the capabilities to do . Yes, we do. We are much better positioned than we ever have been when it comes to emails and documents. Were able to follow the trail of the emails like you were talking about in a very, very efficient and effective manner. Now, i told you, carl, on tuesday, theyre going to get you. Dont be fooled by adams demeanor. Hes soft spoken but you should know he was hired away from goldgold goldman sachs, hes part of the new culture at the s. E. C. Where theyll use everything in their power to take you down if you cross the line. Ill tell you, as much as i watched that tape right now, this is a guy who knows more about the business, people say the s. E. C. Doesnt know about the business, he knows everything going on. Tomorrow, scott coen will have the final part of our series, and exclusive interview with Robert Khuzami who is the chief architect of the changes youve seen this week. Read more about all of this on investigationsinc. Com. Cnbc. Com. It is like csi washington. At some point, if you think about the connects that these guys can make, what he was showing us, you can find. Theyll know if you buy 100 calls out of the money calls and somebody you went to college with, a Fraternity Brother of yours does a same thing at another firm, theyll track that down in a day. It is amazing. Youll get caught by this s. E. C. It is not what it was ten years go. Cant wait to hear what he has to say. Talk to you in a little bit. Programming note, president obama expected to announce the nomination of former White Collar Crime prosecutor turned defense attorney Mary Jo White to lead the securities and exchange commission. The announcement slated for later today. And, well have complete coverage of that event for you right here on cnbc. Shell be the third woman in a row to run the s. E. C. If confirmed. Later on, the ceo of netflix speaking out in a rare interview. Hear what he had to say about the quickster debacle, the future of the company, their acquisition costs when squawk on the street comes right back. [ construction sounds ] [ watch ticking ] [ engine revs ] come in. Got the coffee. That was fast. Were outta here. [ engine revs ] tdd 18003452550 when the spx crossed above its 50day moving average, tdd 18003452550 i saw the trend. 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We have been following the news of the day, you talked about reducing the mortgage exposure, selling assets in that regard, settling with fannie mae. Still talking about a 2 billion hit to earnings which a lot of the analysts are talking about. Can you sit here today and say that these issues are now behind or might we expect further hits to earnings . Well, we are still dealing with various issues, but largely representation of putback risk, with fannie mae, the biggest counterparty and we settled that and settled with freddie mac to a large degree and we have a settlement on a private label. The real task is to finish up the cleanup of the mortgages themselves and we have been working hard on that. Thats where there say lot of upside in earnings Going Forward because the numbers of people we had topped out about 58,000 people this quarter. We were able to bring that down by 9,000. That provides good expense leverage Going Forward. A lot of people wondering if, in fact, were going to see further cuts on wall street. Give than you have already been cutting down quite a bit, in terms of jobs, in terms of allocating money in certain areas, because of this, can you say that the cuts are down or are there more to come . If you think about the businesses what we refer to as wall street, the perspective i give you is we downsized our Investment Banking staff when europe slowed down and when asia slowed down. Were largely done in those areas. Always trimming and working. But when you thats really what people are talking about in terps of wall street. The rest of the company, it is customer demand. Were bringing down head count, working on bad Mortgage Loans. In other areas were growing head count. We added a thousand Small Business bankers over the last couple of years. We added 1300 Mortgage Loan officers over the last couple of years. Were continuing fsas, Financial Advisers who work in our branches. And were investing in a franchise at the same time. The franchise is growing and were investing at the same time were taking expenses out. Makes a lot of sense. Today, once again, were looking to rally in stock prices. Have you been surprised at this Investor Sentiment in 2013 . It is extraordinary were seeing so much money moving into this market. What do you think . There has been record flows on a given day or nearly record flows. It has a lot to do with a lot of money out there and sitting on the sidelines and i think for three years you and i probably talked to davos about how the money is sitting on the sidelines and will come back. The uncertainties come down a little bit. Fiscal cliff uncertainty went away to a fair degree, over the early part of the month. Europe is much more stable. The money is coming back in. Yet the money was always there. Well see what happens as the market goes up and down on a given day. Fundamentally there say lot of money to be invested. People will be constructive with it as uncertainties get removed, theyll be more aggressive. What does that mean for your Capital Market business. You