Transcripts For CNBC Squawk On The Street 20150225

2 . Road map begins with earnings from hp a big hit from the stronger dollar. An exclusive interview with meg whitman in a minute. Beat from lowes and from target. Those stocks both higher in the premarket. Hawkish or dovish . Janet yellen day two, heads to the house for her second day of congressional testimony. First up, the dow and the s p coming off record closing highs. The nasdaq aiming for an 11th consecutive day of gains. Better than expected results from retailers, target and lowe and yellen back to the hill for testimony, before the House Financial Services committee. Jim, three sessions left in february. Weve had records on the dow, the s p, the mid caps the russell, the dax, the ftse. Whats left . It all makes sense. When youre in a Conference Call like i was, listened to the amazing cfo from home depot, really is the dean of cfos, and shes tracing out a story which says, you know what people are spending much more on their home and we have homes coming off of renting and business is good and were doing better than expected and lowes do too. In the old days youd see what one would do well the other not as well. Both doing amazingly. Cornell putting out numbers on target showing when you focus, youve got not 3 comp but 3. 8 . These are Big Companies and theyre doing well. Target, by the way, someone says guidance is up Brian Cornell is not from the chump school of ceos. He knows you dont give out guidance and fall short. Like his predecessor, seemed to fall short on everything. Big nature retailers and i say, lets dine equity ihop and applebees and dominos whats go on with the consumer the consumer is back and exceeding presession levels. Target kofrmcomps ahead of estimates. Lowes comp a point ahead of estimates. But whats so great when you look at what targets doing, hes going to save a lot of fire power for the march meeting but if you read the cover story he gives you a prelude, going after babies wellness whats the consumer who has left target. You start a household, you go to target, thats what hes saying. By the way, i think that his decision to be able to cut the for dotcom he wants to get those people in the door home depot yesterday said 40 of people who order online, and their site is fantastic, come to the stores and pick it up and buy things. These are really much smarter retailers. When cornell admitted that he has to have apple pay, which he only does for the online, i think well know you referred to 25 shipping. Brilliant. Hes taking it to everyone cornell. This guys a competitor. We havent seen a competitor in target in so long. Maybe since mackey. I dont know what its like to have maybe the stores will be fun. By the way, the stores have you said being fancier, they got to the return to the notion of fancy, reasonable price. Fancy. Weve got a guide for q1. Theyre going to tell us more on the 3rd. Amazing. People they should be worried about more spending to come more cap x to come . No. I mean this is a company that had to starve u. S. Because of canada. Thats over and they can do strategic placement of different brands and get by the way, well hear in the march i think well hear about the 40 million hispanic shoppers who are really drawn to target. Target has a major leg up with that demographic. And i think theyre going to play that because its been a also of the surge. Theyre smart. These guys are understanding, theyre targeted. Walmart should be worried about them. Doug mcmillon focused on wages. He should be focused on target. Lowes not bad, either by the way. Not at all. Not at all. Talking about a stock, though up 30 points since lets call it the summer and rose. Is that justified. 3. 6 million homes that have not been spruced up during this period. The remodeling that homes that were taken out because they were bought by various funds, and then rented. These homes must all be remodeled, in tremendous amounts. This according to home depot, and lowes is benefitting from that. Take a look at categories doing great, millwork its kitchen, bath, small hand tools the stuff of reconstruction. Go over the Toll Brothers quarter and toll made a number, not by putting up more houses by putting up apartments. This tremendous project in brooklyn, pier houses thought theyd be 2. 5 million. Going for 4 million. That is the kind of gross margin you dream of but it doesnt come from moor homes. Comes from smarter homes. Id like to hear from meg whitman. Were going. What you ask, i deliver. You deliver that . Okay. Whatever it is you need i will be here for you. Lets get to that in fact. Take a look at share of hewlettpackard. You can see, they are down as much as what may be almost 7 this morning, after the tech giants earnings were ahead of estimates by one penny. Revenue short of estimates but the key was the Company Warning the strong dollar is taking a significant bite out of its fullyear profits and therefore lowered its guidance. Joining me now in an exclusiven view to break down the quarter, whats left of the year Everything Else hewlettpackards chairman and ceo, meg whitman. Always a pleasure to have you, meg. Thank you for being here. Yeah happy to see you this morning. Lets start on the revenue front. I know well get to the dollar as well and that may figure into it. Down 2 on Constant Currency for the First Quarter yet you stick with the idea of flat revenues on Constant Currency for the year why. Theres real bright spots in the business. The pc business continues to do well. Perhaps the biggest turnaround in the last couple of years, last couple of quarters our Industry Standard serve of business which grew 9 in Constant Currency. We had a good security business graphics business. So some real bright spots. And of course the key to growth in the future is the turnaround of Enterprise Services which still declined due to key account runoff and weakness in amia but we expect a better second half in the growth rate of Enterprise Services. I think flat Constant Currency is a good estimate for the rest of the year. We feel confident in that. You mentioned, of course storage. Networking is another area i think, people have been looking at within enterprise that they felt would be a growth engine. It has not been at this point. And im curious, when we look at networking, or storage in fact seeing increased competition . The likes of a cisco, meg, seems to be doing quite well. Im curious what your thoughts are will b. Whether you are lagging. Well lets take storage first. Storage has been a great turnaround story at hp. Finally our new storage products are bigger than the legacy storage products so weve crossed that chasm, if you will and we grew storage and 3par had a terrific quarter. Were confident in storage business. We won an award for one of the best storage products from a great source. So were feeling good about that business. Networking has grown for 21 consecutive quarters. This quarter was not a good quarter for networking. And a couple of execution issues. One in the United States one in china, weve changed out our China Leadership Team in networking. Were making changes to the u. S. Sales force insensitives but its a dynamic market. Credit to cisco, they did have a good quarter in networking so weve got to fight back. These are going to be the key components to a certain extent of what is a growth story in what will be the splitoff hewlettpackard enterprise. I wonder looking overall, i hear you say i expect to be flat revenues Constant Currency for the year. A few years ago, of course that would have been quite an accomplishment. But i wonder are you disappointed, three plus years into the turnaround you are still talking about just being flat on revenues . Well im pleased with the turnaround overall. I mean when you think of from whence this company came 3 1 2 years ago, i think weve made remarkable progress. And flat and Constant Currency, its not what we aspire to you remember 2 1 2, 3 years ago declining 7 a quarter, 6 a quarter the worst quarter was 9 decline yearoveryear. Were feeling pretty good about this. And i think, if you think of if hp were going to still be together in 2016 im quite optimistic we would grow. So i remember the premise of the split was to accelerate growth of these two companies by more focus, more agility, being able to respond quicker to customer needs. Im bullish on the future of these two companies theyve got very different opportunities, very different markets to go after. Quite different customer segments. But i am more convinced than i was in october 6th when we announced the separation that this is going to be great for customers and great for the prospects of both hp companies. Why do you believe that more than you did in october . Well first of all you can see, first of all the customer and partner response has been tremendous. They immediately get this. And you can actually already see the behavioral change within hp. Employees have a much clearer now line of sight between what they do and what the results are. Theyre very focused on the market. You know when youre in a big company, everyone feels to some extend if i do a great job will it matter because im part of the huge company. Now that were separating in two companies the employees can feel the Energy Around what they do. I think its theres a cultural element to it. Were also again going to lean out these two companies. As we separate were seeing opportunities to become more fish to have end to end process owners. Were finding things that we do today that we dont need to do. So its another chapter in the hp turn around history that is i think is going well and is quite exciting. I hear you say restructuring a part of what youve done at hewlettpackard over the last threeplus years, 44,000 job cuts on wait to i think 55,000. But what i believe i hear from you, meg, there may be more opportunities to cut costs as a result of you guys looking so closely at all of the different line items in the businesses, correct . I think thats right. And when you look at all of our processes, when you look at where we operate around the globe, there is opportunities to be a more effective and more efficient. Think about it we have 600 sites still around the world. When i came we had 850 offices. Now we have 600. Theres an opportunity to skinny that down. Theres an opportunity to make a few more changes to the portfolio, to focus the efforts of our sales executives. So i think there is opportunity to be more focused and more efficient. So, you know this is very good for our customers. You to remember this is a very competitive business. Were facing increased competition from chinese companies. So we have to have two fit for purpose companies. Meg, jim cramer. I always take my cue from a ceo. You use words in this Conference Call that you were disappointed in execution. I love the printing guy, hes talking about, uaw used the word fearless competition from the japanese, benefit from the currency, very bad for the United States. And then this cash flow projection 6. 