Transcripts For CNBC Squawk On The Street 20170428

Premarket. Microsoft and intel are moving lower. Weve got a first look at the economy under president trump. It was a weak First Quarter, the question of course is has growth picked up since then. Starbucks out with results, the stock is slipping. A live and exclusive interview with Ceo Kevin Johnson and now chairman Howard Schultz. On the tech earnings front, amazon as you may know by now surpassing forecasts, getting a lift from the Cloud Business. Alphabet also above consensus as mobile search helped to drive ad sales higher. Microsoft and intel beat on the bottom line, but miss on the top line. Jim, theres a lot to get to last night. Last night was incredible to listen to not to the amazon call because amazon said, our cash flow is fabulous. All true. But the alphabet call was about how were not a Search Engine company thats driven by advertising although our advertising is up 50 . They said over and over again as we talked about earlier this week were cloud, were cloud, were cloud, were competitive. They also talked about chrome a little bit and they gave you a bit about waymo. A little bit. But overall what i loved about it, you remember all those articles about how the people were mad at them. You never believe the Youtube Boycott . No. A billion a day. Can you really stay away from the tv station that has a billion hours viewed . No. And the answer is, these guys, ruth poreat, she is incredible. He lets listen to what she said on the Conference Call. With we benefited from our teams innovation that continually enhance our advertising business as evidenced by the ongoing growth of the sites revenue. The increase in sites revenues reflects the healthy growth in mobile search. So ad revenue goes up 19 and pay clicks go up 44 . The rates go down a little bit. But this is a mobile offering. Now, i know that sounds silly but like facebook this thing does much better on mobile and its driving a lot of retail ads. You know, local retail. Again, they dont want that to be the focus. They really want the fact that they have got this great cloud ability and theyll give you cto and theyll work with you, then of course youre on the amazon call, they have this great cloud ability. Then youre on the microsoft call which is why we should talk a bit about that. Because nothing is going to grow faster over the next few years than cloud in general in terms of that as a service. Were going to be talking more and more about it as it becomes a more and more important component of the three companies you mentioned. Earlier this week, you highlighted diana greens comments at the conference where she said shes were going to be bigger than amazon in five years at google and both all of us sort of expressed a bit of doubt at that looked askance. Yeah. But its up four fold in four years. The ebitda is up. Microsoft cloud growth was up 52 year over year on 93 azure growth. Then you have google as well. So well keep talking about this cloud because its going to become a more and more important component of all the companys earnings. Why did alphabet have a multiple that was almost like the average stock . And the answer was very clear. It was because people say advertising is a 600 billion market. 90 of retail is still by the way bricks and mortar. But you need to get away from being an advertising company. By the way, did you read the amount of cash there that alphabet has . Tell me what the number is. How about 92 billion of which 55 billion is overseas. I mean, 55 billion, thats almost a market cap of salesforce. It is. Not even far from the market cap of netflix either. What can i say . Salesforce you say. Hold on. I was looking for a company that has the same you know, relative size. But your point on the cloud is good. Its getting noticed in mainstream coverage. Theres the times headlines that says its all being seen through the cloud prism, right . Cloud earnings are the constants. Yeah, i had work day as you had john donohoe on. I saw that. Suddenly let me point out that john donohoe is davids guest yeah. You just took him. Thank you so much. He said that the cloud is just were early in the infancy of the cloud which is really incredible. He said to say hi. Yeah. Great. Thats what i always get. Hi, im going on with jim. Hi. Intel has the revenue miss, jim. Data center was up a little slower that up the prior year, nine. Look, brian, hes not a hype artist. The data center was not what i wanted. Now, you can argue wait a second. Another way to look at this, which is to say there are a couple of days missing versus year over year. They have excellent cash flow. Theyll cut back their spend which i think is good. Look, theres been a thesis going on that the personal computer is better. Remember, thats big chunk. No its not. Were not bulls on personal computer. Hes like, please, man, youre killing yourself. But brian christenitch, hes a noble man. Theres not a lot of money in the internet of things. The client computing was okay. They had 2 billion to spend. Paid 1. 2 billion. Buy back bought back 1. 2 billion. People hate these guys and im telling you that its that that is just not right. They should not be hated. They are doing a lot of things right. Looks like by the way the acquisition this quarter didnt pan out. Im not going to say that i hate the guys. People want to hate them. Theyre not hatable. On amazon because look at this stock, its up almost 30 points at least it looks like right now. Should there be any concern that the north american operating concern fell by 62 basis points . I think most analysts took that into account. They said as the first line of the Conference Call, remember they do most in the note, operating cash flow. Increased 53 . 17. 6 billion. You know what . What that says to me well spend what we want. Then they spent a lot of time talking about india. India. India despite the way that apple will talk india next week. Capex, yeah, theyre spending a lot on fulfillment. David, once again youre hearing about robotics in fulfillment. Robotics, robotics, robotics. When i was out at alphabet which is you know google, robotics. Artificial intelligence. Artificial intelligence said cured this advertising problem. When they Frame International investment as a replay of the u. S. Playbook, that can work . Im buying it. I think you have to give them the benefit of the doubt. The Artificial Intelligence there too. I have to tell you machine learned Artificial Intelligence, theyre saying that the machines are smarter than we are. Theres a terminator aspect to it. As i keep hearing when im out there, the machines are learning faster than we thought they could. What does that mean . What if they talk to each other . What happens if they realize how flawed we should, or they dont like our policies or the way that the government is run . When they attain full consciousness. I have tried to talk to as many people as possible about this and its very mixed as to whether this will happen any time soon. This may be something to be concerned. Some say it would take 50 to 100 years and this month, jack dorsey said comments like that are irresponsible. Really smart people. There are machines right now that i will tell you that i have seen where i am told by executives, these are learning faster. These machines that are artificial arms, they seem to recognize hot. Playing neural network. Its the neural networks, not just throwing xcomputing power t something. Its similar to the brain and therefore learn. But they have a ways to go. I looked at the table looking for the name john connor. Couldnt find john connor. No fate. We need john connor and need him now. Amazon is still adding 130,000 actual people. Google, theyre adding thousands of engineers. You know, can i just say when youre reading or listening to the calls, you feel like youre an idiot. Im an idiot. I mean, again, one of dont sell yourself short. You can go to google and type something. Eagles first and it comes out eagles first. It has first draft barrett and then gives i mean, its scarry. Like type eeg it seems to know youre looking at the draft choice. I think thats scary. All right. So if i type is jim cramer is jim cramer a democrat or a republican . Is jim cramer rich . Is jim cramer sick . [ laughter ] all right, but those are the computer models anything about the wife . Sometimes you type in it has whos his wife, five different people. Thats all Machine Learning right there. Lets do a macro here. Initial reading of q1 gdp says that the investment environment was very strong. Jim, the weakest rise in Consumer Spend since 2009. I read that and, you know, look, i know youre not supposed to look through figures. Thats one of the things that the really great economist say, trust the data. You have to trust the data. I looked at that. 3 span and i keep thinking, okay, is there some way they missed the apple 7, some way they missed amazon . Because, you know, this was an amazon nonbricks and mortar, well talk to Howard Schultz and Kevin Johnson about that. It seems suspicious to me. I dont know. I dont want to necessarily say listen, that that data point doesnt make sense. But i struggle. I struggle. Im struggling. Although there does seem to be an underlying weakness in the consumer a little bit. After the auto there was a big stay at home. When i talked to pat doyle last night whos been the remarkable Dominos Pizza and starbucks is going to sort of indicate that . Something to fall back on . They said theres acceleration. So well give them that. March was a weird month. Traffic down too. There were issues. The traffic was down. Theres issues. I havent theres issues. Theres issues. Yeah. The time will tell if its tax refunds. If its weather. If its mobile order backup. You know . It could be the tax refunds. I have to tell you that when i was on the Buffalo Wild Wings Conference Call, people are taking out, theyre not going in. Th theyre not spending as much. Theyre watching netflix on their xfinity which by the way my wifi drops constantly because i dont have it. Just a little plug for the network. My trainer came by at 3 30, you want to watch on netflix, i watch that circle. What is that circle . The windmill of death. I get that a lot of. Buffering. Someone in my ear said buffering. Well get to qualcomm as well. Later on this hour as you heard, starbucks executive chairman Howard Schultz and Kevin Johnson with some news of sales growth weighing on the stock this morning. Well get to the white house as well. Five ipos at the exchange here today. Were back here in a minute. Ve e the peace of mind and the security just like the marines did. At one point, i did change to a Different Company with car insurance, and i was not happy with the customer service. We have switched back over and we feel like were back home now. The process through usaa is so effortless, that you feel like youre a part of the family. I love that i can pass the membership to my children, and that they can be protected. Were the williams family, and were usaa members for life. Call usaa today to talk about your insurance needs. Qualcomm is moving lower in the premarket. The chipmaker sharply cutting the profit forecast saying it no longer expects in i patent licensing revenue from the iphone. As a result of this bitter legal battle between qualcomm and the company. Qualcomm is one of the worst five nasdaq 100 stocks of the month. Yeah, i was going over the last three recent comp calls they said this Nuclear Option could occur. It wasnt like it came out of left field. Yeah, remember they sued apple in California Court a couple of weeks back, responding to apples suit all over the world. Apple is suing them. Right. This is kind of like a david versus goliath. Qualcomm claims its a commercial dispute, they dont want to pay. Apple says its bigger than that. Look at 75 to 80 cents which we thought would be 91. 