Transcripts For CNBC Squawk On The Street 20141203

Exxonmobil and t. Boon pickens. Jcpenney getting a big downgrade. And more optimism for apple. Another analyst ups the price target. First up, one day after the dow closed at record highs, the private sector added 208,000 jobs last month. That was a bit below street forecast. Meantime, Oil Prices Rising slightly this morning but down almost 35 from six months ago. Last night on mad money, Oil Tycoon Boone Pickens says he expects crude to return to 100 a barrel. Take a listen. Weve increased production, a Million Barrels a year for the last three years. And that is remarkable. No place else in the world has that happened. So consequently, i think youre probably going to see opec do something in the First Quarter of next year as far as cutting production. But im not so sure how much they have to cut to get to where i said you would be in 12 to 18 months. Youll be back at 100 a barrel. Fascinating. There is a school of thought that when production responds, you will overshoot the opposite way, to the upside. Yes, the other thing that boone was talking about is were not going to be able to grow what weve been growing. Weve been doing a Million Barrels a year above. You go from 5 million a day to 9 million. But the problem is this. While i agree with boone maybe on the 18monthscenario, its very hard to shut down drilling. Down about 30 from october to november. Thats devastating. And weve got some definitely offshore holding. Theyre going to just hold it. Any big project, hold it. Whats in the pipe will still have oil up. I think the production increases that will come this quarter and the First Quarter will kind of render moot what boone is saying. But i think the 18 month, yes, saudis decide we cant do this anymore. United states will cut back. Well get more of an equilibr m equilibrium. There will be a lot more oil and gas being used, particularly oil, by countries that are doing much better. That was another part of boones scenario, which is its a cycle. Economies get better and use more oil. He was basically saying this is one of many cycles hes seen. A lot of people questioning jim cramer on twitter, why listen to him . I went to hear him in 1983 where he talked about the coming consolidation of oil companies. Theres exxonmobil and chevron. Yeah, those two. There were probably 15. And still questions about consolidation to come within the energy industry. Not sure if lower prices bring that on. Sometimes that can be one of the reasons why you need to have greater efficiencies if you can get them in a lower price environment. What boone said is eog, p pee pioneer are cheaper places to drill. Its cheaper to drill for chevron not in the gulf but to buy these companies. There are a lot of companies that are faux. You have to be in the center of those. Pioneer he doesnt want to sell. Ive had all these guys on. Theyre great. Eog, they dont want to sell. They all have good Balance Sheets. Listen, theres a price for everything. And the point this morning on squawk was low rates have lowered barriers to entry. A lot of people have got into the space. Some of them better than others. Heres tillerson talking shale this morning on squawk. We now have significant title holdings in the balkan, the permean, and rich plays in oklahoma. Were quite happy with the performance of those. It is a huge resource base. So if youre in our business, you have to be in the big resource bases around the world. And this is one of the largest new resource plays in the world. Bottom line, he says exxon can weather it to as low as 40. Not a problem. What pickens is saying is these Balance Sheets are just phenomenal. He didnt want to single out any of the particular independents. He does point out the mississippian, which is more of a dice roll, science project, so to speak, according to rbm, which is my guys. Those science projects are not going to get the big bill. Youll notice trinity down. One of the reasons is if youre going to drill in places where theres no pipe, its very expensive. Got to ship by rail. People want to buy tankers. That also is going to become too hard to drill. Anywhere where theres no pipe. So it has to do with the question of how much production you can do and the cost of production. I just think tillerson, that was a great interview. Gary evans from magnum hunter. Warm weather is going to drive that down. Oil is going to do worse. Some people took off the hedges. Harold ham a little defensive about it. But november 5th was the wrong day to choose to take off your hedges. On the subject of Balance Sheets, which tillerson referenced in a way, saying were exxonmobil, we can weather anything, which is likely, 18 of all the highyield bonds out there are energy related. 18 . Its the largest percentage i think of any market. I mention that also because later on squawk on the street will be talking to jim casey, head of debt capital at jpmorgan. There is concern for those companies. And there should be. And theres concern, of course, of that bleeding into the equity markets because high yield and equities are more closely linked, perhaps, than certainly investment. Thats a great interview. Boone, he doesnt want to single out certain companies, but if you have a Company Whose drilling budget is exceeding, hes saying youre going to have severe distress. I cant wait to hear your interview. There are a lot of companies that now, i had hunter on the other day. Theyre talking about liquidity and doing mlp. A lot of them have already been getting penalized. Bonds trading below 90 cents. The stocks have become call options in some cases. But i would point out, look, exxon has got production coming down. They have to buy someone. Were speculating. How can you beat that . If eog keeps coming down, theyre going to make them an offer they cant refuse. To relate it to the consumer, one of my favorite stats today is american motorists are saving 630 million a day based on what we would have paid in june prices. I have been having thats an amazing statistic. Right. Im trying to talk to every retailer i can talk to in the last 72 hours. This is really good. And as it relates to retail, Abercrombie Fitch out this morning. Comps down ten. The retailer expects conditions to remain difficult through the b balance of the holiday quarter. Meanwhile, jcpenney downgraded. Adding tjx to the conviction list, upgrading to buy. The Third Quarter was an aberration. Lets do a f first. Not bad at all. I went through the presentation of what they did recently. They said, were really awful, we dont know what were doing. They didnt use those words exactly. You just referenced richie allen, the home run hitter for the phillies. The only guy who doesnt want him in the hall of fame is richie allen. Yes, hes a card carrying member of the wall of shame. This is just another shameful number. Not an extremely shameful number. The stock probably goes up. Actually, it is looking up. Down much lower in the premarket. Its not as horrendous as i thought it could be. People obviously shop there. Also down from 45 to 27 over the last few months. That does say a lot. Tjx didnt have as good of a reaction. I thought that was a good upgrade. Jcpenney has underspent on omni channel. Theyre also benefitting from the fact that brady is their spokesperson. They got the right guy. Skechers the other day, pete rose is their spokesperson. Another guy people like. Mark cuban. These guys are getting the right endorsements. The endorsements come from the fact they pete rose . Who . Whose spokesperson . Skechers . Which rose . Derrick rose . Pete rose . He belongs in the hall. And not in the hall of your 17bedroom apartment. Im not sure i would have gone with pete rose. I dont know. Hes loved. Hes a loved figure. He does have a lot of defenders. Pete rose never knocked out and dragged a woman out of an elevator. Pete rose was never indicted for homicide. He never served in some argue he the deal he thought he was getting was not the one he got. In the end, maybe a little gambling on the games is not as bad as being a cave man and dragging a woman out of an im just i dont mean to that may be true, but the integrity of the game is important. This is a lot of fun. I am going to take you back to retail. I just pete rose. No idea. Remember, we had a day where it was freezing, 32 degrees in all 50 states. But he points out, listen, its not weather. A lot of other stuff selling well. Skechers said the same thing. November, the friday, saturday, sunday, gigantic. Walmart ceo was on squawk this morning as well. 10 of the mobile orders were receiving in the country were receiving while someone is in our store. Theyre in the store, either were out of stock, unfortunately, or theres something they want we dont have in our assortment that they buy right there and get it driv delivered to the store later. Its still small but its really growing. Online to offline is what they call that. Stock is up a lot. I think this gentleman is very good. You do . When you say you do, does that mean you think im being facetious . Listen, i had an opportunity to get to know him a bit years ago when he ran international. Very competent guy. I think it may be too early to know. I think hes the first guy thats come in and said, were not doing well. We got to do better. And i like that about a guy. I think that Brian Cornell had the same thing at target. Hence why that stock has had monster moves. What about walmart . Its a gigantic move. Its a Straight Line up for the most part. Im not a buyer of it here. I do think that you have to recognize that his candor is refreshing. Hes not a wall of