Transcripts For CNBC Squawk On The Street 20130709

Europe doing okay. The greek tenure yield is down and the market up for the fourth straight session. Dow components ibm and alcoa. Ibm downgraded today by goldman. Kicks off earnings season with a beat. B n ceo resigning. The latest on the Asiana Airline crash in San Francisco as investigators try to piece together what happened in the cockpit. A live report from the scene. First up, shares of ibm falling in the premarket, downgraded by goldman to neutral from buy saying it sees pressure on the Growth Markets and Revenue Streams. Interesting note, guys, they say the whole reason to add ibm to the buy list back in august of 2011 was some of these higher Revenue Streams to sort of smooth out the cycle over time. They think thats now coming in to what theyre calling a challenging period. And say that the quarter will bring more volatility than investigators are accustomed to. Hasnt really paid off for goldman as a bet since adding it to the buy. Ibm up 16 . S p up 39 . Wow. See if that sets the tone for earnings season. We know that the stock hasnt gone up as much lately as earlier. Facing head winds and questions. Virginia romney not in the job that long and seems to be a tougher job than she might have anticipated when she took over not very long ago. Goldman looking at a 11 pe on their 14 estimate of lets call it about 18 bucks. 17. 92 versus whats 13 times the ep estimate. Not as though its done particularly well. Its worth noting again heading in to earnings season and led off by alcoa. July 16th is absolutely going to be one to watch. 378, the current estimate. Moved 90 days at 395 and downward momentum there. Not the only component cut today. Dupont cut to a neutral talking about sort of an echo of the deere downgrade yesterday. Lower farm income. Pressure in the chemical business. They say that dicey Earnings Report is calling the upcoming report. Thats going to cast doubt on the companys aggressive second half outlook so two big dow components with analysts cold feet. A lot of caution priced in to the shares and maybe alcoa is interesting in this regard. Theres a lot of negative news baked in. Not to say that the Companies Need to come out and say anything that great to get people reassured here. Alcoas call, look through it. Spent time yesterday going through the lines of business to emphasize where they improved productivity, better on the downstream side of things. Yeah. Alcoa, up in the premarket this morning. Take out aluminum producer did report a profit slightly above revenues essentially in line. The company says it sees solid growth in the demand for products later on this year and the ceo appearing late yesterday on the closing bell. There are some exciting opportunities in the auto, aero space and then come down on the upstream business and cant control the aluminum price but we can on where we are on the cost curve. Coming down, closing the facilities, containing those at high cost and bringing saudi arabia in line and theres legacy issues like the one removing this quarter, trying to remove this quarter with the new initiations. Some of the legacy issues makes them believe the pop is short lived because the longterm picture for Aluminum Prices is not good but the downstream business is trying to doits best. Exactly. Look at the comments made and tried to shore up the business. They closed or idled 13 of capacity. 11 under review. Trying to close this smelter in italy, as well. But its the price of aluminum thats fundamentally going to dictate what happens to the shares. They point to the operational efficiencies and beholden to the broader hangover issues. Do what you can do in an environment like this. Interesting, days like today, calm before the storm. Alcoa, difficult to say anything of upcoming earnings. Theyre weighing in. But fairly soon we are going to start to get a better sense and it will become much more important one would expect to the overall market environment particularly, again, given what are well see mixed expectations certainly when it comes to the bottom line and well be focused on top line. What will it really say when you have so many investors grappling with the inputs and looking at the bond market, not just the stock market and understand whats going on and then back to china with an alcoa, for example. Well, there almost there in terms of real data points we can if you look through the lines of business that tell you about the broader environment and marked down the numbers, for example, for europe. I mean, the number of times that claus would say things looking better in the u. S. , revised higher for autos and this, that and the other and europe is a different story and they had the worst may for auto sales in 20 years and Holding China to about a 7 to 10 growth rate this year in auto. Production year to date is up 13 . Beverage cans down and you have to wonder if theres more of a sector specific story. Commercial building was okay. They still see 8 to 10 growth there in china and then again, head winds for gas turbines. Worst performing dow stock of the year down 10 . The dows up 19 . Now another stock that wont perform particularly well and hasnt. Barnes nobel say nounsing William Lynch resigned after three years on the job. Barnes noble is yet name a success successor. If you just look at the multiple that must be embedded in our implied valuation on retail its extremely low. And anybody would tell you that. And what ill say is, we think retails going to be an incredible profit driver for the foreseeable future. Of course, that is the retail part of the business, which is not the concern. The concern is that digital nook business in which mr. Lynch was chosen to lead them in to that digital future. It has not happened. They have suffered sfapt losses. Far what was anticipated. Microsoft owns about 17 of the nook business. My math may be off but you get the basic idea there and the numbers that they came in at implied a very large valuation and none of which, of course, is proved to be true at this point. With the cfo running the company now, running the nook business and president overall of barnes noble. Theres a bid potentially for the overall book business. The old retail book business. Well see what happens with barnes nobel. Not a large market cap but interesting stock with so many people in and out of this include this thing including liberty. The times piece, somebodys quoted saying on the glide path to oblivion, you can affect your own speed and describes so many different names we talk about. Theres a good chance theyre not around forever but in the meantime theyre going to do a bunch of things to keep them around for who knows how long. Right . Yes. The key is new Growth Business when the model is changing. By the way, theres a lot of businesses facing that conundrum and a yes. They tried but they failed thus far at least to really get any traction. Talking about going against a competitor like amazon, hitting alltime highs every day. Is there a cooler kid . If stocks are high school, is there a cooler kid than amazon or starbucks. Amazon which so perceptively got itself in to the Cloud Business and so huge for them. Talking about different levers to pull with regard to stock performance, thats one that theyre not just the walmart of retail. They didnt just go there and after books, they have really gone after the entire Digital Space and part of the conversation with an hulu. You know . Theyre crossing so many lines of business in the u. S. No doubt. One thing to remember and we saw it with mr. Lynch, people still are going in the stores and group of people who buy books. I am one of them. They still have that but not much else. Not enough of us. Dinosaurs. Want to get the latest on the crash landing in San Francisco. The ceo of Asiana Airlines says he plans to improve training as questions arise over what caused flight 214 to crash. Phil lebeau is on the ground with ntsb chairman deborah hersman. Phil . Thank you. Im joined by deborah hersman. Quickly bring me up to speed where you are in terms of your ability to talk with the pilots of asiana 214 and what have you learned so far . Well, the good news is we have been able to conduct about half of the interviews. Two of four conducted yesterday. It was a long day. We got really good information. They took a little bit longer than anticipated because of some of the translation issues. We hope to interview the remaining two crew members today including the flying pilot. So you have yet to talk to the pilot actually at the controls at this point . Thats right. We hope to do that today but we have been getting excellent cooperation and we expect it to continue. Do you expect to reach a conclusion, an initial conclusion by the end of today when you do the update for the media . Well, i think well probably provide factual information and if theres anything that we can rule out we will identify that but i think as far as reaching conclusions, we are just really two full days in to our investigation and premature for us to reach conclusions or determine what happened. One of the concerns that is being heard across this country and really around the world is what kind of Training System is in place at asiana and really all airlines and if im flying somewhere, how can i be assured that the pilot whos at the controls truly has the training and the expertise needed . Sure. Well be taking a look at training and experience. What we do know is that we have an experienced pilot. Hes got a lot of hours. But hes new to the 777. Hes flown aircraft in the boeing family before. We need to look at the transition flying and this is what he was doing getting the time in the aircraft with an experienced instructor. Is there any talk or discussion about the possibility of setting up some kind of a database so theres transparency, so that the flying public or corporations or the media, whoever it is, can look at the crew or pilots and say, boy, theyve got a checkered record or these guys have a spotless record . Well, probably not for the crew, for the pilots but certainly theres information out there with respect to airlines, with their records, with their history. But there is an expectation that anyone whos putting themselves out there to provide Passenger Service meets minimum Safety Standards. And we need to make sure that those Safety Standards are set high and that every flight is a safe one. I know you do that for here in the u. S. But how do you do that for foreign carriers and then the other question that comes up here is, 43 hours, i know people are saying he has to land the plane at some point and at 43 hours, should he have been at the controls . Certainly, well take a look at all of these issues. When you look at hours, though, really, we want to make sure that we fully understand this. No pilot is going to walk in to an aircraft type with 100 landings. They have to accumulate this experience and the landings, the takeoffs, the cruise flight. They need to have that operating experience. You can do a lot in a simulator but you do have to take the controls and so you want to make sure that you have a good crew pairing and theres good training. It is our understanding he had 43 hours, 9 flights in the 777. Does that include this flight or prior to this flight . You know, were taking a look through all of those records. They have been provided to us by asiana and we expect to be able to brief on some of that this afternoon. As people are looking at the wreckage here and looking at the survivability of a plane crash like this, there are question that is are coming up in terms of the ability of the crew to get people off of a plane in 90 seconds. Are you convinced that that is still the standard or do there need to be changes . Well, we know that the 90second rule is the standard coming to certification but what we see in real life with evacuations after an accident is that it doesnt always happen in 90 seconds as expected. And so, well be looking very closely at this crash to see what we can learn about survival factors and Video Evidence provides great tools for us to look at that timing and look at how long it took. Deborah hersman, chairman of the ntsb joininging us just outside here on San Francisco airport, very busy day. As you heard, carl and everybody else back there, they have yet to talk with the pilot who was at the controls of the 777 that crashed here. Back to you. Phil, thank you very much for that. Well get some food for thought. The ceo of General Mills ready to ring the opening bell in honor of the companys investor day. You should see the hamburger helper sign outside the exchange today. Huge. Hell join us. Take one more look at futures as we got earnings season officially under way. Im a careful investor. When you do what i do, you think about risk. I dont like the ups and downs of the market, but i cant just sit on my cash. I want to be prepared for the long haul. Ishares minimum volatility etfs. Investments designed for a smoother ride. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. The fdic expected to propose stricter rules for banks less than an hour from now. They want eight of the largest banks to reduce the threat they pose to the Financial System as cnbcs kay kelly first reported, the fdic expected to raise the leverage ratio for banks to 5 from 3 . And that will be interesting ahead of obviously a bunch of Bank Earnings that begins on friday. This is so critical and stricter but all relative because its stricter relative to the International Bali agreement at 3 and regulators with respect happy and just so people understand, a 3 Leverage Bank is a bank leveraged 33 to 1. Thats high. In the u. S. , going to 5 and can be levered 20 to 1 and, david, people saying it should be 6 or why not 8 to 10 . Why shouldnt it be the case to be protected from having the equity falls out a reasonable 8 to 10 . Right. Especially when you considered certain things that were off Balance Sheet and really were not off Balance Sheet. Right. We dont see many institutions levered anywhere near that at this point. Well we dont. Maybe not the sky high ratio leverage of the past. Look. I always looked at the leverage ratio thats hard to determine. A lot of ks and qs is somewhat difficult to do that. Trance parsparency is important and the new rules. The fact to include off Balance Sheet assets is critical and raise questions for derivatives, for example, when you have trillions in derivat e derivatives off the Balance Sheet, just a little bit is a huge difference for banks. Interest margin, delinquencies are low. By the way, moving the bond market, the affect on securities on some of the Balance Sheets is a big thing, as well. Absolutely. When we come back, helping you navigate the markets in days and years. Art cashin become with words of wisdom for you and your money. One more look at futures. Opening bell is just under ten minutes. Ats your function . Hooking up the country helping business run build were investing big to keep our country in the lead. Load we keep moving to deliver what you need. And that means growth, lots of cargo going all around the globe. Cars and parts, fuel and steel, peas and rice, hey thats nice Norfolk Southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . A lot can happen in a second. