Transcripts For CNBC Squawk On The Street 20170502

And more. The nasdaq rally rolls on buoyed by apple which reports tonight and united ceo set to testify on capitol hill this morning. What is at stake for the carrier and the industry . First up the president s comments about considering breaking up the big banks, created a lot of buzz yesterday on wall street. Jim, the point was made he doesnt often talk about the big banks, talks a lot about community lending, but that did give the markets a bit of a scare. Was it deserved . I think that the president when hes in front of particular audiences likes to say the things that the audiences want to hear. This audience does not like the big banks, feel like what happened during the Great Recession was far too much concentration in the hands of wells fargo in the hands of jpmorgan and bank of america, but remember, those were really at the behest of the government. They were trying to make sure that everybody was able to have a bank that worked and we didnt have a collapse. So to undo it while it certainly would make sense in terms of trying to get back to the percentages that people are used to, i think is almost impossible. We had barney frank on squawk this morning, david. He made the point even as we talk about separating Investment Banking and lending the journal goes page one with a story about goldman, doubling their outstanding loan balances since 2011, embracing the bland side of lending as they say. Yes. I saw that as well, of course, and it is, you know, as blankfein said were a bank, why not act like one . Remember they became a bank during the course of the crisis quite a few years ago at this point. I think its interesting, though, jim, the market didnt really react to the comments from trump. It does seem as though investors are starting to kind of i wouldnt say ignore, but muffle whatever theyre hearing from the white house, when it comes to some of these things that seemingly come out of nowhere. Look, that couldnt be more true. What happens is that he throws way lines. Were not used to throwaway lines. I remember when george w. Bush at one george bush sr. Talked about the notion whether credit cards were good orn not for the consumer and you saw a paralysis because he rarely said anything off the cuff. This president says pretty much everything off the cuff. Tomorrow he could go an front of the big barvenks and say you gu do a terrific jock. We dont want to overreact, some would say we dont want to react. Is that what youre doing, jim, not reacting . Yes. I thought when i saw jpmorgan and wells fargo tick down for ail second and come back even harder because Interest Rates went up, i recognized and i think everyone has to recognize that the president aims to please but we cannot take it as gospel, simply because he likes to throw things out as ideas, but look, they cant even get through repeal and replace. Youre certainly not getting a bill through or anything executive action which just says you know what . Bank of america has to return to the way it was in 2006. Its not going to happen. Its a great talking point, but its not going to happen. David, it certainly points to what you and the treasury secretary got to yesterday, this is mnuchin with faber yesterday talking about the top tax rate. Youre lowering the top rate, so those people may not get a tax break, and were less concerned about creating a tax break for people on the high end, but theyre getting a lower rate, so were lowering the rate from 39. 6 to 35 , i think theres a lot of people that would say i give up my deductions for the lower rate. So were going to have to put that into the mix of everything we heard yesterday, david. Yes, that was in the context i believe of the part of our conversation that dealt with the potential elimination of the deduction for state and local income taxes, which weve talked about actually for quite a few months already on our show in terms of whether or not it will be a significant blow to the economies of high tax states such as the one im in right now or the one youre in right now, carl, and that was the response to a certain extent from the treasury secretary. Well be talking about this as weve said so many times for months to come. One of the key points of our conversation centered on whether or not it was wise to even come with the, you cant call it a plan, with the one page series of proposals or outline that we got from the Administration Last week. Secretary mnuchin said it was, that it was simply a way to present how theyre looking at things as they move into what he believes will be a period of negotiation over a loft the real details including all those deductions he says are going to go away, that theyre going to be talking with the congress about, and i guess thats where were going to get a better sense as to how things look when they come out of that negotiation, whenever it actually fully takes place and kind of concludes. But jim, it sounds like your point is, the calendar is already so packed with things that are big and aspirational that to consider other big aspirational things like breaking up banks, youre just saying theres no band width there, is that your point . Exactly. Look, we would have to hold hearings for months. Jamie dimon would talk about the virtue of lending, how many veterans he hired, how theyre putting people to work and do you really want to destroy this machine that creates jobs and creates tremendous lending and we would use the word jobs probably like maybe 23 times when hes not talking about the fortress Balance Sheet and next thing you know, that was a good idea but i guess thats not going to happen. I thought davids interview was incredibly eye opening. They always have an answer for why they do things that seem to me counter intuitive. Do you really go in front of do you put a onepager on some of the complex issues . I had my taxes calculated under this and my rate goes to about, i have to pay 2 higher so there is some validity to the idea certain states get hit badly and your taxes go up. Again, do they have anybody championing any of these things in congress . There was a piece today in the journal so and so an ally of trump, almost as if, well wait a second. He has allies . He has no allies to speak of for these things, so theyre great talking points and if it was actually just a tv show or even a tv network that he had to win over and get ratings, he might win, but its not a tv network. Its not ratings and the fact is that the tv network he might be winning over is falling apart in front of our eyes. Your points well taken, jim. Were going to have to balance that all the d. C. Stuff with earnings, apple looking to hit another milestone, a day after rising to that record high. The dow components earnings are due tonight after the bell. Amd results were in line but the stocks down on concerns about gross margin guidance and operating expenses for the current quarter. Jim, on apple, not only do we have the record highs, but theres some lingering conversation about components and logistics and supply and whether or not that could affect the timing of the eight, things we might learn about tonight . One of the things i really despise about the way these analysts cover everything is theyre always trying to track the readthrough from broadcom shows were only 51. 3 million phones sold and looking for 51. 4 million phones. I think people have to get outside themselves and recognize if the new phone is a crowd pleaser, there will be people who convert. There will be people who go trade their phone in. We have to see how big the actual new phone is versus what we have. Advanced micro, what can i say . Every single line was bad. The Gross Margins were bad. The inventories were bad. The guidance was bad. All i can tell you is that a lot of people thought it was the same old amd that stock moved up and suddenly were collapsing. They have an Analyst Meeting which maybe they can clarify things. That was a Conference Call. Wasnt a head scratcher. It was just bad. Four cent loss in line but obviously the guide on q2 was mixed and we talked about that margin disappointment. Overall, jim, we talk about the divergence between the hard data and the soft data, why the surveys, and sentiment are so good, when the macro data is not as good. Some are saying the earnings are good enough to sort of help resolve that debate, that theyre coming in Strong Enough to think maybe these, the soft stuff, the stronger numbers make more sense. Well i think that the most important quarter this morning is one we dont talk about enough, which is cummins, cmi, the stock could be up an incredible amount. Not only did they guide up but talked about 17 gain in rest of world, particularly strength in europe, and particular strength in asia, including china, and United States really kind of just okay, some people would argue sub par. When you see cummins up 1 and it could be up 20 because this was the quarter we never expected you recognize the world is a betert place but not the u. S. The u. S. Is okay. The rest of the world is playing catchup. Of course, you covered a lot of this with mark bennihoff not just the earnings picture but the way in which sales forces leveraging ai. This is last night. Actually theres a lot of things you can do with ai to make businesses better. Every salesperson wants to be guided and advanced to the right customer and the right prospect. Every marketer wants to build a one on one relationship with their customer, every customer after wants to provide the best solution to that Customer Service in need and the reality is that right now, where the technology is, its going to make sure thaw get a much better answer and make you a better person. Pretty amazing stuff, jim rega regarding what a. I. Can do. David i saw the president of the world bank where you are suggest twothirds of jobs in developing countries could be displaced by automation, yesterday . Yes, its been a big theme here at the Milliken Institute conference, the idea of whats coming up and we talk about it again off and on in the show in terms of robotics, machine learning, a. I. Being such an important component of both of those, and what thats going to mean for employment. It came up on the panel that i was leading on the future of finance and so many others, and as always, its sort of a mixed picture. You continue to hear this cry that yes, there will be an enormous amount of displaced workers but eventually the economy will change, and the dislocation will cease and we will end up with those people finding jobs. That or were going to have an awful lot of free time on our hands. Question is how we all survive, right . Go ahead, jim. Well, i just think that i have to tell you that something came up that we talk a lot during the commercial. We talked about terminator, talked about the machines learning faster than the people and talked about the need to be able to have k through 12 be better, so there could be 5 million apprenticeships, something that benioff put toward to the president and he said the president loved it, wasnt just he liked the term apprentice but it has to happen quickly. The jobs place placed by this Incredible Technology are jobs people will be displaced from the workforce and david, ive got to tell you, the notion of the terminator dismissed out of hand by marc, i wish i could dismiss it as quickly, because i do feel the machines