Transcripts For CNBC Squawk On The Street 20151207

Brent below 42 for the First Time Since 2009. We begin with shares of chipotle falling hard. The company issuing disappointing guidance on another e. Coli outbreak. And a 14 billion acquisition, huge premium for Keurig Green Mountain. Its going private. And ges deal with electrolux is off. First up, Keurig Green Mountain has agreed to be taken private. The Investor Group led by j. A. B. Holding. Coke, which owns about 17 of keurig says it is fully supportive of the deal. Keurig will operate independently as part of j. A. B. s coffee platform. What else do we know about this. The main one they own is jacobs they did a deal with mondolese back in 14. It was completed in july, actually, of this year. 44 of that company is owned by mondolese. The rest is controlled by jab. Mondolese got 3. 8 billion euros for selling their Coffee Business into this. Theres an enormous platform that already exists for selling coffee. The key here is keurig, which has been Battle Ground stock, which has certainly had its share of detractors. But in speaking to people who owned it, and i spoke to one in particular, Ricky Sandler, head fund manager, his crviewpoint i simply believing that regardless of whether it was Dunkin Donuts or starbucks, whoever the user was in other words, putting the coffee in there, the platform had become dominant enough they would make money regardless as usage continued to grow from what is already 21 million homes right now. The premium is a large one. Of course when you look back at where the stock has been the last couple of years, its not as high as it had been. Cocacola is in. They say were happy to sell. Mondolese which owns 44 of jab, is happy with the deal as well. Perhaps an unexpected deal for some. They kept it quiet, despite the fact that coke knew, and jab is an enormous Holding Company that jab, ben kaiser, they own coty, stakes in a lot of different things. Theyre a large company. You can see some of the brands they are well known for. Keurig will join them as a private company, blended into, if you will pardon the term, their Coffee Business. The last quarter of Green Mountain was good quarter. It took people by surprise. You realized what happened was there was a bad inventory overhang because they screwed up one of their iderations. A lot of people felt kold had to be a loser this was the new kold product, which they were underpromising in this quarter after overpromising in the previous. Brian kelly came in. He is a serious executive, ceo. Cocacola immediately took the stake. They bought back a lot of stock. This deal shouldnt have taken people by surprise from the point of view they had a good quarter. A lot of people had to kcover te short. It was one of those things where they said we got it together. I thought the stock would have gone up more. The frustration among shorts is sort of visceral today. Whether its this, whether its the euro, all these pain trades of the day, people are asking how can you short anything . A takeout is always a risk. You can short Kinder Morgan and it looks like once again you have Credit Suisse saying there will be a dividend cut. Negative article in barrons. In general, the ceo of cocacola, he took a big stake in the company when everyone felt it was a goner. He took a big stake in monster beverage when people felt those would be in trouble. Maybe hes a silent winner this going with it, recognizing there is value. There were questions at times about his leadership. I think hes done a lot in the last year and a half to really kind of reenergize the company. I want to say that monster is the second winner here. I think monster, which they own 16 of, just switched their distribution, cocacola. The guy is on his game. This is a huge win for cocacola. Verification. Verification of no huge win, small for cocacola. Are they rolling in . No, im just saying if he was so under fire, how key have made two great moves. They were interested in the kold part of this business, cocacola, which theyre losing 74 on. Many people think they will turn tha that. The buyback, people felt coke may have to pony up more money off of kold. The supposition was that they would run out of money by the time they got kold. Thats not going to happen. Look, cocacola is small. Im just saying that muhtar kent is someone to be viewed smarter then we thought. Coke doesnt stand to make a great deal of money on this. No, but they stand behind it he hit it with monster, but hes ridiculous with this one. Maybe hes not. This was household product that screwed up an iteration, they were on this november 14th call, and people negative on it had to rethink. The acquirer rethought and said the stock is not up enough. Its a huge premium. Its still down. Its below the highs the stock had seen during its greatest growth period. 10 of it was short. Who benefited from that huge move down. To your point and others cited it, that Earnings Report m thought the stock would move up better. There have been execution issues, jim. There were those who believed it was nothing more than a contract manufacturer and margins would decline that does not appear to be the case and is not the view jab has as it expands enormously. Its growing the Coffee Franchise in all ways, now into the home. Jab people felt that kold the short stayed short. Kold looked like a loser already it was too expensive. On the Conference Call, they said well fool around on kold. Dont give up on kold so far. I know soda stream is up. That i dont think is the right thing to do. Stay focused. Let me make the point, co cocacola is cashing out here. Theyre not rolling into the deal. They made some money, i guess. They dont have to put up more money because the kold was going to cost to much. I felt this was going to be one of those fiascos where you say why did coke buy stake in it. I dont want to lose sight. This is a huge win for Green Mountain people who believed, and substantial shorts, there were some who never believed. There was speculation that someone was shorted. I know a lot of people told me i dont care. These guys are losers. I come back and i say, geez, kelly does not impress me as a loser. Coke will be ringing the opening bell here this morning. Get out. With mr. Kent. Muhtar is here. 100th anniversary of the bottle. Chipotle is withdrawing Sales Guidance for 2016, slashing the outlook for the Current Quarter in the wake of the e. Coli company thats been linked to the companys restaurants. Chipotle sees q4 comps falling as much as 11 . The latest States Affected are illinois, maryland and pennsylvania. Is there definitive evidence that they are the source of this . A lot of times the suppliers, i will have a pole up later, 50 50 people i cant go there again. The leader is danny myer who came out and said you have go there. This is not the end of those. I know we had a taco bell chipotle outbreak at one point taco bell, similar to chipotle. Sales nosedived, nosedived again and came back, because people had a short memory. They have to get their arms around this like costco, where quickly they realized who was the supplier. A lot of people feel chipotle has not been forward. I think thats ridiculous. I think chipotle is trying hard to get their arms around it. These are things is it a sca scandal . I dont think so. I think its a supplier problem. Im not saying, wait a second, isnt this happening because theyre natural and organic . I dont think so. Coincidence or not, its a company where the supply chain, its part of the marketing method. Holier than now gripped with this. The silence, they dont have their arms around it yet. The history of when you have this news, again, not a shortterm negative, but a mediumterm negative is the way i look at it. Stocks down 22 over the last three months alone. Last quarter wasnt that good. You expect the fact it could have fallen on its own. I would as danny myer danny myer, to me, foremost restaurateur, he is saying this could happen anywhere. When we come back, while ge is striking a deal, ge is scrapping one. And nxp outperforming its chip sector peers, closing its acquisition of freescale. Look at the premarket. Bullard at 12 30. Keeping our eye on San Bernardino and remembering pearl harbor on this date 74 years ago. Ng. Yup, were constantly making thinkorswim better. Like a custom screener on your desktop, that updates to all your devices. And you can share it with one click. Wow. How do you find the time to do all this . Easy. We combined every birthday and holiday into one celebration. different holidays being shouted back to work, guys i love this times of year. For all the confidence you need. Td ameritrade. You got this. The drought is affecting at pg e weve definitely put a focus on helping our agricultural customers through the drought. When they do an Energy Efficiency project and save that money