Transcripts For CNBC Squawk On The Street 20160512

Change in supply. Reports that other companies are thinking about trying to acquire it, a possibility of a huge deal in agriculture and chemicals. Gop leadership, paul ryan meeting with donald trump. Trump has arrived at rnc headquarters for his key meeting with the House Speaker as they work to find a way to unify around trumps candidacy. We go outside rnc headquarters where protesters are now gathering. Good morning, john. Reporter good morning, carl. Donald trump did arrive a few minutes. He was greeted by protesters. We have not soon paul ryan, though he is not known for being late. We would assume that meeting is now under way. Its an important meeting for donald trump to begin to unify this priority. Senate Majority Leader Mitch Mcconnell has decided the best thing to do to protect his majority is to endorse donald trump. But paul ryan is a politician who has more of a commitment to particular ideas, particular political style than many other politicians and he has indicated, as he said last week, hes not quite ready. We dont expect a resolution of their differences today but the hope for the Republican Party is the beginning of a process that could begin to pull them together and be able to have a unified ticket this fall. Well see if they can accomplish that, guys. John, those looking for a wouldbe endorsement today or clarity on a convention chair, will they be disappointed . Id be very surprised if all that is worked out, as you indicated, paul ryan has said he would step aside as chairman of the republican convention, if donald trump wants him to. That was an indication that he wasnt going to try to make difficulty at the convention. I dont think that donald trump wants to ask him to step aside but i think this is the beginning of a process. After ryan meets with trump, youre going to have a meeting with mcconnell and a meeting with all of the republican leadership, a larger group of people. Were going to hear from paul ryan about 11 30 when he has a press conference and others will be coming out at different times for these meetings. Well see what kind of vibe we get from that meeting. Donald trump hasnt indicated an, sesive amount of interest in making peace. He was a little chippy after what ryan said last week. He said im not redd ready to t ryans agenda either. Well be coming back to you several times this morning outside of rnc headquartering in washington. 180 days, jim, until the election. I have to tell you that every day i keep waiting for something that will directly impact the stock market and theyre so at 30,000 feet still, its difficult to try to come up with any sort of strategy in the interim, there is no strategy to deal with the earnings or perhaps some talk about fed. I need trump to say were bringing back trump ties and im bringing back macys. A day after macys did miss, kohls out is out with weaker than expected results. Their guidance for the year on comps was flat to up one. So were going to see some clarity on that on the call. Railroad when kohls was at 42, 43 and there was a rumor floating that it could get a takeout . Its a recognition that what youre dealing with is a declining industry. You may want to put it any way you want but to me all these places have a linens and things. The last thing you want to do is put more debt on. The endless buying back of stock, that may not be the right thing to do. To your point, pending capital when your sales are potentially some of these companies can still generate a decent amount of cash. At the same time when you read the Conference Call for macys, an excellent cfo is scratching her head. Well, im not scratching my head. Im buying from amazon. There is a tremendous disconnect about what these people are saying about these companies and what we all know as consumers. Its very painful to say we just spent a fortune on omni channel but we still cant beat amazon. Particularly apparel. Thats where its really getting hurt. If you want to look at a walmart, 58 of which sales are grocery, it my not be quite as similar a comparison. Earnings next week, depot, tjx, lowes, target, gap. Specialties on the way. I like some of those as a shopper at home depot last weekend. Im a spring planter. You look at the stuff and you still cant imagine getting those big boy and beef steak tom eight tomatoes by mail. I wish lowes had made acquisition in canada. I think next weeks retail could be better. Walmart problematic. Walmart does at least have scale. Im looking at it and saying thats a much more important week than i thought. Walmart and home depot are about as big as we get. Im not as concerned. Home depot was down very badly. Walmart reports theyre looking the free twoday shipping. And cowen with this knows yesterday saying amazon will be the number one apparel retailer basically by the beginning of next year. You look at Ralph Laurens numbers today and you see the Retail Business was pretty good. The whole sale business was not good. Macys. They sell, what, 8 macys, thats where you buy the stuff. I keep emphasizing that this key to retail is the whole chain of marking up to then having to dump a tjx. Tjx has a great business model. They got the fist full of dollars and a few dollars more when the retailers are struggling. People are shorting under armor. I dont like to make that comparison. I find that thats the fault of the retailer. Tjx has a different business model, home depot has a different model. You saw claims this morning at 294. Its the biggest twoweek rise in two years on claims. Weve been talking about layoffs in this earnings season and then gas prices have made a big jump. Do you think those two are going to weigh on the summer . I just think theres going to be a lot of layoffs in retail. Were dramatically overstored. You have to go back over the Sports Authority bankruptcy and rei. When you start closing stores, those people do not necessarily have a place to go. Now, home depot does a lot of seasonal highi seasonal hiring. Im trying to gauge my word because people are getting laid off and its not like you want to say, hey, that means the quarters going to be good. But theres real trouble in employment and they employ a lot of people. Meanwhile, stocks are trying to bounce back after yesterday. Bank of england stays pat but warns if the u. K. Votes for brexit next month and Dilma Rousseff will be suspended for 180 days during the impeachment trial. That will overlap with the olympics. Brazil, its been a fabulous rally in the face of nothing. And i just say, well, wait a second. You have a country, he says in the face of the political, you have a country thats been run into the ground by the politicians and you get new politicians in, things can happen. They sell a lot of stuff to china, a lot of raw goods, but this is a country when you listen to Conference Calls, this is a country in disarray. If you can get a legitimate leadership in there, then you can have a turn. I am not writing off brazil. Im, st ecstatic brazil might ha government not unlike argentina. Remember when they said he committed suicide with a machine gun in his back . That was a great cover story by the cia. I remember when they went capitalist. Its been one of the great economies ever. Do not rule out if brazil goes honest capitalism, it can be a turn. It used to be the b in brick and then it became rick and then it became ick and now its i. Some of thieves countr these co look at venezuela, you look at the earnings from these consumer Package Goods and its always that except for the money we just give away to venezuela and we dont get paid and sell, venezuela had a real government and not a failed state, these are somewhat wealthy countries. The cramers who went to brazil during world war i theres grease disparity, not that we dont have it in this country either. The olympics are not going to be so good and the government is terrible. Places cant turn around instantly by government. Latin american history, if you get the right government in there, youd be surprised at the resourcefulness. The chilean model is extraordinary. Shock doctrine. Naomi klein. Pinochet was a dictator. Im not coming out for fascism here. Like the way youre couching your views today. My father would say i cant believe it, they just nationalized anaconda its like wall street the movie. Im okay. When we return, a lot more on todays movers including this big jump for monsanto. And ken rogoff on whats up on growth. More from squawk on the street at post 9 in a minute. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. Td ameritrade. Quite like the human foot. Introducing the 255 horsepower lexus is 300 allwheeldrive. With twentyfive percent more base horsepower. Once driven, theres no going back. Whyour boss . Ork for . Yourself . Your family . Our Financial Advisors are free to realize a plan to fit your familys unique needs. Well listen. Well talk. Well plan. Baird. According to bloomberg, germanys buyer is exploring a potential bid for the seed company. Reports suggested that basf could be mulling a bid for monsanto. I got nothing to confirm either one of those stories, nor whether there are actual talks taking place between monsanto and these two companies. I can tell you that back in march there were talks between basf with monsanto but that was focused on joint ventures, not a takeover. Its strategy had been to try to acquire at what they believe is sort of the bottom of the cycle or a cycle thats about to turn up in agriculture as opposed to sell. But its unclear where their shareholders at this point. By the way, if you were to apply that multiple to monsanto, you end up with a price at 145 a share. When you look at the potential synergies from such a deal, you do get a pretty big number. Look at dow and dupont. 1. 3 billion of synergies just in putting their agricultural businesses together, 8 of sales. You do the same at bayer and you can assume 1. 5 billion. Given the state of its balance sheet, some say it could be as much as 50 50 equity. This is all conj this is send monsanto stocks up this morning. You combine the two companies and you get the number one seed company. Monsanto i think may actually need some scale. And this could do that. I think this makes sense. From an antitrust perspective, it would not be it would not be an impediment to a deal. Up never know these days with the antitrust concerns weve seen and remember its eu and here as well. Theres a lot of opposition to monsanto and gmos in europe. Hard to gauge those kinds of things. From strictly looking at the two businesses put together, the overlaps are not large enough to pose a real antitrust impediment. When you talk with dupont and dow, theyre so confident about that merger to create among three companies. When i saw office depot and staples get shot down, i came back and ive asked both ceos this several times how do you have expect to become the number one seed company . Wouldnt the farmers fight you . They say the farmers like it. By the way, bacon at halliburton said the farmers would like it, which they didnt. I have no certainty you can make a combination in any industry right now. Because of regs . I think this is the most active antitrust department i have seen in maybe all the years im alive. A big piece in the times today about who mergerarbs are getting killed. And biggest m as ever. And a number of the big ones. A college team that maybe had a player who was being paid. And they strip him of it. I focused on bayer because a lot of people dont believe basf would consider doing deal of this type. Its a very insular company. I no confirmation. The story itself is one of those that says theyre thinking about it, theyre exploring it, it doesnt man thiean theyve actu reached out. Does this come under of category of other news outlets that anybody can say anything . There does seem to be industrial logic here. Were still monitoring developments at the rnc. Ryan is in the building, but we do not expect to see him as he heads to capitol hill. That press availability is at 11 30 a. M. Eastern time. You wont see these folks at the post office. They have businesses to run. They have passions to pursue. How do they avoid trips to the post office . Stamps. Com mail letters, ship packages, all the services of the post office right on your computer. Get a 4 week trial, plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. We have a little mad dash for this thursday. You have kellogg citi kellogg is a prime takeover. Ken who runs general mills, i dont think hes ready to sell the company. Hes a year older than i am. The reason that people can make these calls is because the kraft deals is now working. They cut costs and got the revenue lineup, 1 . You see it pulling through. The reason i dont like these calls is similar to the basf buyer because if nothing happens its unusual where you have technologies where honey well goes down, stock goes up its unusual for an analyst to come out and make a call look this on a takeout. Theres still family in kellogg. And they seem to think cereal is turning. Post cereals had a great quarter. Quaker had a decent quarter for pepsico. I just want people to own these stocks on the fundamentals. If thats the case, kellogg is not doing as well as some of the others. So theres a lot of consolidation in the group. But do some homework before you decide, hey, i like kellogg. How about the thousand dollars price target for amazon. David feels a little 1999ish. Just a couple of those stocks. Thats about it. We have a lot more stocks to talk about. The opening bell coming your way in just a few minutes. In new york state, we believe tomorrow starts today. All across the state, the economy is growing, with creative new business incentives, and the lowest taxes in decades, attracting the talent and companies of tomorrow. Like in buffalo, where the largest solar gigafactory in the western hemisphere will soon energize the world. And in syracuse, where imagination is in production. Let us help grow your companys tomorrow today at business. Ny. Gov the call just came in. Shes about to arrive. And with her, a flood of potential patients. A deluge of digital records. Xrays, mris. All on account. Of penelope. But with the help of at t, and a network that scales up and down ondemand, this hospital can be ready. Giving them the agility to be flexible reliable. Because no one knows like at t. Youre watching cnbc squawk on the street. The opening bell in just over 60 seconds. A lot of pots burning today. Trump and ryan meeting in washington, d. C. Three fed speakers are going to talk. Brazil. And brexit, they say its a problem and even talked the r word, the recession word right now. This is a level of uncertainty that comes right after the fed meeting thats going to put a lot of things on hold. Talked about a lot but not by us. When i hear the recession word, never want to hear that. Never. Futures hanging in thanks in part to oil. Nonopec production now down 700, not 800. And a lets watch Siteone Landscape supply celebrating an ipo. And ge is going to try to hang on to 30 today. I think theyve turned the company around. A lot of people feel it stuck at 30, its more an Industrial Company with a pretty good growth rate. Honeywells great rate should improve. Ges company to call it a sell right here after its just about to lose that designation as a significantly Important Financial Institution . I want to take the other side of that trade. Jpmorgan did advise. So interesting. Theyre downgrading. They were key one on advising on the divestiture. I like the fact they were advising ge and and came out positive. I think theyre wrong. They have every right to be wrong. Where does it say in the constitution you cant make bad calls . It doesnt. Why