are learning faster than people. Yes, jim, ive tried that same tack with a number of people that ive been speaking to, not just on camera of course, but in a lot of conversations here, this idea that at some point theyre going to gain consciousness, that being the machines and no more than we do but we dont know when that time comes. Everybody wants to dismiss it. I dont know, ill still be concerned. Its not going to keep me up at night but i think we should all be aware of that. Apparently at many of these companies there is certainly a focus on not just the ethics of a. I. , and making sure you are using it properly in certain situations, but on this basic idea of how can we, if we need to, turn it off. I dont know if you talked to benioff about that at all but thats coming in conversations offline here with people focused on it. Again its a part of every single business, certainly an incredibly important part of benioffs business at sales force. Its not just a technology solution. Its a solution in so many ways for so Many Companies across the board in terms are things right now not fully automated. Marc also talked about trail head which is this initiative to get people who we would not normally expect to write code, be part of this new economy and its succeeding and people who did not necessarily go to stanford. Id like to think theres another place to learn besides stanford. Is guys, as were talking here the president has put out a couple of tweets, ill just read them to you, back to back. The reason for the plan negotiated between the republicans and democrats is that we need 60 votes in the senate which are not there. We either elect more republican senators in 2018 or change the rules now to 51 . Our country needs a good shutdown in september to fix mess jim, you were just talking about the president and his off the cuff comments, needing a good shutdown might qualify. This is the kind of tweet that makes you concerned as we heard at the white house correspondents dinner, times the president tweets and you cant figure it out. Good shutdown is a kind of oxymoron but the view of a shutdown only encompasses the National Parks or something. Its not helpful. This cant be helpful, but again, i think you know, the conversation that we started with this morning, guys, in terms of the fact that the marketplace did not really pay close attention to or take seriously in many ways what the president had to say about breaking up the big banks yesterday. Were sort of i think there is more of a muted effect now overall, so ill be curious to see if there is any reaction to something i would assume most people see as not particularly helpful, just in general. Right. Our nerves have been deadened in 100 days. Guys, quarter past the hour. Well get ford numbers here for april, and for that well turn to phil lebeau doing double duty covering auto sales and united in d. C. Reporter weaker than expected sales for ford, decline of 7. 2 , the street was expecting a decline of 5. 8 . Well get General Motors numbers in 15 minutes. What were looking at is not only the pace of sales, but also what were seeing in terms of incentives, and inventories and with regard to pace of sales, most are projecting that it will be at a sales rate of 17 million to 17. Million. If its weaker than 17, that will have a lot of people saying were at peak autos and trending down. Back to you. All right, well be coming back to you in a little bit, phil, for gm and more. Jim, we got inventories at 72 days, it was 66 days this time of year ago. You got incentives running 10 of msrp. Any doubt in your mind weve hit peak auto . No, because last week when i spoke to martin fields, the ceo, i was trying to create a bullish thesis. He wouldnt let me he just simply kept coming back and saying jim, its going to be a down year. You can get as excited as you want about that dividend but its going to be a down year. These numbers confirm exactly what mark fields said. I was obviously way too bullish. Sometimes it pays to think listen to the ceo of the Company Rather than craft a thesis thats different. Guys, dont go too far. When we come back united oscar munoz going to the hill and be in the hot seat. Hell testify an airlines Customer Service, set to begin in 15 minutes. Look at the premarket the nasdaq is coming off that record high. S p and the dow having record highs of their own. Whether its connecting one of the worlds most innovative campuses. Or bringing wifi to 65,000 fans. Businesses count on communication, and communication counts on centurylink. Oscar munoz headed to capitol hill this hour, hell appear before the House Transportation Committee, face questions about the recent incident in which a passenger was dragged off that united flight. The Hearing Centers on airline Customer Service and how it can be improved. Well hear also from representatives of american, southwest, alaska. Jim, white house is basically placed this at the foot of congress saying its up to them to decide if legislation is necessary. Theres munoz on your left. Comes at a time talking more about deregulation than how Congress Addresses corporate behavior. Congress needs to find something to talk about where they can actually pass legislation. It would be incredible. Secretary chow says the airlines have taken care of themselves, united adding the 10,000 fee, a lot of the airlines saying we wont bump anymore, but congress feels that its been helpless during this period. Ganging up on munoz would be easy to do but i suspect it will be a bad day for mr. Munoz. Has he paid enough of a price, not going to become chairman as he expected to be last year, and having been dragged through obviously a tough era, a tough period of publicity, as, does he need to be defensive today i guess . Well, i think that its a twopart issue. One the video is just horrendous and can be watched over and over again and you find new elements of it. You find a person right here, puts their hand in front, i want to know that story. How far did the shirt go up . This kind of thing that is the granularity of the thing is incredible but it was really that statement that he issued, the statement he issued chief operating officer of csx. The cargo is going to go through. Thank you to the trainmen. And kind of that locomotive aspect didnt sell well. Were going to kaepeeep out on that again. Well get cramers mad dash before we get to the opening bell in eight minutes. Look at the premarket, busy tuesday, twoday fed meeting begins and well watch the auto sales as they come in, in a moment. Ur father. Kevin kevin kevin vin Kevin Kevin Kevin Kevin Kevin Kevin trusted advice for life. Kevin, hows your mom . Life well planned. See what a Raymond James Financial Advisor can do for you. You never got the brakes looked at . Girl. Oh yeah. No. At cognizant, were helping todays leading manufacturers make things that think and do automatically. Imagine that, a world of new Digital Products and services all working together for you. Can i borrowhear when its back . Get ready, because were helping leading Companies Lead with digital. 5 30 til the bell. Kra kramers mad dash ahead of the market open. We thought we had a good number with visa and American Express, no. Its all about a. J. Bonga and the number from mastercard. M. A. , i call it ma is blowing away. Asia really good numbers, 8. 9 growth and a new theme im developing would have been insane as recently as six months ago. Latin america, 18 growth. The stabilization in latin america is the untold story of this quarter, europe was last quarter. Ive got to tell you, mastercard could easily be up two, three points if bonga tells a good story throughout the Conference Call. Yes. Worldwide gross volume holds steady. Some analysts calling it a high quality beat. Well watch that the at the open and get the opening bell in well revisit visa but visa wasnt that bad. American express maybe go through 80. This company which is a Service Oriented nonbank is what people get excited about when they think the banks are stalled or when the banks are going to get broken up but then again we need a followup tweet there saying that the banks wont be broken up. Right. Who knows . Jim, well take a break and back in a couple of minutes. When this bell rings. It starts a chain reaction. Thats heard throughout the connected business world. At t Network Security helps protect business, from the largest Financial Markets to the smallest transactions, by sensing cyberattacks in near real time and automatically deploying countermeasures. Keeping the world of business connected and protected. Thats the power of and. Why pause a spontaneous moment . Cialis for daily use treats ed and the urinary symptoms of bph. 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Youre watching squawk on the street live from the Financial Capital of the world. Opening bell in about a minutes time. Busy day as we start to watch the fed and the meet something two days. Well get a statement tomorrow. Auto sales all morning long, uniteds oscar munoz on the hill. Jim we talk about the market narrowing down to this window of large cap tech, but couplins is going to open up 8 , thats definitely one to watch. We have to focus on cummins because the north american truck market is weak. Lot of people trading the stocks this say classic short. Cummins is going to miss again. People didnt recognize china has gotten stronger. This is something weve heard from otis elevator, part of united technologies. [ cheers and applause ] china is making a comeback in heavy equipment. Some of the pmis might not necessarily go along with that, jim. Got another the private china. Mi was a miss and the weakest in september but youre not putting too much stock in those numbers. [ bell ringing ] i think some of the commodity numbers have peaked but there are some companies that are doing construction and mining like cummins and construction has been very strong over in europe, mining is starting to come back because weve gotten kind of a sense that maybe our country is going to be doing more mining but i think mostly whats happened with cummins theyve got the most lets say pollution free engines, so in china hes a real imperative. The pollution free that is the tale there, not necessarily more commerce. There is the opening bell, jim, and the s p at the bottom of our screen pretty good open at the big board, it flex shares celebrating its core select bond fund over at the nasdaq old anyoneon freight line doing the honors. Jim, as far as big cap tech does go, facebook will open up above 153. Deutsche takes their target to 180. Holy cow. This is one of the notes you wish did not come out, carl. This is a note how good instagram is doing. Zuckerberg when he comes out, he says listen were not going to ruin the user experience, were not going to junk it up with ads and then were going to spend more money because were doing a lot of Virtual Reality but it is going to pay off so bear with me and whatsapp is going to be fine and monetizing. Next thing you know a stock reports good numbers, people sell down. I wish this note had not come out. Yes, with the results tomorrow and thats a big reason why the nasdaq is set another record high. Well see if the other indices can follow suit in the days or weeks to come. David, ill give you a chance to sort of reflect on day one of mi milken and what is expected day two. Big day yesterday. This conference is mammoth