shamer. No. Hall of shame, jeffries. Hall of fame, rose. And just in the hall, mcmillen. Whos still making a name for himself. Right. I will go to walmart this weekend and check it out. Are you going to use your mobile phone in the store . I dont know if itll work. Do they have wifi there . Last time i was in a walmart, i went in and wanted waist 32 pants. They had nothing under 38. But i was in the south. The woman said, listen, were regional. Were regional buyers. They absolutely stock the stores according to the local taste, as they should. I thought that was insulting to louisiana that there was no one smaller than a 38 waist. You just said it. Youve been around the country. She sent me to the i said, id like to go to the pants section. She sent me to dish washers and dryers and said, listen, the store is really big, im sorry. Very instructive moment about why walmart was a short at the time. Now i have to go back. I love your retail war sto stori stories. What was the one story . Colston. They paid the price for that one. That was awful. Its my local kohls. People make assumptions when youre turned down for credit. Terrible. When we come back, an early holiday gift for apple in the form of the highest price target on the street. Well tell you what that number is. Also, sams club ceo rosalind brewer. One more look at the premarket. Dow still has not had two consecutive days down since the middle of october. More squawk on the street from post nine in a minute. Is highest apple price target on the street is now 150. J p securities raising it from 135, reiterating its market outperformed rating. The lack of competition from key competitor ann droid. We talked yesterday about whether apple is too expensive. Theyre using a 9 estimate for 2016. How in heck with a 9 estimate could you be worried about valuation in the 150 level . Its cheaper than almost every tech company i follow on a 2016 number. The idea that its overvalued that fellow yesterday Whose Research i tossed in the air Pacific Crest call. A tad disrespectful. Fortunately it was not seen. I think we heard about it. Just 9. Tim cook, i know, watches the show. Tim, 9, your stock is not expensive. Youd be a buyer of your stock here. They are an ideal condition for the iphone 6. Ipad demand seeing a see sresur. Remember samsung . They were a major player. I thought they made chips. Do they actually make phones . They make the apple chips. They have great phones. They do. Got some family members who love the galaxy. A lot of them have that big screen, but they tend to be octogenarians. Dont knock it. Its coming. I think apple doesnt have any real competition. Thats why you can use a 9 number. And i watch, apple pay. The people who run visa and mastercard are two of the greatest ceos in the world. They just dont get along. Maybe its not rodgers brady, its more hoyer manziel. Its not rodgers and hammerstein. Well put. Its going to be good potentially is what youre saying. Yes, its going to be really good. When we come back, we get cramers mad dash. Well count down to the opening bell. One more look at the premarket. More squawk on the street in a minute. Location. Location. shouting location. Heres the location that matters the most. Here. Or here. Or here. Its wherever this is. To get customers to come here and stay here, youre going to need an app that connects to all your systems. So they can bank, shop, do what they need to do, and you gotta do it fast. Before the competition does. Its tough out here; you better be on the right cloud. Today theres a new way to work. And its made with ibm. All right. Lets get to the money. Lets get to the mad dash. About 7 1 2 minutes before the opening bell. Barclays upgrades bp. This is a hold to buy. If youre going to buy bp, you want to buy it because they have good reserves. Do not buy this because you think there could be a takeover. There will be no takeover. That was an odd story. Yeah, i hated that story. I know that you are the master of saying, you know what, just because someone mentioned another oil company, some company in the sentence of maybe we should do a deal, it then gets to the paper by reporters or other people who are not as scrupulous or are doing bgl, bag them, gun them, and liquidate them. This is not a buy on takeover. Is it a buy on earnings . You know, you got to believe that oil is going to snap back in q2 of next year to do that. You get a good yield. Its not a bond though. Not a bond. And what about whats still going on here with macondo . Just endless. The Justice System grinds bp pretty much every day. Whenever you say anything good about bp, people always remember what they did. But that was also involved with rig, a stock i would never i mean, you cant own these Oil Service Companies like rig, offshore platform, until they cut their dividend. You cant. Thats what we learned. All right. Lets move from oil to alcoa. We know the f150 is the lightweight and thats alcoa. Heres something i thought would never happen. Brazil is starting to cut back on aluminum production, choosing water to be able to make power. This is something the ceo has said to me thats going to happen. Pricing of aluminum is unlike any other mineral. Aluminum was like this for a long time. Now its like this. Lets just say you buy alcoa. Look at this, david. A reverse head and shoulders. I know youre a chartist. I thought it was a cool mustache. You never really bought into technicians. No, i didnt. What i did do is listen to you. Youve been saying buy the stock for all of this year. This is where a lot of the street downgraded the stock to sell. When you meet with clause, it was finally coming together. If you looked at this stock beforehand, it was like this. Right here, so many people capitulated just when he had gotten the ford contract back into the boeing planes, made that huge acquisition that made his company more aerospace and more proprietary, less commodity. Hes doing so many different things. Thats why this is going like this. And will continue. Oh, its not done. All right. A lot of other stocks to watch, including the aforementioned alcoa. The opening bell just a few minutes away. Stay with us. Squawk on the street is back after this. [ male announcer ] eligible for medicare . 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. 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The numbers are coming down for these companies. I dont think, by the way, that its time to make a big stand at all. But it does remind me of halliburton merging. I would not bottom fish in that oil service business. A lot of discussion today about russia and how whats happening in oil is worse than any sanction that the u. S. Could have levied against that country. A lot of things not going putins way. Suddenly. Suddenly things have changed. His cards have been, lets just say hes drawn like a two, three, seven, eight. Does he throw the whole table over . Thats the question. Interesting. Lets hope it doesnt come to that. Lets get the opening bell here down at the exchange. Get you a look at the s p at the top of your screen. At the big board, brazils producer of short fiber pulp celebrating its investor day. At the nasdaq, Cipher Pharmaceuticals doing the honors. A good way to start the day. I think the problem is that if you do believe like boone t 12 to 18 month, then youre going to have to weather. It sounds like hes saying, listen, the bottom is here. What i worry about is that our production is still going to be up very big in q4. If japan were to come back, youd see a place to put that oil. He does believe the saudis will have to go because you cant destroy these other countries. If you decide this is the level i want to buy weatherford, come on. Wynn is down almost 3 . Some of these macau numbers have not been coming in so hot. People have always wanted las vegas sands, wynn. Mgm is the one to buy. They have a big turn in vegas. Vegas is no longer a head wind. Its a tail wind. And you want to stay away from macau . Id rather own mgm. I think china is still going down. I dont think china is doing anything special. I dont think you want to be levered to that setup when you can be levered to mgm. Worth mentioning, we havent in a few days, the aws3 auctions, the auctions of spectrum, approaching 40 billion. In fact, well cross 40 billion today after 45 rounds of bidding. Between verizon, at t, a few smaller companies. 2. 