5 billion to 7 billion, down to 3. 5 to 4 billion. These are not the kinds of things that encourage me to buy hewlettpackard. And the only buyer, you guys bought a ton of. I would have hoped you used that capitol to go to printing division. Meg, you did not say, as many positive things in in the quarter as i was hoping. Remember the difference between cash flow forecast 6. 5 billion to 7 billion is actually intact except two important things. One the cost of separation which is this quarters the first time we actually were able to lay out in detail the cost of the separation, and across the currency impact. The currency impact is big on hewlettpackard. We are disproportionately affected 65 of our business is outside the United States. Half of that is in europe. So we have enormous exposure to the euro and the pound. You pointed out the advantage that our japanese printing competitors have. That was, believe it or not, 3. 3 billion of revenue headwinds, 1. 5 billion of profit headwinds or 60 cents a share. Were going to try to cover half through Cost Reduction and pricing but we did not want to mortgage the future of the company. We have managed the future of the this company for the long temple, while delivering on our commitments in the quarter. We thought if we tried to cover the other 60 cents, which has led to a lower cash flow forecast, it wouldnt be the right thing for the company. So, my view is we had a solid executionle performance in the business, currency is a tough thing for us. And i think youre going to see other American Companies have some of the same challenges although we are overexposed to europe. By the way, printing in russia we have a very big printing business in russia we all know whats happening in russia. Tough Macro Economic trends. I think very good execution for hp. Yeah. Although not particularly tough trends globally in terms of the economy, meg. I would think here in the states and the other countries in which you operate, the economy at least, even in europe perhaps, starting to see some signs of growth. True . Listen if you look at our revenue and Constant Currency in europe, looks pretty good. Look at the number of units, whether its our Industry Standard servers or pcs or whatever quite good. Pcs up 9 in units but 3 in currency as reported in Constant Currency, because of the headwinds. So were seeing bright spots in europe. Seeing the u. S. Is recovering. But youve got challenges still in japan in the economy, challenges, big challenges in russia parts of eastern europe. So its a mixed bag. And then of course over the whole thing is currency. But listen were on track, we are continuing to invest in innovation. Weve got more innovation coming in the second half of the year. Our gen 9 server has been incredibly well received. Our new line of printers and pcs are well received. Our storage, our storage array has been well received. Securitys a growth spot. So listen theres always good spots and tough spots and a big company like this. But i feel really good where we are in the turnaround. What ive said the last couple of quarters progress but more work to do, no question about it. You have said that. Something that investors have rallied around over the last couple of year i think the unexpectedly strong Free Cash Flow generation of the company. Jim asked the question you answered it 3. 5 billion to 4 billion the Free Cash Flow froe jekz for pro jekz projection. I think that was unexpected. Why was that the case. We were unexpected below our expectations but good reasons for it. Largely timing. But, first, cash conversion cycle did go up. We anticipated it would go up. Went up by more than we anticipated but making tradeoffs every day because our Balance Sheet is strong. We make decisions. Okay, do we want to put pcs or servers on a boat which increases inventory or a plane that decreases inventory but increases cost of goods sold. Were making tradeoffs on big decisions. Cash conversion went up. Hp Financial Services had a terrific quarter but at the beginning of a psyching of financing that is a big use of cash. There were a number of onetime items that actually will get the benefit of in q2 q3, q 44. We it rated but for operation and currency we would be sticking to our cash flow for cast we gave in september of 6. 5 to 7 billion. Understood zbe. We think this is a timing issue but came in below our expectations. As you can imagine, were all over it. Meg, finally, 1. 3 billion, you kwanquantity fid the kwan fid the separation. Mondelez and craft, split 1. 7 billion. Its a huge number. A huge split. Are you on track, is it your expectation, call it early november there are going to be two companies . There yeah that is our anticipated deadline which is the beginning part of november of this year. We are on track, were executing. It is a big and complicated separation. Theres never been anything done quite like this separating into two fortune 50 companies. Imagine that two fortune 50 companies imbedded in hp today. You can imagine, tax and legal entity separation finance, i. Ty. Its expenseive but only 2 of annual operating costs and thats in line with what other companies have spent and try doing it as cost effectively as we can. You can imagine we operate in 170 countries. We have 2700 i. T. Systems, 600 offices, 6 major lines of business. Theres a lot of work but im really proud of our executive team and folks working on the separation. It is like a military operation. Its like clock work. We feel good about where we are. A lot more work to be done of course, between now and november but all on track. Meg, well be checking in with you between now and then as we always do. Very much appreciate your willingness to come on each quarter. Meg whitman, chairman and ceo of hewlettpackard. Thanks david, jim. Thank you. All right. What . Im sorry. Stocks stocks down 7 . Last time the stock was down we talked. I felt emboldened. There was a moment last time we talk stock turned around and up sharply after the interview. Thats not the case today. No. She gives you some things but the cash flow was rather remarkably bad. She did give you some reasons for that. There are reasons behind it. One point in the Conference Call the fellow said what was it cables inventory, how did you miss . Everybody was grasping because Everyone Wants the analysts wanted to be behind this. I found myself writing, listening to notes breaking up is hard to do and then. Started talk how much money it cost to break up. Its mr. White. Breaking bad. Do the words Constant Currency do you accept those as an excuse. Looking for flat. Minus two. Hats off to cisco. I dont want to hear hats off to John Chambers in my call im want to hear we are destroying them. Deutsche bank, a positive. Big win, took them 18 months a one hp kind of thing. Right. Twothirds of their business is overseas. Half of that is in europe. More than many other companies. Right. They are moring posede inginge exposed to strong dollar but its not as much of an impact for other companies. Well see what ibm says tomorrow. But you know i didnt like networking. Ill tell you the troouuth i was excited about the printer spinoff. Now worried about the fierce japanese, theyre dumping printers. With the weak yen benefiting greatly. One mention of 3d im thinking this is . They put deion a little bit. Buyback extraordinary but they should capital. I will say this 50 of Free Cash Flow will be returned to shareholders what they say. I think your first question do they have to make more cuts . She came on she had some positives but quarter itself filled with things she told us not to like. A broader impact on tech microsoft down premarket as well. This shouldnt be takeaways but people will do it. Vanguards founder who has seen his share of record setting markets, his take on the investment client. Renaud laplanche. Dows 1044 points for the month. That holds, the biggest point gain for a month in the dows history. More squawk onsquawk on the street from post 9 in a minute. Theres confidence. Then theres trusting your vehicle maintenance to ford service confidence. Our expertise, technology, and high quality parts mean your peace of mind. Now you can get the works, a multipoint inspection with a Synthetic Blend Oil change tire rotation, Brake Inspection and more. 29. 