in size and scope, about 4,000 people descend on the Beverly Hilton in los angeles for so many different sessions, covering so many different areas of course, but you get an awful lot of Investment Bankers, and Investment Managers here as well. We talked earlier about apple, of course guys were going to watch and wait for earnings there. As you might expect bankers particularly when its in l. A. , media is preeminent they continue to talk about the idea that would they ever, could they ever do the big media deal, that being apple im talking about, one of things that certainly you can spend time talking. In the hallways with so many of the attendees here. Something else i was talking to people about as i tend to, of course, is the media landscape overall. Spoke with greg muffet yesterday about their ownership of charter. Going to charter and taking a look at it because the stock is down after the Company Reported numbers that were not quite what many investors had hoped for, sort of described as a mixed picture but the key takeaway was they lost more video subs than anticipated, down about 100,000 for the quarter in video subs. They did add as they continue to of course a lot of broadband subscribers, net adds about 428,000 for the quarter and that did come in ahead of many of the analysts who followed the companys estimates of what they would be. We have seen a series of reports now in which video subscribers are declining at a rate that is higher at least than people who follow these industries had expected for this quarter, whether it was dish, whether it was directv, at ts uverse or verizons fios, the declines in video are interesting, and once again, jim, people are starting to say well, is cord cutting happening at a faster rate than we had anticipated, is it finally picking up speed in a way that it hasnt in the past . I have to believe that it is, because the netflix quarter was one of the strongest quarters. You have tmobile, literally just pure cell phone and you have john ledger, a gorilla ceo saying we dont want anything to do with that business, implying basically if you want to know where people are watching, theyre watching on our network, and their network is cell phone. David youre right. I keep thinking what is verizon going to do, david . Verizon must do something. It is not a growth stock anymore. Is actually a stock thats going in reverse, because the numbers are going in reverse. Are people talking about verizon or saying that Lowell Mcadam was throwing anything at the wall, maybe something sticks . You know, its not clear to me that mr. Mcadam of course knows exactly what strategy they want to follow when it comes to acquisitions or whether to pursue a large deal. Again it is something i talked to mr. Murfett about, given significant ownership stake and power they have at charter itself and a lot of the talk around that, if you recall a few weeks ago when i sat dwoown wit verizon ceo mr. Mcadam. He said the architecture is not in a great fit in the rollout of 5g. He didnt discount it completely and said its hard to get a buyer and seller in the same place. Muffet echoing that yesterday but the drum weigbeat will cont in no part because the ceo is in conversations with us sort of openly saying were at least thinking about it. We havent gotten to the wave of Live Programming that twitter announced yesterday, guys, before we do, lets get to gm, april auto sales, phil lebeau is in d. C. Looks like another miss. Reporter it is, carl. General motors a decline of 5. 8 last month, the estimate from edmonds was for a decline of 3. 7 , so now youve got ford, youve got gm coming in with weaker than expected sales last month. General motors estimate for sales rate for the industry this month or last month in april, 17 million, but guys with these two weaker than expected, im starting to wonder if theyll fall short of 17 million. We will avery to wait for the rest to come in, phil. For that well come back to you, phil lebeau covering the united hearing in washington, d. C. Jim, i do want to touch on coach with you, 46 cents beats, less discounting the recovery on track, stock was up 10 for the year to date. Its opened up big. Theyre doing a lot of partnerships with a lot of different companies. Theyve got a very fresh looking lineup. One of the things where literally my wife, lisa, said holy cow, have you seen coach lately . This is something that people didnt count on. Its gotten less parochial. Not just the old coach bag. You got to hand it to these guy. They recognize the writing on the wall. You cant keep doing the same thing. Coach is back. Coach is doing a lot of good things. And it really is incredible, because the whole accessory category has been living hell but not for coach. Yes. Kate spade and jimmy choo looking at strategic alternatives. This case coach having brought some people in from its rivals looks like its turning things around from within. Got to give them credit. This is a very, very big move. And guys worth mentioning on this subject that on the Conference Call they did talk at least they answered sort of a question about brands and acquisitions and what they would think about doing, and they did say healthy brands have a unique position and that allows us to use the skill sets that we have to diversify, whether that be our consumer target or a specific Consumer Attitude or segments of the markets or perhaps geography channel or category or what interests us most and what were most focused on, not addressing it directly of course this continued idea of would they be interested in a kate spade acquisition. Theyre coming from strength, david. Coming from strength. This is a remarkable turn. Its really incredible to see somebody in the mall doing well, because there have been very few. Remember youre now back to 5 yields on some of these stocks, macys, on kohls. You got nordstrom, may 11 will be a very big day. Will these guys walk back even more stores and coach is telling if you have the right merchandise, people still will come. Really quickly, jim, on the tenyear, we did see the yield come off of the highs, once we got those president ial tweets a few moments ago. People were looking at positioning right now, and also what the treasury secretary said about longer term bond structures, absolutely making sense. I wonder whether or not you think its less likely we see two, in our near future and what that means for your take on utilities, your take on financials. Its funny, as soon as i listened to phil lebeau and i get the numbers, you know what . Anybody who doesnt readjust and start think being maybe theres only going to be one is simply not listening to the data. These are weak numbers for autos. Autos have been pretty good. Housing which is okay, is punching above its weight but United States has been the lagered this quarter. When we see the retail sales number well puzzle and a lot of retail sales going to amazon but i got to tell you, carl, this day is not mix. The data is bad. Bad. With that in mind go ahead, david, really quakick. Carl, i did want to refer to isc interactive corps, up traumtcally traum dramatically on a deal announced reverse ipoing their home adviser unit into angies list. Ient go into the actual complexity of the deal itself but thats what it s a reverse ipo of home adviser into angies list creating a new company that combines angies list and home adviser. What it has done is given a sense of value to home adviser, well above at least how investors in iac have been valuing it, hence that move up not just in angies list. Wow, look at that move but also significantly in iac interactive, quite a big move for the company, creating a company thats worth about 4. 2 billion at this point. Again, that is well above and theyll own 87 of it, well above where i think many investors had sort of placed their overall view of value of home adviser as a part of iac. By the way in the press release, barry diller pats himself on the back a bit, says its the tenth publicly traded company to emerge from what was one company in 1995, of 48 million in sales and a market cap of 201 million, theyve had a compounded annual return of 13. 3 . Hard to predict the future, i think well just keep going says mr. Diller. Carl guys with all of that yeah, jim . You got to hand it to this man. Do you know that angies list, something i looked at not that long ago, the growth was absolutely it was so disappointing. You put these two together, you have what is basically the last frontier, which is service with ratings. You got to hand it to barry diller, because it wasnt getting any credit at all. Suddenly just this very, very small merger and we see wow, look at this powerhouse. So you have a company thats splitting up, that is actually creating more value, in the meantime you have a lot of American Companies that are doing much better overseas. I call your attention to eaton doing a good number. What is the whole saying . Even though the economy may not be moving there are a lot of ceos moving their companies in the right direction. Guys with all that, the dow is up 31. Merck leading the charge for the dow and as you said, saw earlier, record high on the nasdaq. Sima modi is on the floor. Positive open for wall street with the nasdaq hitting another alltime high. Earnings stealing the spotlight continuing the discussion jim was just saying. S p 500 companies that generate more than half of their revenue overseas are posting Quarterly Earnings growth of nearly 20 , thats double that of companies that conduct most of their business domestically, data according to facts the less u. S. Companies exposed to america the better its results. Now lets talk about earnings, surprisingly Strong Quarter for british petroleum, net profit nearly tripled from a year earli earlier. Bps positive quarter behind the rebound in Oil Prices Today and sticking with energy, the largest u. S. Exploration company cono conocophillips reporting a rebound in profits as it steps up its drilling onshore and shares down 1. 4 . Check out shares of infosys big bet on the u. S. Plans to hire 10,000 u. S. Workers over the next two years, its biggest expansion in the west in an effort to ease concerns out of washington that in infosys and others are bussing the visa program. Infosys is decreasing reliance, shares down 4 since the election and as weigh wait apple in their earnings, check out advanced microdevices, supplier to apple, earnings meeting estimates but profit margin forecasts fell short of conis entus. Shares down nearly 19 and on to apple, shares trading at yet another alltime high, three things to focus on, growth in china, any talk of a new iphone and how it plans to use its cash balance, which is set to top 250 billion, so remember 90 of that stashed overseas. Any comments from tim cook on that potential tax poll dicoming up will likely be notable. Lastly, we have a lot of companies, mondelez, gilead, American Express earnings on tap this afternoon. Sima thank you very much. Lets get to the bond pits in chicago. Rick santelli in the cme group. Good morning, rick. Good morning, carl. We continue to trade in clusters at the bottom of the range with regard to our fixed income market. Twoday of tens kind of revealing looked like today is upside action, if you look at oneweek chart thats somewhat dissipates more sideways action. Yeartodate chart i like this one. Consider 2. 