Transcripts For CNBC Squawk On The Street 20170117

November. The road map begins with the trump effect. Gm, walmart and now hyundai announcing Big Investments in u. S. Jobs. But with four days until inauguration, could the president elect and gop be at odds over the fade of Corporate Tax reform . Plus, in a deal creating the Worlds Largest publicly traded tobacco business, British American tobacco buys what it doesnt more oalready own. Well be joined by reynolds executive later. The chinese president drawing a line on trade with donald trump. Well go live to the Economic Forum where squawk has been in davos. First up, the president elect telling the wall street journal a border adjustment measure in the house gop Corporate Tax plan is too complicated. The republicans pitched their plan plan. More companies reacting to the president elects push for more jobs in the u. S. Walmart adding more jobs this year. Gm planning 1 million 1 billio investment. Hyundai the same with 3 billion. It points to what the markets have been thinking this postelection season. I read the interview and said to myself, the retailers have been down, down, down. Some is because of amazon but some is because, are they the guys that will be hurt the most . I think ive tried very hard to understand the border tax adjustment. Gone to really good people. Theres a lot of different to say it is complicated is to make it so that it is something that can never get passed in a year because it is a difficult bill to write. It is. You dont think it could get passed, did you say in a year . No, it is too hard. I dont know about that. I dont know about that. Well i mean, youre right to keep people thinking about later rather than sooner, but to say that somehow tax reform wont get passed in the next year no, i mean a border tax is more difficult to write. It may be. Many more lobbyists at stake trying to fight it than there would be a lowering of Corporate Tax. True. But it is a key portion of the house blueprint from ways and means. Again, i think it is important for us to both say, how important tax reform will be to so many different businesses, hence why were focused on it, because it conceivably will change the way a lot of businesses choose to operate. Right. Also, important to note, we have a long way to go. A very long way to go, to your point. Right. We are in the early innings. Spring training is still aways aw a ways away. Were most likely not going to get there until august, september, october. And the fight youre talking about, where trump seems to perhaps not like the language he got in the house blueprint from ways and means could be an important milestone in terms of where the battle shapes. Im saying this isnt 2018 issue, is what im saying, versus, deregulation, which is 2017. Versus repatriation, which could easily be 2017. Well, that means you think theyre going to do them separately . Yes. I dont think that is the case. We disagree. Okay. And we have nothing necessarily to go on. No. Youre suggesting corporate and personal get comingled . Or repatriation is separate from corporate . It is possible repatriation could be separate. That would be a failure of them to really reach an agreement. I think it would be back to what happened with george w. Bush. Everyone kind of that was an easier issue. Look, im just saying that the when you read through what trump is saying, hes saying, were going to get something done. I just look at whats easiest to get done versus what is not. The border tax, every ceo ive dealt with said, what issue do you have with border tax . Listen, i know. I would throw it on third down and, you know, hope the guy catches it and they get the field goal. Honest to god interesting. Others would argue that congress has a very strong secondary, and it is not easy to bulldoze into capitol hill with simple stuff. That is look, i think not to mention excuse me for cutting you off and coming at you from both sides here his plan could potentially add a lot to the deficit, whereas this thing at least, according to nonpartisan sources, would add as much as 100 billion in revenue, which would offset the loss in revenue from cutting taxes so dramatically. Youre attacking a defenseless receiver here, but i do believe it would make sense to play out. And we have seen trump start with something, which is this may be his opening bid, which is that i dont want border taxes too complicated. Then they come back with something simp iler. Thats been his way. Thats a key part of the plan, the border adjustment tax on consumption to try and move it back here in terms of manufacturing to a certain extent and not having exports taxed at all. Thats a key part of this blueprint. Youre right, it is so early. Very early. I dont want to be someone who says, look and maybe it is less likely now. 2018 numbers versus 2017 numbers. There is an upgrade for disney today. Well get it. One of the mentions is Corporate Tax rate coming in. When is it coming down . Talking about a 2018 plan. Could be retroactive to 17 though. Yes. To your point, if we come out of this year with only repatriation, that will be viewed as a failure. Yes. I think even you would go along with that. I would go along with that. I want more than that. Deregulation, obviously, on the Morgan Stanley call right now, theres many questions involved about what the different regulators will do in terms of transparency. But, yeah, i would be it would be like, wow, is that all you got . Now, the business, jpmorgan, bank of america conference call, since weve seen each other last, all of us are saying, fourth quarter, really strong. Could mean december. Its not like were coming in flat. I think that you can make it so that lets say if something happens where we get conversations going, i think the analysts will be happy and theyll say, look, this is okay. Provided that the dollar were going to be worried about the dollar. Well get to the currencies in a minute. As were talking, gm is out with this release that was expected this morning, saying theyre going to invest an additional 1 billion in u. S. Manufacturing. Follows 2. 9 billion last year. 21 million, they say, theyve invested since 09. 5,000 new jobs in the u. S. Over the next few years. This, of course, is along with what carrier, ford, amazon walm saying 10,000 jobs. I dont know how many of these were in the cards versus what we heard this weekend about the incredible plans that bmw and mercedesbenz have to go to mexico and build lots of cars in mexico. Thats not in the cards. Thats the 35 border tax. But the plant is a gigantic plant. The other plants people are talking the germans are talking about would be plants that i think he would like to see in the United States, be built. I would argue are a lot of jobs. Before we get to sarah, of course, who loves the dollar, we should mention the dollar. Trump seeming to think still the chinese are working their currency lower when theyre doing the opposite. Theyve added i mean, 1 trillion theyve thrown against the currency to try to keep it somewhere. But the dollar is a key portion, again, back to tax reform, of offsetting the cost to consumers from imports. The argument being the dollar will strengthen a great deal. Right. The only thing thats strengthening against today is the pound. Yeah. The pound looks good. One thing what weve forgotten, what it is like to have a president negotiate the congress. There have been no negotiations. Remember boehner, fed up . Maybe this is just a president saying president elect, were going to negotiate. Which we forgot what that is like. Maybe they actually sit down and come up with a plan. That would be different from what were used to in the last few years. Right. We have the same party in control of all three bodies. Right. They start from a different place. They start from respect to some degree. Youd call it coming in hot, i think. Coming in during the inauguration week saying that t nato is obsolete, dollar is too strong, insurance for everybody. Were four days away from his first day on the job. Yeah, well, it is difficult when you have a threeday weekend to try to factor in all the thins that are happening. Dont forget, saturday night live is still just well, i couldnt stay up. Too busy watching youtube. You may want to check it out. Its good. All right. Lets get to sarah. The world Economic Forum kicking off in davos. News from an unprecedented appearance by chinese president xi jinping. Sarah joins us from davos with the latest. Good morning, carl, jim and david. For the first time in more than 40 years, in the history of davos, the president of china is here. Xi jinping delivering a Strong Defense of globalization this morning, taking the other side of the Global Economic issue that president elect donald trump has firmly been against in his campaign and as president elect. Heres a snipit. President xi saying protectionism is like locking yourself in a darkroom which would seem to block wind and rain but also blocks out the sunshine. No one is a winner in a trade war. Unlikely defender of global cooperation, a communist country who is often criticized for not playing fair on free trade. Trump, on the other hand, whose inauguration comes just as davos draws to a close, has threatened to withdraw from the transpacific trade partnership. The trade deal, ex china, promised a confrontational approach in trade with cshina. It is a showdown between the worlds economic powers. Thats what everyone is talking about. Whether the rising protectionism will hurt the economy and why markets dont seem to be concerned with that fact. Ill head inside here now to host a panel with Major Health Care kpaktiexecutives. Get