44 per basic person of population, person in a region is the high right now for the paired spectrum. This has had a very positive impact of shares of dish, although lately theyve been coming down. I saw that. It may get to it the point where dishs spectrum is so expensive nobody can buy it, then you have to figure out what youre going to do with it. Meantime, sprint is giving you a great deal. And the price wars continuing between all of these companies. Pretty amazing. Randal stephenson was on squawk box, that incredible run of ceos they had. However, he didnt talk much about the business. Kind of prevented from doing so while the auction is going on. Theres a company, gsat. This is a battleground. They say they have the right spectrum for wifi. That stock started going back down again. I think a lot of it is, people said, they dont even have the right spectrum and its gotten too expensive. This is a story worth watching. Big downgrade the other day in the tower stocks. That i disagree with. Its the way for sprint to be able to build out that National Coverage they need to badly in order to be able to make it so you do switch. No spotty coverage. I dont know if i want to own a stock of sprint. Maybe bonds. Maybe. Theres a lot of them. Boy, is there a lot. You do have softbank there. Theyre not going to want to lose control in any way. The bond market is still just not so hot. Yeah. Just not a lot of value there. Its just the wrong place to be. The yield has been going back up. Its moved the bank stocks back up. I see that. Jcpenney this morning getting hit on that downgrade. Stocks under seven. Taking you back to february levels almost. The problem is they just underspent. They have the raw merchandise. Theyre frantically trying to get it together. Although, goldmans point is hard to tune the engine when the traffic is crowded on the highway, the superhighway youre on. Retail is changing. Look, theres so many others that are doing better. Doing a lot of changes at target. I do like the tjx call. Television in focus. The cbs dish talks coming down to the wire. Trying to get that together by thursday night. Then the journal today with this article. Viewership of Traditional Television down 4 last quarter while streaming up 60 . I saw that. The Companies Involved in streaming have not done lately that well. Disney, because of espn. Also because of star wars continues to do well. Just an amazing stock. We know this trend is only going to continue. The question is how quickly. We talk about it all the time. How quickly will people disconnect who have cable and the bundle. Or how many people who are growing up in this environment will ever connect and get the bundle. What do you do . Malone will tell you sports is the great enabler of the bundle. Does it break apart . These are all important questions, no doubt. When you listen to statistics, like the ones carl just shared, you certainly have to keep it in mind. The ecosystem is not necessarily coming apart overnight. They short time warner, short disney. These eventually have to hurt. Its been a terrible call. The Cable Companies have been fabulous performers. Its almost as if everyone they look at data like that and say, i have got to go after x. Then it turns out to not be a great call. You think of netflix. Thats not been a great one. Theyre making theoretical shorts. Now, cbs has been hurt. They have. Last year the stock had an incredibly strong run. This year, its been much more difficult. You can watch the cbs shows at your leisure. I watch the criminal porn. Thats on constantly. Criminal minds . You saw the 60 minutes hes one of my idols. I walked off the set of criminal minds. Have you ever watched it . No, i havent watched a lot of television. Im promising you nightmares. Makes your mind a little more at ease to read stephen king. Thats disturbing. Heres an ice pick in your eye, partner. Interesting way to go. What explains the weakness in the colgate, conagra, matel. Theres a lot of talk yesterday there was a guy who came out and said, listen, this is where you should be. These things have been in rotation. In the end, there was a note this morning from bernstein saying pepsi co. And cocacola are doing better. I think theyve anticipated a lot of these moves. The one who will tell me whether im right about this is alaska air reported plus nine. I think those stocks are going to get the money again. The airlines. These continue to recharge. Were in an amazing rotation. Theres been a lot of money going into drug and bio tech. That move has been so exaggerated. The money is going to flow back to banks and industrials. Industrials do pretty good. Not every industrial has a giant oil service business. They sure have been acting like it. He just did that face. That face was such a tell. When he goes like this, that means youre about to hear something about ge. When you see me go like this, what stock . I cant tell. Ulta. Which is such a buy here. Is it really . Such a buy. Tractor supply had a fantastic quarter. They love this mary dylan. Shes done a fantastic job. The numbers keep going higher. Have you been to ulta . Jcpenney is trying to make that beauty parlor. Is that what they still call it . Trying to build up that area because its a service business. Ulta owns that area. Great company. Repeat business, absolutely. S p is up almost three points. Bob is on the floor this morning. Some interesting trends this morning, carl. I want to show you energy stocks. Remember, yesterday oil down. Oil Service Stocks were up. We had Companies Like citigroup starting to pick up some of these big names out there. They were talking about if oil gets down in the 50s, definitely go. Oil service up yesterday, that was interesting. Today, oil up a little bit. Oil Service Names also up again. Second day in a row. Somebody is picking here at the bottom. I dont know if its a bottom. Obviously some people are trying to look for bargains. Thats very interesting trend. Keep an eye on it. Only two days. Were watching it carefully. You guys were talking about the consumer names. Your colgates and names like that. Why are they weak today . Ill tell you why. Because theyre dramatically overbought. Theyve been overbought for several weeks now. Some of these names have 2, 2 1 2 times from their standard deviation, meaning the stocks have gone up dramatically in a short period of time. Eventually, these start coming down. Thats the simplest explanation. Consumer names are dra matmaticalma dramatically overbought. Apparel, what can you say about ab control bee . We all know the story here. Look at what the numbers used to be. Last year it was 52 cents. It keeps doing down here. The ceo said conditions were difficult. When you lower your fullyear earnings to 1. 50 to 1. 65 and it was 2. 15 to 2. 35, thats not difficult. Thats terrible. So we all know what the problem is here. Merchandise is not hot. Accessories and electronics are hot. This goes beyond that problem with the category. Abercrombies merchandise is not connecting with the consumers. You can see that in the earnings. You can see it in the comp store declines. Its not just a category problem. Its an abercrombie problem here. By the way, watch some of the other names. Abercrombie is very heavily shorted. They probably have, i dont know, 30 of the name is short probably. There are other shorted names out there. Keep an eye on them. Sears, jcpenney, aeropostale. Jcpenney came out today, there were some comments out there from goldman on jcpenney. They downgraded from a sell to a neutral. Thank you for that. All this lousy news on retailers, its enough to make you start drinking. Thats a beautiful chart. Basically a new high. The earnings came out. It was a little bit disappointing, but it was largely because of Foreign Exchange issues. Its very simple why this chart has been great on this. Its a hot category. Brown spirits, were talking bourbon, folks. Its a hot category. Its got the legendary names like jack damages, woodford reserve. Its got vodka. I know all these names. Top shelf. This stuff sells for a premium. So they get very good Gross Margins on it. Literally top shelf for all of their names. Theyve concentrated on that category. The bourbon category has been growing rather rapidly. Its probably about 75 of overall sales. As i said, they get about a third of their sales outside the United States, particularly in europe. Because of that, theyve had some Foreign Exchange issues. Thats largely it. Still, Gross Margins still growing. Overall sales still growing. This is still very much a growth story. Right now, dow is up five points. Back to you. Thanks, bob. You know, i goeguys, its funny mentions Foreign Exchange. Hps quarter focused on it. The head winds that a lot of these Bigger Companies are going to be suffering as a result of that very strong dollar. Not just against the yen but against the euro. The numbers are off the charts. Highest since 2006, up 93 . But thats whats driving all these cyclicals today. Thats why cmi is up. The truck cycle is alive and well and doing amazingly. Yes, currency. By the way, dollar yen 119. 65 now. Just this close to 120. Lets get to Rick Santelli at the cme whos watching the dollar today. Absolutely. Like energy, you know, theres some entities that are going to suffer from lower energy costs. Same could be said for the stronger dollar. I think most middleclass americans are going to see their purchasing power definitely is going to be better. Fresh, yes. A fresh 5 1 2 year high on the dollar index. We dont need to go into the reasons of how other currencies just arent matching up and their economies arent quite as good. Look at the intraday chart and open the chart up to the spring of 2009, last time we were at these levels. Whats really fascinating is when you open this chart up big time. Open it up to 20 years. A couple of things should jump out at you. See how much higher that left side is up at 120 . Were going to start moving into those comps on the steep side of that. But also notice on the far right how tight that little wedge got before breakout. Now youre going to bring technicians in. Weve definitely broken out for a number of different systems that people use or follow with regard to technical analysis. Theyre all going to be flashing green. So youre not only having the weakness as carl just pointed out with regard to getting very close to some objectives at 120 dollar yen. Laos look at the euro. Let me think whats happening tomorrow. Ecb meeting happening tomorrow. All the talk is its going to be love american style with quantitative easing and we all know that the euro is not really enamored with that. If you open it up, last time the euro was here was the summer of 2012. If we want to go back now to the fixed income markets, look at an intraday ten and remember that we had some data today, but it seems to be looking past a little miss on adp or the fact productivity is growing on the back of no wage growth. If you open the chart up to october 28th, you can clearly see we are up against some significant, significant resistance when it comes to this 2. 