95 or less. My name is tony sartorio. Im a lineman for pg e out of the Concord Service center. I have lived here pretty much my whole life. I have been married for twelve years. I have 3 kids. I love living here and i love working in my hometown. At pg e we are always working to upgrade reliability to meet the demands of the customers. Im there to do the safest job possible not only for them, but everybody, myself included that lives in the community. Im very proud to do the work that i do and say that i am a lineman for pg e because its my hometown. Its a rewarding feeling. Time for a mad dash on this hump day. Right to it. David, youre going to see sam, boston beer down badly today. Sometime you see declines and they try to explain it away. Meg whitman put on a very good face about the currency whatever. This is plain out listen other guys are selling beer and they seem to like them more than our beer. You get a firsthand look at this. You have a sense of some people kraft beer in bar san miguel we sell beer thats like bringing candy in a movie theater. I didnt say anything. It was business. Because it was business. But i do think that whats happened at boston beer is is that i think the other guys have caught on to kraft. I think everyones doing ipa, david. You and i are making beer its everyones got something going. So boston beer the competitions coming in and the numbers are quite disappointing. I would tell you that you should be in constellation because ma dell low and corona are on fire. Dont read to larger beer issues. Beer is a strong category. And sam is not doing well. Two mexican beers why would that be . I dont have any idea. I was on the tap last night. I served im a terrible pourer. I did a video how hard it is to pour. I got a degree in pouring in guinness but it doesnt transfer here. It done. Opening bell a few minutes away. A lot of the stocks to watch. More squawk on the street after this. Bulldog oooh mattress discounters 197 mattress Sale Television announcer get a serta mattress any size for just 197 each piece when you buy the complete set. The 197 mattress sale. Bulldog oh boy Television Announcer . Is on now. Mattress discounters now with the xfinity tv go app, you can watch live tv anytime. Its never been easier with so Many Networks all in one place. Get live tv whenever you want. The xfinity tv go app. Now with live tv on the go. Enjoy over wifi or on Verizon Wireless 4g lte. Plus enjoy special savings when you purchase any new Verizon Wireless smartphone or tablet from comcast. Visit comcast. Com wireless to learn more. Anything . No. You . No. Aflac what are you guys looking for . Claims legend has it these hills are full of em. It can take months for an Insurance Claim to surface. Claimin takes patience. Aflac paid my claim in one day. They got some newfangled kinda one day payin machine . Hehehehe yea, i got aflac at work. Aflac. In just one day, we approve and pay. One day pay, only from aflac. Aflac. So whats going on today . News alert message email calendar update most of us admit to being overwhelmed by information at work. Thats why ibm created verse. It uses powerful analytics to uncover hidden patterns in your email, calendars and social feeds. It continuously learns how you work. And helps you prioritize the people and projects you need to focus on. Theres a new way to work and its made with ibm. Squawk on the street live from the Financial Capital of the world. Opening bell in a minutes time. If youre keeping track, the nasdaq has had ten Straight Days up thats the longest streak since 09 april third of the nasdaq 100 has a double digit gain for february. Five dow components have the same. The vix, jim, on track for its biggest monthly drop since 1990. Crazy month. Yeah. And its across the board in the nasdaq. Of course apple. But the biotechs very strong. A lot of kind of run of the Mill Technology companies that are doing very well. A lot of that has to do with auto digitalization. You heard meg whitman talk about cisco, by the way. Cisco net working is very strong away from what shes saying. A lot of companies having very good companies. Cisco one of the five dow components up. Jpmorgan depot, not a surprise and goldman sachs. Look, youre seeing there are many restaurants and retailers on the nasdaq and theyre doing well. Some of them you havent heard from. When was the last time that texas road house was blowing the doors open . Texas road house. David, it is time david, ive told you Patrick Swayze movie. These are kinds of companies im saying theyre not in the top ten but theyre just growing and growing and growing. And some of the sirrus logics. At the nasdaq its staples, launching staples Business Loans for small businesses. American express raises Business Loans. Only stock only s p worst off than hp this morning chesapeake. 11 cents misses by 13. Revenue ahead but cutting cap x by 26 new york surprise. A lot of the guys haved that to cut cap x. Other than rosetta and this one, theres been a pretty good growth. This is very bad, you know versus i had i had some really good simerx on the other day. Chesapeake has been a serial outlier, mcclendon and the new guys, its not the stock if you want to be na n. That group, dont by chesapeake. Talking about euphoric moves in stocks actavis is one of them. Now, this morning bernstein says, its two times the growth 50 better margins and two multiple points below the average pharmaceutical stock. Why wouldnt you want to own it . That being said jim, this thing, if theres anything thats reminiscent for me of the nasdaq circa 2000 its moves in valeant and actavis. People are going to say its ridiculous. Multiples have nothing to do with what its almost a cult bheef that belief that everybody has its going to keep going and going and its great and the combined company, what buy, buy, buy, inverted tax rates. I dont know. Actavis did 13. 2 million shares today. Up nicely on it. Look, david, heres the way it comes out. This is so hard. Repeat sold 13. 2 million shares, a huge converge. People fighting to get in. Apparently people 100 people at lunch, including john paulson, flooding this that offering was so oversubscribed. It was. Trying to be skeptical. Yes. When trying to be skeptical. I hope theres got to be i cant find the darn chink. Theres one, theyve got to keep buying, keep the balls in the air. That would be the case. Pfizers buying. Much lower multiple. Pfizers going to have a hard time buying because theyre not inverted and the other guys are. Is presentbrent saunders dont you mention his name, one of the top stocks. I would never make that comparison. Valeant, maybe. Stop it. Stop it. Far it for me to rein you in. Im not concerned about gilead ten times earnings or celgene 26 or biogen at 23 because theyve got great growth portfolio. I dont like acquiring to grow but i dont have any holes. Thats the strategy theyre pursuing at these companies theyve been rewarded for it dramatically. Valeant, 200. Actavis never looked back since they announced the deal. Allergens a good company. Im worried about this is where im worried but i cant poke holes. Tell me where im wrong that actavis is bad. I dont see it. Believe me youre going to fine few people who will. Well look back and say, one of these companies, im not going to mepgntion, one will, i called foul on tesla the other day. I have to get a tesla so i dont look for a bomb in the trunk in the back. Theres no trunk. Models, best model overall in Consumer Reports for the second consecutive year. Models per share fabulous. Press release per share amazing. Miles per gallon amazing per share. Earnings per share not as good. Pep perage farm. Sent me salad dressing other day. I was complaining if you went to campbells soup, theyre almost trying to hide natural organic. Theyre say you can find it i like their stuff on the shelf. Very good salad dressing. The problem with campbells its in the pantry and theres no room in the pantry. My thinking has been white wave and celestial sorry, irwin, didnt mean that. Hanes celestial and whitewave. What youll hear from Brian Cornell hes writing acollect to companies to get target to have the right stuff in the food aisle. You want to be in wheatitewave plantbased foods. Or beganic. Natural and organic. Hearing about it into my household. You bet you are. Dollar trees a new high 78. 17. 1. 16 beats about penny. Comps up 5. 6. Fabulous. Tjx the only rain on the parade. They gave a negative guidance. Carol should not have done than fab lutulous operator. She has to do what she has to do. Before she lowered the boom on alec she said comps significantly exceeded expectations. Thats highly unusual. Maybe tjx after the smoke clears buy that one. Shares of hewlettpackard down, down sharply than they looked in premarket, about 8. 7 . Of course, going against what has been the general trend since meg whitman took over the stock price that has been up up more than the market by far, we did speak with meg whitman, of course chairman and ceo of hewlettpackard. In particular the company suffering from the strong dollar and perhaps more so than many of its competitors. The impact is big on hewlettpackard. We are dis proportionproportionately affected 6 pa 55 outside the United States. You pointed out advantage that our japanese printing competitors have. That was, believe it or not, 3. 3 billion of revenue headwinds, a billion and a half of profit headwinds, or 60 cents a share. Were going to try to cover half of that through Cost Reduction and pricing. But we did not want to mortgage the future of this company. Of course talking about their investments in r d and innovation. I know. They did they didnt mortgage the future but buying back so much stock at a time when i think you want to fund the printer operation to a level that would make it so people would want to own the stock badly. She did say two s p companies. I like i want to come up with more positives. The Deutsche Bank win was good. That had been in ibms shop right . Ibm speaks tomorrow. Maybe we find out get a sense of whats going on there. The dollars bad. And the japanese to me competitive now, we see it in autos, printers and analysts were baffled. I was baffled. I was baffled. I find myself baffled. I dont like when youre baffled. Tjx raising the full and arttime hourly u. S. Store associates wage to at least 9 beginning in june. Those who have been employed for six months or more earn at leaf 10 an hour in 16, matching what walmart did. When you raise wages, people get upset. Carol mayer, great quarter, raises who gets upset when you raise wages. Shareholders. Walmart went down and tjx went down. Im saying as indicated now. If you dont think they cant handle this raise, youre gravely mistaken. Home goods is good. Styles at tjx look better than ever. Well get you an outfit. I would argue in the case of walmart stock decline, obviously carl interviewed mcmillon, the quarter was not great. Sense and guidance they were doing this for competitive reasons because things were not going well. Tjx quarter was great. It was a great quarter. And i am glad its not what we get from target. Target ive got tell you car nell setting the stage for a mar of extravaganza thats like frozen, like frozen. Frozen i or ii. When are we getting frozen. Guardians of the galaxy walmart deal. Relatively flat open here. Lets get to bob pisani on the floor. Good morning. Good morning. We have a flat open as you noticed. But weve been stretched and it might be time for a little bit of a breather here. Mentions talking about nasdaq up ten days in a row. A lot of major indyexices are stretched, way above their 50day moving average. The standard i use. When you get far above that reversion back to the mean. Normally stop going up or go down, back towards the 50day moving average. Put up the qqq. Nasdaq 100 well above 50day moving average i think 10 3. Were at 109. The russell 2000 iwm, thats hit a new high seven days in a row. Maybe not today. But 123 you see there, 122. 