Transcripts For CNBC Squawk On The Street 20130510

hobbs and david faber. after the s&p did break a streak of five record-setting days on thursday. europe and japan, as you heard becky saying, big stories today as dollar yen breaks through the hundred mark for the first time in four years. our road map begins with the treasury secretary jack lew in a cnbc exclusive saying we're not going to hit the ceiling until labor day. >> countdown to bernanke. the the fed chairman ben bernanke will be speak live on the economy. >> activist investor carl icahn launching a takeover offer for dell and he'll be on "fast money" today. we're going to travel through the numbers. but anxiety over the debt limit in a cnbc exclusive this morning. steve liesman conducted that interview and is live from london with more. steve, good morning. >> good morning, carl. secretary lew telling me that we would hit the statutory debt limbity in days, but don't panic, because what really matters is the effective debt limit which is when the treasury actually can no longer borrow and secretary lew saying that that is not until labor day in part because of new payments that are coming in from fannie mae. an important aspect, congress should not rest on its laurels and should end up raising the debt ceiling in the coming months. >> congress should deal with this right away and the fact they have more time should not put off with dealing with this. it is not good. i don't think it's in the interest of the u.s. orred world economy for congress to weigh into the last minute and create a sense of anxiety. >> hey, so one other thing he said is he's urging europe in the g-7 to deal with a better balance with growth and austerity and finally on the yen, he seemed to give a green light for them pursuing their approximately sos and japanese policies that have led to this decline in the end. carl, back to you. >> he did say, steve, he did tell you we will keep an eye on them and policy needs to stay within the bounds of international agreements. how uncomfortable is this meeting going to be said. are you taking actions to spur growth or devalue the currency? at least at this point he is not saying they are taking those actions. i do think there is a limit, carl as to how much the united states will tolerate before it speaks out in response to the declining value of the yen. >> you covered a lot of ground, steve. you talked the debt limit, unemployment, housing, fannie mae, the sequester and we'll hear more over the course of the morning. our steve liesman in london. thanks. in less than half an hour, they will address the annual bank structure conference and they'll offer any clues of the fed'sen tensions involving current stimulus measures and this is not a place where monetary policy is argued and discussed and more about banking regulation, and when the man speaks you have to listen especially now in the words of some and there's one person that can stop the stock rally it is the chairman when we thought there might be according to a tweet that seems not to be true. that they would increasingly talk about tapering and you should remember that we have six central banks around the world that have eased during the course of the last week and the fed is, in essence going to be doing exactly the opposite which is why the dollar is so high today. we talked so often about cheap money so you can't imagine. carl, of course, you never know what would be said and/or answered by the fed chairman despite what may be in his prepared remarks and that would be to listen to closely. had they been focused on the credit markets and there's nothing except cheap money on most people's minds and not just the decisions made the equity markets and run-up of dividend-paying stocks and how important yield is. >> did you see the journal today about debts and people are buying stocks on margin almost to the extent that they were in july 2007. $378 billion of margin debt for those operating here out of the nyse. >> trying to chase it. >> the chairman will speak about 20 minutes. 15 minutes of q & a. last year he talked about stress tests and the year before that about supervisions and we'll see if the theme of his talk is in that vein, but we'll be on alert for any surprises. >> there's the sec and the fed about who is delving further into regulation and grasping dodd frank for their own end and it's a political battle and some in the sec is perhaps overstepping where the boundary was set. >> coming up in 25 minutes as we still do not have the volcker rule, so to speak or what it will do for the banks. carl icahn and southeastern asset managet proposing the new deal for dell and offering a deal in which you would get $12 a share and it is an alternative to the buyer proposal worth $13.65 a share cash. carl icahn, by the way, will be a guest this afternoon on the fast money halftime report at noon eastern. what's important to point out is he is not making an offer in the sense of hey, i'm carl icahn and i'll borrow a lot of money and i'll use my own equity and perhaps buy it more and buy it from you. he's saying, give us control of the board of directors through a potential proxy fight that we have yet to initiate. we will roll into this co and we'll let you roll into, as well, that will be a leveraged buyout. the company will bring back the leveraged buyout that it has currently agreed to. it will bring that back, borrow more money and bring a big payout and go along a stub equity highly leveraged. this is something that the special committee of the board considered and decided was not a smart avenue to pursue. consumers out there that may not be performing well may make decisions or business customers may make decisions on the help of the company to buy its products based on how poorly its stock looks. a lot of questions here and i'm certainly looking forward to seeing if mr. icahn answers them. he's in and at a higher price here and not a big loss for him at this point. nonetheless, does seem to be pushing ahead and the shareholder vote is the key one that should be in july. >> people wonder, blackstone's gone, what happened to 1365, david and the hope above 1365. there is this idea that you will put pressure silver lake and michael dell to potentially raise. that's the key vote and that's where the work of the special committee which i believe has been quite good in contrast to what mr. icahn has said. there is a vote that doesn't include michael dell and could very well then go down and they'll vote against and perhaps others will, as well. that's your opportunity to speak up and what happens then is the key question. will silver lake try to secure that vote? it's not clear to me that they will. we have this company reporting earnings on may 21st and everything indicates those are not going to be great numbers particularly on margin, at least and you have to watch that. it could be below the $3 billion number we're dealing with and not to mention any other private equity look and kkr, and i shouldn't say any other, and say no thank you at this point. >> again, he's not making a tender offer for the company. he's simply saying, take control and we will pursue this leveraged recap plan where we will load debt on and we believe we'll give you a higher return. >> what do you think about the fact that they're guiding down in estimates and forecast in order to take the wind out of the sails out of its stock price. >> that's an old situation to put yourself in, isn't it? >> you have a situation that has a special committee that is under siege for the work its done. we've said many times the conference here are very difficult to combat, but i think they've done a relatively good job in trying to do so, but part of that is letting people know things are not good here. we did the best we could in a very much deteriorating situation. southeastern will say forget pcs. they don't party. they're not of importance and we think the other acquisitions are what makes this company and will allow it to rebound dramatically in the enterprise world. >> as far as icahn goes, where he stands on herbalife, che chesapea chesapeake, netflix. >> it makes your head spin. >> perhaps he's just being the poker player he is, folds here. he didn't even have a d file. 4.6% and why not just go home and take a small loss, but apparently, he wants to push it or tender in at 1365. we'll see where this goes. i still am somewhat dubious. >> the stock will be way up today. they did bring their guidance up looking for 68 to 69 cents for the quarter and same-store sales and not a lot of companies offer same-store sales guidance for the month and april was up 7%. old navy up 9, banana up 1 and gap up 8 and even with the weather concerns in the last few weeks. easter was a bullish calendar shift and they'll have the flip side. >> so interesting. we get so little these days in terms of same-store sales from most of retail at this point. >> that is quite a little turnaround. the stock's up 39% in two months. >> fed chairman ben bernanke blows into the windy city and we'll hear him address the conference which we'll hear him address in 19 minutes' time. what will he say about possibly tapering qe3. live coverage on cnbc. priceline cfo, jeffrey boyd and an exclusive there described earlier on this network as one of the best management teams within the internet sector. today, however, effectively guiding down on margins and we'll have mr. boyd later and taking a look at the future, you can see we're expecting a higher open with the dow still above 15,000. more "squawk on the street" live from post 9 on the nyse when we return heading into the weekend. ? at fidelity, we do it by merging two tools into one. combining your customized charts with leading-edge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. we like this idea so much that we've applied for a patent. i'm 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. >> a big stock reporting overnight. priceline's first quarter earnings grew 34% on hotel and international business. however, for many people the outlook is disappointing as the company weighs up whether to invest for market share or stick with the margins. tom white joins us and he's an internet analyst. good morning, tom. >> good morning. thanks for having me. >> were you disappointed by what you heard from priceline last night because the growth is still pretty phenomenal. >> i would say the guidance on ebitda for the second quarter was disappointing. i think there was a sales expense comp issue there that investors didn't fully appreciate heading into the quarter, but overall i came away much more optimistic about priceline's long-term growth prospects. the online travel industry is getting a lot more competitive, but i think what last night's performance showed is that it's not constraining priceline's ability to maintain overall high levels of growth. they grew their hotel room 38% year over year in the first quarter and that was consistent with 38% growth in the fourth quarter compared to their largest competitor who grew 28%, we think that shows that priceline continues to take share and continues to show strong growth. >> the question is how much do you spend on that, and of course, booking.com which is a big brand for them in europe, they're now trying to extend here and you see the television advertising for the first time from priceline and the ceo described last night as something of an experiment. where do you stand on this decision, this very difficult decision whether to be a pure growth company and to fire on all cylinders and let the margin suffer or potentially return cash to shareholders? >> well, i think the investments that we're seeing priceline make are towards very large and attractive long-term growth opportunities. the booking.com investments and the u.s. market, the way priceline described it is they're taking the largest brand to the world's largest online travel market. we think that's a good way to think about it. >> we view that opportunity as kind of all-potential upside. we don't think investors are giving them much credit in terms of revenue uplift for them taking share here in the u.s. and the market, it could be a big opportunity for them long term. >> for sure, your price target is 8.45er here. you're calling the stock another hundred points higher, 13%, 14% during the course of the year. what is the biggest threat to that. is it what might happen in your honor with the economies there or is it the threat that perhaps they have to rein in their investment in the future? >> as far as europe is concerned, it's proven very resilient and any macro dislocation. european travel has remained relatively robust, so we see the bigger long-term risk to the stock as investments in some of the newer geographies that priceline is going after like asia pacific and latin america and these investments may take longer to generate real returns for the company. that said, we don't necessarily take that view. we think that market is strong contributors today, we think they're somewhere within 20, 25% in total bookings for this company, and it could be a more protractive cycle. >> we'll hear what the ceo has to say in a couple of hours on the program. tom white there. >> thank you. >> later this morning on "squawk on the street," we will have a live and exclusive interview with priceline ceo, jeffrey boyd, that is an exclusive interview only on cnbc. >> meantime, still wondering what we'll hear from ben bernanke when he speaks at the bottom of the hour. live coverage is coming up and there seems to be no stopping netflix. it is the single top perform or the s&p so far this year and we'll explore how you should play this rally now. take a look at futures, a lot more "squawk on the street" live from post 9 straight ahead. we went out and asked people a simple question: how old is the oldest person you've known? 