30 area. If we look overseas at bund yields going into the ecb, theyre creeping up a bit. Look at the chart starting on november 1st. You can see it has been rather tame, but of course coming off of the lowest yields ever. Carl, back to you. Rick, check in with you soon. Rick santelli. Oil prices, meantime, having trouble getting back above 68. Jackie deangelis. Thats right. Were edging up higher on both sides of the atlantic. Right now west texas intermediate, 67. 47. This is ahead of the department of Energy Report on invest stories coming out at 10 30. What we do know is the api report came out last night. We got a draw down of 6. 5 Million Barrels. That was significant considering the fact weve been seeing builds for the last few weeks. Thats probably whats pushing these prices higher. Expecting to see a little bit of a build. That seems like it may not happen now that we got this api number. Meantime, i want to talk about brent prices. Just over 70 a barrel. There was some news that the iraqis and the kurds have struck an agreement in terms of some of the oil fields there. Youre going to see probably production in iraq increase a little bit. Of course, this is amidst a backdrop of Global Supply situation where we do have a little bit of a glut here. That probably long term is going to put some pressure on brents crude prices. Meantime, i want to talk about the spread between the two. Traders are saying this is where youre going to probably see the tightening of the spread because what we saw out of the api report was not that necessarily we stopped producing more here in the United States, but that imports declined. Thats really significant. Thats when that spread does tighten. Were going to be watching that report at 10 30 to see what the department of energy says and watching these prices closely. Again, up 75 cents right now. Back to you. All right. Thanks so much, Jackie Deangelis. When we come back, auto nation ceo mike jackson on the sales picture for the countrys largest car retailer as we head deeper into Holiday Shopping season. Later this morning, a big summit meeting. The president will address the ceos of the business round table on the state of the economy. Well bring you live coverage and the q a when squawk on the street continues. vo rush hour around here starts at 6 30 a. M. On the nose. 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Id love to. Thank you. For the summer house were going to buy . Yes. Okay, good. Thatll be a couple now. Meantime, microsoft set to hold its annual share hold earl meeting later today. Its first under ceo nadela. The market value increased 90 billion. Think its his doing . Cloudy with a chance of mobile. This is one of those things where if you go through his Conference Calls, theyre all about the rejuvenation of microsoft as a cloud play, as a mobile play. I keep waiting for them to say xbox, we dont necessarily need it, or theyre going to name plate it better. Microsoft under nadella has done a lot of stuff right. It was upgraded the other day. The initiation from jpmorgan yesterday. Price target 53. Argues Cloud Business is still underestimated. And nobody has a better enterprise exposure. A lot of the highprofile expensive cloud plays, whether they be fabulous workday, whether it be salesforce. Com, those are expensive stocks. Microsoft is very cheap. All right. When we come back, stop trading with jim. Dow is up about ten points. Back in a minute. Who do you trust . Whose analysis is accurate . How do you make sense of it all . A simple, unbiased stock score consolidated from the opinions of independent analysts. Is that too much to ask . Nope. Equity summary score, powered by starmine, will help you execute your ideas with speed and conviction. And its only on fidelity. Com. Open an account and find more of the expertise you need to be a better investor. I wish. Please, please, please, please, please. [ male announcer ] the wish we wish above all. Is health. So we quit selling cigarettes in our cvs pharmacies. Expanded minuteclinic, for walkin medical care. And created programs that encourage people to take their medications regularly. Introducing cvs health. A new purpose. A new promise. To help all those wishes come true. Cvs health. Because health is everything. Cvs health. My naim a lineman for pg e out of the Concord Service center. 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Mentioned it yesterday. I think some of its being supported by the fact there was an exercise in buy at 37,500 shares by the cfo of eog. Very smart guy. Be careful. That purchase, if you look at the chart, was november 21st. That was when the stock was eight points higher. Again, if youre going to buy eog, like youre going to buy bp, buy it on the fundamentals. Do not buy it on a takeout. While Boone Pickens is right to speculate what exxon might do, eog is a great company. Theyve always wanted to be the biggest independent. I dont like the speculation yet on these stocks. And boeing . Boeing Dividend Increase coming up. I know dave cody this morning, again, the parade of people they have, whos the ceo of honeywell, saying business is okay. Okay for him usually means darn good. Thats my interpretation as his neighbor. How we doing, jimmy . Okay. Darn good. Whats on mad tonight, jim . Pvh, manny chirico. There was a note the other day saying theyre not having a good Holiday Season. Lets find out. Ive had skechers. Then gw foreman. This is a company ive been taking particular interest in. Its a Marijuana Company that is therapeutic. Its not based in the United States where its a class one felony to do exactly what theyre doing. Its from britain. Youve been watching them for a while. Quite a big move. Well see you tonight, jim. When we come back, breaking news on ism services and Julia Boorstin with the head of sams club. Dont go away. Do you like to travel . Im all about free travel, babe. Thats what i do. [ female announcer ] fortunately, theres an easier way, with creditcards. Com. Compare hundreds of cards from every major bank and find the one thats right for you. Creditcards. Com. Its simple. Tdd 18003452550 even on the go. Tdd 18003452550 open a schwab account, and you could earn tdd 18003452550 300 commissionfree online trades. Tdd 18003452550 so if you get a trade idea, schwab can help you take it on. 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Tdd 18003452550 tdd 18003452550 your goto for trading knowhow. Chocolate, soybeans, thisand apricots. Made with what kind of chef comes up with this . A chef working with ibm watson, on the cloud. Ingredients are just data. Watson turns big data into new ideas. And not just for food. Watson is working with doctors and bankers to help transform their industries. Today theres a new way to work. And its made with ibm. Welcome back to squawk on the street. We have breaking news. Ism nonmanufacturing, the service sector, november read leaps to 59. 3. How does that stack up historically . Well, its about the, what, second, third best ever, 59. 3. The alltime high was when the series basically started in 97. That read was 62. 59. 6, though, is the high water mark. That was august of this year. So that was the second, third highest. This is the fourth, i apologize. But it is strong. Lets look at the internals. 56. 7 versus 59. 6. So we saw the employment dip a bit, which kind of fits in with what we saw from adp today. However, new orders definitely moved higher to 61. 4, jumping a handle from 59. 1. So a very strong november read from the institute for supply management. Now hobbs, simon hobbs, back to you. Morning to you, rick. Thank you very much for that. A strong headline. The moment of truth approaches for many chief u. S. Economists. Thats the employment report on friday. Joining us now from deutsch bank. Good morning, joe. Are you still at 250,000 job creation for last month . You dont want to revise it down because of the weak adp . No, the adp and the payroll numbers, theres a wide enough gap between the two that if you miss it by 30,000 or so, thats not enough to consider a change. I see no reason why 250 suspect still isnt still a good number. Janet yellens two left tan innocen tenants have been out there suggesting theyre itching to raise interest rates. Talking about removing considerable time from the language. The fed president saying hes comfortable with rate rises in the middle of next year. Do you feel the sands are shifting . A little bit. That reflects the fact the market has one price hike next year. The tenyear note was just down at 2. 15. Its like a free option for the fed to talk tough given where the market is pricing things. So lets see what happens next spring f the market starts to sell off, whether they follow through with their conviction to raise rates. What we have learned over the last ten days, according to people like you, is the fall of the price of energy is net positive. Right, but the thing is the fed may use that as an excuse to not raise rates if they want. They could say, look, headline inflation is around 1 . Inflation expectations are low. They use that excuse to ignore some of the other things. Isnt fischer doing exactly the opposite . Temporary dip in inflation. Thats exactly right. My view is the fed will raise rates next year. I think the market is way too optimistic on the path of rates, meaning theyre going to stay lower longer than what ultimately turns out to be the case. I know a lot of people in my spot know that this fed reaction function, trying to gauge what they look at and figuring out what they really want to do is very tricky because they contradict themselves a lot. I like what fisher said. I like what dudley said. Im not taking it to bank. What about Economic Growth . 