118 is its 50day moving average. Thats a little bit stretched historically. Normally that will start coming back down. A lot of sectors stretched, technology group, xlk the proxy for the s p 500 technology sector, up ten days in a row. Gone from 39 to 43. Its well above its 50day moving average. I think its 41 right there. My point is when these things happen normally the market will calm down move sideways and try to consolidate. If that doesnt convince you people are xlas en, the vix is at a new low for the year. It did that yesterday. Its down again here. Thats a new low for the year. Let me move to retail samestore sales. These numbers are just terrific. Look at this lowes up 7. 4 . Dollar tree up 5. 6 . Tjx, 4. Target, 3. 8. If you want to reference people anything above 2 is terrific, is good in this market. These numbers are excellent. You see the mixed response of the stock prices here. Lowes was good numbers. Guidance was okay. That stocks had a terrific run. Dollar tree guided a little bit lower, though. I think it was disappointing but the stocks up. Tjx, guided lower expectations for the First Quarter, thats why its down. Target was roughly in line. You see mixed results here. The guidance is okay. Samestore sales are very good. If you look at dine equity this is a restaurant, different space, but these guys own applebees and ihop ihop samestore sales up 6. 1 . Thats the highest Quarterly Sales increase since 2004 for ihop. Applebees the best numbers since 20011. Ihop, thats moving the dial for that company. Take a look at that stock right now. Ihop respectable run last year. Finally, i want to note chesapeake in the exploration and production space, going to be down big today. Down 9 . They had a big miss and cutting Capital Expenditures more than anticipated. Thats going to have a tough day today. Wry right now the dow down. We are going to get royal inventories. Jackie . Good morning to you, carl. Wti just took a turn south right now, turning negative, 49. 19. But watching brent crude higher at 59. 15. We got the api numbers last night, we did see a big build 8. 9 billion barrels 2. 4 million in curbing. That sets the stage for the deal you report. Its interesting, traders are saying we are consolidating, bouncing around the 49 50 mark. We get a build from the democraticdoe theyre going think were going to fine a bottom. Strong crude production and a good economic incentive to store crude and sell it at a later date. So we know that traders are doing that. You also have the Saudi Oil Minister out saying the markets calm, that demand is growing. He said that on the sidelines of a conference not sure where hes getting his demand notions from because the data that we have done really necessarily show demand is growing. But thats from their perspective. Meantime he said they want calmness in the oil market and comments seemed to have calmed things here. Watching for that number at 10 30 to see how traders react. Thats going to set the stage later today. Morgan stanleys chief u. S. Equity strategist adam parker on what he make of the historic run in the markets and where to invest now. Also ahead hey dad, take the phone away from your ear. Why would i do this . I cant hear you. Put if in front of your face. Oh. How did you get my phone . Does this mean when we talked the other day that you knew i was in the can . I do now. How was the presentation . Modern family shot an entire episode using apple products. Interview with the cocreator and producer Steven Levitan later on. Squawk on the street continues in a moment. Woman its been a journey to get where i am. And i didnt get here alone. There were people who listened along the way. People who gave me options. Kept me on track. And through it all my retirement never got left behind. So today, im prepared for anything we may want tomorrow to be. Every someday needs a plan. Lets talk about your old 401 k today. 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And be covered . It means your odometer. Is there to record. The memories. During the mercedesbenz certified preowned sales event now through march 2nd, youll get complimentary prepaid maintenance and receive your first two months payments on us. Only at your authorized mercedesbenz dealer. Eye opening comment from twitter Ceo Dick Costolo in an interview for New York Times, asking if he ever meets people who dont use twitter or dont know why they would use it. Whats his pitch. Answer, i meet people who say i dont tweet. I think theres a misconception that the reason theyd sign up is to tweet when i meet them i tell them no you dont have to. Probably a Fair Assessment of the user base jim. This is what i want dick to do, i want people to dick to say, this is your own news service, ive got revenue ideas for dick and anthony, my friend who brought the street public and im telling you, theres low hanging fruit there, in the same way there was at espn. Com when they decided to make money with that. Its your personal news service. A lot of my friends use it ceos use it but theyve not been able to capitalize on it. Its the power of the platform still but yet to be fully new advertisers are lately. You see them you see them kind of sneak up on the site. But i think chase spend some money there. I think theres a lot of low hanging fruit and i think that he needs to position the company much more as a nontweeting as being in the stadium, more people in the stadium than there are on the field. And hes catering to people on the field and hes got to cater to the people in the stadium. The stock within a 150. Too rich here . No no because this is one like where the opportunitys reflected by the market cap. Market cap has to the opportunitys there and if you sell the stock, you might miss the notion that one day dick and his team realize that its a personal news service and theyre going to cater to the stadium and not players. And the players are going to get a Concierge Service or pay a couple of bucks. Youve been preaching that gospel for a while. Its easier than calling your local police force every other day, they get tired of that. They do. You dont want to be the hot line to the fbi when you tweet. Interesting story all around. When we come back cramer stop trading with jim. Dows down some 16 points. Dont go away. Television announcer mattress discounters 197 mattress sale is on now. Bulldog mattress discounters 197 mattress Sale Television announcer right now, you can get a serta mattress any size for just 197 each piece when you buy the complete set. Bulldog any size mattress twin, full, queen, or king for one low price and theyll deliver it free. Television announcer the 197 mattress sale. Bulldog oh boy Television Announcer . Is on now. Mattress discounters time for cramer and stop trading. People want growth in income often hear that how about a 5. 5 yelled, put up better than expected numbers. People dont think of that company but its got growth going, rrd label business good printing business consolidated. This stocks going to take out the 20 and you want to be there. Should yield 4, not 5. People talking about how do you get drug growth . You look at a company like Ptc Therapeutics ptct up a couple hundred percent, people saying theyve got a muscular dystrophy drug, a lot of talk 100 bid, Credit Suisse talking about. I say be careful. The stocks run a lot. Presumes a lot of fda approvals not yet happening. People want to play the next biotech takeover and i like the company, theyve been on mad but dont get carried away. We havent taken your temperature on oil. Petrobras pushed further into junk by moodys, the president vetoing the bill for keystone. Thank you for the numbers. The break even has gone down dramatically because of the cost of drilling. Anadarko permian, 17 to 20 return if you drill wells now, we are not going to have any sort of cessation of the glut. Wait a second. What . 70 20 return drill now at these prices. Price for drilling come down dramatically, so many rigs. The idea of the saudis not increasing output to drive guys out of business . Were the swing producer, we are opec its not them anymore. At 80, youll see floodgates open. Were going closer to 40 than i think were stuck here. Every time the numbers out of annaadarko permian. Even dry gas, thank you rbn, 13 , 14 return because the price of to drill how does that compare historically to the price to the return that what is the typical return. Before this. Before the costs declines. Nothing here. They were making nothing until the rapid decline. 29,000 day rate down to 20,000. Now its nine days you can make a lot of money. Technologicalley killing. Happens quickly. Three months. I saw the data from rbn. Best keeper of the data. Major, major development. Eagle ford by the way when you listened to Toll Brothers they did not say houstons bad. Not many layoffs. Why . Permian producing great oil. Returns at these prices because of decline in service. Youll hear how much these costs are coming down. Major story. Thank you, rbn, they really calculated numbers for me. Oil was down for seven months. Actually have a positive month but three days left. The amount of oil coming out this quarter extraordinary. Youll see numbers you wouldnt believe, maybe 9. 5 Million Barrels. The fed chair taken her seat in front of the financial House Services committee. Jim, whats on mad. La quintaer, starwood hooked up with uber. Brian sharples mini airbnb. And marc benioff, caused the decline cloud. This year will be fine. Oil inventories, new homes and yellen part ii, dont go away. Good wednesday morning, welcome back to squawk on the street. Im Carl Quintanilla with simon hobbs, david faber live at new york stock exchange. Sara eisen off this week. Janet yellen set to begin day two of congressional testimony in front of the House Financial Services committee. You saw the headlines yesterday in front of Senate Banking in which she said that she believes reasonably confident inflation will hit targets in the medium term, the word patient ings being used. Markets soft here. Oils going to give back. We will be getting inventoryies at 10 30 a. M. Eastern time. Yellen concerned about the housing mark. We have fresh data on that courtesy of the cme. Jim. Simon comes in at 481,000, new home sales number better than expected. Expected 470,000. Last months revised up a tick to 482 from 481. New home sales month over month down. 2. Looking for down 2. 