repositioned the firm in terms of moving a bit away from fixed income, focusing on equity, so what does it mean in terms of your resizing the business or focusing on the business investment, as you see the equities business doing what it is doing. Well, if you think about it is good news for us. Our equities business was flat over the last couple of years because of the volumes. And activity, so as that picks up, we have one of the best fixed income businesses from origination and sales trading side. Thats been our strong suit. We were one or two in most of the products in the origination side and that fuels to our investors, giving them great products. I think on the equity side, youll see some rebound which is good for us. Thats been a flat business, just because of the fundamental volumes and dynamics going on. In terms of Investment Banking, what might we expect looking at the pipeline, what is 2013 look like. We had a 1. 6 billion, it was the strongest Fourth Quarter we had in a long time, one of the top quarters we had going back 6 or 8 quarters. The pipeline is strong. We expect to see strong fees this year. Again, because activity picked up. The Financing Activities picked up, strong for Investment Grade and things like that. There will be more activity and more equity offerings starting to come through, talking about m a activity. You think thats sustainable and continues in 2013 . Capitalists are out there and working. Our job is to help them do what they need to do. As uncertainty comes out of the system, theyll be more aggressive with capital. As a firm, as an industry, youre facing more regulation, versus what we were seeing in the last decade of deregulation. Do you expect the volcker rule to be implemented . Do you expect pressure to split off, plain vanilla banking from Investment Banking type businesses . Well, i think lets go back and think about what has happened over the last few years. Effectively we, in our industry, have largely doubled the capital and our liquidity is up four times. We build more safe sound institution at bank of america. At the same time, we simplified the place by getting rid of a lot of activities which werent directly for the customers we serve that have been built up through acquisitions and things like that. Thats helpful. The scale and scope and management complexity enterprise is much smaller. The third thing is there is still regulation to come. We changed our posture on proprietary trading, six quarters ago now and got out of it. It wasnt driven out of customer activity. Thats how tom montag and bruce thompson, they run the firm with me, thats how were driving it. I dont think we see big changes to our business absent some new set of rules, but the current set of rules are still coming and will well always be adopting to them as a industry. What about the upcoming sicar event. You put your plan out there in terms of what you would like to do. Will you pay a dividend, increase, buy back stock . What is the plan . I think every time i ask that, i say the same thing. Late march, when we know, well tell you, and make sure the whole world knows as soon as you were about to say, ill be first to know. We got to put it out to the public first. In terms of capital levels, do you feel comfortable in terms of where capital is now . Are you compliant in terms of where things are going with bazell or will you raise more capital . We dont need to raise more capital. Our ratio estimated for the Fourth Quarter year end was about 9. 25. Our level is 8. 50. Were far in excess of the level were expected to be in 2019. The issue is really when is our earnings predictable enough, when do we have the earnings power having gotten rid of a lot of the issues that we can start returning capital. Even prior to that, all the capital we have is on our Balance Sheet, were not making acquisitions, dont need it to grow the business because were still running off stuff. The investor is on us and the question is the time will be determined by the process and were in the middle of it. In terms of the pressure of lawsuits, pressure of the regulatory environment, the cost, what should investors expect in terms of that pressure this year . Can you say thats behind or still dealing with these things . We still work through lawsuits on mortgagebacked Security Side and other areas. But compared to what we have gone through the last few years, it is largely behind us. Have you been surprised at the move in your stock as well as the interest in banks over the last year . Our stock was up over 100 last year and thats, you know, i think was a performance reflecting in the capital and the uncertainties around capital levels and things like that, that came through during the year. But we got the best franchise in the business. We have great earnings power. It has been covered up and you see the last couple of quarters, by putting away a few of the things that happened in the past. Were very confident that as that comes through, the people see the value in this company. Well be watching eagerly. Thanks very much. Thank you. We appreciate it. Brian moynihan joining us. Carl, back to you. See you later on. There are a few minutes left in europes trading day. Three in fact. After a day which a lot of data, simon will get to all of it after the short break. [ male announcer ] how do you turn an