they feel it right in their pocket book. Its exciting to help a customer with an Energy Efficiency project because not only are they saving energy but they are saving water. We have a lot of projects at pg e that can help them with that and thats extremely important while were in a drought. Its a win for the customer and its a win for california. Together, were building a better california. We begin a new trading week after a friday rally sparked by that stronger than expected jobs number. And mario draghi saying the central bank is open to additional stimulus. S p within 2 of the alltime intraday high. That was hit back in may. Oil prices are falling further below 40 after opecs decision to keep crude production at current levels. Man, has it been difficult reading tea leaves everywhere. The end of the cartel. Theres no cartel. A cartel is meant to keep a price controlled. They ended the cartel. Thats why this happened. When did they end it . Friday. When did it officially end . Friday. They said every man for himself. I feel like theyve done that before. Theyve kind of signaled every man for themselves in the past only to sort ofdush. I think theres never been such mortal enemies within the cartel. This is like saying you got different drug cartels in mexico, not to use violence here. But these guys are not allied or aligned. The saudis can pump more than people thought. I felt that oil could stop here because of the giant short position. What kind of cartel do you have where everybody says do what you want . Russians can do that. Theyre not in mexico. Theyre break the u. S. What does that mean . That these companies that we think are on the verge of credit problems, im not going to try to send anyone over the top, but talking about natural gas and oil companies, not pipelines, this was basically this is not longer lower. This is longer and much lower. And theres companies not going to be able to fund with futures. Theres companies that will not be able to get credit. Even with cost of production plummeting everywhere . Not in the bakken as much as it is in the permian it is. In the transportation costs, theyre so much lower. If you go over Union Pacifics Conference Call, theyre talking about a big shutdown of fracking sand. Some guys upgraded fracking sand today. I would say give me a break. This was a devastating blow for the u. S. Oil industry. What was amazing is that the u. S. Oil industry held on as long as it did. This was about were not taking it up. The companies on credit watch that we talk about will not get funding. We can kibosh companies, we mention five companies, theres no desire to make that happen is what im saying. We know there are companies that have great credit problem. This was not the news they were looking for. The high yield market is not where it was. The dollar amount is less now because theyve come down so much. Thats something to keep a close eye on. Its spread beyond energy with high yield. Thats credit. Well get back to kmi which san important story you have more. I have more. Well do that later. Kinder morgan out late friday with a key announcement saying in coming days well tell you what our decision is. A fulcrum of weakness. We have not had a big bankruptcy. No which is astounding. Im saying let the bankruptcy death roll begin. Ge terminating 3. 3 billion sale to electrolux. Ge says it will continue to run its appliance business while it continues to also look for somebody else to sell it to. By the way, it will collect its 175 million break up fee from electrolux for passing go, so to speak. Not a big part of the company. Ge focused on the dissolution essentially of its ge capital business, only maintaining a handful of businesses that will help to finance its current industrial businesses. Theyll keep making appliance force now and still own it. The universal buyers not sure. Theres a few. They wont have a problem. The numbers are quite good since then. Home depot saying appliances are the strongest area. Maybe this is the year where ge gets lucky. Its rare that you fail on a deal and sell it at a higher price, but you never know. I got to tell you, i think this was a lucky break. Whirl pool cant buy them because of antitrust. People looking at ge as an industrial company, this doesnt bother you. They get the breakup fee. Sometimes its better to be lucky than good. Ge is going to be able to get a better price. I see we have yes, the cocacola polar bear. And mr. Met. Thats right. They switched. They switched from pepsi to coke at city field. Mr. Met, brings me so much joy and also a little sadness. Is swoop here . The eagle . I dont know who that is. Thats mr. Eagle. I dont care if it doesnt have anything do with coke or pepsi. That was quite a win yesterday. Youre going to be in first place along with washington and the giants. Everyone has to lose more games. What will win that division . I dont know. Pop warner will win it. You lose to the dolphins and you beat the patriots. Yeah. Any given sunday. Next week its the bills with look, im not a football expert, i can tell you theres some real bad nfc east football sdmroochlt we will get cramers mad dash. We will count down to the opening bell. Take another look at the premarket on this monday. A lot to get to. A busy week, not on the data front but a lot of other thing going on. More squawk on the street straight ahead. 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Our populations growing healthcare needs present growing opportunities for our clients to advance the future of medicine with digital, and improve the quality of lives. Its monday, and its time for a mad dash. You have ever thought amazon was cheap on earnings . No. It hasnt occurred to me either. But citi says amazon has 20 in earnings power and can go 50 in 2018. At 20 earning power, at least you have a pe multiple. You do. At least 30 times or so, but what . What . Im just saying, i think the main thing, because the ring i bring it up, you did an unbelievable documentary that made me a believer. What i recognized was they had a model that basically says well be a company, town company, we will put these Distribution Centers where we want. We have been doing testing about how quickly we can get an amazon produ product. Three, four hours in some places, and this is one of those companies that will be anointed at yearend. Dont you feel like its another analyst trying to get on board a stock already up 115 and come up with an excuse to do that. Of course. Just wanted to make sure. You think i went to college to get stupid . Youve been doing this a long time. Long time. But i like the high growth companies. Thats what people are gravitating to at the end of the year. They want to show they own among facebook, amazon, alphabet, netflix, and i dont know whether you have been following any of the new productions of netflix. Reed hastings, they team so have much better luck than the networks with hit after hit after hit. They tell us theyre hits. We dont know. Hits meaning they have a sequel. Thats the way i judge it we have a sequel, its called the opening bell. Its coming up after this. This holiday season, get ready for mystery. Whats in the trunk . Nothing. Romance. 18 inch alloys. You remembered. Family fun. Everybody squeeze in. Dont block anyone. And nonstop action. Noooooooo its the event you dont want to miss. Its the season of audi sales event. Get up to a 2,500 bonus for highly qualified lessees on select audi models. Youre watching squawk on the street live from the Financial Capital of the world. The opening bell in a minutes time. The dow up 369 on friday on the strong jobs number. The week ends flat. We got so many things out of the way. Ecb, yellen, opec. What happens between now and the 18th . I think you have a combination of big institutions wanting to show they own winners, and also wanting you to show they own losers. Surprising real just buy furcation going on in the market. I was looking at the charts. Utilities just in free fall. Healthcare not doing well. We have a hearing coming in the senate about pricing. That group doing horribly. The oil and gas stocks are so horrendous. Most of the industrials are doing terribly. Against them, semiconductors, leader and xpi, well be speaking to them, and banks, all of them going higher off a fed rate increase. Oil a big story today as brent hits the lowest level since march of 2009 on that inaction out of opec. The opening bell and s p at the bottom of the screen. At the big board, mr. Met. The coke cola polar bear. Beginning next year, citi field will fill cups with coke instead of pepsi. And akari at the nasdaq. Well watch the opening. Keurig Green Mountain, up about 15 premarket. I just really think that soda is not the analog, i understand who someone might say pepsico will go for it. Keurig Green Mountain is about households. Its about reach. 