Transcripts For CNBC Squawk On The Street 20160701

We can see the s p looking some muted reaction this morning. Perhaps today will be a quiet day. How did europe do . Lets show you and see how it is doing. The markets wont close for a few more hours. There is a look at the uk. And germany and france. All of which are in the green. One week ago, a very different story, wasnt it, as you look, that still takes your breath away sometimes. 1. 419 on the 10year. Its 2016. Halfway through. Those people who get older, those ones, those guys who get in their like 50s and 60s have no place to invest. No kidding. No kidding. What do you do . Municipal bonds. Its a problem. Whats this we, you stuff . Ill be there soon enough. All right. Our road map this morning, starts with the first trading day of the second half where the market is heading as we turn the corner, oh, man, second half already. Hershey rejects a 23 billion takeover bid from mondelez. First we told you about that yesterday. The question now is, well what is next . What does the trust have to say . A lot more on that. Were going to get the pulse of the Auto Industry this morning. We got Sales Numbers from the big automakers that will be released. Phil lebeau will have them. Im not excited about this months auto numbers. No. Dont have a good feel for it. Talk stocks and maybe autos here as well. Coming off that threeday rally as we head into the second half of the year, resulting in whats a fourmonth winning streak for the s p. We have now five consecutive months of gains for the dow. Year to date the dow up almost 3 . Slightly better than the s p. They are tracking closely. The nasdaq, though, you can see weve talked about it, down biotechs continue to be a weak spot there. S p was the leader in the Second Quarter. That was up almost 2 . As we close the books on the first half of the year. Its now the fiscal year for many companies, organizations. Starts july 1. David, it was a period that if it werent for m a, i think and oil bottoming on february 10, february 11 i think it would have gone different and, obviously, the fed on hold with the fact that didnt really have we had a little nice run here based on what youre going to talk about mondelez, about starz and lionsgate. What im saying is that selfhelp takeovers where were the story because other than utilities and a couple big cap senior Growth Stocks there really hasnt been any. M a was a bigger story last year where we saw so many large deals. This year, many have been absent. The ones ive reported on havent happened, honeywell and utx which didnt happen and well see whether, in fact, hershey and mondelez really has a chance of happening. But, david, what i find interesting is that if you had you go back to last friday and the idea there could be a takeover, we thought that we were going to kr a credit freeze. There was no credit freeze because the actual we saw bank stocks go down but the credit market did not seize up. A lot of people came on air and predicted it would seize up. Its important to point out they were wrong. They were wrong. Its important. You know, were there a lot of people . It didnt feel like it people were worried somehow, even hate to use the al gory of lehman, but they were worried about that but seemed highly up likely and proved to be. Well, but look, i have to tell you when i look at monday was redemption day theyre calling it at bank of america. Global equity Fund Redemptions of 9. 5 million. Second largest dma ten years, ten years including the great recession. Thats empirical evidence that there was panic and i think that in itself just says you know what, another that was the worst day to redeem, the worst. The worst. What do you think of that. Why is that always the way it goes. Because people have no conviction. They buy high because its theres great momentum and when things go low they just panic because they dont know what they own. Tried to do education on the show but they dont know. We had james simons here yesterday, no longer involved in the daytoday management of Renaissance Technologies but more than any other person the man who created algorithmic trading, we dont just higher math ph. D. S, chemists, chemists, ph. D. S. I mean but thats whos running this market, jim. No volume and no people coming in and just saying i want to own 200 shares of amazon. The way that i when i was a broker at Goldman Sachs i would say i want to buy 200 shares of Berkshire Hathaway and you would say no, you have to buy the new jersey Turnpike Authority bonds. And they would you tussle over that and turns out that the Turnpike Authority bonds are great if youre ultrarich but im talking about finding Berkshire Hathaways. They are out there and weve seen them. Its not what people do anymore. That whole simon says for his part he thinks the market should be run by math geniuses who are programming and creating programmings to take advantage of price discrepancies based on historical relationships. Thats kind of where we are for the same reason if you like the german war youll buy the last days of berlin. Amazon knows and simons know. The machines know. Watson should be killing this market. Ibm. Watson. What would watson do if you put it in ibm. Would he short ibm. Thats a great question. I would like to ask that of watson. Make a note of that. I dont think ibm would be happy to have that question. You dont see that ad. Some stock guy, watson, what should i do. Short or long ibm. Actually do work with Financial Advisors to figure out the right allocations. Yes, and also the right suitability. Thats terrific use for watson. I want to move on to yesterdays story which is going to be todays to a certain extent and with fours a while and that is, of course, mondelezs quickly rejected bid to acquire hershey for 107 in cash and stock, something we reported on yesterday, of course, brought the price to you. Brought some of the conditions that mondelez was willing to offer the hershey trust. It was very quickly rejected. Interestingly, after months and months of negotiations, back and forth at least between the two companies and conversations, in which mondelez certainly was encouraged to think it had an opportunity here, and so somewhat surprised one would expect when it found itself on the receiving end of a press release yesterday, jim, that said, your indication of interest doesnt even give us a desire to pursue further discussions or a basis to be quote here specifically to pursue further discussions. 107 is not the price one might have anticipated if you were, in fact, mondelez. Yeah. There is ken goldman weighing in from jpmorgan. We expect mondelez to raise its bid. Our math it could go as high as 134 before the deal is delieutive. We think yesterdays bid was a starting point. What i know at this point so many moving parts here, you to remember that the trust is everything here. 80 of the vote private company that has a public they only own, i was incorrectly stating ta analystics. They statistics. They own about 8. 4 of the shares but the 80 vote is everything. Right. The relationship between the trust and the board of directors of hershey, when i speak to people who are familiar with that relationship and have tried to do deals in the past, its termed dysfunctional. Is it dow jones like. Thats a great question. It is thought to be dysfunctional or has been in the past. It may be better. One person who knows it well called it staggeringly dysfunctional a while back. Dysfunctional in heirs arguing with each other. Not heirs. A trust set up by milton hershey. Trustees, many of them its their only job. Sit on the trust and administer the funds and the economics which are the stake in hershey, the dividends received, and how to apportion the fund itself to provide for disadvantaged children. Thats their job. It doesnt mean that their thoughts are completely completely or in any way aligned with what it means to be a director on the board of hershey. Three of hersheys directors stand as trustees on the hershey trust. I know it gets complicated. Theres a look at some of the brands that mondelez owns. We understand why they might want to do it. Global chocolate empire. Willing to house our headquarters in hershey, pennsylvania, trying to appeal to the trust. Right now to your point about dow jones, nobody expects anybody would be silly enough to make the offer news corp did for dow jones, 60 bucks a share to get the family in line, but to that point, 10, many people this morning not only ken goldman at jpmorgan saying that was awfully low bid. That was. You got a lot to climb here, get the trust somehow to at least say, theyre willing to engage with their own board. You cant get the board to engage. 