Transcripts For CNBC Squawk On The Street 20171227 : compare

we, after kind of mixed -- not much going on yesterday. news of course a bit slow in some ways, european markets were open yesterday, many closed for both the christmas and boxing day holiday. you can see a mixed bag in europe, asia overnight also somewhat mixed. let's get to the 10-year note yield on crude oil and how we're doing on both of those important market barometers. and you see wti down let's get to the road map this morning. it starts with the tax effect. more companies including barclay's and shell outlining major tax linked changes to the bottom lines in the first quarter. the race is on for fed vice chair former bush era advisers reportedly in the running. tesla t is in a direct challenging a tesla pickup could hit the road but does tesla already have model 3 problems? stocks look to rebound from yesterday's decline. a number of companies reacting to tax reform. barclay's expects a writedown of 1.3 billion on the annual post tax profits. royal dutch shell sees a charge of $2.5 billion for its fourth quarter earnings and expecting a one time benefit of 250 million bmw also expecting a positive impact on net profit we should point out, of course, if you have deferred tax losses, they lose value given you could have written off as much as 35%, now only 21% essentially the value goes down. >> the first wave of adjustments really is accounting based shifts it's not so much what are you going to do with the money, will it fall to the bottom line that's the case with capitol one and amgen, talking about now that this money we have overseas is going to be taxed at 15.5%. that's now going to have to be booked as a tax liability. all of this stuff is an interesting test of how much investors look beyond that accounting base stuff. >> exactly. >> we heard from citi as well. citi was early on when it came out about the impact on its accounting basically from the tax. we heard from a lot of companies in terms of positive impacts from tax we heard from delta at the investor meeting that the impact on eps would be a buck to 1.25 for earnings of $5 and change. we're hearing some substantial increases in outlooks and it's interesting to see what the market reaction is, whether that's going to be one time or sustainable or et cetera. >> the market says another 1.25 for delta to burn in terms of competitive measures or new capacity or something like that. it's unclear if all of it gets to the benefit -- >> even for retailers, they will benefit tremendously they pay corporatetax rate somewhere around 38 or 39% is that going to fund -- is that going to fund promotional activity so they can slash prices more? that would not be read very favorably by the investors. >> some people wondering what walmart will do with the potential windfall in terms of its tax rate falling 21% is the number but the effective tax rate as pointed last week, going to be lower for many industries. you're going to even -- because so many of the deductions have actually been left and not eliminated effective tax rates in a number of industries will be well below potentially 21%. it's not just corporations, of course, a lot of individuals in high tax states where you can no longer deduct state and local and property taxes only up to 10,000 prepaying property taxes. state and local you can't because they eliminated that ability to do that in the bill and then as well in the hedge fund community, this may be impacting the movement in some stocks the change in carried interest they didn't get rid of it but did extend it to three years some people taking gains this year that they might otherwise not have because of that extension -- >> they would feel locked up essentially for a longer period. >> and have to wait longer and as well, some managers booking their profits now because at the same time, they can deduct state and local this year on their income taxes when you're making as much money as these people do, those end up being big numbers. there are movements that are tax related. >> we're in this period where the tail wags a dog a little bit. just a quick shift in tax treatment and tax rates gets the economic behavior to be kind of rushed on one level or another and over the longer term of the course of a few quarters you'll get to know if it changes real world investment patterns and all of the rest of it. >> or spending patterns, you've got to wonder if the next round of earnings or couple of round of earnings from corporations saying if shifts in tax policy cause consumers to do things like pre-pay taxes which took from consumer spending, especially for companies that might be more levered to the blue state so to speak, california, new york, et cetera, the high tax states. >> i think i'll be most interested as well to see the pace at which money comes back from overseas, the 15 plus, 1 15.5% on cash. it starts to take effect if you don't bring it back. you have to pay the tax and i'll just be curious to see mouch is brought back and we've got the debate ongoing for many months really, what will be done with it, certainly dividends, buy backs and will any of it -- >> m and a. >> i don't know if it's going to be m and a. >> in the pharma sector. >> more a pressure tactic from activists that leads to action but it's not the actual capital that is going to somehow bring the m and a. the fact is that interest rates have been all time lows for years, access to capital, jp morgan says we can raise $100 billion for a deal that's not