Transcripts For CNBC Squawk On The Street 20130710

Trade data out of china. And bernankes fed speech later on today. Tenyear note, one to watch as Mortgage Apps down four weeks in a row. And well keep our eye on europe. Mostly in the red. Our road map begins with the markets, rates are rising, but dont tell the bulls, the dow is 109 points from its alltime closing high. Following in Rupert Murdochs footsteps, the Tribune Company planning to split the broadcasting and Publishing Business taking the same path as murdochs news corcor. And coach gets initiated with an outperform. Well, the dow in the midst of the first foursession winning streak since the end of april. But stock futures are mixed after a surprise drop in june imports and exports adding to concerns about a slowdown in that country. Wall street is bracing for the 2 00 p. M. Eastern release from the minutes of last months fed policy meeting. Traders looking for further clues on when the fed might scale back the bond buying. Also, ben bernanke scheduled to address an economist conference that will be shortly after the market close. Here we are not far from highs, of course, worrying about china yet again and endlessly talking taper. Yesterday on closing bell was calling this the most hated stock market rally. And thats been the theme, but it still is a theme to some extent. And there is data earlier this year caught my attention in light of this. In light of the fact were at new highs on the stock market. More than half of the u. S. Households own stocks. Theres been low participation. People keep looking back and saying why would i get in now . The number of the amount of money thats under management around the globe, boston consulting, out with the data, surpassing the high from 07 08, so more people in the world have more invested in quite a few years. 64 trillion. Exactly. How much money is in bond funds. But the question is, how has it changed . I was making a joke there, but yes, i know. And how is it changing, of course . A little slow thats okay. Bond funds as you mentioned, but we are starting to see outflows as you might expect. And within the equity markets and certain pockets and were still in this waiting period earnings season, all weve gotten is what alcoa, well hear from the banks later this week we start to hear. Friday is jpmorgan and wells, absolutely. Meanwhile, the chief equity strategist and Portfolio Manager joins us here at post 9 00. Can we continue to do this . Even with rates rising . If earnings are good. Thats the big if. Weve moved past the p e driven phase of this market for now, which has powered us for 18 months or so and now its up to earnings. And i dont think were going to get a lot of Margin Expansion and then it comes to revenue. Were right at the front end of it. I think earnings will be okay, not great, good enough and i think we will waffle around on the market. I cant help but feeling the last quarter it was the same. I mean, earnings were not great. Youre absolutely right. And revenues have and we powered through that. It was almost like a little heisman to, you know, not so good. We had the fed squarely in our corner, now theyre in our corner, but not as much as they were. Earnings dont have to be great, but they cant disappoint again. And eventually, it has to be earnings and i come back to and revenues, as well. Which requires a somewhat better economy. How do we evaluate whether is it really all about the disappointment . Because the expectations going into the season have been so ratcheted back that the question cant possibly be do they just beat that lowered bar . It has to be how much fundamental strength is there really . And thats why i come to revenues. Earnings in the First Quarter beat expectations but theyd been lowered so much. I think earnings will be okay. The question is, will revenues . Im sorry, carl, go ahead. Imf is cutting the Global Economic outlook. Trade data out of chinas suggesting lower growth over there. There are going to be big 4x head winds. The bears argue growth is slowing, not that its shrinking, its slowing, its not accelerating. Youre pointing out to good things on the slow side. On the other hand, weve got Consumer Confidence picking up, consumers doing okay, cap expenditures, maybe a little bit better. Europes doing less bad and you put some of these things together, i think we have an economy thats okay. Im not going to pound the table, but okay. Youd stick with domestically centered companies . For now, i think thats going to be the play. The earnings to the u. S. Portion of the s p 500 are likely to outperform the nonu. S. Part in part you brought up because of currency. And where within the u. S. In terms of sectors if youre going to look for that Revenue Growth that youre talking about and conceivably then a response in the market and a positive sense. Some of the Consumer Discretionary names, i think theres more juice in those stocks left. Technology, although often you bring in some nonu. S. Pieces when you do that, but i think tech will be good, stocks have been acting a little better, believe it or not, some of the industrials have, as well. Have you read this upgrade of hp, citi going from a sell to a buy. You know, i free cash flow. I know, but theyve been in a sell for i think a while. Yeah. They missed the entire move. Price target, 32, well take it. Now we suddenly see signs of something positive. Weve had it as a sell, but dont worry, its only outperformed by its up 80 . This year, yeah. Exactly. I was going to ask bob, as well. We were talking about the extent to which people are participating in this rally. Low stock market ownership by u. S. Households, you guys are launching a bunch of new equity funds. Whats the challenge . Is it getting people to shift from other kinds of products like bonds into the equity market . Or is it just interest in equities period . I would say both, kelly. Weve had interesting equities yeartodate coming out of cash and to some degree from overseas. Theres almost no evidence that moneys come out of bond and gone into stocks. I still think thats in front of us. I think well have a period of good enough economy where earnings are okay, the stock markets okay and rates creep higher. Dont we have a demographic that wants to draw on that income to some extent. You know where your bond payments going to be. Its almost a different kind of demand for financial assets. When you can get almost half the companies in the s p 500 with a higher yield than a tenyear treasury, im not sure equities are a bad place to get not only yield but some growth in that yield. Bonds dont have a dividend that grows, stocks do. Thats been the case for much of this year. And in fact, we did see a great rally in the markets for the first half of the year. Again, you know, should we temper expectations especially given whats the ongoing debate about when the taper begins . I dont disagree with that. I think its going to be sloppier and the trading range weve been in call it 1,560 the low. Nothing like the first half. Have you had any clients say, bob, i got killed in bonds, i want you to send me to equities . There are some beginning to ask those questions. You and i have talked about this. Until investors see stocks going up and bonds going down, theyre not going to do that great rotation. Were beginning to see a little bit of it. The statements for june are certainly not going to be fun to read. All right. Bob, thanks so much. Thank you. Bob doll joining us. Take a look at your screen. Were getting news on apple h e here. A federal judge has found the u. S. Government various states have shown that apple did, in fact, conspire to raise Retail Prices of ebooks. The judge denise coty says they are entitled to injunctive relief and a trial on damages will follow. Thats a big step forward on the chapter for that company regarding pricing on ebooks. Theyre saying apple will have to pay these states, it could be in the millions, the company is expected to appeal, but this stands. And this, by the way, was being watched by the industry generally. Theres a lot at stake here. A surprise. Apple was a beneficiary of this, you would have expected they would have been on the other side of this not having conspired. A lot of the publishers. Trying to get prices lower. A lot of publishers have closed the book having settled to varying degrees, but apple wants to fight this. Well see how much. Now jon fortt with more at hq. Tim cook said recently in the past few weeks that they very much want to fight this. Id be surprised if they give up at this point. Ive got an email and call into apple. Apple didnt win this round. Arguing their primary concern wasnt with pricing, it was getting into the market with not being undercut by competitors like amazon, apple tried to argue that the market actually got more competitive with them entering the federal government here focusing on the price issue, though, apple was arguing that amazons control over the market was actually bad for the market. Arguably making more of a european argument over how competition could work. But the judge here focusing in on price. Itll be interesting to see how apples statement on this is worded. The amount of fight they have left in this. Actually, kind of ironic that today is the fiveyear anniversary of the app store. And apples ecosystem is large part at stake here. The approach to the ecosystem is whats being criticized in this ruling. Well see Going Forward whether theyre going to hold the same sort of strategic wait for their ecosystem approach as it did in this case, didnt seem to work out for them. Definitely going to draw renewed attention to those emails between jobs and some others. Well come back to you for more at our headquarters. In the meantime, heading out west for the asiana plane crash investigation. Our phil lebeau in San Francisco with the chairman of the ntsb. Morning, phil. Reporter good morning, carl, and im joined by the chairman of the National Transportation safety board. Youve had a chance to talk with all of the pilots in the cockpit, and the thing a lot of people are questioning right now, how is it you have three people in the cockpit as theyre heading in before the crash and yet none of them apparently notice theyre going too slow . Well, the information that we have from the pilots in their interviews is that they were focused on lateral and vertical lineup. They did recognize that they were slow, but they didnt recognize that until very late in the landing process. Is there any indication that the automatic throttle malfunctioned . In other words, they were relying on that to maintain the speed they thought was appropriate. Any indication that didnt work . Well, were certainly looking at what tools were available in the cockpit, what the crew knew about them, how they used the automation and whether it was working as designed. We have a lot more work to do in that area. The crew interviews are helpful, but we have flight data record information. 1,400 parameters were sifting through. We want to make sure we understand what was happening and what the crew thought should be happening. Theres been a lot of discussion about cockpit culture. And specifically when it comes to the Korean Airlines and the question of whether or not out of deference, one member of the crew does not Say Something to another member of the crew. Any indication that this issue played a role in one of the members of the crew not saying something . Well, we always have to look at the dynamics between the crew. And, in fact, we actually have a term that we used to talk about that. Crew Resource Management and its how the crews Work Together whether or not a junior officer will challenge a senior officer and how that senior officer is expected to respond and create a team environment. We want to identify what communications took place, what the crews expected, and certainly how they were trained with respect to crm. Any indication that played a role in this . I think its too early to reach any conclusions. We have a team thats going through the cockpit voice recorder. Asian, korean speakers and english speakers, and theyll be helping us understand what was on that twohour tape but certainly focused on the approach. The crew was not given drug and alcohol tests after they landed. Because its a foreign airline. I think a lot of people heard that yesterday and they said wait a second, i dont care if its from the United States, korea, wherever its from. If theres a crash on u. S. Soil, shouldnt they have been tested . Especially since the First Responders who were coming to the scene, they were tested afterwards. Shouldnt everyone have been tested . Well, were looking at whats required. We know for u. S. Carriers based in the u. S. That the companies are required to conduct drug and alcohol tests within a specified period after an event. Wed know that this crew was not tested by their company for drug and alcohol immediately after the event as we would expect for a u. S. Carrier. We need to understand what the companys policies are, what the countrys policies are and how those Work Together with when they operate in the u. S. Its up to the company not the country . Thats right. Each company is required to have a plan in place in the u. S. For a u. S. Commercial operator to drug and alcohol test their employees. They need to request those tests, order those tests and need to ensure their employees have been tested. We know that didnt happen in this case according to those protocols. But we need to understand why. The chairman of the National Transportation safety board with an update, guys, three days since the crash of asiana 214, theyre going to be out here for two more days and well have an update later, as well. Thank you so much as always, our phil lebeau out west. When we come back, Senate Agriculture Committee Chair Debbie Stabenow. Well take one more look at futures, pretty decent action here, especially given the past four days. The best runup all year. Well talk more about that in a moment when squawk on the street comes back. announcer scottrade knows our clients trade and invest their own way. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. 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. Tribune, the parent of the Chicago Tribune and Los Angeles Times announcing plans to separate the Publishing Business from the broadcast business, essentially split the company. The move underscores the shift in focus of the tribunes tv business in the bid to maximize the Growth Potential there and the Growth Potential if there is any of the Publishing Business. The announcement comes days after the tribune agreed to buy 19 local tv stations, a 2. 