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[ male announcer ] yes, you could business pro. yes, you could. go national. go like a pro. we talked earlier about the battle over dell if you want to call it that. we've had a battle over sprint. the company that will own 70% of sprint was in town this week meeting with investors and while he has yet to agree to come on television with me, we do know that he is a man so i'm expecting that that will occur at some point, although there are language barriers. and every time i talk to money managers, i must say he is quite a salesman because they come out convinced that this guy does have the opportunity to transform the wireless landscape, and by the way, they often come out talking about the competitive challenges that could be faced by at&t and verizon if he's successful in that. in his meetings he said things like charlie ergen who has an alternative proposal to acquire sprint is an amateur when it comes to whitewaterless saying that engineers at sprint laughs when he talks about what he wants to do with the company from his point of view. >> masusan saying he's reached agreements to slash handset pricing. he also talked about while the power he has in the japanese market, i should say, softbank has in its own market and could put pressure handset markets to bring prices now and not to mention going directly to fox con and skipping over the handset makers entirely. all of which is design to bring costs down, bring price down. we talked a lot about operating synergies and they put out fairly big numbers in terms of the operating and capital expenditures they see for the company, as much as 2 billion, and going to 3 billion over time. none of which is to say that he won't be able to get the vote. >> charlie yergin for his part, though. >> another good salesman, by the way. >> kind of all over the place and the call that came after the earnings from dish yesterday, we don't have a lot of clairet here yet from mr. erg who is trying to ascertain true synergies and trying to understand how leveraged the company will be and what it is he plans to do. we'll see if he does start to put that together more, but at this point and again, we haven't spoken directly with mr. ergen on air as of yet, and we're awaiting that as well. >> where there is no language barrier. >> no language barrier there, but there does seem to be a lack of clarity. let's call it that. >> apart from the fact that he'll bet the farm. he'll do whatever it takes. >> that's what he says. >> lee cooperman has sprint as one of his top holdings when he was speaking at salt this week. >> he's hanging in there to see if you do get a raise out of softbank to try to make sure they get that shareholder vote while we still wait for ergen. >> great story. one of many on the table. when we come back, the economy, stocks and your money. the chairman of the fed, set to speak in the chicago fed conference in just a few moments just after the bell rings in five minutes and we'll bring that to you live and we'll get market reaction when "squawk on the street" comes back. 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[ coyote howls ] how about no more surprises? now you can get all the online trading tools you need without any surprise fees. ♪ it's not rocket science. it's just common sense. from td ameritrade. >> you're watching cnbc's "squawk on the street" live from the financial capital of the world on a friday. the opening bell set to ring in two minutes' time. there's a lot going on and we're waiting for ben bernanke to begin speaking in chicago. live at 9:30 and we expect him to talk for 20 minutes and take q & a for 15 minutes and watching for any sign, guys, of people are worried the fed will do. anything that could get in the way, the bulls would argue, of the rally that's gone on for weeks. >> although, of course, we should remember the last fed statement opened up the possible they they could increase qe. that was a deliberate decision they made in response to the perceived soft patch. so we will see whether he also comments on that because the data has been good over the last week or so, but there's still lingering concern about that and his guidance would be useful. >> it is the 49th annual conference of the bank structure and competition, as well. i'm interested to see where his thoughts are and where they stand now in terms of the banking system and securitization and not to mention fannie and freddie, i would love there to be a question of the fed chairman. $49 billion in profits being delivered to the treasury now as a result from fannie as a result of tax write-ups and their profitability and huge question as to what's going to happen with these two entities now that they're back to all-time profitability and will conceivably pay the u.s. economy back. >> and have no idea whether they'll be around once this conservator ship is over and have no idea of what that means because there's no loan to be back. just a stunning story. the yen will be another development and any signal of the message that he sends as it does cross the their 100 yen mark. in two years. [ opening bell ringing ] >> the s&p 500 at the top of the screen and the company made its debut yesterday at the nyse and over at the nasdaq, first nbc bank holding company based in new orleans celebrating its ipo today. >> we do have some breaking news. the chairman is about to address the conference in chicago and he will address the financial participants and they've yet to regain the jobs loss. he goes on to say our financial system, despite significant healing over the past four years continues to struggle with the economic, legal and reputational conferences. the entire speefrp is in review of the comprehensive review taken by the fed and regulators to moderate and regulate systemic risks to the economy. it is a more systemic and intensive approach and he describes a holistic approach driven by the fsoc that is supported by expanded research and data collection often undertaken with u.s. financial regulatory agencies. he says the approach is providing important information to the regulatory community. the chairman will take questions at the end of his remarks and it is not a monetary policy speech, guys, but the structure of banking in this country is a hot topic and an important issue. >> and you get to the q and a. who knows what you will get then, here is the chairman of the federal reserve. >> thank you, it's good to be back at the bank structure meeting which i have -- we are going to have some kind of count of who has attended the most of these, but we don't have to do that this morning. >> we are now more than four years beyond the most intense phase of the financial crisis, but its legacy remains. our economy is not yet fully recovered the jobs lost in the recession that accompanied the financial collapse, and our financial system, despite significant healing over the past four or five years, continues to struggle with economic, legal and reputational consequences of those events. the crisis also engendered major shifts and financial regulatory policy and financial regulatory practice. >> not since the great depression have we seen such extensive changes and financial regulation as those cod phied in the dodd frank act in the u.s. and internationally in the basel 3 accord and in the range of other agreements and initiatives. >> this new regulatory framework is still under construction, but the federal reserve has already made significant changes at how it conceptualizes and carries out both its regulatory and supervisory role and the responsibility to foster financial stability. >> in my remarks today i'm going to discuss the federal reserve's efforts in an area that typically gets less attention than the writing and implementation of new rules, namely our ongoing monitoring of the financial system. of course, the fed has always paid close attention for the financial markets for those -- for both regulatory and monetary policy purposes. however, in reese not years we have both greatly increased ret sources we devote to monitoring and taken a more systematic and intensive approach as led by our office of financial stability and research and drawing on substantial resources from all around the federal reserve system including the federal reserve bank of chicago. this monitoring informs the policy decisions of both the federal reserve board and the federal open market committee as well as our work with other agencies. >> the step-up in our monitoring is motivated importantly by a shift in financial regulation and supervision toward a more macro systemic approach, with the microprudential perspective focused on mainly on the help of individual institutions and markets. in the spirit of this more systemic approach to oversight the dodd frank act created the oversight council known as fsoc comprised of regulatory agencies. the fsoc has fostered greater interaction among agencies as well as a sense of common responsibility for overall financial stability. council members regularly discuss risk to the financial stability and produce an annual report which reviews potential risks and recommends ways to mitigate them. in fact, we just put out that report just very recently. the federal reserve's broad-based monitory efforts have developed important collaboration with other fsoc members. ongoing monitoring of the financial system is vital to the macro prudential approach to the financial regulation. systemic risks can be diffused only if they are first identified. that said, it's reasonable to ask whether systemic risks can, in fact, be reliably identified in advance, after all, neither the federal reserve or economists in general predicted the past crisis. to respond to this point, i will distinguish as i have elsewhere between triggers and vulnerabilities. the triggers of any crisis are the particular events that touch off the crisis. the proximate causes, if you will. for the 2007-'09 crisis was suffered by holders of subprime mortgagees. in contrast, the vulnerabilities associated with the crisis are the pre-existing features of the financial system that amplify and propagate the initial shocks. xaf examples have maturity transformation, interconnectedness and complexity all of which have the potential to magnify the risks and shocks to the financial system. absent vulnerabilities might produce sizeable losses to certain firms, investors or asset classes, but would generally not lead to full blown financial crises. the collapse for subprime mortgagees would not have been nearly as consequential without pre-existing securitization practices and is short term funding markets which greatly increased its impact. >> of course, monitoring can and does attempt to identify potential triggers, indications of an asset bubble, for example, but shocks of one kind or another are inevitable so addressing vulnerabilities is key to ensuring that the financial system overall is robust. moreover, attempts to address specific vulnerabilities can be supplemented by broader measures such as requiring banks to hold more capital and liquidity to make the system more resilient to a range of shocks. >> two other related points poet straight our increased monitoring. the first is that the financial system is dynamic and evolving not only because of innovation and the changing needs of the economy, but also because financial activities tend to migrate for more regulated to less regulated sectors. an innovative feature of the dodd-frank act said it can promote the regulatory system to adapt as some changes as they occur. for example, the act gives the fsoc powers to designate systemically important financial institutions, market utilities and activities for additional oversight. such designation is essentially the determination that an institution or an activity creates or exacerbates the vulnerability of the financial system, a determination that can only be made with comprehensive monitoring and analysis. the second motivation for more intensive monitoring is the apparent tendency for financial market participants to take greater risks when macro conditions are relatively stable. indeed it may be that prolonged economic stability is a double-edged sword. to be sure, a favorable overall environment reduces credit risk and strengthens balance sheets all else being equal, but it could also reduce the incentives for market participants to take reasonable precaution which is may lead in turn to a buildup of financial vulnerabilities. >> probably our best defense against complacency during extended periods of calm and is careful monitoring for signs of vulnerabilities where appropriate the development of macro, prudential and tools that can be used to address them. so what, specifically, did the federal reserve monitor? in the remainder of my remarks i will highlight and discuss four components of the financial system that are among those that we follow the most closely. systemically important financial institutions or sifis which i see on the board, shadow banking, asset markets and the non-financial sector. starting with the sifis, as earn here knows are financial firms whose distress or failure has the potential to create broader, financial instability sufficient to inflict damage on the real economy. sifis tend to be large, but size is not the only factor used to determine whether a firm is systemically important. other factors include the firm's interconnectedness with the rest of the financial system in the complexity of its operations and the major and extent of its risk taking, its use of leverage and its reliance on funding and the extent of the cross-border operations. under the dodd frank act, the largest bank holding companies are treated as sifis. in addition, it gives the fsoc, the power to give non-bank financial institutions as systemically important. this process is under way. >> dodd-frank also establishes a framework for sif igss for oversight and enhanced prudential standards. the federal reserve will have access to confidential, supervisory information and will monitor standard indicators search as regulatory capital, leverage and funding mix. however, some of these measures such as regulatory capital ratios tend to be backward looking and thus may be slow to flag unexpected, rapid changes in the condition of a firm. accordingly, we supplement the more standard measures with other types of information. one valuable source of supplementary information is stress testing. regular, com prehundredsive stress tests are an increasingly important component of the federal reserve supervisory tool kit, having used in our assessment of bank holding companies since 2009. to administer a stress test, supervisors first construct a hypothetical scenario that assumes a set of highly adverse developments. for example, a deep recession combined with sharp declines in the prices of houses and other assets. the test confirms and its supervisors independently estimate firm's projected losses, revenues and capital under these hypothetical scenarios and the results are publicly disclosed. firms are evaluated both on their post-stress capital levels and on their ability to analyze their own exposures and capital needs. >> stress testing provides a number of advantages over more standard approaches to assessing capital adequacy. first, measures of capital based on stress tests are more forward looking and more robust to tale risk and that is adverse developments of the sort most likely to foster broad based instability. second because the federal reserve conducts stress tests simultaneously on the major institutions that its supervisors and the results can be used both for comparative analysis and to judge the collective susceptibility of institutions to certain types of shocks. indeed, comparative reviews of large, financial institutions have become an increasingly important part of the federal reserve's supervisory tool kit more generally. third, the disclosure of stress test results which increased investor confidence during the crisis can also strengthen market discipline in normal times. the stress tests does provide critical information about key financial institutions while also forcing these firms to improve their ability to measure and to manage their risk exposures. >> stress testing techniques can also be used in more focused assessments to specific risks not captured in the main scenario. such as liquidity risk or interest rate risk. my comprehensive stress test is an important element of our supervision of sifis. for example, supervisors are