15. In the end theres kind of a fratricide here. And qualcomm has the relationships with those independent of apple but apple pays them and or directs them to withhold, even though they have the royalty agreements with the contract manufacturers, not with apple directly. The best thing qualcomms got going for it they can potentially buy inexpi. Thats a Charitable Trust holding. I dont like to hear the word potential. I think it will happen. Because its 105 and the deal is 110 . Shareholders will tell you if it was an independent company now, based on the pure multiples it would be trading higher. Hence the reason i say that qualcomm is one of the few things thats got going for it these days, they have it cheap. They have a contract, 110 cash. Thankfully no qualcomm stock, you know, not an issue in terms of so apple is playing hard ball. I wonder what are the alternatives . On sky Work Solutions which is a very Good Conference call theyre talking about how you have to have qualcomm. You cant get away from qualcomm. No one can get away from qualcomm, especially for 5g. You think its out there i mean verizon says 18. John legere he said it was started in 2015. Listen to john legere on 5g, hey, were ready. We have spectrum. You know john. I think john this is john. Hey, how are you doing, david . Are you okay . Heres what im thinking. We love legere. People wonder if its intels gain on the iphone at least. Interesting question. This is krzanichs moment. But were there if they call us. No, heres what you do as i taught selling at goldman. You know what . You be a little john legere. Were here for you if give a little more distance. You dont wear magenta, but you wear a tshirt underneath to preserve the shirt. I dont think you should fir agha mow necessarily. All right. Cant argue with john legere though. The man has up ended the entire industry. It was a nightmare for its competitors right now. He doesnt like our parent company. By the way the deadline expired last night. They can all talk. Woohoo. Yeah. Well get cramers mad dash after a break. Well count down to the opening bell. Look at the premarket as we wrap up the month of april today. At least from the trading basis. Back in a moment. Pass please. Im here to fix the elevator. Nothings wrong with the elevator. Right. But you want to fix it. Right. So who sent you . New guy. What new guy . Watson. My analysis of sensor and Maintenance Data indicates elevator 3 will malfunction in 2 days. There you go. You still need a pass. 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Keep your lifestyle healthy with aflac on the heels of their earnings last night well talk to Kevin Johnson, president and ceo of starbucks and executive chairman Howard Schultz later on this hour. Meantime, the opening bell is minutes away. Care of my portfol. Well, what are you doing tomorrow 10am . Staff meeting. Noon . Eating. 3 45 . Uh, compliance training. 6 30 . Sams baseball practice. 8 30 . Tai chi. Yeah, so sounds relaxing. Alright, 9 53 . I usually make their lunches then, and i have a little vegan so wow, you are busy. Wouldnt it be great if you had investments that worked as hard as you do . Yeah. Introducing essential portfolios. The automated investing solution that lets you focus on your life. [vo] quickbooks introduces and her mobile wedding business. She travels far and wide to officiate i dos. And quickbooks automatically tracks those miles. She categorizes with a swipe and is ready for tax time. Find more than 4000 in tax savings. Visit quickbooksdotcom. 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Okay. Western digital. This was the stock this is a disk drive and flash based company. The stock was at 85. 50 when the day ended. As the company reported, and as the Conference Call started, it started to tick down. 84, 83. At 1. 82 and change and then they said, you know, in conclusion, we think we can do 12 this fiscal year. People are looking for 8. This is literally 12. This is 50 better and then the stock went up went up 9 bucks in the afterhours. So shame on you. This company, david, also said its in the drivers seat with the toshiba deal you and i talked about. I dont know why they keep saying that or why they believe they are because i hear different. Well, im going to talk to Stephen Milligan tonight, the ceo. 28 billion deal for a 25 billion market cap many, many partners. Theyre going to need a lot of partners. Well, listen, they bought sandisk and they turned out to be brilliant. Maybe they can bring another rabbit out of the hat. Maybe thats what i agree with you. This is a company thats data centered. You go into the data center, flash flash flash. So that goes back to our Cloud Computing conversation at the top of the hour. Intel was disappointing versus so capex for amazon, google on data centers for cloud digital. You know, they bought sandisk. There are not a lot of companies that make flash. Flash is going up in price and Western Digital is saying 2018 for the first half were good too. Thats why youll see that stock up more than any other stock with amazon and alphabet today. Because it data centered. Microsoft which was lower in the premarket is going to open slightly today to the upside. It was surface. I have to tell you that i thought sasha did a good job and then they chased surface down 26 . You saw that stock dive on that. I think people should be a little more openminded about what theyre doing because i like the gross margins. I like the growth in cloud. I think theyre doing a lot of things right. So im not willing to be as negative as the street is son microsoft. It should be coming back. We havent touched gm beats revenue ahead, north america earnings up 49 affords numb r fords reporting. I go back to what david said. When you first the question on the alphabet call, how about waymo, thats autonomous driving. You have to be there. Because its happening faster than we think. You believe that now . Yes, i do. I really think its happening faster and i have got to tell you, having been in one, it knows when to inch out on the stop sign, it knows whos going to run the red light. It knows who the has the blind spot. Its so much smarter than we are. By the way when you get into the car and say, hey, listen, take me to the two best restaurants in summit, boom. All right, which one it just says okay. Or you take my wife has a place over there in another country, so take me to that place. The key for waymo and for all of the efforts on autonomous driving is data and its miles. Did you go to the dmv site. And google is miles ahead of anybody else. Yeah. Far fewer disengagement incidents. Thats what it is. Constantly improving the algorithms. As far as the white house goes, front page of the Washington Post this morning is how close the president says he was to withdrawing from nafta tomorrow. Yeah. Before aides came in. Purdue had a map of the country, areas that would get hit hard. Csx and some of these trade related transports didnt seem to Union Pacific is huge its the biggest one. And Union Pacific had a remarkable quarter. Dont forget you can make a car in pueblo, ship it up by Union Pacific. The differential of the workers is 3 an hour and thats in the peso. So i understand the antipathy anyone might have to that deal. Japan meantime giving an interview saying that they will not make concessions in a bilateral trade negotiation. That if we wanted concessions we should have stuck with tpp. So trade is going to be a Second Quarter story. I think its very interesting because both of these situations, im waiting for the president to play open [ indiscernible ]. And the division that we have in korea, when is that . Korea south korea look out. I think youre in cross hairs. What the heck . North korea major, major says the president when it comes to north korea. Lets get to the opening bell. The s p at the bottom of your screen. At the big board today, its online retailer carvana celebrating the ipo. Well talk to the ceo. Its make a wish, granting life changing wishes to children with Critical Illnesses. They do such amazing work. So for the month, best dow stocks, caterpillar, mcdonalds. Unh. Well, its incredible. The latter two are not trump stocks, the first one is a trump stock. I happen to think that caterpillar has more to go. Its trading when oil goes down, caterpillar goes down. Laggards on the dow will be ibm, verizon and ge. Funny, a lot of stocks after you had a couple closer like a 3m or travelers they came right back. These are buys. They did not feel that way about ge which i think david, you covered very well yesterday with ed garden. Ibm has not come back because the rest of tech is unbelievably good. Verizon, well, you know what, john legere is winning. Verizons down over 13 this year. We know the competition the company has faced. Moving to unlimited seems to have at least helped them from last quarter from suffering what were incredible losses. The first really amazing really. They did come back. But the real question for verizon and i mentioned this earlier people may not have followed the deadline we have talked about this. The ability of