7 billion deal that we were talking about last week. Part of another trend that were seeing, that of consolidation amongst a lot of local tv stations. Whats interesting here is that tribune has been thought to be looking at sale of some of those assets whether together as a whole or separately. That would generate a decent tax burden for the company. It doesnt preclude that going down the road of a spinoff if, in fact, they do get bids that perhaps exceed what they might be able to get as a public company. Nonetheless, were going to have time out there, were going to have newscorp. Already out there. Its a trend. Three is a trend. Weve got yet another pure play publishing company, one wonders whether well start to see consolidation within that arena as well as we start to see all of these things floated out there. Now, these things take time. You may recall newscorp announced the split so long ago, it only happened in the last week and you have to watch the capital structure, how much debt and or cash will be put on to the Balance Sheet. Is it about shoring up the Balance Sheet of one . Not necessarily. Its more about trying to separate out. One thats interested in much more in growth which you could argue would be in the broadcast side of the business particularly with the consolidation opportunities that continue to exist there. And obviously publishing is not growth. Its challenge and the questions are legion as to what theyre going to do. Publishing revenue for tribune last year, 2 3 of revenue, overall revenue, 20 of operating net. 20 when its the lion share of your revenue shows where the margins are. For the spinoff. What is the Investor Base for a company that well, conceivably, if you can get it, you can cut costs and deliver a decent amount of free cash flow. It can be one of those kind of companies that delivers at least some sort of a return. And maybe one of these guys gets it right on the digital front. Who knows. Well still be waiting. Interesting. When we come back, will news from the fed today add to the markets winning streak . Or put an end to it . Art cashin up next with what to expect from todays action. Futures a little moderate here floating around the flat line. Well get the opening bell in 8 1 2 minutes. 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. 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. Trust your instincts to make the call. To treat my low testosterone, my doctor and i went with axiron, the only underarm low t treatment. Axiron can restore t levels to normal in about 2 weeks in most men. Axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. 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Thank you. Good to be here. Four days in a row, time to take a breather or not . Well, a couple of things. Obviously barring an act of war, the biggest event of the day is going to be the fomc. We dont want to go with the historical patterns too many, but the last four times weve gone with fomc. The china numbers were dreadful, there was some hope that the peoples bank would have to loosen up. But elsewhere, things are slowing. And that feeds into what weve been talking about for the last four days, which is the feeling that this is new money for the new month, the new quarter, the new half, and maybe that moneys beginning to run out now so well see. So either way its caution or maybe not a new supply of funds. Yeah, i mean, things are slowing, earnings arent going to be that great. Theyre going to be much lower bar and yet stocks rallying are and having a strong rally into this season. Its as if no one cares. But, again, the feeling is, its global, okay. The rally has been global up until late yesterday. And so it tells you that its new money for the new quarter has to be deployed. And whether youre waiting for the rotation or not, the one thing you do know is new moneys not going to go into bonds, its going to go into equities and thats where its been going. Are the fireworks going to be around the minutes at 2 00 or the speech at 4 10 which technically is titled i think the first 100 years, it sounds like a real knee slapper, art. Well, the logic is really that the minutes almost must provide a surprise. While everybody came out singing from the same hymnal after, this was the meeting that inspired the talk that tapering is proximate. He might have to change his speech slightly. Well see. Thanks a lot. Well see you later. For wall street, it is the drive for five today, can the dow extend the winning streak to five . The opening bell just minutes away. Weekdays are for rising to the challenge. 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Intraday high, a little farther to go, 15,542, but obviously getting very close to key levels. Nasdaq, of course, a 12year high and the best four days for the dow since the beginning of the year. Lets get the opening bell here at the nyse. At the big boards, an Oil Services Company celebrating its anniversary on the nyse. And staples marking the start of its back to School Shopping season . What . Is that am i missing something . No, this is the time. Ive got a pit in my stomach even though i havent been in school in a long time. I loved made me upset. You didnt love it . I loved the pencils, like the i loved all that too, but its not even august. Is this Summer School . What are are we talking about . Getting all that inventory, pencils. Getting all that inventory to stores probably does take some time that were not aware of. Its the second biggest season to holiday. Yes. And big precursor to how the holidays shape up. Absolutely. Speaking of retail, we should mention Family Dollar likely to be a mover today. Two cents above, revenues inline, raising the forecast for the year. They do say some financial head winds in store for the consumer. Exactly. I mean, it was a pretty important statement and one that investors are nevertheless shrugging off because they like some of the other operating measures. Im going to take a look at fedex if i can. Because yesterday we watched shares of fedex up sharply on this news that bill ackman is seeking investments for a special purpose, a vehicle that will make a significant potentially activist investment in a Large Cap Company and a number of other parameters. He wasnt telling anybody what the company was. And, of course, not sure on the Fee Structure or how much money hes already raised. Of course, his track record is not the best when it comes to these spvs, many people think of target immediately in which investors lost over 90 of their money. And then theres jcp and then theres the herbal life controversy. Yet, none of that was enough to stop shareholders or investors or traders from speculating that perhaps its fedex that hes targeting. Stock up 6 yesterday. The letter according to reports said it was a large Cap Investment grade u. S. Company with a Global Customer base, high barriers to entry, high customer switching costs and substantial pricing power. Investors took that to mean or adt got play too. Wondering if it was part of an oligopily. The idea that ive got to become an activist, come on, that he can still do this. Hes a great marketer, extraordinarily bright and he wants everybody to know it. But, you know, you just wonder given his track record, whats been what hes been going through lately. Thats what made that how he could raise the money, people speculate. By the way, youre speculating on it succeeding and him succeeding. Exactly. General growth, that was a beauty. Youve got to admit it. It was not an activist investment on his part. Yeah. But well see. Fedex shares for their part down a bit. But that was quite a pop yesterday. There is an argument to be made, apparently on ground and expressed separately. They dont finance their airplanes the way a lot of people think they should. There may be some arguments to be made that fedex could be run more efficiently. You know, i know i spoke to one shareholder who was talking to me about that yesterday. No idea if thats the name. And there are a number of companies wondering if its them. Were sure its us. Meanwhile, hp is the second biggest gainer today on the s p. We mentioned that note out of city going from a sell to a buy. Price target 32, they took a survey and they say that services 22 of profits are sales i should say are reversing some share losses of the past five quarters even though pcs remain weak and my favorite line, we admit that hp does not have the best track record in terms of Capital Allocation particularly on m a, which is inspected. Wow, that Services Line is important, though. Pointing out that ihs talking about Second Quarter laptop sales down 7 sequentially. So thats versus the First Quarter. Its the first sequential decline since 2002. You would expect, for example, hp to take it on the chin in light of that. Listen, do they admit theyve been dead wrong on the stock . A sell within the best performing dow name of the year. Weve seen this name from the october november lows. Its more than a double, well more. Thats scary to do that. Then to go to a buy. I dont know whether people should not be selling. Yeah. You take them as a contrarian sign. Yeah, interesting. And finally, we do have yum tonight, our earnings season starting to trickle in with alcoa earlier in the week, but yum brands a name to watch tonight, particularly as the conversation once again today goes to growth in china. And joe bidens there as part of the strategic economic dialogue, a lot of focus on the currency, but of course, the fundamental situation because in the burberries today, you cant compare with chicken mcnuggets, but they did see better than the asian story. Some of the shares down sharply, i think, around this time last year. Lets get to bob pisani and see what else is moving down here. Hey, bob. Were up given what happened in china, its impressive were up. Slightly more defensive tone, carl, to the markets. Health care, Consumer Staples lead the way. Those china numbers were just dreadful. And i dont care what you say about them trying to stop Money Laundering and moving of money across borders here. A decline of 3. 1 in exports when they were expecting a 4 gain, a sevenpoint swing. Th thats a huge number. This is not good news for gdp numbers. Theyve been targeting 7. 5 , thats looking increasingly difficult to attain at this point. We also saw the import figures decline, as well. Shanghai stocks, you think theyd be down, no, up 2 . Bad news is good news. Now theyre speculating that the peoples bank of china is going to cut Interest Rates and theyre going to do stimulus, so chinese stocks had the best day in a long time up about 2 . I think that was the best day since march overall here. Elsewhere, let me move on. If you think theres problems with money trying to find a home, theres plenty of money out there. Did you see this announcement . Kkr announcing theyre going to start a new 6 billion asian fund. The asian markets have underperformed dramatically this year. Japan might be the one exception out there. But theres no shortage of money trying to go into asia. They open an office last year in singapore, specifically to look at the possibility of adding into their investments there and that apparently is now happening. Obviously the story is buy into consumer growth. But as you see in china, that consumer growth is getting a little bit harder to find here. Theres been a lot of speculation about whether higher Interest Rates are going to hurt housing. Weve got the mba mortgage reports today. Clearly refinancings are down. Some of them down as much as 50 in the last few months. Also down in purchase applications. Heres what i would know, theyve been down three weeks in a row. Purchases not refis, but the rate of decline not as great as the prior two weeks. I think the bottom line, were definitely seeing some effect, but its not clear how much yet. Finally, restoration hardware, did you see this . Another secondary. This is the second secondary theyve had this year. The stocks been on fire, 77. Remember something, this is the premiere company in this particular space that had two successful secondaries now. They went public back in november, 24, the stock was trading at 77, the big problem i have with it right now, the thing is, pricey, its like 50 times forward earnings. The same problem i had with the Home Building stocks a few months ago. But this thing is now at the extreme end for what were dealing with. Even in the consumer space, even in the Home Furnishing space, yes, its the premiere name, but close to 50 times forward earnings, i think thats pricey by anybodys standard right now. Absolutely. Certainly is, bob. Thanks very much for keeping an eye on that. Lets check in with seema mody. Shes at the nasdaq. Well, the nasdaq closed at a 12year high in yesterdays trade. Traders trying to see if the composite can hold 3,500. Thats a key support level that market technicians watch. A mixed picture for large cap tech. Leading the index on an upgrade at citi, the stock on a tare up about 80 yeartodate. Apple shares gained yesterday after it ended its litigation against amazon over the use of the app store term. And blackberry once again in focus, outlined a threepart Transformation Plan for shareholders at the annual meeting. Also following a report from wall street journal that blackberry is planning more job cuts on top of the 5,000 it laid off in 2012. And a quick check on social media. Reports circulating that zynga will unveil a real money gambling app for facebook users today at an event in barcelona. Also in focus, moving lower after citi initiated a sell rating on the stock. David faber, back to you. Thanks very much. Hey, faber report, why not another day talking about dow. Little bit of a development here. It sheds light, perhaps, at least, in terms of the thinking of carl icahn. Only eight days away from the important vote where shareholders will either approve the buyout proposed by silver lake or say no thank you and then perhaps proceed on a road to try to get that recap plan in place that mr. Icahn has proposed. But this morning, icahn doesnt come back and say, hey, the recap plan. He says i want you to go and seek appraisal rights for your shares. This gets somewhat complicated, although it is part of any number of deals. But itll essentially allow minority shareholders to have the stock price by judicial proceeding. The requiring companys obligated to repurchase at that price. And what you can do by asking for appraisal rights, you have to vote no, first of all. Whats interesting here, its so close. Based on everything i hear, its not in the bag for the dell side despite what were those very favorable advisory opinions, my advisory firms. One wonders why carl is not more focused on simply arguing the merits of the recap plan because the appraisal rights route would often lead you to think, well, youre trying to get a bump, try to pay you more at some point either before or even after conceivably if you have those appraisal rights. But you have to vote no in order to have the rights. Get enough people voting no you get nothing here, remember. Yet another iteration on the dell front. Eight days in counting. Next thursday, right . Yeah, next thursday. People were talking about a hit it would be to iss if it doesnt happen. Yeah, theres a lot of pent up frustration with iss on all fronts, frankly. Thats a story, perhaps, for another day. And it would not be the first time that shareholders went against their recommendation. It has happened. Rick santelli at the cme group in chicago. Good morning, rick. Good morning, carl. Well, people down here are definitely talking about china. Theyre talking about it in a much more doom and gloom fashion than i think the media is in general. If you look at the export number down over 3 , keep in mind that was up close to 10. 