3. Last month revised not as good as it was before 8. 1 versus 11. 6. Stocks coming in under a little pressure before this. They gain about a tick on this. But nothing big to speak of. Tenyear yields around 1. 99 coming in and stayed about the same. Back to you, carl. Getting new home sales this morning. Diana olick in washington. Diana. This is a great number. I know it doesnt sound like a big move but to be where we were when we had the big jump in december, even with revisions, its a great number. The good news is that months supply hasnt gone down too much. Weve seen a very, very tight market in inventory on existing and new homes. These are signed contracts in january. So unlike existing homes which are backward looking to contracts in november, december these are shoppers out in january putting their name on the dotted line to buy a newly built home. One issue, though price. The median price of a new by lilt built home up 9. 1 thats a big Price Premium for existing homes and thats a sticking issue in the market today, price have started accelerating after a year of shrinking price gains. That hits affordability, first time home buyers. You want to see that chain moving up. That is people selling existing homes to move up into more expensive homes, possibly newly built homes. We saw Toll Brothers do well on the high end. On the low end we need more affordability. Builders saying theyre focusing on higher priced homes and not entry level where we need to see more inventory, more supply. The realtors are screaming for the builders to get more supply on the low end. Back to you. Diana, thank you. Opening statements under way ahead of the fed chairs fed chair yellens testimony. Day two, of course. Our senior economic correspondent Steve Liesman ready to monitor what he says. Before we get back into the weeds here people seem complimentary at the skill in which yellen is dealing with with communicating the exit strategy from what held good for the financial crisis. Shes getting good comment tear, right, simon. She seemed better prepared more on her game more definitive than in july, which was her first semiannual testimony since taking the job in january 2014. Now, simon, as we await the second day of yellens testimony, theres a battle of the birds going on over whether she was hawkish or dovish yesterday. Not so much in the markets, which are definitive that they heard yellen saying that easier fed policy was on the way than previously thought. The debate among the fed watchers. Here are the headlines, New York Times saying yellens counsels patience on Interest Rates, yellen puts fed on a path to lift rates and ft agrees yellen paves way for rate rises this year. So, in her testimony, yellen did offer something for everybody here. Two separate comments that she made yesterday. We have a highly accommodative policy thats been in place for some time. We have to be forward looking. The modification of the Forward Guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings. Heres some e commentary from the street. Jim owe vol vansole van, no major change in tone. Wrightson, did not change the policy outlook at all. Goldman, language broadly similar to the january meeting and minutes. The wall street in the fixed income markets take off 10 11 12 basis points from 10year, seeing a dovish remark there. Well get much more on this tomorrow morning. We have jim bullard talking from 7 00 to 9 00 a. M. Tomorrow morning. And, of course we have the hearing coming up. Im looking for more fireworks when it comes to the house. More issues in the house when it comes to the fed and issue of audit the fed, and general an tip think not a bad word when it comes to feds zero Interest Rate policy. Were keeping our eye for Maxine Waters and do our best to take that live for sure. Steve liesman at hq. Meantime the downess down 17 points. Lets bring in adam parker at morgan stanley, chief u. S. Equity strategist there. Good morning. Good morning. What a month weve had, yet you say as of the 18th, we continue to think that hubris and debt define the top of every cycle and that these are unlikely to become problems this year not worried at all . Well you know whenever you throw at the all it makes somebody like me nervous. Im confident. Heres why the expectations for earnings have come down so sharply that we actually think theyre too low. A lot of the negativity of low oil and a lot of the negativity from the analysts expectations is in the numbers and nothing that comes later but consumer benefits lower inputs we have a good setup into the middle of the year. Six months ago you said the cycle could last until 2020. Yes. S p could cycle end near 3000 but the target for the year 2275. Thats right. You have several years out. I think you could get higher in the market. If you think about it you know near 3000 by cycle end. Last four five more years in the cycle, thats only about 8 9 per return for the levels with the longterm average. What were focusing investors on is, do you think the cycle can last . Is the economy improving in the u. S. . We think so. Corporate earnings like toy continue to expand . We think so. You mentioned hubris and debt. It means management teams getting too arrogant put too much cost in place with hiring inventory . We dont think so outside of a few select areas. Therefore, we think odds are earnings can continue to expand for another few years. Yeah. Target, 7 8 gain in the s p weep should kind of point that out as well. Right. It says in your notes, there is officially a bubble in government bonds, it may have started to burst a couple of weeks ago. We should put up the yield on the tenyear which moved higher by 45 50 basis points. We came down slightly yesterday as treasury sold out. What is outcome, there is a bubble in bonds and it may be about to burst which youre making . Im an equity guy. I was noticing that the multiples that investors are paying for high yielding securities are high whether you look at consumer staples, utilities, telecoms reits valuation are not compelling because people are searching for income and clearly paying more for level of dividend than they are for the spector of growth. Were under weight staples, underweight utilities, dweent think those offer attractive risk reward right now. Rich peterson on monday its interesting on the s p capital i. Q. Data, financials looking at 16 improvement during the First Quarter. A breakout within capital marks, schwab etrade, goldman, blackrock on month so far. This is looking interesting to a number of people would you follow through . Well for us you know we have been increasing exposure from financials over time. It was our sort of six or seventh rated sector out of continue a few months ago. Now its our third. I think the challenge, simon, is it depends on your view when we move the front end, what youre talking about and if the long end backs up. Clearly see money back out of the tell cos and financials if people are confident. Morgan stanley indicator months to the first Interest Rate hike than callation looks like nine months away. You are to be timing it but it could happen. You saw the jobs report in february utilities down 1. 5 financials up 1. 5. If people get more confident that youll get a steeping curve, the fed will move its off to the races but were not there yet. I understand utility underweight and staples underweight. Why industrials . Carl, i think its about how to play the oil price and the outlook there. We have an overweight in energy and underweight in industrials because the estimates for industrials, look too high particularly for businesses that are revenue tied directly to Capital Spending from energy. Our view is you know hedge in the portfolio but i think the Energy Stocks offer better risk reward than industrial stocks related to the oil price today. Got it. Adam thanks a lot. Always good to talk to you guys. Share of hewlettpackard have hit their low of the trading session today, down over 9 this after the Company Reported earnings after the bell yesterday that showed 92 cents in nongap earns per share, that was one penny ahead of estimates. Revenue number was light but the guidance from the company that is pressuring those shares significantly. That guidance coming in by 30 cents a share for the year. Roughly half of what theyre saying is the ultimate hit of a strong dollar on their business. Remember, hewlettpackard sales are comprised twothirds of sales overseas half is in europe, hence, they are very much, very much in the crosshairs, if you will of those violent up moves in the dollar weve seen in last few months. That being said the Company Continues to see flat revenues on a Constant Currency basis for this year. Now, some ways that may not be saying much. But hewlettpackards chairman and Ceo Meg Whitman says hey, weve still come an awfully long way. Im pretty pleased with the turnaround overall. I mean when you think of from whence this company came 3 1 2 years ago i think weve made remarkable progress. And flat and Constant Currency its not what we aspire to remember 2 1 2, 3 years ago we were declining 7 a quarter, 6 the quart worst quarter 9 yearoveryear. Were feeling good about this. The cost of splitting the company in two coupled with the dollars going to do as well is impacting the companys Free Cash Flow for the year. 6. 5 billion to 7 billion had been its estimate its now 3. 5 billion to 4 billion. 