carriers not to talk to each other is unfettered. Remember, many of them as a result of their bidding in the auction, the incentive auction for the broadcast spectrum were precluded from talking to each other. That expired last night at 6 00. And so there is this idea somehow that youre going to get everybody talking to everybody. Well see. But what there is a focus on is what if anything verizon needs to do to try to differentiate to try to bolster its business given the lack of growth. What do you do if youre lowell mcadam, do you have to do a merger . You dont have to. You dont have to. Cash flow tougher years and look forward to 5g and the growth thatll bring. But certainly theres some pressure perhaps to think about doing something that might that might bring growth. Or that might bring you more quickly into the 5g world or make it more effective. I know we work for comcast, but david i would have thought that the broadband ads would not have been as good for comcast. It just shows you, people love wifi. Wifi is a key product. Broadband is the key product. Yeah. We havent touched exxon. Profits doubled. Revenues up 30 . Of course last quarter exxon had the first positive revenue number in two years. I love the way that exxon has a cover. You can judge a book by the cover because exxon says we have plenty of money to cover the dividend and do our planned equipment. Like stop it. I didnt say stop it. But it was a exxon is very defensive about the fact it has a great Balance Sheet and has no problem playing that dividend. People were taking pot shots at exxon saying hey, listen, you should be concerned. Those people should be ashamed. I want to get to time and to honeywell. Time wants to be independent. Time is down 18 . They abandoned the process by which in some ways they were forced to go into when janet took a position in the company stock, when access which is since gone, bronfman made an unsolicited offer to take over the company. Meredith was the main name, but after speaking to people involved, meredith was never there fully in terms of its financing. Apparently, wanting to have a financing that would have allowed it to spin off its own television operations. Which was part of merediths plan once its bulked up and gained more scale in digital and print. It couldnt get the lending agreements in place and therefore was asking for more time. From time. And finally, the board of time said thats enough. Were done. Were out. And they are out. Theyre done. Theyre in at going back to access theyre not going back to access at 18. Theyre going to pursue life as an independent company. By the way any of the acts who are after the activists who are after the company they have to wait. Can you get the Digital Business to a real scale number . Theyre 6 or 700 million right now. Can you get it to the 1 billion . People magazine right now is more or less all the ebitda of the company, but is there life for Sports Illustrated or time within the time universe . People has a great following on twitter. Its fabulous. Im concerned. Im concerned there. All right, starbucks is moving lower. Obviously, because they did a kind of a subtle guide down. Reported after the bell for the Second Quarter in a row and sales failed to meet wall street expectations. Some people would say its three quarters in a row. Joining us now is Howard Schultz and president and ceo, Kevin Johnson. Kevin, im going to start with you. You talked about a progression during the quarter that was indeed better. You talked about the idea that youre getting your arms around the stores that have a problem with mobile pay. When we talk next time this quarter, will we feel that this is something that has been resolved or is this really something over the next year or two youll resolve . Well, jim, youre already seeing the impact of the actions we have taken around mobile order and pay and through put the peak at our stores and thats what led to our acceleration in the u. S. Comps in the last quarter. U. S. Comps accelerated throughout the quarter. We posted a four comp in march and its accelerated even further in april. So we have turned the corner on that. Our u. S. Business is performing strong on a good trajectory, and our second largest business, china, posted the 7 comp with 6 growth in transactions. So our two largest markets are performing with great strength. So were very optimistic as we go into the second half. Now, your rewards program which i do like very much i have to admit. Its got a lot of people, 13. 3 million. Im going to contrast you with panera because we know ron shaich did a great job. They had 25 million when they got the bid and they had they struggled with the through put issue. Did not feel it could be solved as quickly as you. What is your ability to be able to move up loyalty because i think 25 million is a great goal and why did it take them so long and you think you can do it faster . Well, i think, you know, our rewards program has evolved over the years. It continues to evolve. We now have in the u. S. 13. 3 million rewards customers. And we continue to enhance the program and enhance the mobile app to bring more customers into that program. But i think as we mentioned on the call yesterday, we are looking at ways to expand expand that Program Beyond the rewards model we have today into customers who might use different Payment Methods other than our store value cards. Big opportunity to continue to increase the number of rewards members. Okay. Howard, good to see you. And we had go ahead. Well, i just i had when you say goodbye, i thought t t that in our last Conference Call when i saw that, that would be the last time i saw you. Frankly im a little surprised to see you in the call. Whats going on . Well, jim, i said for the very i said from the very beginning im here to stay. Im working on our roastry project, doing everything i can to support kevin. We had a big announcement this week in announcing the iconic crate and barrel site on Michigan Avenue in and were under construction in our new reserve store. Obviously im doing everything i can to support kevin and the team. And, you know, i think we have been here many times in our 25 year history of cyclical changes in the business. As kevin said, we have great sight line on the second half of the year, very encouraged by what we saw in april and in the improvements so far in q3 and q4. I just came back from china where we saw firsthand the fact that 2,600 stores in china, one new store opening every 15 hours and the roastery opening in q4. So im here doing my job. As i said i would, supporting kevin and the team and demonstrating my love and passion for the company. Howard, crate and barrel space, anyone whos a ever lived in chicago knows thats an amazing building. Is roastery going to get to the point that you start breaking out traffic for the roastery specifically . Yes, i think we have been transparent already. Were sitting in the roastery thats been open for two years. We have 20 comps here in seattle. Its profitable. The average ticket in the roa roastery versus the starbucks store is 20 versus 5. Its the innovation pipeline for the rest of the company and now with iconic Global Cities like tokyo, milan, new york, shanghai and seattle, the tourism will lift all ships. What we said from the very beginning is if you want to succeed in the ever changing brick and Mortar Retail experience world, youve got to create a destination. You have to create premiumization and create the kind of experience thats going to create theater and romance and these roasteries are going to do just that. Coupled with the investments that kevin and the team are making on mobile and the mobile ecosystem, were going to be one of the big winners in retail over many years. And although it sounds kind of trite, were building and our sites are on the long term. Were building the company for the next 50 years, not the next quarter and the comp numbers will rise and this will be a short term memory in terms of what we experienced over the last couple of quarters. You did just come from japan. 127 cities. Whats the density of starbucks in the average city there versus say one of the cities in america . Its a great question, because we have more stores in shanghai than any other city in the world. And we probably could double that without even having any effect whatsoever on cannibalization. I think the best way to answer that question is theres no doubt in our minds that china is going to have more stores in china than it does in the u. S. And the way we have built the company in china, my visit to china two weeks ago was based on one very important factor. We went to china to have our fifth annual meeting of parents and families to announce the fact that we became the First Company in china, chinese or american, to provide health care for Critical Illness of the parents of our employees. Once again, demonstrating the values of starbucks. I think the government, other Business Leaders and certainly our people demonstrate that were building china the right way and our success there is based on the fact that starbucks has become such a respected western brand and so relevant in the daily life of china. When you think of 7 comps and 6 traffic on 2,600 stores were opening a store every day and the business in the u. S. Starting to show an increase in the sight lines on the second half of the year, we are very bullish and very optimistic on where we sit as a company. Then you couple that with roasteries and the premium brand of Starbucks Reserve our best days are ahead of us. I think thats the story that weve told yesterday and kevin and the team are ready to execute against that. Yeah, let me ask about those sight lines that youve mentioned, howard. Let me ask it of mr. Johnson. What gives you the confidence . I mean, explain to the audience why youre so confident in the sight lines that you both have mentioned that the second half of the year is going to be able to bring the company i guess what would be at least 5 growth for the second half and samestore sales . Yeah, its a great question, david. In our u. S. Business in the last quarter, we saw our comp sales accelerate at sequentially from january to february, february to march we posted a 4 comp into march and were headed into the largest promotional season and thats our frappuccino happy hour. Last week with the introduction of the unicorn frappuccino, we had a organic social response to unicorn that sold out in two or three days and thats