21 million of them now. Thats a huge number of people. Starbucks, some said why wouldnt starbucks buy them . Starbucks or Dunkin Donuts, why wouldnt they be a competitor . When the coffee is theirs, its still using the platform. The earnings per interest and taxes that Keurig Green Mountain is making is quite significant. Lets not forget, theres an interesting piece about starbucks this morning. One of the Research Firms said this is the great growth stock of this era. A lot of it is because they keep investing. Theyre a Consumer Product company now. Theyre in aisle after aisle after aisle. Theyve been the winner in this one, too. This is an industry that became four, five years ago. Kroger said who would have thought coffee would have become such a Growth Conference call. Amazing Conference Call by kroger. This is the love affair with coffee. Keurig up 74 . Huge premium above the current stock price. It has seen the stock price well above that over the last couple of years. It was cocacola, they bought a 10 position in the company for 1. 25 billion back in 2014. Not quite two years ago. Signed that tenyear agreement to collaborate on developing the cold brewing system. Right. Their average costs then were 75 bucks a share. Yeah, making 25 million. Not a big number. Its how much they probably bought this contact for. They spent more on the mets, changing from pepsi to pepsi porch had a better ring than cocacola porch. Right. Remember when we used to have winter before Global Warming there were polar bears . Yeah. Im surprised he didnt come down here and be like a kodiak . Just make a statement on climate change. On a week where it will be 50 all week long. This is amazing. I do not envy columbia spor sportswear. I do not envy these companies that have sweaters. Sweaters. A sweater. Sweater. Tommy hilfiger. Good time to be in the market for outerwear if you need some. As opposed to inner wear. Everyone is long coats, everyone is long boots. More people are getting longer airlines. United, delta, norfolk southern. The intraday low for oil, 37. 75, not that far away. No, it isnt. You can pump all you want from the opec meeting that was a surprise for people. Lets see if the shorts feel like it is worth covering. Took me by surprise. I was shocked by it. I thought a cartel is a cartel. This is no cartel. Its like they got rid of opec. Now its away. No more cartel. Got some upgrades, deutch goes hold to buy lilly. Interest you. Lilly has been a stock that i said on this show you have to own. My travel dust bought it they have is a big analysts meeting tomorrow. They have the best formulation for alzheimers. I dont want to give people hope. I think they might tease that a little. These guys are completely vanilla. They do not theyre the least hyped company. If they say anything good about it, it will be meaningful. They do not say look at us, were great. Some tax news this week on wednesday, Hillary Clinton will propose what shes calling an exit tax aimed at Companies Using inversions as that narrative works its way through the political system. I think she has to win and allergan may be closed by then. Thats not a concern for them. She has an editorial in the times today about wall street reform endorsing doddfrank and talking about an additional fee on the big banks of some kind. Couple other things she mentioned. There it is. Executives should have skin in the games as well. When a firm pays a fine, i would make sure that the carried interest loophole is closed. Which is shared on the other side of the aisle by bush and trump to name a couple. I was trying to find a republican that is saying somehow by the sheer power of Stephen Schwartzman alone, it will live on. Is that what you think will happen . It will live on. Chipotle not down this much. I think if people think theyll get their arms around it, i will go with the danny myer view, not that the stock will come right back. Danny myer saying this could happen to anybody. You would go there. I would go there. Id go there. Youd go where . Chipotle or shake shack . Shake shack, youre caught up at this mets thing. They have a shake shack at citi field. They do. You mentioned danny meyers. I did not cut in line that day. A lot of people thought i cut in line. You did not do that. The guy bought me a burger in the line. I hate cuttecutters. Lets get to bob pisani. Its Energy Moving the markets. When you have oil down 3 , 4 , down more than a dollar, breaking below 40 dolla 40, yout weakness in energy stocks. The exxons, shelchevrons, briti petroleum, all down 2 3 across the board. Because of the big move on friday, not a lot of new lows today including in the energy group. Chesapeake at a new low, not a lot. Theyre moving there. You have apache, eogs, anadarkos, all down here. Pioneer is down. Everything is down 3 right across the board for the energy complex. If this continues, we have another day like this tomorrow, im pretty sure youll see 15, 20 big names sitting here or at 52week lows. Overseas, modest moves overseas. China up a bit. China did something interesting. They have actually got a Circuit Breaker, a systemwise Circuit Breaker. They never had this before. Just implemented it. They do have an individual stock Circuit Breaker of 10 . Now like the s p 500, when the market is up or down 5 , its halted for 15 minutes. Even if it is down or up 7 , you have to wait the day. Even if its the first minute of the day, you have to wait the whole day. So china has a Circuit Breaker. Theres one ipo this week. This is the only one in december that i see. Altassian on thursday night, prepackaged software. 19 million to 20 million. They raised terms. This is it, folks. This is the only ipo i see in december. Thats a rare occurrence. Its been a rear punk close to the close for ipos on the year. Look here. Out with the whimper is what im calling it 169 ipos this year, that includes altassian. We had 275 last year. The amount raised, look at this 30. Billion. Thats it. That would be the lowest number since 2009. Look at 2014. 88. Three times as much raised last year. We did have alibaba. Alibaba was 20 billion, 21 billion. Even if you take that out, its not much. Look at the number of tech offerings, only 22. The lowest since 2009. 2014 had 55, almost twice as much. All those unicorns, people sitting out there, not coming, that influenced the overall market. You can see the returns here. The ipo basket, down about 7 . They reflected the slowdown in the ipo market in july as prices for ipos started to move to the down side. Wanted to get back to energy. In particular one name that weve been focused on here that being kinder maorgan, kmi is th symbol. Widely held by many people who had been looking for yield in this lowrate environment. The last few months for the stock have been nothing short of just terrible time for those who own it down 62 for the year. 50 the last three months. In the last couple weeks, down at least over 30 . You can see it yet again down this morning. Why . Late on friday the company told us it is going to be examining dividend. The yield on which its currently 13. 2 . It expects to generate enough cash flow to support the growth goal of 6 to 10 , but could alternative use cash flow to fund equity needs, because it follows a different strategy than it uses the Capital Markets to help it do acquisitions. It is part of the same Business Model that served the company well historically. But now the question is what do you do . Heres well get to some of the research in a minute. People weighing in on it. You cant get to the equity markets if youre spending 5 billion on the dividend a year what will you cut it back to to fund your own cap x as a buy internally from the cash flow as opposed to using the equity markets do so . Thats the key question many investors are trying to understand as they focus on what will the cut be . Then if there is a cut. The question becomes what will it do to the Overall Group . Rich kinder being the leader in this business, this Business Model which seems to have changed. People like now moodys having said it on watch for downgrade. They like lower rleverage ratio, higher coverage ratios. Few people weighing in. Ubs saying we dont think Kinder Morgan will take the decision lightly to cut the dividend, but in their analysis they think its a 50 chance they will. Then they go on to say it will be a much better Balance Sheet. We think they could be looking at a better 2017 and on. Right. Weve got jpmorgan saying probably to maintain an Investment Grade rating to maintain asset sales, joint ventures, alternative financing, ta away from the equity markets, cut that dividend. Thats the key question, jim. 50 cut of the dividend, from 2 bucks a share to 1 would position the company to fund all its cap x. This was a higher levered company. It was with great hopes when they rolled it up and made it a c corp. I