5 for the first half of the year. If you look at imports down. 7 , they were up close to 3. 5 for the first half of the year. So these are issues that loom large in a world thats interconnected no matter how many metaphors you want to use about clean shirt in a dirty laundry bin or closet. Lets look at the tenyear, twoday is maybe the best. Definitely feels as though treasuries have rallied, rates have moderated. As you can see on this chart, its been a narrow range and we are still within striking distance, and our close last several sessions are among the highest going back anywhere from 22 1 2 to 24 months depending on the maturity of treasuries. If you open up the chart to may 28th. And im going to use it all day long. People on the floor are focusing. May 28th is when we closed at our highs in the Dow Jones Industrial average. We have relinked an Interest Rates. Even though were still in striking distance, what lesson should they learn by what these charts are saying . Theyre about ten basis points lower for a variety of reasons. Think interconnected, think of the imf and their forecasts and how wrong theyve been. We do see europe under some pressure. Italian downgrade, maybe it was just catchup, spain may be next, maybe thats just gossip. But in the end, this cant be ignored forever. Bank of japan twoday meeting, youre seeing a lot of activity along with our pins coming out. The dollars still hovering close to threeyear highs is taking a bit of a breather. Carl, back to you. Thank you so much. Crude oil meantime in rally mode this morning, 105. 23. Big story of the week, bertha. Forget china, normally that would be a bit of a head wind. Forget the strong dollar, its all about inventories here and the resurgence of wti nymex crude. Take a look, the differential between brent and nymex today below 3 at some point. And the crude curve for wti nymex is in sharp people are valuing the front month contract more than later term futures. Were finally seeing some of that landlocked oil getting down to the gulf coast refiners with more Pipeline Capacity coming online. And were seeing that in part in the inventories. Tim evans over at city futures says api reported a 9 million barrel draw. If that is confirmed by eia, it will be the second massive draw of crude well have seen and also a big draw of gasoline, as well, according to api, down to 3 1 2 Million Barrels. With all this Pipeline Capacity coming on, carl, we should get used to some of these very big draw numbers. Back to you. We will see you at 10 30, bertha, thank you so much. In the meantime, the trumping forecast with a major jump in sales, what does the message tell us about highend retailers and how we might play them . Thats next. 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Come in now for the best offers of the model year. 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. We are farmers bum pa dum, bum bum bum bum burberry shares surge in london after the quarterly update beat street expectations helped by double digit growth in asia and the americas. For more on this, joining us now, shes from the advisory group. And dana, these numbers, do they surprise you . They were better than expected. They were better than expected in total sales, better than expected in same store sales. And whats interesting is that half of the growth came from large Leather Goods and outerwear. So bigticket items drove the sales gains. Whats going on with the china story . Is this all about hong kong . Or is there a sense in the drop or perceived dropoff in asian demand from this time last year . That storys just done . I dont know if its totally done. One of the things burberry saw was an uptick in the chinese business. But the real change is theres more spending outside china. Under 30 of global spend comes from chinese. Only 14 came from those chinese spending inside of china. Well, thats whats so interesting about this. If their europe comps looked okay and you said to me, well, thats because its the chinese buying in europe, id say thats okay. But the performance across asia is strong. Is it japan, other parts, Southeast Asia . Its also hong kong, taiwan picking up a little bit. Korea getting less worse. Each of the different regions from their Business Opportunities both online and in stores, they saw a pickup in business. The speed at which theyre getting the goods available now from the fashion runway to the stores, its just basically taking on a whole new proportion of their business. Is this a story where theyve turned things around again, turned the ship around from when the stocks sold off sharply after a surprisingly weak disappointing sales update last year . Is this a companyspecific story . Or is there a read through for the broader luxury sector . Theres two things. Number one, its Company Specific because theyve enhanced their business model. The speed to market is quicker, the collaboration with digital and stores is working. On the whole luxury goods platform, theres a little bit of resurgence. I just came back from europe the other day and i was in italy, paris and also london. Theres more russian and chinese shopping, theyre buying apparel, the russians are buying apparel, the chinese are buying accessories. Lvmh is upgrading the stores as is chanel and leaving burberry to follow the platform also. Just to put it in some context, coach gets initiation at another firm with an outperform talking about nice valuation. Stocks come back, new management, i mean, if you had to choose between a burberry and a coach, where would you go . Theres a bit more momentum than in coach. I think coachs valuation is appealing. I think the new Management Team will be effective beginning in 2014 as they put the game plan in place. Interesting. Do you think the accessory trend is playing out to the degree where were going to be talking about an end later on in the year, perhaps . No, i think accessories are still going. I think one of the things thats happening, theres more choices for fashionable apparel at Competitive Price points. With accessories, you want the brand name label, you wear apparel on the inside, you dont see the label, you wear accessories on the outside, see the label, accessories will still work. How much further do shares go from here, do you think . Right now around 15, i think no surprise if they get to 16 plus. I think when you think about coach, they will report the earnings at the end of july. I think the key there, theyre going to see the continuation of sales improvement and continues to grow very fast. Joining us with insight on burberrys trading statement. Thank you very much. Thank you. A judge takes a bite out of apple. This ebook pricing case. How that might impact the company. As we go to break, dows up 18 points. And heres some of this mornings s p losers. Down 5 . Out there owning it. The ones getting involved and staying engaged. Theyre not afraid to question the path theyre on. Because the one question they never want to ask is how did i end up here . I started schwab for those people. People who want to take ownership of their investments, like they do in every other aspect of their lives. Ever ybody has different ideas, goals, appetite for risk. You cant say one size fits all. It doesnt. Thats crazy. Were all totally different. Ishares core. 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. Apples App Store Turns 5 years old today. When it launched in 2008, the store started with 500 apps. Today there are over 900,000. And the store just recently passed a milestone of 50 billion downloa downloads. Some day youll tell your grandchildren, before we had apps, we had what. Well get your responses throughout the morning. Youve got to imagine a generation of kids, david, our kids are going to wonder, wait, before you couldnt just hit buy . Right, we have those conversations, i do with my kids all the time. Just in terms of television. Explaining we used to have to actually watch what was on. Or meeting people, you know. We think about that sometimes. My friends and i will often say to each other, what would we do if we couldnt update to say im 15 minutes late or five blocks a i way. You talk to a lot of developers, making apps is a Big Small Business in this country, but for a lot of them, getting on the app store is just getting lost because there are so many to choose from and its hard. Its not well curated for the small developer. And thats why some of them say im not going to do it through itunes, for example. I find it a personal challenge to see if i can go without apps to actually still ask people for directions. Oh, thats so quaint. Why would you do that . I think these are important skills to have, life skills. Anyway. In case the power goes out, i guess. The grid goes down, yeah. Youll want to be with me. Simon hobbs is here to tell us whats coming up at 10 00. Good morning, everybody. After the break, weve got our wholesale inventorys going to be released. Well look at how the power is shifting back from china to the United States increasingly with a guy that specializes. And planet of the apps, well talk about the fifth anniversary of the platform that changed the world. Hour two of squawk on the street wednesday morning. Mr. Goldman loved his family a lot, didnt he dad . He sure did. Thats why he had state farm Life Insurance. Like you. So his family never has to worry, right . Mr. Goldman didnt have Life Insurance. Why not . Well, hes just a goldfish. Ignore him. [ male announcer ] youve got questions. Your state farm agent has answers. Backed by the Life Insurance Company Millions of moms and dads already trust. We put the life back in Life Insurance. Hooking up the country whelping business run millions of moms and dads already trust. 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 . May wholesale inventories down. 5 , much different than the up. 3 we were expecting. And if we look at the sales side, theres good news there, up 1. 6 , five times the level we were anticipating. All this comes a the a time rates are creeping up, equities still in positive territory and everybodys going to be spending many seconds reading the minutes in several hours m back to you. Rick santelli, thank you, i wonder if thats going to shave off the Second Quarter gdp figures. I want to see how were setting up this morning ahead of the fed minutes and hearing from bernanke this afternoon. The dows adding only about 20 points. Coming off one of the strongest fourday sessions of the year. Not a ton of momentum. A lot of people waiting to see what happens this afternoon. The tenyear, i think, the last i saw was somewhere around 265. A bit of a holding pattern. Well get a tenyear auction around 1 00. With that, lets get the road map for this hour. A judge ruling against apple saying the tech giant is guilty of collusion when it comes to ebook prices. And well take you live to sun valley. Whos there and whos not. And working with china, the Administration Meeting with chinese officials today. Well talk to an american businessman about whether hes seeing a slowdown overseas. Also, hedge fund advertisements, they could become a reality after today. Well have the latest details coming up. A judge finding that apple conspired to raise the retail price of ebooks. Our jon fortt with more of that at hq. Particularly the end where the judge sort of picks apart a lot of apples arguments. I want to go through some of that. First of all, from my reading at this point and a lot of experts going through this now, it appears this ruling hits at apples business practices. But the impact on its strategy Going Forward might be limited. Ill get to why in a moment. Of course, next we do move into the damages phase. Theres money on the line for apple. There are also a number of states attorneys general looking at this. I wouldnt be surprised to see apple get sued over this in some states, as well. Lets talk about the judges key findings here at the end of this more than 100page ruling. First of all she said apples tactics did force Prices Higher despite the fact that apple said that wasnt their main goal in this. The judge saying its awfully fishy it happened in record time, prices did go up. Steve jobs words had an impact here providing compelling evidence of a conspiracy. The judge said, particularly his words to Rupert Murdoch saying lets give it a go and see if that works and words to a reporter saying that the other players, namely amazon would have to compete at the same price as apple because of Agency Agreements we were to find out. Judge found apple fully complicit in this price fixing scheme as the judge put it even though it was actually the publishers who raised prices. Apple arguing, hey, we didnt raise prices, they decided to do that. You cant fault us for doing it. And the judge largely putting aside apples entire argument that the ebook market would not have materialized if apple hadnt entered the market. Publishers looking at holding back titles from the ebook market because it wasnt a Good Business for them. The judge saying no individual tactic that apple had here was wrong. It was bringing all the publishers together in this way that was the problem. Interesting, though, the Digital Content game has moved on to video. Not clear this particular decision on ebooks is going to be that big of a deal Going Forward, guys, back to you. Important ruling there with the latest. Bringing the focus back to the market and the economy, fomc minutes due later today around 2 00 p. M. Eastern. Will stocks be able to hang on to five Straight Days in light of that . Lets bring in the cnbc contributor and Shawn Matthews ceo of cantor fitzgerald. Good morning. Good morning. Joe, lets start with you. Is it going to be the minutes, do you think . Or anything we might hear from bernanke that will be more important . Minutes in my mind are more important. I dont believe the chairman wants to preempt the testimony next week by telling us something really important. I believe hell stick to the topic which is kind of 35,000 feet, overview of the last 100 years of fed policy making and not delve into the things we want to know. But on the minutes, i think theyll be interesting. I would not be surprised if some members want to taper in july. Well, people, though, when the minutes came out last time around, the big surprise was a number of people wanted to taper in june. Isnt some of that expected . And wouldnt there be room for a dovish surprise if it seems people are worried about the economy . No, i dont think so, kelly, the data have gotten better since may and if anything, its going to keep the fed on track. Most but not all primary dealers look for some type of tapering. And, of course, if the data the next few weeks turns out to be stronger, those expectations of a september taper and ultimately a conclusion of qe will grow in size. I know we have to bring in shawn in a minute, but i want to pick up what youre saying. The bond yields have moved dramatically from where