collecting detailed data on liquid they helped them compare firm susceptibility and to evaluate firm strategies for managing their liquidity. supervisors are also working with firms to assess how profitability and capital would fare under various stressful interest rate scenarios. the federal reserve staff members supplement supervisory and other stress test measurements with other examples, for example, they've long appreciated the value of market-based indicators in evaluating the conditions of systemically important firms or indeed, any publicly traded firms. our monitoring program uses market information to a much greater degree than in the past. thus, in addition to standard indicators such as stock prices and products of credit default swaps which credit firms and we used market-based measures of systemic stability derived from research. these measures use correlations of asset prices to capture the market's perception a given firm's potential to destabilize the financial system at a given time. other measures estimate the vulnerability of a given firm to disturbances that emanate elsewhere in the system. the further development of market-based measures of vulnerability and systemic risk is a lively area of research and i'm sure there's been discussion of that in these meetings. >> network analysis, yet another promising tool under active development has the potential to help us better monitor the interconnectedness of markets and institutions. interconnectedness can arise from common holding from assets or to the exposure of firms from their counterparties. network measures rely on concepts used in neuroscience to map linkages among financial firms and market activities. the goals are to identify key nodes or clusters to de dissimulate how a shock such as sudden distress in a firm or market could be transmitted or amplified through the interconnectedness network. >> these tools can be used to analyze the systemic effects of the change of the structure or network. for example, margin rules affect the sensitivity firm to the conditions of the counterparties. thus margin rules affect the likelihood of financial contagion and those types of connectedness can be picked up in the network analysis. shadow think bahhing, a second area we closely monitor was an important source of instablet during the crisis as you all know. shadow banking comprises various markets and institutions that provide financial intermediation outside the traditional regulated banking system. shadow banking includes vehicles for maturity transformation, liquidity provision and risk sharing. such vehicles are typically funded on the long-term basis from wholesale sources. in the run up to the crisis, the shadow banking sector involved a high degree of maturity transformation and leverage. in liquid loans to households and businesses were securitized and the trenches was securitizations were funded by very short-term debt such as asset-backed commercial paper andry pos. the short-term funding was, in turn provided by institutions such as money market funds and had little tolerance to risk for their principal. as it turned out, the ultimate investors did not fully understand the quality of the assets they were financing. investors were lulled by aa accredit ratesings and support that was, in fact, discretionary and not always provided. when investors lost confidence in the quality of the assets or institutions that were expected to provide support, they ran. their flight created serious funding pressures throughout the financial system and threatened the solvency of many firms and inflicted serious damage on the broader economy. securities brokered dealers played a central role in many aspects of shadow think bahhing as facilitators of market-based intermediation, to finance their own and cl client's securities holdings, broker-dealers tend to have collateralized funding often in the form of repo agreements with highly risk averse lenders. the funding is potentially quite fragile if lenders have limited capacity to analyze the collateral or counterparty risks associated with short-term, secured lending. >> as questions emerged about the nature and value of collateral during the crisis, worried lenders greatly increased their margin requirements and more commonly pulled back entirely. borrowers, unable to meet their asset holdings were forced to sell, driving down asset prices further and deleveraging and further asset liquidation. to monitor intermediation by broker-dealers, the federal reserve in 2010 created a credit officer credit survey on dealer financing terms which asked dealers about the credit that they provide. modeled on the long-established senior loan officer opinion survey on bank lending practices sent to commercial banks, the survey of senior credit offices of dealers tracks markets such as those for securities finan financi financing, prime brokerage and derivatives trading. it is stemming from the greater use of leverage by investors, particularly those through lending by less liquid collateral or increased volume of maturity transformation. before the financial crisis we had only very limited information regarding only such trends. we have other potential sources of information about shadow banking. the treasury department's office of financial research and federal reserve's staff are collaborating to construct data sets on tri-party and bilateral repo transaction which is facilitate the development of better monitoring metrics for repo activity and improve transparence ney these markets. we also talk regularly to market participants about developments paying particular attention to the creation of new financial vehicles that foster great maturity transformation provided aside from the sector or transform risks from firms that are more easily measured to forms that are more opaque. ? a fair summary is while the shadow banking sector is smaller today than it was before the crisis and some of the components have disappeared or reforms, reg laters need to address remaining vulnerabilities. although money market funds are undertaken by the sec in 2010, the possibility of a run on these funds remains for instance, if a fund should break the buck a report in net asset value below .99 cents in 2008. the risk is increased by the fact that the treasury no longer has the power to guarantee investors holdings in money funds to stop the 2008 run. in november 2012, the fsoc proposed for public comment some alternative approaches for the reform of money funds. the sec is currently considering these and possible other steps. with respect to the triparty repo platform, the party has been made for intraday credit extended by clearing banks in the course of the daily settlement process and as additional enhancements are made the extension of such credit should largely be eliminated by the end of 2014. however, important risks remain in the wholesale funding markets. one of the key risks is how the system will respond to a broker-dealer or other significant borrower. the dodd-frank act has provided additional tools to deal with this vulnerability and in order to resolution of a broker-dealer or a broker-dealer holding company whose imminent failure poses a risk. more work is nedded to better prepare investors to deal with the potential consequences of a default in the repo market. a third area that we closely monitor are asset markets. we follow developments in markets for a wide range of assets including public and private fixed income in instruments, corporate equities, real estate, commodities and structured credit product, among others. foreign as well as dom of theic markets receive close attention as to global linkages such as the effects of the ongoing fiscal and banking problems on u.s. markets. >> not surprisingly, we try to identify unusual patterns and valuations such as high or low rates in prices to earnings in equity markets. we also use a variety of models and methods. for example, we use imperical models of default risks and risk premiums to analyze credit spreads. >> he's are accompanied by other information including liquidity and market functioning as well as intelligence gleaned from outside analysts. in light of the current low interest rate environment we are watching particularly closely in, quote, reaching for yield and other forms of excessive risk taking which may affect asset prices and their relationships with f.als. >> it's worth emphasizing that looking for unusual patterns can be useful even if you believe that asset markets are generally efficient in setting prices. for the purpose of safeguarding financial stability we are less concerned about whether a geffen asset price is justified in such average sense than in the possibility of a sharp move. asset prices that are far from historically normal levels would seem to be more susceptible to such destabilizing moves. from a financial stability perspective, in asset valuations is only the first step of the analysis. also to be considered are factors such as the leverage and degree of maturity being mismatched and used by the holder of the asset. the liquidity asset itself and the sensitivity of the asset's value to changes in broader financial conditions. differences in these factors help explain why the correction in equity markets in 2000 and 2001 did not induce widespread systemic devices while the quality of mortgage credit during the 2007-09 cries hiss far more far-reaching effects. the losses from the stock market declines in 2000 and 2001 were widely diffused while mortgage losses, and others were amplified in critical parts of the financial system resulting in credit markets. fourth, our financial stability monitoring extends to the non-financial sector including households and bees. researchers identified excessive growth and credit and leverage in the non-financial sector as potential indicators of systemic risk. highly leveraged or financially fragile households or businesses are less able to withstand adverse changes in income or wealth including those brought about by deteriorating conditions in financial and credit markets. a highly leveraged economy is also more prone to so-called financial accelerator effects as when financially stressed firms are forced to layoff workers who in turn, lacking financial reserves sharply cut their own spending. >> financial stress in the non-financial structure, for example, on corporate debt can also damage financial institutions creating a potential adverse feedback loop as they shed assets to conserve capital thereby waninging the financial positions of households and firms. the vulnerable its of a non-financial sector components can potentially be captured by both stock measures by leverage, and the debt service to income. sector, wide data, and important the federal reserve's flow of funds account which is a set of aggregated financial accounts that measures sources and uses of funds for major sectors as well as for the economy as a whole. these accounts allow us to trace the flow of credit from its sources such as banks or wholesale funding market to the households and business sectors that receive it. the federal reserve also now monitors detailed, consumer and business level data suited for picking up changes in the nature of borrowing and lending as well as for tracking financial conditions of those most exposed to a cyclical downturn or a reversal of fortunes. during the housing data it accurately showed the outside pace of home mortgage borrowing, but it could not reveal the basic deterioration that implied the substantial increase in the underlying risk of that activity. >> more personally, they've been concentrated by wealthier households. while other households have experienced decline in wealth since the crisis. moreover, many homeowners remain under water, with their homes worth less than the principal balances on their mortgages. thus, more detailed information clarifies that many households remain more fragile than might be inferred than looking at the aggregate statistics. while in closing, let me reiterate that while the effective regulation of supervision of financial institutions will always be crucial to ensuring a well functioning, financial system, the federal reserve is moving toward a more systemic approach that also pays close attention to the vulnerabilities of the financial system as a whole. toward that end we are pursuing an active program of financial monitoring, supported by expanded research and data collection often undertaken in conjunction with other u.s. financial regulatory agencies. stour stepped-up monitoring analysis is already providing information to the board and the federal open market community. we will continue to work toward improving our ability to detect and address vulnerabilities in our financial system which is certainly one of the most important charges that the federal reserve has been given. thank you very much. [ applause ] >> all right. thank you very much, then, for that very interesting speech. the chairman has agreed to take a few questions and if you have some cards, if you pass them forward i'm going to get it started with some questions that we took ahead of time. you talked about monitoring markets at great length, a major cause of the recent financial crisis was the failure to identify the housing bubble and you spoke on that. could you expand a little bit more on what's being done to identify current and future asset bubbles and are you optimistic that we've identified them and nothing like that is going at the moment? >> well, our -- there are really two parts to it. so the first is that we do, in fact, do what we can to try -- i would say the word bubble is a created word. let me just say we troy to identify situations where asset valuations relative to fundamentals are historically anomalous, where, for example, in the case of housing we would have seen house prices relative to rents as being much higher than historically normal. so we have an extensive program to try to assess whether major asset classes are, in fact, within historically normal ranges. i mentioned, what you mentioned housing and the stocks and equities and we look at dividend rates and earnings and the equity premium and those various kinds of standard finance indicators in corporate debt. we look at measures that would help us assess the amount of default risk and therefore whether spreads are appropriate or not. in more complex instruments like structured credit products and look at a variety of things in terms and conditions and are we seeing, for example, as we are in some cases covenant light types of agreements in certain kinds of structured credit products. so we do try to identify much more so than in the past, whether major asset classes are deviating in terms of their price or valuation from historical norms. now that being said, two comments. one is that i think it would be hubristic to believe that we can identify such deviations and on the one hand, sometimes changes in price to earnings ratios are justified by some fundamentals. microsoft's stock is work more than it was a while ago, but so far so good, right? at the same time, so it's not evident that having a misalignment or historically unusual relationship is a