107 was not the number. Well see whether they choose to come back. More to get mondelez stock up . I have to tell you you ask all the great questions. I dont know the answer. Jim, if you were if you were somebody who wanted mondelez to be acquired, maybe even a board member. Or big shareholder. Or big shareholder. Like a hedge fund. Ackman kind of guy you say, or or youre a nelson, you say, you know, go for it. Go for it. But not going to bid high. What youve also done is potentially sent a signal out to the pepsis of the world, if ever wanted to do it now is the time because this company could get bigger and make it difficult and a different complexion. The ceo of pepsico is doing a terrific job and i dont think she needs to do this. She may have no interest. I dont know. But it does have that appearance. Mondelez stock was up yesterday, think it was up on the prospects of the potential deal or up also because of what youre talking about. I think that mondelez, i think its a shareholder base, they feel that roosevelt has to do something. I also feel that from the beginning this has been one they got in for transactions on people. Now that said, is it an underperformer . Its getting better, actually getting better. This is to the a static situation. I like mondelez more than i did a year ago. Right. But the idea of this, of a bid like the one that came out was fanciful. And that said were for sail sale, youre for sale, anything can happen. We want to do a transaction. You got a blair efron and food group. Youve talked about knowledgeable investment banker. How about kraft heinz. Kraft heinz needs to do a deal because they have no growth. No growth. General mills is beginning to get growth. They dont need. Mondelez regarded as a pantry company. It was a Good Opportunity in terms of the multiple right now theyre trading at given half of the considerations in stock. David youre making it sound like were going to hear Something Else but may not be with hershey. Well see. At this point what i can tell you mondelez hasnt figured out what it wants to do. There may be a Board Meeting on that subject. Do we raise and how do we proceed from here. They anticipate perhaps a better reception and maybe talk for a long time but never talk price and that may have surprised hershey when they saw 107. Why did it come out the last day of the quarter. The leaks. I know. We have to go because we have to hit auto sales on the other side. I had two more questions. Weve got a lot of directors resigning from the board of williams. Were going to tell you about that and why. Also, sara eisen has an exclusive interview with fed vice chairman Stanley Fischer. The heirloom tomato. When you cook with incredible ingredients. You make incredible meals. Fresh ingredients, stepbystep recipies, delivered to your door for less than nine dollars a meal. Get your first two meals free at blueapron. Com cook. Ford out with sales figures in june. Phil lebeau in chicago has the numbers. David, roughly in line with expectations. Ford sales in june rising 6. 4 . The estimate from edmonds. Com and an increase of 6. 2 . We got numbers from chrysler a few minutes ago. Theyre basically in line with expectations. Chrysler june sales up 6. 5 . The edmonds. Com estimate was for an increase of 6. 7 . Guys, the gm numbers in a little bit. I want to see what happens with these pickup numbers because ford, last month, guys, the fshgs series sales jumped 28. 6 . Pickups red hot for the auto groups. Thank you. Well check back in with gm. Want to remind people these are Big International companies so when you take your cue from just u. S. You miss the bigger picture. Latin america and china and youve got europe. So dont trade off of u. S. Good to hear the numbers werent a shortfall. Im worried about latin america. These companies are too big. Youre worried. Latin america is, to use your term, dysfunctional. And there are companies that have never been in venezuela which could sink anything. Speaking of dysfunctional want to focus on williams. Didnt think we would be coming back to this company after its deal to be acquired by ete, scuttled by a delaware court. There is an appeal under way but doesnt mean much of anything. Im sure you noted the journal had it but i can tell you no release from williams at this point that half the board of the directors at williams said see you later. Were resigning. We do not believe the current ceo of the company Alan Armstrong should be leading this company. We wonder significantly about the future of that company. We believe and im paraphrasing from conversations, of course, ive had not going to tell you with who, we needed a change at the top, how is this Company Going to be managed . Well, we dont know, but those did not have confidence in mr. Armstrong. They are the chairman of the company, mr. Mcginest, ralph izzo, a Public Company ceo on this board. Yeah. And the two hedge fund guys. Eric mandelblatt and Keith Meister from core vex. They have all stepped off the board of directors resigned because of what had been a series of missteps by this company. Not the deal with ete but the daytoday management of the Company Prior to that and there was a feel on the board that, of course, were going to change the ceo now that we will remain independent. That did not happen. Talking about a company that missed guidance for five years running some would say, gone from three times levered to six times levered with less coming in the door in terms of cash flow. And so they were looking for somebody to embrace a new strategy to a certain extent and they were surprised when they found a fight on their hands amongst the directors about whether mr. Armstrong should stay. No word from williams. Still waiting for the press lease from the Company Confirming what others have also the journal had and we can tell you as well. I need you to put this in context, viacom, new set of directors, williams, something new here that directors totally different situations. Unrelated. I cant draw necessarily a corollary. Viacom getting back together with cbs and kraft getting back together with mondelez . That is just bankers never stop. Forget shrink to grow. Grow to grow. The forget what i said three months ago. Ive covered the williams. Now remember a lot of individuals own these because these are great im curious what you think i want to make one point here which is that my understanding is that sorebun and core vex which own 11 of the company, maybe more, are not going to sell their stock. Obviously stepping off the board any restrictions that might have applied and varies board to board are no longer in the case theyve got one here, but theyre not going to sell is my understanding. In fact, interestingly, they may be put in the position of stepping off a board so they can actually try to get shareholders more actively involved, i use that term, to get rid of the current ceo. Thats a weird one. Wow. Activist investor on a board stepping off so that you can get rid of the current ceo. Meister what did he do with when he had that situation with adt. He got the company to buy. Company bought his stock when they stepped off. Right. Raises eyebrows. Left a bad taste. That is not the case here. That is not the case here. Certainly would not appear to be the case here. Overall, i know you know oil and gas, very well. The combination was a sweet combo. Too bad. You think its too bad. Do you buy williams here at 21, given the turmoil on the board and Everything Else . The leverage is daunting. Natural gas has been strong. Dont talk about natural gas enough. I just fear leverage in that group because i had my head cut off by Kinder Morgan. Just have to put it out there. I got Kinder Morgan very wrong and i just was hoping that rich kinder wouldnt have had to cut that dividend. He is a very shrewd man but didnt work. Kind of staying away. When you see turmoil like that in a board it might be a sign take a pause here. We will come back with jims mad dash as we count down to the opening bell. Take one more look at futures. Also a live interview by the way with fed vice chairman stan fisher coming up. Were going to have relatively flat open. We got six minutes to the opening bell and i can already smell the burgers and dogs on the grill for this weekend. Its getting closer. Or tofu if youre my kids. Sometimes a piece of research comes out that is just says people should go buy something now even though the near term may not be that good. A piece today about netflix. And its detailed geographic analysis to growth. It has people buzzing. What i like about it why i like this, subscriber growth should be strong in medium and long term. Next two quarters less certain. They basically told you, look, its not going to run into the quarter. Dont get excited about the quarter. I like this because it is a longterm story. This is about the idea that theyre going to not have an existential crisis against all the other companies we talk about say an amazon, and when like at this piece i say okay, those who want to know netflix, you should read this. Know what you own so when the next quarter comes out and its not that good you wont flip out and sell it which is what we were talking about the notion of panicking. This piece makes you feel better about netflix if you want to own it and they just raised my netflix bill. They did. 9. 99. Im up there. I was one of those charter guys. Right. I pay 12 for it. Reed hastings, i would pay more for that and more for amazon prime. Bezos clearly watches the show. Of course. What else is there to do, 9 00 to 10 00. Hes in seattle. How do big ceoss get anything done in the morning with our show . I dont know. 9 00 to 10 00. I dont know how bezos gets anything done is beyond me. Opening bell in four minutes on this friday. That live interview with fed vice chairman Stanley Fischer and a lot more. We are team herc. [ applause ] at pg e, we believe solar should be accessible to everyone. 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The opening bell is sponsored by youre watching cnbcs squawk on the street. Were live from the Financial Capital of the world. The opening bell will be ringing soon, 45 seconds or so if you want to keep track of those things, jim. Right. Does give me enough time to ask you the question i do, which is, key to this market full trading day today . Im going to say theres a bear call about amazon. Amazons been the strong one, the fang of that group, saying theyre under indexed in clothing, home and kitchen, health and beauty and grocery and office equipment, under pren trace meaning that the next leg of the destruction of retail is about to occur. Very important piece, smart piece. Next leg of the destruction of retail. Destruction of retail. It has been a rough year. You hear the opening bell, of course, here at the nyse. The big Board Construction equipment rentals, herc holdings. Celebrating its first day of trading and first day as an independent Company Operating as herc. We are. Rentals. We are. Team herc. Who would have imagined they get so excited about equipment rentals. Good for them. As you or i as you know, i think a lot of people are thrilled at the gm numbers, thrilled to be separate from get to nose. At the nasdaq the u. S. Navy marine corps and captain john mustin rang the bell. Phil lebeau, give us gm now. David, june is shaping up to be a month with few surprises. Gm sales last month falling 1. 