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the best possible price maybe even better than you expected. Its all part of our goal to execute your trade in one second. Im derrick chan of fidelity investments. Our onesecond trade execution is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Got just about eight minutes to go before the opening bell today. Lets bring in art cashin with ubs financial services. Good morning. Good morning. This morning youre saying bulls in control yesterday s. That the case, though . Volumes have been pretty light. It is. But, you know, i think it is the new world we live in. A lot of the equity volume has been drained in to things like etfs. Old days if you wanted to buy s p 500, you might have 500 little transactions. Now you do it in one fell swoop. Early days, they used to offset that with transactions. Now theyve become reasonably liquid enough that you dont see the instantaneous rebounds. Some of the former equity volume is sub assusumed. Theres more volume than just by the normal mshls alone . Absolutely. You have more and more of this is an institutional business which means a slightly longer time holder. We see figures out that take in to account things like High Frequency traders and short life span of the trade. Its not really so. Theres a small group that trade actively but the others trade slowly. Wait a minute. Do you mean just here or in general . I would think equities in general. And i think you see it reflected in the lower trading volumes as we have seen over the last several years. So you have etfs is a factor and now i think weve gone from Something Like 48 of everything under institutional management, if you would, up to figures somewhere in the 60, Something Like that. Two seconds, but if you are the retail guy out there, what should you be watching out there . A couple of things. On the longer term, a little disappointed. China was trying to rally. Theyre seeing some Inflationary Pressure and that comes up. The feeling down here is a lot of this is new money for the new month. By the end of the week that may flatten out and you have to be very wary tomorrow for the fmoc minutes. Big event on wednesday. Right. Art, thank you, sir. My pleasure. Opening bell in 4 30. Ceo of General Mills ready to ring it. Hell join us at post 9. Hey linda what are you guys doing . Having some fiber with new phillips fiber good gummies. Theyre fruity delicious just two gummies have 4 grams of fiber to help support regularity i want some. [ woman ] hop on over [ marge ] fiber the fun way, from phillips. [ cows moo ] [ sizzling ] more rain. [ thunder rumbles ] [ male announcer ] when the world moves. Futures move first. Learn futures from experienced pros with dedicated chats and daily live webinars. And trade with papermoney to testdrive the market. All on thinkorswim. From td ameritrade. Youre watching squawk on the street. Opening bell about to ring in 90 seconds. S p up 7 of 9 sessions. Nikkei had the highest close in about six weeks. Wow. S p and dow highest close in three weeks and it is the highest close for the nas since may 30. Back to levels we were feeling pretty good about. Thats right. Just off the alltime highs. Incredible. A couple of stocks moving around. Oracle is coming over here to the big board and tesla is added to the nasdaq 100. Tesla gets a bit of a bounce on that news. Near to date gain, tesla, 259 looking pretty good. Bought stock not that long ago and has to be up nicely. The market cap a third of gms. Incredible. Just incredible. The mother of all short squeezes as somebody called it today. Love this story. Kroger. Interesting price. 38 cents. Dont forget the 38 cents. Yes. But its a bond market story, also. They will be refinancing, borrowing to finance 2. 5 billion deal. General mills holding the investor day at the nyse. Speaking with the ceo in a moment. Sun power celebrating a solar powered plane took off from california and landed this past sunday in new york. Not fast but it is solar powered. Meantime, kelly, i believe you have breaking news. The latest Global Growth forecast calling for slower world growth than three months ago. 3. 1 the growth rate this year, down from 3. 3 it projected in april and says europe will see a 0. 6 contraction. Thats deeper than the 0. 4 predicted last time ago. It improved the forecast for japan and united kingdom. Cutting the outlook for europe for 2014 and does see a return to growth next year. Guys, just looking down, this is the update to the projects. Looking down for 2013, some of the biggest cuts coming to russia. Almost a full percentage point lower than the april forecast. South africa. Also to world trade volume which is so important. So a big slowdown there and something to keep a mind on. A reflection of what we have been talking about for a while now and to have the imf put it in context, well see the degree to which it weighs on emerging markets. Brazil took the numbers down almost a percentage point. Spain, as well. Pain in europe and hoping, everyones hoping theyre looking for signs of a bottom. 2 growth in japan and not for long. Back to 101. Nikkei highest in six weeks. You have to watch. They had some better signs in terms of Industrial Production and demand and inflation closely for policy gaining traction. A key debate for them is what to do about the sales tax. They have parliamentary elections i think mid month. Thats the plank in the way that position themselves. Is this an economy to afford a sales tax hike right now . They have an extremely debt and deficit situation and stuck in a difficult spot. Do you raise the sales tax to address that . Hard question. Very difficult. Difficult is saying it mildly for the amount of the growth. 260 . It is incredible is what it is. By the way, any of those people talking about it for years, rates still stay incredibly low. Absolutely. Absolutely. A real rate in japan than the u. S. The supermarket industry has a deal today. Growth is tough to come by. Krogers number one leader on the s p right now, david. Wow. Like the ganette of the supermarket business. Go ahead. That is something that we should watch because its not just, of course, the acquired company in this case Harris Teeter. How they got to the 38 cents is interesting. I know kellys exciting shopping at both of these places. I know them well. We talk about it so often. Acquirer stocks go up. Talking about accretion here. The thing about Harris Teeter is maybe this is a reason why kroger is responding well, it positioned themselves. Only 200 some stores around the midatlantic. Harris teeter kind of done the wegmans whole foods thing. Gone upscale. Im sure thats good for margins and kroger would like to see that. They do expect acession between 6 and 9 cents in the first full year after the merger. Growth rate off of what will be a highest Earnings Base and makes sense being applauded by kroger shareholders. Aural cash, of course. Thats not part of the consideration and not going up as a result of kroger shares going up. An interesting deal, t nonetheless, in the environment where we see so few. Biggest loser on the s p, down 15. 5 , lowered guidance. Three downgrades a today. A stock that Herb Greenberg is pounding the table on for a long time. Its painful for the holders. 16 . Sharp stands out on this one. In general, big cap tech not doing well at all. Ibms fourth biggest loser on the s p. Apple, oracle, tell labs, dell. The underperformance of the nasdaq, we asked a guy about this on closing bell saying theres no cap x going on but you have to wonder if theres an element of truth to it. Is the traction in the job market coming at the expense of Capital Investment and struggling or have they just not done a good enough job of staying ahead of the innovation side . The New York Stock Exchange is taking over the administration of libor from the british bankers starting in early 2014. Having just closed a deal, david, kelly, you know more about this than we do. Diversifying the business might not be such a bad idea. I can tell you with regard to libor, they deal this, keep a subsidiary in the uk, libor has the word london in it. London inner bank offered rate. How libor is computed, ownership is fine but is either for them to own up to the fact its a manipulated rate, there are people telling each other what that rate should be or is or making it more of a marketbased gauge and the financial crisis has given people some caution when it comes to wanting to make it a purely market based. Imagine what your mortgage or corporate loan would have done if libor reflected the lack of lending. Atlantabased company is running libor. So at 1649 on the sprks lets get to bob. Bob . Notice the rally . We have a Global Market rally essentially. Alcoa not as bad as some people feared. I was frankly surprised of how optimistic they were. The ceo on our air emphasized they cant control aluminum price but costs and doing a very good job of that and they were optimistic about global demand. More so than i thought. Commodity stocks are up. All those stocks are on the upside right now up 2 to 3 . Im reasonable about earnings. China and i. T. Spending, weak specifically. You see the Producer Price index on china . 16 straight months its been falling now. Thats enforcing concerns of slow growth over there. Watch peoples bank of china report next week, how much loans are outstanding. If that number continues to shrink you will almost certainly see weaker chinese gdp growth. Second concern, you saw it in the Goldman Sachs downgrade of ibm noting thats the prix mare concern and said ibm is doing great, perfectly happy with it. Weak i. T. Growth causes them to pull back and overall earnings im not as pessimistic as everybody has been. Every first week of every earnings quarter we hear people saying were getting sub par growth in earnings on the bottom line. 2 to 3 . Cant continue and no growth on the top line. Heres the way i look at it. 2. 9 the estimate right now. Historically beat for quarter after quarter and add 3 plus 2. 9. Thats what would be the historical number. Thats true. 8 has been the historical growth in 15 years so 6 , 5. 9 , thats a little sub par for a quarter. Ill admit that. But thats not a disaster. Enough to muddle through and then getting in to potentially better Economic Situation in the second half. Thats when you might get some top line growth and maybe even some multiple expansion at this point. Remember the key point about this whole thing, kelly. This is a lot like the stock market rally. Nobody believed it and just like nobody believed the stock market rally, nobody believes that the economy will reaccelerate. Nobody thinks that the u. S. Economy can possibly stand on its own absent ben bernanke standing behind it. But if that starts to change and the stock market is starting to act like it, things could change. The stock market could move up on that. Kelly, back the you. All right, bob. Thanks for that. Lets check on things at the nasdaq. Hey, kelly. Yesterday the nasdaq underperforming the major indices. Today another mixed session for tech. Apple weighing on the composite. Microsoft steve balmer is set to unveil a restructuring strategy. Semiconductor stocks, lagging yesterday and analysts voice concern about how rising competition in the smartphone space will weigh on chip demand. And some stock specific action. Tesla added to the nasdaq 100 index on july 15th. Replacing oracle moving to the New York Stock Exchange. And lastly, last but not least, david, blackberry a half an hour away from kicking off its annual Shareholder Meeting and the ceo is expected to hear from a lot of investor who is are frustrated with not only its earnings but how blackberrys management handled that earnings call. Ill listen in and report back on any noteworthy developments. David . Yes. You can see, of course, the stock having suffered from that Earnings Report last week. Thank you. Lets get to energy and commodities with bertha kooms live at the nymex. Good morning. We have a strong dollar and getting a mixed picture here in the commodities pits today. As far as energy is concerned, oil, wti, both are trading lower. Part of the concern that strong cpi number out of china. Inflation on the consumer level stronger than expected in june. That will certainly limit any kind of easing efforts there. Meantime, that continues to be offset by the concerns about the unrest that continues in egypt. Were seeing gasoline move higher. Expecting to see gasoline inventories rise tomorrow. Nat gas off the gains. The Tropical Storm not expected to impact production in the gulf. In the gold pits, eyeing 1250 an ounce. That inflation hedge is certainly part of whats fueling what a lot of traders are saying is short covering, technical move to the outside. Well see if it can continue. Copper sitting out the rally with the concern that china will not continue to move forward with building if consumer inflation continues to move higher. Carl . Interesting. Thanks a lot rg b, bertha. Lets get to Rick Santelli. Rick . Thanks, carl. We are starting to lose a little momentum to the notion of selling treasuries, pushing rates up, but just subtle. See it on the twoday chart. Now, its been about a year since maturities made the historical low yields. In july we traded under 140 in a 10year and traded as high intraday as eventually as yesterday. We are moderating. You want to use 262 yield as a pivot. Same could be said for the 5year. Look at the twoday chart dipping below yesterdays low yields. Boy, ill tell you, the fiveyear wins on a duration adjusted move from july at 54 basis points of 2012 to its current rate just under 150. Yesterday it was around 162, 163. But heres whats fascinating. Lets take the dollar index which is up a bit today. Mostly due to weakness in the pound. They had some weaker Economy Economic information. Look at how the dollar wasnt far from where it is today around 84. Back in july last year. So the correlation, higher rates and higher dollar index is something since the fed taper issue has come in since may 1st. The last chart is a year to date of the dollaryen. We have overtaken 101 and starting to build momentum in benefit of the dollar. Carl, back to you. All right. Rick santelli. 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Etf Building Blocks for your personalized portfolio. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Big day at the exchange if you like hamburger helper. We are joined this morning by the bell ringer, ken powell is chairman and ceo of General Mills, holding the investor day today. Welcome. Great to be here. Jims going to be bummed that he was not here. But its great to have you. Obviously, the story of the day has god got to be new items, right . How many in the first half . So a couple hundred items in the new half. Exthe engss of lines. You flavors. Brand new products. Yoplait greek blended. New cereals. Soft eat meal bars. New hershey dessert products. New frozen food products. A very good long list and pleased with the new product lineup of this year. Built around convenience, right . Consumers on the go whether its dinner or breakfast. You name it. Almost all consumers are on the go and so convenience is a key part of what we do. We have to help them make dinner simple, whether its new varieties or versions of hamburger helper or dumpling flairs. Chinese consumers looking for convenience and the same simplicity as consumers all over the world and really a fundamental play for us. Your stock became almost a touch stone for us at this desk because of the performance, because of the defensive nature of it. And then bond yields shot up and the stock took a spill. Is there going to be Material Information on volume growth in the second half . Not today. I mean, we announced our end of fiscal year results a few years ago and outlined fiscal 14. We expect to have a good year here and not adding detail to that. Today as you said it is not talking so much what we try to do this year but how we do it with new products, with innovation, with expanding our business around the world so its really todays about the business detail. Earnings themselves were quite strong. You have generated Free Cash Flow and some of which you used to buy back stock and aided earnings per share. Some say you have restrained Capital Spending to enhance Free Cash Flow. Do you change that strategy or where you continue . Really, thats not how we look at it. The first call on our cash is whatever we need to add capacity, make sure that our plants have all the right technology so making, you know, that Capital Investment is key. Thats always the first call on our cash. We are, however, and have been for well over 100 years very committed to returning free cash to shareholders. Very good dividend yield. 9 or 10 compound over 5 years. 114 years without interruption. So were very proud and committed to that dividend growth. We are returning cash to shareholders buying back shares as you mentioned. So thats part of our formula. I think thats the resiliency and rheliability of the investment in General Mills. You have the cereal and biggest consumers of honey in the country. Any affect from colony collapse . Any shortage of honey . Are prices going up . Are you worried at all . You read from time to time about issues with the honey supply. Its never, ever been a problem for us. And you know, generally, as we look at inflation across our inputs for next year, were thinking about 3 . There will be some inflation. Dairy prices will be up. Packaging prices will be up. 3 is a very manageable level of inflation for General Mills. We can offset it with prod productivity and Consumer Prices will be stable over the course of the next 12 months and means that the volume momentum will continue to be there. You raised guidance a couple of times this year before pricing down and margins narrower. Did you overshoot on the guidance in the early part of the year . We came in very close, really, on our guidance. We were mid Single Digits for the year and i they few pennies and so we feel that we were there, thereabouts. This year were just entering now were as we say socalled on model. We think the sales growth in the low Single Digits and what we can do at General Mills. Operating profit will expand as a result of our good productivity and eps, guiding to the high single digit 7 to 8 . That would be a very typical year for General Mills and well return cash to shareholders. We think thats a good performance for us. To the extent the growth depends as so many other companies do on developing markets, india, brazil or china, what unites them is concern about growth. Are you seeing and are you concerned about growth in those markets . Were not seeing any slowdown or change in trajectory. You mentioned china, actually our Fourth Quarter ending in may was a little bit stronger than the proceeding quarter. Our products are every day. We sell dumplings, you know, very traditional products in china. Very resilient brands. Every day products. Brazil is another country thats been mentioned. We exceeded our Growth Expectation in brazil and very well targeted, very middle class targeted brands for brazil. Very convenient. Very great value and i think one of the beauties of investing in a company like General Mills, the resilience of our products, the resilience of the markets, we the end to do well in great times and also in time that is are challenging and thats appealing to our kind of investor. Last question. Is hamburger helper getting a marketing revamp . It is. Well talk about that today. We are renovating that brand as we say. Lots americans are still buying lots of hamburger and as much chicken for use in the evening meal and more varieties of hamburger helper chicken and it helps. Its a helper. Chicken, hamburger, tuna. Were launching a line of ultimate helpers, liquid sauces. Great stuff to talk about today. Thats been a great brand nor General Mills over the years, very high penetration. Helps a lot of people every night so well talk about that later this morning. Raised on it right here. Ken, thanks for coming in. Appreciate it. Great to see you. Thanks a lot. When we come back, the man who said the president essentially fired ben bernanke. This is really remarkable. I almost fell off my chair hearing the president s remarks last night. He essentially fired ben bernanke on the spot and a fairly tepid testimony and time to focus on the next chairman might be. Former fed governor larry meyers here to figure out who that might be. Norfolk southern whats your function . Hooking up the country helping business run trains they haul everything, safely and on time. Tracks they connect the factories built along the lines. And that means jobs, lots of people, making lots and lots of things. Lets get your business rolling now, everybody sing. Norfolk southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . Barnes noble ceo resigning. While they dont aim to be a player in the tablet business, theyll make the nook e raidire devices. Barnes noble should be called barnes and what . Tweet us and get the responses later on in the morning. I like that one. Yeah. I think people will have a little bit of fun with this one. Looking forward to seeing those responses. Larry meyer will join us live with his take on who could replace ben bernanke as fed chair. The banks are required to hold more cash. Find out what could mean for bank stocks and the industry as a whole. 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Breaking news on the banks. Regulators introducing new Capital Requirements. Kayla is at hq with details. Hey, carl. This is the latest move by washington to attempt safeguard bank Balance Sheets in preparation for a coming financial crisis in the near future or far future as it may be but under the current rule banks cant lever up as much as they previously would. Fdic announcing meeting a 5 leverage rating. The biggest banks to hit 6 , even higher. A move that limits how much banks borrow and seeks to lessen Counter Party risk, as well. For every 100 on hand, they now need to have 143. Not to mention more capital to offset the off Balance Sheet items like derivatives under the new rule. How does it add up . Official said all bank holding Companies Need additional 63 billion. Big banks clearing the high bar need additional 89 million. Almost no bank meets the new ones. Thats according to a recent report by kbw. Wells fargo appears to be near it. Gold mman sachs and citi with t lowest. Rules arent final for 60 days. The fdic has the proposal open to comments. Anyone in the industry who feels like they should weigh in on this. Given how much commentary was provided for a lot of these Previous Capital rules, it looks like it could get very vocal before we see something final. Back to you. All right. Kayla, thanks. Important issue. Look at how it impacts the banks and bring in larry meyer of macroeconomic advisers. Good morning. Good morning. You know, we just learned that its 5 for all banks, 6 for the biggest. Why shouldnt it be 8 to 10 . Well, this clearly is a balance here in terms of making sure that banks can withstand shocks and yet have enough Funds Available to make loans and do what banks are supposed to do. Clearly, theres a view they didnt have enough liquidity and capital. This makes banks safer. But it also does have some impact on the macroeconomy. Larry . Balancing those things. These are very much more stringent than they were before. Well, i mean, stringent relative to the 3 ratio. Which a lot of people say is too low. You said bank vs to do what theyre here to do but is leveraging themselves up what theyre supposed to do . Well, thats the part of Liquidity Ratios and regulators are very sensitive now to the degree of leverage in the banking system. Also, by supervision. I think we have to look at this as a very significant step forward and, you know, i think that the Basis International agreement did a very good job here. Now, its not just looking at the amount of capital in the banking system, it is looking at the quality of the capital and thats very important change. More of this capital is now what we call core capital, good capital, real capital. As opposed to what sometimes call pretend capital. Thats another very important consideration. Larry, 2018 is still a ways away. Is that as soon as this can happen reasonably . Is that soon enough . Well, i think you have to be careful in interpreting phaseins here. The phasein will be as fast as the markets demand it. Banks will be rewarded for getting there early. And theyll be pressure on banks to meet these standards well before 2018. Indeed, i think most banks have been moving in that direction because this is no surprise. This is no surprise. And theyve had time and they will have time to adjust but theyre going to adjust much more rapid listen than a slow phasein to 2018. They have many of them as you just say, they take them and immediately move. Shareholder base demand it. Im curious on the subject of lending and the velocity of money. I mean, connect the two for me. If theres a connection to be made in terms of how much the fed has done and yet the velocity hasnt increased that much, has it . Well, the word velocity doesnt appear in my vocabulary but the issue is amount of lending by banks. There are two issues here, certainly. Some banks are capital con stained but you lend money when you have firms that want loans and are credit worthy. The demand side has been, i think, as important or more important than supply side considerations. When the economy picks up, demand is stronger, there will be greater loan demand and banks make more loans. Larry, why do you say velocity isnt in your vocabulary. I dont know what you mean by velocity. The velocity of money. Because thats not a concept that i think is very useful. Monetary policy is about affecting rates which affect financial conditions and affect aggregate demand. Let me just say that the word money is never said in our office probably not by the staff at the fed. Money doesnt appear in any modern macro model. We have to get over there. Okay . Were beyond that now. Monetary policy is determined by basically a strategy thats embedded in policy rules. And i cant tell you what the money supply is, how fast its growing. I dont care. Well, i think its one thing to say that these tools are or these gauges arent necessarily the best way to measure or try to figure out whats going on in the economy and another thing to say its irrelevant and doesnt exist. You can velocity is just income over money. Its a definition. It exists in the sense that you can define it. The question is, is it a meaningful concept . Does it help me explain anything . Helped me explain what determines inflation and aggregate demand . The answer is no, no. Velocity is very variable and its no longer a useful see, if velocity were constant, then if money supply went up, nominal income would go up. Its too variable. Take it from another tact then. Do we have the deleveraging forces in the economy that we have for a few years after the crisis or has that abated . Oh, its abated significantly. And i mean, this is a very important point. Deleveraging hurts growth when its more and more intense. When you turn the corner as we clearly have, and deleveraging is diminishing in intensity, thats good for the economy. Thats promoting growth. Deleveraging can go on for a while. Consumer Balance Sheets are really significantly improved now. So i dont think the deleveraging is a particular head wind right now. The big head wind is fiscal policy. If you like deleveraging the government. Yes. Finally, larry, your office tells us you believe the fed is itching in your words to taper. What is that a september suggesti suggestion . Everything is conditional. The committee clearly believes that the incoming data is Strong Enough to allow them, give them the opportunity, to taper very soon. And that would be september. Now, we can only say surely when we see the rest of the incoming data but the last press conference really portrayed an fmoc that i say is itching to tighten either because theyre much more confident about the second half rebound, about the underlying momentum of the economy or they have become more worried about the risks of further easing. Larry meyer, joining us there. I think people are going back and looking at what exactly money is after this interview. Thanks very much for your time this morning. Okay. Good. Ill get a lot of letters. Yes. I have a feeling. Well keep the discussion going and job market data. Important gauge for those trying to figure whats going on. Rick santelli, whatting you tell us about jolts . Jolts is better than anticipated. 3. 83 million job openings. And thats for may. Aprils read was originally released at 3. 75 million, upgraded to 3. 8. Lets get some context here. We had a higher number several months ago in march at 3. 875. But heres the key. February of this year we had a number just a whisker shy of 3. 9 million. Thats the best number back to the summer of 08. We havent been over 4 million job openings in a single month on jolts since march of 08. But it has been trending steadily higher and i think it really does jive quite accurately with the recent strength in job creation. We see the first friday of every month. Might not be everybodys ideal number. Might not be an ideal number especially when compared to, for example, population growth. But its impossible to dispute that it has improved. Rick, we did see a tiny tickup in the number of quits, not necessarily in the rate, but 2. 