entrepreneurs dream. Into a scooter that talks to the cloud . Or turn 30million artifacts. Into a hightech masterpiece . Whatever your business challenge, dell has the technology and services to help you solve it. [ male announcer ] dont just reject convention. Drown it out. Introducing the allnew 2013 lexus ls f sport. An entirely new pursuit. Barrow island has got rare kangaroos. Chevron has been developing energy here for decades. We need to protect their environment. We have a strict quarantine system to protect the integrity of the environment. Forty years on, its still a classa nature reserve. Its our job to look after them. Its my job to look after it. Nice to have simon back to put europe in perspective, especially on a day where we got a few data points. We had a lot of data out today. Spanish unemployment rising to a record 26 . There is one thing that i want to draw to your attention through that data. The european markets are closing now. And you can see it is positive. We added to the gains in europe. They were up about. 1 at 6 00 a. M. New york time this morning. With 100 point rally on the dow, we got past the apple shock in terms of Global Market moves and you can see that reflected in western europe. The one data point i want to draw to your attention today is that the composite pmi for the eurozone is rising. It is still below 50. So were still slightly contracting in europe, but at 48. 2. Jpmorgan is saying were very close now to stability. Now, within that, germany is doing well, france might be going into recession. But Global Markets are rallying on the assumption that we will get far better growth almost everywhere, china, europe, and the United States in the spring. And today the data in europe supports that. Now, let me just take you through a couple of important corporates today. Nokia has had another rough session today. They came through with this say fiveyear chart, down 86 as you can see. We got a little bounce coming through perhaps over the last few months, but still it is a very depressed stock. Today, nokia announced after 20 years it is abandoning its dividend in order to shore up its cash pile to just below 6 billion. The ceo saying they want strategic flexibility as, of course , the underlying profit position turns more positive on the louima. This is what he had to say. We have a lot of work to do to shift things as we have been doing in the right direction. But nonetheless were very impressed with the new products were bringing into market and the impact theyre having on our Financial Results. The other corporate i wanted to mention to you was the Third Largest bank in italy, arguably in the oldest banks in the world. This is a very similar fiveyear chart to nokia as you can see. They have done a jpmorgan, found trades they didnt know were there that could mean a lot, up to a billion dollars. The stock 8 on the reduced basis. Politically clearly you know that we are kicking off the World Economic forum in davos and everybody is there. Including the uk Prime Minister david cameron, who has arrived to defend what many brittens will believe is an unthinkable situation, that hes put the uks membership of the European Union on the line, last night, in a speech, for all of my lifetime, conservative party in the United Kingdom has threatened to tear itself apart over europe, and now finally to shore up that party. Hes saying well have an in out referendum but to do that he has to win the next general selection. It puts him in a stronger position to win that election. Yes, what a week hes having. Thanks, simon. Welcome back, simon hobbs. A check on energy and commodities. Sharon brought us inventory numbers about 30 minutes ago. Sharon . Were seeing reaction to that. Let me tell you first what is happening in the metals market. We are seeing some technical selling here in gold and silver with gold below a key technical level, below 1675 an ounce and silver below 32 an ounce. Some folks pointed to what is happening in washington for the pullback. But more traders say more technical selling below the key levels that theyre watching. Were also looking at copper prices that are only positive metal here, positive in metal territory after that flash pmi data. Continuing to watch to see if copper has more gains. But as you mentioned, it is oil that is definitely the story here of the last few minutes. And that is after the inventory report from the department of energy and the big surprise there, what traders are most focused on, is the fact that we saw a withdraw of supply from kushing, oklahoma, we saw an overall build in crude supplies, but withdraw supplies from kushing, oklahoma. This has happened as the sea way pipeline has been expanded to a capacity of 400,000 Barrels Per Day, which happened on january 11th. Were continuing to watch what is happening in the key delivery point. Enterprise says sea ways operating normally, transporting what it is able to, but it is the terminal at the end of this line that is the issue at jones creek and that is why there has been some snag here in that sea way pipeline. Back to you. Thanks a lot, Sharon Epperson, at the nynex. The dow today, over the past couple of hours. We were up triple digits for just a hair of a second. And then pulled back. Some of the computers here, Mary Thompson wanting to dance around the levels. I know. It