think they set unrealistic goals because of what happened with oil and gas. The precipitating event for this was a purchase of natural gas pipeline of america, rbn put out an amazing piece talking about, look, at one time Kinder Morgan had a stake in this. People thought they would throw it out. They brought it in. It has important if you think natural gas will continue to be the dominant fuel, it has a pipeline, it has marcellus, chicago, down to louisiana, permian, its a great pipeline. If you want to think longer term. I think rich kinder was thinking longer term. The Shareholder Base was thinking shorter term. The Shareholder Base is gutted. People say, you know what . Hes not an llp, but theyre in funds. Every one of the companies are getting killed. Many of them use an at the money funding strategy. They just have to keep issuing stock. This was the nightmare that no one thought could occur in the group. It is occurring. Rbn, it was not a stupid move. It may be the rabbit out of the hat, but shortterm the rating agencies didnt like it. We will hear from kmis board in the coming days. Lets head to the bond pits and Rick Santelli. Good morning, david. If you look at a twoday chart of the bund, you pretty much see everything you need to see. They spiked up a bit, but theyre moderating. All the markets are rejigging after our labor report on friday after Mario Draghis ongoing comments, then pulling comments back. If you look at a may 1st bund, you can see it seems to be somewhat of a range. If you look at twoyear note yield, thats the maturity most closely tied to what may happen december 16th in terms of a rate hike. Since may 1st of 2010 still snugged up. Intraday and twoday note yields, we held mid 230 on the last labor report. Two in a row. The twoday really shows you were hunkering back down into a range. Year to date, dollar index. We could look at the euro versus the dollar, 110 to 105. How easy was selling at 100 . Lets see what happens next. Carl, back to you. Rick, thank you very much. When we come back, the ceo of Nxp Semiconductor on whats next for the company after closing the acquisition of freescale. Were back in a moment. The high growth semiconductors have been coming back. Nxp is leading it. Its closing its merger with freescale. Joining us is rick klember, the architect of an amazing deal that makes you number one in total mobile wallet, where you want to be the intel in that. Number one in automobile, and some could say number one in internet of things. You can do all of this with this merger . We can. The combination of the Security Platform we had at nxp combined with the Computing Platform with freescale puts us in a leadership position. We will be focused on assisted driving, making driving safer, and much more convenient. And then with the combination of the computing and security and connectivity, we think we can drive the connected Device Market and be the leader in making all of our lives more convenient and safe. You made a couple points that have been terrific in your presentations. The idea that the growth industry in autos is electronics. And that they cant do without you. Exactly. So if you look at real innovation taking place in automotive today, 90 of it comes in electronics. So the ability to drive that when we think about driving vehicle to vehicle, radar to simplify things is the compelling factor. A lot of people speculate that the logjam will come in conversations with municipalities, how to convince cities this driving is safe. What will that conversation sound like. I dont think its completely autonomous driving, i think its assisted driving. Making driving safer providing radar, driver assistance so that you can make all of our lives safer. Theres over 1. 6 Million People killed every year on the roads. The amount of accidents associated. So if we can make driving safer, we free that up. Eventually well go to you autonomous driving but right now its making it much safer for all of us. I look at you, think of our age group, you stress what the millenniums will want. What makes it so that you have the view and the confidence that this is what millennials will want given your age . Its important to stay close to the markets. You have to understand whats going on. The compelling thing is everybody wants it when they want it, where they want it, how they want it. So for us, its about being able to provide that. Really being switzerland and providing the capability to provide the security that the millennials want, but also make it easy. With connected devices, we will connect everything. Eventually all of our lives will be connected. We want to be sure we make it safe, secure, like the chip on bank cards today. We want to make life easier and much more compelling. Thats what millennials are looking for. When you talk about the switzerland you want to own the total mobile wallet. Does that mean that everybody, starbucks, square, visa, jpm anyone in this circle, they have to use you . Well, we think we have the most compelling proposition. We invented the nfc radio nearfield communication. Yeah. Thanks, jim. We bring the secure lmtd with it. Were the only company that can bring the secure element, the device thats used in electronic passports or bank cards with the radio, and the software to be able to facilitate that. That differentiates us from everyone else. Real quick question on the Balance Sheet. Leverage can become dangerous sometimes. You are about 2. 5 times levered after this deal . Slightly over. Is your expectation will you reduce that quickly. I think well be back below two by next summer it gives us the flexibility. We always said we feel comfortable with that. Thats the best thing for our shareholders, to be sure we can take advantage of the debt markets to drive that return. And, again, well be there next summer. Gives us flexibility with how we return our cash to our shareholders at that point. Well create a lot of ebita with the combination. Is this industry still consolidating . I think its still consolidating. When you look at it, theres a lot of small semiconductors that have sufficient scale, dont have the intellectual property, i think well continue to see the industry consolidate as it matures. Mid single digit growth versus the double digit growth of the past. I think well continue to see that. For us, it was bringing different technologies together to meet our customers requirements better. It wasnt about scale. Some of the other companies that are look at consolidations are look at scale. Then taking cost out significantly. We have the benefit of the cost savings, but focusing on how to bring the two companies together. You were the pioneer in takeovers, the first guy do it. Rick clemmer, congratulations on closing this deal. Thank you. Squawk on the street continues in a moment. Narrator for thousands of local foster children, the holidays can be an especially difficult time. Sometimes i feel all alone. Christmas used to be my favorite. Everythings different now. I just dont expect anything. What if santa cant find me . Narrator to help, sleep train is holding a secret santa toy drive. Bring your gift to any sleep train, and help keep the spirit of the holidays alive. Not everyone can be a foster parent. But anyone can help a foster child. Jim, whats on mad tonight. I got a lot of twitter followers. I asked would you go to chipotle tonight . I got the results. Interesting. Well see you tonight. Thank you. When we come back, more on keurigs 14 billion deal go private. Well be right back. 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Welcome back to squawk on the street. Im Carl Quintanilla with simon hobbs and david faber. Sara eisen is out today. Markets having trouble getting out of the gate as energy is leading the market lower. Oil is below 39. Got a lot of m a news, and bullard speaks at 12 30 today. Heres our road map for the next 60 minutes. President obama saying the u. S. Will overcome the threat of terrorism in his third oval address. We will talk to the former Deputy Director of the cia. Plus Keurig Green Mountain agreeing to be taken private at 14 billion dollars. David faber will have the latest details on that deal. And chipotle shares getting hit hard today. Analysts reacting to the company slashing its outlook as the e. Coli outbreak widens. What should you do with the stock . Is this a buying opportunity . Well talk to the analyst or one of them who downgraded it today. President obama vowing to overcome the threat of terror in his Oval Office Address last night. This as the investigation into the mass shooting in San Bernardino continues. Jane well whats latest. Reporter carl, im outside the government building here, in a half hour theyll have a press briefing. We may get to talk to some survivors. Heres the latest on the killing. Syed farooks father said his son liked guns, isis and