Transcripts For CNBC Squawk On The Street 20131231

P. M. Eastern time. Tenyear yield still a shade below 3 . Germany, italy, switzerland all closed today. London did just wrap up an early close with a 14 gain for the year. Stocks are set to open up high again today. Streaming video getting a little bit cheaper. Will it be a hit . Netflix working on a lower price plan that only lets you watch on one screen at a time. And the surge in home prices continue. Prices in october did jump over 13 yearonyear. Thats the highest gain since february 06. Robert shiller is here to tell us exactly what we need to know. The dow up nearly 26 , s p up 9, the nasdaq 38 this year. The dow is on pace for its best year since 96, s p the best since 97. All the coverage is trying to take stock of what went right . Or is it fewer things going wrong . David kelly in usa today saying it was the downsizing of fear that allowed money to come back in the market. Its interesting when you talk about that downsizing, we have not seen the broader participation of the retailer. We started to see inflows but nothing like you would have anticipated. Weve had a pretty good move since lets call it march of 09 and only recent lip has retailed seemed to get in the game, although etfs have taken in a lot of money and perhaps we should be more focused on that when we judge the overall participation. I was speaking with the head of jpmorgan and he was saying its important that the Retail Investors continues to come back in. Thats the inflexion point they would make note of. They always get the memo late, dont they . Thats the problem. I guess so. But it seemed like a huge amount of optimism this is going to continue for some years, it would appear, if you read what everyone is writing at the moment. When has everyone been write right. I would be careful. Whether its the boston bombing, syria, all the countries in europe that managed to be resilient, cypress, greece, italy, portugal, s. E. C. , Stock Exchange glitches, a shotdown here in the United States, ipos that may or may not have managed to get done. Black sten, while of course hilton we think of, there were any number of a couple of real estate related ones. You it has been. It funny, over the last couple of years when you see a delaugh rejing ipo, one from private equity or or being raised with paying down debt, the likes of a twitter, which is still one of the best ones weve seen in quite some time but this year everybody liked almost everything that came public. Almost. Not everything but almost. 26 minutes until we start trading for the last session of 2013. Ron, where do you think we will go next year . I think the big issue i wrestled with and we wrestled with coming into the end of the year is what kind of probability do you put on a recession in 2014 . Its probably the lowest probability of a recession that weve had since the recovery started. Its unlikely the stock market will have a bear market until we have a recession that really reduces earnings. That said, because the economy is doing so much better, this will be a mush more nuanced year. This is a year in our judgment where recovery will be felt on main street and the fed will have much more difficult decisions to make as to the speed at which they taper. So my guess is that this is quite typical that, good years follow great years. Weve had a great year. Were likely to have a good year but Risk Management and some kind of an air pocket during the year are likely to happen. John, some of the big names, barclays, goldman, citi are suggesting this market will only gain 3 next year. What do you think . I think obviously this is a bull market. So what im forecasting is a continuation of this bull market, at least until we reach some kind of modest overvaluation. Because right now were at fair value. As i look at it, it hard to do one year at a time. But if were look out three years, were likely to have at least one, two, or three points or more of market multiple expansion and each is worth about 120 points on the s p index. And the stronger economy we just referred to, i think its for real and well have at least 6 to 7 Earnings Growth over those three years, which is really just close to the historic average. Thats worth about 350 points on the s p 500. I dont want to get too technical on multiple expansions but why would people pay more for a given earning stream when there are not that many people that are pessimistic at the moment . I would argue that they wouldnt. Im sorry, to john. Please pick that up. You talked about confidence before we came on and i think thats the big thing. I mean, people have bain voiding stocks investors have been avoiding stocks for five years. Now were seeing inflows and the confidence builds on itself. Its just the typical thing, simon, in a bull market that we get to fair value but almost every bull market gets to at least modest valuation before its over. Jon merrill and john smith. I want to get to share of hertz this morning. The company yesterday put out an unexpected press release announcing had what the 10 threshold. Why is this interesting . Well, weve seen it in a number of cases recently because its been a sign that the Company Believes activism is not far from its doorstep. In this case hertz in its press release says it has observed unusual and substantial activity in the companys shares. Ackman did come very soon after and did agree to a deal with the company before entering a big proxy fight. Who will hologic, only they came too late. Who is that activist as we look at mr. Icahns bearded face . Its got to be a big guy. In this case given the size of hertz at 11. 6 billion market value, to put it in at 10 , youre talking about somebody they believe can have taken as much as a 1. 1, 1. 2 billion position, so therefore, its got to be a bigger fund. Youre talk well see who comes to the fore here, if anyone. Can i not tell you specifically at think th point or ive not been able to identify what activist it is they believe is responsible for this unusual and substantial activity, though interesting to know the stop has been a name thats been around. The interesting, though, guys they came public in a way with this press release instead of doing it quietly, talk about all of these things. The expectations ive been able to have is there may very well be a large activist in hertz, who is girding for a fight. The company hoping that it part enough ahead of them or at lease but it is similar to where. In this case hertz may choose to stand and fight. When you look back at the performance of the stock, it been pretty good. So well see what develops here. But did want to mention on hertz, for those who are interested, yet another potential activist situation developing. Kind of refreshing they come out and say this is what were seeing, even though its a little odd. They have to tell the market theyve got that deal in place. They could have chosen to put a poison pill in and say nothing more about it. I dont know how close activist it. I dont know theyre exactly certain how big theyve gotten. Egot to 9. 8 . But this is an born and as mk has put inover night by the way, theres no suitor for hertz. So a lot of the focus does seem to be on capital return but also on this equipment businessing less al when we come back. By the way, heres a look at how the home sector has fared this year. If you had picked one at the beginning of the year to go negative, youd be out because not a single one did. A lot more squawk on the street live from post 9 in a moment. Although easier to get a new , easier to get a new , awarded j. D. Powers most appealing midsize car, two years in a row. And right now you can drive one home for practically just your signature. Get zero due at signing, zero down, zero deposit, and zero first months payment on any new 2014 volkswagen. Hurry, this offer ends january 2nd. For details, visit vwdealer. Com today gordons ready for the new year. Thanks, gordon. The highest gains in home prices. But there are signs the boom is fading. Here first is robert shiller, the founder of the caseshiller index. Its good to have you this morning. Good morning. These numbers are incredible. But blitzer says in the release we are living on borrowed time and the boom is fading. How does he get to that . How do you get to that . We have a futures market at chicago. The futures market does show it fading a bit. But its predicting the increase wont stop until after 2018. I still we still have time to go but it might be weaker. Barons over the weekend talked about price growth in 2014 being modest, positive but modest, thats where you guys were tomming down to. Can that be sustained in the face of higher rates. I imagine so. I think these markets are substantial. They have a lot of momentum. The Housing Market is fundamentally different from the stock market. We hope to change that if we could get things are changing but there has been tremendous momentum in the Housing Market. Things are changing, like blackstones reit and the market might show less momentum than it has in the past. We keep talking the degree to which firsttime buyers are locked out, the degree to which the high end is where all the action is and people who already have a home, graduating into a larger, more expensive home, is that trend going to remain i in especially big homes farp away from the center city. I think theres a new urbanism afloat. Housing is not monoit lick. I think this might be a tread toward more urban living and less suburban living. Were in a period of time where most of us have not seen before, very little inflation and very little wage growth. Well, it doesnt sound good, tothe market coral we had the haunting at the beginning of the session around 210. And as an economics professor, if you go pa because they were fixed assets, they would hold their value and if not, do better than that. Now that weve been through this and gold in particular has had a very bad year, what do you think about those theories . About a theory about gold about fixed assets in general. Yeah. Im a behavioral economist and i think that confidence plays a huge role. But confidence isnt a monolithic thing. It depends on theories. I find it very hard to predict the gold market. Ive never really tried to do that. Were sort of in the possible beginning of another housing bubble. I dont see it related to the other assets you describe. Theres a great piece this morning on the daily beast talking about what they call the decline of financial failure in this past year. You look at the resilience of europe, fewer bank busts, fewer bankruptcies, fewer foreclosures. Just the sheer though confidence hasnt really come back. Thats the problem. Well week do have record high at least consumer confidence, right . Its coming out this morning later, isnt it . The new number. But i havent well get confidence report today, yes. I have my own confidence report. You can see it on my web site. I dont see any big return to confidence at the moment. Robert, on that note well see what 2014 does bring us. Thanks as always being with us. Well see you next year. Next year. What does veteran trader art cash cashin watch . This. At bny mellon, our business is investments. Managing them, moving them, making them work. We oversee 20 of the worlds financial assets. And that gives us scale and insight no one else has. Investment management combined with investment servicing. Bringing the power of investments to peoples lives. Invested in the world. Bny mellon. And it feels like your lifeate revolves around your symptoms, ask your gastroenterologist about humira adalimumab. Humira has been proven to work for adults who have tried other medications but still experience the symptoms of moderate to severe crohns disease. In clinical studies, the majority of patients on humira saw significant symptom relief, and many achieved remission. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira, your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your gastroenterologist about humira today. Remission is possible. Theres nothing like being your own boss and my customers are really liking your flat rate shipping. Fedex one rate. Really makes my life easier. Maybe a promotion is in order. Good news. I got a new title. And a raise . Management couldnt make that happen. [ male announcer ] introducing fedex one rate. Simple, flat rate shipping with the reliability of fedex. Waiting for tonight, oh, when you will be here in my arms waiting for tonight, oh, ive dreamed of this love for so long lets bring in art cashin, director of floor operation with ubs. We dont plan these in advance. Ill throw one at you, give you a second here. I love when you come up with one where there could be a surprise. But anything come to mind when you think about next year that would be unexpected but something we should keep in mind as a surprise that would have broad impact . I think it is the relationship of the bond market to the fed. That theyre expecting that theyre going to be able to work out of this thing slowly, quietly and effectively. And the bond market is giving some signs that theyre not quite so sure about that. So the two things i would be concerned about is if the bond market began to step out on its own and began to raise rates a little faster and a little further than the fed would prefer. And Something Else that ive discussed on squawk on the street before, the embarrassment of success. If suddenly money gained velocity, if banks started lending aggressively and people began spending, then those trillions of dollars resting in the fed vaults in the names of the banks could become inflationary tinder and that could cause the fed to taper at a far more accelerated rate. So those are two things relating to Interest Rates that is my concern. For today gold is not reflecting that at all, 1186 on strong volume, first decline since 2000 . I would watch it. Its very close to the years low, which was right around 1180 or so. Youve got the excuse of tax loss selling. Last day of the year, last chance to take it. Everything fits right in and i agree with you, been no sign of inflation yet. Thats one of the reasons that gold is having such an awful year. People want to know what your drink of choice is tonight at midnight. Well, i consider new yearsy to be amateur season. We professionals is stick with the drink of choice. I have a champagne tie with c k corks popping all over and i hope thats a sign that the markets will pop very readily. Thank you. Well see you very shortly in the new year. Well see the opening bell for this last day of trading in 2013 in just a few minutes. Squawk on the street is back after this. 