50 will flow back to shareholders in form of stock buy backs and dividends but it was negative Free Cash Flow in the First Quarter, something whitman did say was a bit less than they had anticipated or worse than they anticipated. Also citing the like of competition from cisco in the networking business which was not a bright spot. Execution issues there in china and in the u. S. The shares are getting slapped around this morning. Big loss. More than just forex concerns. It does seem to be the case. A big week for retail. Numbers from lowes target t. J. Maxx. Plus jack bogle will join us as we watch Opening Statements of day two of fed claire Janet Yellens testimony on capitol hill. Once those initial states are out of the way, well take q a live on cnbc. Financial noise financial noise financial noise financial noise a slew of retail sales coming out. Lowes target dollar tree topping estimates amid improving jobs market and lower gas prices. Dollar tree trading at a new high. What is your best buy . Retail analyst at ubs. Good morning. Good morning. The top gainer actually i believe im right in saying at the moment is lowes. Obviously, the small professional contractor absolutely key there what is outcome for from what lowes has said in catching up with home . Lowes is doing a good job on its own. Whether you look at it relative to home depot, really in isolation, i mean what we saw from the company is impressive set of results. And we think that could continue, really in the sweet spot of the Home Improvement cycle. As you mentions the economic factors are starting to cooperate. We think that will sustain its momentum for at least the foreseeable future. The home depot announcement of 11 billion Share Buyback attractive headline for many people. Which do you think outperforms moving forward. Home depots, 18 billion, we think both are well positioned. We would give it to the slight edge to lowes here given that its probably going to see acceleration in its margin expansion. Its well below peak me margins but it doesnt take anything away from the home depot story. Strong execution. Re coding that capital to shareholders would could be lucrative. Target, customers are returning to target the outstanding question is whether they could continue momentum. Why are they keeping the fullyear guidance under wraps until analysts day tuesday. That is normal practice in. I think they want to focus attention none the near term. There does remain mystery on what theyll say next week at analysts meeting. What we are seeing is that the recent trends have been good. Thats in part due to easy comparisons. We dont know will they continue to invest to try to reposition this business for the long term. And how are they going to balance those investments with maintaining strong nearterm financial performance. Is dollar tree which reported here your strongest convict within the space . Without a doubt. Dollar trees a great investment here. Theres multiple paths to making this stock work. We saw today that not only are we seeing good trends in core dollar tree but also on the precipe of acquiring family dollar. We actually saw some improvement in the performance of family dollar. We think when these two businesses come together its going to create a ton of value for shareholders and wed buy the stock. They can give up 300er tos to get it through. Does that move the needle the number, or is that incidental to the bigger picture. Its incidental. I think when all is said and done, what the value that can be created from bringing the two businesses together, we more than much greater than any store closures or divestitures that will take place. Michael lasser retail analyst at ubs. Janet yellens still ahead. Before that, apples off more than a dollar near alltime highs what happen would make you sell the stock . Well talk to a bear. Dont go away. Ameriprise asked people a simple question in retirement, will you have enough money to live life on your terms . I sure hope so. With healthcare costs, who knows. Umm. Everyone has retirement questions. So ameriprise created the exclusive confident retirement approach. Now you and your ameripise advisor. Can get the real answers you need. Start building your confident retirement today. [ female announcer ] who are we . We are the thinkers. The job jugglers. The up allnighters. And the ones who turn ideas into action. Weve made our passions our lifes work. We strive for the moments where we can say, i did it we are entrepreneurs who started it all. With a signature. Legalzoom has helped start over 1 million businesses, turning dreamers into Business Owners. And were here to help start yours. Apple shares trading off their alltime highs after ordered to pay half a billion in fines for patent infringements last night clearly theyre appealing that. Is it the top for apple . A price target of 115, what is that, 16 lower than were trading now. Good morning. Great to be here. If i can summarize your note it is that pride comes before a fall. You know you cant you have to realize that apples valuation is clearly an outlier. Now, its a tremendous company. And they are a profit machine. They are capturing all of the profits in one of the most lucrative markets out there, the Smartphone Market but there are dynamics in the market that bear paying attention to which is that a, its slowing down growth of the overall mark is slowing down from the 20 , 30 , its growing to approach the growth of the overall falling market closer to 5 to 10 , right . B, the upgrade cycle for phones is likely to lengthen as futures become good enough. We see it in pcs, which have an upgrade of four to five years, tvs are ten. Phones are two. If the upgrade happens and lengthens its a negative for apple. Three, if carriers are less abler to willing to subsidize phone is thats a negative for apple. Yes, some point the upgrade may lengthen so the point carriers will subsidize length and the brand may not be worth what it is now. Theyre selling 34,000 iphones an hour. I was going to say a month. 34,000 iphones an hour. Theyre not there, colin. Thats right. What can bring it down in the near term right . In the march quarter you have the iphone inventory increases from 5 to 7 weeks from 4 to 6 weeks. Thats another 5 million units. Thats a positive. The dividend, however, it may disappoint. All of the robust return forgive me sir. Colin, youre great, but this is a series of ifs and buts. Youre not pointing to anything youre seeing now, correct me if im wrong. Very little will pull this down in the near term except the dividend disappointed investors, maybe the smartphone comes in slower than people are expecting. Were not at top, maybe close to the top, right, if youre taking a longerterm view than the Current Quarter you have to be aware apples profits come from the iphone 70 of revenue even more and these dynamics of the industry are changing and thats undeniable. Some argue the biggest bear case its a source of cash. If things get dicey, its a source of cash you agree. Absolutely. Thats part of the fact that its so large. I mean it is larger than the it is twice the size of the number two Market Cap Company out there. The most traded symbol beyond the e minis. Thats ridiculous. Ridiculous. When you get to this big of a size and this big of a heft there are all types of dynamics that can hurt the stock. Thats what you are to point to as well as industry dynamics are changing as well. It may not be today, about if youre Holding Apple vow you have to some concern how large its grown. Typically a conversation like this would come back its prices for perfection but its not. Everybody would say multiples reasonable. Sure. Hence you can have your concerns but it shouldnt be a concern about downside if everything done go perfectly. Unless the dynamics take china, right what are the risks to apple in china now . Its 22 of revenue. It is the Fastest Growing segment, the growth in china is three times the growth in america in the last quarter. Does apple have risk selling their phones into china . Do they have governmental risk . Could be state regulations that drop in. So the dependency on a single product and on selling, the fact that its wait. Its current revenue. The graduation to services right. But thats if you had to give the i point away apples revenue would be a small fraction of what it is now. Id like to see more services being developed and grown. And if you look at the market right now, wait it is right, apple is 15 , they capture all of profits. But the other 80 is owned by google which wants the phones wants to drive prices down and monetize it with services and thats their play. I would like to see apple push fast into services that would make me more comfortble. Its rare a meet a fellow worrying on the platform. Nice to be here. Janet yellen on the hill day two of her testimony about to begin. Vanguards jack bogle will talk about that. Q a portion begins after this break. The future of the market is never clear. But at t. Rowe price we can help guide your retirement savings. Our experience is one reason 100 of our Retirement Funds beat their 10year lipper averages. So wherever your longterm goals take you we can help you feel confident. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Call us or your advisor. T. Rowe price. Invest with confidence. Good morning. Im sue herera. Southwest says it can continue to fly 128 aircraft that have not yetted that their rudders expected. Five days to conduct the test after approving a plan to remedy the problem. Southwest had grounded about onefifth of its fleet. The stock down on the news today. A longawaited truce appears to be taking hold in Eastern Ukraine with prorussian rebels pulling artillery from the front. Ukraines military said none of the troops had been killed in the last 24 hours the first day of no fatales aleastt least seven weeks. Uber partnering with starwood. Passengers can now earn one starwood rewards point for each dollar that they spend. And the secret service may be flying drones over washington, d. C. The agency isnt disclosing the exercises will take place other than to say theyll involve areas where nights are typically restricted such as above the white house, and the u. S. Capitol. And thats the cnbc news update at this hour. Back to squawk. Welcome back to squawk on the street. Reporting from the nymex, the department of energy out with its weekly crude inventory report, highly anticipated here. Build in inventories of 8. 4 million in line with the api numbers last night. Gasoline was down 3. 1 Million Barrels, steeper decline than expected. Wti prices are down about 10 cents more than they were ahead of the report 48. 88 where we stand now. But what traders are saying with refinely maintenance, accidents and strikes we are seeing less product out there, refineries using lez crude to make their product and thats why we have a gasoline drawdown here and why we would have more of a crude inventory build. The thing to consider the fiveyear average. 1. 