2 million, a gauge people look to as a sense of confidence in the labor market. People walking away from their job. Not only to Pay Attention to that but then theres the whole variety of issues of why people may be restricted from leaving jobs and moving to better jobs. The rise in Interest Rates may affect housing in a way that will keep that dynamic in place. All things considered, the series continues to trend higher and thats a good thing. Im going to wait patiently to breach the 4 million mark. All right. Well keep an eye out for that. More from rick coming up in the show. Meantime, a look at blackberry. The annual meeting is you shoun in ontario, canada. Stocks up slightly right now. Updated with headlines out of the meeting as they happen. In general, though, large tech cap dragging us down today. Straight ahead, new details on the asiana flight 214 and what could have happened in the cockpit moments before the crash. Live in San Francisco. Thats right after the break. Stay with us. Enerate income . With fidelitys options platform, weve completely integrated every step of the process, making it easier to try filters and strategies. To get a list of equity options. Evaluate them with our p l calculator. 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To help, sleep train is collecting School Supplies for local foster children. Bring your gift to any sleep train, and help a foster child start the school year right. Not everyone can be a foster parent, but anyone can help a foster child. Welcome back to squawk on the street. Watching wolverine worldwide rising this morning. Raised its fullyear adjusted earnings outlook. Not everyone is a fan. I spoke with a hold on this one says its trading on the expectation that the acquisition of plg goes flawlessly and the core biz down double digits in the quarter. That stock up about 40 so far this year. Carl, back to you. All right, josh. Thanks so much for what. The investigation in to the crash of asiana flight 214 continues as the ntsb interviews the four pilots on that flight. Our phil lebeau is live in San Francisco with the latest on that. Hi, phil. Reporter hi, carl. We talked with the ntsb chairman in the last hour. Theyre continuing to take data off of the flight data recorders. Excellent information. But so far no indication of a mechanical failure. They have interviewed two of the four pilots in the cockpit but yet to interview the pilot at the controls at the time of the crash and an area of to cushion how experienced was he flying or not flying a 777 . We will be taking a look at training and experience. What we do know is that we have an experienced pilot. Hes got a lot of hours but hes new to the 777. Hes flown aircraft in the boeing family before. We need to understand what that Transition Training looks like and what the initial operating experience, which this is what he was doing, getting the time in the aircraft with an experienced instructor. Reporter what happened in the last minute and a half of this flight . The key here is that they want to be at 137 knots or wanted to be at that speed when they were landing. At 1,600 feet, they disengaged the auto pilot. They were down to 134 knots and just above the level of the runway, just 3 seconds before impact, the air speed was all the way down to 103 knots. When you look at hours, though, really, we want to make sure that we fully understand this. No pilot is going to walk in to a new aircraft type with 100 landings under their belt. They have got to accumulate the experience, the cruise flight. They need to have that operating experience. You can do a lot in a simulator but you have to take the controls and so you want to make sure that you have a good crew pairing and theres good training. Reporter the training is one area of focus. Meanwhile, the ceo of Asiana Airlines, he is going to be coming here to San Francisco. He is enroute. Hell be landing early this afternoon. He says hes coming here to apologize for this accident and to meet with the victims. So more information is expected to come out today, guys, especially regarding the interviews with these pilots and the level of experience that they had at the controls of a 777. For now, thiss it here in San Francisco. Back to you guys. All right. Thats our phil lebeau following that story for us. After three years on the job, the barnes noble ceo is stepping down. What does it mean for the stock . Its been suffering. Well tell you how to play it. The most powerful man in real estate, blackstones global head of real estate will join us live. Well be right back. [ male announcer ] the allnew 2014 lexus is. This is your move. Since aflac is helping with his expenses while he cant work, he can focus on his recovery. He doesnt have to worry so much about his mortgage, groceries, or even gas bills. Kick kick. Feel it feel it feel it nice work you got it you got it yes aflacs gonna help take care of his expenses. And us. Were gonna get him back in fighting shape. [ male announcer ] see whats happening behind the scenes at aflac. Com. [ hooking up the countryats hwhelping business run nes build were investing big to keep our country in the lead. Load we keep moving to deliver what you need. And that means growth, lots of cargo going all around the globe. Cars and parts, fuel and steel, peas and rice, hey thats nice Norfolk Southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . For their family. Thats why i created the Honest Company. I was just a concerned mom, with a crazy dream. A wish that there was a company that i could rely on, that did all of the hard work for me. Im jessica alba, and the Honest Company was my dream. [ male announcer ] legalzoom has helped a million businesses successfully get started, including jessicas. Launch your dream at legalzoom today. Call us. Were here to help. Welcome back. Were watching shares of Intuitive Surgical falling after the Second Quarter revenue below expectations and sales of the surgical systems turned negative. Those devices causing a lot of controversy recently. Herb greenberg is all over the story from the beginning. Herb, walk us through whats happening here. Okay, kelly, look. This is not a few good months for Intuitive Surgical. Its just the latest in a series of events including legal challenges based of allegations of death and injury tied to the robot. Dangerous flaws in one of the instruments and as i pointed out in the cnbc. Com documentary, the davinci debate, criticisms that the company overly aggressive with the marketing. Heres what a former employee said talking on condition of anonymity. Intuitive did a fantastic job providing hospitals and doctors with marketing. Television, radio, calling up the hospital. When youre on hold and there could be a davinci recording. That is a very powerful message. When patients hear the word robotic. Perhaps most disturbing to investors with intuitives warning is sharp slowdown in growth with revenue in the Second Quarter to grow by 7 compared with average of 25 in each quarter over the past 2 years. Now, the company blamed the slowdown on a number of things including increased pressure on hospital. Each robot is more than a million and a half dollars. They cite something new, conservative management and treatment in outpatient settings. All of this follows increased criticism that the robot while a tool in many procedures is simply overused. The big question now is this just a temporary setback or a sign that the robots best growth days are behind it. You were in front of this one, herb. Thank you so much. Sure. Watching for that story a long time. Barnes nobody ceo lynch resigned. Two weeks after reporting losses at the nook Digital Business more than doubles. Heres what lynch had to say about the companys future nine months ago. If you look at the multiple that must be embedded in our implied valuation on retail its extremely low. And anybody would tell you that. And what ill say is we think retails going to be an incredible profit driver for the foreseeable future. Shares trading higher. How do you play this move . Two Analysts Covering bks. Guys, good morning to both of you. Good morning. Good morning. Talk briefly about what did lynch in . All the problems, what was the straw that broke the camels back . I assume it was the size of the loss. And the fact that theyre now acknowledging theyre out of the production business which really means that barnes noble exited the technology division. Perhaps he was usurped to the needs of the company. The chairman announced months ago he was interested in taking the Retail Business private. Nothings happened since then and at some point that has to come to a head and the questions been how do you value nook in this . Given the size of the writeoff, the fact its not selling this sort of deals with that issue. Yeah. David, obviously, there have been as john puts it some deal oriented investors taking interest in the story over time but i wonder if its complicated if that trend continues. Yeah. We have been big advocates of potential montization of the assets and downgraded the stock a month ago with the feeling that the nook business may not have the value we thought it might have. A lot of people look at the Retail Business and theres a point where everyone hated best buy going out of business because of amazon. They generate 300 plus million of ebita. I take my kids in there to look at the games, the toys the kids stuff. It is a great store with a lot of traffic and landlords still love it. Theres real value there. The College Bookstore business has value. Theres still real value here. I think sort of somewhere in the mid to high teens it is in the high teens probably about right. What do you think happens to liberty now . How patient are they . I think thats a big question. I mean, you know, theres speculation that theyve had they were somewhat behind some of this. I think a lot of it had too many losses. They were not an advocate of the losses. My sense is perhaps even on the potential buying of the Retail Business, liberty may be the one preventing, you know, demanding a higher price and maybe delaying that deal, as well. So i mean, theyre out there like anybody else trying to maximize value and want the highest price for the asset ice john, if push comes to shove, theyre not afraid about making pushing for some management changes. I would suggest that Michael Hughes be promoted to president was a liberty basically backed appointee last year as a cfo and if you look at the history of liberty, when theyre not happy, they have come in. They tend not to want to get involved in the operations but want to protect the investment. One could suggest with hughes step up liberty are as interested as ever given remember they did bid to buy 70 of the company a couple of years ago. Guys, interesting story. So many different ways to come at it. Appreciate both of your time. Thanks so much. Thank you. Talking some barnes noble. Dont forget to tweet us. Young the book by its cover. Barnes noble should be called barnes and what . When we come back, blackstones Real Estate Division made the largest dollar investment in private homes in the country. 5 billion and counting. Global head of real estate of blackstone will join us right here at post9. Are you sure we should take this billboard down . People find out state farm does car loans as well as they do insurance, our bank is through. Good point. Grab an edge. Look theres two guys on the state farm borrow Better Banking sign. Nope for real theres two dudes on the state farm borrow Better Banking sign. [ reporter ] breaking news from the state farm borrow Better Banking sign. Were seeing two men that have climbed the borrow Better Banking sign gentlemen please get down from the state farm borrow Better Banking sign. Phil get the hose. Okay hes getting the hose. Alright, lets go. [ male announcer ] talk to a state farm agent about car loans that can save you hundreds. Thats borrowing better. An hour in to trading. Some of the stories, 7 30 on the west coast, 10 30 on wall street. Sprint says its completed the transaction for 100 of clearwire. A day after shareholders approved the deal. New territory for 3m and unit unitedhealth. Ibm falling after downgrade of neutral to buy. When you hear the name blackstone you may think of leveraged buyouts but its real estate where they dominate with 60 billion under management, 10 million available to invest. Not to mention its control of hotel chains like hilton. The man who runs the business, jonathan gray. And he joins us. Nice to have you here. Nice to be here, david. Talk rates. Because thats the key focus broadly speaking for everybody and real estate. The backup in rates in a very short amount of time. What does it mean for your business, your portfolio, the ability to borrow and lend and Everything Else . Well, i think everybody whens looking out there starting to get a little nervous about rates going up across Asset Classes and real estate in particular but think about real estate as a combination of both the yield it pays and potential growth in cash flows and looking historically, commercial real estate performed well when the economys been growing. And so, when we look out there, we say, look, yes, its a difficult rate environment as it starts to move up but when owe look at the fundamentals of the properties, because of the lack of new supply, commercial real estates likely to perform fairly well Going Forward and were calmer about it focusing on supply and demand and the supply picture today looks very good. Question, rates can go up. Theyll impact commercial real estate in the short term. Longer term, we think the cash flow in values does more than offset this. Give me your sense why youre saying about the Overall Economic environment. You own hilton, seeing it on the hotel side. 30,000 Single Family homes and then a huge portfolio of Office Buildings. Whats going on . Looking at the underlying Portfolio Companies particularly here in the u. S. The fundamentals are good and not because of robust Economic Growth but back to the lack of new supply. Hotels, 6 , 7 same store sales growth. Shopping centers 100 basis points, 200 basis points annual increase and the Housing Market and everybody is focused on, seeing robust pickup in terms of price appreciation. Double digit across the country. So out there on the ground, yes, rates are moving up but i think thats starting to happen with better Economic Performance and in our sector in particular, the lack of new supply is making it Even Stronger than the economy at large. All right. Conceivably, if cap rates move up in a rising rate environment, does that make you less likely as a buyer . Cap rates can stay low. Yields stay low if rents are higher. If the rents in the west coast Office Buildings are 35 a foot in place, but the market rent moves to 50, you will pay a high multiple even in the is that really going to happen . We think given the lack of supply, so if you use Shopping Centers as an example, were one of the largest owns of them in the country, new supply of 200 square feet in 2006 to less than 10 million square feet in 2012. Thats why Shopping Centers are performing well so i think in Real Estate Today you have to look a little less at the yield component, less as utilities and more about the growth and thats why where i think you get the offsetting impact to the rising ra rates. You have to think about ex exits. You are investing but to get a return. Individual homes, a great deal of attention of blackstone being the single largest owner of Single Family. 