31, down 13, 14 basis points in yield for the year. Chart looks okay. Its fighting to hold above 2. 27. Its fighting to get in the range that was established for most of 2017,. 30 to 2. 60. The french elections are coming but before we get to french the italian tenyeartodate, same as the u. S. Think about the Political Uncertainty and how mario draghi is keeping the rate the same as the u. S. Tenyear, pretty amazing, actually when you look at that italian chart, it looks actually a little firmer in its pattern. Now lets look at aforementioned france. Here it hovers at 83 basis points, obviously, a better credit so to speak unless they left the eurozone of course in which case the german credit which is the standalone boone Credit Holding this together would shift a bit. Now that chart looks weaker yeartodate but all kind of rhyme so to speak and the currency of the eurozone kernel doesnt look like its expecting a boatload of volatility on the second round of the elections in france. However, it certainly doesnt look bad, the charts firm, its just kind of steady as she goes, the mirror image of the dollar index of course which is struggling just to hold 99 even. Carl, jim, david, back to you. Rick, thank you very much. Rick santelli. We are waiting for uniteds oscar munoz to testify on capitca capitol hill. Well take his remarks live although in his written testimony he apologizes again and takes responsibility for that series of failures. Dow is up 29, led by apple and visa. Were back in a moment. Brian, i just need to know if the customer app will be live monday. Can we at least analyze customer traffic . Can we push the offer online . Brian, i just had a quick question. Brian . Brian. Legacy technology can handcuff any company. But yes is here. Youre saying the new app will go live monday . yeah. With help from hpe, we can finally work the way we want to. With the right mix of hybrid it, everything computes. Usaa gives me the and the security just like the marines did. 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. Were the williams family, and were usaa members for life. United Ceo Oscar Munoz waiting to testify at a hearing on airline Customer Service, this comes weeks after that passenger dr. David dao was forcefully removed from a united flight in chicago to make room for crew members. Weve seen some of his written testimony, jim, he apologizes, takes responsibility for what hes already called a series of failures. Remains to be seen how the story moved forward mazinamazing. This group has gotten its legs back and united just pennies from where it was before the melee. Remember, becky is going to be with Warren Buffett on monday. Its three hours. It will be amazing, and i think it will be a lovefest for the airlines. Who wants to sell the airlines before this testimony, when you know that on monday becky will talk with the man who loves the airlineses . a bad sale here. Lets listen in. Thank you and Ranking Member defazio thank you as well as members of the committee. We thank you for the opportunity to address the committee on this, as equally important matter to us as you said my name is oscar munoz, c oh, of United Airlines wean me is our president scott kirby. Could you pull that mike a little bit closer to you . Will it move . The whole thing should move. Yes, sir. Thank you. Thank you have much. Thanks. The reason im sitting here today is because on april 9th, we had a serious breach of public trust. Id like to and go poll jpologi, his family and everyone on that flight and all our customers and employees worldwide. Im personally sorry for the fact my Immediate Response and the response of our airline was inadequate to that moment. No customer, no individual should ever be treated the way mr. Dao was, ever, and we understand that. For the last three weeks, i have spent literally every single day thinking about how we got to this point, what chain of events culminates in the injury of a customer and the loss of trust in so many more, and so last week on april 27th, we delivered on our promise to release an analysis of sorts about what happened, where we fell short, and the actions we need to take to change the Customer Experience at united as all of you so have wonderfully articulated. From our perspective, there were many failures but four main that we outlined in this report. First we called on Law Enforcement, when safety or security did not exist. That should never happen, period. Second we rebooked crew at the last minute, we created a situation at our own doing we should have never done and third, we didnt offer enough compensation or enough insentive or options for customers to give up a seat and perhaps the largest, our employees did not have the authority to do what was right or to use, frankly, their common sense as some of you outlined and in that moment, for our customers and our company, we failed. And so as ceo, at the end of the day, that is on me, and this has to be a turning point for the 87,000 people and professionals here at united, and it is my mission to make sure we make the changes needed to provide our customers with the highest levels of service youve come to respect, reliability but also as some of you said, a deeper sense of respect and trust and dignity. Our report announced several immediate and longterm changes that we will at first prevent completely prevent an issue like this from ever happening again, and second, improve the overall united experience, not just today but into the future. For example, some less safety or security as an issue we will never ask a customer to give up their seat once theyre on board. Simple common sense, or ask Law Enforcement to remove a customer from a flight. Second, weve already taken as we constantly do a relook and a reevaluation of our overbooking policies, although that wasnt a factor necessarily in this case. It is something that we chose to reevaluate so we have reduced it and if faced with an overbook situation which will indeed occur in certain instances for many manufacturers, we will identify volunteers earlier when we can and more importantly offer incentives up to 10,000 because again common sense says that you cant stop at a number, no one is moving their seat you have to give them something more and more importantly offer them options for travel on top of that. Thats the combination of things that we do. Of course, were not going to move our own crew, our own folks around unless scheduled 60 minutes before departure so we dont have the same situation that happened. And additional policy review that had nothing to it with the incident, eliminated the red tape around permanently lost bags no questions asked ,500 replacement for permanently last luggage and give front line employees the ability to compensate customers proactively. If we break it its incumbent upon us to fix it and thats the intent of the work that were doing. So these changes are just a start. We understand that. I also know we need to do a better job of solving problems in the moment and making travel smoother and easier for our customers when challenges arise and challenges often arise, some beyond our control, some well within our control, but its incumbent upon to us solve those as best as possible. When i became ceo 18 months ago i promised we would make united the best airline not only for our customers to fly but our employees to work with. I said it because i believe in this company, a company thats been in business since the earliest days of aviation, thats almost a century of flying, in fact, at this very moment there are 600 to 700 united planes in the air carrying hundreds of thousands of people all over the world, and before the day is done we will take off and land almost 4,500 times and by the end of this year we will carry 86 Million People to 53 countries around the globe. It has become routine to be in washington today and in china tomorrow, our united team along with many of us in the industry have truly made that extraordinary feat of moving around the world, weve made it ordinary and routine, and we had a horrible failure three weeks ago, it is not who we are. It is not this company. And frankly its not this industry. We have many, many successes, and its important to note the two but we are here to discuss certain issues that wont happen again so we will work incredibly hard to reearn not your business necessarily but your trust because thats the most important thing that we have with our customers, all around the world. And more importantly, as weve proven over the course of the last week our actions will speak definitely longer than our words. We will do better. And so i thank you and scott and i look forward to answering any questions you may have. Thank you, sir. Thank you, mr. Munoz. Mr. Sprague . Stand by. Good morning, chairman shuster. That is oscar munoz addressing the House Transportation Committee calling that event in chicago where dr. David dao was removed forcefully from the flight. A horrible incident, not who we are in the country or the industry. Hes been in the job just over a year. Easy to forget not far removed from a heart transplant that left him sidelined for months. This is a strong man ands hs come back hard. United airlines, we have to remember, horrible Labor Relations so his first thought when he issued the statement im going to back my employees and i think that made a lot of sense in terms of trying to get better Labor Relations versus some of the airlines. Obviously it was tone deaf versus what was happening in the video. I think hes made a lot of good points here. I think that a certain point the heat will die down if only because almost every airline immediately committed theyre not going to kick people off the plane anymore. Jims 18month rule has played out pretty well in terms of the public memory, as regards to chipotle for instance. Well see how long this lasts, the pictures will be a reminder of this event for months. And we will show them at every opportunity as you well know, carl. Also. But i wouldnt go against jim when he talks about that 18month rule, whether its chipotle, wells fargo or perhaps United Airlines. I think the larger takeaways here for Corporate America are a couple. One is communication. The inability and munoz just referred to it, his real failure to appreciate the seriousness and significance of this event, when it occurred, and what happened as a result of social media. I dont think youre going to see corporations miss that, the way they completely missed it at United Airlines for that really crucial lets call it 12 to 24 hours after that video first surfaced. And secondly, this idea of pushing more power to the front line, to the people who were customer facing i think is interesting, and perhaps something as well that you may see more companies embrace. Theyve been very rigid at United Airlines in terms of how they go about things, for various reasons in terms of their systems but in this case they are going to give people now on the front line the opportunity to respond in real time to whats going on, so when you look at this, as an event, an unfortunate event, certainly those are two things i think this we could see as longer term changes not just for this company but for others as well. Indeed. Stocks up about a percent and a half, really not that far, jim, from where it was on april 9th. 71 and change. Change what is coming up on mad tonight . The way the world has changed, expedia changed travel