their first chance to react to trumps latest delve into that industry. Saying the u. S. Will have to bid competitively to lower drug prices. Saying the companies are getting away with murder. Should be an interesting one. Ill bring you highlights on squawk alley. So much to keep track of. Youre going to be busy today. Of course, jack lew later on. Its cold. Sarah, thanks a lot. What do you think about the chinese president school us on trade . One of the things that trump believes firmly is that we have been in a war with china over trade for many years. We just have not fought. So what youre hearing is literally the beginning of what is a fight on the u. S. Side and he is responding to that. I think that hes not used to being to have the country, our country, roll over and play dead. Because the president has had a policy for years and years on not commenting on the currency. You have a new president coming in and all he does is he thinks the currency is important in mexico and europe, important in china. So the debate is, well, who is the president , to Say Something about the currency . I would tell you, trump is the president who says, im going to go after them or currency hard. It is just odd at this very moment. In particular, because we need a stronger dollar, in part, to offset these provisions he seems to not necessarily agree with, in the only blueprint we have on potential tax reform. I think we have to recognize that there is a very big split between how this administration views china and how all previous administrations viewed it. This administration thinks china abused us endlessly. Previous administrations said, yes, it is entirely possible but were not going to do anything because it is a sleeping tiger. And i think that trump says, huhuh, it is a tiger thats been eating us for years. And were done with that. I love the powerful silence afterwards. Come on, that was a great statement. Go to commercial. I let it sit there and hang. It sat there like a pick. It was so filled with drama. Dun, dun, dun. Like a field goal, then give him 30 seconds more, give rodgers time. Unbelievable. A lot like that. Flicks his wrist. Im a cowboys fan. This motion, 40 yards. Steves interview with jack lew. Well hear what he says about the Trump Administration and more. Reynolds executive chairman, susan cameron, taking full control of the company in the 49 billion deal. Well look at the premarket and the pound. Uk inflation, the highest in three years. Squawk on the street, in just a moment. This car is traveling over 200 miles per hour. To win, every millisecond matters. Both on the track and thousands of miles away. With the help of at t, Red Bull Racing can share critical information about every inch of the car from virtually anywhere. Brakes are getting warm. Confirmed, daniel you need to cool your brakes. Understood, brake bias back 2 clicks. Giving them the agility to have speed precision. Because no one knows like at t. A deal to create the Worlds Largest publicly traded to back co Company Based on revenue. They agree to pay 49 billion in cash and stock to take full control of Reynolds American. The combination puts brands such as newport, dunhill and paul maul under one roof. Well speak with susan cameron, the seller in the deal, but not the seller right away. If you recall, of course, it was a few months ago that bat came with its first offer to acquire reynolds. There was an argument to be made, at least, about whether or not the company deserved a control premium or a minority squeeze out. And whether or not what was being offered then was more reminiscent of squeeze out rather than premium. This went longer than they anticipated. B. A. T. Thought theyd wrap this up last year. They didnt. Perhaps they had to part with a bit more value than anticipated. Theyre also talking about synergies that are significant, cost savings that are fairly large. Jim, they get it done with more cash in terms of the component going from 60 40 stock cash to 50 50. Reynolds shareholders will own about 19 of this combination. 29. 44 in cash. Were talking about a Third Quarter close, most likely, because youll need a new security listed from b. A. T. Any chance any of the regulators will say theres too much consciencentration in a business . This is a lot of concentration. There is the chance. But there is the belief, given the ownership stake already, this is not going to play here in concern with any trust. Another question, does this get Philip Morris International Talking . Were spending a lot of time on that. It is important. Theyre not at this point but it has been around ever since this initial deal was announced as a possibility. The old beer and Tobacco Companies in decline get together in order to be able to have some scale, but there is no price raises. No one has been able to put in a price increase. It is about the next Generation Products. Yes. All the Different Technology now for how you can smoke and not do so with the effects on your health, or less, at least. I think youve been reporting on this the whole way. When i saw it today, i said this incredible deal involving glasses. These are gigantic deals. One that doesnt hit our radar as much because it is too far but it is an enormous deal. Without a doubt. This ends up in a multiple in excess of anything paid previously. Certainly when reynolds moved. B. A. T. , by the way, interestingly, you wouldnt think a beneficiary of the weak pound. Of course, it helps its sales. Right. If you own even though theyre buying right. A lot of people say, jim, how can we not recommend diagio because they do well with joh y Johnny Walker so cheap. Shareholders said, wait a second, the tax rate for this entity is going to dramatically drop and, tlefherefore, we want see the benefit paid in the preet y premium. Its in may before we know where tax reform ends up. The european deals, where have they been . I know. Theyre doing them now. 27 market share for these eyeglass guys. The lenses. Incredible. Wow. When you go to you know what . Some businesses, they america and people say, there are a lot of guys that need glasses. Dont worry about it. When we come back, well get cramers mad dash and count down to the opening bell. Later, ginni rometty. We havent gotten to the start of earning season. A lot more still ahead. Dont go away. Hey steve check out this guys leg. Yeah looks like a real nasty moving back in with his parents. What . No. I just broke my leg. No, this is a full blown move in to the basement, youre gonna be out of work without that money from. Aflac you might miss your rent. Aww i just moved out. Bummer man. Hey i used to have my own place. Yeah . No, no i live with my mom, but its cool. Health can change but the life you love doesnt have to, keep your lifestyle healthy with. Aflac time for a mad dash on this tuesday. We did one deal, but we have another one thats important in your area that you love to focus on. 2. 7 billion deal. Youll see clayton williams, which is cwei, up a lot this morning. Why . Nbl making a deal to move into the permian. This is, again, exxon today, 5 billion deal. Why is everyone focused on the permian . You can make money here right now in the 50s. If you buy permian, youll be able to boost your production growth, which is what people care about. I urge people to recognize that anybody that has bought in the permian has seen their stock go higher. People are saying, take profits in noble. I dont think so. This is a very, very important deal. Strategically to get cheaper assets. Youve been talking about the permian for quite some time because it is productive and the cost is lower than it is in some of the other shale areas. One of the reasons theyre low is the fantastic infrastructure. Second, when you use this, the new drilling, fracking, you get all of this oil that used to be thought to be unavailable. This is the biggest field in the world. At one point. Obviously, the saudis came through. When i see this kind of thing, i say, dont give up on these stocks. Dont think theyre done just because oil stalled in the 550. These deals are additive and people will like them and theyll like noble. The performance of the stock this year well. Theyre going out of business. People thought they were going under like so many of the oil companies. 