problem. though it may be, but, of course, we can also miss changes in valuation that are in some sense not fundamentally justified, but i think importantly and what i tried to emphasize in our remarks is that we're not relying on our ability to identify in such things as the first line of defense. the distinction i made in my remarks is between triggers and vulnerabilities. the subprime mortgage market, and i speak for myself, the reason that many of us understated the impact of the subprime mortgage market was because the subprime mortgage market itself was quite small and if you assume that every subprime mortgage in the world was bad, the losses would not have been in terms not that large, what created the crisis was the subprime mortgage market and the related asset classes with the stability of major financial institutions and major financial markets and the question is what are the vulnerabilities that would transform what would be a relatively modest moving asset crisis into a much broader crisis. so we ask ourselves, it's not only a question of whether a particular asset has an unusual pricing structure, but is it also true that the holders of that asset, are they highly leveraged? are they illiquid? are there reasons to think that they are not able to assess the quality of that asset. so the second line of defense, so to speak is the extent to which a sharp movement in that price would, in turn, transmit problems throughout the financial system. so even if we can't identify, and i'm on i fully willing to admit there will be times when we can't identify a bubble or some other misvaluation. our hope is to make sure that the system itself is sufficiently robe thought of if there is a problem it it won't be amplified into a major systemic crisis. >> okay. good. >> related topic came up during the conference yesterday. some have concerns that regulatory reform efforts to data focused on financial entities and sifis in particular, however, certain transactions and marks would be vulnerable toward significant risk, and they're in transaction types rather tharn institution types. >> it's not an either/or. first of all, it is very important to make sure that the largest, most complex, most interconnected financial institutions are strong and stable and if not, that there is a problem it is resolvable and with respect to financial institutions are central and remain a big part of what we're trying to do. at the same time there are activities that themselves even if they're not being conducted by a large firm or complex firm being, under certain circumstances have systemic implications to an extent which may not be recognized by the broader public. dodd frank does address a number of those areas. for example, derivatives trading and standardized derivatives under dodd frank have to be traded on a central counterparty with various requirements of transparency, non-standard derivatives have to be traded using various margin requirements. so there are a number of rules that try to make derivatives, the use of derivatives and the trading of derivatives and the systemic activity no matter who is involved on either side. another example is securitization where there was a number of changes included -- including the skin in the game requirement that is associated with the qm requirements and mortgages, for example. other rules to make security zags more transparent to strengthen credit ratings and so on. so that's the second area. repo markets, a lot of work being done, as i mentioned in my remarks on the trirepo market addressing concerns there. money market funds, i mentioned and there's a range of different areas. where it's at issue is not a particular, individual firm, but rather a class of activities and typically funding activity which is need attention because under certain circumstances they can be destabilizing. i would add, finally having listed all these different areas where work is going on and adding in addition that there's a lot of international work with the financial stability board and international regulatorses are looking at shadow banking and a variety of other aspects of wholesale funding, et cetera. in the same way that dodd frank in the oversight counsel, and they're systemically important and it was also in law that if we felt it was necessary, that if existing rules could not cover a particular case the fsoc could also designate a particular activity as systemically critical and systemically important which would then create certain authorities to take actions to address those issues. my colleague dan truilo talked about wholesale funding related to funding regulation in repo markets, for example, which would reduce the margin -- the margin spiral that we saw in the crisis. so, the answer is yes. >> okay. >> all right. very good. okay. >> all right. let's have too big to fail question. this is a upon toic of great interest always at this conference and recently that was the case. we had a very interesting panel yesterday. raj cohen was on it and he had -- he made the hypothetical case that we should consider the fact that big is not necessarily bad, that there's sort of a burden to prove that. there are a number of people that argue that it can best be achieved by breaking up the large banks and that's the other point. it would limit too big to fail and what are your views on this in the alternative and how is this playing out? >> well, first, let me just -- so there's no confusion, i think that too big to fail is a very big issue and we will not have completed the goals of financial regulatory form unless we have adequately addressed this issue and that too big to fail, as we saw during the crisis, the distress or too big to fail are systemically important in the institution has major knock-on effects for the rest of the financial system and even during more normal times the too big to fail in premature creates an unlevel playing field with other types of institutions. it creates bad lack of market discipline, excessive risk taking and so on. so it is very important for the long-term stability of our financial system to eliminate too big to fail, and i just want to make sure that it's very clear that i believe that entirely. now, how to do it, i think it's important and others have said this, but i think it's important to note that dodd-frank and basel 3 together while may or may not be sufficient and that's something we need to talk about, together do constitute an important set of steps towards addressing the too big to fail problem. they're not fully implemented and we're working hard on doing that, but just briefly, and i can talk about this for a long time, but between dodd frank and the basel 3 rules we are first greatly strengthening the capital liquidity requirements for large financial institutions including those which may not even be banks, number one. dodd frank's 165, 166 sections increase the supervisory stringency and reduce -- address of number of tests and counterparty credit limits and stress tests and living wills and a whole variety of other new, supervisory requirements to make sure that large institutions are internalizing in some sense the externality they create in the rest of the system and making them safer at the same time. the orderly liquid aegz authority at the fdic and the federal reserve are developing.fdic take the lead provides us for the first time with aest is rules and framework for safely winding down a distressed systemically important firms which is the assetence. you have to make it impossible it fail, evidently ask this is the first serious attempt to addressing how you would wind down a distressed, incredibly important firm. i think progress is being made there, as well, and i would finally mention that too big to fail is partly a credibility issue on the mast of the government, that the government, will, in fact, go through with its commitment to find down an institution and various laws in dodd frank which limit some of the authorities that we had in the past, not -- and on top of that the various measure, like the derivatives rules and so on that would make it more plausible that the winding down of a financially systemic firm could be done without having major impact on the economy. so i just want to say that i do think that whatever you may think about the ultimate outcome that there are some important steps being taken ins bahhel 3 and dodd frank. now we will see if they are comfortable at that point when that is all done if we believe that the too big to fail problem has been solved. if not, certainly, one direction that we could go forward would be, in my view, one constructive direction and a number of my colleagues have talked about this is through the capital direction. rather than arbitrarily saying the banks can be no larger than such and such a size. for example, i would argue that what we need to do is make sure that larger institutions have to have more and better quality capital, both because it makes them safer, bialso because it reduces and eliminates their funding advantage and gives them an incentive to reduce and simplify their firms if, in fact, the economic as opposed to too big to fail exercise is not justified and this is something that is already beginning. for example, the -- we will be supplementing, the federal reserve will be supplementing the bales 3 rules with the surcharges. we have some discretion in terms of the leverage ratios that we apply in basel 3. our stress testing sets a whole newest is capital standards. we are looking at the requirement that they have senior debt that can be used to protect taxpayers and counterparties in a winddown. so we already have a number of tools that we can apply to a greater extent to make sure larger institutions are very adequately capitalized and that multiple benefits both in making them safer, but also in giving them a strong incentive to reduce their size, complexity and interconnectedness if it's not justified by the fundamental economic proposition. >> thank you. that was a very thorough response and as you can tell from that answer we have many fed critics who, about monetary policy, but your answer encompassed many of the same ideas that mean people have been thinking about. we have more questions than we have time for so i'll just ask you one more question. yesterday we had a discussion about money market funds and the brokers and the importance of liquidity clearing houses as well and periodically the suggestion is made by many that wouldn't it be useful if the fed could somehow be a source of liquidity for some of these entities during a variety of circumstances? what would be the consequences of expanding the discount windows to money marks and would this reduce the rick of a crisis or is it even feasible. >> well, to some ex10, i'm not sure if people are generally aware of the changes that were made by dodd frank. for example, we retained the 13 thereupon to lend to non-banks, we still have that authority, but it is very clear that we cannot lend to an firm or a bailout. any use of that authority has to be broad based against a whole class of potential borrowers. so in a crisis we still have that authority though it's been limb ied in some other respects and it requires the approval and so on. so there have been changes in that authority. there has been some extension of the normal lending authority. i don't want to say normal, but -- as you probably know, within a limited set of circumstances, we are able now to -- the federal reserve is able to lend to critical financial utilities, clearing houses and the like and that's already contemplated by dodd fra frank, but of course, more generally as always, the tradeoff is between on the one hand, making sure that the financial system has adequate liquid withity in the crisis and we're all familiar now and the people had not heard in 2008 and now we think of him as a next-door neighbor. the basic ideas of having the ability to provide liquidity to the financial system during a crisis and during a panic and these ideas will go back several hundred years. those are certainly valid and we saw the use and value of them during the crisis, but of course, on the other side of that is the moral hazard concern. we want to make sure that financial institutions and markets, et cetera, are adequately providing for their own liquid and the they're not relying on the fed on safe them if they haven't approach yetly provisioned for their own liquidity and capital, to the extent that you have any kind of borders or the perimeters of the sent rl bank authority, this is not just a u.s. issue ask you have to match that with the appropriate oversight results that mitigate the moral hazard problem. so, for example, i think it's a step forward that basel 3, unlike the previous basel agreements which focussed almost entirely on capital now has a significant component on the liquidity management as well so that banks and others will be required to meet requirements for how much liquidity they hold so that they will not be able to sichl lie rely on access to the central bank. instead, they will have to be sure that they themselves are doing everything possible to have adequate liquidity in advance of any kind of problem. so that's the balance that we always have. the moral hazard versus the support for the system in a crisis, and finding the right balance is obviously something that's an ongoing discussion. okay. all right. everyone, let's thank chairman bernanke. [ applause ] >> that is the chairman of the federal reserve ben bernanke along with the chicago fed president evans. the erm cha an with the basic message for the markets saying that four years after the crisis, the banking sector still has vulnerabilities this trying to convince the market that the fed is, in fact, on the case, stepping up and monitoring in his words liking at a broad range of metrics that go beyond capital ratios, for instance, which he called backward looking said that the fed is on the lookout for investors, in his words, reaching for yield and says that there's a difference between asset prices, rising guides and their importance to the economy and in one very awkward moment, references microsoft saying microsoft is worth more than it was a while ago saying, it may prove to be a bubble, but so far so good in his words. rare that you would get a fed chairman mentioning a single-name stock. >> i think it won't be lost on most viewers even who may be big fans of ben bernanke that when he talks about overleverage and when he talks about major imbalances in the economy, probably the major imbalance at the moment is the fed's own balance sheet. so whether he regards that as a vulnerability and a potential trigger for a problem that he's selling. >> that was the hole in the doughnut today. that was not part of his address. >> it was not. >> it was not. >> we're in a world where equity yields more than debt. he may be comfortable with that. >> which he created. >> exactly. and others. it's other central banks as well. what are we talking? $10 trillion or something like that? that's a big number. the question is it the pot calling the kettle black? we'll talk more about that this morning. >> let's bring in rick santelli who is bound