4 growth. You expect to see that revised . Ive been on the show ive taken a lot of flak. 4 plus in four out of the last five quarters. My guess is above 4 again this quarter. This quarter . This quarter as well. Theres a lot of reasons for that. Simple reason is if you look at hours worked within the employment data, its running just a shade below where we were in q2 when growth was 4. 6. Thats a very good benchmark. When is the last time we did three back to back. Three fours in a row. My guess, it would have been the 90s . Maybe one point in the 90s. Probably 82, 83. The problem is that people are going to say the First Quarter of this year was really weak. The problem with that argument is when you get to First Quarter of next year, well be up near 4 because well be compared against a weak number. At some point, look, the economy is in good shape. Its not great. Its good. Its been a Rodney Dangerfield economy. It hasnt got an lot of respect. Thats going to be harder for people to rationalize. We dont have inflation. We havent had a lot of wage growth. Again, only in the past few months did the Unemployment Rate get below 6 . At this current path, this is pure arithmetic, the current pace of job growth, not allowing for acceleration, we will be at 4. 7 unemployment next year. The other thing you note is that the longterm unemployed has actually declined quite sharply. Its hidden. We dont talk about it as often as we should. Longterm unemployed down 30 . Something like that. So far this year. What does that mean . When does that feed through to higher wages, substantially higher wages for most of the people watching . The short answer, simon, is economists dont know. We just simply dont know. The models dont really work. They break down. Im going to guess the best that i could say is sometime within next couple quarters. Certainly within next year. Eventually, were going to push the envelope and whats feasible in terms of how much lower unemployment can go. Well get the wage pressure. We just dont know when. Thats the big issue. Good to see you, joe. Thank you for your time. All right. The nations top ceos at the business round table today. Just minutes from now, theyll be meeting with the president and fed chair janet yellen. Here with some highlights. Morning. Good morning. Great to see you. This is a really important time for the business round table to be meeting with these leaders in washington. The business round table is a little down beat about the potential for the economy. When you talk to them about where business is, they say its okay but not great. The key right now business is performing beneath its potential. As a result, were seeing less growth than we could be seeing as a nation. They did throw a survey. The ceos at this point said theyre a little concerned. In fact, theyre down beat when it comes to what you expect to be putting back in. Theyre down about 5. 8 from where they were this year at last time. When it comes to sales on their outlook for next year, theyre down about 1 . Theres a lot of concern, a lot of issues that are hitting them. If youre a big oil company, for example, youre probably concerned about whats been happening with oil and gas prices. Weve got the chance this morning to sit down with Rex Tillerson, the head of exxonmobil. We asked him if this is a temporary situation, if we were just seeing a decline in oil prices that gets shaken off in the relatively near future. Thats something Boone Pickens had suggested. By next year wed be seeing higher prices. Thats not what Rex Tillerson is expecting right now. He thinks this is an issue of supply and demand. Listen in. This year we will add about 1. 6 Million Barrels a day of new supplynonopec areas. You put it on top of 1 million barrel a day demand growth, you have a surplus of capacity. At a time when opec members are by and large holding their production flat. You fill storage up. You fill inventories up. At some point, its got to show up in the price. Again, thats Rex Tillerson, the ceo and chairman of exxonmob exxonmobil. Bad news for him. A head wind for rex till etilles a huge tailwind for other ceos. Doug mcmill season the nen is t walmart. We talked to him about what those lower prices mean for his consumer. Customers are still under pressure. Theyve got a Health Care Bill to pay. They need to pay down some debt, which is happening a little bit. They shift around a little bit. No doubt fuel prices are helping. In fact, we talked with him a little bit about it. When he arrived last night, there was a cocktail hour. Rex tillerson walked right up and asked where his thank you note was for those lower gas prices. You know, a lot of the issues being faced here right now, when you listen to these ceos, theyre concerned because weve just gotten through an election. You have a divided government. They are looking at what might potentially get done over the next two years and whats likely to happen. Their concern is nothing gets done. Thats why theyre very interested in sitting down with the president a little later this morning. Also, janet yellen hearing whats happening. Larry fink, as a quick aside, told us today he thinks theres even less pressure on the Federal Reserve to raise rates at this point in large part because of those lower oil prices. While hes been concerned about th that, he does think this is going to be great news for the stock market for quite a while to come. Carl, back to you. After the lineup you had this morning, you couldnt ask for a better setup. Thanks to you. As we mentioned, the president will be speaking at the business round table annual meeting. Youll see that live on squawk alley. Hell answer questions on the economy, immigration, and jobs. Up next on squawk on the street, the ceo of sams club, one of the biggest competitors to costco, will be joins us for an exclusive interview. Find out how she plans to grow that company and what shes seeing so far for holiday sales. Well be right back. Financial noise financial noise financial noise ii like to think of myself as more of a control. Enthusiast. Mmm, a perfect 177degrees. And thats why this road warrior rents from national. I can bypass the counter and go straight to my car. And i dont have to talk to any humans, unless i want to. And i dont. And national lets me choose any car in the aisle. Control. Its so, whats the word . Sexy. Go national. Go like a pro. Welcome back to squawk on the street. Were watching shares of taser, the maker of stun guns and body cameras. The stock is moving lower after they were downgraded from a neutral to a prior overweight rating based on valuation. The stock hit a nearly tenyear high yesterday and has more than doubled since its closing low back in july. You can see those shares down by nearly 6 . But its still again up for the year nearly about 40 . Back over to you guys. Thanks so much, dom. Walmarts memberonly warehouse store sams club is a 57 billion annual business. Cut backs in Small Business spending have management seeking new ways to compete with arch rival costco and amazon prime. Lets head to San Francisco this morning with Julia Boorstin is joined by the president and ceo of sams club. Hey, carl. Thanks so much. Ros, thanks for joining us this morning. The big question today on the heels of the softer than expected jobs numbers is what are you seeing in terms of the health of the American Consumer . First of all, thanks for having me this morning. We really watch carefully the health of the consumer right now, but were encouraged by the things we see. We think the lower fuel prices are additive to our traffic. Were excited about that. But we also watch them very carefully, their spending habits, how they want to purchase, and where they want to purchase. It really enables our global strategy and our digital strategy, which are both doing well. Before we talk about your digital strategy, lets talk about Small Business. Small businesses make up about a third of your revenue. Weve seen weakness in the Small Business consumer. Theyre visiting your stores less, spendingless. What are you doing to boost those Small Business numbers . We are trying to really entertain that member in our club. Some of the things were doing is we just recently introduced services for them. One of them is execupay, helping them create a payroll system for their employee space. The second is partnering with etna Health Care Insurance, a way for them to provide Health Care Insurance for their employees. And services along the lines of helping their businesses grow. Simon, you want to jump in here . Ros, welcome to the show. On the etna Health Care Exchange you set up there, is that a recognition that one of the primary problems that Small Businesses have is getting is still making sure they have some Affordable Health care within the business . Secondly, i want to ask about the convenience of the Curbside Pickup and how potentially important that is moving forward, particularly with the new technology that youre trying. Simon, first let me answer your question about the health care piece. So, yes, Small Businesses, most of them are still employed by their own employer and starting a business on their own. So they have not been able to apply interest to their work force. This provides a 40 discount in order to provide insurance to their work force. Its very