set up very well for this frappuccino happy hour season. So we feel optimistic as were going into this that were seeing all the signs of transactions growing, comp growing and you can just feel the momentum turning and we see it in the numbers. So that gives us optimism that were making progress. In addition, we Just Launched a new fresh food concept in chicago called mercado in over a hundred stores. Great response from customers so we have now line of sight to another Growth Engine for the company. That is elevating the experience for customers around food at lunch with the fresh, healthy food menu. A number of great innovations like that are what are giving us great confidence as we look into the second half. But kevin, one thing is certain. I know you had Adam Bronfman at the end of the quarter. It sounds like you have to spend more money to get better through put. How much it costs in the stores to make it fly . Because im concerned about buying that traffic at a more expensive price. Yeah, really we dont have to spend a lot of money to address this. Let me explain why. The first wave of actions we took were pretty simple. It had to do with how we trained for specific roles for our partners in the store during peak. Roles that were there in terms of how they consolidated orders for mobile order customers and how they handed the orders of to the customers. We are going into the second phase which is we wrote some software that runs on a digital order manager that were putting in the store and this is very inexpensive tablet like device and that gives our baristas the orders and then the customers gets a digital notification when their food and beverage is ready. Theres a number of very simple things that are not expensive at all for us to do. We are piloting some additional staffing at peak in some of our very high volume stores and we are seeing the results of that. But we have line of sight to this. We are seeing progress and i think adams doing a fantastic job and, you know, im sure if you visit some of our stores youll see some of that progress in action. One last question on that staffing, kevin, mcdonalds made some comments this week about how kiosks and automations is changing how they staff, less behind the counter, and is there something about coffee that makes that different or a similar narrative . Certainly as customers have embraced the mobile app and they use that to place their orders, you know, that has freed up some of our partner time at the point of sale machine which point of sale which allows them to Better Connect with customers and focus on creating beautiful hand crafted beverages and food and building that Great Customer connection. So we see that as a positive thing, because it helps us strengthen the Partner Customer connection with our partners behind the bar. Howard, one last question. We talked about teavana, i thought it would be great, but it was in the mall. Can you explain to people the spending pattern that you isolated before everyone else and how its only worsening given the fact that mall traffic is getting each month worse and worse. Well, i think you and i have spoken about this many, many times. The seismic change that we talked about a number of years ago was for with regard to compression in terms of mall traffic and street traffic has certainly accelerated. The good news is that starbucks the brand has very few stores in malls and the stores that we do have continue to perform. But teavana is a company that unfortunately is going to suffer as a result of the consolidation of mall traffic and were assessing that. The good news is that teavana has brought significant levels of incrementality and a new need state in terms of iced tea beverages in our stores. But when you consider the fact that starbucks is still opening about 2,000 new stores a year globally, and our stores in the u. S. Consecutively over if last five or six years and this year alone are best performing store class demonstrates how much space we have to open up Starbucks Stores throughout the u. S. So teavana unfortunately is going to be part of the mall problem, but starbucks is insulated from it and we continue to open many, many Starbucks Stores around the world performing as good as any class in the history of our company. All right, thank you so much, Howard Schultz and Kevin Johnson from starbucks. Good to see you guys. All right, lets get to bob pisani, it is crowded on the floor today. Good morning, bob. Noisy crowd here. Six ipos, five of them down here, but earnings are a big story here. Let me show you the sectors because the sectors that are moving are the earning sectors. You heard about the tech earnings thats a leader. A big day for energy as well. Materials and Consumer Staples are lagging here. Let me show you the big oil. Exxon had good news. Chevron beat as well. Cabot oil and gas is on the upside here. The good news about the oil, the numbers came in okay so just look at exxon. 4 billion in earnings for the First Quarter. Thats twice what they made last year. Thats generally good news. People were excited about that and the reason all this happened is the price of oil went up. Its that simple. Oil is 31 in the First Quarter. Remember last year it was in the 20s, now its in the mid 50s so the price of the average price of oil has been strong overall. Thats been a big one. Another one just went public down here. Heres the bad news. Look at exxon, down 10 . The Oil Companies have been miserable this year. The price of oil is trending down. Despite the effort by opec. Capital expenditures have been trending down and production has been trending down for the Bigger Companies so the bottom line here, you get less oil for the First Quarter and youre producing less of it generally. Thats a problem and thats why these companies have had such a miserable year. Look at this, the big Energy Sector down 10 . This is with the s p up. Oil and Gas Exploration down as well. So the market is telling you that the earnings estimates are likely too high and are going to have to come down. I predict the analysts they have been, but theyll continue to take the numbers down for the full year. Meantime, let me turn to the enormous crowds here. We have a demonstrative crowd here. Carvana is here. Were waiting for another one to open. No, not quite. Were waiting for the indications on that. But they have priced the talk is above the range here, 12 to 14 was the price. This is horton works competitor. This is one of the big unicorns out there, the fourth unicorn of the year. And in the middle of the range, carvana, we have indication of 14 to 15. They do online used car sales. 15 million, 15. That was in the middle of the price tack. 14 to 15. Then emerald exhibitions, the biggest trade show operator in the u. S. 17. Although right now the indications are 18 to 20. All in all, folks, this is going to be the busiest week of the year. Seven ipos and of course this will be the second busiest april if we get them all done. It looks like we are in the last ten years. Big excited crowds down here. I know well talk to system of the ceos a little later on. Carl, back to you. Thank you, bob. Lets get to Rick Santelli who had a busy morning already. Hey, rick. Absolutely. Add another one, april read on Chicago Purchasing Managers surveys. Zoom zoom zoomed up to 58. 3. 27 month. Thats not a headline number, the best since january of 2015. When it was 58. 4. As far as what carl talked about, maybe gdp disappointed but we expected disappointment. Where it seemed to disappoint in the unexpected way was consumption. Where it overperformed, if overperformance is correct is on the pricing side. So we want to pay close attention, it showed up right away. Consider that out of two years, now up one on the day, but up nine on the week. Two on the day, up six on the week. Look at the tens. You see how the rates have opened up. Were moving off that low level that we experienced so about a week and a half ago. Same could be said for booms from a lower level as it hovers at three and bund is up. Merkel and the germans are not going to make brexit easy, look at the gilt, its turned a bit. A small turn, so be it. Foreign exchanges are a hot topic. The dollar index doesnt look good. If you open up to 1018 the reason i wanted that 24 hour chart is were hovering right between 9880 and 99. If you open it up to october of 2016, you see the bottom and top there . Well, its very important. 98. 88 significant from 1027. Were below for march 27th and now were going to carl, david and jim. Rick, thank you very much. Rick santelli. When we come back the business of travel. Well talk to the ceo of expedia. S p relatively flat, although the nasdaq hit another record high. Nearly 6051. Well check in with jim after a break. Listen up, heart disease. you too, unnecessary er visits. And hey, unmanaged depression, dont get too comfortable. Were talking to you, cost inefficiencies and data without insights. And fragmented care stop getting in the way of patient recovery and pay attention. Every single one of you is on our list. For those who wont rest until the world is healthier, neither will we. Optum. How well gets done. All right, jim, whats coming up tonight . We have Western Digital. Only up 3. We have bio marin. Then we have the pharma equipment story, one of the great untold stories. Well tell it tonight. I want everyone to have a great weekend and were finished with a big week. You have a big weekend as i understand it. Yes. I listen announcing the fourth draft for the Philadelphia Eagles tomorrow. Its a great honor. Thank you. Fourth round. Fourth round draft pick. Im going to thank mr. Lurie and Howie Roseman for thinking of me. The fourth round pick will be forever my pick. Someone asked me who are you going to pick . Are you kidding me . I hope they have a pronouncer, i hope i dont screw it up. See you tonight, mad money tonight at 6 00 p. M. The ceo of expedia, in a moment. Last year, he said he was going to dig a hole to china. At t is working with farmers to improve irrigation techniques. Remote moisture sensors use a Reliable Network to tell them when and where to water. So that farmers like ray can compete in big ways. China. Oh. He got there. Thats the power of and. What we do every night is like something out of a strange dream. Except that the next morning it all makes sense. To power global ecommerce Fedex Networks are massive, farreaching and, yes. A little magical. Fedex. Com slash dream show me top new artist. [ applause ] [ laughing ] show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments simply by using your voice. And thank you so much. The Billboard Music awards. Sunday, may 21st. 8, 7 central. Only on abc. Good friday morning. Welcome back to squawk on the street. Im Carl Quintanilla with sara eisen, david faber at the new york stock exchange. Busy morning as we digest those tech earnings from last night. Right now, market in a pretty tight range. The s p is almost perfectly flat although a record high for the nasdaq. We are getting some openings on these five ipos at the nyse. Carvana just opened, down about 9 . A company that sells cars out of a vending machine. Used cars. Our road map for the hour begins with the big tech earnings giving the nasdaq a boost. Well dig through the numbers of amazon, alphabet and more. President trump getting ready to sign executive orders on the America First off shore energy strategy. We have details. Plus a big day for ipos. The busiest week we have seen for the year. We have got you covered. But first, lets get some Economic Data. More thats crossing the tape and Rick Santelli is in chicago. Yes. Our april final read on university of michigans sentiment. And it comes in at 97. 