5 billion. Are you done buying . Not yet. In places like california, its gotten more difficult but as you move east in the united states, and atlanta, chicago, northern florida, we still see good value out there. Home prices, you know, people are focused on the fact in the short term they have gone up a fair amount. Right . Theyve gone up 15 nationally in a number of markets. Get you go back to where they were in 06, theres still many of oir markets 40 down from those levels. So we think they still represent good value. And the supply demand picture, again, looks pretty good there. How much longer with a sense of how much longer to see that opportunity, what would it be . Id say for us were probably in the latest stages of that for our model but in terms of the overall picture, i think we have got two to four pretty good years in the Housing Market. Once again, back to supply. We have only been building at about half the rate of population growth in terms of new starts and thats supporting the values. You know, i mentioned exits because eventually you have to start to monetize i would think this large portfolio. We have seen a number of competitors choose to go the route. Ringing the bell. Havent done particularly well, the ipos of Residential Homes and many trading below asset value. Does that give you pause . We focus on trying to build a firstclass business. So in the short term, a lot of companies are raising capital, theyre trying to do different things. Thats difficult. Were private. We have the benefit of our investors giving us capital for a long period of time. You hold it for a long time . Generate a nice return and not think about an exit . We want to buy the homes, buy them in good markets, quality homes. Invest this the homes. We spend about 10 of the Purchase Price renovating them. We have a dedicated leasing team. We want to lease them up and we found if we operate in scale, we have 2,000 to 4,000 homes in each of the markets to do it efficiently and have Brand Recognition and finding with customers is they like the product. So today on homes that we have renovated, more than 60 days, were 94 occupied. Our view is that if we can get the model right, private market or whoever buys the business will like it. We cant focus you know, people tend to focus short term, Interest Rates today, whens happening in houses pricing or this company isnt trading well. Were trying to build a longterm business here. Hilton, we hear so often that its a you bought this thing in 07. Right . Yes. Towards the top of the market. Yes. Many people including the eop deal wondered what are they doing . Its been a good investment. Nonetheless, when are you going to try to take it public . So we dont comment on individual investments as much as i know youd like me to break news here and we said to expect a material pickup in dispositions over the next couple of years. Relating to hilton specifically, as you said, its been a very good investment for us and the reason why is the companys had phenomenal growth. The ceo has done a great job with this company. When we bought it, it had 2,900 Hotels Across the world. Today more than 4,000 hotels. Looking forward, the company, when we bought it way back when less than 20 hotels being built outside the u. S. Today its got nearly 300 hotels outside the u. S. So its a business thats benefiting from Global Growth. Its really well positioned with the range of brands from waldorf to hampton inn and we think its going to do well. When we take it public, it will happen. It will have to happen. Of course it does. Well, we think of ourselves as investors and what i would say is, yes, the nature of what we do is we have to sell. So sometimes people ask, are you selling because youre calling the top of the market . What i would say is were in the buy it, fix it, sell it business. We want to fix whatevers broken, sell them and when we sell them its a nature of what we do. So for instance, we sold a stake in general growth which went through bankruptcy a few years ago. We and some other investors re bill okackman a part of that we sold our stake. Do i believe in general growth as a company . Yes. Phenomenal company. Phenomenal assets. But the nature of our business is we have got to return our capital back to the investors. Exactly. Some point hilton will be back in the public market. Occupancy rates are strong. Are you seeing the room rates move up or a tougher fight . I would say what tends to happen early in the cycle is occupancy. Now rates of the total potential sort of Revenue Growth today. More than half of it is coming from rate growth so were seeing that and thats obviously helpful for Hotel Margins because the incremental dollar tends to flow to the bottom line. Europe here briefly, as well. We dont just have to dwell on the u. S. You are buying assets from the banks perhaps that want to get them off the Balance Sheet. Is that increasing in velocity . Well, we think europes very interesting. Not you do . Yes. Not because of Economic Growth. Europes got real head winds. The monetary fiscal union challenges. The banks there because of their leverage. We are not believers in robust Economic Growth in europe but the distress in that market, much like the u. S. A couple of years ago, is creating fraifrible investments for us. We bought the Largest Hotel in dublin and the price was 80 lower than the level in 2007. We bought it at a foreclosure sale and debt on a European Shopping Center sale. The distress throughout is creating a favorable environment for us. We dont have a ton of competitors there. A lot of the larger financial institutions, today theyre not in it. That creates a better investment environment for us. We think you want to invest in places when people are more negative about those places. Thats the case in europe and i think increasingly emerging markets. How much money in europe . Last year we invested 3. 5 billion of equity, much larger i think than anybody else and a good investment cycle for a couple of years but you have to buy things, anticipating very slow growth. Its nice to have capital tied up for a long time because i would think its a longterm investment. Yes. One of the very nice things about our business is investors give us capital for long periods of time. And you saw this in this great downturn and we werent forced to sell when the markets went away from us. When dislocation happened, so if Interest Rates go up and everybody sells, we can move because we have discretion with the capital. We are not forced to sell in the short term. Europes a good example of that. If we buy assets and we think are favorable prices, we may have to wait a number of years for the economies there to recover. All right. Not that long ago, up on that balcony right there ringing the bell. Blackstone Mortgage Trust went public. Im curious. We started on rates. Lets end there. The backup in rates, does that help you in the Mortgage Trust . How long until youre fully invested, for example, in paying a full dividend . Blackstone Mortgage Trust is a floating rate lender. It is interesting. The stocks traded off in sympathy with other morlt reads and its throwing the baby off with the bath water. Rising rates are better. What we want to do is help borrowers so m cog out of the crisis there are asset that is need capital. Banks are more cautious. Lending to those types of assets and what blackstone Mortgage Trust is focused on. We have a robust pipeline. And where the banks are more hesitant. Painting too positive a picture on everything. Theres got to be something that scares you. Well look. As rates move up, it creates dislocation, slowdown. You could see values, you know, level off here instead of moving in the Straight Line they have been. In the Housing Market, rates moving up certainly could slow things. Frankly, i think thats healthy. I dont think people expected rates to be at 0 forever. And obviously there are longer term fiscal issues. Challenges in some of the emerging markets we invest in this terms of currency accounts. The business is to worry but when everybodys worried and people tend to be more coming out of the crisis when its a better investment environment. Back in 06, 07 no ones worried when things are scarier. Thats the way we look at the world. All right. I look for those worried. You are not one of them. Thank you so much for being with us. Thank you, david. Great to see you. Thanks. Kelly . Straight ahead, how big banks will be affected by the new Capital Requirements that were just detailed. Squawk on the street will be back. Mine was earned in djibouti, africa. 2004. Vietnam in 1972. [ all ] fort benning, georgia in 1999. [ male announcer ] usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection and because usaas commitment to serve military members, veterans, and their families is without equal. Begin your legacy, get an Auto Insurance quote. Usaa. We know what it means to serve. A lot can happen in a second. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the best possible price maybe even better than you expected. Its all part of our goal to execute your trade in one second. Im derrick chan of fidelity investments. Our onesecond trade execution is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Welcome back to squawk on the street. Check out alaska air ripping higher this morning. June passenger data, traffic climbed 7. 5 and flying alaska air, get ready for higher fees for checked baggage and ticket changes as of october 30th. The company says it brings in 50 million a year. That stock down some 14 in the past 2 months but sharply higher today. Carl, back to you. All right. Thanks so much i. When we come back, blackberry ceo facing likely not so happy shareholders. Question is will he be able to reassure investors and get the stock back on track . Head lines from that meeting later on. Trains they haul everything, safely and on time. Tracks they connect the factories built along the lines. And that means jobs, lots of people, making lots and lots of things. Lets get your business rolling now, everybody sing. Norfolk southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . [ male announcer ] you wait all year for summer. This summer was definitely worth the wait. Summers best event from cadillac. Let summer try and pass you by. Lease this allnew cadillac ats for around 299 per month or purchase for 0 apr for 60 months. Come in now for the best offers of the model year. Dow is hanging on to that gain despite ibm dragging it down after a downgrade. Lets get to Rick Santelli exchange. Hey, rick. Hi, carl. The minutes on the last meeting coming out tomorrow, there is a whole lot of issues globally that i think markets are paying very close attention to. I think we can summarize them into a very easy common denominator. I think investors are going to test the metal, test the resolve of central bankers and central planners. And i think that sound easy, but its not going to be, for a variety of issues. Let start with china. Okay. So we learned today that their ppi was down 2. 7 . Most of the conversation is about that. And i understand in the great picture of how they are at such a reduced rate of growth based on where they have been over the last several years, how the producer end would see that. But what wasnt talked about was that cpi for june released at the same time was up an identical amount of 2. 7. And why was it up . It was up mainly because of food. I know in this country. Its very easy to dismess, food and energy, in china, not necessarily the case. There was a great article yesterday in the journal about the issues of a chinese ship yard, but there was one quote in there, i tound very fascinating. The quote was by a spokesman for the china labor bulletin. Heres what he said. When orders dry up, workers are often the first ones not to get paid. Weve seen a lot of stories about this at cnbc. We seen they saw a factory basically put in quarantine the workers understand they have very little efficacy going through proper channels, the long and short of it is, is the biggest thing for central planners is keeping peace among the larger middle class and food prices and not getting paid arent going to go very far. So they might want to try to pop bubbles and restrict credit, but we are going to test their metal. Lets look at the u. S. On the u. S. Side. We know that doddfrank quite simply has made so it banks cant hold the inventory. They can with the the Market Makers they once were. Because the cost to do so is prohibitive from a compliance and a Balance Sheet stand point primary dooels dealers were huge into the Corporate Market making world. They have low inventories, so what happens is we continue to get aggressive in rates. Its going to test the feds metal on a number of levels, not least of which is the process of how rates move up is going to be tested in a way we havent seen in many decades. Kelly. Back to you. All right. Rick santelli, thank you very much, sirment keep those tweets coming, folks, be i the way. Yes. We should. As we continue to watch the blackberry news the meeting with auThorsten Heinz, fedex the number one gator on the s p. Is a big move. 6 plus, a lot of rumors going around the street, which we will not get into at this stage right now. We see thats going to give the notice of some people. That explains the transport index jumping today. Barnes and noble ceo William Lynch resigning today, two weeks after the book seller said it would stop making the nook touch screen tablets. Brings us to this mornings squawk on the tweet. Barnes and noble should be called barnes and what . Tweet us your responses at squawk street. Well read some of those answers within we come back. At farmers we make you smarter about insurance, because what you dont know can hurt you. What if you didnt know that its smart to replace washingmachine hoses every five years . What if you didnt know that you might need extra coverage for more expensive items . And what if you didnt know that teen drivers are four times more likely to get into an accident . sup the more you know, the better you can plan for whats ahead. Talk to farmers and get smarter about your insurance. We are farmers bum pa dum, bum bum bum bum [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] [ telephone ringing ] theyre the days to take care of business. Just a room. When possibilities become reality. With centurylink as your trusted partner, our visionary Cloud Infrastructure and Global Broadband network free you to focus on what matters. With Custom Communications solutions and responsive, dedicated support, we constantly evolve to meet your needs. Every day of the week. Centurylink® your link to whats next. Zbaerns and noble no longer aims to be a player in the tablet business, it will continue making the similar enook devices. You want to judge this book by its cover. Barnes and noble should be kauls called barnes and blank. Sullivan writes, barnes and no nook. Joe sue writes barnes and no no. Tweets barnes and noble should be called barnes and starbucks, nothing more. Some truth in that and barnes and rubble, eric tweeting barnes and trouble. Yeah, interesting. Interesting discussion earlier in the