beneficial for them. In terms of your second question, in terms of how were thinking about our consumer and how important it is at this time, this Health Insurance program is an niche tiff that helps them really balance the cost of doing business every day. Its interesting because youre all about the club membership. On black friday and over the weekend, you opened your doors to the public. What did this say about your strategy moving forward . Do you want to move away from the subscription model . No. For us, the black friday weekend is interesting. So were closed on thursday. Black friday is not a big day in the Warehouse Club channel. So we have a full weekend of eventins events. It gives us an opportunity to open our model to everyone to introduce them to a club model. Was it busy . It was a busy weekend for us. This was the season for us to really combine our digital work with our physical work. So we were able to really have folks order online and pick up in the club. Thats one of the questions simon just asked concerning hows that drive opportunity going. Right now the pilot is going very well. Were getting great response from our members. Youre making a big investment in technology in general. What do you see the future of sams club being in terms of integrating that online and instore experience . Absolutely. Technology is important for us for several reasons. One is managing the data around our business and getting very intimate with our member. They want to know that we know them well and were responding to them with the right merchandise, right price points, right value. Part of that is analytics and data. And will that help you compete with costco and perhaps more importantly a. Ll ll lly a . We think our strategy is to combine our Digital Space with our physical space. We want to be the first mover on that. We think were going to be able to do that. Sarah, you want to jump in . Just on the black friday and cyber monday trends weve been seeing so far from some of the retailers. A big theme has been mobile. For the first time really outpacing pcs in terms of online growth. Are you seeing that at sams club . Does that kind of model where consumers are now going straight to their phones and tablets and often online really translate when it comes to the basic Consumer Staples that sams club sells . Absolutely. Just this year alone weve updated our mobile app three times this year just to really accommodate the affinity for mobile. As Doug Mcmillon mentioned earlier, yes, when youre in the club, 10 of our members and customers are on the in the club and stores as they shop. And were almost out of time, but i want to ask a final question about this event, where we are now. What is it youre going to be speaking about here . How important are women in business, especially at sams club . So this particular conference is around next generation leadership. Its very important to reach down into the pipeline and make sure that these women realize that there is a place for them in the boardroom. So this conference helps us to do that. I plan to pick out talent while im here, help share some of my successes, and hopefully bring some of these women along. Great. Ros, thank you so much for joining us. We look forward to hearing your comments up on stage. Thank you for talking to us before you make your speech here. Ros brewer, thanks so much. Back over to you guys. Great access, julia. Thank you very much. Up next, auto sales. After an 11year high going into the Holiday Season and with gas prices falling, that trend doesnt look like its going to change gear. The ceo of this countrys largest retailer, autonations mike jackson joins us next for an exclusive look. Well be right back. You dont need to think about the energy that makes our lives possible. Because we do. Were exxonmobil and powering the world responsibly is our job. Because boiling an egg. Isnt as simple as just boiling an egg. Life takes energy. Energy lives here. Autonation reporting its november sales today. The nations largest auto retailer with a gain of 6 compared to the industrys 4 jump. Expecting more than 17 million new vehicle sales for the year. Joining us this morning exclusively on squawk on the street is mike jackson, the chairman and ceo at autonation. Mike, good to see you again. Good morning to you. Carl, good morning. Its a pleasure to once again report Outstanding Retail sales for our company. We reported 27,000 new vehicle sales for the month of november. And another excellent month for the industry with an annualized selling rate of 17 million for the month of november. Thats the second time in the last four months that the selling rate has broken through 17 million. Our fullyear forecast for this year is between 16. 4, 16. 5. We were probably the first to say, you know, its going to be 17 million next year in 2015. Yeah, a lot of people had trouble getting their arms around that number. It appears were getting awfully close. We saw what gas prices have done to the mix and how important the suv has become when the numbers we got yesterday. Did you see that too . Carl, absolutely. We go back to several years ago, trucks were 48 of the mix in the month of november. Theyve now peaked at 54 of the mix. If you look at this years sales, carl, year to date, car sales are flat. All the increases in trucks year to date, trucks are up 10 for the year, and a big part of that is attributable to decline in gas prices. I dont think gas prices impact so much the total number of vehicles sold, but they have a dramatic impact on the mix. Mike, what is the Consumer Credit, the state of the Consumer Credit look like, as you see these auto sales go up . Well, for autos, the consumer s outstanding. The full spectrum is available from subprime through super prime. The full spectrum is available from financing short term to long term and leasing, and the rates are at historic lows. But is it mostly subprime . Im just wondering trying to get a sense of the health of the consumer in terms of their own credit status. If i look at autonation sales, when we sell 1,000 vehicles, 7 of those are funded by subprime loans. That includes new and used. So its a relatively small part of the business. And delinquencies in automotive are at historic lows. People pay their car loans first, and they pay their car loans off quickly. Our average term for a Loan Contract is 63, 64 months. When it goes out, theyre typically paid off in 36 to 40 months. People pay their car loans and pay them off quickly. Mr. Jackson, can i ask you about this absolute scandal surrounding the air bags that can explode with too much force and cover passengers and drivers with debris, plastic and metal. Overnight, takata has said it will not initiate a nationwide recall. So youre just having a recall at the moment in certain states that clearly have humid weather or are warmer states. I know you took preemptive action on this. Where do you think the doesncou needs to go from here . Is the regulator right to leave things as it has . I think its a fiasco for the industry and its a black eye for the industry, whats going on with this takata air bag situation. We are now approaching 8, 9, 10 million vehicles in the u. S. , 15, 16, 17 million around the world. 10, 11 manufacturers have now been drawn into this. We in no way have enough parts to deal with the number of vehicles involved. If i look at the production plan, it will take years to resolve all these vehicles. Its a tower of babble from the regulator through different manufacturers how to handle the situation. You know, its hard as a Free Enterprise guy to call for a change in regulatory behavior, but i think the regulator, when we have 11 manufacturers involved, we need a more coherent process to decide how were going to deal with this. I guess they would argue theyre caught between a rock and a hard place. As you point out, there arent enough spare parts to initiate a nationwide recall. Yet, some people are thinking, i shouldnt be driving this as it stands at the moment. I understand completely. And, you know, we have some manufacturers tell us that the occurrence is so rare, just keep driving until it can be repaired. We have others who tell us to disconnect the air bag until we can get the parts. Its really not a good situation for the industry. I understand that the greatest probability of an incident is in humid climates, and they want to get those vehicles repaired first. I think its inevitable that it will expand to the entire country. Mike, did you see im looking at ford today. I think its getting back to 16 for the first time in a long time. Did you see the asymmetry between ford and gm, the way it appeared . Yes, of course. Fords numberone selling volume product, the ford f150 pickup truck, is in a massive changeover process to the aluminum body. Its very disruptive to production with a big downturn for productive capacity. I think theyre going to miss Something Like 100,000 units this year of productive capacity. So were very short of ford f150 pickup trucks. The vehicle will actually start first deliveries this month in december and ramp up going into next year. They have another big plan to change over ins c kansas city. The deerborn plant is done. Then well have a better picture of how its going to run. Theres no question that competitors, whether its General Motors or chrysler, have taken full advantage of the shutdown at ford to sell a lot of pickup trucks and take a bunch of share. But the f150 is still number one. Youre changing the way people buy cars, especially from a digital standpoint. You can use your credit card to reserve a car if thats how you want to buy it. Were launching it in south florida. We call it smart choice express. We think the big disconnect is the consumer has two experiences. One online and one in store. What you do online is not c captured in the store. This is very unsatisfying. We are going to unify this into one experience where you can seamlessly move back and forth between online and in the store and for this to happen, the online experience needs to be transactional. Were launching in south florida. Youll actually be able to select an actual vehicle, get an actual price, give us your credit card, put your reservation on it. That is now your car for the next 48 hours. We will expand this transactional capability to include buying your trade, arranging your financing, doing paperwork, so many things to make the experience in the store far more pleasurable, enjoyable, and can move at the pace you would like. Were very excited about it. A far cry from the way a lot of us grew up buying cars. Always good to see you again. Well see you next time. Mike jackson joining us from autonation. Good to see you. Its 10 30. We go to Jackie Deangelis with breaking news. Good morning to you. Thats right. The department of energy out with its weekly crude inventory report. We did get a draw down of 3. 