50 . No, no. I like noble very much. We have a lot of other things to cover here. Of course, with the opening bell a few minutes ago, exclusive exit interview with treasury secretary jack lew. I cant wait for her to have that College Experience that i had. The classes, the friends, the independence. And since we planned for it, that student debt is the one experience, im glad shell miss when you have the right financial advisor, life can be brilliant. Ameriprise and her new mobile wedding business. Tte at first, getting paid was tough. Until she got quickbooks. Now she sends invoices, sees when theyve been viewed and tada, paid twice as fast see how at quickbooksdotcom. You are watching cnbc squawk on the street. Opening bell on this tuesday morning. Holiday shortened week. 60 seconds, a lot going on. We talked about the president elect. Huge. Some earnings. As far as the pound goes, theresa may gives this speech in which she basically is calling for a hard brexit. Inflation in the uk, up 1 6th is the biggest jump since 2014. Theyve had a remarkable bit of business, some of the companies doing so, so well. Always expected to be a foulout when t fallout when the brexit is completed. I find overseas, again, is on the radar screen. Jpmorgan said it was stronger. Thats one of the take aways. This level is the biggest oneday jump of the pound since 98. Top three, top two in the past 20, 30 years. Theres the opening bell. Look at the s p at the bottom of your screen. The Financial Security and Services Company celebrating its new combination diebold nixdorf. They do a lot of things. Make it so you dont need checkers now. We want checkers to have jobs. This is part of something were talking about today. Technology initially takes away jobs and then says, creates new ones. They dont always align perfectly in timing. You could lose a lot of jobs over a tenyear period while you have a leap in technology and takes the next 30 to fill them in, or more. Totally agree. At the nasdaq, it is tax tile systems, technology, a medical device company. We havent done Morgan Stanley yet. No. One of the things i think Morgan Stanley suffered from is that jpmorgan, wells fargo and bank of america had great quarters. Something i talked about on game plan on friday for mad money. I think Morgan Stanley is doing many things right. It was a better than expected quarter. I think if there is transparency that we would get in some of the federal this is the deregulation, Morgan Stanley would be a great buy. Theyre not going to go back to prenumbers. They dont want to do those businesses. When you look at Morgan Stanley at 40 billion in capital when gorman took office and now 68 billion. Do they need all that capital . They have to be allowed to return it to shareholders. I would not be a seller of Morgan Stanley today, even though i know the banks are weaker. The stock has run up dramatically, of course. Yes. It is not taking anything away from what were strong earnings. Thank you. In fact, it would be hard to imagine a scenario where it could have out performed where the stock has gone, in part after what youve mentioned. Whether it is highest Interest Rates, though were not seeing that today, deregulation, lower Corporate Tax rate, all the benefits that seemingly would accrue Financial Services companies. Sales and trading, net revenues, up from 2. 3 billion a year ago. They had a Strong Quarter in sales and trading. I think people have to understand, when you see a stock down like this, it is not a reflection on gorman and the quarter. It is a reflection of, well, sell the news. I would urge people with a little longer term recognition that gorman, i think, has done a terrific job at navigating these difficult waters and this is an interesting play. I dont know if anyone saw the 401 k story this weekend, how baby boomers 70. 5, you have to take money out. Thats a big demographic shift. It has to come out of 401 k s. Morgan stanley developed this incredible advisory group. Wealth management is important. Yeah. The delta comes down to fixed income for them. Yes. Some quarters, they botch it. Other quarters like this one, fixed income sales and trading, 1. 5 billion up from 550 million a year ago. Very good quarter. Let this come in if you want, but understand that i feel this is a very good situation. Theres a lot of quick takes coming out right now. What i would tell you is there are a lot of people who liked it to begin with. If they can return capital, 4 of your declining share cap. If they could start returning capital, youd say, holy cow, look at this situation. Maybe this is the best of the return capital. Although bank of america had a couple trillion dollars. Go through the Conference Calls on friday and youll feel fabulous about america. As were talking, the president elect tweeting and responds to oh, no. This gm announcement. With all the jobs im bringing back to the u. S. , even before taking office, with all of the new auto plants coming back into our waiting for the second part of that. Clearly, taking a victory lap of sorts. Earlier this morning, tweeted about the approval ratings, which show him as the least popular incoming president in modern history. Saying even those like the Campaign Polls were rigged, like before. Schwarzenegger had a good lead on the apprentice. Nothing yet. Nothing on the ratings machine, which is the terminator, yes. He got a lot of tweets are free. They cost nothing. Thats great. Credit costs nothing. You can credit someone. David, youve done a great job on b. A. T. Did that cost anything to say . No. President elect would be a great activist investor, too. Wouldnt he . Man, if he wanted to go in a different direction i mean, carl has done essentially what he does. They are similar in that way and both effective. Carl ichan has been. As have our friends at elliott. Interesting on nrg. Led by mr. Singer. They show up again. They have been busy, whether it is samsung or cognisant. The latest nrg marathon pete. Elliott. They actually team up with something called blue scape. Run by a guy who used to run txu. Oh, thats a good combo. Nrg has been running into the ground. They combined a 6. 9 stake in the company. Dont say much though. This is not your typical elliott situation, where they come out with their 30page paper and tell you all the things. They simply believe the securities are deeply undervalued and there exists numerous opportunities to significantly increase shareholder value, including operational and financial improvements, as well as strategic initiatives. They believe Charles John Wilder jr. , the man i mentioned, who ran txu, and his team have directly relevant experience in those kinds of improvements. They want to talk, have a dialogue and theyll take it from there. You see nrg is up a bit. We looked at this on mad money and says the stock deserves to be higher but the management couldnt unlock the value. A lot was unlocked by crane, who had a grand vision not unlike musk for solar. The solar, well, turned out to be not that great for any of these guys. Long term issue. You joked about downgrading twitter. Ubs did it today to neutral, along with calls on netflix. Goldman ups disney to buy. The war on businessdisney do to sales and upgrades to buys. Disney was interesting. Listen, even if espn is down 2 in perpetuity, priced in, i thought it was interesting. On netflix, were coming in up 34 but we think international is going to be very good. The ubs twitter is really interesting. I know the twitter people will get angry i even aenmention it. But advertising revenue is not coming through. Thats why they have to lower their valuation. Now, the squawk team pressed on the idea of how do you come back . Not talking about twitter but lowering revenue for advertising says, how is it possible that you have a president elect that uses it and, yet, they cant seem to monetize it . It is a great conundrum. It is. It figures in the National Dialogue every single day. Every day. In a significant way. Incredible. Doesnt that yeah. Look, i think one of the things people should recognize is companies that try to people who tweet to try to sell product on twitter, people, have had very little luck. Yes. Thats important. Yeah. They tried to make it, basically, an ecommerce site before. Not working. Didnt take. Speaking of tweeting, donald trump with the second half of the tweet. Beginning, again, with all the jobs im bringing back to the u. S. , even before taking off with all the new auto plants coming back into our country, and with the massive cost reductions ive gauche e negoti military purchases and more, i believe the people are seeing, quote, big stuff. Wow, okay. All right. Lockheed martin says it could be good numbers. I would assume hes referring in some way to the f35 when he talked about military purchases. This has been a lot of talk there. Next thing is drugs. I think hes going to call in some of the Drug Companies and say, hey, wait a second. A deal said january h has taken stake in bristolmyers. That is one of those companies that has been kpchallenged by murk. A viewer reminds me of Morgan Stanley, made apple a pick for the year. Trim surface 2017 numbers. Dont worry, this is in part because of the super cycle. This is literally apple planning wisely for the eight so dont take negative action on it. Notice, here is a great tell for people who want to do trading. She says flash pricing is hurting their margins. Please, western digital, micron, two of my favorite stocks, buy them on this. This is the this is really the tightness in flash. Particularly micron digital. I typically dont say, buy something. Ive been adamant digital is one of the cheapest out there. Mi micron has flash. It is a boom bust business but were in boom time. Something you mentioned during the mad dash, you threw in the exxon deal. I tossed that . It is worth coming back to, larger than the noble deal. 5. 6 billion. It happened while we were owned by the bass family. 275,000 akechracres, 250,000 in permian. Looks like they dont have financials on it. Looks like a good deal though. At least, im reading, from one note here, jim. The analyst says, in terms of at least versus what they were paying in the second half of 16 for permian deal costs. The acreage, not in the absolute core of the core, as nobles deal was yesterday. Right. I will say this, this is a needle mover. Weve been waiting for exxon to get off the dime. Tillerson, not there. Interesting. New ceo and immediately does a fairly large deal, 5. 