6 . Thats basically in line with expectations. The estimate out on the street was for a decline of 1. 3 . Two pieces of information we need to focus on today. First of all General Motors its estimate for the Industry Sales rate last month, 17 million, a little on the low end but basically looking at a relatively strong month in terms of the pace of sales. The other thing people will be focused on today what do the automakers say during the sales Conference Calls about production schedules for the second half of this year. If we start to see inventories backing up a little bit, are they going to start trimming those production scales. As you know in the Auto Industry, as production goes, so goes sales. Thats going to be the focus as we get more of these numbers and the Conference Calls. Guys, back to you. Thank you very much, phil lebeau. Jim, you know, i feel like im not quite sure where you stand on gm these days. Value trap. Because of the longer term things that we talk about in terms of autos. They need if china were to catch fire again, i think that they would take a look at it. David, the world has changed when it comes to cars and millennials and dont buy them the way they used to and they need new innovation and uber has changed the world. And i know that ubers private so we cant get a beat on it. People say uber doesnt make money. People say listen, uber the drivers its an issue but they dont the love affair with the car, which we thought would never end in this country, it can end ultimately. The numbers look good right now but the stocks are telling me to ignore the numbers. I tend not to want to do that. They could raise the dividend and raise the dividend and thats what you have to hope for. Feel like the bank stocks. Now ford is doing better than gm i think. You do. Those truck numbers were quite strong. Ford has as phil said, the 150 is iconic truck and i bought a 350 which is called the super duty. Dont call it the 350. Mar marvelous. And the aluminums are such joy. Just joy. There is a nature to what ford has in its lineup. Gm when they put that money with lyft wasnt that to some degree a recognition of the future. It was. You want them to recognize the future. You want them to be willing to say okay we have a sense as to where things are going and were not going to let ourselves become but then you have it tesla which is obviously not a trokle diet but in the news for a tragedy for a driverless car and we talk about that. That is maybe what could help these companies at the same time. You dont just abdi gait your responsibility. Dont want to blame we dont know what happened but the idea of driving we know something. Apparently the gentleman in question unfortunately was in autopilot mode, may have been doing Something Else and it ran into a a truck that was apparently a color difficult for the system to record as anything against the backdrop of the sky. Again, im just relying on what ive read. I did too. When i went to the ford plant where theyre working on Driverless Cars, they have laser pulses trying to figure out when to stop for people. We did not discuss the idea the laser pulse could necessarily be lets say fooled by a certain particular background. Theyre not ready yet. But they will be. They will be. Remember, its really important to keep things in context. Drunk driving. If you can get rid of drunk driving and have Driverless Cars you would cut the fatalities dramatically. If you were to stop texting and had driverless, cut fatalities. Dont want to write this off by any means. The fact that theres only one is somewhat amazing. Yeah. And yeah. I want to take a look at a stock from yesterday that we talked about which was lionsgate, which when you and were on the air was performing well. Soon after it started to decline and declined today also. You know, the Conference Call did not leave a lot of people feeling great about that deal in which lionsgate is acquiring starz. I did want to take another look. Levered at 5. 5 times, paying a high multiple, 32 minute Conference Call. There werent a lot of followup questions. Some questions about the tax structure of newco which is going to be a canadian company. And, therefore, somewhat something of an inversion although i mean starz is getting bought. Yeah. But no operating synergies in operate rating synergies in year two or three. Didnt make people happy. No. That was a stunning reversal. Lionsgate really was, you know, they just they needed this, maybe people dont realize that there was lionsgate was twice where it is now last year. More than twice. That was its one, unlike a lot of other companies we follow, where the movie slate did determine the stock price. Couple movies coming out this weekend may not be that strong. Tarzan may not be that strong. May not be. Does that advance advance word you have heard on tarzan. [ inaudible ]. Good linage to know about movies, that gentleman. That young man. True that. True that. I did want to look at hershey again because the stock ran up dramatically yesterday on news of this bid from mondelez. A bid that is far below even the 111. 37 stock price right now. Of course jim, that has people wondering, well, is mondelez going to raise . As i reported earlier their board i think is meeting today to try to consider next steps here. And as weve said, so many times, well continue to, even if you were to somehow give the board a bid they felt more constructive about than they did, at least the last one, nothing says that its going to get the attention of the trust. Despite what are, as i reported, the willingness of mondelez to change its name to hershey, to headquarter their global chocolate business in pennsylvania, and to keep all manufacturing jobs in the state as well that are currently there. Is it not telling mondelez is up again today and hershey coming down, that when you get the frenzy, remember the late alan from drexel, when you get that frenzy, food tremendous Food Research analyst, when you get the frenzy in the food business they all talk. General mills, kellogg yesterday, Extraordinary Movement in the stock. Smucker. Amazing. Goldman has a sell on it now for huge number of points. These guys all talk, david, and they all like to do deals because their growth in the stores is not great. Remember theyre not creating new aisles. A lot of these companies, cereal may have turned around but a lot of Companies Make goods that i hate to just emphasize, these millennials but millennials dont have the same food habits as i mean we had velveeta when growing up and, you know, i guess that was because at the time the russians, we had an arms race with the russians and knew velveeta would survive a Thermo Nuclear war. Why else did you that. We had cheese whiz. We were going to pat steak. He was the king. But genos is the king. Can cheese whiz. These are older brands and. To need to move like sharks. To stay alive. Sharknado. They are pen state some. I dont know. Herc believes in teamwork. Good. Were proteamwork. Were about teamwork and apparently so are they. They kept the old hercs colors. Thats good. Caterpillar that kind of color. Yeah. Hertz is that. Who else is that color . What about hertz . Thats a alpha name some. Yes, it is. Delivering no alpha. Negative alpha. Unless youre short in which case you delivered a lot of alpha. That was not the case being made. Apple possibly buying something i know. Something thats nothing. We didnt mention micron. Conference call such a downer. It kind of threw cold water on the thesis. I dont by the way im not giving up on the stock. They were too negative in their cold water. You do. Microns on the call. Like im i think that the flash side is better. The d ram side is bad. Personal computers. Personal computers, david, are talk about which dinosaur did you pick them . Trok go diet. This is a vel loss raptor right now and they didnt survive jurassic period. And theyre not. Personal computers are going away. Amazing. Theyre like dial phones. Yeah. Remember when they used to have exchanges like murray hill. Yes. Well that actually even predated me. What a book. John ohara for people who want to read over the weekend. Get that. That was when elizabeth taylor, only did she look better than in butterfield cases. She had her moments, quite a few of them. Larger than life. Never met her. My bad. Yeah. All right. Basis points bob is on the floor. What a week weve had. Its been a long week but many long weeks and still dont still not clear exactly whats going to the effect brexit will be. What we have today is a mixed open, 50 50, advance to decliners. The sectors split, five advancing, five declining. Banks a little weak, but health care, energy, telecom, utilities, every day, slightly to the upside, defensive names here. The big debate whats going to happen in the second half. Make it simple for you, the bulls are arguing its a long, but there is no alternative to stocks, the bears are saying, earnings and valuations are way too high. Put up stocks in the second half. Thats where the debate is right now. What do we do here . So the whole argument about tina is a long in the tooth right here. The hyg, sectors that are moving here, a lot of interest in whats going on in alternatives to stocks right now. Anything with high yield. The hyg, 52week highs. The high yield index. Municipal bonds, the mub, etf for Municipal Bonds. Sitting near a multiyear high or 52week high. Big inflows into high yield as well as Municipal Bonds since the brexit thing. Alternatives to stock. Interest rate sensitive sectors still stocks but on the Interest Rate side theyve been the market year throughout the year with reits, telecoms leading here. The bears have one thing right due to brexit. The earnings estimates for several key sectors are too high likely going to have to come down. Look at the xlf financials, for example, we know that the lower for longer scenario is definitely going to be an issue in the second half of the year. This would imply the current earnings estimates for many of the banks and other Financial Services groups are too high and are going to have to come