been an issue the issue is if you bring the money back and don't do anything with it, are you under pressure from shareholders to do something that results in perhaps a transaction. >> the fact is, you owe the taxes, they are paid therefore you have flexibility to do anything you want or not do anything with it. i think it is the pressure piece of it that might determine what happens. in other words, you no longer have the excuse of saying that cash is over there we can't touch it for now. now activists say no, that's ours buy back a lot of stock, do something with it. we have to keep in mind also how top heavy the tax holders are. it's a handful of very large tech companies that have a tremendous share of trillions doctor. >> the pressure on the biotech stocks that have been sagging and pipelines are looking thin right now and they have a lot of cash overseas. they had access to capital but now the pressure is going to be on to do something. >> mike mentioned amgen, of all in terms of how much the cash represents of its overall is the largest in that sector if i'm not mistaken let's get to the markets now joining us at post nine to talk more about the broader markets, aaron gibbs, and manager at s&p investment advisory services and brian jacobson senior investment strategist at wells fargo. erin, we've been talking taxes and what the impact is going to be what are you hearing in terms of questions from clients and what are you telling them >> one of the things we're telling them is for us, we're really positive consumer discretionary for multiple reasons. we've seen a change in sector rotation we've seen the change in leadership for consumer discretionary, really good retail sales they have one of the highest effective tax rates as we know so we think that could be a real bonus in being able to shift money more into infrastructure, putting more money in online sales and being more competitive again. whether we reduce pricing and that could be another one. we see there's more potential in that area. financials obviously being another one that could be really good growth. but particularly for consumer discretionary, their profits are already expected to have more than twice growth for 2018 than this year. you add in the tax benefits that could be one of the areas and valuations are much more reasonable than other sectors we're seeing. >> i understand you're favoring small caps over larger capit capitalization companies. >> one of the reasons if you look at even absent tax reform, the underperformance in small caps in value relative to their peers, small versus large and value versus growth. kind of a relative valuation play also, those are the areas that we prefer to deploy money over the longer term. but, considering some of the tax reform changes it does look like it is biased towards helping more of those smaller cap more domestically oriented firms and also companies that are more in the value end of the spectrum. whether it's with consumers yield consumer staples or have industrials, that's not to say we're not seeing opportunities also in like information technology and the such. if you're just looking at where to deploy capital over the longer term, which is with a we're primarily focused on, it seems like more of the longer term opportunities are in the smaller cap value. we also really like the idea of let's look for income in this type of environment. if federal reserve is going to be hiking rates, they did it three times this year, well, they only did it one time the year before, if they pick up the pace of hiking, we think that investors are going to continue to want to look for alternative sources of income as opposed to your traditional sources so taking more of that multiasset global approach to generating income for clients is a big focus for us >> erin, everybody tries to figure out exactly what the help is going to be from lower corporate tax rate for earnings. one of the questions i have, at the start of any given year, the standard consensus, usually a little bit high. what base are we using >> except for this year. >> 2017 you mean. >> yes, basically dead on. >> exactly. >> maybe we get lucky again. i'm wondering if you think the baseline expectations regardless of tax policy is okay looking into 2018? >> i think this year actually is okay considering what we're seeing with record gdp growth, improving consumer retail sales, just a lot that's going for the u.s. economy, i think the 11% expectations -- and that's not including tax reform, they are not baking that in yet -- that to me looks stable because also revenue growth is at about 6%. when you see those two in line, i see this as being fairly stable and i would -- this year might be the one year where it's actually low once companies start incorporating the tax benefits and getting those one time pops, it might be the one year where earnings expectations are lower than what we end up seeing for the next year. >> brian, there's an ongoing debate this time of year we're taking a look back on stellar gains and especially the past few months, whether or not tax is priced in we still hear the companies come out and say this is going to be the positive impact and we see those stocks rise. what's your verdict? are we going to be getting another sort of leg to this pop because of companies are going to finally come out and elaborate the impact from tax? >> i'm not sure that tax reform isn't priced into stocks really or even reflected in earnings per share if you look at the generally secular