6 billion purchase. A lot of us have been saying, we need to see exxon do something. Remarkable reversal in United Health. Im not on the conference call. I have said United Health is the longterm way to play. So much is happening. I know there are people who said their optum addivision wasnt strong. I remain committed to the country as a way to play the deal. Texxon has great balance. Great for the bass family. Interesting. I guess the reynolds deal is obviously far larger but maybe was counted last year because thats when the offer was made. I point out, again, this permian is a way to raise numbers. People have to understand, halep burton found ways to drill there. If you go down there, we can get the stuff out. Some people say 15 or 20 a barrel. Look at that. For the core of the core. Core of the core. I have to remember that line, core of the core. I like that. Dow is down 52. Bob is on the floor. Good morning. Morning, guys. Bond yields down, the dollar is down, stocks are down. Things improved when theresa may started talking, maybe a little more clarity on what shes her goals are helped out overall. Energy helping out a little bit. Remember, thats been a big laggard throughout the year. Consumer staples. Technology is flat. Health care has been a Market Leader but nothing today. Nothing from the banks. Energy and banks are the sectors down this year. Morgan stanleys numbers were excellent overall. You see it is down. Remember something, this has been huge moves up in Morgan Stanley. It was at an eightyear high on friday. All of these have had big moves up and struggled as we came into the new year. One thing i think is interesting about Morgan Stanley, i dont want to belabor this, but the bottom of the earnings report, they pointed out they were a big buyer of their shares in 2016. They bought 117 million shares back, over 2 billion. Thats a lot, folks. Thats about 6 of the shares that are outstanding. Remember, they had about a 12 earnings boost. A significant reason of the 12 boost in earnings was because they bought back so much shares. When you see companies that become buyback monsters, like ibm, Morgan Stanley, significant, how they impact their overall earnings here. Lets look at tiffany, down 5 preopen here. Important thing is, they talked about holiday sales in the u. S. Down 4 . They specifically said traffic disruptions at their flagship fifth avenue store. I think theyre right about that. Asia pacific was weak. Youll notice the pan was strong. Retail in japan, they went out of the way to talk about it. Tiffany, understandably, down in the preopen. You can see down about 2 here. They didnt change their 2016 guidance. They talked about a down midSingle Digits. They said they do not anticipate a significant improvement in Economic Conditions this year. Thats the overall statement. You see other retailers that started down at the open, are doing a little better in the luxury space. Remember now, were entering the heart of earning season for the fourth quarter. Overall, it is important to note, 2016, not a good year for earnings. Total earnings, an estimate now from thompson routers, only up 0. 9 . Energy is the primary reason, the collapse in energy we saw, down 77 . That is not a typo. Rarely will you ever see an entire sector down 77 for the year. That happened to energy. Theyre expecting a rebound in 2017. 12. 5 for the s and p. Some people think we can get to 12 to 20 . Theyre expecting 300 again, not a typo 360 increase in energy. Exxonmobil, several times i noted, expected to double earnings. Thats a lot from one of the biggest stocks in the world. Materials and technology and financials. Tech and financials, the biggest sectors in the s p, expecting 12 increases. This is an awful lot to expect from the overall market. There are some people who think we could not just do 12 but 20 increase in overall earnings. You combine, for example, a Stimulus Program with an expanding economy, rarely you get a Stimulus Program with an expanding economy. Whatever the wisdom of that, itll boost earnings. Get the lower Corporate Tax rate, Global Deflation ending and you got a Global Economy improving. Some people i was with rich be berns bern bernstein and the stock market isnt overvalued as people feel. It is simply going to move to fair value as we get the Corporate Tax cut. Whatever happened to lower for longer . Whatever happened to the old phrases . Were not using them much anymore. That shows you how much things have changed. The dow down 58 points. Thanks, bob. Lets get to the bond pits and check in with Rick Santelli in chicago. Good morning, carl. Whether it is a change in possession of football or every half inning, change in basketbabaseball, well get a new president and new administration friday. The markets are getting nervous about some details. Eventually, the details will come. Its taking a toll today. 24 hour of tens, we can see rates dropped eight basis points. If you open the chart up toward mid november, you can clearly see this is a significant area. Low 230s all the way down to 227. If we look at a 24hour bund, it dropped less than our ten year. Look at the gilts. This is a drift. This is astonishing, considering the december cpi read month over month that carl talked about was up 0. 5 . Biggest increase since valentines day 2014. It was up on core. That is the biggest core jump yearoveryear since the summer of 2014. August, to be specific. Doesnt that normally, when rates should move up more and you also should see the currency move up . Indeed, the currency did move up. Look at the pound versus dollar for one week. You can pull out the spike. The total on the dollar, it started when we werent trading yesterday. Look at the euro verse dollar on the one week chart. Moving higher. Many are considering the fact that we didnt violate that important level under the market around 104, technically significant. Which brings us back to the dollar index. It is down 7 8th of a cent. It was around the first week of november we first shot through the 100. Going back to kiss that Technical Area isnt abnormal. It is a little volatile at this po point, considering how long its been. Back to you. Thanks, Rick Santelli, with the president ial baton. About to be handed to donald trump. Youll want to hear from outgoing treasury secretary jack lew. We have that exit interview coming up. Dow is down 70 points to start a shortened week. Back after a break. The bottom line is, for your goals, this is a strategy id recommend. This actually makes sense. Now on the next page youll see a breakdown of costs. What . Its just. We were going to ask about it but we werent sure when. So thanks. Yeah, thats great. Being clear and upfront. Multiplied by 14,000 financial advisors, its a big deal. And its how edward jones makes sense of investing. I feel confident the deep gets done. The senate hearings, it just highlighted what jeff buckus and i have been saying from the beginning. This is a vertical merger. The telecommunications doesnt change the deal after this deal closes. The entertainment business doesnt change. The concentrations are the same. Nothing is different. Right. As a result, as long as the laws apply, this is a deal at t chairman and ceo on squawk this morning from davos, talking about what he thinks are fading concerns about the proposed merger with time warn warner. He added a spin off of cnn makes no sense. He is informed by his meeting with trump last week. Where they said, apparently, they did not discuss it specifically. People unaffiliated with either side but are wellacquainted with antitrust issues tell me they agree. Vertical deal, vertical integration. It should not warrant a blocking position from the department of justice. The big question mark here continues to be the comments we get from the president elect regarding his antipathy for cnn, and whether or not that be in any way have influence over woman ever it whomever it is that runs the doj and how they approach the deal. If this deal is blocked in some way, it will send a chilling message to news organizations that are owned by larger corporations. Which, by the way, are lots of them. You have a good point there, partner. Dow is down 67. So far, one of the worst losses for the year today. Short time span. Stop trading with jim in a moment. Dont go away. I dont know even where to start with that. First, lets take a look at your Financial Plan and see what we can do. Ok, so weve got. Well listen. Well talk. Well plan. Baird. What witim stressed,e horse . Trying to figure out this complex trade so i brought in my comfort pony. Well you could get support from thinkorswims inapp chat so you dont need a comfort pony. So what about my motivational meerkat . Inapp chat on thinkorswim. Only at td ameritrade. Time for cramer and stop trading. A lot of Companies Going nuts. The upside off the border tax confusion, whether the president elect says it is too difficult, id point out walmart, down from premarket trading, is really soaring. Pvh, which said this is much better than expected, but Everybody Knows they dont make it here. Had been hit on the preannouncement. People know their business is good. I would say be careful because this is a fluid situation. There were a lot of shorts in retail because of the border tax. All i can say is youre a traitor if youre playing these game games. Boy, youre a traitor. I think day to day, tweet to tweet, and be careful pharma, because thats next. A tweet by this week is my prediction. Whats on mad tonight . We have a private company. Robots for crime. I think it is an interesting, hot area, given the fact we know that a lot of people are concerned about brutality and issues like that. Keep it front and center. Im also going to announce a takeover tonight. Excuse me . A takeover. All right. Good to be back. I thought yesterday was a great day. Martin luther king. The more you read, the more you realize, what a genius. I wish id known it when he was alive. That would be amazing. Jim, see you tonight. Mad money, 6 00 p. M. Eastern. When when he come back, exclusive with jack lew. Dow is down 51. Dont go away. Why pause a spontaneous moment . Cialis for daily use treats ed and the urinary symptoms of bph. Tell