is ralph bucking the trend . In the retail sales number itself was very, very good. This new guy who is running it, can i just say that the new guy is getting a lot of im talking about stefan larson, came from old navy, came from h m and they still had customers. Thats saying something. They had living people. They were not actors buying things at the registers. Theyre trying to turn the attention to club monaco. I have a club monaco shirt packed in my bag and i like club monaco. So does my wife. She says you look good in club monaco. It a little anecdotal but club monaco is doing well. Do you never mind. Whenever i ask about club monaco, he said its like club med. You want to sing the song . I went to club med. Goldman sent me to club med at a tough time when my mom passed away. You should go to club med. The pundits saying the same thing, that no one will shop in Department Stores, no one is shopping in malls, theyre only shopping off price. We heard the same thing in 08. They were wrong then and theyll be wrong this time. I think there is good employment growth. It has to do with a shift in the way people shop. Its the cell phone. Remember, millennials doesnnt e shopping. There are some millennial outliers like my daughter but they dont shop. Im just glad they didnt do that real estate transaction. They say they are still looking at a number of transactions and they point out the complexity of those transactions will take time. Macys is an institution but institutions need to reinvent. This 27 amazon growth is still just blowing people away. No one saw this. And more than half the actual sales growth in retail overall has been amazons. I know. Its zero sum. I remember going to see borders ten years ago, i went to borders. And, you know, in ann arbor. They are great guys. You know what we did . We sat around. It was all the top executives and what we talked about was books, what books did we like . And amazon came up and it would be like, yeah, but you cant browse at amazon. You go to a book store, secular temple of learning. You go to borders lately . It sounds like kodak said no one is ever going to take a picture with their phone. I used to go to borders, get myself a starbucks, sit back, read a book. Now i read the same chapter on amazon and if i like it, i order it. Watching vashares of valiant hows that doing today . Theyre up 1 after starting down. Yesterday it was down sharply again and nearing alltime lows, which is 2527. Mr. Papa doesnt seem to be getting a good reception. When you read the press reports, it was kind of, well, he doesnt really have a plan. But give him some credit, he just got there. But i thought that the article today in the journal about the fact that there has not been rollbacks yet, cleveland clinic, no rollback, what joe papa promised on mad money is theres going to be roll backs and that means theres going to be price degradation. I dont think people are ready for a big increase in research and development, big increase in r d, cut the prices. I question that 2 billion cash flow. I question it. You do . Yeah, i do. I do. Jack in the box is up 12, as they come in with a nickel beat on 85 cents. I have to eat both crow and a jack burger. They said they didnt take share from chipotle. They guided down really hard and bead the guidance. Ive been picking on them because they did terrible numbers last time but this is good. I always felt that the chain of tremendous possibility but i was wrong and now i i was right and then i was wrong and now im wrong again because i dug in my heels thinking that they really just had such a bad last quarter but theyve come back. Seeing some charts lately of a oneyear shaq versus people thought that wendys wasnt that good. Maybe its not invincible. Seems invincible but maybe hes not. Breakfast all day, total home run. We dont know. Got to hear. Were going to go to john harwood, carl. John harwood is outside rnc headquarters. John . Reporter carl, im standing here with tom cole, who not on is a congressman from oklahoma, but a former executive director of the Republican National committee, the building where this meeting with donald trump and paul ryan is taking place. What is the significance of donald trump come down to sit with Reince Priebus and paul ryan . I think it the beginning of the coming together. Obviously weve had a contentious and volatile primary season but mr. Trump has ee theyd like to have a working relationship with their nominee. How much doubt do you have about paul ryan eventually rhining up behind donald trump. I think to be able to Work Together. Im not sure either would line up behind the other. They need each other to be successful in the fall. And i think they can help one another. But they clearly dont know one another yet and this is the open persian gulf evident to get to know one another and find out when theres common ground. The reality of the situation dictates they do Work Together and i hope they will. One more on something trump said yesterday, which was that he wasnt interested in the analytic, cate saying hes done it a different way and he can win the presidency a different way. Can he . I think that effort is going to happen whether it happens in his campaign or happens through the Republican National committee. He clearly brings things different to the campaign than a traditional candidate, for both good and ill. But that effort will kb on, regardless of whether it done in his campaign or in another fashion. Thanks for being with us. You bet. Thank you very much for that. Well come back to you a little bit early on. I could want to address your its almost to the intra day that it posted at in socalled august. Im waiting for the downgrades. Make no change. Yesterday of the rumor that itunes is going to be changed. Look, the stock has no momentum here. Obviously people dont want to own it and but the analysts will have these soft buys. You need to see downgrade before this can stabilize. It just has to happen. You have to have be a lists come out. And it didnt have that. You only had one downgrade after that quarter. In order to get your footing, youve got to flush out the guys and they havent taken that action. Speaking of days after at least or flushing, disney is down a little bit but seems to be flat i dont knowing out. It less than half a. Now when you miss the quarter again again, i stand by these because im taking that reverend i saw you talk about that, changing churches. Disney and apple, i dont think harr going like get out of disney at 101 and get back out at 97. When you look at the longterm charts, you cant see those dips. They have no moj owe. Just sayer look, you to beat. 27 yanks . Is that what you mean . I said look, amazon is 27 yankees. How do you know . You werent alive theres a thing called history. I did not see babe ruth play so maybe i cant make a judgment. And syndergaard, i saw his home two runs and his hair . If i had his hair, i wouldnt be here, ill tell that you much. And if you were 66, 245. Id be on the mound but for the phillies. Thats 20 strikeouts. I mean, the history. Twitter is so mean. They are mean. Heres bob pisani on the floor. Were still waiting for it to open up two months after the markets bottomed. We have a very interesting ipo today. Sout one. I know it doesnt sound very, sight bug theyre pricing very well right now, right in the middle of the price range. This is in the middle of the do it yourself that they play off of. Its a big business overall, 16 billion in a year. Theyve got 1. 