to have, i imagine, some fairly sultry views on the fed. good morning. >> you know, down here, i think you guys nailed it. the one comment that got a reaction was when they were going to keep a close eye out for those reaching for yield. i think cumulatively, about 2 million traders raised their head for a couple of seconds. it seems to me after the speech in speaking to traders, and believe me, there was not a whole lot of interest in watching the total speech. a lot of this doesn't seem to be in the wheel house of many traders, but the complexities that the fed has to deal with, the complex ieds of dodd-frank, their role in writing implementation and i keep thinking to wednesday's interview with richard fisher. at this point, the agencies involved in dodd-frank, the implementation will be about 25 million man hours and it's far from complete. it's a little intimidating, and i think the fed is a regulator. i just don't know that you can regulate the complexities of the current marketplace with any kind of accuracy or, i just don't see it happening. the markets in my opinion didn't move based on anything that the fed speech had included in it, and of course, the release pretty much instantaneous and everybody had a cope of the text, but i will tell you there was market movement and just not predicated on the fed. and i didn't see this yesterday when the dollar-yen first reached 100, but there is this backing in of a strong dollar and what it does to interest rates that seems to be trumping some of the ideas that many traders had about how leverage and the carry trade with a weakening yen will play out so those seem to be diverging at the moment and rates are a dozen basis points higher in the ten-year right now. >> good to have your insight. thank you so much. for more on the chairman i want to bring in joseph tanius and john lonski, chief economist with moody's chief investment firm. happy friday to you both. in the chairman's words n light of the current low interest rate environment, we are watching particularly closely for instances of reaching for yield and other forms of excessive risk taking which may affect asset prices in the relationship with fundamentals. what message is embedded in that statement? >> the point is perhaps investors are making a mistake by willing to purchase junk bonds at an average yield of less than 5%. that's incredible when you stop and think about it. of course, these investors are taking a great risk especially if over time, benchmark treasury yields move significantly higher. >> for the. of safeguarding financial stability, we are less concerned with the price is justified in an average sense than in the possibility of a sharp move. in other words, and this is a question, does the fed have a put under all asset classes at the moment? is that what the man is saying? we cannot have sharp moves in bonds or equities and we are there to prevent that now. >> well, let's go back a little bit in time. when we had a housing bubble in 2002, 2006, many shrugged aside the risk implicit to relative high home prices relative to incomes and relative to rents on the basis that the fed would prevent home prices from collapsing. as we discovered the hard way, the fed didn't have the power to prevent such a price collapse, so we have to be very careful when we talk about this put or this implicit insurance policy that the fed might be supplying to financial marks at this point in time. >> specifically on treasurys because that's what this market cares about, can they prop up treasurys indefinitely and keep the prices low. is there a putback there with the balance sheet? they can only supply support to treasury prices as long as inflation is well contained. take the case of japan. we complained about how large the fed's balance sheet or asset holdings are relative to u.s. gdp, but in fact, if you look at japan, the bank of japan's assets are ten percentage points higher relative to gdp in the case of the united states, moreover, the bank of japan has had its assets so great relative to japanese gdp for an extended period of of time. what is true about japan? they still don't have price inflation, they still have price deflation, as long as the prices are well-contained in the united states and i would like to add asset prices in addition to consumer prices, the fed can afford to stick with this policy, but ultimately, it could prove to be a big mistake. they are assuming risks that we don't fully understand at this point in time. >> and even at the bernanke, joseph says they won't fully understand. he basically says in his speech that they are going to miss some thing as they have in the past. there's a probability and no way around that. do you think we can extrapolate something and this comment on yield in terms of the fed's willingness to a cko com date t market. >> they're not in a position to get out of the market and these asset purchases. i guess what you really have to ask yourself is how much do the additional benefits of continued qe outweigh the costs? what are the potential long-term implication of this quantitative easing and is it really worth the incremental benefit that you're getting? >> yeah. although the message today appears to be the fed's on the lookout for the answer to that question and they're trying to make the radar as granular as possible, did you walk away feeling better about their oversight? >> to be honest with you, i didn't. >> i commend the fed in what they've done and you take a look at where we are today. you see that the economy is improving and maybe not at the record pace, the corporate profitability is as strong as it's ever been. i just want to question yet fed is still making these asset purchases every month. >> i know you're not a banking analysts per se, and some of them are down, and the notion that they're stepping up monitoring and it's no longer that we'll gauge help and he'll do more poking and prodding over the next few years. it's a harder endeavour and moreover regulation may limit the revenue and profits and it's understandable that bankshare prices might move lower in response to any indication of stepped-up or more thorough regulation. >> i think one of the more xiling momexi chilling moments is when he said and it's hard to argue that money markets and he mentions the reserve fund which we all remember from 2008 that the possibility remains for funds like that to break the buck and set off a panic. >> look. i think the risks are always there, and it is not so much of risk of things going wrong, but the possibility of things going right. does the fed justify being in this position today. you are keeping rates at incredibly low levels and as a result of that, you are seeing many investors to start searching for yield and further out in credit and further out in the yield curve. >> you heard john mention this yield and this focus on yield. john mentions high-yield debt which was a big story this week. do you think he is looking particularly at the equity market. he said we watch the regular things and we watch p-es and earnings and the equity premium. i just wonder whether the stock market as we know it is the locust of their so-called investigation. >> i think, look, he certainly made a comment on high yield upon i didn't hear too much of him talking about the equity markets. from a valuation perspective, i think there is a difference in the high yield and the stock market. if you take a look at high yield, spreads have narrowed significantly. you take a look at the equity markets and you take a look at where thajs are today, whether you are looking at a forward p-e ratio you will probably reach the conclusion that there's more upside there. in my opinion, i think that's part of what the fed is doing here. keeping rates exceptionally loewen couraging them to go in the risk spectrum. >> even if he says we're watching you. >> we appreciate it. >> we have some breaking news here on intuitive surgical, the maker of the da vinci surgical robot has been under pressure as reports of complications after robotic surgeries have surfaced. herb greenberg has been covering it and he has the news. >> intuitive surgical has issued a device notification, alerting hospitals that has an issue with a instrument that can cause internal burns. microcracks in models of intuitive's money on polar curve scissors can cause leaks that may create a pathway for electrosurgical energy to leak to tissue during surgery and potentially cause thermal injury. the notification added in bold type, these microcracks may not be visible to the user. as part of the notification, the company includes a list of six precautions and warnings for usage of the endo risk money on polar scissors. including the increase in injury and internal burns was the focus of the documentary, the da vinci debate. in a comment to cnbc this morning intuitive says that to date in over 1 million surgery, the company has no confirmed evidence in terms of patient injury in attributable to this issue. it decided to leave the effective product in the field until a replacement to be offered and it considered it a risk to patients results in canceled or postponed cancer surgeries. it anticipates replacements for the injury could be replaceable in two to four weeks and they'll begin to premove existing models. you can read more online at investigations cnbc.com. herb on a scale of one to ten, how devastating do you think this is to the company? >> i think it's very important, simon, and i'll leave it at that. >> thank you very much, herb greenberg with that braking news from the medical device sector. still ahead on the program, much more from steve liesman's exclusive interview with jack lew live in london ahead of the g 7 meeting on everything from europe, japan and the debt ceiling which he says will not bite until labor day. we're back in two. what? customers didn't like it. so why do banks do it? hello? hello?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello? ally bank. your money needs an ally. [ male announcer ] there are people who find their own path. and never back down. who believe the american dream doesn't just happen, it's something you have to work for. ♪ we're for those kinds of people. because we're that kind of airline. and we never stop looking for a better way. it's how we've grown into america's largest domestic airline. we are southwest. >> treasury secretary jack lew sitting down for an exclusive interview with cnbc's senior economics reporter steve liesman this morning. steve joins us live from london with more. i'm not sure what you would pick out of the headline. is it the debt ceiling? >> i think that's one of the headlines, simon, that the debt ceiling will be extended, but lew is in london ahead of the g7 meetings that starts today to talk to european and asian counterparts from around the world. and i thought a big takeaway, simon was what he said about europe and he's here really to urge more balance in policies, a balance that's more towards growth than it is towards austerity. let's listen to my discussion earlier today with treasury secretary jack lew. >> i've been engaging with the europeans since becoming secretary and this will be a continuation. we feel very strongly that there needs to be a right balance between austerity and growth. we've seen in the united states that scheduling the deficit reduction to come a little bit later has left us with a stronger economy. we are not arguing over whether or not we all have to get our fiscal house in order. we all need to get the fiscal houses in order. the question is how, two challenges that we'll make the case and europe has to deal with, one is having the economies grow is to get the right balance between the budget policy right so that they can get growth moving and the other is they have to fix some of the credit market issues so that they can get capital flowing into small and medium-sized enterprises and that will be part of the message that i bring. >> how receptive do you feel that the europeans will be to that message when there was some concern that the u.s. was sort of meddling in their affairs. >> you know, i have found them to be very open to the conversation. we don't agree on everything, but i think the fact that the u.s. economy is performing much better is something that they've noticed. i think that the fact that the academic literature has been evolving a little bit is something that the world has noticed. the the reality is for a global recovery to go where it needses to go it can't be led by the united states alone. europe will have to do better. countries like china will have to do better and we need to do our part which we're determined to do, but each part of the world will have to grow for this recovery to really be what we need to to be. >> i definitely want to get to our part, one of the things that a senior treasury official said was talk about germany, increasing consumer demand. is the idea that germany should go further into deficit here, is that the thinking of the united states? >> i think there are countries in europe that have more fiscal space as they say here in europe to create a little bit more economic demand in economic growth. each country will have to make its own decisions and we'll have to make an overall level of growth in europe. not all of the countries in europe have the same capacity to grow and overall europe is going to need to do a little bit better. i think there's room for progress. we've already seen some progress made in terms of easing off on some of the very rigid deadlines for some of the countries to hit fiscal targets while keeping an eye on the medium and long-term structural reforms. i'm hoping we'll continue to make progress in these conversations. >> how about in britain? is there more fiscal space, in your opinion? >> i think they have, without changing their policies, found more fiscal space. obviously, i think that we've demonstrated by our actions what we think has been the most effective path. >> let's go take a trip away from europe to asia where the yen is at 100 to a dollar. are you concerned about that level? is that a level that will hurt u.s. exports and the u.s. economy and are you concerned about the method that they're going to use to develop the yen? >> i'm not going to comment on day to day movements, but if you look back to the g-7 movement reached in moscow a few weeks ago and reaffirmed more recently in washington where the g7 met there, the world community has made clear that domestic tools designed to deal with domestic growth or within the bounds of the international community thinks is appropriate that policies that are targeted to affect exchange rates are not. as long as the policies stay within those bounds, we think it is important. i justed the european content s a and japan has encouraged it, and as long as they stay within the bounds of the agreements i think growth is an important priority. >> hey, guy, just some headlines that weir getting now from the german finance minister right on these topics. he is saying agreeing on the one hand with losing, it's important that policies seek a policy between growth and policy consolidation. he says the g 7 will discuss foreign exchange rate