was obsessed with israel. We dont know how he was able to afford an arsenal worth several thousand dollars on his salary a form class wait of his wife said she was religious but not radical and came from a good family. This weekend investigators raided the home of Enrique Marquez and who had known farook and alleged by bought the two rifles used in the massacre. Nbc news has said he sought Mental Health treatment because hes so distraught. Last night the president asked for changes to gun laws. I know there are some who reject any gun safety measures, but the fact is our intelligence and Law Enforcement agencies no matter how effective they are, cannot identify every wouldbe mass shooter. Whether that individual is motivated by isil or some other hateful ideology. What we can do and must do is make it harder for them to kill. All right. A note to the president on the shutter door of the killers home said im sure if you could ask the 14 dead victims and 21 injured they would have most likely agreed to be protected by a few legal gun carriers at the christmas party. Local Gun Store Owner jeff bregman said sales had been steady since the shooting but some of the weapons used last week are very popular. Smith wessons i cant keep on my shelf. The ones that are california compliant are not easy to get ahold of. I would sell more Smith Wessons if they were available. But i can only sell why can get. Reporter by the way, smith wesson reports earnings tomorrow. Shares have nearly doubled this year. We learned that the homeland secretary has said they will probably roll out a new threat system, one that includes intermediate threats. Back to you guys. Jane wells, thank you very much. Joining thus this morning i john mclaughlin. Good morning to you. Good to have you with us. Good morning. The president has only given three addresses from the oval office. He talks about this new phase on the war on terror, but no real new proposals. What did you make of the address. I thought if you had not been paying attention to what the United States is doing, this address brought you up to speed. If you were thirsting for more to be done against a threat that the president acknowledges that taken a new phase and against an enemy, i think far more serious than al qaeda, you are probably thirsting for more than the president gave you. Far more serious than al qaeda. Based on what . I worked on al qaeda intensively during the last years of my career. When i look at this group, let me mention four things that they have that al qaeda didnt have. They have territory. Thats what allows them to claim a caliphate and attract followers. They have money. Somewhere between 500 million and a billion apparently. The figures vary, but money to buy weapons, to send people, train people, buy expertise. They have access. They have Something Like 4,500 western fighters with them, including a number of americans, perhaps a hundred or 200. And that gives them access that al qaeda never had. They have a narrative, fourth that is powerful because they have this territory, this caliphate. If you look at their propaganda and youre an alienated young person in brussels, california, you will probably be attracted to their propaganda. And they have social media, which is the engine on which they ride. Given all that, which you just said, looking at the way we fortified institutions and infrastructure post 9 11 after al qaeda what is a measurable response now against this new enemy . Its difficult. I dont want to be an Armchair General here. You have to have the access the resources of the joint planning staff and the pentagon to know what youre talking about. But the president left out, for example, to my surprise, one of the most important things hes done, which is to assign now Something Like 150 to 200 special Operations Forces in this special Expeditionary Force announced by secretary carter last week. Whats important about that again, its sort of gone past everyone, hes crossed an important line there. These are the First American troops sent to the region with an actual combat role. Their job is to go out and do raids, kill terrorists, and assist the locals in that, too. But actually do it themselves. So one could go on from there, for example im sure the government has done this. Its worth really taking a close look at the idea of safe zone. A safe zone, nofly zone, if you l would be very risky and difficult to accomplish, but for that very reason getting it done would be an important demonstration of American Leadership at a time when much of the region questions it. Thats one thing. There are many other things that could be considered here. I think the president makes a mistake to characterize the problem as wanting to avoid a major ground war. Everyone wants no one would endorse the idea of a major ground war. There are steps in between as his own assignment of this Expeditionary Force indicates that can be considered. At the same time there are those, while obviously the fear of terrorism is rising as a concern for most people, thats evident in the polls, theres arguably also as the Financial Times puts it this morning a growing polarization of the two sides where clearly theres very different views as to what we should do moving forward. Arguably not a galvanizization of public policy. I wonder if you would hold that view and what we can do about that. Well, are you talking about polarization between our among our parties . I am, yes. As the Financial Times put t you have a president that risks looking indecisive, perhaps reactive to whats going on. At the same time the gop as the Financial Times puts it, coming through with policies that are arguably counterproductive. Its difficult for the president to give a speech like this in the middle of a president ial campaign thats already underway, as you know. If there was ever a time to reach out to the congress in particular to people who are not running for presidency, the Important Committee theres, armed services, intelligence, appropriations, elsewhere, and try to get some sort of bipartisan consensus on this, if there was ever a time when that was important, it would be now. In terms of what republicans are saying, theyre running for president. So theyre going to say everything they can to put the president in a bad light. They make some good points. Their views ned to be considered. The president needs to challenge them. On the other hand, if they are making the point that more needs to be done. They, too lack the planning resources of the pentagon. They have to be careful not to be arm chair generals. When they say they would ask for military advice from the generals and ask what the military itself would do, thats a reasonable position to take. Finally, this gun control issue. These killers had pipebombs. If it wasnt going to be guns, it might well be something else. How central is that to this larger debate about terror . In my view its an important but secondary issue. I say its important because anything you can do to keep weapons out of their hands, thats important. When i hear Police Forces around the country advocate tighter controls on guns, i take that seriously. We should have tighter controls on the availability of guns. The fact theyre so easy to get is an important driver. Terrorists would still find a way to attack, but i come from the intelligence world. My feeling is anything you can do to increase the advantage on our side and make it harder for them is a good thing to do. Appreciate your time. Thank you very much. You bet, thanks. Former Deputy Director of the cia. Lets send it over to dominic chu. Watching shares of marvel technology, down nearly 1 in early trading. Third Quarter Results that they just posted missed analyste estimates, due to weak demand. Back in september the Company Announced an internal accounting probe that led really to the sharpest drop in the stock in 14 years. Marvell says the investigation is still ongoing. The stock is down as a result 36 so far this year. Thank you very much. Its looking like a robust ski season for vail resorts. Shares of advance season passes up 19 . Three quarters of that growth from guests who will be staying. Mtn stock up 30 this year as they expand in australia and open the park city acquisition, now physically joined with canyons in utah. Joining us from denver is rob katz, ceo of vail resorts. Great to have you back on the show. Good morning. Great to be here. As far as the ski passes are concerned this is a huge dynamic for you, you were able to raise prices 3 to 5 , and the idea was to sell more earlier and in a more targeted way. How did feel about that result and are we at the end of that sales process now. Were close to the end and were pleased with the results this is one of our Core Strategies in terms of driving the business but also in terms of delivering a terrific experience and