5 billion, theyre almost 10 of the whole history and theyre growing organ cle so this seems to have what theyre looking for, what a lot of people are looking for. Ive clearly defined product. It profitable. Its growing and it has a reasonable valuation overall here. We seal a rare thing, a technica technicalwell see how well this do but theres over 100 companies waiting to go public, crew and if i had to take one bet on one of them, ill bet u. S. Foods will go in the next few weeks. Stick my neck out a little bit. Sectors, mixed markets. We have energy doing well. Oil is on the up side. Retail rebounding a little bit. Materials and Consumer Staples on the up side. On the retail, you heard about controls here. We remember what they talked about thats not being changed and there you see kohls down a bit here. I think it pretty clear what all the retail trends are. Travel and restaurants is doing well over apparel. There is a clear shift to digital. Value seem to be outperforming any kind of expensive bround brand names. So and i think a number of places have mentioned the higher costs for other may be eating into Discretionary Spending overall. So of course you had a very difficult key tail environment. The aboutest planned landscaping the, 4 to 27 after carl, back to you. Thank you very much. Lets get to the bonds with Rick Santelli as were watching the claims come in. Everybody is sightseeing to find out where it coming from. If we had had a 260 market, the market wouldnt have paid atengts. Below 300 or even 280 gets the market condition. Open chart up to february 1st. Abouts a lot of trade down at these levels. We did refrain from really testing do you like negative rates in investors dont like negative rates. I havent met anybody that does. So there is just a charge, a herd mentality into these auctions. I dont expect to see any weakness in let look at the guild. This is february 1s, too. Does it look any different than a tenyear . We dont have a brexit going youd have see weve been talking a lot supply. They love corporates, too. Positive yielding. It been a opinion this is very important to Pay Attention to do. On the dollar index, yesterday we broke the trend of six up trading days. Today it looks like its rum rumin look at the one week on the pound. Thats the pound versus dollar. In about 60 minutes, were going to talk to ken rohloff for an extended interview. Hes the gentleman who Whose Research says big. Were keeping our eye on washington today. Donald trump and speaker ryan meeting at rnc pecks. D dow on some 63 points. Were back after a break. Real is touching a ray. Amazing is moving like one. Real is making new friends. Amazing is getting this close. Real is an animal rescue. Amazing is over twentyseven thousand of them. There is only one place where real and amazing live. Seaworld. Real. Amazing incredible bladder prthat lets from always discreeyou move like you mean it now comes with an incredible promise. The always discreet double your money back guarantee. Always discreet is for bladder leaks and its drier than poise. Try it. Were so confident youll love it, well give you double your money back if you dont. Incredible bladder protection. Double your money back guarantee. Thats always discreet. Walmart is planning to test free twoday shipping. It plans to test it around the country. Im waiting for it. Theyre supposed to have these computer scientists doing things for them. Using Regional Companies instead of fedex it has a great company. Im not recommending the stock but you keep hoping i dont know i pull for this guy. What do you do with this stock, jim . I guess you say youre not recommending it. If you own it, you have the dividend. Had you the big break. Its come back from that a little bit. You have to wait to see if they can do it. Its okay. Maybe you have to pay 70 if they get it right. I think sometimes it pays to wait to see if they can pull it off. We cant swing at every pitch. Cant do it. As much as its exciting to see if they can do it. The market is up 69. Dont go away. [crowd cheering] i could get used to this. Now you can. When you lease the 2016 es 350 for 329 a month for 36 months. See your lexus dealer. Theres an interesting piece about piper today called palo alto. When you see anything negative on these Companies Highly valued. You noknow theyre going to get hit. Talks that are highly valued here are getting hurt unless they have an amazon niche. Theyre competitors to cyber security. Witness the fire eye. Wow. Just be careful, if youre buying really expensive stocks and they dont have a proprietary thing when theyre out on their own and not being challenged, analysts are coming for them. Whats on mad tonight . Supermarket wars. This is changing overnight. People are just flummoxed. I see crow, jack in the box up big. I liked it, didnt like it. They got the shorts and they did it right. Good for them. Any reason to think were not going to keep chugging along between 2060 and 2080 . No, i think thats fine. You have to watch the breakdown in apple, you have to watch perhaps does disney come down or stabilize. Apple cant stabilize until people abandon ship. When the ones who have one foot out, when they get out, then you can say its the end. Just be cool. Be cool. When we come back, goldmans chief equity strategist. Plus the latest on the trump ryan meeting going on. We got another one. I have an orcogram for an owen. Thats me. You should hire stacy drew. She wants to change the world with you. She can program jet engines to talk and such. Her biggest weakness is she cares too much. Thank you. My friend really wants a job at ge. Mine too. Im a wise elf from a far off shire. And sanjay patel is who you should hire. Thank you. Seriously though, stacy went to a great school and shes really loyal. You should give her a shot. Sanjays a team player and uh. Flip your way through your last 9 shows with the tap of a button. Change the way you experience tv. Xfinity x1. Good thursday morning. Welcome back to squawk on the street. Im carl quintanilla. We have ge down grade, brexit and trump meeting ryan. Oil has lost most of its gains. Donald trump and paul ryan meeting with other members of the gop in washington as we speak. Plus the retail wreck. One day after macys triggered a sharp selloff in stocks, it is kohls turn to worry investors. And oil in particular rallying. An interview with goldman as chief strategist david kostin on equities. Paul ryan and donald trump are meeting this morning to try to unite the party. Whats the update, john harwood . Reporter sara, you can hear the protesters on the issue of immigration behind me. Theyre a symbol of why this Meeting Needs to take place. Donald trump has been a polarizing figure in this campaign. Paul ryan is for immigration reform. He and donald trump dont agree on that and hes trying to figure out ways in this meeting with donald trump of trying to come to an accommodation on the kind of campaign republicans are going to run this year. Theres a meeting not just with paul ryan by mitch mcconnell, other members of the congressional leadership. Theyre inside that rnc building behind us. There are multiple issues, not just in terms of tone and issues, but also fundraising apparatus, the data gathering apparatus, all of the things that go with a successful political Partys National campaign are trying to be worked out. Well see when trump, ryan and others coming out of the meeting how it went. Who has the leverage here . Weve heard donald trump pretty much insinuate hes not changing his opinions to change the gop party elite, nor do the voters seem to think he has to. So is he walking in with the leverage . Reporter not necessarily. Donald trump needs a very united Republican Party to win the election. In our polarized system, youve got to have overwhelming support from your party to win. On the other hand, donald trump has run as an outsider and theres a little friction that could be positive for him in saying im not part of the party establishment, ive got different ideas, if he can make that work without outright alienating a large chunk of the party and appealing to independents saying im different, im not part of the system, that potentially is working for him. Retail stocks continue to struggle amidst a lackluster earnings market. David, good to you have back. Nice to see you. The steph curry market . Thats how i describe it. What does it mean . Basically its a tough market. 