your doctor about your 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 this may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have a sudden decrease or loss of hearing or vision, or an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis. Were drowning in information. Where, in all of this, is the stuff that matters . The stakes are so high, your finances, your future. How do you solve this . You dont. You partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. Morgan stanley. Is happening before our eyes. Shift in Human History sixty to seventy Million People are moving to cities every year. At pgim we help investors see the implications of long term megatrends like the prime time of urban expansion, pinpointing opportunities to capture alpha in real estate, infrastructure and emerging markets. Partner with pgim the Global Investment management businesses of prudential. Good tuesday morning. Welcome back to squawk on the street. Were at the new york stock exchange. Sarah is at the world Economic Forum in davos, hosting a panel about rebuilding trust in the health care industry. Talk to her in a bit. In the meantime, dow is down 59 points. S p down almost eight. Oil hanging in there though. Up more than 1 . Lets get to the road map this morning. It starts with the inauguration countdown. Three days away from a president trump. Taxes coming into focus, of course, as the president elect takes a gab at a piece of the house gops plan. Plus, auto makers responding to criticism. Hyundai and gm announcing Big Investments in u. S. Jobs. Reynolds bought for 49 billion from what they dont already own. Well speak with reynolds executive chairman susan cameron. Moments from now, an exclusive interview with the treasury secretary jack lew. Investors waiting for the highly anticipated inauguration. One eye on the Global Markets as the president elects comments move the dollar. Our companies cant compete with them, china, because our currency is too strong and its killing us. We have tobias, chief global strategist. How are you, david . Good. Of course, the comments on the dollar werent the only thing. He talked about nato, talked about the future of the eu. How much of this general news feed can the markets reasonably absorb right now . Look, i think the markets can be focusing on issues like earnings, forward guidance, business activity. Were going to get, clearly, this is the more unusual candidate or president elect than were used to having, in terms of twitter storms and things like that. I think at some point, well get a bit numb to it as opposed to acting to every tweet that comes out. Having said that, you know, issues around the front page of the wall street journal today are on border taxes, going to have impact. Particularly stocks jim and carl were talking about earlier. Tobias, if you say most investors will be focusing on things like earnings which, of course, were about to hear a lot about soon, do you think that means the markets are not really pricing in specific policy, outcomes or hopes, anything like that . Do you think the fundamental is explained where we are in the markets right now . For the most part, yes, mike. If you think whats going on in the earnings trends and the opt mitch sh optimism showing up, we look at the Capital Spending plans, turned more positive. Primarily because emp will be up in 2017 versus the low numbers in 2016. Youre seeing this animal spirit aspect occurring. There is concern there might be some lull between now and the time of implementation of policy, particularly on the tax side. You know, some of the stuff we watch, things like the Federal Reserve board survey, commercial and industrial bone lones, business loan, theyre indicating well have a stronger first half, important for the earnings story. You have the positive dynamics there because things are in the pipeline. Having said that, one last point, are we going to get swung around by some news event day to day . Sure. Our view is kind of taking advantage of the dips and buy the market. Earnings look like theyll be up high Single Digits this year. Tobias, we could be living in a year in which were not going to really see the meat of tax reform and what it may be until the end of the year. Right. So the deduct lkctibility of interest going away, the border tax adjustment were seeing debate about, repatriation, lower rates, all of these incredibly important things, well have the whole year to spend figuring out which one itll be in, which is not, what the impact is going to be. Doesnt that sort of make for a lot of volatility . You know, we expectati volumetivety. One of the themes for 2017 included an increase ed volatil environment. It is not making a political judgment or geopolitical judgment but the shape of the yield curve seems to be a good indicator. There is a twoyear lag in entering a period of volatility. To protect themselves from that, investors can look at biotech and pharmaceuticals. That group sends to do better in a volatile environment. If youre worried about that, were not over weight for this group right now. If youre worried about that, pharma biotech isnt a bad place to hang out. Which sector are you overweight right now and is it changing . We upped the cap haital good was because we see ism as a leader. Not Aerospace Defense but more traditional industrials. My old stomping grounds as an analyst years ago. But we also upped consumer services. Joining media in the Consumer Discretionary sector. And we took software and services to an underweight. Though we think it spending will be there, the stocks are reflecting news, particularly on the evaluation tide. Tobias, who was a great capital goods analyst long ago, i can attest to that. And you were a good reporter covering that area. Tobias, thanks a lot. Good to see you. Take care, guys. When we come back, treasury secretary jack lew will be with us live. It is his final few days in office. Plus, tech in the age of donald trump. Were going to speak with ibms ceo ginni rometty. We have a huge show ahead on squawk on the street. Hi. Lets send it over to our senior economics reporter, who is in our Nations Capital with u. S. Treasury secretary, jack lew. Im here for a live exit interview with treasury secretary jack lew. Thanks for joining us. Great to be with you, steve. As usual, weve done this a number of times. I start with the news over the weekend. The president elect said that the European Union breaking apart would not be a problem for the United States. Is it an issue for the United States . Is it benefit to the u. S. Economically . Is there a position on that . If you look at the history of the last 70 years, a europe that has been increasingly united, both economically and geopolitically has been a source of stability, both in terms of there being peace in europe and most of europe and in terms of economic stability. I think thats in the interest of the United States. For multiple reasons. First of all, the history of the 20th scentury was a very different one. You know, geopolitically avoiding conflict is very important. Europe is also our largest trading partner. Having a prosperous europe is in our economic interest. You know, we have, for a long time, really since the end of world war ii, been the indispensable outsider in european conversations. Ultimately, european conversations have to be european conversations. And there are stresses now. Legitimate questions as to whether some of the bure i dont care bureaucracy of europe needs to be reevaluated. The last 70 years have seen a kind of stability, as i said, both gee politically and in terms of economy that is not always known to europe. Thats important. We got some information from Prime Minister may about the exit of or the planned exit of britain from the European Union. Is this the worst case than what you expected or pretty much what you expected . Steve, from the very beginning, we have said, and i believe that the ultimate outcome that would be best for the uk and for europe and for the United States will be to maximize, to have as much connection between the uk and europe and between the uk and the United States. That will be something that we wont know until the end of the negotiations. We talked about a clean break though. I think if you look at ultimately where theyre going, the question will be, are they continuing to keep the lines of commerce open . Are they finding ways to both with the United States and europe, have the uk be highly integrated . In terms of geopolitical issues, are they, as im sure they will be, remain an active member in nato. Uk is an important partner of the United States. It is an important partner of europe, either from within or outside of the eu. And, you know, im going to personally withhold judgment until we get to the end. Over the weekend, the president elect said the dollar was too strong. Do you agree . As you know, steve, i avoid commenting on statements like that. I think that what weve seen over the last couple of years is a u. S. Economy that has been on a relative basis stronger than other economies around the world. That has naturally led to a stronger dollar. I think a strong u. S. Economy is in our national interest. Weve done everything we can to promote a strong u. S. Economy. I dont think i need to remind you where the economy was just eight years ago. When we took office, we were losing jobs at almost 200,000 a month. Were leaving almost 700,000 a month. Were leaving, creating jobs at roughly 200,000 a month. 