down here. Then you have the whole other issue of the dollar. If we get a stronger dollar, we know what happened at the end of last year with materials, with industrials, with energy stocks. They all had big problems in their sectors when the dollar went up. We saw a spike in the dollar at the end of last week. Its still not clear whether theres going to be any kind of longterm trend on that but i can tell you thats got people worried right now. Throw in lower for longer and financials and the dollar concern in materials and industrials and energy and we will have to see some of the estimates coming down here. The problem is, if you look at the q3 earnings estimates so far its pretty darn close. Weve had five consecutive quarters of negative Earnings Growth on the s p 500. Were supposed to go positive in the Third Quarter. But all we need is a few companies in the sectors ive mentioned and were going to go negative very, very quickly in the Third Quarter, the numbers are stronger for the fourth quarter, i think you get my point here were on the knife edge right now and could go into six consecutive quarters. Five quarters of down we havent seen that since 2008. To 2009. So heres the way im looking at this thing. The best Case Scenario right now i look at multiples the 2017 earnings for the s p 500 its 135. We all know this is optimistic. These are the optimistic numbers. Put in a normal multiple, normal is 17, 2295 on the s p 500. Were at 2100 right now. Were only 200 points away from that. The way i look at it, in an optimistic scenario for next year, the s p has 10 upside from here. Is that bad, that is great . Its not bad. 10 in a year is not bad number at all. But it requires a lot of things to go right and the bears are certainly got a point here that its very easy just a few things can go wrong and that number goes down very, very quickly. Right now the dow up 30 points. David, back to you. Thank you very much. Bob pisani. To the bond pits, check in with Rick Santelli. Cme group in chicago, rick. Good morning, david. Where do yields stop who knows. Central bankers who knows. We settle at 156 last week and that, of course, was ten basis points bewho had been the low close of the year from february 166 not to mention we closed few whiskers under 230 at the end of last year. So you see the oneweek chart there, maybe even more intense. Lets look at a oneweek. Thanks goodness mr. Carney said that theres more liquidity needed. You dont want these unruly Interest Rates to go up. Look at whats going on there. Oneweek of gilt. Brexit, toying with 140, now settling in the mid 80s. But i think we want to go to switzerland not to ski but look at what is now the poster child of negative rates. Because the entire swiss curve from the very short one year, which is now minus 103, all the way to the long end of the 30s, minus 08, what were showing there, is a 10year chart which is close to minus 60 basis points. Now, the swiss have the newsweek arrangement because of it unique arrangement where theyre located and can work around the rates. Not everybody is going to be lucky. Lets look at a pound shall we. Look at a twoday of the pound we can see when carney was talking yesterday it had a little push off the lemg, and if you open the chart up to basically one month on the dollar index, yes, weve had a jump bund expected but it has been capped and i still continue to stress, were higher at the end of last year. Back to you. Have a great fourth. And to you, mr. Santelli. Thank you very much. Coming up, a live and exclusive interview with fed vice chairman Stanley Fischer what he has to say, of course, and going to be telling sara eisen. Squawk on the street back right after this. Rico confirming apple is in talks to acquire title the service run by jayz. The discussions two years after apple paid 3 billion to buy beats electronics. Dr. Dres did pretty well in that deal. Dr. Dre did well in that deal. Yesterday you and i, apple, will it do a large acquisition. I wasnt talking about this which is going to be if it happens very, very small. Yeah. Helping the apple Music Service. Not going to help the Service Revenue stream which is what i want to stay as positive as i am on apple. Without that Service Revenue stream, youre going to be a stock thats people say secular decline, period. You know, a value trap. The margins will be hard to expand. Im not going to disagree. My longterm thesis is because of the service stream. Right. Amongst them the Music Service which is mixed reviews. If you want to do an acquisition there are companies you can pay for in that and companies you can pay for in movie streaming and a lot of things to do. Im paying amazon whatever it is 99 for prime and getting the movies and music is good too. Ive been streaming that lately. Do you do the button. No. That seems silly. The wife wants a button for tide and quilted northern. Is it that hard to do it comes say day. Across the street is a rite aid. Wants to take the toilet paper from here to there. Not such a hardship. No. Save the boxes. Save the shes amazon prime, is more important in many ways than the dogs. I often question if i am i could be you know what i am, a simulation. I understand. Keep feeling im a simulation. Were back to that. You still come on. The second half of the year, time to move on from the simulation thing. Get elon musk out of your head. I cant. 50 chance im a simulation. Get him out of there he was messing with you. He succeeded. Up next, well try to get stop trading out of jim whether hes a simulation or not. Sara eisen with the big interview. Who do you have . The view from the fed, good morning, david and jim, how is the fed thinking about the brexit fallout and will it have an impact on policy vice chairman of the Federal Reserve Stanley Fischer joining me at the top of the hour. Treasury yields hit lows this morning. Squawk on the street will be right back. For decades, investors have used a 60 40 stock and bond model, with little in alternatives. Yet alternatives can tap opportunities that traditional assets cant. And even though theyre called alternatives, theyre actually designed to help meet very traditional goals. Thats why invesco believes people should look past conventional models and make alternatives a core part of their portfolios. Translation . Goodbye 60 40, hello 50 30 20. The light bulb, a bright idea if you use the right ones. Led bulbs use 85 less energy and last a long time, saving you up to 100 over their lifetime. Heres an idea replace yours today. [light instrumental music] replace yours today. Thank you. Ordering chinese food is a very predictable experience. I order b14. I get b14. No surprises. Buying business internet, on the other hand, can be a roller coaster White Knuckle thrill ride. Youre promised one speed. But do you consistently get it . You do with comcast business. Its reliable. Just like kung pao fish. Thank you, ping. Reliably fast internet starts at 59. 95 a month. Comcast business. Built for business. Time now for jim and stop trading. Yesterday visa and mastercard rocked by a Court Decision overturn of what was a longterm finally out of our way decision involving merchants versus these two and to have it reopen again caused the stocks to get killed. This is not meaningful on a earnings basis. It is a headline risk story. Everyone was afraid that this thing would happen. My understanding is both companies are doing well right now. So those who want to dump them on this, i think again thats just emotion. You know its funny emotion taking over. Divert from stock trading on the subject, hpa wins the case against oracle, 3. 1 billion judgment the stock up but expected to be appealed. Same kind of story there . Yes. Yes. I have that was a Court Decision last week major testimony by a lot of the big shots at oracle. Hp continues to impress and oracle did have a good quarter. A lot of the companies have low multiples and intriguing to me for the Third Quarter. Hp in particular. Meg whitmans has done a lot of good, not done. Up 21 over the course of the is year. Last year a tough year for the stock. And horrible. All right. What do we have on mad tonight . Okay. We are rating good reaction to our rating of the department stores. Were going to rate the restaurants today. I have to tell you, of course game plan, david, the restaurants are challenged. Very challenged group. Darden did not do that well, buffalo wild wings, popeye did all right, sonic, mcdonalds. I went over the darden quarter and they talk very highly about it but i was not happy with the olive garden numbers. So its a challenge group and dont forget, the wages going up, food costs minimally up but we will reorder because theres great reordering in that group. Day. Ha okay. Have a great long weekend. Happy independence. To you as well. 240 years. Not bad, man. Were just getting started. Every so often we have a rough patch. When we return sara eisen has the interview with fed vice chairman Stanley Fischer. Keep it right here. Good morning. Welcome back to squawk on the street. Im david faber. Sara eisen is in washington, d. C. Shes going to be speaking exclusively to fed vice chair Stanley Fisher in a minute that will be coming up. Joining me is mike santoli. A look at the markets now. There he is. Well go to the markets and oil take a look. We well were coming off what has been certainly a very interesting week for the broader averages as you can see. Once again, up this would be the fourth day in a row where we would end higher. Manufacturing. We will see 53. 2. If that is the case. Lets get to Rick Santelli in chicago. He has breaking data. Thanks, well go in Chronological Order the pay date is down 0 may date down 0. 8 . Huge month over month change for Construction Spending that follows a minus 1. 8 revised to minus 2 from last look the worst since going back to january of 11 and minus 8 is as bad as the last revision i pointed out. Lets move forward in time shall we. The june read on ism. Here we go. It is 53. 2. And that is better by a couple of points. Looking for 51 handle. 53. 