7 Million Barrels. This is not surprising after the api came out with a draw down of 6. 5 last night. Whats interesting to see is whats happening with the supply. The api was saying imports are down. I want to point out that u. S. Stocks after weeks and weeks of builds are really in good shape. We are looking at stocks almost 7 above the fiveyear average at this point. Were looking at the wti price. 67. 67. Were up about 80 cents. We were up about a dollar before the report came out because this draw was really priced into the crude trade. Part of whats happening here today, also some Short Covering because we fell so far so fast. Its likely were getting a little bit of a technical bounce here. Just one last point on gasoline stoc stocks. We got a build of 2. 1 Million Barrels. Rbob gasoline hit a fiveyear low yesterday. Quite significant. Back to you. Mini rebound there for gasoline. Thanks very much. Were also seeing Energy Shares here at the stock market rebounding. Straight ahead, should you be worried about a bubble in the highyield market . Jpmorg jpmorgans global head of Debt Capital Markets will be joining us live at post nine to weigh in on that important question after the break. A a remote that lives on your phone. More wifi in more places. A Movie Library you can take wherever you go. Internet speeds that have gotten faster 13 times in 12 years. The innovators and inventors at comcast labs are creating more possibilities for more people every day. Comcast nbcuniversal. Bringing media and Technology Together for you. Energy Companies Make up the largest sector in the highyield monday market. Investors worried about Falling Oil Prices could prevent some of these firms from, well, pay manager off their debt or certainly causing a bit of a Ripple Effect in the market. Y jim casey is the head of global debt capital at jpmorgan. So many conversations ive had of late revolve around energy and skip from the equity side to the Balance Sheet to the reliability side of a Balance Sheet. 18 of high yield is energy, jim. What are you seeing in that market right now, and are you concerned . We are concerned. 18 is a lot because its a 1. 9 trillion market. Youre talking around 350 billion worth of debt thats going to need to be repaid. I think just to back up, the reason why these companies came to the high yield market in the first place was they obviously wanted to raise money without kov answer in to build out fracking and fracking infrastructure. So thats how the concentration came to exist in the first place. But its a big issue, david, because obviously as oil prices dropped, their ability to generate Free Cash Flow is challenged. So a lot of these bond prices have been dropping fairly dramatically. So what are your expectations in the market . What number, for example, of bonds are now priced below 90 cents in terms of dollars . I assume you may know that. Whats the forecast here . Are there going to be buyers who show up at some price . There always are at some price. Are we there yet . Im not quite sure. In terms of the quantum of the issue at this point, theres around 66 billion as of this morning, actually, that are trading below a dollar price of 90, which is a pretty low dollar price. The folks that are focused on coming into this opportunity are really the distressed hedge funds. So theyre looking at this as a huge opportunity. Everyone is focused on this. Are they there yet or not . Well, some of them are, but a lot of them are looking at this as, you know, a falling situation and theyre looking if storm some degree of stability. Having said that, i think that a lot of people are copping this to the telco bubble of the late 90s. We think this is different, primarily because there are hard assets here. Comparing oil and gas on the ground to fiber buried in the ground, those are two different things. Oil and gas is always going to have some value at some price. Were talking about another very big year in high yield. I think over 400 billion in issuance is what you may see. Is this bleeding over into investors perceptions of the highyield market overall . It probably will. Certainly spreads in Energy Companies have gapped out to about 700 over treasuries. Historical historically, Energy Companies have traded tight every versus the overall market. So there is an adjustment thats happening in the sector. So far there hasnt been awful lot of bleed out of high yields specifically just because of energy. I think whats happening is a were going through a repricing mechanism that will have its own cycle and will take place and eventually were going to have new buyers at a price. Thats the way its going to work. We may not quite be there yet is your sense. We may not quite be there yet. When it comes to energy at least. Thats right. When it comes to the Overall Health of the highyield bond market, some people say were in a bubble. Others say, no, were not. The spread over treasuries is where its been historically. Although, we continue to see outflows from retail when it comes to the mutual funds that buy highyield bonds. Whats your take . So i think the right way to think about bubbles is go back and look at the last demonstrable bubble, which was in the first half of 2007 and compare it today to that point in time. So first thing you look for is leverage ratios. For every dollar of Free Cash Flow that existed then, companies on average had 6. 2 in debt. Today its 8. That doesnt sound like a big difference, but its a lot what i think is more instructive is if you look at coverage ratios. Your ability to Service Interest in 2007. There were 2 of Free Cash Flow for every 1 of interest. Today there are four. Theres a very dramatic dem difference. So its double. Exactly. Therefore, a healthy market. We think its a healthy market. But to be fair, Retail Investors are pulling a lot of money out of high yield. So in total, year to date they pulled that around 13. 5 billion. But its very much a bifurcated market. The Retail Investors are pulling out. The Institutional Investors are staying in. Theyve been selling and the institutional money has been buying. We think the institutional money has it right. Just to give you an example, david, if you had bought in the high yield market with every single selloff, you were well compensated for doing that. Last major selloff was in may of 2013 when bernanke came out with tapering. If you had bought then, your return would have been about 14 , which is not too shabby for bonds. Not at all shabby for bonds. I always love to ask you, given your knowledge of the market, what you could actually do at jpmorgan, which is typically called on to finance all the biggest deals, or many of them, to be a part of them. If i came to you, not that i wanted to or even had interest, but if i came to you and said, i want to do an enormous leverage buyout, whats the number you could raise for me in the highyield market . If you want to do faber lbl, for the right company i think that we could raise 50 billion of loans and bonds, for the right company with the right cash flow. 50 billion . 50 billion. And i dont think that theres a lot of speculation in that, david, because if youll indulge me for a little bit of shameless selfpromotion, jpmorgans done the largest Investment Grade bond deal for verizon at 49 billion. We did the largest loan for heinz. We did the largest bridge loan for activis. Just recently, of course. And we raised 22 billion for a french cable company. In that deal, the order book was over 100 billion. So when you see that sort of investor interest and you analyze those order books an see what you could raise in the market today, we think the number is around 50 billion. Not that anybody is going to need to access that. I would think when it comes to lemplg buyouts, youre going to to see a 75 billion deal. We would welcome that phone call, but it has not come in yet. Right. We didnt even get to Investment Grade or changes in regulation. Youre going to have to come back sooner than the year and a half its been since you were last here. I would love to do that. Appreciate it. Jim casey the head of Global Capital debt markets at jpmorgan. Ill get in on that deal. Coming up on squawk on the street, president obama speaking at the business round table annual meeting. Were there. Well bring you his speech live as well as the q a that follows. Squawk on the street will be right back. Heres a question for you when electricity is generated with natural gas instead of todays most used source, how much are co2 emissions reduced . Up to 30 . 