we were because of this disconnect between the academic view that the fed wanting to communicate on the dramatic moves we have on the market. If youre going to get a more hawkish statement today, thats going to further accelerate a move higher potentially in the bond market yields which is what bernanke probably doesnt want. So isnt he forced out today to Say Something in effect to neutralize the statement later in the day . I dont think so, simon. And youre right, theres a big versus what they decide to hold on their Balance Sheet. The problem is yields are too low, they were artificially low, the economys healthier, yields will back up. I would argue even we need data, weve already had a pretty massive move. For your business, you want higher rates here, do you like whats happening with the move weve seen . I think higher rates are coming, its just a question of how long it takes to get there. When you look at the tapering question, certainly they are going to taper and its going to happen at the end of this year. But in reality, fed funds used to be the way they control the money supply. And theyre not going to talk about raising fed funds for probably another year or so. Were pretty pleased that the rates have backed up the curve, youll see the move back into products. Theres been a lot of focus in europe, trying to figure out what to do to increase lending to small and mediumsized businesses. Do you think the rise of Something Like clos, cbos, the products we started toe so in the last boom could actually help Financial Institutions lend more right now . And is that why you guys are hiring . Well, i dont know if its going to help. You start to look at the construct of structure products are perfectly fine, its the leverage thats associated with them during the last cycle that was the problem. And certainly when you look at leverage or the triparty system in general, youre not going to see the same characteristics even when you get to a bubblelike state which will be significantly smaller than it was in the past because of leverage. Is that partly because of what we saw yesterday trying to keep that leverage ratio in the range of 5 to 6 instead of 3 where it is internationally . Thats part of it. But youre also looking at the triparty system which actually would lend money against assets so corporations and people have gotten much more conservative on what theyll lend money against in the triparty system which is only going to make it more smoother Going Forward as opposed to the kind of really bubblelike scenario we had in the past. Joe, im curious. A lot of traders say every so often these minutes come out and we lose our minds over what the doves said, the hawks said. In the end, its sort of what bernanke wants it to be. I wonder how much give there is. Thats a very good point. Theres 19 people, 12 of which vote, its like moving a big ship. Thats why i believe the changing in the chairmanship if it happens isnt going to be as market worthy as people think. Let me just Say Something on tightening in the data. If jobless claims continue to move lower, going back to 1955, when theyre consistently below 350 as they were last quarter, the fed always hikes within a year. Im starting to worry and wonder whether this tightening is going to be a lot sooner and what were positioning for is more like an 04 event where the market sold off big time in 03, but then sold off hard next spring. As you believe, theyre underestimating employment growth. Yes, absolutely. The figures are wrong, historically always wrong. And theyll be wrong further. Joe and john, thank you both for your time this morning. Appreciate it. Thank you. New details emerging this morning in the investigation into the crash of asiana flight 214. Following interviews now with the pilots, phil lebeau live in San Francisco. That was a great interview you did with the ntsb chairman an hour ago. Drug testing, communication amongst the crew, the automatic pilot. Where are we now . Well, i think were in the place in the investigation where they still need to put all of these pieces together to start to get a better understanding of what happened in the last minute and a half leading up to impact right before the runway. When they hit the sea wall. Heres where the investigation stands this morning, all four pilots, they have been debriefed. And they are now actually free to go back to south korea. Its unclear if that will happen right away or theyll stay here perhaps have a press conference. The threeperson cockpit crew was focused on the plane alignment. The slope as they were coming in. That is where the attention was focused and they failed to recognize they were going too slow even though the automatic throttle was in place. Some were wondering if they were counting on the throttle to maintain the speed of 137 knots, which they were not. The crew was not given blood and alcohol tests following the crash. This revelation yesterday has a lot of people scratching their head saying why not . Well, foreign carriers are not required to give blood and alcohol tests. Heres the chairman explaining why. Each company is required to have a plan in place in the u. S. For a u. S. Commercial operator to drug and alcohol test their employees. They need to request those tests, order those tests and they need to ensure their employees have been tested. We know that didnt happen in this case according to those protocols, but we need to understand why. And, again, the companies not the country, the companies are the ones that make a decision about whether or not drug and alcohol tests will take place following an accident. And whats interesting, carl, is the First Responders coming to the scene, they were given blood and alcohol tests and even though theres no suggestion that the crew was somehow impaired, it does raise a lot of peoples attention that they were not given tests. It seems sort of common protocol, you would expect that to happen. But, again, it did not in this case. The pilots union here. Talk to you soon, phil lebeau in San Francisco. Straight ahead, why facebook has four executives in sun valley this year. Only google has more than that. Find out who they are and what the social network could be looking to buy. Plus, Eliot Spitzer back into politics on squawk this morning. What an interview that was. Who is he going to gun for . Find out what he had to say earlier this morning. Back in a minute. 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. Eliot spitzer speaking out on squawk box earlier today about his bid to run for new york city comptroller. The man formally known as the sheriff of wall street had to say about becoming the top financial officer. Will they trust me to be the overseer of the Pension Funds and the budget of the city of new york . There have been very few independent voices in the past number of years about public finance, about budgeting, about Capital Markets and i think when the public looks at what i have said and compares the historical record to what actually i was saying, they will say, you know what, this guy actually did not only understood it but acted upon it in a way that was designed to remedy the flaws. Spitzer also saying whether hell be redeemed in the publics eye is up to voters. Whether there will be redemption is something the public and voters will determine. And throughout my career, i have deferred to the publics judgment on those issues. When i was a lowlevel prosecutor, the jury rendered a verdict, i respected it even if we might have agreed or disagreed. As attorney general, as governor, the public will render a verdict. Ill make my case and comfortable with whatever the result may be. There were no tears. A lengthy exchange with the squawk box team this morning. Yeah. I mean, kernan and andrew might have cried afterwards the way some of those questions were answered, he did not want to address the questions head on. A couple of times he said let me rephrase the question. Classic spitzer. Exactly. What did you guys think . I have so many thoughts and so few that i want to share. Maybe during the commercial break. Yeah. I would question the attempt to become mayor. Hes taking the limelight at the moment and raising the whole question of whether disgraced people should be allowed back into Public Office when Anthony Weiner was winning in the election and thought he put that issue behind him. The times called it the kardashian ticket. Its a little bit surreal to watch both of them now in play here. When they asked spitzer is he endorsing anyone for mayor, he said no. No, because hes going to be the thorn in the side of any mayor. Hes going to be tough for whoever becomes mayor for sure. We asked who was up for this position yesterday. Asked him about this, does he think the limelight helps his case, hurt his case . Hes as a strategy not going after spitzer, just saying im the best guy for the job, period, i have integrity. And hes been at it a long time. Well, its the fifth anniversary of apples app store. Apple got a blow in the courtroom today. The federal judge ruling against the company. Weve got a panel to break down what happens next. 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And julia, more importantly, who didnt . Reporter well, simon, this time last year, we were just coming off the facebook ipo. But this year, the old guard is in the spotlight and media m a is expected to pick up. With hulu on the block, time warner, and viacom walked in this morning. Rupert murdoch is here with his sons james and lochlan keeping quiet about the newscorp split. Warren buffetts here but didnt get out of the car and sonys ceo wouldnt talk about reports that sony is splitting up. Now, facebook has four executives in attendance. Thats more than any company other than google and disney. This time we also have firsttime attendee dan rose vp in charge of deals. With an ipo expected in the next year, twitter ceo and jack dorsey are also here. And shining a spotlight on the next potential billion dollar acquisitions or ipos. Including the ceo of stripe, patrick collision, alex carp, Nicholas Woodman who is the ceo of go pro and pinterest ceo ben silverman. Who is not here . Larry page isnt coming because hes ill. Don mattrick isnt making the trip and ma rissa mayer wasnt on the list. I asked jack dorsey if hed be posting vines through the conference on twitter and he said, absolutely. Whoevers manning the camera at that entrance, julia is awfully busy. That was a lot of good tape of executives getting out of their cars. Well come back to you later on, Julia Boorstin in sun valley. Meantime, a judge ruling against apple finding the tech titan violated the law on ebooks. They cannot ignore the antitrust laws when they believe it is in their selfinterest to do so. As apple celebrates the fiveyear anniversary of the app store. Lance is the editor in chief and the associate editor at in gadget. Good morning, thanks for having us. Its sort of an inauspicious anniversary with that ruling, wouldnt you say . Yeah, we knew it was coming. Steve jobs didnt make a secret of it. He thought that apple that amazon made a big mistake and publishers were frustrated and he basically negotiated a better deal. But i guess you could also put that under the, you know, sort of price fixing and, you know, so they found the obvious. Thats what the judge found. Yeah. Brian, is it something thats going to dog them for a while . They seem so resolute in fighting it on principle almost. They can certainly pay for whatever damages come along out of the change in their sofas. Yeah, apples certainly got a pretty large purse and, you know, event had much trouble bouncing back from this sort of thing in the past, i suspect theyll be just fine. Lance, lets talk about the app store itself, we were having a discussion about Small App Developers and the problem of discovery on that store. Theyre going to have to do something about that longterm, arent they . Yeah. I mean, i guess they probably see it as a you know, its the best rises to the top. You have reviews right next to apps. So the good ones come up to the top of the page. But, of course, they feature apps. And if there are 1 2 million apps in there or more, its virtually impossible for the little guys to get noticed. Ive got 75 apps on here right now and i dont switch up a lot. I find the apps i love, put them on, and it takes a lot for me to add a new one. Whats the hallmark, brian, of a good app . I assume its an app that gets people to pick up their phone more often than others. I think a really great app is one that takes advantage of the hardware in ways we havent seen before. One of the really brilliant things that the app store has done is taken this computer and its unlocked pieces of technology in ways that apple hadnt thought of in the past. Squares a really good example. Its changed retail. Lance, you make the point, theres different ways to go, you can do something information related like some of the yahoo weather apps. Im looking at the list of the most downloaded ever. Look, the phone ones about staying connected. And very early on, the applications that were popular were the ones with a social component. Twitter didnt have a native app, but there was twitter and eventually twitter bought that and caught up and, you know, when you think about the apps that are rising like messenger, these are products that are tieing in, snapchat, tieing into that social impulse. You know, so you sort of have to really engage with the phone to engage with your friends. Thats the beauty of these apps. Its not always about some sort of, you know, really crazy feature that relies on the hardware or the os in some special feature of the os. What do you think the next five years looks like for apps . Oh, man, thats thats a tough one. I mean, i do think were going to see a lot of Smaller Companies sort of start rising to the top now. You know, weve certainly seen that from a hardware front. Were just going to have to see companies that can really kind of help set this operating system apart. Apples got a lot of competition. Android is out there, Windows Phone is doing a lot better than thought. Can take advantage of all that apples offering there. And all the things theyre offering on the hardware front. Brian, lance, interesting, especially for all of the Small Business people out there developing apps at home right now. Thanks. Our question, some day youll tell your grandchildren before we had apps we had to blank. Tweet us squawkstreet. The Chinese Market having a rough year, of course, compared to things here. Is power shifting further back to the United States . And what does it mean for your money . And later on the program, we know which states are the top for business. But which state has the best workforce now . Find out when we come back. [ male announcer ] frequent heartburn . The choice is yours. Chalky. Not chalky. Temporary. 24 hour. Lots of tablets. One pill. You decide. Prevent acid with prevacid 24hr. You decide. Wi drive a ford fusion. Who is healthier, you or your car . I would say my car. Probably the car. Cause as you get older you start breaking down. I love my car. I want to take care of it. I have a bad wheel i must say. My car is running quite well. Keep your car healthy with the works. 