and these are headlines from the german finance minister saying japan has promised to take a cautious approach on the currency and growth must be sustainable and he says german policy is balanced and rejection there of the prodding from lew. guys, the conversation just beginning and now we're headed up to buckingham tomorrow, simon, i'm sure you know where that is. i don't. >> i just think in fairness to the europeans, it's all very well to be lectured by headmaster lew, but we should remember the situation in which they find themselves the bond vigilantes would have ripped those countries apart had it not been for the intervention of, for example, germany to have transfers, guaranteed transfers to prop up some of those countries. yoi know, it's reasonable for the germans to say you have to balance your budgets or move towards that. you need austerity and you have to step up to the plate. it's all very well. lew has the luxury of a very deep treasury market that the fed is supporting. those small european states didn't have that, steve. >> i don't disagree with anything you're saying. i just think you're not addressing what one of lew's points is. i think when he talks about growth versus austerity, i think he's really talking about the central countries. they're talking about increasing demand in germany. consumer demand to get that fiscal balance back into more normalcy. germany running that big surplus with other countries in europe so if it ran policies that would create more demand, that would help out the periphery countries and we're talking about there being more fiscal space, and i don't think he disagrees with your verdict about what the market verdict was, or about the peripheral countries. my takeaway is talking about the essential economies and the ones that really did matter in europe. >> you did manage to cover fannie mae and you had big news this week and he called it complicated. >> yeah. he said the reason why we're getting that $59 billion in june are complicated and suggesting not likely to repeat. i think the big story stands which is that rather than being a drain on the federal budget, fannie mae and freddie mac seem to be adding to or reducing the deficit or adding funds to the budget, and i think that's significant, and he also said it was the reason why he's able to extend the debt ceiling from the statutory limit being hit in the next few days to labor day and i will tell you that labor day forecast he gave us may be a little light compared to what we already hear from the private sector and some say it may be further than that. >> one of the bull's arguments has been we won't have that to deal with this summer than other summers. >> that's a great point, carl. >> we'll see what it all means. great work. have a goed time, we'll talk to you soon. >> steve liesman in london. the glitz and glamour of the roaring "20s in honor of "the great gatsby," the most elite real estate islands gatsby's gold coast on long island from one of the more elite reporters. >> we'll see that every single day. >> as we go to break, here's a look at the markets. the dow is down some 19 points. back in a minute. yeah, i'm married. does it matter? 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[ male announcer ] another reason more people stay with state farm. get to a better state. ♪ get to a better state. all stations come over to mithis is for real this time. step seven point two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it. siemens. answers. we're in the retail space. let's get to josh lipton at headquarters. >> true religion. check that one out. the jeansmaker surging this morning. the news, agreeing taken public by tower brick cap it will for some $835 million. tower brook will pay 32 a share and that is about a 50% premium to the share price last october and that's when the company announced it was exploring strategic alternatives and it is subject to shareholder and regulatory approval, but expected to close in the third quarter. it has made investments in companies like jimmy choo, true religion also reported earnings in the latest quarter excluding costs associated with the review and earnings clocked in at 22 cents a share. sales rose 13% to 120.8 million. trlg up 7% rid now. david, back to you. >> thank you very much, josh lipton. the course of business titan jamie dimon. take a look at "squawk box." jamie dimon is as gooda an executive if you searched high and low for however much time you wanted to and you landed on jamie dimon, you would do anything to have him take care of, let's call it, banking enterprise. i think he is as first rate as it gets. >> and news corp.'s rupert murdoch tweeting this, j.p. morgan would be uppa i creek without jamie dimmon. one of the smartest, toughest guys around. didn't bend when times got hard. >> it's not all diller said. he said iss was a destructive force. he said that smith the role is a bit of a charade and if they voted that way they would be dopes. >> he is not, number one, short for word which is is one of his attributes. he says it like he sees it. he has a lot of support among of the his peer groups and that, of course, because j.p. morgan has made a lot of money. >> we'll see shareholders in a week and a half. >> guidance below the estimates yesterday. we'll have a live and exclusive interview with the ceo, jeffrey boyd in just a few minutes. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good. ♪ [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. 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[ static warbles ] welcome back to "squawk on the street" and the last santelli exchange of the week. everybody for the last month, little over a month, has been waiting. at least everybody in the trading communities waiting for the dollar. there have been some that have seen the pattern. a mission to accommodate, to create inflation. but no matter how you slice it, not only did we go through with a bang yesterday afternoon, but it went through and continues to go in an aggressive fashion. we're close to 102. i was surprised, though. i understand that's there's you knock, and we don't want to go in the weeds, aspects of the yen movement that affects swaps and derivatives that should push interest rates or pressure rates higher. i am surprised how much up double digit rates are. that's the point that the dollar the really the proactive part of the equation. it doesn't matter. it still translates to the same issues when you look at the dollar on the cross trade. the long and short is there's always been a tight relationship between a strong dollar and higher rates. might be more technical. everybody is talking about jamie dimon and ben bernanke was talking about bank regulations and dodd frank. i have issues with too big to fail and the dozen banks that is probably one of the biggest. however, when it comes to jamie dimon, an outspoken critic of regulations, i'm with him on that one. i think that bank should not be subsidized. but in terms of jamie dimon, at least my opinion, my hats off to him. >> the roaring '20s are roaring back to movie theaters this weekend. we'll talk about that when we come back after a break. isn't a? it's lots of things. all waking up. ♪ becoming part of the global phenomenon we call the internet of everything. ♪ trees will talk to networks will talk to scientists about climate change. cars will talk to road sensors will talk to stoplights about traffic efficiency. the ambulance will talk to patient records will talk to doctors about saving lives. it's going to be amazing. and exciting. and maybe, most remarkably, not that far away. the next big thing? we're going to wake the world up. ♪ and watch, with eyes wide, as it gets to work. ♪ cisco. tomorrow starts here. 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 leading-edge analysis tools from recognia so you can quickly spot key trends and possible entry and exit points. we like this idea so much that we've applied for a patent. i'm 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. the roaring '20s are roaring back into movie theaters with the premier of "the great gatsby". we're looking at the gold coast on long island. hello, old sport. >> reporter: hey, carl. how are you? we're here just a little bit east of where the great gatsby lived. this is home to the grandest old mansions in the country. worth 25,000 square feet inside a great tu dor mansion. and it's also got a great price. originally house is $22 million. so prices are coming way down on this part of the world. there's another house that we're going to show you that came on at $22 million. $19 million on contracts less than that. much of it was russian. >> luxury ask on sale. and presents amazing value. and that's what attracts a lot of international buyers. russian buyers in particularly. >> i guess if f. scott fitzgerald were writing about it he would write about him instead of gatsby. >> across the bay or connecticut, greenwich or the like, those kind of square footage numbers would garner a much higher price. and this house, 25,000 square foot, you know, we're looking out at billy joel's island. incredible view of the harbor. $11 million. there's a lot of value here. this is good value especially given the history of this area. >> you mentioned the foreign money. some parts on long island, a lot of chinese money, asian money. taiwanese money. i wonder if that's an element there, too. >> it absolute is. the north coast is russian. further south is feeling more chinese. but definitely a lot of asian buyers. and there's a london buyer, actually from scotland interested in the house. it's really a global market. >> robert looks like he could fit in. >> right there. daisy right behind him. >> have a great weekend. we'll see you next weekend. if you're joining us this morning, here's what you missed earlier on. welcome to hour three of "squawk on the street." here's what's happening so far. >> it's so clear the right thing to do is to reach a sensible compromise on a package that replaces the cuts that we're going the keep working hard at. >> if you searched high, low, or however much time you wanted to, and you landed on jamie dimon, you would do anything to have him take care of your banking enterprise. >> there's nothing but cheap money on most people's mind. it made the equity markets. but also what it means on the death side of vacation. >> the online industry is getting more competitive. i think what last night's showed is not maintaining high levels of growth. >> too big too fail is a very big issue. and we'll not have completed the goals unless we adequately address the issue. >> you see the economy is improving again. maybe not at the record pace that we would like me to see it at. i just question why the fed is still in the bond market by making these assets every month. >> hope you're having a good friday morning. we want to check on the markets. just up less than a point this morning. dow is down 10. the nasdaq is up 10. gap is the biggest percentage gainer after reporting better than expected sales, giving first quarter guidance that did surpass the guidance. and hess will be appointing a new chair as the nonexecutive chairman. the treasury secretary jack lew sitting down for an exclusive with steve liesman says we will not hit the debt limit until labor day and the global recovery cannot be led by the united states alone. plus, best buy is staging quite the come back. it's the second best performing stock on the southbound southbound this year. why one analyst says the company's turn around could mean trouble for amazon. and price line earnings crush the views but the outlook for the second quarter is not so great. we'll find out what the ceo has to say when he joins us for an exclusive in the hour. steve liesman sitting down with jack lew ahead of this weekend's g7 meeting. the markets hovering around record levels despite unemployment being high. there's not so much disconnect between wall street and main street, rather the short term and long term of job creation, right? >> yeah, and we've been talking about the international part of the interview. his comments about europe. comments about the yen and whether or not he gave japan a green light. but let's concentrate on the domestic part where i asked him about the disconnect between wall street and main street. he said that's not really the problem. the problem is the disconnect between short-term and long-term employment. here's what he said. >> the core fundamentals of our economy have shown over the last number of quarters and months that we're moving in the right direction. the economy is growing. we're creating jobs. it is not fast enough. while growth is encouraging, it's not sufficient. our policies are aimed at what can we do to grow the economy more and create more jobs? we have a particular concern that there's a disparity between short and long-term unemployment. either the young who haven't made it into the workforce or older workers who have a hard time coming back in. this is something we pay a lot of attention to. >> it seems like tollsies by the administration, you have to propose certain things. what can be done about that? es herbally in light of the sequestration, which most agree are going to produce jobs. >> the thing we could do is to encourage overall growth and job creation. that is going to be the thing that drivers employers to get beyond keeping people in their job and creating new jobs and bringing people back to the workforce. >> carl, jack lew made an interesting point, i thought. he said if you can think of a program to add half a point to gdp and 700,000 jobs, we had the program, ending sequestration. there is no hur tri to end the sequestration that is in effect right now. >> of all the plates spinning on jack lew's desk. policy in europe. policy in japan. policy at home. what is going to get the most attention this weekend? >> i think japan will be a big topic of conversation, with just how far is too far? i thought you could read jack lew's comments both ways. on the one hand it was a green light. i asked him twice if he would criticize that. the japanese policies relative to the end, and he wouldn't do it. but he did point back to the g- 7 comment, which is you shouldn't be enaking policies that devalue your currency. one is a green light to do more. another is a warning not to go too far. i think back home jack lew very much wants to get the u.s. financial situation on some more regular track. and i think that if he gets done with his tenure without doing that, i think he would think that's a failure. >> yeah. >> i'm so glad we're still talking about his signature before we're seeing them on dollar bills. want to get more on lou and what to expect out of the g-7 this weekend. he joins us this morning. john, good to have you back. >> good to see you, carl. >> you think yourp will be the focus. you don't have kind things to say about europe's future right now. >> i think europe is fundamentally dysfunctional. there's an inherent inconsistency with the long-term plans and short-term reality. skimplly stated, all politics is local. the german politics is not favoring more spending and more generosity. it doesn't want to amass more debt. doesn't