has been quite a thing to watch the dow and the s p continue their march higher. The dow is just off its best level for the day now, only three of the dows components trading in negative territory. And the dow, of course, within striking distance of its all time high, just about 300 points below the levels. Meanwhile, the s p 500 earlier today moving above the 1500 mark First Time Since december of 2007. Really we have seen a stealth rally in the market as investors have been focusing on the negative news today, coming out of apple, which continues to keep pressure on the nasdaq. Lets look at the sectors which are helping to drive todays rally. We also want to mention, of course, transports continue their march into record territory as well today. Consumer discretionary energy, health care financial contributing to the gains of one weak area continuing to be tech after apples earnings were better than expected. Revenues shy as well as forecast for revenue. We have seen a number of Companies Come out with stronger than expected results. Their forecasts are weaker. Mckesson, that should be mccormick, not mckesson, the spicemaker, and on Stanley Black decker, better than expected results for the toolmaker thanks to the do it yourself boom were seeing, but weaker expected for the year. Fertilizers benefitting from a positive forecast from agrium, making a Ripple Effect throughout the rest of the fertilizer stocks. We want to end on trucking. As i mentioned earlier, the transports are higher today. They continue to march into record territory. Airlines, truckers, all contributing today. And we had strong results from Union Pacific and yet another railroad to come in with better than expected earnings. Back to you. Thanks a lot, mary. I know you wanted to get to mccormick. Kayla taush is watching that. Down 6 on the Third Quarter earnings, worse than expected, missing estimates by a mile. All across the board, possibly the worst, the operating margins. 17. 5 versus 18. 4 expected. This, of course, is the Spice Company and they have old bay seasoning, they run all the companies, zatarains rice, margins getting hit hard. The forecast for 2013 not looking good either. Carl . Cue the headlines regarding spicy earnings. The best performing hedge fund of 2012, returning more than 40 bit end of the year, doing so by betting on mortgages. Metacapitals managing partner Deepak Narula will join us after the break, talk about how he did it and where his money is going now. Its a new day. If your a man with low testosterone, you should know that axiron is here. The only underarm treatment for low t. Thats right, the one you apply to the underarm. Axiron is not for use in women or anyone younger than 18. Axiron can transfer to others through direct contact. Women, especially those who are or who may become pregnant, and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. Report these signs and symptoms to your doctor if they occur. Tell your doctor about all medical conditions and medications. Do not use if you have prostate or breast cancer. 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Interesting note. Thanks, scott. To the Capital Markets, Gary Kaminsky with the man behind the best performing hedge fund. Im joined by metacapitals Deepak Narula. You were up 41 last year in the managing partner of the fund. We got the five year data to show as well. It has been a very good five years. Very good 2012. How did you achieve the results in terms of not just last year, but since the credit crisis . Thanks, gary. Actually maybe step back a little, it wasnt just us. I would say the Mortgage Hedge Fund industry, the group in aggregate posted a good performance. If you look last year, on average, Mortgage Hedge Funds up over 20 . And it is not the first year. It is not surprising because if you look at some of the reasons, they are structural. Total capital, thats managed by Mortgage Hedge Fund managers, maybe 60 billions. Thats over 10 trillion outstanding. Compare that to long sho shore equity managers. The managers have been able to take advantage of. In terms of being opportunistic, are you saying there is so much capital that it is impossible to try to produce those type of performance numbers youve been able to achieve . Absolutely. What i would say is there is so little capital in mortgage hedge unds relative to the size of the market that most managers are seasoned. They lived through tough times. You see the average manager live through 2008 and probably 1998. So have a much better perception of risk, and can capitalize on inefficiencies that occur. Thats basically, if you look at the equity markets, the s p today, you know, is going back to levels where it was five years ago. Even if you were fortunate enough to nail the bottom of the stock market in 2008, you doubled your money. Right. If you see how mortgage manages have done, theyve done better than that. Youre flat if you stayed and invested through everything. In your letter, your expectations for 2013, i want to quote here, we say we expect the fed will continue with its accommodating stance as long as chairman bernanke is at the helm in the current term. Qe is his legacy. In terms of interest rates, youve got a strong opinion about this qe infinity. Share with us what you think that means. It has implications with the rest of the fixed income