29. 95 or less after 10 mailin rebate at your participating ford dealer. So you gotta take care of yourself . Yes you do. You gotta take care of your baby . Oh yeah welcome back to squawk on the street. Another major drawdown on u. S. Crude inventories. The government reporting crude inventories last week fell 9. 9 Million Barrels. We saw gasoline inventories fall 2. 6 Million Barrels. This is right in line with what we saw last night from the American Petroleum institute. Inventories rose by 3 Million Barrels, that was worse. We are seeing positive movement here. Crude had been trading at 105 a barrel and holding in there, a lot of the gains having come overnight. One of the interesting things as weve seen a big drawdown in terms of oklahoma supplies, thats a delivery hub for nymex crude, down 2. 7 Million Barrels last night. And andrea lippo says were starting to see the bottleneck starting to get unstopped. Just within the last quarter or so, we have seen about 300,000 barrels a day of oil coming out of there including the whiting, indiana, refinery starting. So thats drawing nearly 9 Million Barrels a month. And, kelly, more pipeline set to open by the end of the year. Yeah, thats going to be one to watch, bertha, 105 a barrel for oil. Thanks very much for that. Meanwhile, a meeting today in washington to discuss everything from security to economic issues. Eamon javers now live from d. C. With all the details. Eamon. Good morning, kelly. Secretary of state john kerry is here today despite the recent hospitalization of his wife theresa heinzkerry. Thanking all of the other leaders here for their well wishes on behalf of his wife. He said shes feeling better and theyre ready to get down to business here in washington today. All four leaders interestingly who are cohosting this including secretary of state kerry and also jack lew on the u. S. Side as well as the two counterparts are new to this process. The ongoing dialogue between the two nations. All four of those cohosts today will be new to it. Theres an opportunity here for them to get off on the right or possibly the wrong foot. Vice President Joe Biden opened up the session this morning with a few remarks in which he really hit on this notion of competition and friendliness between the two countries. Take a listen. The competition is good. Is good for us, is good for you. We welcome it. We welcome it. And we will both be better for it. As i said as a consequence, if we get it right. So will the world. And, guys, the range of issues theyre dealing with here is pretty astonishing in scope. Starting with north korea, accounting rules for customers doing business in the u. S. And in china u. S. Export controls also on the list, climate change, and of course, Cyber Espionage. And interestingly enough, u. S. Officials held a background Conference Call for reporters talking a little bit about the Cyber Espionage issue. They were asked on that call by a chinese reporter from the newspaper china daily about whether the Edward Snowden situation was going to play into the discussion between the u. S. And the chinese. Of course, the u. S. Have asked the chinese to knock off the Cyber Espionage against American Companies and American Economic interest. And the chinese pushed back on that with snowden. U. S. Officials on this call earlier in the week said were going to separate these two issues. We view this as very different. The chinese dont see it that way. In the meantime, eamon, theyre taking those issues offline so if the talks dont crash theyll be dealt with by separate process. Thats right. Thats right. In fact, they had Cyber Espionage discussions earlier in the week already. A lot of that is underway and in a slightly different time frame. Thank you very much. Keep us updated throughout the show. Lets discuss more now about china and how it influences our markets here and your money. Specializes in importing goods from china. Good morning. We were saying in the break there, 34 years. 34 years. 1979. A lot of experience. Do you think this is a really interesting inflexion point for the chinese and u. S. Economy. Do you think that power is shifting further back to the United States in economic terms . You see costs rising in china of which im sure youre aware. And costs falling here certainly in terms of energy in the United States. Well, you have kind of a diametrically opposed situation. You have china where the demand is clearly dropping for export. Their export numbers, i think, this morning were negative 3 as opposed to a projection of positive 4 . At the same time, their currency has appreciated 10. 5 in the last five years, 3. 5 in the last year. So what you have is a vendor stuck in a place where as a manufacturer he cant pass on the currency cost because he doesnt have the demand for the product. So hes really in a squeeze at this moment. So from our perspective, we find it kind of disconcerting because we dont have demand here. And at the same time, we cant generate demand through lower costing. So what do you do . Well, a the this minute, you kind of tread water, bide your time, do a little bit of outsourcing to places like the philippines, vietnam, indonesia. We do a little out of portugal and india. But for the most part, none of those places can rival chinas infrastructure. They have, you know, they can go from raw material to finished product regardless of what product that is. Whereas a lot of these other countries, you cant get you have to bring the actual Raw Materials from china to those countries. Its interesting, though, you say theres no demand here. I think that would surprise a lot of people who look at the growth figures and go, well, at least the u. S. Is holding up relatively better. Is that not the case . Well, if you dig down into the numbers, consumer consumption has been pretty flat over the last period of time. You look at most retailers, the same store sales are very flat, they are not expanding. So until we see more demand h e here, that doesnt translate to manufacturing demand for them. The same goes, you know, their largest export customer is europe. Europes been in the toilet bowl for years now. Well, peter, give me a feel for whats going on in your opinion in china. Exports is down. Right. We know theyre trying the incite consumers there to start buying stuff. How is that going . And what do you think in terms of gdp which is still 7. 5 . Gdp can be anything you want it to be. If you build buildings people dont live in or roads that no one uses. We follow the ism numbers very closely. The open order for manufacturers have been trending down for years now. And they have a problem. What happens is theyre running at 50 of capacity, a lot of factors going out of business. A lot of factories had to go to shadow Banking System. And now theyre stuck and dont have the ability to repay it. For people who worry about china but dont quite understand how to assimilate what is going on, i mean, how dangerous is it . You have a new government thats trying to take power, its got a huge task of restructuring the economy and yet you get breakouts like with the Banking System two or three weeks ago where they didnt supply enough liquidity. How dangerous is it now . Lets put it this way. Its less dangerous than what happened here in 2008. Because its their system, their banking and Monetary System isnt as fluid and transparent as ours. We exported our problem around the world financially. Their system is somewhat insular. So it will maintain somewhat of an insular effect. That being said, those who ignore history are doomed to repeat it. They went to shadow banking, thats financing we had here. Theyve gone to excessive real estate where, i mean, how is having empty homes in china any different than empty homes in las vegas, phoenix, Southern California and florida. So theyre going down the same path. Its just taking them a little longer to get there. Nice to see you, peter. Thanks for having me. Now to some investing news here at home, the sec is considering whether to allow hedge funds to advertise. Carl, the commission is as we speak hearing presentations on an important provision of the jobs act that will lift the long time ban on general advertising for hedge funds as well as other many private companies. A little later this morning, they are expected to vote on actually lifting the ban, something theyve been mandated to do by congress but has been delayed over a year now as they get mired in technicalities and some delays. The dharm v chairman has said that taking action on this solicitation issue is a top priority for her. But there are a lot of other varieties to consider. A key one is who is permitted to in these hedge funds. Right now, the guidelines that are investors must have 1 million in net worth in addition to the value of their primary homes or two or more years of earning 200,000 per year or more depending on whether theyre single or married. If married, the bars a little higher. Its on the issuing company, though, to verify that the potential investor to whom they are advertising is, in fact, qualified to invest. But theres talk about congress and the sec raising that income and net worth threshold. Another issue being discussed this morning, as part of today, the sec plans to vote on how to collect the information about the verification process and what the best way is, guys for companies to conduct it. Theyre sort of rejecting the notion that a one size fits all verification model works. But the question is, whats the best alternative . Yeah, a lot of discussion about where the little guy comes out in all of this. A discussion that will continue. Thank you so much. Does that mean if Bernie Madoff were in business now, he could launch a Advertising Campaign . And you can investor in Bernie Madoff . Right, and thats the concern. The interesting thing, as well, not even just hedge funds. It wasnt really a hedge fund anyway. Whos policing it . Well, right now there are regulations that prohibit them from going out and being able to run these sort of national campaigns. And even so, there will be restrictions on whether they can use celebrities in some of the more, you know, general public aimed strategies, i guess you might say to recruit money. The power of the financial lobby. Theyre not going to have great returns to point to when theyre going out to the public if this years any indication. Check out crude, 105. 50. Speaking of, we were just talking about production and manufacturing. Unbelievable gains. The twoweek inventory drop is the biggest since 1983, and now the premium between brent and wti narrowed to it was 17 in february. Some said that spread was going to widen to 70, and now its about to be overtaken, wti over brent. A key aspect of the market today. Coming up, well talk to the blackberry shareholder who asked the ceo if the company should be broken up. Hell join us live later on. And dont forget, one week from today, july 17th, cnbcs delivering alpha conference. These are some of the headlines. For more information, go to deliveringalpha. Com. Squawk on the street is coming right back. Er 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 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. [ 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 ] welcome back to squawk on the street, im josh lipton. Were watching best buy this morning, which is under real pressure. The analyst at Cleveland Research reportedly out with a note saying that the chains domestic Comparable Store sales appear to be slowing that the fundamentals remain challenging. The stock down some 5 right now. Of course, its also been on fire this year. Up nearly 140 yeartodate. Carl, back to you. Yeah, that does move the ball forward on that name. A lot of question marks earlier in the session about what happened, josh. Thank you for that. Meantime, americas top states for business have been revealed and the winner is south dakota. Which state is tops when it comes to workforce . Scott cohen is live in crazy horse, south dakota, with more on that. Scott, a lot of discussion on twitter on how no one expected south dakota, one of the big surprises of the year. Yeah. And you know, carl, south dakota has always done well in our study from year to year. It has very low cost and that was important this year, but a lot else Going Forward, as well. But, yeah, a very much a wellkept secret. Were at crazy horse memorial and one of the hazards of working on top of a mountain is lightning. So weve had to move off of the arm of the statue, which ill show you in a moment and move to a safer space. Theyve been working on this for 65 years and blasting off fragments of the rock face as little as this one. Theres a whole lot of them, a lot more than just in this box here. Take a look at the video we shot earlier of the mountain and what this is going to be. Its really pretty amazing. And in a lot of ways sort of an answer to mt. Rushmore which is about 20 miles or so away. Lets take a look at the worse force which is an important category on our study. We look at things like union membership, the education of the workforce, the availability of workers, working Training Programs in the states. Georgia earns top honors for a second year in a row in our workforce category. Its one of the least unionized states, workers are reasonably well educated there and with unemployment on the high side, no shortage of workers, thats important. Georgias followed by arizona, north carolina, florida and tennessee. What about the bottom workforces, though . A tie between hawaii and new york. Which is americas most unionized state. Ohio where population growth is stagnant and the education of the workforce is near the bottom followed by new jersey, vermont, and West Virginia which has the least educated workforce in the country and one of the most heavily unionized. One of the things we look at and this generates controversy is the whole idea of right to work states. Its a state where you cant be forced to Pay Union Dues or fees in order to work at a plant or company. 24 states are right to work states. Michigan became the 24th state earlier this year and that improved michigans ranking in our force force category. It was 38th last year and now 15th in the workforce category. You can learn a lot more about our study, read a lot of material including a dozen or so governors that have weighed in. Well have more of your reaction later on today. Guys . Thank you very much. Our survey from crazy horse. Still ahead on the program, the smithfield ceo is going to face questions from lawmakers about his sale of his company to the chinese. Find out what the Senate Agriculture Committee Chair plans to ask him during the hearing. Shell be with us a little later. Well be right back on cnbc. [ male announcer ] the mercedesbenz summer event is here. Now get the unmistakable thrill. And the incredible rush. Of the mercedesbenz youve always wanted. But you better get here fast. [ girl ] yay, daddys here. Here you go, honey. Thank you. [ male announcer ] because a good thing like this. Phew wont last forever. Mmm. [ male announcer ] see your authorized dealer for an incredible offer on the exhilarating c250 sport sedan. But hurry, offers end july 31st. Hooking up the country whelping 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 . announcer at scottrade, our clto make their money do more. Re ann to help me plan my next move, i take scottrades free, inbranch seminars. Plus, their live webinars. I use daily market commentary to improve my strategy. And my local scottrade Office Guides my learning every step of the way. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Ranked highest in Customer Loyalty for brokerage and investment companies. Thshe makes a nifty livingn sleeping on mattresses pioneered by engineers whose singluar devotion is not stopping until they have given her the best sleep of her life. Thats not greta. Save up to 500 on the tempurergo collection and get your best sleep possible. Visit tempurpedic. Com to find a store near you. Mortgage apps falling again last week as rates are on the rise. More on that story four weeks in a row. Thats right, carl. Dropping steadily on that sharp jump in rates, take a look, if you will, refis down to a twoyear low, continuing to take away from Consumer Spending power. Purchase applications were down 3 and down a whopping 28 in the past month. We visited an opening house for Real Estate Agents out in Northern Virginia yesterday, and the story they say is this housing recovery is changing very quickly. Its gotten a lot quieter which is a shame because rates are really low. That will cut down on business because people are going to say, hey, i missed the boat and i wont go out and purchase. Having a Chilling Effect on the overall temperature on the market. Coming down from red hot to white hot. Still a lot of inventory and were cutting the good property. Reporter incredibly low Inventory Means more buyers will be priced out sooner than later as prices continue to go up. Diana, thank you very much. Diana olick on the strength of the housing recovery. Over to a man who knows a lot about rates. Rick santelli live in check. Richter. Thanks, imon. I was going to talk about munis and list nick to diana talk about the rise in Interest Rates, lets switch gears on the fly here and talk about something else, reits. Today ive probably been handed five major articles written about reits but id rather go back to some articles i read in january, february and march. Theres been various points of escalation for various reasons but in the end i remember the doom and gloomers saying the reits would have some problems and the answer is simple in, a deresearching mode. Shortterm funding, historic lows creates a bunch of problems when those low rates dont remain low. Leverage shortterm funding. Lets look at the typical reit before the debacle started. Most articles said if you want to get nervous look at the debt to equity. Remember, they pay out all their dough in dividends. Debt to equity was anywhere from 71 to 101. You would cry in you read this. Huge market caps very little in the form of sales revenue, and when you look at most of these securities and a lot of leverage was in mortgagebacked securities, a lot of leverage has taken a dive from the higher coupons in 08 and 09 and 10 have been moderating and since all that went to dividend revenue, all you are to do was look at the rate, that it really was a canary most wanted to ignore. Most was in the neighborhood of 13 to 17 . I wanted to talk about munis because the losses have been so large. Leverage is like an onion and just because this layer or level is behind us, that tranche doesnt mean there isnt more to come. Watch rates. Tuesday is wednesday. I love that commercial about hump day and the camel. Homer jenkins jr. Writes for the journal and ill ask him his common sense answer to some of the issues regarding level. Back to you, kelly. Looking forward, rick. Now to tweet time. Apples app store turning 5 years old. When it launched in 2008 the store had only 500 apps. From the mouths of babes. Still, over 900,000 apps, how many do you have, simon . Not many. We want to know. Some day youll tell your grandchildren, before we had apps we had to what . They will probably say what is an app . Thats when we come 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. Wi drive a ford fusion. Who is healthier, you or your car . I would say my car. Probably the car. Cause as you get older you start breaking down. I love my car. I want to take care of it. I have a bad wheel i must say. My car is running quite well. Keep your car healthy with the works. 29. 95 or less after 10 mailin rebate at your participating ford dealer. So you gotta take care of yourself . Yes you do. You gotta take care of your baby . Oh yeah apples app store is 5 years old. Tom day youre tell your grandchildren before we had apps we had to what . Scott writes have actual conversations with people, facetoface even. Before apps we had to walk to the game console and put it into the machine. We had to go out and play. Talking about getting tides to do that these days. Put me down and go outside. Get active. Red arrows across the board. Dow negative for an hour. Nasdaq positive. Not seen much throughout the morning. See if market ends up being a negative or positive. Good to have you back. Well talk eastern in a little bit. Just joining us, heres what you missed. How long could the end of these take versus the beginning of tightening . Two years . The beginning of real tightening has to wait for the fed to want to slow the economy down. The opportunity to serve was the opportunity to serve whether as assistant attorney general or governor, i hope the controller of the city of new york. You try to contribute and thats what this is all about. Earnings dont have to be great and just dont disappoint and if well have substantial degreeses it has to be earnings and i come back to ref news as well which comes back to a somewhat better economy. Apple did in fact conspire to raise prices of ebooks, thats the court ruling just crossing. I believe hell stick to the topic which is kind of 35,000 feet overview of the last 100 years of fed policymaking and not delve into the things we want to know but on the minutes, they will be interesting. I wont be surprised if some members want to tapener july. How is having empty homes in china different than empty homes in phoenix, Southern California and florida so they are going down the same path. Just taking them a little longer to get there. Good wednesday morning. Live here at post 9 of the new york Stock Exchange. Lets get a check of the markets. The dow sits 100 points and change from its record closing high. Down 20 points. S ps hanging on nasdaq hanging on two points and s p down three. Oil is getting inventory numbers that are, again, very bullish, 105. 71 is now the check. People are buying more low margin items like food and cigarettes causing profits to fall and hp getting upgraded from buy to sell over at citi. Citi pointed to increasing benefits from cost savings as well as momentum as the main reason. Block bluster whirling against apple. A judge saying the company conspired to raise money on ebooks. Smithfield foods under intense scrutiny. Safe for america to buy the biggest pork producer . Coming soon to your kids lunch menu, greek yogurt. The ceo of chobani is here with more on that story. Apple has issued a response to cnbc in which a federal judge found them guilty of fixing prices. Just got this moments ago. They said apple did not conspire to fix prices and well continue to fight against these accusations. When we introduced the ibookstore, we gave customers more choice and injected much needed competition in the market. Weve done nothing wrong and will appeal the judges decision. Now the department of justice also issuing a much longer statement that i cant read in its entirety but the point here, the doj saying the result is a victory for millions of consumers who choose to read books electronically and pointing out that the publishers ebooks increased by an average of 18 as a result of the colusive effort by apple. Apple saying by entering the market we encouraged publishers to put the books out there and broke amazons iron grip on this market but the doj saying bottom line prices went up when apple happened because they force that had to happen. Interesting, Roger Parloff over at fortune opined that the Supreme Court may indeed end up taking up this case, very interesting and this is structured different than your typical antitrust case. It might spark their interest and interesting to see how far apples appeal of this can go, but bottom line, a lot of action in this space, the Digital Content space has moved on to video. Not clear how this decision might have an effect on strategies Going Forward. A big loss for apple this morning. For a lot of investors, they may start to be calculating. Is this about the damages they pay or the remedies they put in place the way they have to change their business . Maybe both. One thing i will see is the ebook market overall not as big as Something Like music or digital video so it would be a surprise to see the damages getting into the billions here. We all know how much money apple has. Up towards 150 billion, maybe more than that now. They can certainly afford to pay out a little bit. Can afford to buy a large country for that matter. Apple starting to flat line at 1422. 31. Our jon fortt over at headquarters. U. S. Stocks are mixed. Following a drop in imports and exports out of china. The president of oberweis joins us and steven katz, good morning to you both. Good morning. Jim, first of all, the trade figures, as week as they were saw the china zhang high composite index up today. Is that because youll see people look at some policy act to support the industry. The old bad news is good news. Expectations for policy response are going up but wouldnt surprise me to see the government hold firm and none policy issues they could take like revell programs, not necessarily fiscal changes but could also stimulate nick growth. More of a bump in the road. The chinese leaders have made it quite clear they are willing to stomach this with what they have seen with a slowing economy. They want to transition from the exportled model to more of a consumption led one. Any reason for the people in the market to really think they are going to come out here and decide for optimal policy support. Look across the Chinese Market and pick areas where theres going to be growth. Part of the problem is aggregate demand is week, meaning outside of china, the u. S. And europe and within china there are areas that are very strong. There are 100 cities with more than 1 Million People and no premium auto dealers. You just have to be a stock picker. Thats great. Thats what were great at trying to find niches and opportunities even if its not what they support the last couple of years. Stock pickers market, what are you recommending for markets . We focus on the u. S. Markets and are finding lots of opportunities so thats where were looking to find the bulk of our money. When it comes to china the biggest concern has to be the impact that it has back here. What kind of impact is that if it slows from say, you know, 7 to something south of that . Well, we think china has slowed in the last month or two, and a lot of u. S. Companies, multinationals have had conferences and they lowered their expectations for the back half of the year based on that so we think chinas slowdown is currently in the u. S. Numbers. If china starts to reaccelerate and europe bottoming out, that should be a positive for u. S. Stocks and for u. S. Businesses that are multinational and we think the u. S. Economy is doing a little bit better. Taken all together we think that earnings should be okay as a result of that with a pretty decent outlook. David, i wonder what your appetite is here for stocks. A lot of people who have been trading this range between 1600, 1650, i mean, you know, you sell at the high end, you buy at the low end and just play this until things look materially different. Would you buy stocks ahead of the quarter . Well, we dont think that the quarter is going to materially move stocks higher. We think that the quarter is going to come in line with expectations, probably a penny or two better in terms of a lot of Earnings Report and a little bit light in terms of ref knew. Like the last quarter or two, we dont think that moves the needle, but it sets the tone for the stock to do bert as people look for the economy and the outlook for the economies are pretty good. Having said all that wed basically be buyers into weakness, wed not chase the rallies. Interesting. Jim, your thoughts on that and then added to it the effect of whats happened to crude over the past few days. Is that bullish for the s p because of the components, or negative because of its effect on the business and the consumer . I think it has to be a little bit higher magnitude to be a negative effect on the consumer. I think in the short term it can be bullish if you saw a very significant move, it would be different. I think around the world right now china probably represents my single most favorite place to be parking money. Wow. Not because the economy is great, things are slowing but because of valuations. Prices are really cheap, among cheapest in the last decade, and when you can find pockets of growth within there that are trading at reasonable valuations in relation to growth rates, now is the time to do it, not when Everybody Loves china. Those are strong words. The other side of the argument, of course, is that chinas going to be a value trap, that its dead money and that something is cheap for a reason. Yeah. Sometimes they are, but dividend yields are also going up so we see cheap stocks that are throwing off increasing cash flows and distributing them back to shareholders which avoids the proverbial trap of getting stuck. Blackberrys ceo had one main message, keep the faith. So should we listen to the chief of blackberry . Well ask a top blackberry shareholder who says the company should be broken up in a moment. But first, Rick Santelli, you think the worlds biggest economies are pulling a them ma and lewouise. Thelma or louise, burning all the wood just to keep things going . Listen, if its wednesday, homer jenkins jr. Has a comment in the wall street journal. Well ask him about whether Ben Bernankes strategy is going to end well. Lets hear about it from homen je jenkins jr. At the bottom of the hour. 