and we have paypal which changed payments. You cant get this stuff unless you come out here and thats why we do it. Very good, jim. David, a lot to get to from you guys out west. As weve been saying all morning long, it is a big day on capitol hill. Were going to watch oscar munoz testify before the House Transportation Committee. House Speaker Paul Ryan is getting ready to speak at the weekly gop house leadership news conference. Well take you there and give you the latest. Welcome back to squawk on the street. Im carl quintanilla. Sara eisen life at post nine, and david faber with us from the milliken global conference in l. A. And will continue to be with us this hour. The nasdaq puts together another record high, watching the balance between large cap tech and industrials, cummins opens up about 8 , tenyear treasury yield coming off of the highs for the morning after we got some tweets from the president about the intricacies of putting together this government budget. Good shutdown nigmight be needed. Coming up later, the 15th annual charity day, mark cuban will be our guest, and then on squawk alley derek jeter and alex rodriguez. Bob pisani brings us the starstudded interviews. Munoz in the hot seat on capitol hill, the House Transportation Committee holding that hearing, examining Consumer Airline issues and that does come in the wake of the viral video that showed a united passenger being dragged off of that flight. Phil lebeau is there watching auto sales from ford, gm and others along with us, phil. Reporter and carl, i was just in that hearing room and heard what oscar munoz had to say. It was a preparedment it. The questions havent started, theyll probably begin id say in about 15, 20 minutes. He said what we heard him say last week when he offered the apology, as well as a blueprint for how United Airlines will remedy this situation, when it comes to Customer Service in the future. The real question is whether or not we see lawmakers which they have intimated during their opening remarks moved forward with bills or resolutions to further stipulate how passengers will be treated on airlines on these flights here in the United States. So i think what were going to hear here in about 15 minutes or so, a fair amount of you guys should really be ashamed of how customers are being treated, but more what can we do to change the rules so that this doesnt happen in the future, not just what happened with dr. Dao but weve seen the other incidents, altercations between flight crews and passengers, and that question and answer will start i would say in about 15 minutes. All right, phil, thank you. Well check back with you as soon as that q a starts coming in. President trump says hesbrp the big banks and receiving a cool reception from banking executives. Jpmorgans jamie dimon telling t milken conference the real issue im worried about is bad Public Policy, wither e we are lot of people behind. Brian gardner, Washington Research analyst at kbw and sean colhar at post nine, head of Public Policy research. Welcome to both of you. Good morning. Sean, we have to start with a tweet this morning, a Good Government shutdown is needed after the spending bill. How do we read that, a serious statement . For investors the question is do you take him serious, literal . The president says a lot of things breaking up the banks. Well pull out of nafta, think about currently in a Minute Police station. For investors they need to step back and realize hes going to say a lot of things but its up to congress to act. As i said before i dont think well see a shutdown now. This will take it into the fall but yong congress will say well do a shutdown because the president said so. Brian, speaking of congress were watching to see if the republicans have the votes. Were hearing theyre a few votes away from passing health care. Of course its important, because if they can get it done this week, they go on recess and they can come back and tackle tax reform. How likely is it this goes through . As you said, theyre close in the house. The problem for them actually then is later, because the senate is not going to pass whatever the house if the house passes something the senate is not going to pass it. Theyll come up with Something Different and a prolonged negotiation between the two bodies to get to something. So i still think that tax reform is for the latter part of this year into next. Maybe once the house disposes of health care, the tax writein committee can move to tax reform and get the ball rolling a little bit. Despite the link between health care and tax i think theyve been decoupled a little bit and im expecting tax reform will start to move on its own in the next couple of weeks. Really, its funny how you talk about the house disposing of health care, as if theyre taking out the trash, but that aside, brian, what does that do to the baseline . What about the arguments you couldnt tackle tax reform without establishing a baseline through a Health Care Repeal or reform . I think as the process has evolved people are starting to understand that big comprehensive tax reform is probably a bridge too far, that a tax bill is probably going to be smaller, more narrowly tailored and limited in scope. The baseline may not matter as much as it did back in march, when people were talking about big, comprehensive tax reform. I think were probably looking more at Something Like cutting corporate rates, a modest amount, not what was in the president s onepager last week and cleaning up a few parts of the tax code, a repatriation portion but not a total rewrite and reformation of the tax code. In this polarized political environment, i dont think congress is well suited to do comprehensive legislation. I think it has to be incremental in order to pass, and so the baseline really doesnt matter as much as it did when were talking about comprehensive tax reform. Weve heard that a number of times, shawn, whether its cuts, reform. Is it realistic to expect anything to pass this year . I think Fourth Quarter this year, or First Quarter next year, at barclays our Research Teams that been analyzing it, best case deal by Fourth Quarter of this year. If it goes past the First Quarter of 018 we get into election season with the midterm elections. If the gop Congress Fails to get a health care or tax or infrastructure deal you could walk into the election saying what did we get out of the Trump Presidency in the first two years. What do you think the market has come to expect when you listen to brian talk about Incremental Exchange . I talk to investors around the world theyre excited thinking 15, 20 is possible. Ceos i talked to are more worried about nafta renegotiation, how do i think about my supply chain, how many times does my product cross the borders and you see more concern. Investors are now beginning to bake in what hes saying, what the white house is saying and to come back from realizing some of this rhetoric isnt going to hit political real pit what about the statement on the banks he told bloomberg considering breaking up the big banks. How much support is there within the administration to do such a thing at a time where they want to deregulate the entire economy, but specifically the Banking Industry . So within the administration, i think Administration Officials are taking the president s cue and sticking to the agenda that the president and the gop platform laid out up on the hill, and there are different ways to do glasssteagall. You can do it from a regulatory standpoint. Brian . Ye. Sorry ill cut you off because we want to listen to house Speaker Paul Ryan taking questions at his weekly meeting. For inviting us here todayed by he abhappy to take questions. To combat the opioid endemme pick. Expands the School Choice program something many of us feel passionately about, it expands the d. C. School choice Opportunity Scholarship Program and maintains our prolife protections, it contains no new money for obamacare, no Insurance Company bailouts. Takes major increases in defense spending while holding the line of nondefense. This is something that is really important that people are sort of missing in this important story. I cannot understatement how much of a gape changer this is. I used to negotiate budge eight greements with the obama administration. Democrats insist it be tied to an equal increase in nondefense spending. I need just as much money for discretionary spending. That was the obama rule for eight years. They insisted even as our military plunged further and nurt into a crisis. We got to a point that our air force pilots were going to museums to find spare parts over the last eight years. We got to a point where some of our planes are so outdated that whole fleets would qualify for antique license plates in virginia. This forced parity we lived under the obama years really constrained our ability to rebuild our military for this century. This appropriations bill changes all of that. No longer are the needs of our military going to be held hostage for increases in domestic spending. This means that we can finally make real important strides to increase and improve our readiness. It means we can get our Service Members the tools and the resources they need to confront the threats that we face all around the world. While we have a lot more work to to do rebuild our military this is a big first step. 25 billion year over year for our military and you do not have a corresponding 25 billion increase in domestic spending which is what obama would have requested and required, that is not here. We broke this parody and we think this is a really important step in the right direction. The first responsibility of our government is national defense, and under president trump, we are truly putting that first. We are excited that were honoring two big priorities, a big downpayment on Border Security and a big increase for our military so that they can do their jobs. Good morning. You heard that is speaker ryan addressing a number of the things on the hill. Well wait for further comments regarding health care, but as were here talking about Public Policy with brian and shawn, i guess to a large degree, framing this spending bill as a republican victory is challenging it say the least. Right. Ality t at the end of the day theres no wall funding explicit. Asking for 2. 