great value to guests. We have seen these grow double digit the last 5, 7 years in an industry only growing about 1 in volume. This is a big deal and sets us up well for the season. Concerns generally about foreign visitors not coming here, that even showed up in the beige book. I know its a relatively small part of your business. Sales to brazil down 30 . Mexico down 11 . Even canada down 13 . Do you regret having spent as much time as you did on trying to push that as a growth area . No, not at all. We focus on gustests around the world. Some years will be better than others. Those are headwinds for us, but we have a number of other markets. The u. S. Is the primary market. Even australia, mexico a little more insulated from those dynamics. We feel good were quite comfortable with those efforts. Great snow unlike last year in colorado, utah, are you concerned about the warmth of the weather on the east coast . How much exposure do you have there. We dont have any exposure on the east coast. Thats not an issue for our financial results. We certainly hope they do get snow. We like to see the whole industry do well. But the snow, conditions in tahoe have been strong. California needs the precipitation, but were thrilled to see guests from utah, california, colorado enjoying great, early seasons. What about the security aspect, rob . You are coming in the middle of a conversation about what the president said last night about a new phase in terror. You have a huge estate stretching for hundreds of miles 15,000 employees what do you do differently this year. Absolutely. We are ensuring that were doing everything we can to provide the top security at all of our resorts, to make sure we have the right response. We have local Law Enforcement. We also have numerous people across the resorts trained in rescue, emergency situations. Our hope is that this is an incidentfree season. Thats our expectation, but were keeping our eye on that. What about the physical union of park city with can yonyoncan. The expectation is that you can leverage that in future what have you done so far. We will have a soft opening of the connection between park city and canyons. Its a once in a lifetime opportunity to take two resorts of this size and put them together. Skiers love variety, terrain variety and experience. Park city will be one of the top, you know, really enjoyment factors across the resort for all our guests. A lot of people will be coming out to try it out. Its been a phenomenal performance over the last four years. Good to see you again. I know you have to drive back up the mountain for your Conference Call. Rob katz joining us. Great to see. When we come back, Green Mountain agreeing to go private in a 14 billion deal with a big premium. The stock reacting to that. Well get the latest on the deal and what it means for the rest of the industry. The dow down almost 100 points. The lexus december to remember sales event is here. Lease the 2015 gs350 with complimentary Navigation System for these terms. See your lexus dealer. At ally bank no branches equalsits a fact. Kind of like mute buttons equal danger. That sound good . Not being on this phone call sounds good. Its not muted. Was that you jason . It was geoffrey it was jason. It couldve been brenda. Shares of Keurig Green Mountain up 73 after the company sort of introduced the personal beverage system, if you will. Agreed to be acquired by jab for 92 a share in cash. It was a 78 premium over the price of the Closing Stock the other day. And a significant premium that got Green Mountains management and board to say yes. That despite the fact it has seen higher levels in the past. Green mountain, those who short it believe its system will be commoditized. There were execution issues along the way. At the same time those long it, including Ricky Sandler who i spoke to earlier, owned a significant stake, believe regardless of whether it was the coffee that Green Mountain was manufacturing or coffee of starbucks of Dunkin Donuts, the fact is that the systems themselves, now in 21 million homes, contributed a great deal of ebit regardless of what was in the cup, and that it would continue to grow at a fairly rapid rate. This after a recent quart their was not bad, even though investors had been concerned about the future of the company overall. Jab not a name perhaps people are familiar with but many names that they control people are familiar with, whether its jimmy choo, koty, petes coffee and tea. They did a huge deal with mondolese a couple years back, where mondolese merged its Coffee Business into theirs as well, which we will call jde this will add to what is already a large business. Mondolese owns 44 of jde. They are quoted in the press release. People may remember cocacola did a deal in february of 14 to buy 10 of the company for 1. 25 billion. The average costs at that point were 75 a share. Theyre out. Theyre selling here. Cocacola will not be a shareholder or is not rolling into a private Keurig Green Mountain owned by jab. Simon, sometimes these names, we hear them and you are immediately who are those guys . They are enormous european. Ownership stakes in so many different companies, and made coffee both sold at retail and now in the home a key part of the overall portfolio. Its the belief by taking the other Coffee Businesses and routing them through keurig that you increase the value of those businesses is why you get to the multiple you are at here . Thats the strategy theyll be using. The platform in 21 million homes. Whether its hot or cold as well, seen as perhaps going to be the platform that will be used regardless of who the provider of the actual coffee is. Or brand recognition, which to these guys is always important. Yeah. A very unexpected deal, didnt leak. Typically we see that. Even though cocacola knew about that, mondolese knew about it. The banking is all done at the jab level. 92 a share what a premium. The stock had been higher not that long ago. Still an enormous premium off the currents stock price. Coming up, dow down 113 points, triple digit loss so far this monday morning. Of course the Fourth Quarter has been a great one for stocks so far after a terrible august. Will that momentum continue for the rest of the year . O. Can you help santa with a new data plan . Sure thing. Uh right now you can get 15 gigs of data for the price of 10. Thats five extra gigs for the same price. Looks like someone just made it to the top of the nice list. In that case, i want a new bicycle, a bike helmet, a basketball, a stuffed animal that talks when you squeeze it. And. Yes, yes. I got your letter. Were good. Oh. Okay i was just making sure. Get 15 gigs for the price of 10 now at at t. Welcome back to squawk on the street. Airline stocks standing out as the Top Industry Group in the s p 500, trying to keep dow transportation index in positive territory. Jetblue up over 5 . United, southwest, delta, american not far behind. Helping the situation is oil prices. Wti crude hitting a 6 1 2 year low. Back over to you. Dom, thank you very much. When we come back, sticking with oil. Prices hitting new lows, falling below 40 a barrel. Is there a bottom in sight . Good morning, im sue herera. Here is your cnbc news update. U. S. Attorney general Loretta Lynch announcing that Chicago Police department is now the subject of a federal civil rights investigation. The announcement follows the release of dash cam video that shows a white officer fatally shooting a black teen 16 times. The videos release sparked weeks of protests. Jimmy carter says he is cancer free. The former president making that announcement to his sunday school class. Carter who is being treated for brain cancer said a havent mri showed no sign of the original cancer or new growth of the disease. Prosecutors say a man screamed this is for syria before an attack in the london tubes over the weekend. The man is being charged with attempted murder. And two university of Rochester College students are safe after being rescued by a s. W. A. T. Team. They were abducted and held against their will in an ordeal that lasted more than a day. Thats the cnbc news update. Back to you guys. Oil a remarkable story, falling further today. Wti below 40 a barrel. Lets get to jackie deangelis. Good morning. Oil prices at around session lows now. Getting closer and closer to 38 a barrel. You said its a remarkable story. It is but its the same story. Whats happening here, the stakes are getting higher. Opec not cutting production last week. Nobody will cut production if they dont. Opec is producing over its quota. And in the United States were seeing recounts decline dramatically but production went up last week. Its not at peak levels but it continues to move in the wrong direction. This is a situation where we have a stalemate on our hands. Only one consequence here, lower prices. Gas prices continue to go down. Aaa says the National Average for a gallon of regular is 2. 