0. Now, 98 looks to be the number its replacing, but it really isnt. That was the mid april. The number it truly is replacing was the final read on march which was 96. 9. So 97 is actually the second best number of the year. The best number of the year was january at 98. 5. That was the best going all the way back to january of 2004. By the way, we had the hotter pricing numbers in gdp today. Well, if you look at the inflation numbers, the one Year Inflation Expectation in michigan is 2. 5. And the five to ten year is 2. 4. The same as our mid month read. Sara, back to you. Rick, thank you. And as rick mentioned the other big Economic Data out this morning, gdp increasing at only 0. 7 . The weakest performance since the First Quarter of 2014. Our Steve Liesman joins us with more. Stands in stark contrast to some of the confidence readings and the stock market. The opposite. Yeah. Thats right. The question being asked all over wall street today whether consumers and their surging confidence. You didnt see it in the gdp data just up 0. 7 . And spending 0. 3 . Hard to get much growth if 70 of your economy is acting in a weak way. And up Business Investment is 9. 4 along with housing. Look at the inventories. We show it there as the contribution to gdp. Its subtracted a full percentage point. Barclay said we believe the soft patch was a true soft patch for the household sector, but that weakness in our view is likely to prove transitory. Thats because things like late tax refunds and maybe lower spending on utilities might not happen again. Government spending also fell. Defense spending down hard. That could be a part of this normal season of weakness we have seen in the First Quarter. Keeps dragging down the First Quarter. Inflation a bit higher than expected. But exports had a very strong quarter. Now take a look at the expectation on the street is for a sharp rebound in the Current Quarter. Expectations that Consumer Spending will turn around. Inventories will bounce back. Thatll bring gdp according to many on the street right now up back to around 3 . The expectation also the fed is going to look through this weakness in the number as well. The odds of a june rate hike stand at 64 right now, sara. Steve, i know you have done a lot of work lately on the anomaly of the First Quarter. Why we have this habit of starting the year so weak and then seeing a rebound. Whats the latest economic thinking on that . Well, i mean, almost everybody agrees with it by the way and one of the things we contributed to the research was finding that it went back 30 years. I was seeing a lot of people acting on the street like this q1 number today is not a big deal. So im seeing that the idea of this weak First Quarter is now conventional wisdom out there which is important because it shows people are looking past it. I know the bureau of Economic Analysis theyre working hard to fix it, but its a long term process to try to work out what they call residual seasonality. Its a fancy name for seasonal problems that exist after you adjust for seasonal problems. All right. Thanks for clearing that up, steve, thank you. And by the way, we are looking forward to your interview. Cnbc exclusive with the former chairman of the federal reserve, ben bernanke. Its coming up monday on squawk box starting 8 00 a. M. Eastern time. Some strong earnings from alphabet and amazon looking to drive the nasdaq higher on the last day of april trade. Lets get to the internet analysts. Guys, we can go four or five different directions. Which report from last night do you think truly speaks to where tech is headed . Oh, i think they both do. Theyre the two biggest platforms probably across consumer technology. I think thats true. Google i thought you had something of a trifecta. Look, you had very consistent Revenue Growth. This was the 29th quarter in a row of 20 year over year organic Revenue Growth. Then you had stabilization in core google margins and you had a buy back. Thats what investors want. Theyd like to see some signs of life out of the other bets. They wont see that probably for years. But they got three of the things they wanted. We think the platform continues to grow. We like the stock here. Jason, as far as amazon goes, i have already seen one downgrade simply because its approaching their price targets of in the mid 900s. Where do you think stocks fit relative to what we got last night . Yeah, so our prior price target was 970. The company gave some new information last night. They broke down the revenue by discipline versus by segment. You can do more work on whats the value of prime, the subscription service. Whats the value of the repeat business, which was a new number. 6 billion. You think of that theyre half the size, not apples to apples. But also they didnt give out stock based comp by segment anymore. I think that made some more work as far as, you know, how do you value each of the individual segments on cash flow. But the bottom line is ecommerce gross profit grew again. The i think theyre in i think theyre investing more in software and value added ie head count. There was a bit of a margin hit there. I think if you digest it, i think we move higher from here. On that aws point, mark, i mean this is the business that has multiplied exponentially and been a profit driver for amazon, but with cloud growing so fast for so many others including now google and microsoft, is the competition going to lower prices . Is that going to be a head wind for amazon Going Forward . It could be. Look, one of the reasons that i think the Revenue Growth slowed for aws, the Cloud Business, is because of the price cuts that amazon implemented in the december quarter. We saw those matched by both google and azure. Microsoft azure in the march quarter. But if you step back, you know, what happened year over year amazon added aws added 1 billion in incremental revenue twice as much as microsoft azure did. Azure is growing faster on a percentage basis than on a dollar basis which is really matters. This market is still growing amazons direction. So until somebody comes up with dramatically lower price points and dramatically better products, this is amazons market to win. We still think they have Something Like 70 market share. Remind me which of the two of you covers intel. Both . No. Jason . No. Thats too bad. Because thats a big part of this story. And it does it has to point to the either the Cloud Business were looking at in their case data center. But how much are you incorporating a company not in your universe, jason, into your models . I mean, look, amazon only gives you the capex rate down once a year so we dont know how much money, you know, cash they spent on data center buildout. But ill tell you last year they spent 1 billion less than we thought as a firm and we looked at this wholistically across all the sectors. I think again where theyre making this more complicated is the rest of the sector capitalizes. Their Software Development and amazon does not. It looks like amazon is doubling down on these value added services. And so again, we took a bit of a pause in the margin there. But you know we think their lead is so far ahead of everybody else. You know, mark, we were talking earlier on the show about the growing importance of cloud to microsoft, google and amazon. Give me a sense as to how you see that evolving . Are you going to be speaking about it a lot more in the years ahead given it growth component for all of these companies . You know, david, i remember when cloud was first launched. I was skeptical it was going to be that big of a business for amazon. Then i heard jeff bezos make a comment about one day cloud could be bigger than the Retail Business and i was shocked about that. They started to give more segment information and you realized how rapidly growing and how extremely profitable this business is for amazon and how core it is. So i think every year that were talking about amazon more and more the conversation will be about cloud and less and less is about retail. Both those segments by the way are nice setups for amazon. Only about 10 of all work loads that could go into cloud are in the cloud so theres a lot of secular growth there. Its similar to retail, about 10 of retail sales are online. Amazon is situated against two very large and still lightly penetrated markets so it means the growth should be premium for amazon for the next five to ten years. Well, diane green who runs cloud at google said earlier this week she thinks google could be bigger than amazon in cloud within five years. Do you think thats possible . You know, so i guess since and bezos and aws have surprised me with retail so i shouldnt be surprised by green and what cloud can do for google. I think theres a clear number one player, aws and microsoft azure is number two. Until we get some real data out of google, its hard to see google as a distant number three player in cloud. Yeah, you dont hear that too often. Google has a lot of catching up to do. We dont say that a lot. Jason, mark, have a good weekend and thanks very much. Thank you, carl. When we come back, expedia, another big earnings mover. Reporting a miss on revenue. However, it did beat on some other metrics as bookings were up 14 from last year. The ceo will discuss the quarter and the travel outlook. And taking another look at stocks this hour, the dow is down 23 points. The s p pretty much unchanged. Energy and technology are the strong sectors. The nasdaq trading in record territory thanks in part to some of the big beats from alphabet and amazon. Well be right back. At fidelity, trades are now just 4. 