2. How does that stack up . Thats actually the best number since february of last year. Since february of last year. Go through internals. One week from today what are we going to be looking at. Employment figures to that end, 50. 4. We jumped above the expansion line versus 49. 2 on the Employment Index and that all, indeed, is good news. If youre looking at 30year, were toying with new alltime yield closes but nothing seems to be as wild as the 50 to 60 basis points ride. The gilts have taken. All working back and forth affecting each other. European rates, the entire swiss curve negative. David and the gang, back to you. The entire swiss curve is negative, rick, thats freaky. Yep. All the way out to the 30year. Unbelievable isnt it. It is. Somehow i think as much as we talk about negative rates, still cant quite figure it all out. Rick, going to have a guest coming up im sure sara will be asking about. She is in washington and she is joined now by that guest. Sara . David, thank you very much. I am pleased to welcome back to squawk on the street Stanley Fischer. The vice chairman of the Federal Reserve. Good to see you as always. Good to see you, sara. We got that better u. S. Manufacturing number but, of course, we start with the brexit. What was your reaction and going through your head when you saw the referendum results last week . I saw them at 2 30 in the morning in europe and i decided i better go back to sleep because it didnt look that good. Didnt look any better when i woke up a bit later. First reaction was surprised but extreme surprise. Does it change the u. S. Economic outlook . Were going to have to wait and see. It clear ly is a huge event for the uk and important event for europe. Our direct trade with britain is not is not going to make a huge difference to us, but it could set off a lot of things that will follow from bex for europe for the United Kingdom and those are the things we have to be thinking about. Like what . What are you worried about specifically . How quickly does the british economy reach its new configuration with new trade and so forth. That could take a long time. They could manage the negotiations well. We just dont know. And then there are the concerns about implications of the british example for other countries. Its hard to model that sort of political heightened Political Risk as an economist. How do you do that . Well, if it was just general Political Risk, you could sort of make an adjustment, but when its something thats going to go on and unwind over the course of time, its much harder because youve got to think of what are the things that could happen when. The stock market has staged a remarkable recovery that continues this morning after a very sharp selloff on friday. The feeling that Central Banks have the markets back and thats one of the reasons. Is that true . Well, the markets Pay Attention to what they think were going to do. As they anticipate what they think were going to do, they sort of put our expected actions into play and if they get it right, sort of theres a more smooth introduction of what the central bank is going to be do. If they get it wrong you have to readjust quickly. Fear that if it does slow, the u. S. Economy, which is already not experiencing super fast growth the Federal Reserve is limited in its fire power to fight it . Yeah. Well first of all, the u. S. Economy since the very bad data in may on employment, has done pretty well. Most of the incoming data look good. Now you cant make a whole story out of a month and a half of data, but this is looking better than it had before. As we consider the effects of brexit we have to put that effect on the u. S. Together with what else is going on in the u. S. Economy and probably the other thags are going on. More important for the u. S. Outlook, not for the european outlook, than brexit or by itself. Does brexit at least raise the probability of a global recession . Well, i mean its another negative effect and depending on how well, its handled by the Central Banks and the governments of the uk and europe, its negative and it could be the degree to which its negative depends on policies as well. You sound relatively upbeat about the prospects for the u. S. Economy and yet, the market isnt pricing in any more fed tightening for 2016, barely 2017. Yeah. Well have to wait and see how things turn out. Im talking about the last few months. Weve got to look over a longer horizon than that before we decide what to do about Interest Rates. Theres actually a view that the fed could be more likely to loosen or ease policy before it tightens further. What would it take to get to that point . Well, we make our decisions one meeting at a time and were watching closely and i think at the moment, were preparing. I know at the moment were preparing for the end of july meeting and well see what has happened by then. And if you had to make this decision last friday instead of after the events of this friday, probably would have had a different view of the situation. Do you think you can get a full picture of how the brexit has impacted financial conditions by the july meeting . I think well have a better picture than we had a week ago. George soros told the European Parliament this week brexit has unleashed a crisis in the Financial Markets comparable in severe toy 2007 2008. Is he wrong . George soros has made a lot of money in the markets so hes been right quite often. I dont particularly want to comment on whether hes right or wrong this time. As for the fed policy path which we were talking about, there was a change in tone from the june meeting. A big shift in the path of rates lower. Can you talk a little bit about why . Well, we had just come off a very negative employment number that was for april and we saw it in may. And so that was a cause for concern. So that had an influence on im sure on what we decided and we were thinking also brexit. Is the concern there i mean it was two months in a row of weak jobs numbers, weaker than expected. Is the concern its a signal of broader slowing in the jobs market than the overall economy. I dont think it was two in a row. I think the 160,000 we saw in april was more than adequate to keep employment rising. I didnt think of that as a weak number. It was less than we expected. What we expected was extremely strong. I think this is a strong number. How much is the dollar a consideration right now in terms of raising rates into what is a global period of uncertainty and stability and global easing . You know, we have to take a whole host of things into account. The dollar is actually weaker than it was at the beginning of the year. It has it strengthened remarkably. Well not even remarkably. It strengthened after the brexit vote and its coming its come back a bit and its very hard to predict the exchange rate, though we take it into account. I guess what im wondering is how can you raise rates in an environment when the bank of england overnight suggesting that its going to have to ease further. A lot of people say the ecb will have to ease further after brexit. How can the fed lift rates in that kind of environment . Well, we have the different economy. And but the worlds currency. But our primary obligation and its set out in the law is to do whats right for the American Economy. Of course we take what happens abroad into account because it affects the American Economy and in general when we do things good for the American Economy it helps the others, but well base what we do on what happens in the whats happening in the United States and what we think will happen. We do have sub5 Unemployment Rate and inflation is moving closer and closer to your target. So then where is the hesitation coming from . Well, first you made me hesitate and now youre saying where is the hesitation coming from. Hesitation is coming from precisely the factors you talked about, we got hit by something, still evaluating it, my guess is its less important for the u. S. Than the countries directly involved, just logically so, and well wait and. What do you make of the epic bond rally we have seen the 10year treasury note and the 30year yield this morning to record lows . People listen to some central bankers they would listen to Governor Carney is highly respected, he said something that probably he means, when he means it it means its likely to happen. And theyre thinking of the logic of this situation. I think our case is not exactly the same certainly not the same as the british case or the european case, so we may have a different perspective when the time comes. At the moment we dont have to make up our minds. Do you see a world where the u. S. Treasure yields could go into negative territory. I think switzerland is negative out the curve . One of the things you learn is if youre a central banker is never say never. One thing we dont want to do, its we have no plans to move into negative territory and we will try to avoid ever getting to that position. Do you see it as a policy that doesnt work . There have been some doubts about whats been happening lately. Its certainly worked well, it certainly worked early in its usage in europe and in japan, but lately, there have been some questions about it and the most recent empirical results that come out of the data and we havent xhangds our minds changed our minds as far as we know but we look at it all the time. What else is in the tool kit that would be more pref rable to negative Interest Rates . Well, i mean, theres a whole lost host of things we did in the years 2009 through 2014, purchasing securities, quantitative easing, making statements, decisions about future Interest Rates, forward guidance, and so forth, so theyre all there. They worked. And i dont think its worth speculating on whether we will be driven to any of that. I hope it goes the other way. I hope that we strength and that economy strengthens and we continue along the slow, very gradual course weve been on and that the rest of the world is recovering in such a way that wouldnt create negative reflex effects on us that would have to be taken very seriously into account. Well watch all that. As one of the factors that youre watching globally china. The chinese currency is back to 5 1 2 year low. We saw what havoc that wreaked on Global Markets in the beginning of this year. Well, an unexpected change in something has frequently larger effects. I think were beginning to understand how the chinese plan on using on fixing the exchange rate. It seems a logical process. Well just have to clearer this time around . Its clearer. Theres much less uncertainty. Much less concern. The chinese themselves have got themselves more organized, if we can say that. Policies look more coherent. So its a better situation and still growing very fast, but not as fast as they have. Were thinking of well everybody is thinking 6, 6. 