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. This is greta. She works in quality control. She makes a nifty living sleeping on mattresses pioneered by engineers whose singluar devotion is not stopping until they have given her the best sleep of her life. Thats not greta. Save up to 500 on the tempurergo collection and get your best sleep possible. Visit tempurpedic. Com to find a store near you. Heres a question. Should blackberry spin off its devices unit . Thats what one activist share holder is saying. He asked the question to blackberrys ceo yesterday. The ceo and chairman of jaguar financial seeking a split of the company. Blackberry is his largest holding. Vick, good to have you on the program. Good morning. My pleasure. A lot of promises yesterday and a lot of hope that this is the beginning of some turnaround. Are you happy . Not really. It was a very big disappointment. Primarily the lack of disclosure. Disclosure is a big issue for this company. They are coming across as being fearful and insecure. Q a session, they mandated last 25 minutes, one question per questioner, and, you know, they do the same in terms of their Quarterly Results that they are not prepared to disclose the number of subscribers anymore. Thats very unfortunate. You had to wait until the Conference Call to get the number of bb10 units that were shipped, and that was 2. 7 Million Units out of 6. 8 million. They are withdrawing. Its almost like they are pushing a rope up a hill, and they are being fearful and insecure, and its very unfortunate. Youve got to eliminate that noise. You cant be afraid of your shareholders asking very tough and very frank questions. The minute you come across that way, i think its over in the street. Yeah. Speaking of questions, we mentioned the question you asked him about strategic options. Heres the response. Before you go into any strategic options, i think you have to create value. Currently i cannot district management from what i expect them to do. Whats wrong with that answer . Actually it could be a very positive answer, but the bottom line is there are two options here. You grow that software and Services Business which is their huge focus. I mean, the z10 has not worked out in the United States. Its been a failure. Theres no question. The q10, well find the Quarter Ended august 31 so we dont note extent to which they can transform that shift from a deviceonly company to a software and services company. They have always been in services, but now they are going to accelerate. They are focused on ot air which is overtheair transmission of their software from r. I. M. To car manufacturers, for example, and m2m which is machinetomachine. Thats sort of the future of the company. The question is can they do it quickly enough with the cash that they have which is small . Right. I mean, on the Positive Side they generated cash flow of 630 million in q1 and got 3. 1 billion, up from 2. 9 and thats good, but is it enough . If its not enough you have to seriously examine the strategic options. Weve been saying that for quite a while. I was just going to say, shares are just below 10. If they pursue some of the moves you mentioned, how much value could they unlock, and at what price did you guys get involved . 15 to 20 is our target range, and they could either do it organically as the previous questioner mentioned. Thats a possibility, but also in terms of a breakup, theres no question. I mean, the enterprise value right now is 2 billion. They have a market cap of 5 billion, 3 billion in cash. Theres 2 billion enterprise value which is really, really cheap. A Device Company, coupled with a software and services company, easily would get a combined value of 15 to 20, and bear in mind there are patents as well. The other aspect of value is q and x. Q and x is an awesome operating system that they paid 200 million for. Its worth far, far more than that purchase place. We hear that a lot from bulls on the stock, but, vick, i dont want to put words in your mouth, but if you really are an advocate of making big transformational decisions, sounds like youve essentially written off them as a Device Company the way weve known them for the past ten years. Actually, you know, its not that extensive. Our focus, the bottom line is, they missed the core competency of the company. Whats the core xe tensy. The core competency are boring, serious, professional, business, Government People like myself, and they didnt lead with that. Having alisha keys as the global creator director, give me a break. Total disaster on z10. Should have jamie dimon up there playing with his q10 or warren buffett. Thats the core competency of this company. They have to be nimble, quick, efficient and stick to what they do best. They havent done that, and thats hurt them. Thanks for your candor. Please come back. My pleasure. Now, the ceo of Smithfield Foods is set to testify on capitol hill try. The hill trying to convince skeptical lawmakers to sell the company to a Chinese Company that thats a good idea. Committee chair debby stie stab is one of the skeptics and she will join us in a bit. And delivering alpha coming up. 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. Faso you want to save on autoof insurance . Drive a hybrid. Get good grades. Lose the bling. Go paperless. Combine policies. Make automatic payments. And of course, talk to farmers. Hi we are farmers bum pa dum, bum bum bum bum your chance to rise and shine. With centurylink as your trusted technology partner, you can do just that. With our visionary Cloud Infrastructure, Global Broadband network and Custom Communications solutions, your business is more reliable secure agile. And with responsive, dedicated support, we help you shine every day of the week. Honey, is he too into this car thing . [ mumbling ] definitely the quattro. Honey . Huh . A5. What . [ sighs ] did you Say Something . Hooking up the country whelping 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 . Lets get to Rick Santelli with the Santelli Exchange in chicago. Hey, rick. Hi, carl. Id like to welcome a very special guest. I love wednesdays and i love reading Holman Jenkins jr. s column in the journal every wednesday. Thanks for taking the timed to be our guest. My pleasure. Great to be with you. Thelma and louise, taking that last shot, boom. Are the biggest economies of the world delusional, holman . Are to looking at the fact whether its japan, europe, u. S. , to the lesser extent china, thinking that if they use the market and Interest Rates as little toys to fix things or make things better, if they fail nobody can take our place. That seems to be the logic i see. How do you see it . I see it the same way. Governments everywhere have accumulated 50 years of excesses, high taxes, high regulation, retirement and medical systems. They cant sustain themselves, and they know they have to fix this problem, but instead the last since the crisis, basically they are relying on central bank to somehow patch things over by printing money, and its not working. I dont think that people fail to understand what needs to be done but the political cost of doing it for any given politician at any given moment is too high so lets hand it off to ben bernanke, hell take care of things for a while by printing bucks. Ben bernanke, of course, is not only going to give the speech later on today, the minutes of the last fed meeting come out, holman. Princeton professor, super smart guys, but in the end lets keep it simple. Hes call bratd oibrated our ec basically run the carburetor at low interest, low Interest Rates is the calibration. What makes him think recalibrating is going to be easier, even work . Are we going to be able to sunset some of these postcrisis programs, specifically leading to low Interest Rates and high stock prices . Thats the 64 trillion question. Its amazing. You know, for 20 years the independent central bank was the icon. It was the altar we worshipped at. Countries even wrote central bank defense into law. That went out window in 2008 which makes you think it was an illusion and now we have all these policies meant to keep goosing the economy we refuse to reform, and its hard to see how he ends it. Of course he wants to, wants to get back to the position where the central bank controls the value of the dollar and preserves its purchasing value, but he can never get back there. Hes got to fill in for all the fiscal policies and regulatory policies that governments wont adopt so i dont see how hes getting out of it. Hes sending a signal, yes, please give me a way out, but i dont actually see it happening. Final question in the last few seconds. When i talk to people outside of what i do, friends, relatives, they hardly know who ben bernanke is. Do you think a big part of this problem is that the general public cant keep up with complicated topics . Is this something that that has the ability to change any time soon . I dont know. I think id worry more when Everybody Knows who ben bernanke is because thats when things are really hitting the fan. Most people thank god and have lives that are more interesting to them than the Financial News and still ren gaged with their families, their jobs, their careers, their projects. The time to worry is when everyone knows who ben bernanke is and praying somehow that he can rescue them from a situation he cant rescue them from. Holman, thanks for taking the time to be the guest today and ill look forward as usual to every wednesday to read your column. Great to be with you. Thanks so much for having me. Thank you. Carl, kelly, back to you. All right, rick, thanks so much to that. Want to get to kate kelly with breaking news from the s. E. C. Kate . Carl, thanks, that vote we were talking about and essentially by a 41 vote the s. E. C. Commission has agreed to lift the ban on hedge fund advertising and other Startup Company advertising effective 60 days from now. As part of that, there will also be a ban on socalled bad actors, folks with felony records, among other things. And finally, they voted to proceed by a 32 vote with a measure to collect more information essentially on the impact of these new results on the private offering market, so, carl and kelly, well be seeing some changes to the marketplace probably two months from now as well as more information to come on the new frontier and how its going. Kate, does this mean, even if only 8 of households would qualify under the income thresholds and wealth thresholds, we might all be seeing thetizements all over the place, correct . We may be seeing them, seeing disclaimers on them how past returns are not a guarantee of future returns. Used to that sort of thing from the mutual fund industry. One interesting thing as well is theres talk for the threshold investment. Right now its 1 million in net worth, other than your primary residence or a salary minimum, 200,000 for a solo person and 3 pun,000 for a couple, so if you meet those you can theoretically invest in some of these private companies or hedge funds. However, theres talk about raising that threshold, and thats probably something that wont be taken up until 2014 with congress as well as the s. E. C. Getting involved. All right. Well keep an eye out for all of it. Kate kelly, thank you very much. Now, 1 billion dole for Smithfield Foods under the microscope on capitol hill. Is it a good idea to sell americas biggest pork producer . Well ask senator Debbie Stabenow next. That and more when we come back. 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. The allnew 2014 lexus is. announcer scottrade knows our and invest their own way. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. The european markets are closing now. I missed it, did you . Simon hobbs tells us what happened as the bell sounded across europe. Berlin is already shooting down this proposal that came from the commission today to create the second tier of banking resolution, if you like, banking union, the idea that there will be some multinational agency to wind up banks so on and so forth and shooting that down already. Meantime, european markets have actually come off their lows with the exception of greece which is down over 2 . There will be a general strike of tuesday of next week as the parliament attempts to vote on the thousands of extra job cuts there. Let me just show you a live some live data from italy on the bond market. Today italy managed to sell 9. 5 million euros, albeit at elevated levels of paper, despite the downgrade from s p last night and the fivestar movement did so well in the last election, suggesting there should be fresh elections because of the downturn there. If you take one thing away from what im telling you, it would be this chart that i now want to show you which is the climb back as we wait for ben bernanke this afternoon. The climbback that youve had in europe since may the 22nd, and bernanke First Talking aggressively about tapering has been far less on european markets than it has been here in the United States, so the underperformance companies. One more, guys, before i hand it back to you. Let me show you shares of burberry. People have been selling into burberry, up 8 as it came through the 18 gain in sales because of the success of its Spring Summer collection, innovative marketing, says the ceo. Have you seen this, this is the advert available, Sienna Miller and her fiance, called french kisses. The big question is if they can raise the margin at burberry from 17 up towards what the other luxury goods manufacturers are obtaining. I have that same jacket and pants at home, i really do. Lets leave it there. Thank you, simon. Oil has seen big moves. Bertha coombs at the nymex you know, carl, last week oil here in terms of wti crude went above 100 a barrel seen in part because of the concerns over egypt, but this is very much a domestic story and todays inventory numbers are really underscoring that point. We saw production last week of 7. 4 Million Barrels a day of oil. That was as much as we imported. Our production is now on par with imports which have come down so far. Record distillate production of more than 5 Million Barrels a day and a massive drawdown of 10 Million Barrels for the second week, more than 2. 5 million coming from curbing, the unlocking of that bottleneck in curbing which is driving wti nymex strength and a big drawdown when it came to gasoline. The expectation was for a build, but it appears weve had a 2. 5 increase in demand year over year. Back to you, guys. Bertha coombs, thank you very much. Speaking of oil, josh lipton taking a look at some of the Energy Stocks. Josh . Yeah. Kelly, as bertha mentioned, oil rising today so we want to highlight how Energy Stocks have been performing. In fact, Energy Stocks outper tomming the s p this month on crude strength. The spx Energy Sector is up 3. 4 . Thats the best of the ten stray groups, the broad gage up 2. 