45 . 60 . The answer is. Up to 60 less. And thats a big reason why the u. S. Is a world leader in reducing co2 emissions. Take the energy quiz round 2. Energy lives here. [time warp explosion] yes where have you been . The future and it looks bright. But we need to upgrade our Network Power protection. 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Energy shares, simon, on the rebound today. Back over to you. Thank you very much. Lets speend it over to chicago for the santelli exchange. Thanks, simon. Before i welcome our guest, he wrote an oped in the Washington Times yesterday. I think janet yellen and company probably really agreed with the first half. Fed yearns for higher inflation. Where they may not agree is the rest of it, to disguise asset bubbles. The author on with us right now taking the time. Catch me up on your recent writing and thoughts in general on inflation, disinflation, and the fed. Well, the idea that the Federal Reserve or any central bank should deliberately try to force Consumer Prices up under the false pretense that rising Consumer Prices, otherwise called inflation, is somehow necessary for Economic Growth when its knot. Basically, economies do better when prices are not rising. In fact, if Consumer Prices were falling, thats the best possible result for an economy. Well, you know, if we go back to the 30s, its the one subset. Its their entire subset for most of the things they do today. We dont want to see european style price drops that have huge percentages associated with them. But weve really never had that in modern times. Isnt it more about prices being stable . Well, even prices stable, they dont want price stability anymore. They want prices to go up at least 2 a year. Thats not stable. Stable would be remaining the stam. Some years they might go down. Some years they might go up. Theyd like to go back to the 1930s and say prices fell and we had a depression, therefore the depression was caused by falling prices. Thats faulty logic. I can point to even more periods of economic history when the economy was booming and prices were falling. Now, if we consider the following notion, many of us thought inflation would be higher, but embedded in that was we were wrong on how long it would take to get growth. Is inflation or higher prices hiding in the fact that we have basically very moderate growth . Considering we crossed 18 trillion on the National Debt clock, i cant see it changing aggressively in the future. Your thought . Yeah, the inflation has already been created. I get a lot of flak from the paul krugmans. They think ive changed the definition of inflation or i have my own definition. Its them that changed the meaning of the word. Inflation is expansion of the money supply. Think about the word inflate. When you inflate something, when you inflate a balloon, it expands. Price dont expand. They rise and fall. Inflation is referring to the n expansion of the money supply. If it was about rising prices, they would call it increasing. The result of inflation is prices can rise. Sometimes its a set prices that rise and sometimes when you have inflation, you prevent prices from falling. But falling prices would be a Healthy Development and help the economy heal. So when the fed creates all this inflation, it distorts the economy in so many ways and ultimately the consumer is going to pay. Prices are going to rise dramatically in the future. Were out of time, peter. Thank you. I always like hearing your opinions. Ill leave you with one thing when youre thinking about higher prices. The Dow Jones Industrial average. Back to you, squawk on the street gang. Thank you so much, rick. It has been the best november for the automakers in more than ten years. What does that mean for Auto Parts Companies can like Johnson Controls . The ceo of Johnson Controls joins us here at post nine for an exclusive right after this break. Theres a difference when you trade with fidelity. One you wont find anywhere else. Onesecond trade execution. Guaranteed. Did you see it . In one second, he made a trade, we looked for the best price, and the trade went through. Do the other guys guarantee that . Didnt think so. Open an account and find more of the expertise you need to be a better investor. Were for an opens you internet for all. Sing. Were for creating more innovation and competition. Were for Net Neutrality protection. Now, heres some news you may find even more surprising. Were comcast. The only isp legally bound by full Net Neutrality rules. Welcome back to squawk on the street. Im phil lebeau. An capitol hill discussing the air bag recall under way. As part of the hearing one of the lead executives for Honda America testifying has indicated that the honda, despite the fact that will not issue a recall for air bag, honda itself has announced it will the do a nationwide recall. That hearing is taking place. Were monitoring and well have more updates throughout the day. One quick question. The key issue here is are there enough spare parts to go around. Honda with say that no there are not enough spare parts. So they may not be able to follow through on it or it may be the expense of other states. And here is whats going on the happen simon. You are going to have people who own hondas who will take their vehicle into a dealership. I did it last weekend. You know what i was told. You have an air bag that needs to be fixed. Were not sure when were going to fix it. Thats whats happening. It is going to take a long time for these Replacement Parts to work through the system. All right phil. Thanks very much for that breaking news. Were going to stick on the auto beat right now. As auto makers are seeing their best november since 2003. One company benefitting, Johnson Controls. Here is chairman, president and ceo alex molinaroli. Good to see you. Can you o weigh in on that breaking news and this scandal with the air bags and the fact that nit is a wants a nationwide recall yet they have defied that. First i want to thank you for being here. And ill get to your question but one thing i want to remind everybody here is were a diversified company. Not just auto parts. That said auto parts is very important us to. The most important there and reminds me is how important the Quality Control systems are. Yes you are a big supplier of parts and batteries. Do you think this 16 and a half million estimate for the year is realistic . Terms of sales . I think for sure. If you look at whats happening this year the question is and you have been talking fuel prices all morning. What is that going to do not only the amount of sales but also the mix. What does u. S. Production look like next year . In our plan we planned for about a 2 increase. My guess is we stay at these kind of oil prices its probably low. You just released some Financial Information and outlook for next year to investors. China was very positive in your report. Why are you optimistic given that weve seen signs of slowing of the chinese economy. Well i think i was asked that a lot yesterday. When i look at 7 and a half , 10 percent, conveyor to what . And you look at the rest of the world schooinchina is a great opportunity for us. It is a big part of our growth. Where else are you optimistic . Because youric looing nor growth in europe which is interesting. The growth well see in europe is probably automautomot. And based off things were seeing today. If these fuel prices stay low i think it is going to really help the european economy. A recent announcement by the company disclosed a personal relationship with you the board reviewed the referenced relationship and determined that no conflict of interest occurred. To avoid any perception of the potential future conflicts. This is the first time weve heard from you after that. Has there been any impact. When Something Like that happens, the biggest impact to me is with our employees and my family. You dont want to go through Something Like that. But the other thing thats happened is employees have really rallied around me. The community has rallied around me to get us through the situation and its allowed us to continue to focus on things that are important. How long do you plan to stay on board as ceo . Well 62 would be the normal age and im a young 55. The building business. Yes, thank you. Yes well go somewhere else. Owe you mentioned being larger than just automotive. There are attempts to increase efficiency given people want to reduce carbon footprint. Are you confident you can continue to see growth in emerging markets and around the world not just here in the u. S. . I think so. The markets are for construction. Were in the commercial construction for the most part. And that part of the business, typically infrastructure related. Heavy construction, Institutional Markets thats been pretty slow. So weve been a lag to the market. And were starting to see indicators that is coming back. And same thing around the world. And you have been investing in Driver Assist safety technology. Is this going to be a big thing going forward. I dont think you can get away from that kind of trend. There is no doubt that is coming. When you think about what we do, whether batteries for Energy Storage in a vehicle or seats or the interiors of a car, certainly going to impact our business. Thank you for coming . Thanks for having me. Alex molinaroli, Johnson Controls. President is meeting in d. C. E financial noise financial noise financial noise