95. We cut the price of trades to give investors even more value. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. Expedia reporting earnings that missed street expectations, beat though on revenue. Joining us now to talk about it in the cnbc exclusive interview is the ceo, dara khosrowshahi. Thanks for having me. So going through the notes on the quarter looks like that keen metric, room nights stayed grew 12 including home away. I know you had a timing shift with easter, but that did seem to disappoint wall street. Is that what youre hearing . Yeah. The Biggest Issue there was easter. When you look at room nights booked which is how much our consumers went and booked on our site, its up 18 on a year on year basis, but last year, easter was in the First Quarter and this year in the Second Quarter. So we recognize revenue when people stay on their vacations because thats the service that were offering for our consumers. So stays kick in lower, but it was purely due to the timing shift. When you look at the booking volume of the business, its growing at very, very healthy levels and continues to excel rate. Something that were pretty optimistic about. Whats going on with tree value go, up 63 Revenue Growth. I see the ads all the time. Is that attracting people . Yeah, that brand is absolutely playing very, very well on a global basis and we expected actually Revenue Growth to slow down as a business scale. But you know that team is just focused on building the best travel hotel travel search out there so you can find every single hotel on earth. You have can get the best price out there. And that branding that we have is working in the u. S. Its working in europe and now increasingly its working into the asiapacific markets as . So we so were optimistic about that and how great the brand is. Dara, someone yesterday was trying to convince me that were beginning to some real tourist trends in the united states. As a result of policy or policy fear thats hurting the u. S. And benefits countries like canada. Is that borne out in the numbers . You dont see it in our numbers yet. But remember that our numbers are advantage because of the online shift and how fast our brands are growing and how much marketing were putting against the brands. But we do hear from some of our partners saying theres spot disruptions. Middle east to the u. S. Is weaker. Mexico to the u. S. Business is weaker, but we havent felt it. The Biggest Issue that we see has to do with currency. So the euro being weak actually helped the u. S. To european volumes for us. And air prices being down, transatlantic fares theyre down 10 to 20 have really helped outbound business for us. Inbound business is weaker, but its mostly because of currency. Not yet because of any uncertainty were seeing. How would you characterize the overall Summer Travel season . What does demand look like . So far, so good. So far, so good. We are seeing strong demand. And again, because of airfares being lower, airfares being lower have caught the casual traveler and theyre the bread and butter of our business. Package deals going into mexico, save 1600 bucks on a package which is huge. Thats helping to spur summer demand which is a good thing and corporate demand with our argent ya group is holding up. We saw the profit up 70 on the year over year basis. So far, so good, despite the political noise you hear. What about factors like zika . Is that still driving decisions on travel and another one you didnt mention was terrorism. Yes, so zika actually doesnt seem to be a factor anymore. Zika definitely hurt our partners business in florida, but miami is back. Orlando is back. And theyre up strongly, positively on the year over year basis which is great. I think our partners in florida are a lot happier than they were. You know, on the terrorism front for example, we saw london growth get a little bit weaker after the westminster tragedy over there. But it seems to be coming back. So people i think are a little bit attuned to whats going on in the world and we see the local travel patterns change. But the macro which is more and more people are traveling. More people are coming online and more people are using their phone to book travel that remains a pretty significant tail wind for us. Dara, you were one of the more outspoken ceos during the president ial campaign. I know youve quieted a little bit after the last earnings call. Do you have any thoughts on president trumps first 100 days in office . I think 100 days is early. You know . We took action and we spoke when travel, which is our core business, we felt to some extent was threatened and our travelers were thrown off by the travel ban. So we took a position there. But listen, we want the u. S. To succeed. We want this president to succeed because hes a leader of our country. And i think 100 days is too soon. We think things can get better. At this point we see consumers traveling, we see corporate spend and we hope that keeps up. All right. Positive message. Well leave it there. Thank you very much for joining us on the quarter and some of the big trends affecting travel. Expedia ceo, dara khosrowshahi. Thank you. As we go to break, take a look at shares at carvana. The stocks down about 12. 5 . The online only used car dealership, famous for the car vending machines going public, along with four other companies. Well be joined by their ceo, ernie garcia, when squawk on the street continues. Seffortl, that you feel like youre a part of the family. I love that i can pass the membership to my children. Were the williams family, and were usaa members for life. Welcome to holiday inn whether for big meetings or little getaways, there are always smiles ahead at holiday inn. Lets[ whimpers ] dog. Find pingpong. Okay, lets go. Find your awesome with the xfinity x1 voice remote. Thats amazing carvana just opened for trade here at the nyse. The stock off about 13, 14 . Ernie garcia is the ceo and he jones us here at post 9 fresh off of the opening trade. Congratulations. Good to see you. Thank you very much. A lot of discussion about the category of used cars, how long its taken technology to basically blow it open, right . From the model standpoint. Explain how it works. Yes, customer goes to the website, we have 8,000 cars, they can pick the one that you want and go through the financing, tradein, anything else they want to do. They buy the car, we deliver it the next day and then they have a seven day return policy. Its coming at a time where used cars, used car pricing, right, this notion of peak auto in this country is happening. Do you believe it . You know, i think theres probably something to it. Theres generally cycles in automotive and last year we grew at 180 . Our growth rate is far surpassing anything that will happen in the macro environment. So well keep doing what were doing. The revenues are growing but so are the losses. What are you investing in . So it costs a lot of money to get up and growing and were putting the fuel in the tank. But the Unit Economics are very clear. We feel well turn it around very soon. Tell us more about the economics. S youre losing youre losing money now and delivering a car within a day has to be pretty expensive. Yeah were the First Company thats taken Automotive Retail and taken it online. That means you have to build out the website, the logistics network, build a brand through advertising. The good news is that the variable costs are very, very low. So were able to sell cars at a lower price. We have to get to a certain scale and then the economics turn around pretty quickly. The dealer the old school dealer model tesla is trying to disrupt dealers. Youre disrupting dealers. Theres an inherent resistance to that. Have you found that or is it different in used . I think its different in used. The Regulatory Environment is different. And we found customers are responding. Were able to do what we have doing. We have rolled into 21 markets. So well keep on going. Based in phoenix and gradually working your way east . We have opened an office in atlanta and were going into texas and northeast. Projections on locations, how many can you hit over the next few years . We think we can hit the large part of the market. Our costs to enter the market have very low, so unlike dealers that have big fixed costs we think we can hit the small markets as well so the opportunity is large. It doesnt have to be urban necessarily. It does not. What defines a market that is buying used, is it rural . We initially thought wed see millennials, you know, skewing wealthy wealthy, buying electric cars. I think older people, they kind of know they want something different. So were appealing to the broad demographic base so its driven more by supply than demand. You offer financing, correct . Through our platform, you can get financing. We do all of the work to make it very easy for customers and then we pass it off to ally. Im wondering what youre seeing in terms of were hearing more reports of bad loans piling up when it comes to the auto industry. Are you seeing that . Yeah. So i think thats certainly something very topical these days. I think were seeing that more in vintages than across the entire pool of auto loans that have been originated. I think that suggestion was competitively driven. Again were not taking the threat risk ourselves, were working with third parties, ally in particular to give the loans to our customers. What about sourcing, are you sourcing a lot of the used cars online as well from people who are selling to you or where are you getting your cars . Yeah, so the natural source of cars are people. So you can buy cars directly from people. Rental car companies, the captive finance companies. Leases is driving some of the cycles. So theres lots of volumes to get our hands on. What about the Autonomous Vehicles . I can do a cash model that doesnt look that good and the used car market becomes much much smaller. I think, you know, thats an open question. I think the first several steps in autonomy is probably people owning cars. You know, owning more Autonomous Cars and where it ends up we will see. Time will tell. But in any