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Its cold and you know. A lot to look forward to. In the meantime, looking at some of those names that might move, we havent mentioned hp, david, and the renewed estimates of how many people they may lay off by next year. Theyve always had a target that might have been as high as low 30s. They got more i think participants than they originally anticipated in terms of taking early retirement and things of that nature, but they are getting close to that 34,000 mark i think is what it will end up being, although again i do want to get a little more clarification. But there were some stories out there about that. As for the stock, its been an extraordinarily good year. Its up 97 this year. Coming off last the last quarter, which was better than anticipated but still trying to keep the bar low. 2014 the key year. Meg whitman has said it time and again, that theyve got a good grip on the turn around. You can go to your screen, were talking s pers here. Who would have expected that . Its like the Carolina Panthers of business. One of the second Largest Department stores has warned it has too much inventory. I wonder about best buy, whether they have to follow in those shoes. Whether its the tesla, people talk to twitter as one of the highest ipos and although weve been around the block and back, 63 is a gain of about 3 . But this was 74 just a few days ago. What was the first trade on twitter, carl . Was it 45 . Priced at 28, somewhere around 48. Not quite 50 as i recall. Its funny, having a conversation this morning with one of the few Hedge Fund Managers able to come to the phone about why you would want to own it here. I guess if you believe, as we talk so often that they are just at the cusp of figuring out their business model, and its exciting a lot of investors out there, do you believe it will be a hundred dollars stock by 2016, perhaps you still are happy to buy here and see what would be a little more than a 10 plus return until that year. Its anybodys guess at this point in terms of valuation. Its gone from 20 to 30 to 42. Just amazing swings. Paper wealth created by the stock market this year, 5. 3 trillion, according to wilshire. Its getting toward real money. Yeah. Did want to mention hertz. I wanted to get to bob pisani. Company puts the poison pill in. My expectation based on reporting is you may see evidence of a large, wellknown activist. The key argument being made from those who would want to see the company do something is to split off its Equipment Leasing business. Its a very capital entensive business. So you would not only benefit, they say, from the splitoff, which might be worth as much as 4 billion if they do that, based on about five times ebidta, but you would be able to leverage up the companys Balance Sheet more because you would be leveraging up the capital more, be able to add more leverage and be able to buy back an enormous amount of stock. When we talk about 2013, the key is how much stock has been bought back by corporations i did ask the ceo of hertz to come on today but he declined. Bob pisani is on the floor watching whats happening. Were up in record territory. But its been record territory for a lot of sectors. We talk about the s p for the best year since 1997 with a 29 gain. Remember japan up 56 , france and the u. K. , best year since 2009. Emerging markets were the exception. They didnt do very well in 2013. China had the worst year since 2011 and brazil down 15 , also the wors2011. Lets talk about home prices. I used to be aeal estate reporter a long, long time ago, my family is still in that business. While we had a 13. 6 rise year over year in home prizes, theres a slow down in home price gains. My wife has been a Real Estate Agent in philadelphia. He said her biggest problem is convincing sellers they shouldnt keep raising prices. They raised them aggressively and there was some pushback from home buyers. And the same thing with the Building Products industry, some of them outperformed the s p, by by and large, sherwinwilliams, armstrong, they were more typical up in the high teens. The vix index spiked up almost 9 . People were say whats going on . Is there something we dont know about. This is a seasonal concern. Fear indicator. Weve had a dead week here, guys, where theres not up going on. Traditionally vix drops during this week. Simon, this first week of 2014 is traditionally the most volatile week in the first half of the year. I expect the vix to pop up to around 15 to 20 sometime in the next week. Thank you very much, bob. Lets go to chicago and bring in Rick Santelli and see what theyre talking about there in the pits. Made be the last trading day of the year but, boy, this can be an exciting half of day. If you look at intra days at 5s and 10s, where are we going to close out 2013, especially on the 10year, a 3 handle or not . Its already been snugging up to the 3. You can see we continue to flirt with the summer of 2011 on the closing camps. Lets switch gears to Foreign Exchange. A very hot trade going on despite the fact that many think, hey, theres nothing left, the years almost over. Look at a twoday clart of the euro versus the dollar. Yes, it has drifted away from the 138 handle. Open the chart up and were just a whisker of comping back to the t 10year. Look at this twoday chart, it still has upward momentum, hot, hot, hot, open that chart up. Fresh highs, comping back to the summer of 2011. Back to you. Thank you very much, Rick Santelli. Thankfully i do not have to do one of those predictions for the new year in terms of what i expect because i would invariably be wrong. But i can tell you to expect a couple of things on the deal front that weve been talking about a great deal here at squawk on the street when it comes to telecom and media. As we head into the First Quarter of next year, we do need to keep an eye on two potential deals, the likes of which we both heard a good deal about. First of all on tmobile and sprint. Sprint shares have moved up recently in part on hopes, i guess, that they would strike some sort of a potential deal with tmobile. What i can tell you as we head into q1 is there does seem to be a real strong attempt being made getting Deutsche Telecom to the table to negotiate a potential deal. And they want to get it done, if they can, as quickly as possible. The key here will still be what Deutsche Telecom believes are the regulatory impediments, whether its willing to take the risk on a deal, something its done once with at t and not seen come to fruition. Will it choose to do so . Does it still feel as though it wants to exit the u. S. And its 67plus percent ownership that it has . And what will antitrust regulators and the fcc have to say about a potential deal . We do expect they will try to move forward in that conversation. And structure of it and what you were able to offer Deutsche Telecom will certainly be a key part of that. As we begin the new year, we certainly want to keep a close eye on time warner cable, as we know charter and liberty continue to keep a close eye. The window for the nominating deadline for the board opens january 15th, closes the middle of february. That will be key. Will charter and liberty try to do something on their own or rely on shareholders in time warner stock to do something for them . When le they come with a significant proposal . What will it look like . I have a feeling well be busy on all of those fronts in the not too distant future. Give your phone the day off tomorrow because it going to need the rest in the next 12 months. Phillips the official partier of the lighting of the times square ball. Lets welcome the ceo of phillips. Thank you. Happy to be here. I was reading the first ball had a hundred bulbs. A few more now, right . Just a few. How many . Over 32,000. This year we wanted to highlight this with our Award Winning hue technology. It builds intelligence and digitization. One of the four will be lit through a smart device to bring in 24 colors. What you have see here is our new slim style 60watt equivalent that has the exact same technology, led electionion that is in the ball and people can essentially use it for their home. Lasts 25 times. I talk about the transformation that is happening in lighting. Look, lighting unions used to be a stagnant, mundane proposition. Its transitioning to much more of a durable good where the internet of things is being embedded in the lighting. So you can do so many things with it. This lasts for 23 years . Yes. So i interrupted you. What can you connect to and do . So the intelligence is really about creating different position abiliti possibilities. So what you will see is all of the internet of things is coming to lighting and all the possibilities that come along with that. Innovation and technology has always been part of the phillips dna and well really raising the bar if youre not selling a disposable product anymore, what are you going to sell into that im going to have this in my house for 23 years. Im not did the intelligence in the bulb, in the lamp, whether its commercially or from a consumer perspective, it alouchs to you do multiple things that you cant do now, things like immediate demand and response, the ability to peak shade lows one reason homes are using less energy than they have in ten years. Retail, its not 23 times the price of the old bulb. Under 10. And come march it will be energy star so it will be probably close to half that come march. We have some news on manufacturing. Lets get to Rick Santelli. And the survey says, it dropped under 60, 59. 1, production dropped to well under 60 at 57. 9, new orders down 8. 1 at 60. 7, employment minus 9. 3 at 51. 6, lowest since april of 2013. If you go back to march of 2011, we have the person from the number crunching unit itself. What do you see on the horizon for 2014 . Give me a quick postmortem on this data . If you look at the numbers, theyre pretty solid. Rotating in the high 50s, 60s. Last year we were at 50. 0 to end the year. We would have been thrilled with high 50s and 60s. You bring up a great point, alice. Were really lofty. If you look at this month, we definitely lost ground. But in the grand progress, we made progress in 2013. What are you seeing for 2014 . In december we had a lot of unplanned orders. There was a huge push to get things packaged up and out the doors. It depleted inventorienventorie lowest since july. There is going to be another inventory rebuild. There are inventories in transit. Chinese new year was well planned for. Theres things coming in in january. We will see another inventory rebuild. It wont be as big as what we saw. After seeing a 4 handle on gdp pretty much because of invento inventory, inventory should be the word for 2014. Thanks for taking the time. Happy new year. Back to you. Still ahead, well talk to the man who designed the times square ball, fred curtis of waterford crystal. A lot more squawk on the street. Back in a minute. Tokyos new years eve happens in about 30 minutes. Bny mellon combines Investment Management investment servicing, giving us unique insights which help us attract the industrys brightest minds who create powerful strategies for a countrys investments which are used to build new schools to build more bright minds. Invested in the world. Bny mellon. Welcome back to squawk on the street, im Jackie Deangelis at the nymex. Traders are saying the technical setup for this was anticipated, they are expecting to see a little bit more selling pressure. Theyre also saying its the stronger dollar impacting today and a little repositions, the end of the quarter and end of the year. Gold on everybodys radar, slipping under 1,200 an ounce, hitting a lower level not seen since earlier in year in july. Traders saying theyre looking for inflation next year to bring the gold trade back to life. Not sure if theyre going to get it. See reeg positioning here before the end of the year as well. A 30 gold drop. Back to you. Bad year for gold. Many of this years ipos came with a lot of hype and big first day gains. Which came out on top . The best and worst of the ipos of 2013 up next. I always say be the man with the plan but with less energy, moodiness, and a low sex drive, i had to do something. I saw my doctor. A blood test showed it was low testosterone, not age. 