80 of Fund Managers are shelling the benchmark. Its been very difficult year to date. The bulk of the strategy relates to dividend, dividend yield, Dividend Growth and valuation. And then on the other extreme you have a couple of companies with an expansion in margin. Thats how Portfolio Managers ought to be thinking about their construction of a portfolio. But the core of it, where you really generate the win is getting the dividends, the income. The market is close to a high. 2,100 is my top for the end of this year. Were running now at the 98th percentile. Defense makes sense. The short cycle macro play where caterpillar was hot for ten minutes, that was a fluke . The Economic Data is suggesting things are only going at a modest level. The more domesticfocused companies ought to do better in this environment. The concern about protectionism would be benefiting Companies Facing from a revenue point of view as opposed to those exporting. There are different themes inside the market. Its been difficult. Its a frustration from a strategist and Portfolio Manager as well. Department store specific or does it really tell you something about the u. S. Consumer right now . Its also part of the shift in how consumers are spending their dollar. I think the idea of Wage Inflation is something weve been focused on. There are some companies benefiting from Wage Inflation and those that are more at risk. Who are the beneficiaries . Well week thi, we think t beneficiaries, if you will, will be from technology where labor costs are a relatively small portion of their sales as contrasted with consumer discretionary. If theres wage inflaegs, that would be hurting margins of those company ands that a risk for lower stock prices. When the main guy from goldman says were at the 98 percentile on valuations for an average stock, i think that really stands out. Explain what you mean by that. Were at the top of the valuation moves. Its huge. If you think about various valuation metrics, you can look at pe ratio, at pricetobook, you can look at enterprise value to ebidta. Any of those metrics over the last 40 years, we are at the 98th percentile. Right at the top of the envelope. The top of the range. The probability is you would get a low are evaluation. Remember that your prove margins are also at second high levels. Companies are already efficient. It probably plays into the hands of technology companies, which are the recipients of other theres been a discussion, i think u might have seen this paper from the dallas fed that came out as to whether the stock market actually accurately reflects whats going on in the economy. And the dallas work for example says three quarters of the economy are service orientated providers and yet over half of the market is in manufacturing. And therefore theres a skew. That even though the market may not make gains, the economy may be doing better and therefore the fed may hike rates. We can look at a lot of different ways to think about tackling that question. But the core of it is regardless of when the fed raises rates, whether the forward market is correct and its maybe one hike . December, the idea of a dividend oriented field base strategy is important because were starting at a high level of valuation. Lets make the scenario the fed does not make then the yield will have outperformed. Or if you take the other scenario, if the fed hikes two times, then the growth in those dividends ought to support performance. If you look at cisco, corning, discover, Dividend Growth and lower valuation, those stocks ought to do better. But does the docket reflikt the economy . . Not very accurately. 20. Tors post. But on only 15 or 20 of companies actually quoted in the first place. It depends on the its a big part of it. So weve established that you youre would a lot of hedge Fund Managers worry about an air pocket of liquidity. Whats the probability that we see a large drop . The risk brexit, the uncertainty in terms of the electoral politics here domestically, you have earnings season coming up in the second quarter. Remember we have margin compression this quarter, which was very significant. You very been so margin is a concern. On the other hand, the economy is still growing. Thats a positive tail wind. You have loan demand. Theres been some pockets of optimism. But not a lot. I think it reflecting in a very high level of value mark thats o obviously one issue on their so you have embassy and flows. Unemployment rate is headed to 5 , maybe a little built lower. You have you didnt mention that oil is at the 20 is is if oil goes higherin my forecast a little bit higher by the end of this year. Not significantly so. The valuation is a key starting point. The dividend swap market implies companies will be growing dividends less than 1 for the next decade. Focusing on Dividend Growth is the strategy were looking for. David kostin of goldman sacks. Coming up, more on the trump ryan meeting. Larry kudlow will join us on set to break down some the intrigue. And then what has become another big story on wall street, the Retail Sector of course in disarray. Macys ld more coming up on the show. So doctors and hospitals can identify highrisk patients. Like me. Asthma. Potential hospital visit. So now thanks to optum, this asthma things under control. Gravity not so much. This is healthier, powered by optum. From health plans to providers to employers. We connect all parts of health care. Healthier is here. Man 1 i came as fast as i man 2 this isnt public yet. Man 1 what isnt . Man 2 weve been attacked. Man 1 the network . Man 2 shhhh. Man 1 when did this happen . Man 2 over the last six months. Man 1 how did we miss it . Man 2 we caught it, just not in time. Man 1 who . How . Man 2 not sure, probably offshore, foreign, pros. Man 1 what did they get . Man 2 what didnt they get. Man 1 i need to call mike. Man 2 dont use your phone. Its not just security, its defense. Bae systems. Mr. Trump goes to washington. The presumptive president ial nominee meeting with the House Speaker paul ryan in an effort to unite the party. Joining us now cnbc senior contributor larry kudlow. Larry, this is almost an historic moment. Donald trump went into the meeting saying hed like to do a deal. What do you think a likely deal will be . I think theres a bunch of issues here. I doubt if its going to be 100 agreement. I think its going to be 80 agreement. Thats just a hunch on my part. Both gentlemen would like to get together in the name of party unity, which is not inconsequential. But theres issues on tax reform, issues on immigration, issues on trade, issues about Economic Growth and issues about americas interests first. Trum has his own agenda and hes been extremely sm heres Reince Priebus tweeting just four minutes ago the meeting was great, it was a very positive step towards party unity. So when you say common ground, what are we talking about . By the way, Reince Priebus has been great through this. We havent seen a good rnc chairman in a long time. Hes been great. Not an easy job. Where do we see ryan . Ryans a good friend of mine. I think theyre going to have discussion about trade and try to reach common ground. That may be the single trickiest question. Beyond immigration . I think they can reach common ground. Ryan is not for deportation. Mr. Trump is but hes sort of backing off that. Can i pick up that point . I think the Border Security they will reach accommodation on. How you do the details, that i dont know. Let me pick up the point. There seems to have been a softening in the stance on muslims yesterday. He said this is just a suggestion and said hed like to back off as soon as possible. For a lot of people this is clearly very