case we feel good about our opportunity. We think we have a couple of moves in that world as well. How do you manage what percentage are domestic, foreign made, suvs, compact . Just what comes in . So we let our customers tell us. We take a very data driven approach. Were looking at the click stream data. What customers are looking at what theyre searching for and then we buy the cars they want. Thats how we drive it. Well, congratulations on a big day for you guys. Thank you very much. A big milestone. Good to have you. When we come back, what president trumps tax plan can mean for the deficit. Its the question of the week. Pulitzer prize winner jim stewart is with us. Shares of star bucks are on the move. Howard schultz and now Kevin Johnson sought to reassure investors on this show an hour ago. Take a listen. Youre already seeing the impact of the actions we have taken around mobile order and pay and through put at peak in our stores thats what led to the acceleration we saw in our u. S. Comps in the last quarter. I think we have been here many times in our 25 year history of cyclical changes in the business. As kevin said we have great sight line on the second half of the year. The power of innovative thinking. The power of 100 of the worlds top companies. The power of an etf. The power of qqq. The thinking we put in, clients get out. Power your clients portfolio at powershares. Com qqq. Before investing, consider the Funds Investment objectives, risks, charges and expenses. Call 8009830903 for the prospectus containing this information. Read it carefully. Distributed by invesco distributors inc. Good morning. Im sue herera. Heres your cnbc news update at this hour. Pope francis arriving in egypt for an historic twoday visit to show a united Christian Muslim front. He will hold a series of symbolic meetings with religious leaders. The metropolitan police in london confirmed the arrest of a 27yearold man on terrorism charges following an incident outside the British Parliament on thursday. I stopped and searched this person in the ongoing counterterrorism investigation and hes arrested for terrorism act offenses and possession of weapons. Nasas cassini spacecraft has survived a trip between saturn and the rings and has the pictures to show for it. The rings are comprised of icy particles which could have destroyed the spacecraft. But scientists are thrilled. They say the pictures show details never before seen. Pretty dramatic stuff. Thats the news update this hour. Sara, back downtown to you. Sue, thank you. Sue herera. President trump is getting ready to sign an executive order on off shore energy. Eam eamon javers is at the white house with what we can expect. Good morning. The Trump Administration is frustrated with what the Obama Administration did in terms of the oil and gas leases particularly in the outer Continental Shelf. What theyll do here is direct the secretary of the interior to review all of that and come back to them with some recommendations. Heres what specifically is in this executive order today. Theyre. Theyre a going to direct the off shore oil and Gas Exploration and proposed the oil and gas development. Theyre reversing obamas withdrawal from the arctic, outer Continental Shelf planning areas. Theyll reconsider various other regulatory measures. I can tell you in one of the fact sheets that the Trump Administration handed out, the oil revenues for oil and gas leases are way down from 2008. In fy2016, federal revenues from the outer Continental Shelf were 2. 8 billion. They were much higher in previous years so in is an administration that wants to get oil and gas going. They want to open up some access for companies to some of this drilling area off shore. The question will be with the price of oil where it is now, you guys can tell me this better than i can. It will will Companies Find its economically competitive to go after the leases and begin drilling in the areas. Thats where theyre going at the white house this morning. Eamon, thats a key question, of course. With wti below 50. A worthwhile question to be asking. Thank you, eamon javers. Speaking of the white house, President Donald Trump opening up about his first 100 days in office. In an interview with reuters he described a surprise of the office. Take a listen. I loved my previous life. I had so many things going. I actually this is more work than in my previous life. I thought it would be easier. I thought it was more of im a details oriented person. I think you would say that. But i do miss my old life. This i like to work so thats not a problem. But this is actually more work. Well, one thing that might prove also to be more work is the president s tax reform plan. Which our next guest says will likely only add to the nations mountain of debt. Joining us here at post 9 to discuss, pulitzer New York Times winning columnist, jim stewart. The administration they put out a one pager on wednesday, the mantra is well cut taxes. We will generate gdp growth the likes of which we have not seen in a long time. And that will take care of the deficits. Well, that is just patently absurd. I spent the time since wednesday mostly talking to republicans and conservative economists and tax experts because you know the democrats are going to oppose this. Its a give away to the rich or whatever, lets take that off the table. The people i spoke to were literally speechless at this tax proposal. I think the only word for it is reckless. It really made no attempt to generate additional revenue to off set the cuts stunned people. The house republicans, kevin brady, paul ryan, have been spending years, a decade of hard work trying to come up with a way to make this system fair, to reform it. To make it revenue neutral while having tax rate cuts. And this throw that out the window. Doesnt even try. How many . Its like 6 trillion just in the cuts if he goes for expensing of capital expenditures, another 2. 2 trillion. Get rid of the were well above 8 trillion they did suggest repealing the ability to deduct state and local income taxes. That could generate some revenue. It does. But estimates i heard are roughly maybe generously 2 trillion. It would get you down to the net 6 trillion. But do you realize how much this blows up the deficit . Im not a deficit hawk personally. I think the growth argument, you could maybe the best Case Scenario get to 1 trillion additional. I think you could pay for infrastructure because thats an investment. That yields productivity. I think you can make the case for that. But that still leaves us a hole here of like Something Like 5 trillion. When and you have the Interest Payments over time. It literally left people reeling. Have we gotten a cogent explanation at all in terms of facts that this will generate the tax revenues to make up for the numbers youre talking about . Well, theres kind of a rule of thumb out there that for every additional 2 trillion in debt, you need a full percentage point of additional growth. So if youre going to add 4 trillion lets say, you need two full Percentage Points on top of what we already have. Lets say we have 2 growth. You need 4 growth. Nobody thinks we can get to 4 growth. That is not realistic given the mature state of the economy, the demographic challenges of the baby boomers retiring. Lets say we could get to that. That gives you that one percentage point. Maybe again you could maybe argue at 2 trillion additional there. But the problem then is youve got all this additional government borrowing. All that demand Interest Rates start going up. These start going up quite a bit and that puts a brake on the growth. So like the Tax Policy Center when they were modeling this found only a tiny incremental amount of revenue from growth because you model it out in the years. The interest growth goes away. Of course as you pointed out this is not legislation. This is a one page list of ideals thats going to get negotiated. So whats to say this isnt negotiated into the area where there are offsets . Its some kind of an opening salvo. Its not that different from the campaign thing. Its basically handing it over to brady and ryan and saying, okay, you guys do all the hard work here. Weve put out all the benefits, all the cuts. All the goodies that people want. And now you have to do you have to be the bad cop and come tell us how i wonder if that makes the border adjustment tax more likely . It could be a bargaining chip potentially to raise some revenue. Most people i know think that the border tax has to come back. I mean, where do you get this money . I mean, i dont think anybody congress is not going to pass a tax plan that adds 6 to 8 trillion to the deficit, period. Where do you get the money and the border tax is one of the few places you can find it in the magnitude that begins to make a dentdz on this. Speaker ryan said theyre 80 in line earlier this week. Which i found somewhat surprising but maybe the 20 is on the hard part. I dont know. I dont think 80 of them is enough. You know, another thing ill say, after promising and promising to close the loopholes he knew about that i have been writing about, this doesnt close a single loophole that benefits real estate or trump himself. We were kidding about this earlier in the week, whats to stop people from becoming llcs or ill be an llc, trust me. Everybodys going to. Thats long been a challenge, how do you figure out like youre a lawyer, youre a doctor, youre sort of selfemployed. You have been paying personal income tax and now all of a sudden youre a business, youre a corporation. I dont know that the modelers know how much about there will be. There will be a stampede in that direction if you cut it to 15 . Do you have a thought on time . Trying to do this on their own now. The stock was way down in the premarket. On time . Timing. Well, look, i have two words about timing. Old media. Do i have to say any more . I mean, i know it is hard. Maybe thats too harsh. I know theyre trying to reinvent themselves, theyre really grappling with the digital thing. But look, this world is changing fast. You see google and facebook are getting all the advertising dollars. Where do you think thats coming from . They get incremental spend is all them. All the growth. All the time. Time doesnt have a lot of time. But thank you for your time. Youre welcome. Thank you. Jim stewart. I wanted to talk about something we havent talked about this morning. Honeywell, the some time activist investor, yesterday he released the First Quarter