8 Million Barrels for crude. This is still significantly over that which tells me that production is still high. Again, this was a bit of a bearish report but we are coming back to flat for the day, 49. 13 at this point. Traders saying in the face of a report like this if we do turn positive, you really are starting to try to find a bottom at this range. See how it pans out. Now to washington where the house q a with janet yellen has begun. Previously served as a member of the board. I believe you indicated that the taylor rule in particular, quote what sensible Central Banks do. And previous testimony, i believe the last testimony before the committee i thought i heard you say that you still believed that but that timing was not correct because we are still in extraordinary times, perhaps im putting some words in your mouth, but is that that was the essence of what i thought i heard in your last testimony. And now yesterday, before the senate, you testified, quote, im not a proponent of chaining the federal open Market Committee in its Decision Making to any rule whatsoever. A couple of observations. I think youre familiar with the legislation that was furthered by mr. Highzynga. Under his legislation, call it rule, call it process, call it methodology, the fed would set the rule, the fed could waive the rule the fed could change the rule at will as long as it publicly told the rest of us what it was doing. So one, im not sure what with respect to that proposal what the fed would be chaining itself to. My question is this, do you no longer believe that a rulesbased policy like the taylor rule is what sensible Central Banks do . Is it a question of timing or have you simply changed your mind . What the view that i was offering thats a statement that i made in 1995. I was comparing the taylor rule to other rules that were yet simpler and indicating that that was a rule that up until that time from the mid 80s until the mid 90s had worked well. Chairman yellen its just that your statement of yesterday doesnt leave a lot of wiggle room. I dont believe in chaining that the fed should complain itself to any mechanical rule. I did not believe that in 1995. I do not believe it now. And i had the privilege to meet with professor taylor right after he proposed the taylor rule in 1993 and i agree with the views that he expressed then. If i could quote, he said operating Monetary Policy by mechanically following a policy rule is not practical. Moving on to say that hes to be benchmarks that a central bank could refer to in deciding let me ask you this question. And i continue to hold that rule. To waive the rule how is one chaining themselves. I dont believe any mechanical rule that links Monetary Policy to one or two variables in the case of taylor rule type i understand equations. Its two variables we take into account a wide range of factors that impact the performance over time of the economy and chairman yellen i think i understand your position here. Forgive me but im beginning to run out of time here. The second last question i will ask, yesterday you stated in Senate Testimony that you are not seeking to alter dodd frank apparently in any way or form. This was in an answer to a question by senator warren who i believe may be fairly alone in believing that dodd frank is sacred text. Your predecessor said as a general matter dodd frank is very big complicated piece of legislation that addresses many issues. Im sure there are many aspects of it that could be improved in one way or the other. Your own general counsel, scout alvarez, has indicated problems with the swaps pushout provision, board member daniel tarulo has indicated concern for the sifi designation level and express esed support for exemptle institution for a certain size of the voelker rule. Barn any frank himself indicated an interest in nonbank sifi designations asset thresholds for Automatic Bank sifi designations volcker rule in user margin q end treatment for loans held in portfolio. My question, as the fed is the pro prudential regulator on banks withering on the vine any context for the answer you give or you believe that dodd frank cannot be altered and should not be altered in any way . Well we are not seeking, we are not asking the congress to alter it. The act provides considerable flexibility for the Federal Reserve and the regulators to tailor rules that are appropriate to the institutions that we supervise. And while if we were starting from scratch, no doubt, we would have suggestions for different ways of having formulated one thing or another. Its been very useful piece of legislation. Its provided a road map for us to take strong action to improve the safety and soundness of the Financial System. And we have found ways to use the flexibility that act affords us. Thank you, chair yellen. Again, contrary to your predecessor or bornarney frank at moment you seek no modifications. The chair recognizes the ranking member. Thank you very much, chairman hensarling. Since the claire took that line of questioning, i think prior to raising a question with you, it is important to know that the claire and i have met on more than i think one occasion to talk about Community Banks and whether or not there was steps that could be taken that would ensure that the Community Banks are not overly burdened with regulations and to separate out the Community Banks from regionals and big banks. And so it is into the mr. Barney frank or i or others believe that there never, ever ever, ever can be any modifications, changes, we have always said that we are open to technical changes and to working in areas where there may be confusion or appears to be duplication. So i want you to know that some of what is being raised with you is an ongoing discussion and certainly hopefully if we can get the cooperation from the opposite side of the aisle on some of these issues there may be some room for some technical changes or modifications. Having said that im interested in whats happening with our living wills. Under title i of dodd frank act the as you know robust living wills under title i of dodd frank are crucial in order to assure that we are truly into too big to fail. Many members of the public wrote to the fdic and the Federal Reserve expressing frustration that the public portions of living wills have been disappointing. Specifically, the lack of Public Information makes it difficult for members of the public to assess the progress that firms and regulators have made on achieving the goals of dodd frank, which is to reduce the complexity of the worlds most significant Financial Institutions and allow them to be resolved under ordinary bankruptcy proceedings without endangering the broader economy. In an august 2014 press release, the fed noted that both they and the fdic will be working with large banks to explore ways to enhance public transparency of future planned submissions. I wonder if you can, to elaborate on this commitment. What Additional Information does the fed plan on releasing to the public so that we can know whether or not you are doing what we intended in wall street reform and each if each living will is thousands of pages long, does the punblic have any transparency if the fed is releasing 30 or so pages of the plan. What im concerned about, first of all we understand the submissions are certainly not adequate, that theyre not what they should be in many instances. These banks are huge the big banks were talking about. They are complex. And we believe that the very top, sometimes the ceos dont even know and understand the complexity of their institutions, and these living wills are extremely important if were to have a plan by which we can resolve them in the event we determine that they are putting us all at risk. What can you tell us and up date us about the leaveivings wills . Let me say weve taken the living wills process very seriously. We have worked closely with the fdic and last summer issued a set of joint letters to the largest firms establishing a clear set of criteria of things that we want to see in their next submissions. They are very significant steps that well l. Imill improve odds under the bankruptcy code. We told them for example, they need to establish a rational and less complex legal structure that would improve resolve able. That they need to develop a Holding Companys structure to support resolveabillty that they need to change the way in some of their derivatives contracts, state provisions, include state provisions that would aid resolve ability. Weve told them that they need to make sure the chaired services that support critical operations in core business lines will be maintained throughout resolution. And we have are working with the firms to make sure that by july of this year when they make their next submissions, that we see very meaningful improvements. And i will say that in some of the largest firms, we have seen very meaningful steps toward reducing the number of legal entities along the lines that we have suggested. If we do not see the kind of progress that we expect we have told these firms that we expect to find their submissions not credible. So we are taking this process very seriously. Now these living wills, as you said often extends of thousands of pages. They contain a great deal of confidential information that done really belong i think, in the public domain. But we have insisted that they provide information to the public in the public portion of their submission and we are working with them to try to increase the amount of information, the amount of detail, that is in the public portion so that you would be able to get a better understanding of how theyre proceeding on this. Let me just move to another subject area quickly. Market manipulation paul volcker, the architect of the voling volcker said one key is the Merchant Banking exemption which allows banks to engage in activity in the real economy, this includes activities like owning or controlling shopper centers, power plants coal mines and oil tankers. Traditionally, we have wanted to separate the business of banking from activities in the real economy because barring these distinctions runs risk of banks engaging in anticompetitive behavior, driving up costs for consumers or accrueing too much political power over other economy. Any thoughts . With respect to physical commodities the feds engaged in a careful vee review of the activities