5 . Growth for china . Yeah. I wanted to ask about these market moves. Gold has had a nice run this year. Some of the safe haven yield paying stocks like utility and telecom. Does it make you wonder about whether the market is losing faith or a little confused in the fed policy path . Well, but those are things that would happen normally. Normally in a period of great uncertainty. So i dont think that thats particularly losing faith in fed policy on average. Were in a situation now where there are a lot of things going on. And people are looking all around to see how they can hedge against possible problems. Is that is the uncertainty whats holding back u. S. Growth . How do we get out of the sub2 or 2. 5 level. Technically we have to get something moving on productivity growth and thats not something were good at doing. We dont know precisely how to do it. And were all trying to find out whether whats going on is a longterm change or a result of the cyclical situation. Well get that right at some point. And when that changes well go back to higher rates of growth. But it really turns on productivity. Weve done everything we can and weve got achievements on employment. But productivity isnt going up and thats the remaining big factor in growth. If this is a longterm secular story, stuck in low growth, as yellen seems to hint more so in her last news conference, what does the fed do about that . Well, we can run as good a Monetary Policy as we like, but we will not have a direct influence on productivity growth. I mean, be more predictable, et cetera, will encourage more investment but it isnt going to make an enormous change. People have to get more were looking for more investment to help get productivity going. Do you see the u. S. Election this year as a potential source of uncertainty for business, hiring and investment . Well, it certainly is. Unless you can tell the outcome already, it is a source of uncertainty. Its not a source of additional uncertainty if any, about Monetary Policy. We will do what we have to do in accordance with the law. We are not going to get into oh, its the elections, we cant do anything. I just wonder because part of the reason for hesitation last time was the brexit vote. And the uncertainty with that outcome. So its going to make a little harder this fall, i would think. Thats thats a good thats a good question. But we were not trying to influence the brexit result by taking night account. So if we see that for some reason, which i hope we dont see, the elections costing vast uncertainty over the economy, well certainly take the election into account. Not because were trying to do something to make the result outcome differently. Stan fisher, always good to see you and get your thoughts on a variety of issues. Well thanks a lot, sara. The vice chairman of the Federal Reserve. Well send it back to you guys at the stock exchange. Thanks very much, sara. Very interesting to listen to all those comments. What struck you . Obviously does not want to at all consider negative Interest Rates in the u. S. As a tool they want to reach for. Obviously. Wait and see was the way he put it in terms of how the brexit is going to affect the u. S. Economy and a gentle Economic Outlook and that seems to be the general tone. Vice chair fisher was always kds to be somebody pushing maybe the fed to hike quicker, sooner. Hes focused on making sure the Financial Markets dont get overconfident and dont have those distortions. Hes saying that jobs report that was weak from may plus the brexit risk, kept the feds fed on hold and changed its language a little bit. I did find it interesting he characterized the 160,000 jobs created in april as more than adequate to essentially keep employment going in the right direction. Hes in a sense saying if we get something in that range maybe the fed gets back on track. When do we think that would be . I think thats where the estimates are going in terms of but you have to believe it would take multiple months of Something Like that for the fed to turn it. Just doesnt seem like a lot of the fed officials rhetoric has gotten them into a place where they could be poised to change that course again or kind of drag the markets expectations back to lets say july or september certainly. Right. Rick santelli is in chicago. Rick, of course were almost back entirely in terms of the losses we saw in the equity markets. But that 10year yield perhaps that will be the one outcome of brexit at least a week later. What are we, 1. 41, 1. 4 in there, your thoughts after hearing mr. Fisher . Well, listen, if were in a calm time, i think hes perfect. Hes reasonably, highly educated. Were not in calm times. He seems like a status quo perpetuator to me. Heres what i didnt hear that i would like to have heard more about. The fact that janet yellen threw up white flag, thinking everything is cyclical and structural. They dont have a reach too this arena, into this universe, so all these years of all this policy, really, really didnt do a whole lot to be truthful. And the Biggest Issue of all, they talk in meetings and they are now the main regulator for systemic risk, too big to fail, but to me theres a risk way bigger, its them. Policy confusion, policy contagion. There are risks. Were a risk to Mario Draghi Mario Draghi is a risk to us. Abe nom micks. The bank is at the doorstep of all these central bankers. He said our goal would be more productivity. Negative Interest Rates, what, approaching 12 trillion, the swiss curve negative, but all these central bankers, put them in a room and ask them one question, this is going make somebody more productive. Calm person, m. I. T. , know house to work the models but the models arent working and i dont think he addressed the big issue, maybe they are the problem, maybe mr. Carney shouldnt be promising likt weiy when the rates have moved down 60 basis points and currency down 11 . Thats what i wish i would have heard. All right. Thanks rick. We will be checking back in with rick. Mike, it hasnt gone unnoticed the equity markets are here in the states almost back exactly the levels we saw before the significant losses last friday in reaction to the vote by the uk to leave the eu. Its amazing. If you remember going into it everyone kind of said look, maybe it will create a short selloff but that bill be a buying opportunity. People seem to act on that although it seemed like a spas m of defensive action flows out. Jim mentioned the flows out of mutual funds the strongest weve seen in ten years. People seem defensively positioned. It wasnt as if we kind of went into this with people expecting great things from the stock market but the thing is the way the yields are so compressed around the world, thats, by default, seemingly helps stocks. Coming to this week, twothirds of the stocks in the s p 500 yielded more than the 10year treasury. That hasnt changed even if stocks have gone up because the 10year treasury has actually inched lower. As we pointed out and said earlier, its 1. 45 you see it in front of us. The banks have suffered. And the mixed bag again given their inability to get Net Interest Margin has been a key consideration. There was a while we saw a bit of life to them when it appeared we might actually get a couple moves from the fed this year. Thats seemingly not going to be the case. Arguably yesterday they did have a lift after the news on the buybacks and dividends but probably less than you might have expected because of that trap there with the low yields. Yeah. Coming up postbrexit london could be losing its place as the Financial Capital of europe says jim stewart from the New York Times and join us later in this hour. Squawk on the street will be right back. Welcome back. Send it over to dominic chu for a market flash. What do you have. . Good morning shares of micron one of the worst performers in the market today. This after the computer chipmaker reported a smaller than expected loss than analysts were looking for on average yesterday after the bell, but sales did miss and so did its forecast. Micron said its going to cut jobs in an effort to lower cost, given a softer demand environment for memory chips and stiffer competition for flagship products. Down about 10 . Shares to watch. Back over to you. All right. Dom, thanks very much. Coming up, fed stock down but the market is up. The dow just about 25 points away from where it was the night before that brexit vote. Basically, were all the way back to the s p 500, 2107, it was at 2113, weve done a round trip. The Third Quarter is starting today. What to watch in the second half of the year. Coming up in a moment. Squawk on the street will be right back. At td ameritrade, they work hard. Wow, that was random. Random . No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Tmom didnt want another dog. She said its too much work. Lulus hair just floats. Uhh help me doorbell mom, check this out. Wow. Swiffer sweeper, and dusters. This is what im talking about. Look at that. Sticks to this better than it sticks to lulu. Thats your hair lulu mom, can we have another dog . laughing trap and lock up to 4x more dirt, dust and hair than the store brand stop cleaning. Start swiffer ing good morning, everybody. Im sue herera. Your cnbc news update at this hour. The