letter in which he discloses a position in honeywell and also discusses his desire to see the Company Split off its aerospace division. As i reported earlier, this is the product of what had been conversations that have gone on since mid february between honeywell and they have helped to examine this idea is at least not initially opposed to that examination. That does not mean that it is going to move ahead with the the potential split of aerospace. But its going to examine it over the next few months to see if thats a way to add value. Mr. Loeb for his part thinks it can add 20 billion worth of value. That number you might imagine perhaps not quite something that is agreed to by management at honeywell. Which is new management. The new ceo took over from dave cote a couple of weeks back. Hes the companys chairman. But hes open to the examination and will do it in a rigorous way im told. For his part, loeb knows that this is not a restive shareholder base. Hes presided over creation for shareholders over a long period of time. Not to mention this year alone. But aerospace has been a laggard. Theres a belief that you can get a higher multiple where you spin it off. Even though you wouldnt get a higher multiple independently. What would be left is a multiple more in line of the peers that trade 23 times earnings versus the 18 or 19 that honeywell does. Well see where this ends up. It is not nasty at this point. It may very well never become nasty as the examination continues. But you can see of course guys, honeywell the stock price is responding positivity to the news this morning. Thats an alltime high on honeywell. As we go to break, look at shares of qualcomm as well. Not an alltime high. In fact its one of the worst nasdaq 100 stocks of the month. Sharply cutting its profit forecast as it no longer expects patent license revenue in the Current Quarter and thats because of the increasingly bitter legal battle between qualcomm and apple. Im connecting our brains so we can share our amazing trading knowledge. Thats a great idea, buwhy dont you just go to thinkorswims chat roo where you can share strategies, ideas, even actualras with market professionals and thousands of other traders . I know. Your brain told my brain before you told my fac tap into the knowledgef otr traders on thinkorswim some people are go going to think that the stock market is overvalued but not jeremy siegel. Hell tell us why he thinks that. Thats on trading nation. More squawk on the street coming up. So what else is new . Hows ur mother . Umm. Shes doing good. She eds more care though. Shwants stay in her hse. I donknow 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 planbaird. Its a busy day for ipos here at the big board. Cloudera up 20 , priced at 15, about 15 million shares. This is an Enterprise Data company. Manages big data. Well talk to the ceo, tom reilly, in the next hour on squawk alley. Keeping an eye on that stock, now up 21 . The overall dow is down 21. Lets send it out to chicago and the group, santelli exchange. Hi, thank you, sara. I want to welcome a perfect guest or the today, doug, thank you for taking the time. Sure. All right well talk budget. Well talk tax reform specifically. Well talk about it philosophically. We just heard James Stewart talking and like many, he brings up what we always hear when we talk about tax reform. And that is revenue neutral. My philosophical question to you is, if you have a revenue neutral tax policy why is that collecting the same amount but different proportions from different payers . Why is that good . Isnt the kicker supposed to be keeping more in the hands of taxpayers and that deficit is your leverage for dynamic scoring to create the growth . So explain it to me. Well, lets see. If you did static revenue neutral tax reform, you can do some good maybe by collecting more efficiently. Less administrative costs. I can make that case. But its not good enough. I think youre on to the right insight when you look at the dynamic score, it has to be about growth. Especially right now. Were doing terrible. So tax it should be about growth. I would make the case that you want to dynamically score it. Sensible growth estimates. And make sure thats revenue neutral. Heres why, rick. Number one, you can get us through the senate. Thats the geeky rule problem. Number two, its hard to do tax reform. I think its even harder to keep tax reform. I look back at 1986, and within five years it had unwound completely. I think it was because we ran deficits, which at the time seemed large. So that gives you nervous people, open up the tax code and get more revenue and then the tax reform is gone. I want to get it and keep it and growth is the key to that. All right. So in the case in point and we dont have enough details, but roughly, theres going to be supposedly anywhere from 5 to 5. 5 trillion created on a deficit on a ten year horizon based on what we know so far. But that shouldnt be the end of talking about this particular plan. Of course more details. Did the last administration after the Great Recession poison the well because they did not prudently deficit spend, hence no growth. Does that mean that that line of thinking is forever closed off . I think the last administration did a terrible job in managing the deficit. I mean, they put all sorts of new spending on the books. Once you spend it youre going to pay for way or another and its made everything about the environment much tougher. Yes, we need good tax reform. I agree with you. You can start with what the president said. By the way, nothing the president said is inconsistent with anything the house has said and senate is talking about. Lets get good tax reform. At the same time, it doesnt mean you can spend all of the money you want. You have to take care of the spending side. Thats really where the taxes go up. If you spend it, youre going to pay for it. In the last minute we have quickly sunset. If were going to see this done reconciliation because we dont have 50 filibuster proof votes, is the horizon for this tax plan should it pass ten years . Because in some things that youve written about, you specifically pointed to the corporate drop maybe having sunset after three years. Can you explain that . This was a big surprise to me. Evidently if you just cut the corporate rate, say you go from 35 to 15, and you keep it there for three years, you will create a deficit in year 11. Thats past the budget window. As a result, you will be in violation of the reconciliation rules. You cant pass a threeyear tax rate reduction in reconciliation. Most you can get is two. To me, getting two years of rate reduction is not enough. Thats not a serious boost to longterm productivity growth and trend growth so i think the lesson of that is do the dynamic scoring. Get it right. Make it permanent. Get real growth effects and get them on the books. I couldnt agree more. If it isnt something long lasting, youre not going to see the Behavioral Changes made by Corporate America to get the growth kicker. Listen, doug, always a pleasure to talk to you. Thank you for taking the time. Sarah, back to you. All right. Thank you. Lets send it out to jon fortt with a look at whats coming up on the next hour in squawk alley. Jon . Earnings obviously. Take a look at amazon, alphabet, over 900 bucks a share after earnings. Microsoft, intel hanging in there. Well break that down and cloud era. Long anticipated ipo happened here. It is up sharply. Well talk to the ceo first on cnbc and ron howard. The insight into his next project. All that and more coming up on squawk alley. Hey, im the internet i know a bunch of people who would love that. The internet loves what youre doing. So build a better website in under an hour with. Gocentral from godaddy. Type in your idea. Select from designs tailored just for you and publish your site with just a few clickseven from your. Mobile phone. The internet is waiting start for free today at godaddy. The u. S. House of representatives voting right now to extend the deadline until may 5th for passing a spending bill to avert a Government Shutdown. That deadline was today. Well take you live to capitol hill next. Clearly the house trying to punt this a week to keep the government open. As for stocks, dont let the unchanged major averages fool you. This is still the best week for the s p and the dow up 20. 17. Nasdaq outperforming today and all week in record territory above 6,000. Today getting fueled by very strong results from the likes of amazon and alphabet. Squawk alley is coming up next. Last year, he said he was going to dig a hole to china. At t is working with farmers to improve irrigation techniques. Remote moisture sensors use a Reliable Network to tell them when and where to water. So that farmers like ray can compete in big ways. China. Oh. He got there. Thats the power of and. Our 18 year old wase army in an accident. 98. When i call usaa it was that voice asking me, is your daughter ok . Thats where i felt relief. Were the rivera family, and we will be with usaa for life. To err is human. To anticipate is lexus. Experience the lexus rx with advanced safety standard. Experience amazing. Welcome back to cnbc. Im Kayla Tausche on capitol hill. The house of representatives passed a bill to keep the government open for one more week and fund it thereby averting a Government Shutdown which never happened in a president s first 100 days. The vote will move to members of senate. Were told there will be no vote on health care in the president s first 100 days, but they did avert for now in the house of representatives a Government Shutdown. Democrats have been posturing against the provisions in a fully funded bill that would be discussed next week about poison pills. Thats what they call certain provisions that they do not support. Senator schumer saying there is still progress that needs to be made on that front but as far as keeping the government funded for one more week averting that shutdown which had become increasingly the most urgent priority for the white house and for members of congress, that has just passed the house. For now, back to squawk alley. Lots of big pieces of news. Thank you very much, Kayla Tausche. Good morning. Its 8 00 a. M. At Amazon Headquarters in seattle. 11 00 a. M. On wall street. Squawk alley is live. Good friday morning. Welcome to squawk alley. We look at the markets today. You heard the political news from kayla a moment ago. Alltime high for the nasdaq. Fifth in a row