5 billion in additional defense funding after an isis plan. Its as if they took the trump list of demands and cut a lot of them out in this process and its not too surprising as you think about this, going into a xli catted negotiation on tax reform. The white house has to say i want to work with democrats on tax reform. Let me give them something to make this deal work out. What about you, brian, do you think this changes the dynamic, the fact that some democrats can claim victory with the spending bill . I think it complicates things for republicans, because some democrats have spiked the ball, and so it plays very badly in the conservative media, and so republican lawmakers are hearing it from their constituents and the activist base of the party, and so it complicates their task going forward. Theres no doubt about that. By spiking the ball go ahead. I wanted to go back, sara was asking before on breaking up the banks. Yes. It was an important point to make, there are two, there are different ways to skin the cat. You can do it from a regulatory rememb perspective i think is the worst outcome. Tom hoenig it more like ring fencing like the uk proposed to do and that entails Companies Still being able to be in commercial consumer and Investment Banking, but Compliance Costs go up, it becomes more complex entity to run, Capital Requirements probably go up, or the administration could seek legislation from congress to split more like the old glasssteagall, which is something i think gary cohn hinted at in his comments. Thats probably a better outcome for banks, because it could actually unleash shareholder value for them as they downsize and focus on particular aspects of their business. So it depends on how you do it. Of course mr. Cohn was proposing the splitting of consumer and Investment Banking, and coming from a bank that doesnt do a lot of consumer banking, it was kind of an interesting construct he floated out there. Some banks would have a tougher time with that, jpmorgan, bank of america, two companies that are covered by my colleague, brian clonhhansel, theyd have a tougher time, goldman sachs, theyre not as involved, their base of operations is more targeted, more focused on the institutional work, and so they would probably have an easier time adapting to a new world in that kind of construct. Well we know jamie dimon is one of the ceo advisers. Shawn you think theres no chance. We are out of time. Good debate, good discussion. Thank you for diving into that especially on the banks. Brian gardner and shawn golhar of barclays. As we go to break a live shot of the House Transportation Committee receiving testimony from not just munoz but other Airline Executives over customer servicish auto us. Southwest for instance is just now saying they will cease overbooking practices on may 8th. Well take to you paul ryan when q a begins. Dont go abe. T the door. Watch s head, watch s head. Hi there. Im so happy. Wh hapned . Whatever they went through. Welcome guys thanks for coming. They went through togetr. Life well planned. See what a Raymond James Financial Advisor can do for you. Lets[ whimpers ] dog. Find pingpong. Okay, lets go. Find your awesome with the xfinity x1 voice remote. Thats amazing a new take from wall street on whats causing stock market gains. Our Steve Liesman joins us with exclusive results from the cnbc fed survey. Carl, good morning. Way tonight get right to what the expectation is of our respondents for the stock market. It is flat and then up a bit, 2388 yesterdays close, the outlook is for 409 f2409. Little more juice for 2018 a total of 7 2564, that may be because of a shift of where they think fiscal stimulus will hit. More in a second. I will tell you that 62 of our respondents say the market is too optimistic about the potential outcome from president trumps policies. Also, when it comes to Foreign Policy, lets see if we have that right here, yes, 60 say that the president s Foreign Policy has increased market risk, 38 say no effect. Nobody is saying that the market risk is lower. Whats behind the rally . A really interesting shift here. Back in december, only 18 thought it was economic fundamentals and earnings. Everybody thought it was policy expectations. Lets look now, a more divided response here on what is behind the market rally. 50 say its the economy and fundamental earnings and 48 say its policy expectations. First time weve seen this number be higher. Lets talk about some of the, pardon me, commentary out there. Neil duda at renaissance says investors continue to scale back their expectations of fiscal policy in 2017. The risk rally is about stronger earnings and growth. If d. C. Manages to surprise with tax reform, stocks will rally. John ryding of rdq says the execution in tax reform is critical to the performance of the stock market and to the hopes for stronger growth in 2018 and beyond. One more thing on our survey, the tenyear treasury seen rising less than a percentage point from the current levels to 3 2 by december 2018 is a modest rise. Sara its interesting see the shift 2017 to 2018 and ultimately may be whats behind the outlook for a lackluster growth for the rest of the year when it comes to stocks. Ill compared to barons poll over the weekend, 47 said markets driven by policy, 42 on earnings growth. Pretty much in line with your new results. Yes, different people surveyed but what is interesting is the shift. Everybody thought this was a fiscal policy expectation rally and now weve had the stronger earnings, decent economic growth. Question about First Quarter growth but looking for better growth in the second quarter. Steve, you have been doing this for a long time. How accurate are our responders in history when it comes to predicting the stock market . Really lousy when it comes to the stock market. They are spoton and better than the fed when it comes to forecasting the fed. In terms of saying where the fed is going to go, their forecasts often beat the feds own forecast for where the fed is going to go, but they are continuously really too pessimistic about stocks. What i think is interesting, and why we follow this is, this idea that policy and fiscal policy expectations are shifting to 2018, and the idea that that seems to be something that is more conventional wisdom in the market these days. Steve id love to get your take on tenyear. Theres discussion whether 23 has become the new 26 in terms of ceilings but on the other hand positioning data and mnuchin comments suggesting maybe its going to be harder to get it back down to something near two. Ive got an embarrassing internal forecast up above three, and that was made before the health care bill, and i think thats really been a game changer for the market, carl, if you think about the idea that the failure of health care has prompted a lot of economy is and a lot on the street really to push out their forecasts for fiscal policy. If we get this fiscal policy package could you get a tenyear above three but i thisnk if wee not and stagnation is the new form down toward two is more likely. Steve, back to the hill as q a begins with oscar munoz. Since two situations that occurred most recently. What are you doing to make sure that your employees are empowered specifically . Mr. Munoz, why dont you start. Sure. Our curriculum for Customer Service and training and dealing with the escalation issues is something we have to strengthen. I think we do it when youre first hired but dont do it an eye recurring basis so lots to learn from some of the other folks at this table, specifically on the empowerment angle is beyond the empowerment at the point of a situation like we were faced with on april 9th, i think its incumbent upon us to put policies and practices and protocols that inhibit or prohibit us ever getting into a situation like that, its an impossible situation, when you put folks in that kind of state, and no rules, no empowerment, no training can deal with that, so its important to go back in the chain, and which is the policies that weve implemented, to say were not going to deboard someone if they board. Were not going to allow Law Enforcement. Well reduce overbooking although that wasnt a factor in this case. For us theres training and curricul curriculum, well learn from others at this table and most importantly its important to you know, that its the start of the chain. Its not to create these impossible situations for people that there is no out. I would agree with mr. Munoz. We know it is the responsibility of Airline Leadership to make sure that our employees have the proper tools, training, resources, and support to deliver the kind of Customer Service that theyre so good at doing and that they want to do every day. We recently launched a Service Training called elevate the everyday experience. Its a twoday program and by this summer, over 40,000 of our team members will have completed the crossfunctional experiential learning course were excited about. In light of recent events and also based on feedback were working to enhans that curriculum to further support our employees with training on deescala deescalating complicated situations and provide interim training between those sessions as well. Were looking foord to that and again want to make sure our employees have the support and the tools that they need. Thank you. Second question is on overbooking. I think basically i understand the overbooking situation, but i know theres refundable and nonrefundable tickets, and its been my experience in business if somebody buys a product and they pay for it, they get it, so can you explain to me the difference how refundable and nonrefundable customers are treated when it comes to not putting them on a flight, refunding their dollars, those kinds of things . Mr. Munoz, if you would. Sure, there are many practices and procedures and one of the reasons mr. Kirby is with me today, hes been in the industry for 20 years and widely recognized as an expert in this field and i thought this committee deserved more exacting Knowledge Base and so if i could sure, absolutely. Thank you, chairman shuster. As weve talked about, this incident was not driven, the incident on united was not driven by overbooking but overbooking is much in the news about this. And its important to understand that most of our oversale situations are driven by operational restrictions. The largest being Weight Restrictions because of weather. So for example, when youre at an airport and theres snow or ice, or even wind and weather, at either the departure or arrival airport were often not able to take a full load of customers to meet our safety parameters. Discussion not just about the united episode but ongoing practices regarding overbooking. You might wonder what that does to margins lodge term. Alaska, american and united are all up about 1 to 2 . David faber out at the milken conference out west. Hey, david. Hey, carl. Thank you. The ontario teachers pension plan one of the larger ones out there, 175 billion in assets under management, diverse investments, private and public equity, real estate, fixed income, most of which managed inhouse, the plan up 4. 