hour about what liberty may do in terms of pressing for management changes. They tend to be a patient holder of some names, definitely a complicated story now that lynch is out. Take a look with the dow at 52 on some of these home builders. Rich peter sen says since the tenure crossed 2 may 22nd, three of the top seven laggers are home builders. I think the three that have been hurt the most, toll brothers, lennar and pulte. Nits black and white for those who think Interest Rates matter. Here, 3 to 4 gains, we seen the ten year gains capped a little now. A lot of people making the case say if you believe this is a sign of stronger growth, you still want exposure here the valuations are a hurdle. Yes. Also, netflix which blew my mind early this morning, its up 3 plus percent today for the month, though, one month performs, 14 . Wow those who doubted their pricing, their ability to add subscribers, they have been shown the door. Its and i mazing name to watch. Meanwhile, keeping an eye on rival lulu. In the way that people look to monetize it and protect content. How long before programs that were just aired are a part of their offerings . How much on the original side . Yes. Well keep an eye on that, the dow hanging on to a 50plus point gain. If you are joining us, where you missed earlier on. Welcome to squawk on the street. Banks do what the economy does. We did not have a great Second Quarter from an economic standpoint, so were not going to have a great Second Quarter in terms of Bank Earnings. On the die like today on the calm before the storm, its difficult to make a read only a quo a and say anything different on upcoming earnings. People arent going in the stores. There already are a group of people who buy books. I am part of them. Yeah, they still have that. Not much else. The ims is out with its global world forecast, the imf is out. We are proud and we are returning cash to shareholders by buying back shares as you mentioned. So thats a part of our formula. I think thats the resiliency and the reliability in an investment like General Mills. I think most banks have been moving in that direction, because this is no surprise, this is no surprise and theyve had time and they will have time to adjust, but theyre going to adjust much more rapidly than slow phase into 2018. Out there on the ground, yes, rates are moving up. But i think thats starting to happen because of better Economic Performance and in our sector, in particular, the lack of new supply making it Even Stronger than the economy at larg large. Good tuesday morning. We are live here at the New York Stock Exchange with the check on the markets. The dow, despite a downgrade for dow component ibm, hanging on to a gain of about 58 point, s p is up at 1648 up about 8. 5 points. We mentioned ibm getting slammed after goldman cuts the stocks in neutral citing concerns over the near term business outlook. It says it may begin to see some pressure on some high margin Revenue Streams. Can you often tell what wall street thinks of the ceo by how the stock reacts after they step down. Case in point barnes and noble rallying after William Lynch resigns from his post, a replacement has not been named. The company says it is reviewing its overall strategy. Now, lets get to the road map for our hour following the latest on the plane crash in San Francisco t. Pilots of that flight drawing scrutiny for what took placement should you know more about your pilot before you fly . Well take a closer look. Well tell you if any exec should be worried about their jobs and its time for state of the states. Cnbcs exclusive lists of business in this country. Find out if yours made the cut. First up, news now, a possible new regulation on the horizon, financial big movers in the markets recently, michael jones, charles, the vice chairman with yaerl investments, guy, its good to have you both back. Good morning. Good to be here. Charles, they move to a large degree as the curve steepens. We see the regionals do well, a bit of a selloff on these new regulation, even though the deadline the official deadline is off in the future. What is the trade right now . Well, we think the financial, particularly the investment banks are one of the few parts of the market thats still pretty cheap. For the last 50 years, investment banks have traded between one and two times book. You got Morgan Stanley and Goldman Sachs trading right around book. So even though theyve had these massive books, Morgan Stanley basically doubled. We think its cheap, ten times earning, one times book. Michael, what do you think . Whether you want to go with the big money centers, the region also, whats your fa effort . I think right now, all of the banks have had a really powerful move based on loan growth and Consumer Credit has been accelerating and i think that at this point were expecting them to step back and be more than of a market performer because as this mornings news may clear, while there has been a lot of good tail wind with the steepening yield curve the accelerating loan growth, washington still hates this industry. If they make a lot of money, washington will find a way to regulate it back out of them. Michael, is it really that unfair to ask banks not to be leveraged more than say 20 to 1 . No, i dont really think so. I am very grateful as a tax pay ter fdic has put the regulation in place. Because one of the things that catalyze especially the recent move in the regionals is they unexpectedly kept a 50 risk waiting on mortgages. And if you think about what the big catalyst for the crisis in housing was, the fact that banks had this huge incentive to make Mortgage Loans over corporate loans was one of the reasons they made too many Mortgage Loans. So i think todays announcement is basically putting a sanity cap on the amount of leverage that mortgages can represent on the bank allen sheet. Thats a good thing for taxpayers. Its not necessarily a good thing to validate this big runup in the regions. You just said you were citing that as evidence of walk coming after these banks for naked political reason, but then said actually maybe this is a prudent things for them to do. Well, i think that the move keeping the 50 risk waiting worried me without question and it catalyzed a huge move in the regionals. Todays announcement said theyre not going to let it get out of hand in the extent they did in the 2000s. Its a good sanity check. I think that move in the regionals was probably overdone because they were thinking there would be a more of a hands off approach than we are expecting out of walk. Charles, how much is trading going to be the focus after whats happened to bond in the past two weeks . Short term big focus, longer term less focus. So this quarter, its hard to predict how these firms did. Everybody thinks the Interest Rates got killed. Thats an old view of the world. These frirms not as long, theyre more heads than they used to be. Somebody might have been on the wrong side of the move, longer term, fixed income will be less important. I keep thinking back a few quarters ago, goldman said the markets have become too volatile. They were bringing risks down. Are we going to hear an echo of that from the major banks . You can. Its hard to predict. What i think is that longer term this steepening yield curve is going to be good. It will mean a choppy quarter. Some of these names will get hit. Its hard to say who had what trade on. If i had to bet. I would say the people at Goldman Sachs and j. P. Morgan and morningen stanley have gotten good at this. Thats not why you own these stocks. They are cheap on a longterm basis t. Bes is actually getting better. Michael, everyone is saying the yield curve is steepening, in fact, it has flattened since early may. So is it just the case that part of the curve, which these banks are most geared towards say the two to 10 part of it is more important here or are people missing the fact that actually we havent seen this increase. We seen the opposite happen on the longer end. Yeah, the very long end of the curve tends to be not as relevant for the banks. There is so much duration mismatch. They dont tend to be as active. What has been important to them is the increase in yield, particularly out to the five year. Then the 5s to 10s has been a nice catalyst for their earnings. I also dont think we should underestimate that it has been important that the Consumer Credit is growing again. As profitable as it is to buy a ten84 treasury at a 0 risk waiting with spread to 0 funding cost, its much better to be making a car loan or a Business Loan at two times that kind of yield. Thats where the big profit drivers are. Absolutely. Michael, charles, thank you both for your views on that this morning. Lets send it over to Mary Thompson and get a quick bharkt flash. Good morning. Hey, we are taking a look at federal express. Its up 7 . The biggest percentage move since december of 2011. Now, there is some chatter out there that is unsubstantiated concerning a letter that was sent by bill Ackman Pershing square talking about two new funds he is raising. In the letter to his investors or potential investor, he said these two new funds will invest with existing funds they have in a certain company. This is how they describe it. A large capitalization Investment Grade u. S. Corporation that principally operates in one business segment and serves a diversified global base. There appears to be the target of ackman and these two new funds could be federal express. Ackman says they plan to take a 5 stake in this company and issue a 13d filing. We do want to note we have reached out to Pershing Square. They have given us a no comment. Once again, federal expression is up substantially about 6. 75 . Back to you, kelly. A big move there. Blackberry kicking off a couple minutes ago. Checktives are expected to get a grilling after the companys disappointing performance, seema mody has more for us live at the nasdaq. Kelly, blackberry ceo Thorsten Heinz got obvious the call 10 30 eastern time. He reiterated a similar message in the earnings calm. Is that blackberry is still in the early stages of a major transition. Just like any transition, change can be volatile on a shortterm basis. He highlighted blackberrys threestep transition plan. Listen in. We will focus on returning the company back to profitability and establishing a leadership position in computing. So other major takeaways on that calm. Blackberrys focus as behind says, returning the companys profitability, establishing a leadership position in the mobile commuting space. It seems blackberry can become a leading mobile computing platform. Heres the interesting part, making a move from mobile communication to mobile computing, which you guys basically shows that blackberry is not only committed to getting more of its devices in the hands of consumers, but also focused on its blackberry enterprise system being used across the industry. Now, the call is still under way, including the q a part of the call, where shareholders are likely to ask some tough questions. Another interesting part, carl, blackberry, thorsten behind said that blackberry will explore every opportunity, including partnership opportunities. So that will be something to watch very closely. Yeah. Stocks will move around today, we know that, seema, thank you so much. We are following the latest on that terrible plane crash in San Francisco. The pilots of that flight set to meet again with the National Transportation safety board. We will go live to the scene next. First, Rick Santelli watching the resolve of some central bankers. Rick. Yes. Were going to wind through central bamplgers in lew of fed and taper an minutes. Were also going to talk to ray stone, who is our guest at bottom of the hour, a legend in research about what he said in march could be a big issue for rising Interest Rates. He was very much correct. We are going to talk about some of his newest survey ideas and warnings. Bottom of the hour, ray stone, be there. Here at fidelity, we give you the most Free Research reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Unh hey lets go [ male announcer ] you can choose to blend in. Yeah yeah yeah or you can choose to blend out. Oh, yeaheah the allnew 2014 lexus is. Its your move. Flight speed may be the main reason behind the San Francisco flight. The pilots will meet again today. Our phil lebault has more live. Good morning. Good morning, carl. We are hoping to learn more later on from the ntsb regarding the experience and what happened with the pilot at the controls of asiana 214. Also today, there is video we received out of seoul, south korea. The ceo of Asiana Airlines is flying to San Francisco. He plans to meet with victims of the crash and at some point i would not be surprised if we hear from him in terms of an apology for the accident. Heres the latest on the investigation. The ntsb said theyre getting a lot of data from the flight recorders. So far, there is no indication of mechanical failure. They interviewed two of the four pilots in the cockpit. They have yet to interview the pilot at the controls at the time of the crash. That pilot is the focus of the investigation. He had 43 hours of flying time in a boeing 777. You need 60 hours in asiana to be considered a captain in a 777. The asiana pilot was attempting his first landing of a 777 here at sfo and his lack of experience brings up the question of whether or not investigators and regulators should be able to give the public more information about how much training pilots have when they get behind the controls of t controls of the cockpit. There is an expectation anyone putting themselves out there to provide service meets minimum Safety Standards. We need to make sure those Safety Standards are high and every flight is a safe one. The chairman of the ntsb, we are expecting to hear from her. An update on the investigation later today. We should stress again, they have yet to interrue the pilot at the controls, so carl, this brings up the question of how long will that interview take. Theyve also got to work with the translator. So it may be later today, much later today here in San Francisco, perhaps this afternoon that we get some kind of an update. It will be interesting to see what they can tell us about. What actually happened in the cockpit the cockpit voice recorder, we have yet to hear those transcripts. We want to hear what was going on in the conversation between the pilots in the cockpit. Guy, back to you. To remind us on the element of flight speed, how fast were they coming in on approach, what would be a typical speed for a plane that was going to land normally . The target speed 137 knots. Thats the target speed at landing. They were at 134 knots, 500feet left to come down to the runway by the time they were just above the runway, they were down to 103 knots. So essentially, thats why the plane was stalling. They tried to act sell rate and lift up into a go around at the last minute. There was no room there. Thats why the tail clipped the sea wall right in front of the runway. Phil lebeau with the latest on that story. Thanks very much. Lets send it to Mary Thompson. Hey, mary. Kelly, we are looking at shares of wd40. A nice pop there. The Company Reported a better than expected earnings. 