Justice Department says attorney general loretta lifrp will accept whatever recommendation prosecutors make in the investigation into Hillary Clintons use of a private email server amid controversy surrounding a impromptu private discussion lynch had with former president clinton. About a thousand workers at atlantic citis trump taj mahal went on strike ahead of one of the biggest weekends of the year. Trump taj mahal is owned by carl icahn. Iran staging its antiisrael alquds rally. Protesters condemning the Israeli Occupation of the palestinian territories and chanting ket to israel. Tens of thousands marching in the capital of tehran. In germany a 25yearold syrian refugee handed over to authorities 166,000 cash he found in a cup board he bought from a charitable organization. The man said it was against his religion to keep the money. That is the cnbc news update at this hour. Back downtown, mike, back to you. Thank you, sue. Markets in the green as brexit concerns push the treasury yield to record lows. Stocks actually almost recouped all the prebrexit losses. This is the best week for the s p since october 2014. Vice chair Stanley Fischer joined us a few minutes ago and heres what he told us. A whole host of things we did in the years 2009 through 2014 purchasing securities, quantitative easing, making statement statemen statements decisions about future Interest Rates and forward guidance. They were all there and worked and i dont think its worth speculating on whether were going to be driven to any of that. I hope it goes the other way. I hope that we strengthen and that economy strengthens and we continue along the slow, gradual path and the rest of the world is recovering in a way that wouldnt create negative reflex effects on us that would have to be taken very, very seriously into account but well watch all that. Joining us now is the director of global macro at Fidelity Investments and barry, at stee fold nicolas. What did you hear from Stanley Fisher in terms of the feds poo feds posture with regard to the economy and delayed good morning and hi, barry, how are you. So the markets have basically declared the fed cycle over. Youre starting to see some rate hikes priced in 2018, but thats like dog years here. Nobody can look out that far. At this point for the next year or so, the market is basically declared the fed cycle over and when you look at it from a flow perspective and if you believe that the fed started passively tightening in mid 2014 when it exited quantitative easing, by some measures the fed has gone a full tightening cycle, 300 basis points according to the atlanta fed shadow rate. The market is happy with this assuming it stays this way. Well, i guess barry, first of all, do you think the market is correct in believing maybe this is where the fed stays indefinitely and what are the implications there for investors . I would echo the view about the shadow fed funds and the full rate cycle. Were not quite done. I think 400 basis points cumulative rate cycle was the end of the fed tightening, perhaps more in line with fed funds futures by 2018 but i would agree with that view that weve already had a substantial tightening. So weve already had a substantial tightening, meanwhile the 10year note at 1. 45 or so, it seems like this kind of global quest for anything yield in income whatsoever is whats largely driving stock prices here. Is that all we have to know in terms of being a stock investor . No. I think what youre witnessing is global deflationary pressure. The upside of pop pew lifrm government gets out of the way and ceases to be a fiscal drag. They will be more forthright in dealing with the problems like the italian Banking System and the eu. Abe will have a nice fiscal package by the end of the summer. China doing its fiscal part. After our election well just see. At this point i can lend the swiss government money at virtually any maturity and not get my money back. What am i supposed to make of a world in which thats the case . Yeah. So the 10year is at an alltime low and the s p near an alltime high. Go figure, right. The bond market follows the fed funds cycle so the yields have followed that down. The ekquity markets are led by the bond proxy sectors until the Telecom Consumer staples. Its a strange market and i think were kind of stuck here for a while. The thing im looking at the most is, when is the earnings cycle going to recover because at 2100 and an 18 multiple, we really need some earnings here for the market to break out in a sustained way thats not sort of a sugar rally based on a falling risk prooemium or something lik that. You mentioned an 18 multiple and asked the question. Do you have an answer. Do you expect things will improve on the earnings front or conversely, are we not going to get them and the multiple be falling . At this point the consensus is 1 growth in 2016. The next quarter season is coming up in the next week and the first quarter, you know, companies surprised to the upside by being less bad and then they just guided down into the Second Quarter and well have to see if that continues. But at this point if i was a global company, and im seeing whats happening, i probably am more likely to sit on my hands. Having said that if you look at the s p 500 revenues, about 40 are global and about 0. 1 of that 40 comes from the uk. It comes back to a question of whether brexit mania is going to spread and if its an isolated instance which i think the market is betting on right now it is contained and maybe companies will get back to doing business. But at this point im not seeing the evidence. Barry, quickly, is there a risk . We got an upside surprise in the ism number. The inflation number the fed used is where it wants to be. Are we a good jobs number away from thinking the fed is back in the game . I think the fed is on hold since january. Their realization is that they cant exit faster than the rest of the world because resulting Dollar Strength is deflationary. Yeah. So theyll move fairly slowly, but the u. S. Probably will lead us out of this as we look into next year. All right. Thank you very much. Barry from stiefel nick cohis and jurrien from fidelity. Phil knight retiring from the board of nike. What it means to the company in the future. Apple eyeing title, jayzs Music Service. Is that a good idea . Well have more squawk on the street in a moment. Tom lee says stocks will hit record highs in the second half of the year and make the bull case at trading nation. Cnbc. Com. More squawk on the street coming up. Theres a lot of places you never want to see 7. 95. [ beep ] but youll be glad to see it here. Fidelity where smarter investors will always be. If only the signs were as obvious when you trade. Fidelitys active trader pro can help you find smarter entry and exit points and can help protect your potential profits. Fidelity where smarter investors will always be. Take a look at the big board. Were just below 18,000. We had been there, of course, were basically mike just told me back to where we were before brexit. 12 points on the dow. There it is. 18,000. How many times will we go back and forth from 18,000. All right. I think i have a hat that says 18,000 on it somewhere. To sara eisen in washington more on her interview with Stanley Fischer and other things as well including phil knight. Yeah. End of the era, end of an era, david. Phil knight creator of nike stepping down as chairman of his company. Handing the reigns to ceo mark parker. Its part of a succession plan. First announced a year ago. A decision we got to talk about when knight came to the New York Stock Exchange two months ago. Have a look. You think about it a lot and so that basically the decision on the current plan for me to step down as chairman in june, basically thought about for two or three years and i have a philosophy its a lot better to step down two years early than two years late. And so name good health and feel good and but i think is it hard to let go . Well, it may be. Come ask me in june. Right now im at peace with it. Travis knight, phils son, is on the board and nike also announced that apple ceo tim cook who has been on the nike board at least a decade now is going to be a lead independent director. Worth mentioning nike and apple have had a close relationship that dates back to the two Companies Going public actually on the same week in 1980. Knight said that they do share a culture and he also told me that while in the 70s and early days of nike knight always admired sony as the big innovation machine and king, but the business he admires most now is apple. Nike and apple do share another distinction. Theyre both at the bottom of the dow in the Second Quarter. Apple losing 13 of its value, nike down 10 . Both have been in growth mode but lately concerns about the strong dollar, chinas business, and generally questions about whether growth has peaked at both has been hurting these crowd favorites. I know you have been looking at these stocks very closely. It is interesting to see the fall from grace, what happened in the Second Quarter. It is. Nike seemed to me last year it was sort of this must own stock, people said it was in the right place in every respect and got a little too expensive. People arent waiting around. Everything they seemed to have done well last year on the growth side seems to have pulled back a little bit. I mentioned last night, you talk about the close relationship of nike and apple, well tim cook is on the board of disney. It seems like hes got 10 of the Dow Jones Industrial average. He has influence over there. I guess running the company with the biggest market value is just not enough. He has to have his hands in other things too. Yeah. Speaks to his stature. No question about it. And just lately a lot of people have been asking what the exposure is to the uk. Because both of these are, obviously, Global Companies and that sharp plunge in the british pound will cut into revenues. Nike has about 5 of its total revenues out of the uk. Much bigger if you long at europe and that number comes