03. Watching for that 2 mark. Technical levels to watch for wti, 37. 75, thats the low we hit earlier in august. Thats the low for the year. If we break through that level, that is significant. We can see exxon an chevron down sharply. The real action is in pipeline related companies. We talked about Kinder Morgan of late. Its not an mlp, but there are others that are getting hurt even more. Yieldbased funds that hold a lot of these Master Limited partnerships are forced sellers. Look at Energy Transfer. Remember that company . An enormous company poised to become the largest Pipeline Company around. They did a deal in september after a very long battle. They acquired or announced the acquisition of williams. 8 a share in cash. We can show you the equity of etc. Ete is down dramatically. Williams down dramatically. The alerian mlp index, that gives you a sense of what were talking about. The alerian mlp index down dramatically. An index made of these mlp names. Many owned by people looking for yields in a lowrate environment that we had for years and are watching much of their principle or the equity value going away what is going on . A change is happening with regards to what these companies can do when it comes to funding deals by access to the equity markets. That is no longer what they can do. Many may be forced to cut distributions to allow for their internal cash flow to fund their cap x needs, as opposed to going to the equity markets. They wont be able to fund what theyve been doing in the past by issuing and or using equity to do so, hence theyll be retaining cash flow. That changes the entire dynamic for the group. Thats what investors and others are trying to figure out now as they watch just an incredible dissolution of value. In an important group. Certainly for many of our athome viewers who own these things widely or own the funds that own them. The rout in crude prices zapping momentum in the market, down 144 points on the dow. For more analysis lets bring in Gina Martin Adams from wells fargo securities, an bob dole. Bob, weve spoken for a long time about the decline in the price of oil. If we get another big move down what does that mean for the Broader Market when david is identifying the factors that he is . I think its not positive. We need stability in the whole deflation story and oil is the prototype for that for risk assets to do well. Its among the reasons, as you recall, we had the big rally off the september low because Commodity Prices and oil in particular firmed up. So flat oil prices would be good news for the market. Further downward is more of a yellow flag. Gina what would you make of this . It fits into the broader thee sthas ne thesis that next year there will be certain sectors that dont do well, clearly. Exactly. I completely agree with bob. Its difficult for stocks to rise without the support of oil. Oil doesnt have to rise but it has to stop falling. Even though the Energy Sector is only about 8 of the market cap of the index, the 60 decline in earnings in that group has been enough to overwhelm some pockets of growth else where. If we have another leg down in oil prices, we need to be concerned about the earnings outlook. The fed is increasing rates, which should constrain valuations from going further. What about huge sways of the equity market that will have lower costs as an input and margins should rise in the environment and then that perpetual story that the u. S. Consumer will do better at the margin, albeit with costs rising in other areas. I think the decline in oil is good for the things you just mentioned, but the rise of the dollar has worked against some of those very same things. In my view you go to the obvious beneficiary, the airlines. You know, being long in airline and short in Energy Companies has not been a bad thing to do. I cant imagine why that story might be over. Gina what part of the market do you think will work best next year . We have overweights on technology and consumer discretionary. I like services. I. T. Softwear and services. Sort of outside the oil and the dollar. Areas that have been working that have secular themes behind them. Importantly we also want Higher Quality earnings. As rates rise well focus a lot on quality in 2016. We want to what does that mean . Gina what does that mean, quality earnings . Secular themes. Sure. Sure. Quality earnings. We have to have revenue growth. We want quality Balance Sheet. Quality earnings are earnings outside of the share count reduction. So actual Income Growth driven by revenue growth. Topline growth that feeds through to bottomline growth. We want quality Balance Sheets. We Want Companies that are not surviving through releveraging cycle alone. We want Quality Companies that can survive a rising cost of debt going into 2016. Its not just earnings, but also a Balance Sheet story. Bob, let me pick up that concern about the Corporate Bond market. Theres in fact, tcw is quoted in the press over in california as suggesting that as earnings come down, leverage is high and Interest Rates are going up, and some investors will be carried out on stretchers is the quote there. How concerned are you . You have to be concerned when Corporate Bond spreads have been doing what theyve been. Thats among the reasons why i dont think the market can just punch higher to new highs. Stabilization. I dont know that theyll be carrying people out on stretchers, if it will be that bad, but its a yellow flag over the equity market. Well leave it there. Thank you both for your analysis, bob doll and Gina Martin Adams. Thank you both. When we come back, the former ceo of the st. Louis fed, bill poole will join us live. Why he says the fed is not to blame for low rates. Innovating. T td amere and apparently, they also love stickers. Whats up with these things, victor . We decided to give ourselves stickers for each feature we release. We read about 10,000 suggestions a week to create features that as traders wed want to use, like social signals, a tool that uses social media to help with research. 10,000 suggestions. Who reads all those . He does. For all the confidence you need. Td ameritrade. You got this. Glthey are. Do i look smarter . Yeah, a little. Youre making money now, are you investing . Well, ive been doing some research. Let me introduce you to our broker. How much does he charge . I dont know. Okay. Uh, do you get your fees back if youre not happy . dad laughs wow, youre laughing. Thats not the way the world works. Well, the worlds changing. Are you asking enough questions about the way your wealth is managed . Wealth management, at charles schwab. The dow currently down 149 points. Lets get to Rick Santelli for the exchange from chicago. Rick. Today we have a special monday guest, former st. Louis fed president and ceo, william poole, 98 to 2008, Professor William poole. Thank you for taking the time this monday morning. Good to be with you, rick. After reading all the material to prep for this interview, one thing jumps out at me. You had a line that reads the maximum level of employment is largely determined by nonmonetary factors. You made my head explode, professor. If thats the case, why does the fed continually say theyre making progress on the dropping unemployment rate, largely have in the past up to eventually, because it is a catalyst for normalization, not really stressed the labor force rate participation drop what is the fed doing if its a nonmonetary set of factors . Can you explain . Rick, that line that you just read is not my line, its the feds own line. The fed says that the maximum level employment is determined by nonmonetary conditions. Thats what every decent economist believes. Heres the way to look at it. The longrun fundamental path of the economy, think about a trend line, and that trend line is determined by nonmonetary conditions. There are fluctuations around that trend and the Federal Reserve can contribute to reducing the amplitude of those fluctuations. But the fed cant determine the fundamental trends in real variables. Thats the issue and thats what every decent economist believes. All right. Now, if we consider that and move to the next issue, my next question is this if thats the case, then why is the normalization process so difficult . In other words, who or what is the real culprit for the lack of a good recovery . Okay. When we look at features of this recovery, one of the striking features is the slow growth and business fixed investment. Business fixed investment is generally financed by new companies in the stock market. So Interest Rates are determined by the interaction of Credit Demand and credit supply. Credit demand is low because of the incentives for businesses to expand investment is low. That is low because of the disincentives