180,000, average. Thats a swing of 1 million jobs a month. Overall, it means we have over 15 million more americans working in the private sector. Thats the kind of Strong Economy that we need to build on and make stronger and stronger. I think the challenge around the world, and ive said this as we go through national meetings, is for other economies to get jump started. Use the tools they need to. I would focus on what other economies need to do while we tend to keep a strong u. S. Economy. When you look at the results of this recent president ial election, which many have ascribed to severe economic anxiety on the part of many in this country, do you feel like your policies fail to address those issues, or that you might have done more to address the kindnxiety that led to this election result . There is no question there is a lot of anxiety both in the United States and around the world. I think it is coming from multiple sources. The rate of technological change is the fasted in history. Globalization on top of that creates challenges through competition. But the answer always has to be, how do we grow more and how do we make sure were distributing the benefits of growth better . Weve done a lot in the last eight years on both scores. You look at the measures of personal income. Theyre up. The last current over the last year. Well, we were flat for a lot of years. Steve, we were in the deepest recession since the great depression. We had to dig out of a hole that was even deeper than we all thought eight years ago. Once we started coming out, we focused on trying to get benefits to middle class workers. Whether it is through things like the earned income tax credit or by helping to create jobs but small businesses. I think the challenge Going Forward is going to be, do the policies actually help to solve the problem . I know your focus has never been political, but when you look at democratic states like pennsylvania, michigan, going towards the republican candidate, do you look at the policies and say, you know what, we should have addressed that more . I think the perception is actually much worse than the reality. But i can actually understand why. You look at the news stories that are fairly frequent about companies that avoid paying taxes by moving overseas. Very wealthy individuals that avoid paying taxes by tax planning thats legal. Youre a person working at a modest salary, middle class or less, youre paying Social Security and medicare on every dollar yoirn. You you earn. You say, i dont get the benefit of the policies. Talking about tax reform, this is in the United States and internationally. Will we make policies that actually help working people, middle class people, or will we actually increase the inequality . Weve had proposals that would have done quite a lot, even beyond what weve done. We havent gotten the political consensus behind them. You know, proposals that we put forward, which are not popular with people who have a great deal of wealth, but things like making it harder to pass along enormous wealth from generation to generation without taxation could pay for things like child care and training and infrastructure. One of the policies talked about by the Incoming Administration to address these issues are tariffs on those who ship jobs overseas. Is that a good policy . So i havent seen any specific proposals. Im always reluctant to address specific proposals. I think free trade is a very important thing for us to protect. We have benefitted from free trade, both in terms of the u. S. Economy growing and in terms of having a world that has more growth and is a more peaceful world. It has to be fair trade. It has to be fair trade. And we as weve pursued trade negotiations, insisted on high labor standards, high environmental standards, Good Business practices. Thats the way to approach trade. Not by just erecting barriers, either tariff or nontariff barriers. If we were to see around the world a proliferation of more barriers, wed see a slowing of global growth. That doesnt answer the question, how do we make sure that working people feel they have a benefit in the shared growth . I think the problem we have is not convincing people that trade expands growth, but convincing them theyll get the benefit of it. They think the system is not level. One of the ideas out there, almost apart from this idea of import tariffs, is a 45 tariff on china. How delicate, fragile, solid is the relationship with china now, and what would be the fallout from a 45 tariff on chinese goods . We have worked very hard on the u. S. China relationship. It is the most important bilateral relationship economically we have in the world. In terms of being two superpowers, it is geopolitically a very important relationship. Ive been to china probably a dozen times. Ive met with my chinese counterparts here many times. Weve pushed them very hard. Weve pushed them to open their markets. Weve pushed them to have more competitive influences in their markets. Weve pushed them to refrain from doing anything on their currency that would lead people to think they were manipulating it. I think we made a lot of progress. Theyve moved their currency to the point where theyre now actually intervening to protect their currency, not to drive it down. Because a rapid decline in their currency would actually both violate agreements and be bad for them. Theyre opening their markets, though not as quickly as we 45 tariff tear us under in. I think one has to engage with china across the Broad Spectrum of issues that we deal with china on. And push very hard to make progress. Also, recognize when they move in a positive direction. Thats what weve tried to do. Secretary, thanks for joining us. Im hoping youll be joining us over the years when you leave office. Thanks very much. Pleasure to be with you, steve. Thank you. Carl, back to you. Steve, thanks to you, as well. When we come back, the age of technology under a president trump. Well talk with ibms ceo ginni. For now, the nasdaq is having its worst day of the year. Back in a minute. Its not just a car. Its your daily retreat. Go ahead, spoil yourself. The es and es hybrid. This is the pursuit of perfection. This is my retirement. Retiring retired tires. And i never get tired of it. Are you entirely prepared to retire . Plan your never tiring retiring retired tires retirement with e trade. Im in vests and as a vested investor in vests i invest with e trade, where investors can investigate and invest in vests. Or not in vests. Sign up at etrade. Com and get up to six hundred dollars. Lets go back to the world Economic Forum in davos, switzerland. Becky quick is there with i ibm ceo ginni remmetty. I want to talk about davos and artificial intelligence. Before that, i want to talk about wall street. Youre in a quiet peer yorioper. Earnings coming out in a couple days. The last several quarters, when ibm reported after the bell, the stock has dropped in the after hours. Im trying to figure out what you think wall street is misisig on this. What you see that they dont. Weve talked about it many times on the show, what were continuing to do is transform the company. Parts of the business are growing and parts of the business, while theyre Good Businesses to be in, they might not be in growth markets. Theyre watching as we make the transition and watch the balance between those two things. So as you know, as weve done through the first three quarters of the year, those are the Strategic Imperatives, which are almost 40 of i bm and have had great growth. They get to the topic were going to talk about here. A large part is around data and artificial intelligence, what we call cognitive. It is a big reason i came to davos this year. We were one of the first members of the very first davos meeting and havent been back in a long time until now. This is squarely on the agenda. In a formative time. Thats one of the big components of our growth. Artificial intelligence is what youre talking about. Yes. We had several guests speaking ability artificial intelligence. A lot of different ceos focusing on this. One of the first things people think of is watson. Been on the scene a long time. Yes. Where do you stand with watson . I am pleased with the work were doing with watson and the scaling. Work were doing with honeywell. I think the reason its come up in every conversation here, everyone views data as a competitive advantage but you cant get anything out of it without artificial intelligence. It leads you to watson. With us being the de facto ai platform for business because well touch 1 billion clients. You see whats important to them. It has to have a domain of an industry. It has to know an industry. Its got to work with humans, augment them. The most important thing if youre a business, youve got to have a system that says to a client, hey, this has been built in a way that ill use your data, by the way, decades of accumulative data you have, but the insights belong to you. Thats not true with some of the systems. It is your proprietary information. I can protect that for them. Where are we on it . We talked about watson in health care first, of which our health cloud, were scaling across china, india, thailand, finland, netherlands, italy and going here. By the end of this year, 80 , well cover 80 of cancers by the end of this year. Clinical trial matching. Any Breast Cancer goes through our match to see if there is a match for it. Then you get to what we recently announced, precision medicine, which is watson is doing the decoding. The genome sequencing is done. Quest diagnostics. To particularly, for late stage cancers, find the right kind of treatment for them. Health care and most recently, regulatory. All my colleagues here in Financial Services spend 270 billion a year on compliance activities. Just last year