want more austerity. wants to ultimately maintain its own sovereignty. so europe is key. so i think as steve said, the most exciting thing going on globally is the experiment in japan and seeing what's going on. >> yes. and to that end, lew did say we will keep an eye on them, reminding them, as steve pointed out, that their policies need to stay in the confines of what the world has agreed on. and windhen the does saying we' going to keep an eye on you? >> all lew is saying we have a green light to keep going forward and currency markets are driven by the domestic policy. unlimited amounts of liquidity in japan. but that liquidity has already started flowing around the globe. we have seen it everywhere. but with lew's approval of the policy, and that was hinted at in the premeeting, we know that that has already set the currency market, the yen has fallen and the dollar has rallied in light of those remarks. >> there's been a lot of discussion on what a short trade it was. maybe not as smart as the nikkei itself. it's seen as less than stellar. i wonder if you think the policy is going to trickle down. two ceos and two households. >> well, for the japanese domestic what the lower yen means is higher inflation, higher prices. you see that with pressure on consumers and domestic companies. ultimately the effect is to make japan more competitive globally. it makes the companies that have been shutting down over the past five years very competitive with the chinese companies, the korean companies, and the companies globally in terms of selling tv sets or manufactured products globally. and that's the goal is to increase the exports of japan. the currency war or competitive e evaluation. that's an endorsement of easy money. >> and with all this money around the world, you've been tactically trading gold here. i wonder if you can walk us through what you see. >> it was a disaster overnight. gold is down sharply. as is crude oil. on the back of this news, the dollar has been very strong. gold is ultimately two things at the same time. it's the ultimate currency and it's also a commodity. today it's been trading in the commodity market. we're looking at dollar cost average into more gold at lower prices. ultimately gold is probably the only solid currency out there. >> well, there have been lower prices lately. thanks a lot. we'll see you soon. >> thanks. the u.s. dollar index is rising sending commodities deep into the red. sharon epperson is with us. >> we're looking at gold prices down $50 at this session. and gold reached below the 1420 level. a lot of folks saying maybe now is tim too to get in. others saying we could see the gold prices fall much further. perhaps they will go down as much as $12.50 an ounce. also keeping our eyes on other metals. enwe're looking at oil down more than 2. but u.s. production and inventories at record high levels and opec coming out with a report talking about its production being up in april. and we're also watching the spread action. is it fell to the lowest level in more than two years earlier this week. that's where a lot of trading action has been as well. >> that's a key thing to watch this week as well. as best buy's stock has made quite the turnaround, amazon appears to buy out. first rick santelli will watch another data point. >> could we really run out of corn and beans? is crop insurance an issue for planting? how is planting going? all of these questions. and the ad market is getting interesting. mine was earned in djibouti, africa. 2004. vietnam in 1972. 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[ crows ] now where's the snooze button? trading slight i higher up 2% this week. a couple of retail stocks helping out this week. josh lip on the has itted a headquarters. a and some of the retailers heading higher. there's also macy's at a historic high today. up some 24% over the past year. reports next wednesday the street is going to be looking for 53 cents on a revenue of $6.4 billion. carl, back to you. >> thank you very much. the second best performer on the s&p this year. just behind netflix. amazon has fallen flat. there is a correlation between the two. >> best buy was the first one left for dead. and now i think that best buy has started to lay out a plan and started to see market share gains throughout the fourth quarter into the first quarter. and there's a belief with the sales tax and fairness seen coming on here that this category may be the first sta starts to bounce back. they were the first to gt hit. they have the longest period of time to regroup. i think this is one that gives credibility and it seems to help close rates at best buy. the sales tax is another one. the third is the vendors. what happened tw the vendors is they saw their pricing integrity get destroyed on 100% of their market share where if you take the tv category they were giving up 100% pricing integrity. upp map and hard map, these have been a reaction. >> you say fixing a broader theme of retailers. finally figuring out how to sell goods on the web. >> amazon is great. they're the best. no question about that. pick up in store. they're still a lot bigger than amazon or the retailers are with their vendors. they get a lot of traffic. sam suck is putting a store within a store inside best buy. why? they know that's where they can gain share with that consumer for their eco system. that's what apple understood earlier on, too. and you're going to see more of these brands take a bigger presence inside best buy. you think they can double earnings in the next three to four years? fair value at 36. is it a little -- isn't it a little dangerous to say it's never going to happen again? >> i think what's happened here going back a couple of months and watching samsung they've been grace showing. samsung knows this is the perform example of embracing. they have samsung employees in there. this is our retail strategy which is best buy here. you're going to see other companies that will do that. they are now embracing it. the vendors need this more than ever to dry the showrooming. they are going back to brick and mortar. particularly best buy on the bigger ticket items. >> does it mean they do not have to shrink the physical space as much as we thought? >> i don't think we do. over time it probably does shrink a little bit. as you start to bring in some, as you embrace showrooming, maybe not. maybe this is the right size. that size really helps in the store. whether it's multiple on amazon or stuff like that. >> absolutely. i agree with that no question. we'll see you later. take a look at shares of tesla hitting another all time high. and the first ever quarterly profit wednesday after the bell. company's market cap more than $8 billion and elan enjoying a good percentage of the upside today. up next, we'll head to the land of gatsby on long island to look at how the millionaires live and how they compare to the ones of the great gatsby era. jeffrey boyd will join us with his first reaction to the company's first quarter results. 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[ female announcer ] when people talk, great things can happen. so start a conversation with an advisor who's fully invested in you. wells fargo advisors. together we'll go far. ♪ the highly anticipated film "the great gatsby" opens today. and our own is out in gatsby island. taking a look at millionaires then and now. what a beautiful day to be out there, robert. >> it's a great assignment, robert. i'm here at the ft. hill estate. they don't build mansions like this anymore. a lot has changed about wealth since gatsby's time. back then the richest man in america was john d. rockefeller. a billionaire back then. it was railroads, oil and steel that were big. today it's mostly tech and finance. bill gates and warren buffett topping the list along with charles koch. and wealth back in his time, they were lot more specials back then. they were only about 7,000 millionaires in america. today there are more than 5 million. and the number of people making a million or more back then, only 75 americans made a million dollars or more. today about hundreds of thousands. but there are some similarities between then and now. namely inequality and central bank policy of all things. back then the wealthy and today had 16% to 17% of the income. the top 1% had 33% to 35% of all the wealth. what's interesting is economically a lot of similarities. a lot of people, we were in a deflation nar boom that was driven in large part by easy money from the central bank and the fed. sounds very similar to what is happening today. carl? >> yeah, and you talk about the rich then and the rich now. you covered wlt for so long. the appetite or dependence on real estate as a percentage of all the assets has to change over time. >> back then real estate defined your wealth. it was how you defined your status. in addition to philanthropy, of course. but there's 100,000 square foot house nearby. that's how you define your wealth. today it's about your portfolio and your liquid wealth. but it is a definer of status. 100 thourk. that's almost comic. robert. robert, thanks. a few minute minutes left in europe's trading day. we'll get the close over there and talk about the impact on our afternoon session this friday when we come right back. ♪ [ laughter ] ♪ [ female announcer ] each one of us is our own boss. ♪ and no matter where you are in life, ask your financial professional how lincoln financial can help you take charge of your future. ♪ governor of getting it done. you know how to dance... with a deadline. and you...rent from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price. this is awesome. 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[announcer] you are how you sleep. tempur-pedic. the european markets are closing now. >> well, not quite yet. but stocks set to end their stocks at a high for the year. treasury secretary jack lew says he has a message for europe. here's what he told steve liesman in a cnbc exclusive. having the economies grow means they need the right balance between their budget policy right so they can get growth moving. the other is they have to fix the credit market issue to get capital flowing to do the hiring. and that's part of the message that i bring. >> take a look a the major european markets today. only spain was the lager today. bt group posted better than expected results. and a big story reaffirming their earnings guidance despite swinging to a net loss. the company expects steel and iron ore sales to improve in the second half of the year. let's get to rick santelli in chicago and what to expect from today's crop report. >> thanks, carl. we have half of the team. jerry, welcome. >> thank you. >> what do you expect in the report? what do you expect it to show? >> probably a no brainer. i don't think we're going to see anything bullish they're looking for ending stocks to come down a little bit. but ethanol will probably come up and export douns. as a producer we don't want to see them raise or lower the usage. that would imply we're cutting the demand more than they think. before we hit the harvest in the fall and we could be running really low on beans and corn. is that hype or is that reality? >> well tell me something you haven't been warned about for a year and a half. this import/export thing works both ways. >> let me stop you right there. >> let me stop you right there. you hit on something that was in your letter that i found fascinating. you remember the carter years. he put a lot of countries in the grain business, did he not? >> right, right. >> what is synonymous now with them? obviously we don't have jimmy carter in the white house. we do see our competition in grains has been given a wild card. explain to the audience. >> high prices is a great fertilizer. we got to $145 a barrel. we said, we got to do something. if you're paying $8 a barrel and $2 or $3 more a barrel to ship it, you got to do something. you buy all the grain i can produce at $2 or $3. at $8 you start raising your own. if you can't you start raising the cow and shipping the meat i can't produce in the country. >> so the high prices have put some countries that compete with us back on the map. they're ramping things up. >> well, south america is a good one. brazil will ship more corn than we might. and argentina. the whole south american thing. ukraine is producing a lot more. we incentivize the european countries that do that. all you have to do is look at the long-term chart and say what do we produce ten years ago versus now globally? we were the place to come to for corn. we're no longer the main supply of corn. >> real quickly f you don't plant by a certain date you lose a certain amount of crop insurance every day. >> right. >> interesting dynamic. you think that's going to put a booster in the plan sng which is way below historic average. >> we'll plant until that cutoff date which is normally may 25th. june 6th in others. at that point you lose 1% per day in coverage. it's a stopgap major. if i come and knock on your door, that means you have a loss. we have to lose 20% to 30% of our crop before it kicks in. so it's a catastrophic event. the corn prices are relatively high compared to three years ago. what if we have to look at not just break even levels but lock in a loss? that could be something we haven't been used to. we're used to managing undersupply. >> excellent. jerry, you always bring up points that many of us don't pay close enough attention to. carl, back to you. >> you got that right, rick. bob pisani is here at post 9 we're talking about in some ways we're all fx traders. >> pisani's law of broadcast journalism is pay attention to what stock traders said. when they talk about something besides the stock market, pay attention. let's help tw the dollar here. they don't normally talk about the dollar down here. yeah, things have changed a little bit. it's affecting commodities and the stock market. things all changed here at 2:00. that's yesterday when it hit 100 yen to the dollar. since then it's been nothing but strength in the dollar and weakness in the yen. we were almost at 102 at one point. this put up the japanese stock market. up 40% this year. up almost 3% on the day. ever since it was clear she would be elected back in november, nothing but straight up. 40% since the beginning of the year. take a look at what this has done to the dollar. it's basically pushed the dollar up. this is where the whole thing started yesterday. and this is the dollar index just over a two-day period. we may be at the highest level since july of last year. what this is doing other than messing around is it's messing with the commodities market. it's been dropping commodities and hurting commodity stocks as well today. you can see the big names. all on the downside right now. there's a lot of talk about the fed tapering off purchases some time this year. i personally think that's very unlikely. in a sense it doesn't matter. the yields are so low that the hurdle for economic data is very low for people to take risks off the table. some of these boig bond etfs down. 20-year treasury. down 4%. corporate bonds are down 1.6%. this is fairly large moves for a single