important. I agree. I agree with that. By the way, i think they should have a blanket moratorium on new visas. Like, the fbi has said we dont know who anybody is right now and they can come in through any areas. I think theyll reach some accommodation on that. Heres the thing. The most important issue in this election is still the economy and the lack of Economic Growth and wages and jobs. Mr. Trump has a very good tax reform plan, particularly the Corporate Tax piece. As i said, its being tweaked. He hasnt signed off on anything. Dont get me wrong. Steve moore and i are working with the tax foundation, were going to get the deficit down to about 3 trillion from 10 and thats before the spending cuts. Are you helping inform what is your relationship with the Trump Campaign here . As i said, the committee to unleash prosperity, we have been advising all the candidates. Theres one left standing. When that one asks for help, we give it to him. I quickly save he has not signed off on any of it. Were making suggestions. Ryan is an old time jack kemp, reagan, kudlow you said Border Security. A ban on muslims . I dont know. I think that except for londons mayor. I think new visas in its entirety is really the problem, according to the fbi director. How they get through that, i cant say. Let me be clear. What youre suggesting, larry, is this the way out . They were saying im going to have a ban on new visas so the circle gets squared . This is important stuff. Ive written this. Its all about isis. Most of the Muslim Population in the United States is very pro america, but there is a horrible radical minority. Let me just come back to trade. Trump has in recent weeks and weeks and weeks stopped talking about a 45 tariff. Havent heard from him. In his Foreign Policy speech, he talked about negotiations with russia, by the way, but also with china and other country. I think that paul ryan has to understand that a pure free trade position doesnt work anymore because the chinese doesnt play by the rules and there have to be bilateral negotiations. Forget about the wto. A strong leader like trump can do this. And i think paul ryan can live with that. And i think all these guys, just to back up for a minute, they want party unity and, secondly, the recent polls are huge. Look, you just had the reuters poll saying its even with hillary. Before you had that you had the quinnipiac poll, swing states, florida, pennsylvania, ohio even. No doubt about that. Those antitrump people who are saying trump will cause a landslide against the gop have no evidence. These polls are saying its going to be a close race, not a land slide and trump is in very good shape. Thats one thing, larry. But youve been a big backer of ryan for years. So when e. J. Writes how can you support trump and call yourself a principled conservative . I love e. J. But rarely do i agree with him. Hes a very bright guy. Low tax rates you just said free trade doesnt work anymore. Fairer trade, free but fairer. Youve got pockets in this country that have been damaged by some of the free trade deals. Pockets. Overall im a big free trader. Its worked. I dont want to end any of these agreements. All i want to do is negotiate through some difficult positions. Trumps whole campaign was an appeal to the populist economics people who havent got jobs or wages. Hes not going to back off that nor should he. His other part, which ryan may have to swallow, donald ran against the republican establishment. I happen to agree with that. We talked about this. Paul ryan is part of that establishment. Theyre going to have to make a common ground. Thats just the way it is because trumps not going to give up his principles for this political deal. I hear you saying ryans going to do the walking. Trumps not going to do the walking. Is that not fair . He needs a billion dollar from somebody. Carl quintanilla is a great reporter. Theyre both going to have to do some walking. Its a natural trump constituency as long as they can sit down and hash things out. Hes in a better position with the senate, which i think is pretty good. If mitt romney would just keep his yap shut for a change, who i adore, i love the guy personally, but hes becoming the howard stasin of the Republican Party, which is not a good place to be. When we come back, amazon replaces macys as the top appar appar apparel retailer in the country. And get more of larrys take on whats to come as ryan is expected to speak in about an hour. Back in a minute. In a world held back by compromise, businesses need the agility to do one thing another. Only at t has the network, people, and partners to help companies be. Local global. Open secure. Because no one knows like at t. E. T. Phone home. [ soft music ] when you find something you love, you can never get enough of it. Change the way you experience tv with xfinity x1. Take a look at a live shot of the rnc in washington where donald trump and paul ryan have been meeting. The retail pain continues this morning, a day after stocks like macys and Michael Koors saw double digits. Comparable sales, thats the most wildly cited metric for retail health, fell 4 . That makes the biggest drops since 2009. Analysts expected a slight gain. Weather historically does impact this retailer more than some competitors, in part because its an off Mall Department store. Shops are have to go there purposely as opposed to a mall trip. Now its the flip, the kohls says the warmer spring is hampering the sales of sales. There are other nonbelievers. You can see kohls shares down almost 9 , about a sevenyear low. Ralph lauren did outperform the pack. Comps in the quarter fell 5 but thats better than the drop that analysts were forecasting. The stock is losing steam. Ralph lawyuren is in the proces of reorganizing. Its still slightly positive but a slide from this morning. Following macys earnings, Terry Lundgren did speak to womens wear daily saying things are different from 2008. The cfo said she wasnt sure what was different when asked that question on the call yesterday. The reaction from 2008 wasnt different, calling for an end to shopping as weve known it. Will there soon be a new top apparel retailer . Cowen put out a note saying amazon will replace macys as the top apparel retailer by 2017. David, good morning. How are you, sara . Im good. Im worried about this retail outlook. Is the idea here that amazon is just eating everyones lunch when it comes to apparel spending . Well, they absolutely are. To make sure i clear it up, this note that we talk about, we put this note out really, it was july of 2015 that we really collaborated. It was John Blackledge collaborating with our Consumer Team and they talked about amazon going after the likes of macys, becoming the number one u. S. Retailer in 2017. Theyre well on their way. Its clear. They were looking to take market share from 4 to 15 and theyre g going aggressively after the like the target and walmart. Amazon has been a major horse in this race. Theres no sign of slowdown. Its a story weve been well behind and well in front of. It sounds very clear and it makes sense, especially as we see these retail numbers. The big risk with amazon is it has a history of squeezing profit margins, not exactly regarding profitability so it can invest in the long term, or is that completely different now that weve had a real good quarter and a few profitable quarters . You look at their north american ecommerce business, roughly about 20 of their overall revenue. In 2018 were looking for their operating margins to double in 2018. I think to go to 8. 5 and in 19 Something Like 9. 5 . So a massive shift. Thats going to move the needle for the stock. Aws obviously significant lead over microsoft, significant lead over google. I mean, microsoft is Something Like 3. 