alone, 20,000 new obligations, not just regulations, obligations. Weve been training watson in compliance management. Thats why we bought promentory, an acquisitioacquisition, about training the system. Health care, education, compliance, call centers with the banks, im now seeing Watson Branch out in many ways. It is amazing when you hear of some of the real things that watson can do. What the street wants to know though is when are you at the turning point, where you have really transitioned the company . Youve been talking about it for a long time. Talking how watson is growing and the cloud is growing. I feel quite good. You can see that we have transitioned to being a cog any Cognitive Solutions and Cloud Platform company. If you look at the cloud business, one of the largest clouds out there, key clients, whether American Airlines and the like, and then the cognitive, two sides of the coin. When people talk about transition, i think of it as, what are you becoming, right . We have become, when i say Strategic Imperatives through Third Quarter, close to 40 of the ibm company. What we do as well is run the big systems of the world. The banks, the airlines. Ive been through that. Thats just as important. I think david has a question, too. Thank you, becky. Beg the Trump Administration, the president elect, of course, taking office on friday spent a great deal of time already talking about jobs. Youre on the policy and issues committee, advising the Incoming Administration. When i hear you talking about artificial intelligence, and i understand watson created a lot in health care potentially, i still think about job losses. Im curious as to why you believe itll add more jobs. Even the Legal Profession alone, i speak to law firms, they have Young Lawyers who just read documents. Ai will be able to do that for them. Those are jobs that will go away. Why is it not a job killer as to opposed what you believe, i know, is it will be additive . Yeah. David, this is perhaps the single most important reason i came to davos. Because i think these fears are not positioned properly. In many cases, are unfounded on this topic. Yes, youll create new jobs. But most important, youre going to find where most professions will work with the systems. It is a partnership between man and machine. If i want to put it that way. In fact, i read a study the other day that said the number of complete jobs replaced is a very small percentage. Like every technology in the past, youre right, there will be some. Think more about activities changing with the technologies. So when you do your job, there will be things that take you a lot of time to research and do. Yes, theyll be done faster. Then you have the time to do what i think we all as humans do best. A really key point is that this is about augmenting. Thats why weve said, it is not artificial intelligence, it is augmenting intelligence. It is an era. With every era, weve seen it in the past, whether when people came off of doing farming, they had to learn to read. The industrial area, it was mechanical skills. This evera, it is again going t be about building different sell sets of skills. What i feel strongly about is where our focus needs to be is on building skills. We have 5 million jobs open in the u. S. There are millions open in europe. 80 of Japanese Companies cant get the people they need. Plenty of these jobs can be done without a fouryear degree that are out there. If we would change the basis and align what is taught in school with what is needed with business. Thats where i came up with this idea of new collar. Not blue collar or white collar. Weve already made progress. 100 schools, not just in the United States. Whether it is south africa, china, india, i mean, theyre growing, canada, australia. This is just about saying, heres what a business will have. The schools teach it. You made the reference to history. Over time, the jobs are replaced. But there are gaps. Yes. Significant gaps. Yes. I wonder how long you think it will be. Those kinds of dislocations can be quite unsettling for many societies. Yeah. Youre precisely on the issue. The gap and the time point. When i think about this, i think there are three things we should do. One is this new education, thats people coming out. Fine, pathway to technology. The second one though is about retraining. I view those of us who have been around, we have an obligation around this topic. A responsibility. A lot of retraining. The third is, i dont want you to overlook, these technologies can be used to help people do their job. A bank, a call center, people who would otherwise not be trained, they use watson to do 59 complex products to help them answer questions. So i view there is a Public Private partnership that is a solution to close the gap. That is the source of unrest. Not just the United States, in many other countries around the world. I want to thank you very much for your time today. We hope to have you back to talk about more of the issues, especially as we get further down the road with it, too. Thank you. Carl, back to you. Thanks so much. Good stuff today. Quick news alert for you. Facebook Ceo Mark Zuckerberg arriving at a Dallas Federal Court a short time ago. He is testifying in a twoyearold suit against facebook, which claims oculus was based on stolen technology. A game maker is seeking 2 billion in damages, the amount of facebook paid for oculus, claiming they stole the trade secrets. Zuckerberg said, quote, im aware of the claims and here because i think they are false and it is important to testify to that. When we come back, a deal creating the Worlds Largest publicly traded tobacco business. British american buying the rest of Reynolds American. Well be joined by susan cameron. Dow is down 23 off the lows. Back in a minute. Good monday morning, everyone. Im sue herera. Tereheresa may charting tow a clean great with the European Union after four decades of integration with the continent. Dlclock back to the days whe europe was less secure and less able to trade freely. It was a vote to restore, as we see it, parliamentary democracy, determination and become even more global and internationalist in action and in spirit. Turkish authorities captured the gunman who killed 39 people at a nightclub on new years day. Hes identified as a uzbekistan national. He was caught on the european side of is t istanbul. Freezing rain, coating of ice on trees and power lines and pretty much Everything Else in western kansas. It was a mess. Thats the cnbc news update this hour. Ill send it downtown to you, carl. Sue, thanks so much. Lets get to dominic this morning for a market flash. Good morning, dom. Good morning, carl. Watching chairs of jcpenney, higher on news the struggling retailer is teaming up with nike. The sneaker giant plans to open shops in over 600 jcpenney stores, anchored by the swoosh sign. The face will be dedicated to nike in prominent locations within the mens departments at jcpenn jcpenney. Shares of jcpenney has highs around 4. 5 on the news. The stock is about 3 higher now. Of course, the shares are down about 1 3 of their value since the first week of december. Back to you guys. Thanks very much. Good day for retailers. Gm, hyundai and walmart announcing investments in u. S. Jobs today. The president elect speaking out on the house gops Corporate Tax plan meanwhile with three days until inauguration. John heaarwood joins us from washington. President elect trump is t trying to build up momentum heading into fridays inauguration. Yao had the announcements you mentioned. Look at these, gm, hyundai and walmart. All trying to get ahead of potential donald trump tweets. Every company now knows that if they get on the wrong side of the president elect, they could get a tweet that drives their stock down. In response, donald trump tweeted out this morning that all these jobs announcements reflect the fact that he is achieving results. He said, voters are seeing the big stuff, even before hes inaugurated. However, the president elect also was engaged in two different feuds today. One of which is particularly problematic for the republican agenda. In an interview with the wall street journal, he criticized the House Republican tax plan for its reliance on border adjustme adjustment. That is to say, taxing imports but not exports as a way to raise money to lower corporate rates and also encourage United States investment and jobs in the United States. Donald trump said that that is a recipe for having the adjustment be made to our detriment. He likes it simpler tax proposal. Hell have to work that out with republicans. It is complicated because his alternative of a 35 punitive tax on u. S. Corporations that ship back into the United States doesnt raise as much money. It makes it more difficult in tax reform to lower the corporate rate. Finally, inexplicably, the president elect revived his Martin Luther king day weekend feud with john lewis, the civil rights hero who represents atlanta in the congress. John lewis said in an interview with our colleague chuck todd on meet the press that he did not regard donald trump as a legitimate president. Trump ndonald trump hit back ov weekend, saying he ought to focus on crime and jobs in his neighborhood, in the destructise represents. He also then this morning tweeted out that john lewis had falsely claimed that this was the first inauguration that he skipped. Sawing donald trump said that john lewis had skipped george w. Bushs inauguration, as well. He cant help himself, getting into the spats. Dont know if he profits from doing that. House republicans have to decide how to handle it on the border adjustment. This is