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At a company thats bringing media and technology together. Next is every second of nbcuniversals coverage 0f the 2014 olympic winter games. Its connecting over one million lowincome americans to Broadband Internet at home. Its a place named one americas most veteran friendly employers. Next is information and entertainment in ways you never thought possible. Welcome to whats next. Comcastnbcuniversal. Jim cramer is back on thursday, but were excited to let you know his new book get rich carefully is now on sale, already the number one book on amazon and kindle. I have no idea how he has time to write a book. He did tweet a nice picture of himself in mexico outside of starbucks, arguing that starbucks will climb. Which ipos performed the best . Dominic chu has more on that. Happy new year, dom. Happy new year, carl and gang. When 2013 closes its books, it will be a huge year. The ipos can do relatively well. According to renaissance market to tracks this market, 300 ipos priced 100 million or more, over 100 more than last year. Among the better performing ones, take a look at some of these. The Container Store up 155 since it went public. A lot of people want those storage or tupperware containers. Up next, voxeljet. And another one, Gw Pharmaceutical and another Cancer Company here up 400 , insys. We could expect a lot more of those to come up, if the market stays stable, names expected names of king. Com, the makers of the candy crush video games and coupons. Com, coming out possibly in 2014 if the markets stay stable, solid and economic improvement, we could see a lot more ipos coming up in 2014 as well. Thank you, dom. When we come back, well take you live to tokyo in just a moment. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. 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Lets get to Rick Santelli. Conference sports, december read on confidence, the final number of the year, 78. 1. It certainly pleblows away our t look for november. The lowest read of the year happened to have been the first month of the year in january, 58. Strongest read, mid year in june at 82. 1. We continue to be in the upper echelon. Maybe it wasnt the biggest number of the year but it certainly is significantly larger than where we finished off last year, carl, at 66. 7. Simon, back to you. Thank you, rick. As a strong year for the markets draw to a close, lets take a look at whats ahead for 2014. Scott joins us from wells fargo. Hi, simon, how are you . Im thinking about next year. What do you think . Since august weve had a yearend target for 2014 of 1850 to 1900. Were pretty close to the bottom end of that range. I think and weve been telling our clients all along we may be a little conservative in our target and in our earnings estimates. I think theres a little bit of room to the up side but not a lot. Are you basically saying that the market isnt going to go very far next year . Based on our work i think the highest probability is that you see some type of 7 , 8 return in the market. You tack on a couple of percent for dividends and thats a pretty nice year. What are you advising clients to do . Where do they go in the market to do that . Weve been trying to its not been an easy task to get them in the market in the first place but we want them in industrials, technology, the Consumer Discretionary sector. We dont want them to hide. We want them in the sectors that are going to benefit from a continuation of this expansion. Part of that is not only the u. S. Doing a little bit better, 2. 4 gdp, thats how we get to the 5 , 6 Earnings Growth in 2014. Is it your expectations that clues to accelerating top line or even bottom line growth are going to come in the 4q numbers . Im not sure. I think 4q is going to be okay but as far as earnings advances, i think youre going to see the middigit type range, 4, 5, 6 gains. Clearly that gdp number in the Third Quarter was a lot bigger than i thought it was going to be. But i dont think you can expect a big Fourth Quarter earnings season. I also dont think you can expect a big Fourth Quarter gdp number as we saw in the Third Quarter. Scott, you said Something Interesting a moment ago, which is youre having a tough time getting your clients to even invest in the equity markets. I dont want to put words in your mouth but thats kind of what i heard. If that is the case after an up 29 year in the s p, if theyre not going to invest this year, are they ever going to . You know, david, the moneys been trickling in. Retail investors, they pay the bills here at wells fargo advisers. So you get a pretty good feel for the flows and Retail Investor mentality. Retail investors, they have been very cautious. Theyve been putting money in. If you look at the flow data, youll see that. But there is no surge in retail money. Theres a little chasing going on. That might mean the market is going to go a little further before we have a pullback. But really our clients have way too much cash, theyre underinvested in stocks what is behind that and what changes that die nynamic . I think its going to be tough to change. Our clients, the avraof average baby boomer. Theyve been burned twice on paper in the last 35 years. Theyre 60 now, 65. They know they dont have the time to make it back or at least thats the fear. I think theres a lot of cash on the sidelines that is never going to see the equity market again. Its a problem. But your basic assumption is youre right and you believe the equity market will gain from here and they will see the world in a very different way potentially. They will see the economy is not as strong as some seem to think that it is and they also will see that the fed is still printing cash every month and that will worry them. It has a right to worry them, doesnt it . Simon, thats one of my biggest, toughest jobs is to try to talk to clients and say, look, over the next two to three years, you have a good chance for a 6 to 8 chance in the total equity market. If thats the case, you need to be in this thing. You dont want to outlive your money. The way youre going to outlive why a your money is sitting in cash. Thats not going to do anything for you. Thats one of my biggest jobs, how to take advantage of that. Were not at the end of the line of the cyclical bull market. We still have more to go. Happy new year, guys. Dont get too crazy out there. Thank you. It is the last day of 2013. It has been another year full of drama. Executive shuffles and corporate changes. Here are some of my picks for notable changes. Weve talked about draghi and his fortitude as he waged war with the bond market. All the cypruses and portugals, political elections with merkel, big policy disagreements within the continent. At the very least they bought the world some time to heal. Thats what well be talking about a year or two from now. But a lot of questions for the new year. No doubt. My story of the year would have to be the carnival triumph which drifted in the wake of the fire and the righting of the costa concordia. Im flying down this weekend to interview Arnold Donald for something were going to do on the show later down the line. This is a fascinating question. Theres a lot of questions whether he can turn it around. If you start raising margins and cutting costs, this stock could really fly say some of the analysts. Thats a real interesting stock. Mine within my universe of m a is perhaps not unexpected. Certainly the foremost activist but it is the rise of the activist investors. Im not sure why were showing tepper, hes not an activist but that guy is, bill ackman. Activism when it comes to this case hertz, which puts a poison pill in this morning. Large or small, there have been virtually no company that have not become aware of the activist investors, the money that has flowed into their coffers and the freedom they seem to feel to try to exert their will on corporations. Well see whether that dynamic changes in the coming year. It points to how much of Business News revolved around the penalty, the bezos, the mary barra at gm, the icahns. U mentioned it. Hey, we got something. Net flex is testing new waters, providing lowquality video to select users at a discounted price. It was almost two years to the day that netflix of course announced its 60 price hike sending shares down sharply. Has the Company Learned its Pricing Strategy since then . Well discuss on squawk on the street next. I needed a new laptop for my premed classes, something that runs office and has a keyboard. But i wanted a tablet for me, for stuff like twitter and xbox, so my downtime can be more like uptime. Thats why i got a windows 2 in 1 which does both works as a laptop and a tablet. So i can manage my crazy life, and also have a life. [ beep ] gotta go. As netflix opens up house of cards in ultra hd, it has not forgotten the rest of its customers. It will be test a discounted streaming plan for about 7 a month as a lower quality digital alternative. Todd sprangler, good morning to you. Thanks for coming to the phone. Good morning. A fascinating story. People have been saying netflix needs to charge customers more. What do we need about this new plan . For now its just a test. They want to gather information before making any moves one way or the other. Hello . Go ahead, todd, youre on. If a lowerpriced package would make sense for people who dont necessarily need hd and only one to access one feed at one time. Its a single feed, one device at a time. I assume the access to your library is otherwise the same. . Thats right. It would be the same kind of content you would get with the regular 7. 99 a month plan. Its hard to find any name thats risen more than netflix stock. A lot of it has come from analysts who say they have so much leverage and command so much of the band width, they have pricing power. Netflix has been burned by making Sweeping Change without warning to customers and they suffered kind of a black eye when they split up the dvd by mail and streaming plans. That effectively was a rate increase for customers who had been used to getting dvd and streaming on one plan and one price. So they are going to be very cautious before they do anything like raise rates. At the same time, todd, i see that others are reporting that theyre also testing the idea that they would price according to the number of users or screens that could access the content. Behind all this is there a desire to break down the market into smaller pieces you think or have one big price move . Im thinking about in particular the model you have in the Airline History where they sought to divide and subdivide into individual charges . Is that where what netflix is trying to do, is that the smart thing to do . I think netflix is trying to maintain the simplicity. You have one price, there are not a lot of options. You know, for now it seems like the one price fits all has been an approach that has been successful for netflix. But i think you might see that they will have to at some point start to tier in different packages if they want to offer additional kind of exclusive content, they may decide to put that into a higher price offering. They might go that route. They resisted that idea. They like the simplicity of the single price and well see which way they go here in the new year. Yeah. Well, your point about they had been around the block when it comes to strategic moves. So clearly theyve learned some lessons from that, todd. Thanks for your time. Happy new year. Happy new year. Thank you. Colorados new Marijuana Law goes into effect in less than 24 hours now. Nbc correspondent Gabe Gutierrez is live in denver. Good morning, gabe. Good morning. Were here in denver at one of the stores that is licensed to sell recreational marijuana. Tomorrow customers 21 years and older with a colorado id will be able to buy up to an ounce of pot and those customers from out of state will be limited to a quarter ounce of marijuana. Colorado has been a pioneer in medical marijuana. They have quite a lot of different varieties, anything called from power durbin, some with some of the most complicated regulations in the world. The federal government still sees it as a crime but has said it wont focus on prosecuting it but instead keeping it away from children and drug trafficking. But there are many banking challenges that remain as many of these dispensaries havent been able to do business. Sales are supposed to start here at 8 00 a. M. Tomorrow and they expect a lot of lines. Thats going to be interesting to watch. Thank you, Gabe Gutierrez, joining us from colorado. Scott wapner has breaking news for us. Theres been a lot of speculation once hertz adopted that poison pill yesterday as to which activators could be taking positions in that stock. Its already a loved stock. I can report dan loebs third point has taken a new position in hertz and that it is under 5 . So there wouldnt be a filing on it. Im also told according to sources that at least for the time being that third point doesnt have any intention of taking an activist role in that name. Who knows. That could change over time. Its the thinking over there that an activist role in hertz is not the intention of dan loeb at this time. I can also tell you and its been reported in filings before that Keith Meisters corvax has had a position. Why would hertz observe the poison pill after seeing o unusual activity. Perhaps merely its the presence of mr. Loeb given whats gone on recently with sony and sotheby as. The company is a little wary of what that could mean and Keith Meister used to work for carl icahn. If he is increasing his position in any sort of size, that could be somewhat concerning to the folks over at hertz. I can tell you that third point does have a new position. Its a rather small one considering the size that dan loeb would traditionally take in some of the news im used to talking about, a sony or sothebys. Its important when dan lobe takes a position in any company, it certainly gets a lot of attention like in hertz when they chose to adopt the poison pill yesterday. I think theres more to it here than beyond mr. Loeb. It doesnt appear to be an activist position as you pointed out. And what i have heard from folks familiar with the situation is did this in the belief it would be one of the big guys. Core vex, a 4 billion fund is not going to take that large a position. This is not a corvex issue. Its much more whether its a loeb or, as you point out, doesnt appear to be activist. In this case my sources indicate they did this because they know there is an activist in the shares of size who would be in a position to take as much as a 10 stake. Now loeb with an 11plus, 12 billion hedge fund. Icahn is the other big name. I havent been able to confirm who that would be. Certainly corvex was in there and loeb was also, as you point out, in there. Its not clear that we should jump to the conclusion that this is the activist they are actually doing this to potentially forestall. Well see whether its effective or not. As we pointed out earlier on the program in the case of hologic they put the pill in after ackman already had 9 . And the activist case is split off in some way, whitman leasing, a capital intensive business and there youll be able to lever you up your Balance Sheet even more given no longer having that capital intensive business to the extent youll be able to buy back a lot of shares. It caps what has been such an interesting year in terms of activists. Unprecedented really. I know youve spoken of that on only cases and ive seen it as well. And the mere presence of a dan loeb given everything thats happened this year with activists in general is enough to call the attention of the leadership over at hertz to perhaps try and protebt yourself in case the motives do change or grow larger than what they presume to be at this point in time. Of course by doing all of this, what have they done . They just attracted a well, it is a 7 move on some very heavy volume for the last trading day of the year. Our thanks to you, scott. Rates are on the rise. Consumers can expect to pay more to get a mortgage next year. Could a pricier mortgage also result in some curved lending . Well talk to Frank Keating in just a moment. It raises the price of fishmeal, cattle feed and beef. Bny mellon turns insights like these into powerful investment strategies. For a university endowment. It funds a marine biologist. Who studies the peruvian anchovy. Invested in the world. Bny mellon. 2013 was a strong year for real estate. Will it keep pace next year . Diana olick will join us in a moment. First lets check her scorecard for 2013. Diana predicted house prices would continue to prize from 5 to 7 . She got that half right as prices rose 12 . Diana predicted apartment rents would stay elevated and vacancies low despite the improvement in the Housing Market. In that she was correct. And finally diana predicted as home prices to rise, more borrowers would come out from under underwater. Prices pulled about 2 million back and home ren open vagss took a big leap. Lets see whats in store for 2014. Reporter home prices will continue to rise. Those price jumps we saw in 2013 were driven by investors on the low end of the market. As distressed sales become a part of the mix, the prices will moderate. And Mortgage Rates will also rise. The days of the 3. 5 30year fixed are over. Rates are already up well over a full percent and point from a year ago and as the Federal Reserve begins its much anticipated exit in the bond buying business, rates will have to go higher. And some have predicted large Institutional Investors will sell at a profit and leave but they say theyve settled in on the long haul. And also rents for single homes are rising as they are for mult multibuilding apartment complexes. Stay tuned for our predictions. You can watch them all on the web. Coming up, my own predictions for traveling leisure. Im already going to look here. Im not going to wait. With legislation to create a replacement for fannie and freddie stalled, what can banks expect in the next year. Governor, good to have you back. Good morning. A pleasure to be here. Happy new year. Same to you. Fee increases may not make it a happy year. Can you explain where it comes from as we await the next move from mel watt . It is important to make sure there is a slow but inexorable exit from the mortgage market. I think democrats and republicans here in washington agree that has to be the case. And obviously to do that, you have to have a fee, if you will, a premium, to assure that the private party who is making the Mortgage Loan pays for the service that hes being provided, namely the insurance to provide him an opportunity to have a mortgage. And that has to be all resolved. But, you know, one thing id like to emphasize is dianas points are absolutely right that were heard here previously but the regulatory system out there, particularly the ability to repay rule requiring that you have to have a job, assets and income, no surprise there but a 43 debttoincome ratio is going to retard some of the Single Family homeownership growth and there will be real pressure in the rental market because thats where a lot of people will have to go. Do you think standards are too tight and are they going to get tighter . For example, in the case of the aba and we do a lot of lending, but ive had people from port rico tell me that 43 is going to be really tough for the economy in port rico. Also in florida our state Association President there has advised that a lot of the snow birds coming from the northeast, they have assets but they dont have the kind of income they have when they were fully employed. So that is going to put a crimp on purchases of singlefamily homes in the florida and port rico area. It may be too tight in some markets. Well have to see how it moves. Governor, just before we let you go, this year for many people one of the major developments was the finds that some of t fines that some of big wall street bank himself to pay. As you look into next year what do you think the relationship between the federal agents and the banks and what are you doing behind the scenes to try to temper it in some way . I think its really important to understand to have the regulators stunned there has to be a comity between themselves and the regulating community. We were instrumental and filed a lawsuit against the five regulator who provided a rule, if you will, for doddfrank and the interpretation that would make it very difficult for the smallest banks to retain and to acquire capital. So we have to ask to are listened to. Obviously we have to listen because theyre the regulators, but i think its really important to understand the importance of the strength of the banking system, the economy will not grow and will not succeed as the number one economy in the world if were always falling on our faces and every regulator from every state is after the banking industry. Theres got to be balance, and thats what were hoping to see in 2014. Governor, appreciate your insight on that. Thats going to be a story for nut year. Meantime, countries around the world arin ringing in the new year with some champagne, of course. But do you know your champagne etiquette . Back in a moment. Welcome back. How is everything . Theres nothing like being your own boss and my customers are really liking your flat rate shipping. Fedex one rate. Really makes my life easier. Maybe a promotion is in order. Good news. I got a new title. And a raise . Management couldnt make that happen. [ male announcer ] introducing fedex one rate. Simple, flat rate shipping with the reliability of fedex. Dow at 16,541. Check out gold, bounced right of a the level and back up 7 to 1,211. Millions of new Health Insurance policies purchased under president obamas Health Care Law will officially kick in tomorrow. But will it go down without a glitch . Welcome to the program, sir. Nice to see you. Good morning. Happy new year to you. Before we go any further, can you just explain what you guys do. Youre not part of obamacare. Were you already an existing web site for people to generally buy insurance . We operate goHealth Insurance. Com, it allows people to Research Insurance online and talk to a licensed adviser. Now in this compressed period of time because they kept pushing the deadlines back, not only have people got to make the payment on whatever plan theyve chosen, the Health Insurers have got to switch it on so that everybody can see that theyre insured. How do you think this is going to go . Well, you saw kind of slow october november and then a big surge in december with all the enrollment. You had until the 23rd and ultimately the 24th to enroll. Now the carriers are scrambling to get the id cards out, get everything enrolled in their system. There were two parts in this, one is pick your plan and enroll in a plan, which a lot of consumers have done now. The second part is pay your first premium where your policy is actually active. That needs to be done by january 10th. Carriers will be scrambling to get those policies issued and out the doors in the next few days. How do you hear its going . Theres a lot going on right now. Well see how this all comes together in the next week or so. Okay. When it does go wrong, what should people do . What can people do . I guess they just hang on the phone waiting to get through to their insurer. If you didnt get enrolled or get covered, you have until january 15th to get covered for a february 1st effective date. The penalties dont kick in until next year. You need to enroll by the end of march this year to make everything effective. Clint jones joining us from gohealthinsurance. Thank you. Do you want a prime spot to dine tonight in the heart of times square . If you do, you are in luck. Applebys is giving you that opportunity but its going to cost you. Just how much . Well give you that report in just a moment. And youre talking to your rheumatologist about trying or adding a biologic. This is humira, adalimumab. This is humira working to help relieve my pain. This is humira helping me through the twists and turns. This is humira helping to protect my joints from further damage. Doctors have been prescribing humira for over ten years. Humira works by targeting and helping to block a specific source of inflammation that contributes to ra symptoms. For many adults, humira is proven to help relieve pain and stop further joint damage. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira , your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your doctor if humira can work for you. This is humira at work. To help secure retirements and protect financial futures. To help communities recover and rebuild. For Companies Going from garage to global. On the ground, in the air, even into space. We repaid every dollar america lent us. And gave america back a profit. Were here to keep our promises. To help you realize a better tomorrow. From the families of aig, happy holidays. Welcome back to squawk on the street and the last Santelli Exchange of the year. And i think today is the perfect day to discuss what i think was almost aptly said best on a web site i frequent this morning, they basically had a crayon chart, said earnings per share up 6 , s p up 30 . That really does say it all. Now, i cant stand here and tell any listeners on the radio or viewers if this is going to end well or not well for stocks. What i can tell you is there are a lot of big variables we have to deal with on the valuation and relationship on the stock market, companys earnings, the level of the earnings, Interest Rates and a 4 trillion fed Balance Sheet. What i can tell you is theres always ways to stay ahead of the game. In the 80s i was with drexel and they were investing and investing. The nikkei touched 39,000, a whisker below and the rest is history as they celebrate the biggest net change in the year in japan, i think going back to the 70s but truly nowhere near 39,000. So how exactly are we going to be able to tell its time to be a little careful in your equity positions . I always think of those analogies of swans, black swans, fat tails but i also think of canaries in the coal mine. Heres the canaries in the coal mine that you need to Pay Attention to. They will let you know. It looks to me like the one in the lefthand corner over there if you can get a better view, i think thats twitter. I think this is tesla and i think the last one is netflix at 105 pe ratio. But in the end that really is what you want to pay most attention to. When the really high flyers and, believe me, i love netflix, i think tesla could be the best designed car ever but i dont know that any of these niche areas have valuations that make sense. But when the tied starts to move out, its these can airities are not going to live longer. Happy new year to you viewers and listeners and a happy 2014 to us all. Right back to you, rick. It is new years eve and what better way to celebrate. Moet chandon, well go behind the bottle when squawk on the street comes right back. And that gives us scale and insight no one else has. Investment management combined with investment servicing. Bringing the power of investments to peoples lives. Invested in the world. Bny mellon. Ask me what its like to get your best nights sleep every night. [announcer] why not talk to someone whos sleeping on the most highly recommended bed in america . Ask me about my tempurpedic. Ask me how fast i fall asleep. Ask me about staying asleep. [announcer] tempurpedic owners are more satisfied than owners of any traditional mattress brand. Tempurpedic. The most highly recommended bed in america. Now sleep cooler with extra cooling comfort on our bestselling tempurbreeze beds. Visit tempurpedic. Com to learn more, and find a retailer near you. It took a lot of juggling to keep it all together. K. For some lowincome families, having Broadband Internet is a faraway dream. So we created internet essentials, americas largest lowcost internet adoption program. Having the internet at home means she has to go no further than the Kitchen Table to do her homework. Now, more than one million americans have been connected at home. It makes it so much better to do homework, when youre at home. Welcome to whats next. Comcastnbcuniversal. Something about those nights and the champagne night everythings okay a little bubbly there, moet chandon was named the champagne for new years eve in times square. Its good to have you. Thank you. How do i get a gig like this . You have to be the one that drinks the most champagne throughout the year, not just on new years eve. Its an iconic celebration and this is the champagne of success and glamour. One bottle is opened every second. I think everyone should have some moet chandon imperial in their glass. How has the crop been . Weve had successful vintages. 2013 we think, you never know. I think moet chandon imperial is aged for two years until it comes into the market. We have a little time before we know whats going to happen with this vintage. Were drinking 2004 right now from why is that . Its great to have something thats a wonderful vintage and have it spend a bit of time in the cellar first. Theres a story out that champagne volumes are going to be down about 3 to 4 and a lot of that has to do with the u. K. Market and cheaper competition coming in from italy and spain. They say the industry effort is to raise the quality and raise awareness. I think were lucky, were dating back to 1743. Were celebrating our 200th anniversary today. Were getting something thats wonderful in the glass this year and for many years to come. I think edge what does it actually mean to have your tightful. Have your title . I make sure your glass is full. Between wines and spirits, there are many different organizations overseeing the da fact that you need a narrowrimmed diameter glass ill help you out. We use a wine glass these days. Right. A great glass of wine. Certainly in the traditional flute you see the bubbles and the stream feeding up. In this sort of glass, we see the art of the winemaker. The man voted the head winemaker, we love to see his artistry in a glass like this. You go get your nose in. Whats the perfect temperature and the ideal time between the pop and the serve . Great questions. We love cellar is 55 degrees fahrenheit. So a regular wine fridge. A little cooler. 45 degrees is really nice for champagne. Get it straight into the glass, drink it right away. Like i said, in champagne, weve done the cellar and aging for you. So in those temperatures, out tonight, you dont have to warm the champagne. Well, no, no, no, cool is wonderful, as well, and watch the evolution of the champagne in the glass as it warms, youll get more aromas and more flavors as it changes. I love this. You seduced me. Im on. Does it drive you crazy when people drop a strawberry in and let it soak . I think you should drink it as you like it. If you want fruit, lovely. If you want to drink it as it is, lovely. Cocktails are great, brandy, a sugar cube. Yeah, stretch it out a little bit, thats a great way. Good luck getting these out of here safely. Its nice to toast with. Linda, thank you so much. My pleasure. Happy new year, everyone. Same to you. When we come back, the barricades are on standby. Police are lining up. A wrecking ball people will be swarming times square, expecting a Million People to see the ball. A little over 13 hours before we ring in 2014, and well talk to the man who designed the times square ball, when squawk on the street continues. And so it begins the countdown and you think of a reason why to be downtown met you in the middle of the scandalous town there it is, an estimated 1 Million People battling it out in the times square, to watch the iconic ball drop. Another 1 billion people will watch it on television. Fred curtis is the master sculptor for waterford, and designed and, i believe, manufactured the ball. The ball is quite a new tradition, it came in 2000, you were saying. The waterford ball came in 2000, but the tradition has been on since 1907. So each year you redesign the panels within it . Yeah, this year did, its a brandnew ball this year. All new panels, 2,688 panels on this. And each panel is cut with a design called imagination. Gift of imagination. Yes, gift of imagination. Its the greatest gift collection, and its been synonymous with it for over 200 years. You have the same type of branding . Yeah, we do have products with the same design. People collect them every year as a we make a collection, we have a few of them here. Its got the imagination design cut into the crystal. Just to give people a sense of scale, because were all familiar with the picture of it, but the actual components, i dont know, can you pick me up here, tom, this size . Thats the actual triangle. 2,688. How much . 2,688. It weighs how much . About 12,000 pounds. Suspended high above new york. Yes. Walk me through some of the tests you take to make sure it doesnt come crashing down. Well, theres a huge amount of people involved in this. Waterford is just the skin of the ball. Youve got all of the electrics and stuff inside there. Theres almost 16 million colors inside the ball. We can do billions of different designs on the outside. But it all shines through the crystal, so it gives it a real kaleidoscope effect. Where do you make that, are you still making it in ireland . Yes, yes. What do you do when you finish with them . They will we dont sell them. They usually go to like in 2001, we gave them to the memorial, the museum for 9 11. Right. And all of the names of the victims were put on the pieces and donated to the museum. Every year, different charities and different organizations will benefit from them. Yeah, im thinking from a marketing standpoint, there are few events that are watched by as many people where your product is as central to the event, right . Very, very few. Were very lucky. I mean, how Many Companies can say to leave an old year out, new year in, and you get 1 billion people watching. 100 Million People in the United States alone, 1 million in the square, times square itself. I mean, its a huge, huge marketing opportunity. Is it much of a contest . Is there a bidding war to be the official provider of the crystal . Uhh, no, we dont have that much competition really. We are the best. Oh, yeah, for sure. Still, there are some make when will when will you design for next year . Do you start immediately or yeah, we start probably like well be starting on the new gift, but you have to wait until next year to find out what that is. I can tell you in 2023, we finish with a gift of love. Thats the last one. Really . Yeah. And 2,688 of these to be manufactured. Are they hand are they handmade . Handmade, yes. When do you start manufacturing that many panels . When is your deadline to have the designs done . Well, probably around november. Oh, okay. We have the time, yeah. A whole team of people working on this. Theres engineers. Theres designers, artisans, a whole team of although we should point out that you yourself got your start cutting glass in 197 1971, yes. You could make this if you had to. Oh, yes, i could actually, we teamed up this year with st. Jude childrens research hospital, and they chose one of their patients to design to do a design. And i took that she drew it raw, said it made her feel good, even just for a short time. So drew it, and i took it back and cut and papered it on the and its been on here, the only one on there thats different from all of the rest. So it was panel from lal girl from alabama. All right. You going to be in the square . Ive been up there this morning, and believe me, its freezing up there. [ laughter ] its good to stay up there in the elements. All right. Thank you very much for coming by. Youre welcome. Thank you very much. It will be fun over the next few hours to keep track of the markets, because the s ps right around 1,845. But if it can manage, obviously, in some thin volume, to get just 9 more points to close at 1,854. 05, that would give you 30 for the year. Thats only happened five times since 1950. Probably a bit of a stretch here. Well, it is 30 if you include dividends, isnt it . Youre already there already. The key is the stats of the year following an up 30 year, incredibly strong if youre long the market. It looks like if youre looking forward to a good year next year, you would want above30 close. Gents, i hope you have a great 2014. Well see you. Same to you. If you are just joining us, heres what you missed earlier on. Announcer welcome to squawk on the street. Heres whats happened so far i dont think were in a bubble. I think this is kind of natural. I think theres a bubble in bubbles. Were all bubble paranoid now. We cant enjoy a rally, because were worried about a bubble. I dont think were in a bubble. All three, two, one happy new year my guess is that this is quite typical that good years follow great years. Weve had a great year. Were likely to have a good year. But Risk Management and some kind of an air pocket during the year are likely to happen. You have to remember that the Housing Market is fundamentally different from the stock market. We hope to change that if we can get more things are changing. But there has been tremendous momentum in the Housing Market. [ bell sounds ] three, two, one a sevensecond delay will get you halfway around the world. I can report now, according to sources, that dan loebs third point has taken a position, a new position, in hertz, and that it is under 5 . The economy will not grow and will not succeed as the numberone economy in the world if were always falling on our faces and every regulator from every state is after the banking industry. Theres got to be balance, and thats what were hoping to see in 2014. It is 11 00 a. M. On the east coast, but already, 2014 somewhere. At this hour, its in shanghai, ringing in the new year. Interestingly, one of those indices that managed to close down for the year, down about 6. 75 . Even though its neighbor in tokyo, the nikkei, was up 57 for the year. Good morning. Were live here at post 9 at the new york Stock Exchange. We want to get a check on the markets here. The dow did set some intraday high, along with the s p. 16,546, up about 42 on the dow, the s p up 6. News that dan loebs third point has take an new position on hertz, and earlier today they adopted a poison pill after seeing unusual and substantial activity in the stock. And what goes up must come down, and then apparently go back up again. Shares of twitter are in rally mode after falling over 17 in the past two trading sessions. Of course, that fall comes after a major rally in twitter shares since its ipo in november. The roadmap goes like this. The market stocks still in the green as the major indiess look to post the best year in two decades. And even if you think facebook isnt as cool as it should be, its still pretty dominant. 