10 vents ahead of estimates. The sales were a little better as well. This is the maker of lubricants in vehicles and homes, et cetera. The company is raising its full year guidance. It has been hit by higher commodity prices. It has offset this with cost cutting measures. Carl, back to you. All right, mary, thank you so much. Former new york governor Eliot Spitzer making a memorable appearance on morning joe today. He well, you got to check it out. Take a look. How are you different than you were five, six years ago . What has changed . Personally . With who you are . A lot of pane. A lot of pain. Thats it . Yee. You go through that pain of change. The governor crying on the national television. A lot more on the former governor in a moment. Later this hour, a cnbc exklausive. The reading for business, our scott cohn is live in the top state. He just wont tell us what it is, scott. I cant do that yet. Because that would remove all the suspense, were getting a lot of great guesses on twitter, i like the guy from tennessee who thinks he recognizes crab grass in the background and this is his back yard we are shooting in. He has an awful nice back yard, we are getting set to reveal state number four as we count them down. With le have that coming up a little later on squawk on the street. [ all ] fort benning, georgia in 1999. [ male announcer ] usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection and because usaas commitment to serve military members, veterans, and their families is without equal. Begin your legacy, get an Auto Insurance quote. Usaa. We know what it means to serve. For the strong and the elegant. For the authentic. For at home and on the go. For pessimists and optimists. For those who love you a little and those who love you a lot. For ultimate flavor and great refreshment with or without calories. For carefree enjoyment. For those who have a lot to say and those who have nothing to add. For those who want to choose and choose. For every generation. For us. For everyone. Forever. [ babies crying ] surprise your house was built on an ancient burial ground. [ ghosts moaning ] surprise your car needs a new transmission. [ coyote howls ] how about no more surprises . Now you can get all the online Trading Tools you need without any surprise fees. Its not rocket science. Its just common sense. From td ameritrade. [ male announcer ] you wait all year for summer. This summer was definitely worth the wait. Summers best event from cadillac. Let summer try and pass you by. Lease this allnew cadillac xts for around 399 per month or purchase for 0 apr for 60 months. Come in now for the best offers of the model year. Former new york governor Eliot Spitzer running for city comptroller. He was on morning joe on msnbc where he was questioned about the prostitution scandal that forced him to resign. Heres a clip. It was a memorable one. How are you different than you were five, six years ago . What has changed . Personally . A lot of pain. Of who you are . A lot of pain. A lot of pane. Thats it . Yeah, you go through that pain. You change. Make sure you tune into closing bell this afternoon, by the way, his opponent for comptroller will be live. It might not be the top story for viewers watching elsewhere in the country. Certainly, its a big deal in new york. He made an appearance in union square yesterday hounded by press. Right. So much that Anthony Weiner who is running for mayor admitted the focus is not on the new york mayors race, its on the comptrollers race. If ruin vested in the financials and the index, you are invested in the main indexes, then it is going to matter with what happens to spitzer. Weve seen him go after banks so aggressively in the past. No reason to think that has changed. A lot of discussion about the dynamics of that job, which in general involve cooperating between varies interests in the city, getting them on board. Thats not how spitzer has operated in the past. Would he change the playbook of the comptroller position . My bet would be capital letters, yes, but well see. Meantime, lets get to Rick Santelli in chicago. Hey, rick. Hi, carl. Id like to welcome my very special government. Any of us out there that started using stone mccarthy in the 80s realize it was a real pioneer in research. Managing director cofounder dr. Ray stone, welcome, thanks for being our guests today. My pleasure. All right. I want to cover three areas, first area is the fed. We have the minutes last set fomc meeting coming out tomorrow. Are you surprised the market isnt as gradual in its adjustment process as the very, very overcommunicated gradual nature of what the feds looking to do . Were you surprised by the how the market behaved . I was very surprised by the market behavior after the fomc meeting. When bernanke made his postmeeting press conference, i thought he told us everything that we already knew. However, the market took it differently. The market thought it was new news that the fed kass going to start tapering at some point in the not too distant future. I found it a month earlier, he said it would be a few meetings before they would start pairing back purchases. Now its going to be later in the year, which i take to mean maybe september or october, something of that nature. But i was surprised by the market reaction. All right. Second topic. We just came off an employment report that was in many ways better than most had anticipated. But the average for the last three months is still under 200,000. Did you have any observations, anything jump at you in the last employment report . A. Well, it was the headline number was better than i expected at 195. I was thinking maybe it would be 170 or so. But the good news is that in general were running close to 200. Just under 200 over the past three months. A little over 200 over the past six months. But the disappointing thing is that the composition of the payroll gains have been mixed. In the first quarter, with esau good gains, good producing in the industry the Manufacturing Sector and the construction jobs. In the Second Quarter, the jobs were largely in retail and leisure and entertainment. These jobs tend to pay less. Theyre more frequently parttime jobs. So i think if i were an fomc member, what i would be happy with around the 200,000 payroll growth, i would be dispinted a little bit in the composition of the Second Quarters boost. All right. This is my favorite topic and the last topic. About a month before may 1st. You were my guest. You said based on your survey what you were doing since 91, some of the big players had duration issues that made you bearish, looking for higher rates. Within four weeks, we had a huge move, over 100 basis points higher than may levels intends, what does your survey tell us now. Is it still flashing red with regard to risks to higher rates . Well, its splashing red in that the survey is telling us very similar story to what we saw in april and that is that our Portfolio Managers are quite bearish. Maybe overly bearish. Maybe there is a chance for at least a temporary correction. Rates may ease a little bit temporarily. I think the longerterm outlook is for higher rates. Thats good news because higher rates would, in theory, be associated with a lower Unemployment Rate and a stronger economy and a normalization of things right across the board and thats what we should all be hoping for. Dr. Ray stone, thanks for taking the time today to be our guest and well welcome you back in another couple months to update your survey, thanks again. You are welcome. Carl, kelly, back to you. Thats the santelli exchange. Rick, thank you very much t. Bells are about to sound across europe. A couple minutes to go. 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Because what you dont know can hurt you. Urance, what if you didnt know that its smart to replace washingmachine hoses every five years . What if you didnt know that you might need extra coverage for more expensive items . And what if you didnt know that teen drivers are four times more likely to get into an accident . sup the more you know, the better you can plan for whats ahead. Talk to farmers and get smarter about your insurance. If you have high cholesterol, heres some information that may be worth looking into. In a Clinical Trial versus lipitor, crestor got more highrisk patients bad cholesterol to a goal of under 100. Getting to goal is important, especially if you have high cholesterol plus any of these risk factors because you could be at increased risk for plaque buildup in your arteries over time. And thats why when diet and exercise alone arent enough to lower cholesterol i prescribe crestor. [ female announcer ] crestor is not right for everyone. Like people with Liver Disease or women who are nursing, pregnant or may become pregnant. Tell your doctor about other medicines youre taking. Call your doctor right away if you have muscle pain or weakness, feel unusually tired, have loss of appetite, upper belly pain, dark urine or yellowing of skin or eyes. These could be signs of rare but serious side effects. Is your cholesterol at goal . Ask your doctor about crestor. [ female announcer ] if you cant afford your medication, astrazeneca may be able to help. Thats the sound of trading ending across the country. On a day in which the imf says it expects a 0. 6 contraction in the euro economy. As a result stocks for the most part did close off their highs. Imf also raising the forecast for the u. K. Economy to 0. 9 adding it believes the british economy generally remains weak. Take a look at the major european bourses. Spain lagging up 0. 3. It by the way was the one imf singled out, adding a little more 0. 6 currencies are one to watch. The euro has fall on the new threemonth lows against the floor t. British pound, charm, has now slipped to threeyear lows. You have as to wonder what that means both for travel and also for corporate takeovers when people start to eye those companies. One of my favorite tweets of the day can i get a holler for the dollar . Its amazing whats going on. I know the correlation stronger dollar, higher bond yields and equity, importantly, that will be the one to watch. Lets bring in rand see what else is moving on the big board, bob. I want to point out. We are 1 from a historic high on the s p 500. I know, everybody is down on the stockmarket the earnings will be this quarter. Theyre down on the stockmarket because the economy recovery is not going to happen. The fed tapering will be on the stockmarket. But the s p closing high with 1669 historic closing high. Were at 1650. 1 away from a new high. Im just observing things going on. We are being helped by the cyclical leaders. Those are the growth potentials. Yes, the Global Economy is not in great shape. In the u. S. , some cyclical stocks are doing fine. The sectors leading, we particularly noted the air 48 companies. You heard it earlier, there has been vague comments, reports, rumors floating around, ackman may be stait taking the state and fed axe ex. Its floateding around. Some of the other stocks, united parcel, robinson, theyre to the upside. Home builders do better. They have been doing sideways. A little better today here, pulte, kb, lennar. This group hasnt done much later, same with the building materials, as a result can, owen, usg. We see strength in semi conductors. Remember that down in intel, it drives people crazy, people who are professionals go in and out a lot of the time a. Lot of people recovering today as you can see, klac did raise their quarterly dividend. Finally, i. T. Consulting first, Goldman Sachs downgrade of ibm. The concern is general slowdowns will affect ibm. Of course, the big thing, guys, is that consulting business that ibm has a little worries on that one. Back to you. We are also keeping an eye on shares of blackberry, which hit highs and they discussed whether blackberry would be comfortable to splitting the company . What did he seem to say . Kelly, that was the first question asked to ceo Thorsten Heinz if blackberry would be opened to splitting up the company in terms of its hardware verizon its Software Business division, Thorsten Heinz said before we discuss those specific options, blackberry has to create value and the company is focused on right now. I think because Thorsten Heinz didnt dismiss that idea, investors on the street got excited about the potential or i guess that idea being floated on the streets and were seeing shares up about 3 on a zay day off session highs. We did see shares hit session highs around when that question was asked. Back to you. Thank you so much, seema. Meantime, according to a new study out, rent and demand for apartments is still rising despite the housing recovery. If you factor in rising Mortgage Rates, demand for apartment rent apples can push them higher. Diana olenick has more in washington. Reporter analysts and investors have been down on the sector lately. The thought was that the rush to rent we saw during the housing crash was shifting back to homeownership. Well, now rising Mortgage Rates may change all that. Take a look, rents went up in q 2 both asking and effective rents. According to a new report, the growth is slower than a year ago, but thats largely due to weak Income Growth and of course this was just before the big rate jump. Vacancies were flat nationally at 4. 3 , 54 out of 79 markets saw decreases in vacancy. 4. 3 is well below the peak of 8 in late 2009. The vacancy decline is largely due to more supply coming on over 26. 5 thousand new apartments were completed in q 2. Vacancies and rents have been moderating lately the rise in Mortgage Rates could turn up the heat on them yet again. Mortgage rates going up by 50 to 100 basis points takes out a lot of the ability for people to afford to buy a home. Two with rates going up, it kur tails development because it makes it more expensive for developers. Bodes well for the reits. That irthe ones with the capital. Now, essex which has half its earnings coming from Southern California also post properties based out of atlanta, which benefits from upscale apartments in the sun belt, he also likes trade street, which recently went public and also plays in the sun belt. Now, one more thing to note, starts have been low for multifamily, ramped up pretty dramatically in the last two years. They are running above normal levels. It does take a lot longer to build an apartment than a Single Family home. We will start to see all of this supply come on to the market more in 2014 and 2015. Thats when you will need to look at that. For now, an interesting play when rates are going up. Back to you. A nice push in full on housing in this country. Thanks, diana. Lets send it over to Mary Thompson, the dow is up 66, mary. The dow is up 66, carl. We haver is sirius satellite the operator up over 3 right now t. Company on having some very good subscriber numbers. Its total subscriber based 25 million, not in the Second Quarter. It added 715 new subscribers. 