markets. Absolutely. The way we look at qe is it is half of it is coming through the Mortgage Market, and so if you look at net purchases by the fed, 85 billion a month. And 40 of that is coming through the Mortgage Market. The fed has been focused on mortgage rates, where they are and housing and helping housing get more affordable and help refinancing pick up and also in the past really banks have been the big buyers of Mortgage Backed securities. Is this housing recovery, because youre looking at the asset class that is primarily behind this. Is the housing recovery for real . We will actually at the beginning of 2012 we were probably more optimistic than consensus and it has played out. If you looked at forecast at the beginning of 2012, most were calling for housing to be down 5 to 7 . They got the magnitude right, got the sign wrong. Housing will end up that much and housing is, you know, home prices have momentum. Thats the way housing worked typically. We think housing is in good shape in here. Let me read one last thing here. You said once spreads get tight enough on the securities that the fed is buying, which you referenced, you said we plan to short them as we did in 2009. 2009 you had a spectacular year, up over 100 , a. What is going to make you determine that it is that spreads are too tight and it is time to play the short side of the Mortgage Market . Well, we have a long history on where mortgages that the fed is buying trade on a spread basis relative to other liquid benchmarks like treasuries and interest rates. And in our opinion, mortgages are trading at fair value. Agency mortgages that the fed is buying. But the feds firepower is so large, net supply of agency mbs this year will be a negative number. The fed will buy 500 billion. You want valuations that are fair levels, thats a good recipe for putting on a long trade. But eventually the fed the fed will win and will tighten spreads to levels as they did in 2009 where the securities will trade through treasuries and those evaluations, you want to be short them. Deepak, great to see you again. Congratulations on the performance and, carl, back to you, always good to have a long shore manager who trades long short. Hard to get the arms around those numbers. More from netflix ceo Reed Hastings. First Television Interview in a year and a half. Speaking out about the future of the company, and activist investor carl icahn. And the company that says wall street doesnt understand how to truly value Subscription Companies like netflix. It will tell us how it should be done. [ indistinct shouting ] [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. Netflix shares skyrocketing, more than 30 today after a better than expected Earnings Report last night after the bell. Julia bore citizen josten joinsr exclusive interview with Reed Hastings. Amazing sound. Good morning. Thanks so much, carl. Quite a good interview. Reed hastings attributed netflixs growth in part to the massive explosion of internet connected devices. He says this is just the beginning. We grew from the beginning of the year to the end of the year, nearly 10 millions subscribers. It is more of a forecasting issue than a business issue. What is happening is internet tv, this click and watch, the control you have, being able to watch on an ipad, all of those things are very powerful, and more and more people are doing that. Hastings has been working to take advantage of growing consumer demand with activist investor carl icahn looking over his shoulder. He brought nearly 10 of the company in october, prompting netflix to adopt a poison pill defense. Carl icahns been an investor, he came in about 58, about 90 days ago, hes done very well by his investment. Hes a very savvy investor. We had several constructive discussions about how to grow a bigger business for netflix and how to make it a stronger business. And he had been on the blockbuster board for five years. So he really knows a lot about our industry. So they have continued to be constructive conversations. With roller coaster stock performance, hastings is no stranger to controversy. He drew s. E. C. Scrutiny for posting on facebook about the viewer growth, but says the government is just behind the times. Regular fd is about protecting the smaller investor. They dont want to give special information to carl icahn or someone else. Facebook has a public mode that goes to hundreds of thousands of subscribers. It is very much in the interest of the little investor. So we feel very good about it. And i think the regulatory process will work out those things. Ill have more from my exclusive interview with ceo Reed Hastings on power lunch. Find more about this interview on my blog. A lot of investors going there right now. Thank you, julia. Does wall street have it all wrong when it comes to netflix . The ceo of zora recently published on all things d that is much as they love subscription businesses, wall street has a fundamental misunderstanding of how to evaluate them. Here to explain the note is the ceo of zora, tim zwell. A provocative piece where you argue things like price to earnings ratio is an eps are meaningless metrics. What doesnt the street understand . In the past few years there has been a big shift in spending patterns between consumers and businesses away from buying products and more toward subscribing