7 . Within that sector check out the oil and Oil Service Stocks this month. Shr schlumberger and halliburton. Is everyone just waiting on the fed . I think so, but i want to point out we dropped at 10 00 as the wholesale inventory numbers come out. That normally is not a marketmoving event. Put up the dow here. I think the certain here overall is businesses are not expecting demand to pick up and dont add to their inventory levels. This normally is not a marketmoving event. Today it was, not dramatically so. Take a look at the major sectors, kind of a riskoff day. Health care, utilities, Consumer Staples, see what i mean, a riskoff kind of day when you get these kinds of sectors and leading fractionally overall. The big discussion is what Big Bank Earnings will look like and these are the bright spots for bank earnings. Earnings will be up across the board. The whole market knows this. Everybody has been buying bank stocks like crazy for the past month and a half. Heres the bank index, the bkx, the white line is the s p 500. Look at the outperformance just in the last month and a half because everybody has known who is watching this that the earnings will be outperforming right across the board. Heres a number of good points about this, though, a lot of good things to like of whats happening. Credit quality is improving, Wealth Management part of the business is growing, the yield curve is steepening. Trading activity higher and underwriting pretty good bond trading pretty good, very volatile and good for the trading communities overall. A couple things that are worrisome and you know about the mortgage refi situation as well, but let me just show you the things that are concerning that are out there right now. Mortgage refis have been dropping. Lone growth is still about 3 . I mean, its all right, but thats pretty modest loan growth and bond prices down. A lot of firms that hold the bonds that are in active trading accounts, they have to mark those to market. That might affect the earnings overall here. I want to focus on the mortgage original nations. Let me just show you. Five Companies Control 50 of the entire mortgage original nation market in the United States. 70 of all mortgages are refis so thats refis dropping is going to be an issue, and i expect to hear a lot from wells fargo about this, a quarter of all the business. Before i toss it back to you, lets put up some of the banks here. The important thing that were seeing is some of these companies, just because the yield curve is steepening, dont mean they will make more money. Comerica, loans based off of libor. They wont be dependant on rises in treasury. If youve got a doughnut shop out there, bottom line, youll be more dependant on libor which will move with the fed funds rate which isnt moving and just because the yield curve is steepening, the companies that have the loans based on libor, they wont necessarily make more money. The libor rates arent necessarily going to go up. Its an important distinction here with some of the banks. Back to you. A lot of questions about whats going to happen as they take that important rate over. Thank you, bob. Thank you, bob. Meantime, the Senate Agriculture committee holding a hearing to examine Smithfield Foods chinese meat pros zor chinese international. The hearing is aimed at determining whether the sale poses a risk to the u. S. Review standards and whether the review process for those buying American Companies needs to be are considered. Joining us for a first on cnbc interview, senator debbie staben stabenow, chairman of the agriculture committee. Good morning. What are your concerns, do they revolve around food safety and the import of food from the china to the u. S. . There are a number of issues well be taking up today, hearing from the smithfield ceo and looking more broadly at our relationship with china and the food systems and so on. On the one hand we have a company that is being paid a premium of about 30 above what would be the market value to buy it. We think its because they want the 20 years of food efficiency and food Safety Information and so on to be able to bring their systems up certainly, but then the challenge is they are five times more in terms of the hog production business than we are. Our largest export market is japan. China is right next door. Were very export dependant in this industry, in the pork industry so what happens long term, even though it looks like a good deal now, do we lose those export markets and potentially lose a tremendous amount of market share . Also food safety is really about national security. Not Just One Company even though its the largest sale to accompany is china and we note chinese system is very, very different in terms of how its set up. May not be directly owned by the chinese government, but we all understand how tight and interwoven that is. But what happens to us in terms of other companies down the road . Do we want other countries owning our food supply and i think weve asked treasury and the committee that looks at this on Foreign Investment to take a look at Food Security after they are reviewing. Weve asked the banking and finance Committee Members to join us. We have a lot of questions about what this means long term. We asked the company for an interview. They said no but did give us a statement which reads in part that the transaction is focused on exports. They say the combined company will not import any product from china into the u. S. The proposed combination does not have any implication for the u. S. Supply but your point is broadly about precedent regarding deals that may come down the road, right . Yes, we certainly care about this one, but im also concerned about down the road. This is a very exportdriven market, and while they may not be bringing pork into the United States, im concerned about losing export markets because china sits right next to japan, and i think thats a serious issue for us. Also, were adding a company with a good record in terms of food safety and allowing china to use that name while they have a very spotty record. What does that mean overall . Sure. Senator, just a quick question. One thing when were talking about access to making airplanes or even, you know, cyber technology, but are you arguing bacon innovation is something china will steal from us and do better . I have to tell you we as a federal government, you and i as taxpayers have put in over 800 million in research and development as it relates to food safety and feed processes and efficiencies and so on, and essentially we have a Chinese Company buying that. They are buying it on a premium because they are behind you. They want all of our efficiencies in part paid for by federal taxpayers. They are 20 years behind us, so they get up to speed. They have more hog production, and then they take over in terms of exports around the world. We have a real potential of losing this industry i think and its market share in the long run, so thats a concern of mine as well as food safety and the longterm implications. Given the number of deals in this space, senator, the whole markets attention. Thats for sure. Appreciate your time very much. Absolutely. Debbie stabenow, senator from michigan talking about that smithfield deal. Huge deal. Stay tuned to cnbc because well have more on smithfield with senator Chuck Grassley who will be on power lunch at 1 45 p. M. Eastern. Apples app store marking its fiveyear anniversary today. When it launched in 2008 there were just 500 apps. Today over 900,000. That brings us to this mornings squawk on the tweet. Some day well all tell our grandchildren before we had apps we had what . Tweet us and well get your answers in a few minutes and soft biggest names in media arriving at the annual sun valley conference in idaho. Well take you there live. Julia boorstin is on set when we return. In todays markets, 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. 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 . Coming up next on the half, breakout or breakdown . Wheres the rally next and what about chinas dismal data . Banking on the financials, a top financial analyst gives his second half playbook for the banks, and well also have one high class debate where traders are split over the future of coach. They will grab their man bags and battle it out at the top of the hour. Some of the biggest names in media and tech and Venture Capital are gathering in sun valley, idaho for one of the biggest conferences of the year. Julia boorstin is there live and joins us with more. Hey, jewel why . Hi, carl, attendees at this years conference, everyone from comcast to disney and apple and amazon are all fighting for a piece of the future of television. Barry dillers cordcutting enabler aereo is shaking things up facing lawsuits from many of the media moguls, including Rupert Murdoch and cbs les moonves and bob igar. Its the technology that allows people to use the airwaves that belong to them to get over the air television. I dont think it should be but probably inevitable. Its inevitable because it people there dont want to subsidize espn, for instance, and and they should be allowed to do so. Barry diller there was talking about whether or not the bundle of content, the cable content would be broken up. In a sign of just how valuable sports is to Holding Together that cable bundle, no content is more important for live tv or more expensive. This morning kicked off with a Panel Featuring nfl commissioner Roger Goodell and nba commissioner david stern. There are an unusually large number of sports teams including red sox owner john henry. Another hot topic is apple. As jon fortt has been reporting, a federal judge ruled that apple conspired to raise the price of ebooks. The Justice Department says it conspired to undercut amazon. Apple does say that it will continue to fight these accusations. Apples media chief eddie cue is described as a central witness in the antitrust ebook trial and is here along with amazons jeff bezos. We havent seen them together, though they are both here. Following the mornings panel, the attendees will gather by the duck pond for lunch and many will go with their families on a Whitewater Rafting trip. Carl, well continue to bring you more and more on cnbc. Com. Back over to you. Sounds strenuous, julia. Thanks very much. Its a beautiful shot there as well. If the white house has its way greek yogurt will be on lunch menus at schools across the u. S. And it could mean big business for our next quest. The ceo of chobani joins us when squawk on the street returns. Really . Yeah, id like that. Who are you talking to . Uh, its jake from state farm. Sounds like a really good deal. Jake from state farm at three in the morning. Who is this . Its jake from state farm. What are you wearing, jake from state farm . [ jake ] uh. Khakis. She sounds hideous. Well shes a guy, so. [ male announcer ] another reason more people stay with state farm. Get to a better state. The obama operation wants to add greek yogurt to childrens food. The founder of chobani, joining us here at post 9, welcome. Thank you so much. The first time you have been here to the Stock Exchange . The first time i have been here. Your impression . I thought there would be more and more people. I seen some movies. This is great. I seen you eyeing that bell up there. Choe bean has been successful. Do you want to think about going public, raising capital . You know, we never thought about. That we focus on what we do every day. We manage to grow without going outside for a capital. So we are 100 independent. Even though we grew to over a billion dollar in business. We study the nba loan. We will be spending almost 900 in business infrastructure and expense. Yogurt has not only been good to a lot of people. It will be good as well. What does it mean if the Obama Administration doesnt press for it in lunches in. It is has been a simple, delicious product i. Has been around hundreds an hundreds of years. It should be available for our kid. We try to build a School District and try to make it to the menu. We found out about the usda rules and the programs and we have been trying to bring it to the schools. So we had the news that the pilot plan is going to be new york, idaho, tennessee and arizona, i think its important to make sure the growing yogurt is the greek yogurt. Is it going to be your yogurt in. It can be anybodys as long as you call it. If you call i mayonnaise. It has a standard identity. You can call a ball of macaroni call it greek yogurt there. Is no standards, strained. Means 3 pounds of milk becomes 3 pounds of yogurt. It is good for the farmers. It has high proo protein. We have to make work on it to make sure its clear. Yesterday, they had their ceos on, general mills, they are making a big push, seeing what it has done for you. How much of a threat, how much of a fight for shelf space . How will that change over the next couple of years . Well, we look at the last five years when we is that right chobani the great market was less than 1 , carl. Now its almost 25, 40 t. Category has changed dramatically. It was changed by a newcomer like us. And its important a company like chobani comes to the fwoorld more and more and challenges what is there and make it better. Im glad that other companies are changing the way they are making. They can the prevevtives out, make it healthy. Make it delicious. This is the way the food is going to get better for everyone. I see some signs people are change figure way theyre thinking. It makes me happy. We are seeing consolidation in the surnlt business. Does having u fewer players mean you cant drive the best deal that you can . We are betting yogurt to go what it is today to double the next five years. We eat less than here in europe and south america and canada. So if we do our product right. There is room for everyone. Based on that belief, you build a minister flat in id hospital it is bumping yogurt like crazy now. I think the future for your good is really just starting right now. Its just starting right now. Especially if you are about to add another generation of consumers as the goes forward. Thank you so much for joining us. Dont touch anything around here. Happy birthday to the Apple App Store, which turns 5 today, if you can believe it. More than 800 apps are downloaded every second. Equals 2 billion apps every month. It brings us to the squawk on the street question. Some day we will tell our grandchildren, before we had app, tweet us. Your answers are next. The Apple App Store is fiveyearsold today. Some day you will be telling your grandchildren some day before we had app, you had to use a keyboard, set our physical alarm clongs up each night. Remember that . Bob write, ring the doorbell at the front door. Rick states we stay away from angry bird, we walk to school with books uphill both ways in the snow. Good ones today. Jack london i think used to drop something to drop rocks on his head to wake up. He hated to sleep. A true story. It worked, too, some great books. By the way, a quick programming note. You dont want to miss this Christine Davis the woman hoping to run against elliot spitz ler on kudlow tonight 7 00 p. M. Eastern time. Is what they call in television a get. Not Kristen Davis the actress. Will be interesting, having spitzer on squawk box earlier this morning. Lets get back to headquarters. Scott wapner and the halftime. All right. Guy, thanks. Welcome to halftime show, four hours to go until the close. A mixed day on the street. The dow is trying to get something going, unsuccessful thus far. Nasdaq is positive. Heres what we are following on the half. Money in the bank. After a 23 rise already this year, how much juice do the financials have left . Coach outperformed, is it reason enough to boy that stock . One trader says yes, the other says no, which is why theyll debate it. Our top story, brake out, or break down, stocks trying to rise a fifth day in a row. Stunning new data out of china paints a dismal picture for that countrys gro