piled into the system by the obama administration. Thats my opinion. Well, ill tell you what, those are powerful words. Were almost out of time. Ill ask you the simple question my floor traders wanted you to ask, do you think theyll normalize, raise rates on the 16th, professor. Most likely. Most likely they will. Excellent. I can imagine various events that would lead them to stay put, but i think they will. Excellent. Professor, thank you for taking the time. I want to have you back after that meeting to talk about its outcome. Simon hobbs, back to you. So close now. Up next, its been a rough couple of months force chipotle. The stock down more than 25 since the beginning of october. Now the company slashing its own outlook in the wake of the e. Coli outbreak spreading. Well talk to one analyst who has removed his buy recommendation after this break. Its hard to find time to keep up on my shows. Thats why i switched from uverse to xfinity. Now i can download my dvr recordings and take them anywhere. Ready or not, here i come whispers now hideandseek time can also be catchuponmyshows time. Here i come cant find you anywhere dont settle for uverse. X1 from xfinity will change the way you experience tv. Lets look at what were trading on oil at the moment. Its been a rough open again today in the wake of opec failing to cut back on production last week. Going into that, many people might have expected that was the result, clearly the market is trading lower. 38. 13. The head of Asset Allocation has said in asia today theyre super bullish on oil. They say, david faber, now is the time to buy in because at some point the saudis and gulf state also have to cut back because public budgets are bleeding. Saudis have hit the public debt markets a few types over the last year. Right now, the public equity markets taking the brunt of this, too. Chevron down almost 5 . We talked earlier, simon, about the pipeline companies, and or some of the names we revisit, whether its chesapeake, freeport, they are down sharply. Then the transporters, many of them Master Limited partnerships. These declines are very significant. In the teens for some of them, including Energy Transfer and williams. In the meantime, chipotle shares are down as a slew of analysts follow through on the chain slashing its own earnings expectations as its e. Coli problems spread to nine u. S. States. Guggenheim removing its buy recommendation on the stock as well. The senior Equity Analyst at guggenheim joins us now. You had this recommendation on the stock for a very long time. Why are you throwing in the towel now . I was surprised by the magnitude, the 22 pullback on the restaurant sales and the samestore sales. Right when they announced it. It hasnt gotten better. Its still down 16 . So the magnitude of the decline and what has to be done to turn it around. I do think youre going to see they said smaller batch testing. They were already doing testing on things, on their food, to make sure they didnt have e. Coli. Now the smaller batch testing could bring with it higher operating costs going forward. Netnet, i see a lower earnings outlook in the near term. I think its hard to put a 30plus p e on the name significantly negative in its comp sales trends and its Earnings Growth was impacted. Matt, can you help us with what physically is going on behind the scenes . In fairness to the company, although it says, look, were adding three states on the reported cases to the number that are affected by the outbreak, its not a current problem, is it . It still dates back to october, november. These are simply cases that happened then that are being reported into the fray, correct . Well, act weigh, the article from the cdc or their update said they could see more cases being reported. It takes eight days for the disease to manifest itself. It takes 2 to 3 weeks for that then to be recorded and reported to the cdc. So it is not fully closed. Certainly that would be a major help to their sales trends if they could say its completely behind us. Additionally, its not to your point, its not that many cases. Its 52 cases, of which 47 are tracked back to chipotle. They feed more than 1 million meals a day across their system. So i think its more the headline risk. Its certainly not the magnitude or reach of the e. Coli. Its just they dont have control of it right now or cant close the door fully on it. Is it happening at a time when structurally perhaps the returns on the stock had peaked . Im looking at a note here. It had the highest return on invested capital ever in the concept of chain restaurants according to what theyre saying there. And they feel had peaked anyway. Then you have the e. Coli problems on top of that. Is this more a structural issue . Thats a great point. You are dealing with a name that was at its peak when this happened. So are you going to get back to 2. 5 millionplus in sales a store or 2. 7 per store a year . The high oric. They were maxing out their store. Its going to take a while to get back to that level. Their Customer Base is very foodie. They are food with integrity. Now they lost that luster. Certainly, its hard to say youre going to get a premium multiple to the peer group of 30 to 35 times to make upside in the stock from here. I still see it holding a 25 to 30 multiple. That still represents downside at todays level. To your point, it is highly valued for trends that its not seeing right now. Within your space, what do you think will work best now . What stock would you lead us towards . Great point. I think theres a lot of new quick casual concepts that just came to the market. Habit burger, wing stop, those are names we Just Launched on with buys. I think theres an opportunity there. You have a quick casual like panera brands thats out there. Panera could take some of the share from chipotles. But i think its going to be broadly based. Those smaller more numb bell players are going to be able to take some share from chipotle as they are struggling right now with rebuilding their customer trust. Good to see you, matt have a great week. Matt defrisco joining us there. In the meantime, now down 180 points on the dow as things stand at the moment. Lets send it over to john chu for a market check. Activist investor carl icahn taking a 10 stake in the company. Icahn says pep boys retail segment would be a perfect fit for privately held rival. It could possibly add some complications. Thank you very much. Lets send it over to john with a lock at whats coming up on squawk alley. President obama, reviewing his call for tech to cooperate more on allowing government access to encrypted information. Also, Green Mountain looks like its going to be bought up. And donald trump. Who knows a thing or two about avoiding taxes. Going after amazon for avoiding taxes. Will that have any impact on the ecommerce giant. S the life behind it. Those who have served our nation have earned the very best service in return. Usaa. We know what it means to serve. Get an Auto Insurance quote and see why 92 of our members plan to stay for life. Starts at 6 30 a. M. On the vo rush hounose. Und here but for me, it starts with the opening bell. And the rush i get, lasts way more than an hour. announcer at scottrade, we share your passion for trading. Thats why weve built powerful technology to alert you to your next opportunity. Because at scottrade, our passion is to power yours. It seemed such a confident market on friday when we got the jump in the dow. Were kind of reversing an awful lot of that, down 168 at the moment. Oil is a key focus for many people. As still we track lower in the wake of that inaction. Yes, you might have guessed opec would do that last week. Theyre still running with it. 38. 30 on west texas crude. The question is will they be forced to restructure. Those Companies Paying those to transport the commodity and have take or pay contracts, if they go into bankruptcy, what would that mean for those companies. Dont forget the credit markets, as or more important than the equity markets when it companies to the tumble in oil and oilrelated companies. Arguably good for other parts of the market. Lets send it over to the guys for the beginning of squawk alley. Take it away. It is 8 00 a. M. Out west, 11 00 a. M. On wall street, and squawk alley is live. I come around like a hurricane my life is flashing across the sky welcome to squawk alley. For a monday. Good morning, guys. First up, the president making a primetime address last night, laying out the administrations strategy for combating terror. Our chief washington correspondent john harwood joins us this morning with the reaction to last nights address. Hey, john. Hey, carl. In a speech from the Oval Office Last night, president obama told the nation were in a new phase in the war on terrorism. Part of the u. S. Response is military, special operations,