week. some people are taking the risk off the table. it's been another strong day. i want to point out the stocks index has had a tremendous three-week rally. a lot of stocks are up double-digits here. and for the week here it's a bit of a risk on week here with the energy names on the upside. and consumer staples and utilities on the downside. utilities are down 3%. that's the worst week in six months. >> six months for utilities. unbelievable, bob. have a good weekend. when we come back, priceline is seeing a steady rise, trading highers after earnings hit a new one-year high. jeffrey boyd will join us live for an exclusive interview. and college grads may be in for a rude awakening when they go job hunting. why one tech says he would not hire any of today's grads when we come back. are you still sleeping? just wanted to check and make sure that we were on schedule. the first technology of its kind... mom and dad, i have great news. is now providing answers families need. siemens. answers. coming up next on the half, it's one of today's biggest stories on the street. carl icahn offers a buyout deal for dell. we'll have his first comment since the news broke in a live cnbc interview coming up on our show at the top of the hour. morgan stanley's duo of top watchers give their outlooks and hp has been this year's dow darling. two traders face off on where it goes from here. carl, can't wait. 20 minutes. >> red eye connection is not fun. that's a news flash. >> thanks. we'll see you in a few. it is graduation season. employment is likely to weigh heavily on college grads across the country. as the job outlook does remain mixed. unemployment for college grads was 3.98 which is half of the overall unemployment rate. one executive took to the wall street journal to explain why he is not interested in hiring a recent grad for specific region. he joins us here this morning as i said to you during the break, this piece set the world on fire. and in short, you say you won't hire a graduate who doesn't know how to code. >> yeah, so we are excited about getting the message out there to college graduates that this is a time to take control of your own destiny. i don't know how to code, but i need you to understand the implications of technology on your business and really be able to talk the language of how coding the transform the companies that you're planning to joins. so it was an offer to take that control in and control your destiny. >> you call it a crisis. that not enough high schools teach this. not enough learn this at a new eaj? >> we haven't head it clear for college graduates. we haven't made it clear at the high school level. the importance of science and mathemati mathematics. we haven't made it accessible and haven't championed how accessible it is. we're really looking to make sure we get that eager, energized student that has taken control itself. there are videos online, free access points, apps for your mobile devices that teach you the basic understandings and how those impact what you're joining. take the student above the fray and above the noise. >> to use the term. code em pathetic. >> yes. walk me through an example where i work for you in sales or marketin marketing. >> the issue is you sit across from a client, someone that you're offering a product or service to. they ask you to do something different. it's the understanding that most businesses today run on a great deal of technology. so this content requires a tremendous amount of knowledge. you want them to understand the implications in the request. but now expectations get managed. you power the transformation for many publishers. ebay, msnbc. we provide technology that allows them to transform the business and personalize the experience. that salesperson needs to understand what is the nature of the technology. >> say i interview. how do you screen me? do you give me a test? to be able to understand what a dupe actually does or why using sequel helps us do analytics better or faster or understanding what designs the user experience may depend on codes like python. if you bring them up we're excited to have you and excited to hire. >> eneverybody should read this piece. it's well written. it's not too long. and it's an important message. thank you for spelling it out a bit for us. thank you for joining us. if that segment made you worried, don't worry. you can get a crash course in coding and be in the running for the high-tech jobs that are out there. hey, john. >> hey, carl. that's right. if you can clear your calendar for two months and get past the tough screening process, you just may have what it takes. that's the promise of dev boot camp. so far this crazy experiment seems to be working. the 120 alumni have had very good luck finding jobs. >> about 80% of the students have found jobs. farmer says average pay is 80 grand a year. only 20% of applicants get in. the work is really hard. 800 hours in nine weeks. that's more than 12 hours a day. she was frustrated with the lack of technology tools and dded to learn to build them herself. zbr i really appreciated the boot camp. it just pack sod much in. and i never had a chance to be bored or restless or wonder what i'm doing. >> when it's done right the crash course is an approach that even established companies like ebay can appreciate. >> we hire about 25% of engineers into entry level roles. and those come from universities or programs like dev boot camp. when we look for those cant dads obviously their experience isn't as important as things like drive, entrepreneurial passion, and learning agil >> that's a point dev boot camps have learned. they also have to prove they can handle an intense schedule and have major sbugs. >> you can do math. how challenging is this? >> you know, i had some trouble with the screening process. there was a tough word problem. he made it sound like i probably would have made the cut, but i'm not so sure. >> it's a great series of reports. our jon ford who was just here onset. thanks a lot. when we come back the ceo of price line will join us for an exclusive interview. we're back after the break. what? customers didn't like it. so why do banks do it? hello? hello?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello? ally bank. your money needs an ally. a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪ want send it over to simon hobbs who is over at headquarters. scored the exclusive interview with the ceo of priceline.com. >> easily beat last night on international bookings growth. but the company gave a weak first class quarter here. we have the company chairman and ceo of priceline.com. welcome to the program. nice to see you again. >> thank you. >> you've done something extraordinary within the last 12 or 24 hours. your stock was down 3% when they said you're not going to make the margins you may think going forward. but as a result the stock is now up 4%. you're telling the story. how do you feel about that and why do you think it's higher? >> you know, i think it's dangerous to make too much of after an hour trading after an earnings announcement. it takes people time to read and digest the earnings release. we have a conference call available for everybody to listen to. there's usually good information there. we usually don't take that much stock in the immediate reaction. i think the headline that folks are most focused on is we were able to maintain robust top line growth for international business and that drives the franchise going forward. >> in essence, what i'm trying to drive at is this position in which you find yourself in, in which you'd like to expand, grab more market share in emerging markets, but at the same time, you have to maintain some sort of margin for those that are in the stock and want to keep the daye abuoyant. if you were a private company and not pushed by the quotes on stock market, would the line be somewhere else? would you be spending more on investing rather than keeping the margins up? >> you know, i think we're striking the right balance here. my colleagues in management, our board of directors, really as their first priority want to build the business. we think we're in an attractive space and we think we have the resources and the talents to aggressively expand. we're not limiting our sights or the investments we're making because we're concerned that somehow margins might be at risk. we've got a lean operating model and it generates a lot of cash for us to invest in the business. >> for the first time ever you're advertising booking.com in the united states which obviously is a bigger brand in europe. can you talk us through the decision to launch the tv advertising and you said last night on the conference call that it was something of an experiment. i got the impression that as data comes in and you see it on the platforms, the affect they're having that you might change in real time what you're doing. is that the case in how rapidly will it show up? >> i think it's demonstrative of our willingness to build our business. as you know, the payoff on a television advertising campaign is longer term proposition than for example online marketing. when we looked at the great product that booking.com has here in the united states, we felt there was an opportunity to use an off-line campaign to build awareness and to improve the performance of our brand in online channels where we already spend a lot of money. the booking ad campaign does a great job of showing consumers the dee lifetime being right when you select the perfect hotel room on booking.com. it's part of the culture of booking.com to be very rigorous in looking at the results of an activity like this, looking at the data to see what the return on that investment is before deciding what the long-term approach will be. >> why choose the united states to invest that cash rather than, says emerging markets which are growing much faster? >> united states is really a perfect place for this kind of campaign because it's a very large market where you can reach a lot of people with a single campaign. it's already dominated by advertisers in our category, that spend money. they have share of voice on television and booking.com did not. so there's definitely an importance of having a share of that advertising channel to make sure we're not losing customers. ultimately, it's one of the biggest markets that we operate in and it's a market where booking.com is a relatively new entrant with a lot of running room. >> we're almost out of time. you don't really want to talk about kayak, the acquisition that were closed now as a result of -- let me ask you in from a consumer standpoint. if i log on to kayak, i'm assuming that it's showing me pretty much a level playing field of what's available for flights or hotels or whatever. you will buy kayak and integrate it. do you think the customers will understand that it's owned by price line and the other brands that are there may be part of the family. secondly, will consumers still get an accurate reflection of what rivals in the market are offering as best price? >> i think in answer to your first question, consumers typically are not aware of what the corporate structure of a particular online service is. so that's not something that most consumers will really know or be focused on. respect to your second question, we'll maintain a level playing field among advertisers. that's made kayak a popular place for travelers to visit and advertisers to work with. we don't want to do anything that would compromise the integrity of the great marketplace that they've built. >> before we leave you mr. boyd, you do occupy ceo, chairman and president of your company. there's a big debate centered around jamie dimon and jp more january whether that will be split. what would you say as sn incumbent on the status quo? >> it's important to keep in mind that organizations that are as complicated as a modern multinational business corporation, one answer is not the right answer for every different company. you think jamie dimon is a world class executive and done a fabulous job at jpmorgan and i don't understand what's separating the roles would accomplish there. outstanding corporate governance and truly independent board. you have to look at each company on a case by case basis. >> it's nice to see you again, mr. boyd. thanks for doing an interview. an exclusive interview with the ceo of price line. >> simon, thanks so much. when we come back, the irs apologizing to the tea party. we'll explain why after a break. [ male announcer ] with free package pickup from the united states postal service a budding artist can ship like a big business. just go online to pay, print and have your packages picked up for free. we'll do the rest. ♪ we'll do the rest. trust your instincts to make the call. to treat my low testosterone, my doctor and i went with axiron, the only underarm low t treatment. axiron can restore t levels to normal in about 2 weeks in most men. axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. 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 symptoms to your doctor. tell your doctor about all medical conditions and medications. serious side effects could include increased risk of prostate cancer; worsening prostate symptoms; decreased sperm count; ankle, feet or body swelling; enlarged or painful breasts; problems breathing while sleeping; and blood clots in the legs. common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. ask your doctor about the only underarm low t treatment, axiron. welcome back to "squawk on the street." i'm josh lipton. universal display. tough day reports of first quarter loss. also predicts full-year revenue disappointing analysts. the street reacting. cutting price targets. telling their clients they make this a hold. the risk, reward and valuation suggests limited upside at current levels. panl down about 12 13%. back to you. thank you very much. one last story before we go. the internal revenue service apologizing to the tea party and other conservative political groups for inappropriately hassling them about the 2012 election. the low level workers in cincinnati singled out organizations with the words tea party or patriot in their applications for an unusual number of additional reviews. many conservative groups complained during the election that they were being harassed by the irs. as you probably know by now, carl icahn making his return to the halftime report with scott wapner. let's get back to headquarters and the halftime. >>. carl, thanks so much. welcome to the halftime show. we have four hours to go until the close. let's look at where we stand on this friday on the street. it's a mixed day. but pretty good week. darling of the dow, hp is the hottest stock in the index this year. up more than 50%. our traders, though, are divided whether it's a buy. we know what we're going to do. debate it. best of the best. morgan stanley's top market watchers are here with their year-end outlooks and what will work best for your money. we're advancing, as carl said the big dell story. carl icahn revealed his offer for the company is here live for an extended interview. that's going to happen

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