2 last year, joining me now from the milken institutes global conference is ron mott, the plans ceo. Nice to have but thank you, david. You follow a somewhat different path in terms of 80 of your assets being managed inhouse. Its not as though youre doling out all the money to private equity, though you do. Yes. When you look at the overall compilation of your portfolio, real estate, fixed income, private and public investments are you happy with that allocation or changing it after what was for you guys at least not as big an up year as typical . Last year our return profile because were global, we operate a Global Platform, currency is played with a little bit. Were not adjusting the portfolio. Were a longterm player. We have to match off our liabilities and our liabilities are paying pensions for the next 50, 60 years so its a very longterm investment platform. So were very happy with where the structure is right now, where the portfolio is. And of course, youre overfunded i believe. Its not a concern. Youre not trying to catch up to some number at this point. No, were in a surplus, and we have been now for about four or five years, and so around 105 surplus which is a great spot to be but you never want to take that too lightly. Things can change quickly. Youll be going into a panel. So much about milken is the future of. The future of Pension Plans for example, are more going to go where you are in terms of bringing money inhouse . Were seeing, well theres two parts to this. Theres an inhouse component, and theres a broader portfolio thought process thats going on. Were seeing Pension Plans and large sovereign wealth funds, the very biggest, most sophisticated globally, coming out of asia or europe or canada, for that matter. Theyre ending up bringing more inhouse, but that doesnt mean that it all comes inhouse. Partnerships with private equity firms, infrastructure firms, real estate firms are critical. When you run a Global Platform as we do, you have to recognize that there is, you need sector expertise and you need geographical expertise. Youre never going to build all of that internally, so you have to partner with people around the world. Right, and you do and were accustomed to seeing your name crop up in what are large deals where you join a private equity firm to buy a company, or in some cases airports which i think you have some ownership positions in about five of them. Yes. In europe. I wonder, given the conversation here about Public Private partnerships when it comes to infrastructure does that create an opportunity for you guys to make those similar kinds of investments in the u. S. . We look around the world to invest in infrastructure, and we do invest around the world in infrastructure. The United States, we have in a infrastructure here right now. Now, with the new program thats being proposed or we dont know any details about what may actually come. Well, exactly, and thats the point. But we stay close to it. We stay close to it. We want to stay informed about how its evolving. The thing with infrastructure, not ppp or Public Private partnerships if its high speed trains running between cities and things, thats the sort of stuff that interests large investors like ourselves. Having said that, a lot of it is green field. It has to be built and of course, those sorts of projects dont happen overnight. Lots and lots of aproflz are required. Its a long lead time. What it really requires is a vision. The country has to put together a vision of what infrastructure is going to look like 15 years from now, in order to start the program. And sustain that vision. Yes. Again, i said 80 of your assets managed inhouse. As you point out not as though you dont dole out money including about 10 billion to hedge funds. Yes. Hedge funds some would say are under some pressure now, fee compression, returns have been less than what many people have wanted. Are you frustrated with the Hedge Fund Industry or happy with the investments youve made . Weve been in the Hedge Fund Industry since 1995, and we are going to stay invested in it. Its really difficult now, because the industry is going through a shakeout, and yes theres pressure on fees and other things, because the Value Proposition for certain levels of hedge funds does not appear to be there, but when we look at it, we pick our managers very carefully. If we look at 100, we might pick one and were looking for risk adjusted returns, not crazy returns, good risk adjusted returns but were also prepared to pay for correlation benefits, and so were constantly looking for those two and how it fits into our overall portfolio. Were there, and we continue to work with great managers. And what is your sense overall of that industry in terms of evolution . Do you continue to see fees coming down . I think theres going to be continued pressure on fees. Thats absolutely going to be the case, but for those few that can deliver a Value Proposition, a sustainable Value Proposition, for those that continue to evolve in the industry, and adjust their strategy, and can deliver correlation and rate risk adjustment return benefits, well be allocating to them for sure. And finally on private equity, again, youve partnered with and invested in some of the prominent private equity firms. Yesterday i had David Rubenstein from carlisle on, talking about what has been a relative dearth of new investments, certainly of size. Whats your view there . Do you think were going to start to see more activity again from private Equity Investors like yourself, and those that you invest with . Were always in that market. Theres always something to do. It ebbs and flows. Right now things are expensive. Theyre expensive, and its harder. And its the same story with anything. When stuff gets harder you have to dig deeper, look a little harder. Its not the pickings are not as easy. Were in that stage right now. And so you work harder with your partners, and you have to find those opportunities where you think that you can add value, create value once you own something. Right. Thats hard per. And for a long period of time. Finally what is the view from canada . Are you concerned about the relationship between your country and ours, take already y particularly when it comes to trade and the impact on you . I know our government is very interested and interested in working with this administration. They are doing it right now. We know theyre engaged on many, many, many files, and i think were in for a period of negotiation back and forth between canada and the United States. They fully expect it, and theyre heading down that road. I dont think theyre overly concerned. It will depend on the file. I think the trade story around nafta is one that is, theyre watching closely. Bill mock, appreciate you. Ceo and president of the ontario teachers plan. When we go back to the charity day, hear from billionaire Dallas Mavericks owner mark cuban. Allstars jeter and rodriguez later. Stocks at this hour, dow is up 17 points. Nasdaq hit that alltime high before settling back a bit. Were back in a moment. 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. 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. And at 4. 95, you can trade with a clear advantage. At crowne plaza we know Business Travel isnt just business. Theres this. a bit of this. Why not . Your hotel should make it easy to do all the things you do. Which is what we do. Crowne plaza. Were all business, mostly. Good morning everybody. Here is your cnbc news update at this hour. North korea acusing the United States of pushing the Korean Peninsula to the brink of nuclear war. This follows a pair of u. S. Strategic bombers flying Training Drills with the south korean and japanese air forces. North korea state tv said the bombers conducted a nuclear bomb dropping drill. German chancellor Angela Merkel meeting with russian president vladimir putin. This was merkels first visit to russia in two years. The Writers Guild of america and the big Hollywood Studios reached a contract agreement early this morning. The threeyear deal gives writers for moun mr health care and more pay for episodes that take longer than. 4 weeks to produce. In honor of manchester by the sea dibutting on amazon prime friday the backup film is getting a year of amazon prime for free. Every single home will receive a threepack of microwave popcorn. Youre up to date. Thats the news update. Back downtown to you, carl. All right, sue, thank you very much. Despite the steady flow of geopolitical and policy news the major indices remain mostly unfazed. The nasdaq notching new highs on strong moves by apple, facebook and the tech heavy index that outpaced the s p so far this year and maybe just the beginning if the president delivers on some of the tax promises according to Tom Mcclellan, named by the timer digest im happy to say here at post nine. Great to have you small correction, im not number one, im number four but gunning for number one all the time. I think were used to saying number one in the past. You were looking at all this action, and large cap tech, how much of it is reliant on the notion of repatriating all their overseas cash . The first part of it is about the tax policy reaction. The companies doing well their stocks doing well are profitable because if youre going to suddenly pay 15 tax instead of 35 tax that matters more. Companies that are not profitable 15 of nothing is just the same as 35 of nothing, so apple has done really well. Ge has sat there doing nothing because ge is good figuring out how not to pay taxes but looking ahead, if we can get repatriation coming in from all of those companies parking cash overseas, apples got a quarter of a billion, another four big tech giants. Quarter of a trillion. Thank you. I get that its hard to think that big. It is, it will be like qe4. Like the questioned will be outsourcing its job of doing qe to all the private dcompanies. This is the s p and orange is fed qe. Exactly. Every time the fed raised its Balance Sheet, the gush of money headed the stock market first. If all that money comes in from the overseas park it will be more qe coming in from private sources instead of from the fed and should have the predictable same effect into 2018. The effect is longer lasting than just what weve seen in the stock so far. Apples up 25 this year. Right, but the money hasnt hit yet. As soon as the money hits the first place is the nyse, and as soon as it comes in the nyse it goes out the other door and can go to work. But the important thing is the fed learned after qe1 and qe2 they stopped right away and we had bad effects. We had the flash crash in 2010, a 19 drop in 2011. The fed learned to taper and slow it down. Were not going to get a taper if. We get this qe4 from private sources it. Will come gushing in at once and all stop and well have an ugly time late 2018 i think. You got other charts that look at cumulative a. D. Lines. Yep. What does that tell us . Any time nyse advancedecline line is hitting ju alltime highs you are pretty much immunized ordinary garden variety clip. Limited to 10 except for instances like the shutoff of qe1, the shutoff of qe2. Aside from that when you have the advanced decline line new alltime highs thats a sign liquidity is so plentiful all the stocks can go up and that tends to last. We are in the month of may, so Everyone Wants to talk seasonality. Youve looked at annual seasonal patterns, how stocks behave in the course of a given year. We hear about sell in may and go away, it rhymes. If the glove dont fit you must acquit. We think theyre more true if they rhyme. Seas seasonality peaks around the first of august. You cant construct a rhyme sell in august and i dont know what. Thats why we have sell in may and everybody remembers that one. The fed Balance Sheet very much a topic du jour as the fed i kicks off its twoday meeting. Will it impact markets . If question get a goldilooks situation all the overseas cash comes in and fed reduces its Balance Sheet it will balance out perfectly and no problems. But dont ever count on a federal bureaucrat to do anything execute anything perfectly. They will dee it imperfectly, it will cause disruptions to 2018 will be really exciting but in the mean time, we still have a year of uptrends starting from a bottom in mid union, we have a little bit of chopping to do between now and then and second half of 2017 looks like a great time to be buy hold and hold on. So really your work leads to you a place where you are construct himself or you dont think we have a major selloff . In the last couple of years some of your work suggested we might be in for one. We were in one when we had a selloff in 2015 exacerbated by the chinese any mini crash and ugliness in 2016. All the qe