715,000 i should say. New subscribers in the Second Quarter, above expectations. Thanks to strong auto sales. Its raising its estimates for the full year of new subscribers, now expects 1. 5 million up from a prior estimate of 1. 4 million. Its stock is responding up 10 . Thats a gain of a little over 3 . Kelly, back to you. Okay. Mary, thanks, now. Its the time you have been waiting for, all the best states around. Were bringing you the top states for business in this country. Well name another one when we come back. With fidelitys options platform, weve completely integrated every step of the process, making it easier to try filters and strategies. To get a list of equity options. Evaluate them with our p l calculator. And execute faster with our more intuitive trade ticket. Im greg stevens, and i helped create fidelitys options platform. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. The world is changing faster than ever, creating new opportunities for those who stand ready to seize them. In a time when the biggest risk is playing it safe, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, our flexible, collaborative approach helps forwardlooking companies not only run better, but run different. To give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because now more than ever, the future belongs to those who challenge the present. Coming up, we get a view on where stocks could go from here. Big black and blue, ibm downgraded at Goldman Sachs. Now our traders battle over the next move. Can you bank on the financials, all that in about 20 minutes, we are excited about that. That will be great, scott. See you in a few, thanks. It is that time again, cnbcs annual renting in this country. We are sto scoring all 50 states. Counting you down to the top five. Scott cohn joins us from this top state with another of our elite top 5, hey, scott. Hey, good morning, carl. This study gets a lot of attention every year. The house Small Business community will be featuring our stop states for business rankings. We understand the star witness will be governor bob mcdonald of virginia. We v. Already told you virginia and utah tied for number five this year. Lets continue our countdown now with state number four. Nebraska the corn husker state is number 4 this year cracking our top five for the first time with 5,575 points. Nebraska came in 6th last year. Nebraskas best category is Business Friendliness where it finishes third. It boasts the fourth best economy and fourth best quality of life. The state does poorly in access to capital and technology and innovation. Tax reform has been a major focus in nebraska with the governor signing a series of tax relief measures into law last month. The top individual income tax rate 6. 84 . The top corporate rate 7. 1 . State sales tax 5. 5 . Unemployment in nebraska is 3. 8 . Nebraskas largest sploir tyson foods, its largest industry is agriculture and food processing. So we kel welcome nebraska to our elite as number four this year as we are maybe seeing a little trend of the Economic Center moving towards the heart of the country. We will see if the rest of our countdown bears that out. Here we are in americas top state for business with one more hint about where i am. The hin is the scratch beneath the surface. So we have big mouths. We have well anchored. Now we have scratch beneath the surface. We want to hear from you on twitter, use the hashtag top states. Remember our special website top states. Cnbc. Com. Scott. I think a lot of people will be looking out their windows to see if you are standing in their back yard today. I thought it was interesting, the access to capital is one of the places where nebraska scored pretty low. Other measures like unemployment are high. What is going on there, access to capital . Well, access to capital is one of our categories. Its the least weighted category. But a lot of the Venture Capital money is still not flowing to places in the midwest, to smaller states. A lot of it disproportionately flows to california and Silicon Valley and new york. Kind of going to the coasts. So what were seeing in a state like nebraska. What weve seen historically in some of these Central States is theyre not getting that Venture Capital that is really important to the keep that momentum going among americas stop states for business. Its fascinating. Especially because as you point out, scott the fundamental also are strong. If anyone is sick of San Francisco, maybe they can look to the berrior. One of the great franchises of all time, these stop states, skorkts i am a member of the first 84, man, its grown into something absolutely incredible. I cant wait for more. Thanks a lot. Now, transportation officials dill trying to figure out what happened in the cockpit on Asiana Airlines flight 214. So how well do we know our pilots . Should we get more information before picking a flight . We will put that information to a former pilot when we come back. [ male announcer ] if you cant stand the heat, get off the test track. Get the mercedesbenz youve been burning for at the summer event, going on now at your authorized mercedesbenz dealer. But hurry, offers end july 31st. Vietnam in 1972. [ all ] fort benning, georgia in 1999. [ male announcer ] usaa Auto Insurance is often handed down from generation to generation. Because it offers a superior level of protection and because usaas commitment to serve military members, veterans, and their families is without equal. Begin your legacy, get an Auto Insurance quote. Usaa. We know what it means to serve. Carl icon getting a supporter for his dole for dell. Assets management came out in support of the Hedge Fund Managers tender offer of 14 a share. The management cochief and Senior Vice President , he joins us this morning with more. Steve, good morning, great to have you. Good morning. You have been leaning this way, at least thats what you told the journal in april. Since then, weve had iss. Clearly not enough to change your mind . Yeahsh thats correct. I think one of the things that has been missed here is that the board at dell has come out in support of this deal t. Board and management havent been the problem all along. We have limited our position size based on their prior actions. If you go back and look, they had done Share Acquisition of approximately 35 billion over the last eight years, if they left the share count where it was eight years ago, youd have over 14 a share in cash. Clearly mismanagement on their part has led to the situation where you are in now. So as people are looking at, going, well, whats the Company Really worth . I think in the new hands of icon, that you could have a lot more valuable property as it won be mismanaged. The stocks before we bought it did not reflect a possible management change, which you now could possibly have. When you saty board has been the problem all along, how far back, i mean, how deep do you see the legacy issues running here and what do you think i concan bring thats different . I think the parl is the boards have been the same board has been in charge all along. Theyve made a lot of acquisitions as i said earlier of about 13 to 14 billion over the last eight years. Theyve used another approximately 20 billion towards share purchase. Just to show you how management and the board, theyre obviously in charge of things like share purchase. When the stock was higher at higher levels, they bought precrisis, pre2008, pre29 crisis. In the market the s p was at 666. They bought know shares. So, clearly, when it came time to buy something cheap, they werent there for the shareholder. So i dont think theyre there for the shareholder now. So the problem begins with the board and then its passed through to management. Dell certainly isnt alone in poorly shares. This has been demonstrated over and over again. I just wonder the fundamental issue isnt really the timing of their share repurchase, it comes down to whether there is pc demand. So that has to really be the crux of it here. Right. Now, one of the things that people it gets down to faund amountal board issue, Management Teams are compensated on how big their companies are. They come up with surveys and studies and say a company of this size this much revenue the company should be compensated x. Obviously the biller you are the bigger that number is. No Management Team wants to be looking over aem fire thn empirg in size. So dells management went out and with the board went out and made acquisitions at very high prices. And thats part of the problem. Its led us to where we are today. Sometimes things need to be broken up, sold off. Sometimes you just need to milk the thing on the way out the door. Thats just an option thats never really been considered here. Finally, there is anything about ackman himself . Some of his calls have been calls of luck. Do you think he can strategically bring something that others cannot . We dont really follow netflix and ackman. I cant comment on that at there the. Steven, thanks so much for making the call for acman. Many questions still remain regarding Asiana Airlines. Now the focus is shift together pilot who had only 44 hours experience flying a boeing 777. An aviation expert joins us now. Paul, good morning. Good morning. What strikes you upon first looking over the details here . Is it the lack of experience that this pilot had . Is it the fact that he was at the controls or that no one else seemed to take over for the landing here . No, not really. Its funny, but everybody has to have a first landing. And everybody has to have low time in an airplane. Its very much, though, like driving an automobile. You know how to steer. You know how to accelerate and stop. But you might not know how to work the Cruise Control or the air conditioning or the stereo when you get into a new automobile. So the issue is training a pilot in the shall i say the systems of the airplane. Basic airmanship should be there. But just to be clear, so while that training is important, isnt that training that should happen not for the first time with a planeful of people landing it at San Francisco airport . Oh, it happens for hour upon hour upon hour in a simulator and then also with check airmen, very highly experienced people occupying the other seat in the flight deck prepared to take over at the moments notice. I think that were rushing to judgment just a little bit on this particular event. Clearly something happened. But the something happened would appear to be the relationship between the ougautomatics of th airplane and the two pilots in the airplane. It might have to do with experience or nothing whatsoever to do with experience. Its too early to tell. A lot of times we talk about socalled cockpit Resource Management, various egos colliding in a plane especially with a guy whos made a career on a 747 and now a new plane for him. Do you think personalities may have gotten in the way here or not . Well again, were going to see the transcript of the whole cockpit voice recording. The crew Resource Management came out of an old and ive always referred to it as we used to have divine right captains. The captain was always right and the other pilots were afraid to criticize. That was dangerous. And we changed that 25 or 30 years ago. But its a long culturally difficult road to plow. I dont think were there yet. Paul, can you comment as well just on what was happening in the aircraft . The number of people trying to take bags off, the time it took for them to leave based on the media reports as well . Yels, the photographs of people with carry on luggage thats just wrong in another situation that could have caused deaths. When the Flight Attendants say get off of the airplane and leave everything on they mean it. I think this Flight Attendant crew is to be commended. Looks like they did a fabulous job under very trying conditions. Even though as you say perhaps they should have been more quick to get people off that aircraft instead of letting them take those bags . I would have liked to have seen them stop it. But again were talk about different cultures. And what we may expect in north america may not always be the way things happen in other situations. So do you have any concerns with the details again i know a lot of this has not been verified, but with the details youve heard so far do you have any concerns with this particular pilot or the way the landing was described, or do you think that this is just a case of something went wrong and we have to accept that and move on . Well, something went wrong. The data points that weve been given, for example, the 500foot data point, we dont have all of the data, but what has been out there so far seems normal. And all of the speeds are consistent with getting to a point at 4 or 500 feet where the power should have come up and did not for whatever reason. And when the power did not come up, in a 30second or less time frame, things very quickly unravelled. It is something that he woo train against, that we have crew Resource Management against. It can still happen. And the why and the how is going to take a couple of months to be fully set out. But clearly this accident says we have more work to do. Okay. Paul mccarthy, retired pilot, aviation expert thanks for your time this morning. Thank you good morning. One more check on fedex, the chatter that bill ackman is targeting the company. Thats led to at least a rumor of it a nice gain today. One of the best gains weve seen in over a year. We did call Pershing Square for comment and they said no comment. Im confusing ackman with icahn with dell. But fedex is up 6. Barnes noble ceo William Lynch stepping down today this coming after the Company Reported major losses in its nook Digital Business. So lets judge the book by its cover and ask what barnes noble should really be called barnes and what . Tweet us at squawk street well have some of your answers when we come back. Norfolk southern whats your function . Hooking up the country helping business run build were investing big to keep our country in the lead. Load we keep moving to deliver what you need. And that means growth, lots of cargo going all around the globe. Cars and parts, fuel and steel, peas and rice, hey thats nice Norfolk Southern whats your function . Helping this big country move ahead as one Norfolk Southern hows that function . When you do what i do, iyou think about risk. I dont like the ups and downs of the market, but i cant just sit on my cash. I want to be prepared for the long haul. Ishares minimum volatility etfs. Investments designed for a smoother ride. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Ackman. Squash of the tweet barnes and noble should be called barnes and what . Lets judge the book by its cover. If you build it, they will cloud. Thanks. Welcome to the halftime show. Four hours to go until the close. Right to the wall. The dow is up 60 points, nasdaq, s p positive as well. Super mario investing legend Mario Cabelli is here live with his view on the markets, media and so much more. Black and blue, ibm gets ripped by Goldman Sachs. But do our traders agree wit