73 of adults are now members of the social network. Well tell you what this means for the future of facebook in a moment. Speaking of dominant, shares of netflix have been on a tear this year, up nearly 30 in 2013. So will the good times continue in the new year . Well take a closer look. And how would you like to spend this new years eve in times square away from the cold, complete with a buffet dinner, open bar, and a live deejay, all for the cost of 375 bucks . Now you can if you spend your new years at applebees. Well hear from a lucky few taking that plunge. First up, joining me, dennis vermin, Business Editor of the business journal. Joining us, and welcome. I think that deal at applebees, its a good play. Given the real estate, yes yeah, yeah. Your thoughts on the top stories this year . We talked a lot about nat gas, fracking. We talked about that the other day. The corporate stories, the macro stories. Give me the top three, four. Ill give you a couple, carl. One thing that hasnt been talked about a lot, but probably gaining attention in 2014, is the Global Reaction to the nsa spying fallout. What that means for individual Companies Going forward. Of course, you know the effect where companies are forbidden of doing business with them because of spying effects. And thats been flipped on its head, where foreign governments are getting skeptical about u. S. Companies and their technology coming into their networks and their countries. That will be a big theme in 2014. Consumer spending . Weve been through the ringer on this retail season. We know its a short calendar. Is 2014 going to show it was a calendar issue . Well, i think calendar is less relevant than the fact that people shifted out of the nondurables to durables. Of course, it was easy to buy clothes after 2009, 2010. People didnt want to replace the cars, the appliances, but they did, so great years for the companies who made those sorts of durable goods. So id see my guess for 2014, carl, its a little more consistent on both sides the durables and nondurables. If the economy is growing at the rate we saw in the third quart other, which, of course, there are questions about that. There were pretty smart calls that consumers are spending on the cars and homes to the expense of other things. And 2014, a day of reckoning has to be nye for the Sears Holdings empire. I see that. And also for jcpenney, are they going to make it or not . Just so much doubt about that company and where its headed. So i think 2014 will be that year. Yeah. The cash watch will continue. It will. Thats true. Meantime, the dow and s p have set intraday records today, something were used to in 2013. Joining us to discuss what we can exmekt in the new year, jordan posner, managing director and senior Portfolio Manager with matrix asset advisors. Thank you for being with us, jordan. Pleasure. Good morning. Dennis mentions the day of reckoning being nye, at least for some specific companies. Is there a broader one for the market, especially once the fed starts to announce fed tapers . Well, the environment for next year, we think, is going to be one where the fed continues to taper, and we think what will happen, then, is youll see Interest Rates move up gradually over the course of the year into 2014. Especially in the back half when the taper theoretically tapers out. Financials we think will do well. Its an indication that the cyclically related stocks will do well. And in general, we think for the full year 2014, returns will rest back to the mean returns of the market, which are typically 8 , 10 , plus minus. In 2014, we would expect youll see a lot more individual performance stocktostock. So Stock Selection will become more important during the year. And the ones you like, cisco, qualcomm, oxy, interesting to watch. You have a reputation, jordan, for being a bit contrarian, but youre in the base camp in that youre looking for better corporate earnings next year, a better macroenvironment. Does that make you uncomfortable . A little bit. In fact, one of the concerting factors, there arent that many, but one of them, everyone is reasonably bullish. We solved a lot of the problems, especially in washington. A lot of the crisisrelated issues have died down to a great degree. There are still issues that are out there. Geopolitical events can crop up at any time. Theres an election coming up in congress in 2014. So theres plenty of stuff to workry about. On balance, though, the economic structure of whats going on throughout the world, the u. S. , europe is doing better, china seems to have stabilized. All leads to pretty positive outlook. Of course, theres always going to be something that upsets the apple cart. And when there is, we expect some type of correction to take place during the year. We would use that as an opportunity to buy, not necessarily chase things right now. All right. Jordan, youve talked about cisco. Is this because it had a terrible quarter last quarter . Is it a value pick, or is it something beyond that idea of picking that stock for 2014 . We are value investors, and so, there certainly is a value take. They did have a difficult october quarter when they reported it. And subsequent to that, they had a large investor day in new york. And they reiterated a couple of themes. One is they are becoming much more shareholder aware in terms of returning capital to shareholders by way of dividend and in terms of share repurchase. That creates an imperative within the company to make sure that the returns within the company from the business continue to do well. And i think that they are pushing back against some of the innovative competitors out there, and we think cisco has a good chance of winning and retaining its position in a very important part of the technology world, especially as we believe corporations will continue to spend and reinvest. Thats going to be something to watch. We all have our eye on cap ex for 2014. Jordan, have a great new year. Well see you next year. You, too. Jordan posner joining us from matrix. New study by the pew shows 73 of online adults are members of a social network. Facebook is still the dominant platform, along with increased use in pinterest and linkedin, while only 24 involved in twitter. Fascinating stats here. Yeah, ive been trying to comb through this. A couple of headline takeaways. One is that instagram is the real twitter competitor, in terms of how they index demographically, very similar, strong in the black and hispanic communities. Strong in urban areas. Strong in the younger demos. Facebook generally pretty strong across the board to kind of contrast some of the headlines weve seen out there. Though pew did focus on 18 and above. The youngest demographic is 18 to 29. And, also, facebook and instagram we can call it facegram have a high number of active daily users, which is Something Interesting for the advertising prospects. It seems like two channels here. The mainstream channel, thats facebook. And then you have the younger, hip channel, thats instagram. Both heavily engaged. Yeah. I love my favorite, 45 of seniors in the u. S. Are on facebook. Thats up from 35 last year. But teens . 84 and stagnant. I wonder what that means, law of large numbers or Something Else . Ive seen it play out in my own life. My parents are both on facebook. My aunt jeannie, who turned, i think, 80 yesterday, happy birthday, aunt jenny, is on facebook as well. Not on instagram. But ive gotten some nephews and nieces who are very active on the instagram whatnot, dont like to view the pictures all of the time. Yes. Makes us concerned. Yeah. Because im getting old. I see it playing out. Jon, when you look at the numbers for twitter, the valuation were seeing, 350 times plus forward earnings . Well, no. But i think we cant just look at what twitter is today and assume that this is just about that. Theyve got a big opportunity with the loyalty they have among that key demo if they can expand beyond the core Twitter Service and do more with it. But instagram does, too. So i think thats going to be a battle we see play out not just in vine versus instagram video, but across a lot of different products over the next few years. Yeah. Jon, well see you in a few minutes. Jon fortt at post 9. We want to get back to headquarters and check in with scott wapner. Had a very busy morning so far. And getting busier. The hertz story, we reported that dan loeb had taken a position in hertz of under 5 . We also talked about how Keith Meisters core vex had been adding to its position, and i can now report that mr. Meister has, in fact, met with hertz management. He did meet with the ceo, according to my sources, mark fasoras, in meetings described as being constructive, and this plays into the thought that, its not the poison pill adopted by hertz late yesterday afternoon, its not about meister, maybe its not about loeb. Maybe its about somebody else whos taken a very large position, and thats sort of the mystery on wall street today as to what exactly drove hertz and its ceo and the board which, by the way, im told from sources, you know, has this Board Meeting a couple of days ago, just before new years, right, something would have had to have happened to force a board a couple days before the new year to get on the phone and have an important call and an emergency call if they were going to adopt a poison pill. All i can tell you now is that i know from my sources that mr. Meister has, in fact, met with hertz management. It was described to me by those sources as being constructive, and now we see where this goes from here. But the stock is getting a little bit more of a lift apparently on this news, now up some 9 , and the volume, as you know, carl, today up from the minute that this story had started to get out there, volume was just ripping higher. Scott, can you explain this to me . Whats the play for hertz . The stock has done incredibly well over 2013. The market for rental cars is basically two to three companies, tops, after merger after merger after merger. Do the activists have no ideas left . Whats the angle here . I think they have ideas, and maybe it spinvolves a spinoff, potential buyback to increase shareholder value. I can tell you, dennis, a number of bigname hedge funds and many wellknown names who are in this stock that have been reported through filings over the last year or so. So you know how these things go from looking at the activity of hedge fund activist investors, and just nonactivist hedge funds over the last year. They run in packs in many cases, you know, whether its aig, a very Popular Hedge Fund trade. Not an activist role by any stretch of the imagination. But then, theres herbalife, which you had a number of people whether its carl icahn or george soros, for example, who have gotten into that name. And now hertz appears on the radar of a large number of Hedge Fund Guys as a stock that holds some value that needs to be unlocked and they believe that that will happen in the months and, you know, years ahead. Yeah. That push of 28 is an alltime high for htz, of course, highs of the days on strong volume. Scott, thanks for your reporting today. Scott wapner back at hq. If youre in the market for a new car, you should hurry down to the dealership, because today is the day youre most likely to get a good deal. We will tell you why in a moment. But first, Rick Santelli is watching yearend action. Rick . Absolutely. And according to reuters, hot off the presses, the euro will be the best performing major currency of the year. We know the worst performing major currency of the year was the yen against just about everything. But we have mark grant at the bottom of the hour to talk about Foreign Exchange europe, and anything he sees in his crystal ball for 2014. Bottom of the hour. 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Save up to 300 on select mattresses during the tempurpedic model closeout event. Find a store at tempurpedic. Com. Stocks are seeing a slow drift higher today. The dow is up almost 54. Look at energy, as well. One of the big winners on the s p this morning. Dominic chu is watching that. Thats right, carl. Energy is the best performing sector on the s p 500 so far today. The top three stocks are all refiners or more downstream, if you will. Marathon petroleum, valero, telsoro, and philips 66, selling one of the units to berkshire hathaway. So theyre using it as currency. The unit makes chemicals designed to increase flow in energy pipelines. So at least one deal so to speak in this particular sector, carl. One of the Great Stories of the quarter, thats for sure, dom. Thanks a lot. If youre in the market for a new or used car, today might be the best day of the year to buy. Our Mary Thompson explains, she is live at the lynnbrook audi dealership in lynn brook, new york. Mary, good morning. Reporter good morning to you, carl. You might think of raising a glass of champagne on new years eve, not driving off the lot with a new car. But if youre still in the market for one, now, and i mean today, it might be the best time of the year to buy them. Now, for highend auto dealers like the audis that are sold here at lynn brook, year end is typically busy time of the year, because clients are looking to spend bonus money, but typically, its a time to find bargains on all kinds of lots. Dealers are looking to make monthend and yearend quotas and lay claims to topselling brands. Heres the general manager, justin haynes. For some, its bragging rights. Objectives we all strive for. Its been a good gain for automak automakers. 16. 