services, like spotify, shoe dazzle, a zip card. These Business Models are the Business Models of the future, but traditional metrics dont really bring out the value of these companies. You like some others that probably investors are not as familiar with, annual reoccurring revenue, right . Right. Something you call the growth efficiency index. What are these . If you have two friends, one that will give you 100 one time, joe, and bob says ill give you 100 over eight years, you know the deal from bob is a much, much better deal. But traditional Accounting Systems are built on 500yearold double entry book keeping models that dont differentiate between reoccurring revenues and onetime revenues. And so in traditional revenue metrics are the same, we propose a new one called an annual recurring revenue that brings out what part of your revenue is on a reoccurring basis year over year. You were employee number 11 before you started zora, how much of that time spent there informs the things youre trying to get across to people now . It has been public now for almost a decade, but the first two years we were out there it required a lot of education with wall street to truly understand the Business Models, that, for example, current sales and marketing costs are not linked to current revenues. This periods revenues came from sales and Marketing Investments from previous periods. And the sales and marketing costs that you invest this period will translate into future revenues. So sales and marketing as an example acts more like a capex than an opex. And traditional systems dont really bring that out. You say that as an investor, if you were looking at a subscription business, you would give them a ding if they brought operating profit to the bottom line because cutting sales and marketing is a sign that they cant effectively go out and acquire new business . It is probably a saturated market and growth will slow. If growth is going to slow, the going to be worth much less. Your piece from all things d is an important read. Thanks for your time. Absolutely. Thank you very much. Time for squawk on the tweet. Netflix making a big comeback. The share is soaring after the profit from last night. What movie best describes their comeback . Brent writes, Million Dollar baby but with carl icahn. Nick writes send rycinderella and brian writes double feature of get shorty and the blind side. Well have more on the markets new highs today. Well talk about the meltup when we come right back. What are you doing . Nothing. Are you stealing our Daughters School supplies and taking them to work . No, i was just looking for my stapler and my. This thing. I save money by using fedex ground and buy my own supplies. Thats a great idea. Im going to go. We got clients in today. [ male announcer ] save on ground shipping at fedex office. And only hopes to achieve them. So youll be happy to know that when it comes to your investment goals, Northern Trust uses awardwinning expertise to lead you through an interactive investment process. Adding precision to your portfolio construction by directly matching your assets and your risk preferences against your unique life goals. We call it goals driven investing. Your life has a sense of purpose. Shouldnt your investments . Expertise matters. Find it at Northern Trust. [ male announcer ] some day, your life will flash before your eyes. Make it worth watching. Introducing the 2013 lexus ls. An entirely new pursuit. But we can still help you see your big picture. With the fidelity guided portfolio summary, you choose which accounts to track and use fidelitys analytics to spot trends, gain insights, and figure out what you want to do next. All in one place. Im Meredith Stoddard and i helped create the fidelity guided portfolio summary. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Cnbc receiving confirmation from a spokesperson for new jersey governor Chris Christies Reelection Campaign that Facebook Ceo Mark Zuckerberg will hold a fundraiser for the governor next month. Governor christie is up for reelection next year. Well see what that brings, the collision between business and politics. The markets touching new highs today. The s p 500 at 1500 on the nose for First Time Since 2007. Our cash and director floors operation at ubs joins me. We were talking during the break about how at these levels, there are a lot of people, well known names who a lot of people respect having different views about what happens now. Absolutely. This is the kind of the Rodney Dangerfield rally. Were up 11 out of 12 days. Youre at 1500 on the one side. Youve got technicians like tom demark who advises hedge funds saying that there is probably a top in the s p around 1500. Doug katz saying no thank you, im not going through this dance, ill sit this one out and then david tepper who is so bullish, he is almost salivating to get into the market. Yeah. Dow theorists weighing in as well, saying we saw important indicators this week. What is your view . What are you thinking . I think were going to know in a couple of days. We got to 1500. Everybody looked to see if there would be any fireworks. Would the shorts panic. We didnt see anything. There was no immediate spike. As you and i discussed earlier, the run rate is pretty much like it was yesterday. Lackluster, people arent really piling in. It is not quite a hold