from citigroup. The other concern with nike, higher inventories, lower gross margins. We did get the Quarterly Report this week. Futures orders 11 globally but a little less than analysts were expecting. Some are saying, though, as far as nike is concerned, that it is still a good stock and that a lot of the buyers have stepped in, actually after that sharp selloff after earnings in the afterhours because it was getting too cheap. Sara, thank you. Of course you mentioned both nike and apple during that and we are talking about apple. Reports say its considering buying tidal, jayzs Music Service. Apples like the idea because of tie dals strong connection with artists like ckanye west and madonna. Jon fortt youre here. It would not be a large acquisition but one that will get headlines and things of that nature. You never know what apple might be willing to pay. They paid 3 billion for beatzx and seemed like a wacky idea at the time. Theyve made something of it. I guess you can argue theyve made that work though im not sure theyve done so much more with beats than they could have done on their own with people who had good ideas what to do with stream. Apple music has around 15 million paid subscribers right now. Paying about 10 bucks a month. Tidal probably has between 3 and 4 million paid subscribers right now. They got a nice boost after beyonces lemonade came out. More than a Million People came on to at least try tidal. We dont know how many stayed around. But they have released a 3 million paid sub number before. Why would apple do this . Part of what tidal has is exclusives from artists. Its not clear how many would necessarily translate over to apple music if apple were to buy them outright or how jayzs stated purpose, able to promote artist power and independence in the value of music would translate if you were then to sell out less than two years after buying tidal to the biggest name in digital music. It would make more sense if you were to sell out to maybe amazon, for example, which has a history of keeping zappos and Like Properties independent after buying them. Maybe give some different kind of leverage in digital music. Well see how this rumor plays out. Why dont they just buy spotify and get this over with . Well, thats a good question. A lot of people including me wondered in the beginning if youre going to buy a streaming name why not buy the biggest. At the root is the fact that the Business Model for streaming still isnt entirely clear from the perspective of the streaming provider. Spotify is not making money but one of those promises on volume eventually the economic will work out. Apple, of course, is in position with its hardware businesses, you know, built on itunes, the ipod and now the iphone, to not have to worry so much about that one narrow sliver of the business making money on the music itself. But thats what tidal was created to do. To make music something that you could make money off again. Selling out to apple does not necessarily accelerate that. Wasnt the thought would that be like Atlantic Records say you only want to subscribe to our offerings . Just sort of a bundle of artist relationships, right . Its that but there are also some exclusives involved and there are a number of artists, about 20 artists who had 2 stakes in tidal which made them have skin in the game in a way you obviously dont with others. Jon, thanks a lot. Coming up postbrexit vote londons day as one of the Financial Capitals of the world could be numbered so says james stewart. He will be with us to explain when squawk on the street comes right back. Homeowners insurance Life Insurance automobile insurance i spent 20 years active duty they still refer to me as Gunnery Sergeant when i call being a usaa member because of my service in the military to pass that on to my kids something that makes me happy my name is roger zapata and im a usaa member for life. Usaa. We know what it means to serve. Get an insurance quote and see why 92 of our members plan to stay for life. Great time for a shiny floor wax, no . Not if you just put the finishing touches on your latest masterpiece. Timings important. Comcast business knows that. Thats why you can schedule an installation at a time that works for you. Even late at night, or on the weekend, if thats what you need. Because you have enough to worry about. I did not see that coming. Dont deal with disruptions. Get Better Internet installed on your schedule. Comcast business. Built for business. Local Financial Markets may have recovered but our next guest says post brexit says the Financial Capital may be numbered and now the race is on to find which arizona city will replace london to wear the eus financial crown. Joining us is jim stewart. Interesting read as always but in particular one week later, is it, you know, we all like to predict the demise of various Financial Capitals. People have been doing it for ten years. Is this appropriate . Theres definitely going to be a move. Every major banker i talked to said we are moving our employees out of london to another city. They havent decided to do it yet. Theyre waiting for the move from london. Will that break the momentum . Will it really entirely move to another city . That remains to be seen. Anyway i created this exercise. I interviewed people. What are you looking for in an alternative to london . And then i scored major european cities on this basis and i came out with a winner but interestingly i also did london on the same score and london does win. I mean, london could be the new london. If youre really looking at what people want in a foreign capital, london has it. The resistance to the idea is going to surrender all of this activity is regulatory and the fact that taxes are higher in europe. The Regulatory Environment which is a big factor on the continent is much tougher. Its much harder to fire people. That is the main problem. But in places like two cities where people definitely said they are moving the only two that said we have firm plans to move people, dublin and ireland and warsaw and poland have favorable policies. Its difficult to measure at what point you get to that group of people in a particular city that tips the balance as to why its worth being there. Any sense as to what that is and what city may benefit the most from londons missteps here . Well, yes, you need a critical mass. You need an energy level and something i havent thought a lot about but is obvious, you need a city that would like to have people from the city of london. These people make a lot of money. They work long hours. Theyre high energy. Theyre not the most popular people in the world. Maybe thats a surprise or not so one of the issues is like they were telling me its like do these places want us . And you look at paris, its been spewing rhetoric against the big banks for years and theyre saying frankly were furious and were not going to move to paris unless this attitude changes. You also looked at a number of English Speakers which is critical, good schools, good airports. Things like that. What other surprises were there in terms of the results . Let me just say thats really important. Its not because a lot of these people are English Speaking natives but for the entire world the financial language is english. Thats the japanese, the chinese, asians, this has to be a global Financial Capital from all over the world and english is important. So i was surprised to see that spain only 22 of the population, the netherlands, 90 speak english and they have beautiful accents. They have the most multilingual population in the world with more people there speaking three languages than anywhere in the world so that was all interesting to me but that is critical. Schools also they said good schools for English Speaking kids was like the number two thing for them and amsterdam has great schools. A place like france is not very hospitable. If youre a foreigner. Tough. Very few english language schools so those were the things that surprised me. We should point out a lot of this will be decisions made by u. S. Institutions or others around the world and british that use london because its such a perfect spot to hand off to for example from new york to london and things like that. Time zone is important. Another thing people reminded me is london is not the hot spot that it is today. 15 or 20 years ago. I mean, london had terrible restaurants. They joined the eu, all the french chefs moved to london. Well those french chefs could move anywhere. Are you telling me its going to have bad food again. Theres a risk. They can go. So a lot of that innovation, the luxury housing. London didnt have the luxury housing it has today. W warsaw has a long way to go. But 10, 15, 20 years they could build it. Thats an unexpected name. Thats another place that people said we are definitely moving people to warsaw and poland is very up and coming. Hard working. Good regulatory climate. It stored pretty highly. Thank you as always. Have a great long weekend. I didnt tell you the winner though. It was amsterdam. It was . Yes. Well we can imagine why. Lets send it to john who has a look at whats coming up on squawk alley. I love it. Well were going to continue to dig into sarahs interview with Stanley Fisher vice chair of the fed. Implications are for the u. S. s next step and the brexit implications for the u. S. Political climate. Are there things we can learn. Finally cheap gas this weekend even though oil is getting more expensive. I never thought id see the day. Whats behind that and how should it effect your plans. All that and more coming up on squawk alley. Or stop to find a bathroom . Cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. Do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis and a 200 savings card. Squawk ally is live. And especially happy friday to you ahead of a holiday weekend. With me is kayla and joining us this morning mike santoli. Great to have you both. Top story, Federal Reserve vice chairman Stanley Fisher speaking to sarah last hour and she joins us now with some