what were going to see from this president elect. He is not slowing down on twitter. Speaking of House Republicans, should we be on the lookout for a response from kevin brady, house ways and means, anybody else who had a hand in writing this original plan . I would expect not. I think kevin brady is a lowkey lawmaker who, i think, is not going to get into a tit for tat with donald trump. Hes much more inclined, and i think paul ryan will be, too, to say, lets sit down and talk about this. Let us explain the merits of our approach. They will be practical in the end. I think theyre looking to avoid a highprofile skirmish with the president elect. A lot of this might go down to exactly how important it is for House Republicans to have something on paper that seems deficit neutral, right . This was a revenue piece of the Corporate Tax overhaul. Whats your thinking or how do you handicap the likelihood theyre willing to cut Corporate Taxes and accept the deficit effects . Well, i think the House Republicans are looking for ways to finance deep Corporate Tax cuts. Even if youre in the deficit neutral, you have to offset some of the cost. If youre going from 35 to 20 , which is what the House Republicans have in their plan, youre going to have to raise revenue. Thats what their border adjustment tax does. I think they also regard the punitive tax that donald trump is talking about as something that could be counterproductive, could end up spurring a trade war. Theyre looking for a more elega elegant, systemic solution to the problem. The question is going to be, can they get that done, and will he sign it . Certainly, and how much patience does the market have as it gets written. Thanks very much, john. Busy week ahead. John harwood in washington. As we go to break, check out shares of nrg energy, the target of blue scape energy partners. Took stakes in the power producer. Watching the dow try to work back to the flat line. Down 18. Dont go away. Its your tv, take it with you. With directv and at t, stream live tv anywhere datafree. Join directv today starting at 35 a month. No extra monthly fees. Stocks may be near record highs but one tough wall street analysts says there is room to buy. He has six lagging industries that could see big gains. Find out what they are on tradingnation. Cnbc. Com. More squawk on the street coming up. [phone buzzing] some things are simply impossible to ignore. The strikingly designed lexus nx turbo and hybrid. The suv that dares to go beyond utility. This is the pursuit of perfection. British American Tobacco paying 49 billion in cash ask and stock to take control of Reynolds American. 26. 4 premium to reynolds share price, the day before b. A. T. Made the initial proposal to acquire what it made known in october. Susan cameron joins us now. Nice to have you here, ms. Cameron. Thank you for being with us. Thank you. You did well. 7 premium to their original proposal. 9. 5 premium to your alltime high. I mentioned the other premium, as well as the multiples being high based on previous transactions. There are always shareholders who say, come on, you could have done better. We want more. What do you tell them . I think, you know, as you can see from the timetable, this was a hard negotiated sweet spot between the sets of shareholders if you think about that. 29. 44, which was a significant increase in the cash piece, complemented by the 0. 526 piece of equity gives shareholders almost a 50 50 component between cash and ek wiquity to particip in the future value of the group and participate in the strong growth of emerging markets of the larger group. We feel like we hit the sweet spot. It is a winwin for both sets of shareholders. British American Tobacco has been a great shareholder of ours. Theyve held 42. 2 since the inception of Reynolds American in 2004. We have return eed over 1100 shareholder return in that period. This is a great next evolution as we combine to build the Worlds Largest Global Tobacco company and a pipeline of next Generation Products. Shareholders were thinking about the coming possibility of tax reform and the fact your rate may go down a lot. And wanted some value delivered for b. A. T. , based on that potential assumption. Why didnt you get that . I think when you go to construct these deals, you dont construct them on speculation or gaming timing or otherwise. This is really a strategic combination. Our Transaction Committee and the full board certainly thought about the talk about Corporate Tax rate changes. We certainly talked about brexit and Interest Rates and consumer staple multiples. There is a range of things you look at. We came down on this valuation with the equity and cash. The equity component enables our shareholders to participate in any changes in those macro in that macro environment, as share owners of the new combined enterpri enterprise. Youre talking about at leigh 400 million of cost synergies realized over the first three years of the combination. Where does that come from . A big part of that is in things like procurement. Because, of course, with the scale of the larger group, we believe that there is a lot of opportunity for synergies in that area. When we think about this transaction though, British American tobacco does not have any other operations in the United States. So the great majority of jobs here, and certainly all of our facilities, will remain in operating for the u. S. Business. What we are also excited about is looking at the potential for reynolds to play a larger role in Group Activities and looking for the potential of new jobs. So we feel very good about getting those synergies and bringing them into the combined company. Of course, this is very early days. The integration planning process hasnt begun. We will certainly keep people posted as we move toward the close. Interesting, you mentioned that key word in this day and age, jobs. Certainly something our incoming president focuses a lot on. Are you saying this will be additive to jobs, not as is typical of mergers of this type, reduction in employment . Well, as i said, i think, you know, there are there is no overlap in operations is key. And we see the opportunity for reynolds to play a larger role in the b. A. T. Group, which has the potential to increase jobs. Just a point here, curious to get your thoughts. You had separate press releases, separate calls, separate decks. Youre coming on. They didnt come on. I mean, sometimes, that can already sort of send a message that, hey, were not operating together here. Youre talking about synergies that you have to actually get to in terms of costs, which require cooperation. Should shareholders be concerned . Absolutely not. We have been partners in the context ofnot. Were partners in the context of shareholders since 2004. We have a very strong relationship. I think if you think about the description that you just had, the time change really does contribute to this sprat announcement time table, you will certainly see as we move through communications we will appear together. Number one menthol cigarette brand, number two cigarette brand, palmall. You have done through recently, should there be concern here when everyone takes another look at this thing . Were not concerned about those regulatory approvals. There really is no overlap, again, in this u. S. Market. One of the benefits of the transaction is that the global ownership comes together in this transaction. There may be opportunities for newport outside of the u. S. And for kent inside of the u. S. Certainly not something contemplated in the transaction but it is certainly a opportunity. You have not mentioned much about new technology yet. We hear about vaping, and other ways to enter the smoking category, will that combine with the company . Both companies have a very robust type line. And that has additional opportunities for us here in the United States and opportunities for the Reynolds Technology to be used in many markets around the world. So we will be best in class in next Generation Products and that doesnts our continuing of the industry by offering adult consumers products that has the potential to reduce harm. Thank you for coming on this morning. Air force one the topic of discussion at trump tower again today. The president elect blasted the company on twitter for alleged cost overruns and called on the government to cancel the pending contract. We will be watching and listening for results of that meeting today. Lets send it over to john fort. Were going to continue to dig into trump and business. He is twisting arms, but is he getting results . Apple indeed going into orlanigl content. All of that and more coming up on squawk alley. Now we just need 500 more. 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After a meeting this morning, the Trump Administration says that bayer has committed to 8 million in new research and Development Spending and will keep all of their workforce in place and add more hightech jobs. Bayer a deal to acquire monsanto. These are the kinds of transactions we can expect to see from the upcoming administration. When it includes the potential for job losses. In this case, the ceos committed to maintaining the work force and adding to it. That should help the sentiment around the field. Well have a lot more ahead, stay with us. Welcome back, the dow and the s p grinding their way higher on the s p. Treasury yields down, Consumer Staples are up, so it is a little bit of a reversal. That does it for us a on squawk on the street. Lets go to carl to kick off squawk alley. Good morning, 11 00 a. M. Here on wall street and squawk alley is live. Good tuesday morning, welcome to