5, 4 billion. Amazon is 10 billion, on the runway to 10 billion. All they can do is screw it up. Fingers crossed they dont. Theyre in a tremendous lead. And on the consumer side its amazing to see how aggressive theyve been and how successful theyve been really gaining market share here. Theyre not the on ones benefitting from Department Store woes. We talk about winners in fast fashion and offprice retailing as well. Do you have any pick there is . Its interesting, the offprice gains report next week. We said this on fast the other night that you have wait until the end of this week and you go by the xrt for a trade because you can probably see a pop. Next weeks numbers are expected to be decent to these offprice names. I stay away from these mall names. Very difficult to gauge the direction in where natheyre gog to go. Shopping trends have changed. Online is in vogue. Id stay clear away from the stores. Theres one thing i find difficult about the call. Theres no doubt that amazon has been very dominant in a lot of areas but the return rates for clothing apparel on line is 30 to 40 . In store its more like 10 to 12 . That can be a huge problem when youre trying to make this a viable business going forward. Fit, quality, thats key and its hard to get online. Do you think amazon can tackle that as soon as 2017. Its a lot of significant numbers. Youre going to see them ramp this as far as market share dramatically. It was 4 to 14 this year or in 2017 and continue from there. So the answer is absolutely. You know, the margins can be significant. If you look as i mentioned, the operating margins for their north american ecommerce business, were seeing and looking for them to program dramatically in 17 18. Its a good discussion, guys. Its stunning to see amid the world of hurt that retail is in amazon up again today. David seaburg and courtney reagan. Good morning, sue herrera. By a 5522 vote, Brazils Senate has voted to impeach Dilma Rousseff. She says she was elected by 54 million brazilians and the impeachment threatens voter sovereignty. Well have more in a few minutes. And critics say the World Health Organization says pollution in cities around the world has been increasing since the last global study two years ago. It warns that pollution is responsible for 7 million premature deaths a year. And george zimmermann, the man who shot and killed black teenager Trayvon Martin will auction the gun he used and use some of the proceeds to challenge Hillary Clintons gun control policies. The oneday auction is scheduled to begin in about half an hour with bidding set to start at 5,000. Lets get back downtown. Back to you. When we come back, a lot more on the trump ryan meeting, apparently ending just a few moments ago. Waiting for details from inside the rnc. We have three voting members of the fed on the tape and well talk about Dilma Rousseff in brazil in a minute. Olay total effects a skin transformation that rivals the leading Department Store moisturizer. Revives skin to fight 7 signs of aging. With olay, you age less, so you can be ageless. Olay. Ageless. Lets get to the cme group in chicago. Rick santelli. Thank you very much, carl. Ken rogoff, welcome to the santelli, change. I dont know if youll be able to feel this but im giving you a fist pump right now youve been on the bully pulpit for years with research with says when death goes up, growth most likely is going to suffer. Can you fill us in on where were at seven years after the crisis. When you look at the global debt situation and not just government debt, private debt, pension obligations, theres a big overhang. Its probably a worse problem in europe than it is in the United States. Its a really bad problem in japan. The recent mckenzie study has placed an increased amount of debt since the crisis somewhere around 57 trillion, 58 trillion. A lot of that is china. You mentioned japan. Japan has so much debt out there. With respect to asia in general, how is this debt ever going to get paid back or does it matter . And is servicing it going to be a problem . Rates cant stay low forever, ken. Well, thats the question, rick. I think a lot of the market thinks rates will stay low forever, well never have inflation, the real Interest Rate, which is the Interest Rate minus the expected inflation rate, thats really low and they think that will stay that way forever. And it might but its a risky position to be in. Certainly a country like japan, which is basically paying nothing would be in a lot of trouble in global real Interest Rates went up. B we dont know when they went down and we dont know when theyll go up. We have three fed speakers out today. All three are voters. If you had a word of advice for the fed and i mean this in the most macro generic sense, normalizing rates seems to be in the hands in the central bank, is this a task too big . Is normalizes rates going to take a runway of a decade or more . I dont think so. But its very tricky because the big thing, rick, is we dont understand in the world why inflations so low for so long when it rises, will it also be hard to get down . We dont understand that. And when i said we dont know why real Interest Rates have gone down, what i really mean to say is we have ten reasons. I think fear is a big reason why Interest Rates are so low. People are seeking safe assets. And the feds been struggling with this. What is normal . And theyre still struggling with it. I think theyre going to unwind slowly but dont think its going to take ten years. And my final question is its campaign season. This going to be like the first president ial Reality Tv Show in many ways and one of the big topics is antitrade, kind of everybody hunkering down. How damaging could that be considering we have historic low rates virtually, we coming to what could be the end of a very long business cycle, all these balloons are up in the air. What about free trade taking it on the chin, sir . Well, i think it would be a very bad thing for growth. I would much rather see, you know, changes in the tax system, changes in social benefit programs to help people who have been hurt. I think theres a lot of evidence that, you know, the early years of the 2000s did damage to that and we immediate to fix it. I dont think pulling back on free afraid is a way to fix it. It makes the pie smaller and makes it harder for us to have everyone better off. And weve been in cutting that smaller piece of pie into many more pieces, which is where we find ourselves today. Ken rogoff, thank you for your time. Simon hobbs, back to you. Rick santelli and ken rogoff, thank you very. In the meantime, its been a Long Time Coming but now it is official, brazils president Dilma Rousseff, suspended. Rousseff speaking just moments ago while our chief correspondent joins us with the latest. Shes still defiant, michelle. Absolutely. These are live pictures coming in now. There are protesters for and against rouseoff because of the dramatic political events that have happened in the last 24 hours. She has handed over power to her former ally, this whatever a marathon 20hour debate in Brazils Senate. It started at 9 p. M. Last night, ended this morning at 6 a. M. Only 22 senators supported her. The vote was an intense moment for the country of brazil, protests in favor and against rousseffs impeachment occurred outside of parliament throughout the night. Shortly after the vote ended, Dilma Rousseff denounced the vote as a coup. What was critical in this vote was the scale of her defeat, which foreshadows the next vote, post that trial, to permanently push her out was office, 54 senators or twothirds need to vote to formally terminate her mandate. That to many seems like already a done deal based on the numbers that we saw here today. Guys back to you. That story far from over. Thank you very much, michelle. Its the battle for market cap or superiority. Google due to its a 35 runup has now overtaken apple as the most valuable company in america. Right now googles