6 million vehicles. Thats the big four and other automak automakers, posting strong sales gains through the end of the year. To move the 80 days worth of supply off of the lots, kelly bluebook analyst Alec Gutierrez says they continue to offer good financing deals. The big difference at year end, gutierrez says is the automakers pumping up sales by boosting cash rebates. On a number of the pickup trucks, including the f series, you might save upwards of 5,000. Midsized cars like the chrysler 200, save anywhere from 2,000 to 3,000. Reporter now, if youre unable to make it out today, keep in mind that the dealers actually dont close their books on 2013 until january 2nd. So you might still have time to get in on some of the good deals by thursday. Carl, back to you. That is a great tip. Still time to do it, too, before the ball drops, mary. Thank you so much. Mary thompson. Meantime, there are some worries that the popes recent negative comments about capitalism and the wealthy are hurting efforts to raise funds for the renovation of st. Patricks cathedral in new york city. Our Michelle Ka Russo carusocabrera has the story. Reporter the renovations cost 180 million. A billionaire is spearheading the effort, and he tells cnbc one potential sevenfigure donor has expressed concerns about the popes recent comments. Some of the popes comments include statements such as, the earnings of a minority are growing exponentially, so, too, is the gap separating the there are many more references, negative in nature, to say things like the deified markets, clearly sarcastic. Ken, who did not approach us of the story, we approached him, langone told me, your emnesn, you want to be careful. I spoke to Timothy Dolan about the issue yesterday. Heres his response. It would be a misunderstanding of the holy fathers message. The pope loves poor people. He also loves rich people. He loves people, all right . And hes not into the condemning game for anybody. His famous renown statement, who am i to judge . So i said, ken, thanks for bringing it to my attention, weve got to correct to make sure this gentleman, whos the only one ive heard, understands the holy fathers message properly, and then i think hes going to say, oh, okay, if thats the case, count me in for st. Patricks cathedral. I encourage you to reed our story on cnbc. Com. Its been provoking a question. If your mission is to alleviate poverty, what is the best economic model to do that . His statements read in the entirety does not suggest he is a supporter of the free markets. Back to you. Weve had this conversation amongst ourselves for a long time, but to have the pope involved takes it to a new level. Michelle, great story. Thank you so much. Michelle ka ruichelle carusoca. Its hard to forget the carnival triumph stranded. Well look at what the future holds for the company and the rest of the sector in just a moment. The dows up 52. [ man 1 ] were now in the approach phase. Everything looking good. Velocity 1,200 feet per second. [ man 2 ] your looking great to us, eagle. 2,000 feet. Still looking very good. 1,400 feet. [ male announcer ] funny thing happens when you shoot for the moon. Ahh, thats affirmative. [ male announcer ] you get there. Youre a go for landing, over. [ male announcer ] the all new cadillac cts, the 2014 motor trend car of the year. Bny mellon combines Investment Management investment giving us unique insights which help us attract the industrys brightest minds who create powerful strategies for a countrys investments which are used to build new schools to build more bright minds. Invested in the world. Bny mellon. Travel and leisure took center stage in 2013, and who could forget the stranded passengers aboard triumph . What does 2014 have in store for travel . Simon hobbs has the predictions, but first, lets see how he did in 2013. He said that hilton would go public. That was correct. Hilton had a report 2. 3 billion ipo earlier. And next, group books would bounce back in lodging. Very nice, simon. High, increased 7 in the Third Quarter earnings, and the u. S. Visa Waiver Program would be extended to tourists from argentina, poland, but it hasnt happened yet. Maybe in 2014. Lets see whats in store for the coming year. In 2014, the Four Seasons Hotel group will return to the Public Market seven years after bill gates and saudi prince el talal took it private. They are said to be frustrated at the luxury chains lack of growth, even replacing ceo kathleen taylor, a 25yearold veteran of four seasons operations, with allen smith from prudential real estate. Blackstones successful ipo of hilton group, more importantly proves the window is open for big cashins in lodging. The Hotel Business is cyclical. Mcquarry says there may be three, possibly six years of rising revenue per available room, but sellers will need to first list and then offload the stock in waves. In the cruise industry, the arrival of new ships like Royal Caribbean quantum of the seas, 300 feet above sea level rooms, will reinvigorate pricing. And as priceline acquired kayak, bigger players will continue to gobble up their smaller rivals. And our thanks to our own simon hobbs. When we come back, would you like to stream video for less money . Netflix reportedly looking at a cheaper plan offering video at a lower resolution, letting you watch on only one screen at a time. Does this idea mean good news for the companys stock . More on that in a moment. Plus, the bells are about to sound across europe. We have some markets over there closed for the day, and some with some early closes. Well wrap it all up with simon in just a few minutes. Thats a good thing, but it doesnt cover everything. Only about 80 of your part b medical expenses. The rest is up to you. So consider an aarp Medicare Supplement insurance plan, insured by unitedhealthcare insurance company. Like all standardized Medicare Supplement insurance plans, they could save you in outofpocket medical costs. Call today to request a free decision guide. With these types of plans, youll be able to visit any doctor or hospital that accepts medicare patients. Plus, there are no networks, and virtually no referrals needed. Join the millions who have already enrolled in the only Medicare Supplement insurance plans endorsed by aarp. And provided by unitedhealthcare insurance company, which has over 30 years of experience behind it. With all the good years ahead, look for the experience and commitment to go the distance with you. Call now to request your free decision guide. The european markets are closing now. And with gains locked up for 2013, simon hobbs is here to hit us one more time. Some markets didnt even open. Germany, italy, switzerland amongst them. The rest, a staggered close. Yes, everybody is closed now for 2013. The u. K. Was particularly active today. The House Builders did well, and we do have a problem within retail. I hope this doesnt happen here. But the secondLargest Department store chain in the u. K. Said it took in far too much inventory, that it will have to discount over the next two months. It pulled down martin spencers, as well. As we wrap up, this is how we stack up. Look at the comparison between the s p 500 here and the stock 600 in europe. America is the white line, up 29 . Europe is the yellow line, up 17 . So a 12 divergence there. The question is, do european stocks do better next year as a result . In the meantime, at midnight tonight, and Rick Santelli will talk very shortly about how distressed the euro zone is, but latvia becoming a member of the euro zone, and 58 of the population doesnt want it, but the elite are pushing it through. Angela merkel is stressing the fact that europe is a place for peace for millions and if everybody sticks together and trusts each other, they can pull through anything. That, of course, is very important, because it is that fundamental argument that drives the heart of the euro zone, peace after two world wars in the last century. Finally, let me just mention michael schumacher, had a second operation. Hes in hospital in the french alps, had a second brain operation overnight and is said to be doing better, though still critical, carl. That helmet may have saved his life. Thanks, simon. Happy new year to you, sir. You, too. Lets bring in bob pisani. And were in record territory. To give you a couple of thoughts of what happened in the prior year, 2013, and thoughts on whats happening in 2014. By market capitalization, once again, weve had a situation where small caps represented by the russell 2000 have outperformed big caps. This has been happening for several years. Big caps, too, did better than large caps. Midcaps the sweet spot of the market. Thats where you find a lot of the homebuilders, the Airline Stocks that used to be small caps have been in the midcap space, as well. Now, the two most asked questions in the last few weeks from investors that ive been getting is, number one what do we do with Interest Rate sensitive stocks, because a lot of people fled into that as an alternative to bonds and its been a tough year. Theyve underperformed. The s p is up 29 . In the middle of the year, the homebuilder stocks fell apart, as rates went up and prices went up, and a concern about a slow downin the market. Reits are actually down this year. I can tell you the general pattern here. If the economy goes notably better next year, Interest Rate sensitive stocks historically underperform the market. Im not making a prediction, im just telling you historically in situations where the economy is improving, Interest Rates will usually underperform. The other question, what about emerging markets . A lot of people had money in the eem, and a lot of the etfs, and its been a tough year. China, brazil both down noticeably, money contracting from all of the areas. Brazil so frustrated and angry, they tried to implement currency controls with varying degrees of success. Heres the eem, the bogey i use for emerging market investments, and its the etf for emerging market stocks, eem, the symbol, down about 6 on the year, and here, the opposite is usually true. When you see a global improvement in the economy, historically, the eem has tended to outperform a little bit. But again, thats a personal call about whether you see the Global Economy actually improving. Thats a big issue. Finally, i just want to point out, a lot of people have written to me asking about the baltic dry index. I had problems using this as an index to buy things, but the index is near a new high for the year. A multiyear high. Some of the shipping stocks that have been terrible performers on the year recently have been acting a little better. Put up some of the shipping stocks and some are on the upside today. Thats a very close call, guys. But volatility is the buy word. They routinely move into the 30 range on a multimonth basis. Back to you. Yeah, always fun to watch. Same to you, bob. Well talk to you later. For more on the markets, lets get to Rick Santelli in chicago. Rick . Well, thank you very much, carl. And id like to welcome my new years eve special guest, mark grant. He needs no introduction. Happy new year, and welcome, mark. Rick, the sages particularly asking me to wish you a very, very happy new year for you and your family, and please have a great one. Thank you very much. Now, lets look at the recent news i talked about in the tease, reuters saying the best performing major currency is the euro. No surprise to us, and also the yen not mentioned directly in the story, but it is the worst performing major. How do you see that changing . Or do you see it continuing in 2014 . And what are the reasons, in your opinion, that the euro had such a good year . Well, i think europe has had a slideby year, thats what i call it. Theyve fuzzed with a lot of the numbers with their banks, and thats going to be coming up tw the ecb taking oversight this year. A lot of the numbers for the sovereigns are questionable. But the euro has held up well mostly because the european governments have encouraged money managers, banks, Central Banks so be buyers and, of course, in europe somewhat different than america, when the government encourages you, you follow through. So in japan, with the yen, the issue has been the policies of the prime minister. They have not performed as well as he had hoped and consequently, youve seen the falloff in the currency. Well, taxes are going to be be going up in japan, i think thats an issue. All right. Yes. Lets consider this. When i look at the euro currency, heres what i think. I think that everything is relative. And whether its the pound, the euro, the dollar, the yen, really were all in a very small pool, banging our heads against the edges. The yen being the one exception. I look at italian banks. I see bad credit issues there. And i see less credit coming out to businesses that are starving for credit. When i look at southern europe, i still see super high unemployment rates. When i look at france, i see a failed strategy with regard to the socialist government. I dont see much of that really changing in 2014, so i agree on the slide. But whats the biggest negative, and whats the biggest positive you see in europe coming up . Well, the biggest negatives, rick, are youve got greece, spain, portugal, cyprus, italy, france that are all troubled. And consequencely, even when you look at the numbers that were given, i have strong doubts about the factuality of them. The good news for europe is they have held together so far. There hasnt been any big blowup, though i do think because of the