we have permitted along these lines and with respect to the concerns they raise about safety and soundnessing nessness were likely to propose new rules during this year. With respect to market manipulation where there have been allegations of banks in the commodity areas manipulating markets, market manipulation is something that the cftc and the s. E. C. Are charged with overseeing. Claire recognizes the gentleman from michigan chairman of our Monetary Policy. Thank you. Maxine waters asking questions of fed chair yellen. Congressional members talking to each other as much as they are to the fed chair. In meantime jack bogle, joining us, found of the Vanguard Group who joins us on the phone. Good morning to you. Good morning to you all. I assume youve been watching some of the proceedings yesterday and today. Good to see your government at work. Very good to see. What do you make where we are right now, jack . Stocks at record highs, obviously all eyes on the fed, qe in europe what do you make of the levels were at . In well i think its fair to say the stock market is fairly fully valued. I dont see that its particularly cheap. But if its a little overvalued thats what we have to deal with, longterm investors, sometimes overvalued styes undervalued. Nothing approaching a bubble out there. But when you look far enough down the road you see an awful lot of risk out there, risk to the european Financial System we know all about that. Risk to the euro itself. We look at you know this terrorism going on in the middle east and maybe spreading. The worlds a risky place. And stocks are not cheap, you know 2 dividend yield or less than that not bad. And Interest Rates dont the bonds dont offer a very good haven because the treasury tenyear treasurys benchmarked for intermediate term it rates, over 2 about the same as the yield on stocks. No easy way to get income. I would advise investors not to speculate and hype up the income by taking greater risk. You say you said a couple of times not particularly cheap. Is it particularly expensive . There well i wouldnt say very highly expensive. If you put me on the spot and said is it likely to be overvalued, id say probably yes. But i dont think investors should do anything about that. I think speculators should do something about that. But i think in the long run, speculators lose and investors win. You feel youre taking victory laps given the fact the last couple of years it has been indexing that has won . In well im not into victory laps but the reality is that indexing works and the number of people who have been exposed to it grow every year. And im speaking not only in the Mutual Fund Business where for example january vanguard took in 33 billion of new cash flow and the rest of the industry lost 15 billion. Thats quite a swing. Active management minus 16 billion. Vanguard largely massive, plus 32 for a net gain of 16 billion. So its when doing 200 of the industrys cash flow you must be doing isnt right. Its not a passing fad. Its a a realization we all own the stock market together why pay intermediaries . It helps trade with one another and make a lot of money out of it. So jack what should we make of the people that come on the television that are selling products that do select stocks to to say its a stock pickers market, well return to a stock pickers mark buy my product . A stock pickers mark is one of the most anom allist foolish terms, silly terms, ever invented. Think about it this way, if its a time for stock pickers to win, its also time to stock pickers to lose because for every winner there has to be a loser in the market. Formarket. Every purchase is a sale so to me its a silly statement that seems to get a lot of credibility like many things in our lives and the more its repeated the more it becomes part of the conventional wisdom but makes no sense at all. Doesnt make mathematical sense, logical sense. This is not an opinion. This is a fact. What was your take on the president endorsing some of the stricter standards for brokers who recommend retirement account investments . Im strongly in favor of it been strongly in favor of it for years as anybody that follows my career knows. Ive been speaking out about a broad standard of fiduciary duty as long as i can remember and hope one day we get that standard of fiduciary duty for anybody who puts a hand on anybody elses money. This is a good start, the Retirement Plan business is a huge business and growing, so if we can make inroads calling for advisors to have fiduciary duty there thats a good start. I hope its only a matter of time until the Money Managers of the mutual funds in the Retirement Plan system are also held to a standard of fiduciary duty. Jack, always good to talk to you. Thanks and good luck to you. Bye. Meantime our production teams are keeping a close eye on your behalf and what janet yellen is saying on day two of her testimony before capitol hill. Well return to that very shortly. Also ahead, lending club has earnings out and you can see the stock taking a beating this morning. Fair credit the coo will join squawk alley live right here on cnbc. The lightest or nothing. The smartest or nothing. The quietest or nothing. The sleekest. Sexiest. Baddest. Safest,. Tightest,. Quickest. Harshest. Or nothing. At mercedesbenz, we do things one way or we dont do them at all. The 2015 cclass. See your authorized Mercedes Benz dealer for exceptional offers through mercedesbenz Financial Services. Help an oil company overcome minus 47 degree temps, 5 foot ice, and 16 foot waves, to safely keep crude oil flowing 365 days a year. When emerson takes up the challenge its never been done before simply becomes consider it solved. Emerson. The fed chair has returned janet yellen testifying in the house day two on capitol hill. Steves liesman wrapping up the coverage for cnbc. Thanks. What were hearing is a lot of the political angles on the fed regarding the chairman jeb hen serling questioning the chair on the issue of the rules. Whether or not there should be rules that govern Monetary Policy. Janet yellen opposing that. One of the congressman questioning the chair on the issue of whether or not the fed chair meets more with the white house and congress and whether we ought to up this to four times a year rather than twice a yearp. Havent gotten too much on Monetary Policy. I think thats going to be on the way. Issues on dodd frank like we heard yesterdayp. Sharp questioning regarding whether or not there should be changes in dodd frank something we know the new Republican Controlled Congress is interested in and monitoring to clues as to what kind of regulatory relief might be coming out of this new congress be. Thank you very much. Lets check in with jon fortt as to what will be on squawk alley, including, of course janet yellen. Good morning, jon. Were going to be looking at Net Neutrality that vote is coming up but it got more complicated with a lastminute twist. Also dicks costolo twitter saying you actually dont need to tweet. Well look at whether that holds water based on the trends in the service and finally, hp earnings, a couple bright spots but a lot that arent so bright. All that and more coming up on squawk alley. Theres confidence. Then theres trusting your vehicle maintenance to ford service confidence. Our expertise, technology, and high quality parts mean your peace of mind. Now you can get the works, a multipoint inspection with a Synthetic Blend Oil change tire rotation, Brake Inspection and more. 29. 95 or less. If youre running a business legalzoom has your back. Over the last 10 years weve helped one million Business Owners get started. Visit legalzoom today for the legal help you need to start and run your business. Legalzoom. Legal help is here. Do you want to know how hard it can be to breathe with copd . It can feel like this. Copd includes chronic bronchitis and emphysema. Spiriva is a oncedaily inhaled copd maintenance treatment that helps open my airways for a full 24 hours. Spiriva helps me breathe easier. Spiriva respimat does not replace rescue inhalers for sudden symptoms. Tell your doctor if you have kidney problems, glaucoma, trouble urinating, or an enlarged prostate. These may worsen with Spiriva Respimat. Discuss all medicines you take even eye drops. If your breathing suddenly worsens, your throat or tongue swells you get hives, vision changes or eye pain or problems passing urine stop taking Spiriva Respimat and call your doctor right away. Side effects include sore throat cough, dry mouth and sinus infection. Nothing can reverse copd. Spiriva helps me breathe better. To learn about Spiriva Respimat slowmoving mist ask your doctor or visit spirivarespimat. Com [ male announcer ] your love for trading never stops. So if you get a trade idea about, say organic food stocks schwab can help. With a trading specialist just a tap away. Whats on your mind lisa . Id like to talk about a trade idea. Lets hear it. [ male announcer ] see how schwab can help light a way forward. So you can make your move wherever you are. And start working on your next big idea. Good morning. It is almost 8 00 a. M. At hp headquarters in california 11 00 a. M. On wall street and squawk alley is live. You got to keep them separated welcome to squawk alley. Joining us this morning as always jon fortt and Kayla Tausche at post nine and also Jon Steinberg of the daily mail north america. Good morning to you. Were keeping an eye on Federal Reserve chairman janet yellen continuing a second day on capitol hill. Shes testifying before the House Financial Services committee. We will bring you the latest as that testimony continues. It has moved to markets. Carl, yesterday markets in the green, fairly narrow range for the markets today as the q a gets under way. First up this morning, less than 24 hours from a vote that could decide the future of the internet. The fcc is expected to vote on tom wheelers proposal which would reclassify Broadband Internet service as a public all utility. Supporters say its the best way to make sure providers cant interfere with peoples access. Hillary clinton talking to kara swisher yesterday. Take a listen. I would vote for Net Neutrality because as i understand it its title two with a lot of changes in it to avoid the worst of the utility regulation, so its a foot in the door its a value statement. Jon steinberg, did she make