market cap around 499 billion versus the 497 there abouts billion for apple. An interesting turn of events here. Apple has run into a bit of momentum slowing for them. Google playing some real catch up here, overtaking them in terms of the overall market cap crown, sara. Reversal of fortunes for sure. When we come back, were still awaiting details from inside the rnc, after we learned from Reince Priebus, the chairman, that the meeting was great and a positive step toward unity. Plus oil surging above 45 a barrel. It is back toward the flat line, still around 2016 highs. More on the commodity trade next. Now what . How will you keep up with the new demands of todays Digital Economy . The fact is some believe they wont need a Traditional Bank down the road, so at cognizant, were helping banking and Financial Services Companies Think digital, be untraditional, and reimagine what the bank of the future can be. Our clients can now leverage customer intelligence to predict their financial needs and provide more contextualized products and services. Were creating new platforms across channels so customers can effortlessly invest, borrow, lend, transactwhereverwhenever they choose. And were digitizing the way banks run, driving efficiencies and delivering new value for their customers in return. Digital works for banking and Financial Services. Lets talk about how digital works for your business. Welcome back to squawk on the street. Stocks were positive, now turning to the down side, fractionally lower. Holding on to some gains, the sector is standing out as one of the beckiig ones to the up side largely do to monsanto up on reports of a possible takeover. For the year the materials sector is up by about 7 overall. Certainly a sector to focus on in todays trade, sara. Back to you guys. Thank you. Were keeping our eye on washington, d. C. That is the site of the Republican National committee headquarters, the rnc, where donald trump, the Presumptive Republican nominee has been meeting this morning with paul ryan, republican House Speaker. We know from the rnc chairman, Reince Priebus, who just tweeted it was a great meeting and step toward unity. Makes you wonder if perhaps hes finished with priebus and then goes to oneonone with ryan. That was quite soon that that meeting was over. It must be a series of meetings. Well wait for word. Well keep you posted. Were also keeping our eye on the price of oil, which continues to rise. Wti crude above 46 a barrel. Lets bring in the head of commodity strategies. Harry, thank you for joining us. Thank you. Good morning. Warning of a significant reduction, dramatic reduction in crude oil stocks by the end of the year. What is the importance of that message . Yeah. I think the i. A. Is basically reminding people there is going to be a rebalancing of the market over the course of the year. However, the pace of that rebalancing is in question. The figures showed some upward revisions to demand in the first kwaur b quarter but still remain stable through the year. If you look at the institutional forecast like those of the imf, theyve been downgraded. So oil is not exactly out of the wood just yet. So they did mention a lot of the supply disruptions that we reported on over the last few days and weeks, including that from nigeria, libya, venezuela, kuwait, not to mention the wildfires in canada. Can you just give us an update on which ones matter and what its doing to production . Yes, absolutely. I think you really nailed it. The bullish momentum in planned another. And the countries that you mentioned, the wildfires in canada and further deterioration in nigeria, and the compound of the statistics from the department of energy showing the u. S. Crude stocks declining against expectations, and so disruptions in canada is important to the u. S. , and a lot of the canadian oil is making its way down to midcontinent, and looking for further disruptions in nigeria, and removing some light supply are from ta that basin is going to disrupt brent. So the market is sort of forgetting about the broader fundamentals which show excess supply over demand. Here in paribas we are concerned about that, because when the oil rises to 45 and above, you are throwing a lifeline to u. S. Shale producerers, and everybody is expecting it to dekline. If we dont get the expeck shun, we may be due for the correction in the summer. And overnight, we saw lynn energy filing for chapter 11 and we were expecting the bankru bankruptcies to come, but expecting the m a activity to pick up, but is there a window there as the prices are rising the valuations are higher, and the Big Companies like exxon who have the cash are going to to be missing the window . Well, you are making a really good point in terms of what is happen ing happening in the u. S. Space, and yes, bankruptcies and lynn is the latest example, but there are going to be a lot of assets to take up, and we could expect m a to pick up, and right now sh, in the credit lines, to oil companies, and from the spring to the autumn, and a much clearer idea of the cash and the leverage that the companies will have to pick up some of the et better assets out there, and probably by the end of may and early june. We will will see if it happens, and harry from bnp pp b paribras. For your portfolio . Well, it depends which side of the aisle you are on. Well, Hillary Clinton has a doubleh digit lead over to the millionaire, but it a gap that is less when it comes to the millionaires, because 44 of them plan to vote for clinton in fall, and that compares to 31 for trum up. Millionaires believe that Hillary Clinton would provide a Good Opportunity for investments, and only 31 for trump, but it is a 6point spread, and the outlook is dependent on the politics much more so than the wealth levels. 82 of democrats believe hillary would be good for them compared to only 13 of republicans for a trump election. The outlook of the economy is going to be more gloomy for the republicans and 27 of republicans say that the economy will be weaker which compares to 9 for democrats. When asked who it would be better for the wealthy, millionaires say trump. Of course, being endorsed by millionaires is not a big campaign boost in the populous season, but they are the biggest donor donors. 1 in 5 millionaires surveyed have given to a campaign, and much of that to the democrats. Thank you, robert frank. We will be right back on that note with the latest from washington in a moment. Amazing sleep stays with you all day and all night. Sleep number beds with Sleepiq Technology give you the knowledge to adjust for the best sleep ever. Its the semiannual sale save 500 on the memorial day special Edition Mattress with Sleepiq Technology. Know better sleep. Only at a sleep number store. [martha and mildred are good to. Go. Heres your invoice, ladies. A few stops later, and it looks like big ollie is on the mend. It might not seem that glamorous having an old pickup truck for an office. Or filling your days looking down the south end of a heifer, but. I wouldnt have it any other way. Look at that, i had my best month ever. And earned a shiny new office upgrade. I run on quickbooks. Thats how i own it. Good morning. It is 11 00 a. M. In washington, d. C. , and 11 00 a. M. On squawk street, and squawk alley is live. I say dont you know you say you dont know i say good thursday morning and welcome to squawk alley, jon fortt and Kayla Tausche along with Karen Swisher executive director at rico, and it is so nice ois to have you here. And in a few minutes paul ryan is fwgoing to talk about the meeting that he had with donald trump. And our john harwood is outsidef of the rnc headquarters in washington. Hey, john. Hey, carl. Mr. Trump has left the meeting and his motorcade left, and he smiled as he left, and we have not seen the members of the houseer or the membership walk out of this entrance at