gaps and the losses that have been taken and especially the Banking Sector in spain and portugal that were going to theyre going to have to face the music in the upcoming year, and i do think there will be some disruptions forthcoming in 2014. Well, mark, thanks, as always for your succinct notions on the marketplace. Happy new year. And, carl and simon, back to you. Happy new year to you, rick. Thanks so much, rick. 2013 was a great year for a lot of companies and you dont have to look farther than netflix to prove that point. This chart will tell you what you need to know. Shares up over 250 for the year. Best of the s p. Will the surge continue next year . Well get some answers after a short break. Theres nothing like being your own boss and my customers are really liking your flat rate shipping. Fedex one rate. Really makes my life easier. Maybe a promotion is in order. Good news. I got a new title. And a raise . Management couldnt make that happen. [ male announcer ] introducing fedex one rate. Simple, flat rate shipping with the reliability of fedex. [ male announcer ] what kind of energy is so abundant, it can help provide the power for all this . Natural gas. More than ever before, americas electricity is generated by it. Exxonmobil uses advanced visualization and Drilling Technologies to produce natural gas. Powering our lives. While reducing emissions by up to 60 . Energy lives here. Coming up, john paulson making a comeback this year. Well reveal whats worked for his fund that doubled the s ps return. Then, the prognosticator of prognosticators. Jeremy segal is here. He saw this years rally coming a mile away. Hell reveal the predictions for 2014. And were breaking down the best and worst trades of the year. And what the first moves of 2014 should be. Its straight ahead at the top of the hour. Carl, well try to have more on the developing hertz story, as well. Nice groundhog day reference, scott. Very nice. Thank you. Netflix up nearly 300 , and ending the poison pill are movement to help ward off hostile takeovers. The pill was set to expire in 2015 but was instead terminated today. Aaron kessler is with Raymond James and our own jon fortt joins us back here at post 9. Guys, good morning. Good morning. Aaron, is this too hot to touch . Yeah, a near stretch in the near term. It got even, the ceo commented last quarter, said there might be some euphoria. So we think its priced netflix is pricing a lot of good news at current levels. What is the key metric in the new year . Will this be an international story, a pricing story . A combination of subgrowth as well as operating margins. This year, you saw it expand by 300 basis points. That was the positive upside. Remember, last year, it was decelerating, but this year, accelerating, 6 million subs in the u. S. , and 5 million internationally, and that was better than the expectations. Aaron, nice pay hike for reid hastings, from 2 million in cash and 2 million in options to 3 million in cash and 3 million in options. Should we read anything into that beyond the fact that theyre feeling like they had a pretty good year and are rewarding their executives for that that . Yeah, i think thats pretty much it. Companies like to reward executives that do put up the good numbers and clearly thats reflected in the shares here. So i think rewarding executives here for their good performance in 2013. And, aaron, whats the real profitability for netflix once all of the expansion takes place . We saw it the last year, it made virtually no money. The margins are pretty terrible. Its an expansion story now. Once that happens, whats the true profitmaking potential of this company . Yeah, so they are expanding margins. As i said, they expanded roughly 300 basis point this is year. Going back a couple of years, they had operating margins of 10 . We think they get back to that. Were looking for 8 in earnings power by 2015 and operating earnings are growing much faster than revenues now, as they get smarter about how they buy content in addition to the incremental revenues. We think margins will expand. How do you think their original content strategy transforms, if at all, going into the i mean, im mazed at the amount of free publicity, now the new orange is black, and do they insist of ownership, do they accelerate release, do they dump it all at once, drivel it out like the networks . They do like to accelerate the investment in the original content. Maybe a dozen shows a year, so that will be a positive trend to continue to expect to see, so see more engaged consumers and more retention. What do you think of the idea of netflix doing hardware . Maybe even something as crazy as a tv, a tablet of their own . If you think about their model, if they could get the profit perhaps on a device and lock people in for a couple of years, that way, might that be an attractive way for them to expand going forward, taking a page maybe out of amazons book . Yeah, they had looked at that going back about five years and spun that business off. So i think they were focused enough for a while, but theyve had an adoption among the different hardware providers and they see less of a need of that. Theyve been able to partner with the major Hardware Companies including apple and google. So i think if they werent getting included on those devices, they would look to do that, but since theyre getting included already, theres no need. Thats a relatively lowmargin business for a lot of the companies in the hardware space. Always hard to explain to folks who arent familiar that they once were a red envelope company. It seems like a long time ago. Aaron, have a great new year. Well see you next time. You, too. Thank you. Are you drinking alone this new years eve . Thanks to our next guest, youll never have to worry about your wine going bad. Well explain in just a moment. the energy in one gallon of gas is also enough to keep your smartphone running for how long . 30 days . 300 days . 3,000 days . The answer is. 3,000 days. Because of gasolines high energy density, your car doesnt have to carry as much fuel compared to other energy sources. Take the energy quiz. Energy lives here. The ocean gets warmer. Take the energy quiz. The peruvian anchovy harvest suffers. It raises the price of fishmeal, cattle feed and beef. Bny mellon turns insights like these into powerful investment strategies. For a university endowment. It funds a marine biologist. Who studies the peruvian anchovy. Invested in the world. Bny mellon. Nice shot of times square there, the ball dropping just a few hours from now. Wine takes a long time to age but take as couple of days to go bad once its opened, or does it . Theres a device that allows you to pour a glass of wine without ever opening the bottle. Happy new year to you, and great to have you with us. You have a great story. You worked at j j, had some experience with needle technology, so to speak, and one day, your wife gets pregnant, stops drinking, and you want to have a glass of wine without committing to the whole bottle. Thats exactly right. And i realized that once you pull the cork from the bottle, youre committed to that bottle. Youll be drinking it over the next couple of days, because it goes bad, as you said, due to oxygen. I had worked on needles, and i thought, theres a way to keep the cork in place, to get past it and get at the wine i want to drink. My dream was to have a wine bar in my house. Drink any glass, any wine, by the glass. Show us how this works . Sure. A bottle given to me by the guy who runs a wine company, a bordeaux i had back in october with him. You take the corevin, push the needle through the cork, tip it sideways, push in argon gas, which is inert, and it wont react with wine, and that argon gas pushes the wine out of the bottle. You can pour as little or as much as you like. And when youre done, tip your hand up, let out the excess gas, pull the needle out of the bottle, take it off [ laughter ] and no oxygen got in, wine came out, and you can drink this two, five, ten years later. I love this. Tell us what happens to the cork when the needle comes out, because everybodys going to be skeptical, they dont want to ruin their 100, 200 bottle of wine here. Does this really work . So my son is 14 years old now. And i spent 10 years testing this system, and actually the great thing about cork, is its the most elastic solid that comes from nature. You can crush it down to 10 of its volume, and come back to 98 . Id worked on needles that dont do damage to things, and it dilates its way through the cork and allows it to collapse once the needle. It uses the elasticity of the natural material. The dollars and cents focus, talk to us about what it costs per glass. So the system itself is 300, 299 and comes with two cartridges. Each cartridge, depending on how fast you want to flow, will last 15, 20 glasses. So 60 cents, 65 cents. Client based, i assume highend retail, consumer . Thats a great question. Weve actually been surprised by the number of people who are using our system. So the home user is what i thought it would be good for, that was my problem i was trying to solve. My wife wants white, i want red. Restaurants, a lot of the restaurants are serving higherend, higher revenue. By the house. They can serve anything in the cellar. Sales force for the wineries are using it to sample their wines. Wine stores are allowing you to try before you buy, and the vineyards out in napa valley, sonoma, are using it for the library ones. Whats the mass Market Strategy . Are you able to come out with cheaper versions of this to get to your consumer who maybe isnt fully committed to wine . What do you do . Its a its a challenge that we face. We actually were looking at the pricing of the system early on. Were actually selling a lot more than we thought we would at this price point. We are working on a cheaper version. Were working on a higherend version, as well, for restaurants that want certain things that consumers dont want. But actually, weve been really surprised, and in the u. S. , a great market, europe is another area for us to grow in all honesty, isnt there some joy in saying the corks off, ill just finish the thing . There is. And even i still pull corks, and whats funnily, actually, i find im pulling corks on half bottles of wine where ive had two glasses over the last couple of years. Its a great story, especially on a day like today. Cheers. Enjoy your great glass. All right, thank you. How does this sound for the new years eve . A buffet premium open bar, a house deejay, a dance floor, and a close spot to the ball drop in times square for 3 75 bucks. What can 375 get you this new years eve . How about a spot in times square, buffet, open bar, topshelf liquor . All of that can be yours as long as you head to applebees. Our jane wells explains from los angeles this morning. Hey, jane. Hey, carl. This good girl. This is the dole float here at the rose parade. Here in pasadena, youll have people camping out, putting the finishing touches, a 500,000 investment by dole. Across the country where you are, theyre expecting 1 Million People tonight and some casual dining chains are charging fivestar prices for access, food, and booze, none more aggressively than applebees, charging 375 a ticket for people to eat, drink, celebrate with a great view of the ball dropping. 375 bucks for applebees . That would buy you 24 orders of riblets . Who would do such a thing . Kathy and rob would. I can drink, deejay, dancing, stumble outside, look at the ball, have a good time. A male belly dancer. What made you pick the applebees location over another restaurant . The availability to come out into the street yeah, a lot of the others you had to pay hundreds of dollars to come out on the street. Like above the party price. Well, we originally were trying for what was it . Bubba gumps, but they were on a lottery system, and then he started looking around. Bubba gumps, olive garden, all of the places around here, they have same kind of deal. This one was pretty on the low end. A lot of them are 600, 700 bucks apiece. All right. No kidding. Well, applebees is charging 375 a head for times square. A vip table for two at ruby tuesday is going for 1,500, plus 165 service charge. The pretzel burgers better be awesome. And the vip champagne package at tgi friday is going for 1,100. So applebees is a steal. I was spending new years eve once in a tgi fridays. Ill leave it at that. Jane, thank you so much. Happy new year to you, as always. Jane wells in los angeles. The return of casual dining. I love the price. You know, the rule on real estate, buy the cheapest house in the best neighborhood, applebees, great deal. Jane had it right. Happy new year. You, too. Great to visit with you. Happy new year to you, as well. Lets get back to headquarters and scott wapner and the halftime. All right. The first half in the book and here are the highlights so far. Going to say the pope shouldnt be talking about the disparity of wealth and the poor being left behind in our society . Have you read the pope is not going to listen to what ken langone has to say. The problem with abercrombie, it used to resonate, and now it doesnt. They need to shake things up, change the board around. I cant believe they resigned jeffries. I can report that dan s