the fed put in is still there, the cash comes book. Doesnt matter where the source of the money is. If theres plentiful liquidity the market can do well and scheduled to last until august of 2018. What if we rateration doesnt happen, if repatriation is a bridge too far because of the calendar or politics . A good question. It will probably only change the magnitude of the movement, not the timing. What about the nasdaq in particular, the outperformance built on the backs of a few big cap tech stocks. Its those same stocks that are driving both nasdaq indices, the composite and 100, benefiting from the contemplation of tax law changes because theyre profitable and so thats why were getting this drive. Were also seeing small cap growth outpacing Small Cap Value and thats a generally Good Condition because small cap growth is more liquidity sensitive. So if its doing well, the canary is alive in the coal mine and were fine. When small cap growth starts to suffer, thats the tell that liquidity is drying up and everybody else is going to be affected later. All right, so of all the charts you follow, all the metrics and analogs most worrisome right now . Congress doing something stupid or the fed doing something stupid. The market is looking good right now. Liquidity measures are looking good right now. More worrisome is t bonds because a sudden shift in sentiment in t bonds. The lark speculators are bullish and the commercial ones are getting out of long positions and moving to shorts so i think were in for a cyclical correction in t bonds and gold which have fallen into this unnatural correlation. Gold a lot of etf withdrawals, right . A little bit. More out of silver because silver has had this huge plunge. Vix at a tenyear low, is that interesting to you . Fascinating, wonderful, interesting market information. You dont get crashes from a vix at 10. The vix has to start upward first to get people feeling jittery enough that you can get the emotional wave behind a crash. People dont care enough to react to a news or anything when the vix is at 10. You wont get the followthrough when you try to tip over the cow, the gravity of the cow wont push itself off. Vixed divergences, higher price highs and higher vix lows its time to start worrying. Right now its the end of the short vix trade because it just cant fall much further but its not the start of the calamity. Its good to have you on set. Thanks for coming by. I remember right before the election last year tom predicted a trump win based on stock market action. Oh, yes. Good call there. When we come back, the Federal Reserve is mentioned kicking off its day one of a twoday policy meeting. Former fed governor Robert Heller joins Rick Santelli, and well take you live to bti annual charity day, hasser from billionaire entrepreneur mark cuban and baseball allstars derek jeter and arod. Squawk on the street will be back with the dow up 1 points. Have updated our terms and conditions. One. From now on, the word television will no longer be defined as that thing over there on the wall. We want all our things to be television things. Phones. Ipads. Refrigerators. Heart monitors. Ok, maybe not heart monitors. Two. Our shows and movies. We want them when we want them. So they should go with us. Anywhere . You got that right, kid show thing. Three. Nothing beats live. So we want to stream all that sweet live stuff. Like football. Red carpets. And yelling. Wait what are we yelling about, guys . Four. We dont just want unlimited data. We want unlimited entertainment. Like unlimited hbo. Can i stop dying now mark . Cmon man. Its unlimited. Last thing. We just want all our stuff. The way we want all our stuff. Thats not too much to ask is it . Only at t brings you entertainment on your terms. Directv, wireless, internet. Its entertainment your way. Tom lee says theres tier have jens between profits and stock performance. Why thats important on trading nation more squawk on the street coming up. [weather reporter] governor has declared a Winter Weather emergency. Announcer soon, Insurance Companies wont pay for damages, that is, not if they can help prevent damages from happening in the first place. At cognizant, were turning the industry known for processing claims, into one focused on prevention with predictive analytics. Helping them proactively protect the things that matter most. Get ready. Because were helping leading Companies Lead with digital. Dow is up about 20 points. Treasury yields are lower. Out to the cme group, Rick Santelli with the santelli exchange. Good morning, rick. Reporter good morning, thank you, sa ra. Welcome my guest bob heller. Today is the first of the twoday fed meeting. Many dont expect very much. Your thoughts, bob . Well, i think youre absolutely right. There wont be much happening. I think most of the discussion will be about when they should start to sell their portfolio. That will be the big discussion. Reporter excellent. Listen, the big story in my opinion is taking an eraser to doddfrank and on the henserling bill officially named financial choice act the first paragraph is written by somebody we know and the last line of that paragraph reads evermore complex regulations and a myriad of regulators and overlapping regulatory jurisdictions do not make the Financial System more safe and sound. You wrote that, bob heller. Why dont you tell us more. Thank you, so much, for that quote. Yes, some people have called it the heller plan. I think you should give banks that are well capitalized give them a break on the regulatory side. So people may want to choose. Do i want to have a lot of capital sitting there and no bank with a lot of capital has ever failed or do you want the myriad of regulation . And let the free market determine which one do the banks want to have, the regulations or the high capital levels and therefore more safety, and thats what we are after. Reporter im im going to play devils advocate. The progressive leader senator Elizabeth Warren called the financial choice act 589 pages of insults to working families. What would you say to that comment . Absolutely not. You need a healthy Financial System. You need loans to get, to put all these people to work. That is what working people need, jobs. And jobs have to be financed. You got to have machines to work with, you got to have trade finance, and so i think its absolutely wrong to argue that having more freedom in the Financial System and have better capitalized banks like im advocating, that that is not in the interest of the working man. All right, now theres another issue thats been brought up, as of late. Its not only to try to late. It is not only to try to get banks to lend, and clear the capital decks so maybe they can do so in a better fashion, but were also talking of reinitiating some type of form of glass siegel or breaking up the big banks, your thoughts on those comments, whether they come to fruition or not, bob. No idea worse than that. What you need is in every industry that you look around, you have three or four large institutions, financial sector, jpmorgan, bank of america, citibank. In the airline industry, you have three or four, united, american, delta, two or big Car Companies and you need the big banks to support the industrial sector on the nationwide and indeed on the global basis, how are we going to export if we dont have big banks that have a global reach. And im not against community banks. Im on the board of a Wonderful Community bank, bank of maran right here. But these are banks that serve very important purposes on a local basis. But you still need a global Financial System that means big banks. I got you. Real quickly in our last few seconds, it seems as though whether it is on tax reform, or on this particular issue, the mentality, you have to bring down the wealthy, bring down the big banks to help those that are lower on the scale. I never thought that made sense. Your final comments, sir. I fully agree. You need money, you need people who make money and steve jobs has created thousands of jobs in this country. So we need these entrepreneurs that do well, that earn enough money, whether it is elon musk, bill gates, steve jobs, that is what driving the American Economy these days. Excellent. Bob heller, it is always a pleasure. Well see you this fed meeting turns out, maybe more importantly how the financial choice act ultimately weaves through congress. Thank you, again. And were going to go to sarah, thank you. Two big things on wall street. Rick, thank you. When we come back, well take you live to the annual charity day. Bob pisani talks to mark cuban as well as baseball allstars derek jeter and arod. Squawk on the street will be right back. With help from our advis madt swings. Sure we could travel, take it easy. But weve never been the type to just sit back. Not when weve got so much more to give when you have the right Financial Advisor, life can be brilliant. Ameriprise thithis is the new new york. E . Think again. We are building new airports all across the state. New roads and bridges. New mass transit. New business friendly environment. New lower taxes. And new University Partnerships to grow the businesses of tomorrow today. Learn more at esd. Ny. Gov the president acts, markets react, from policy moves to breaking watching stocks, the dao is higher, if it remains higher it would be the first time in a few days, up 24 points. Technology again is a standout, the best performing secretarier in sector in the s p 500 right now. Today, the best performing member of the tech index is microsoft, where our john port is there for the unveil of new hardware products around education, potentially chrome book type of competitor, a lot more on that in squawk alley and the walkup to apple which has been on a roll and on a tear all year long. The Top Performing dow component, the all time high list is starting to get so repetitive on ten names, including apple, adobe, facebook, alphabet, microsoft, mastercard, glam research, and darden. We talked to Tom Mcclellan about the concentration of large cap tech. They continue to get bigger and drive it. Interestingly you also have energy and industrials as some of the Top Performing groups, higher oil prices, also helping out the mood. When we come back, were going to continue to follow the markets and bob pisani will talk to mark cuban from btig. Well be right back. Hey. 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. 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. Welcome back to squawk on the street. Check out what is happening with the markets. All the attention on the tech sector. Apples report this afternoon, but the financials are standing out as the worst performing s p 500 sector today, down by around half a percent or so in early trading. Among the biggest laggards so far, shares of Investment Bank morgan stanley, regional banks like fifth third and Money Center Banks like Jpmorgan Chase down by a percent or so. Interest rates part of that story overall with ten year yields moving down around 2. 3 . Watch that trade. That does it for this hour of squawk on the street. Back downtown for the start of squawk alley. Back over to you guys. Thanks, dom. Good morning. It is 8 00 a. M. In sunnyvale, california, 11 00 a. M. On wall street and squawk alley is live. Baby im not fool iing back to school yeah way down inside honey you need it im gonna give you my love good tuesday morning