rise in eps estimateses over the next 12 months since the beginning of the year it's been slowly being reflected in earnings per share estimates. you can make an argument right now where we're going into for next year, assuming only an 11% gain is a little light, perhaps it should be a bit higher than that it's interesting because one of the big issues has been about high valuations on the basis of trailing 12 months earnings. if you factor in tax reform, you get a 10 to 15% bump in eps. we go from effectively nose bleed levels for valuations to the eye watering levels for valuation but something a lot more reasonable. i think a lot of analysts have been very hesitant to pencil it in but portfolio managers have been deploying capital. talking to a number of portfolio managers after the election, they began writing into their valuation models effectively a 10 to 15% reduction in effective tax rates over the next few years. i think that there's a slight disconnect between what the sell side has been rereporting as far as expected earnings and the buy side has been doing as far as deploying capital here >> final question to you, if there's one concern you had going to next year that could make you change sort of some of your key notions, what would it be >> for us it's always that exongenous, shock, they are so stable in the u.s. and europe. it's that big shock that could always be out there, whether it's north korea or cyber attack those are the type of things that could shake up and moderate risks but high impact. and so those are things that we're always keeping an eye on. >> thank you, appreciate it. erin gibbs and brian jacobson joining us. >> when we return, e it lon muss twitter tease about a new truck. we'll look at the challenges facing new ceos in 2018. let's take another check on futures on this wednesday. looks like another light volume date but we're looking at the positive open across the board more "sqwk ouan the street" when we come back yes or no? do you want the same tools and seamless experience across web and tablet? do you want $4.95 commissions for stocks, $0.50 options contracts? $1.50 futures contracts? what about a dedicated service team of trading specialists? did you say yes? good, then it's time for power e*trade. the platform, price and service that gives you the edge you need. looks like we have a couple seconds left. let's do some card twirling twirling cards e*trade. the original place to invest online. yesterday elon musk took to twitter to ask tesla fans how to improve automaker. musk tweeted, i promise we will make a pickup truck right after model y. had the core designing elements in my mind almost five years am dying to build it he also tweeted the truck will be similar in size to the ford f-150 though slightly larger to account for game changing, in quote, i think feature i'd like to add the crossover vehicle that tesla expects to launch by 2020. this is a -- this really shows the continuing showmanship of elon musk and his ability to peek the interest of people. >> getting us talking about it. >> but in the past where we've seen the stock rise in response to it, tesla stock over the past few months has not been going anywhere. >> it struggled for six months right now. and it's not been because of any slowdown in that kind of promise the magic tomorrow that musk has out there. i don't know if it's a matter of investors feeling like their head start is diluted because all of the other incumbents are in the area or just a production challenge. now it's a real deadline as opposed to these kind of we'll make a few cars by x date. now it's like you have to get to scale or not. >> right and arethey going to do that? >> it's been an interesting year at one point which tesla's market value exceeded those above ford and gm, still larger than ford's but gm having had a nice rally towards year end. eclipses it now. where are they going to be on the model 3. where are they expected to be versus what they are saying they are going to be in terms of production >> they are going to be reporting quarterly production numbers next week. already key bank is out this morning saying they are expecting model 3 deliveries and that's what everybody will be focused on to be around 5,000 vehicles and that's down from key bank's own estimate of 15,000 so it was a third of the original estimate that key bank had put forth on the model 3 they are already saying that the production element of this -- remember, earlier reports had it that tesla was assembling parts of this by hand, making the parts by hand in the early round of model 3 production. so there were -- there was except ticks from the very beginning about whether or not model 3 would be able to ramp and here we are the first sort of full quarter -- >> those criticisms that sort of go along the lines of keep talking about your pickup truck but maybe get it together -- >> or the semi or model y. >> the diversionary tactics perhaps. >> it works for porsche but not that many cars they make in a given year. we have art cashin's perspective as we count you down to the opening bell. another look at futures, we're ten minutes from the start of trading. more "squawk on the street" straight ahead excuse me, are you aware of what's happening right now? we're facing 20 billion security events every day. ddos campaigns, ransomware, malware attacks... actually, we just handled all the priority threats. you did that? we did that. really. we analyzed millions of articles and reports. we can identify threats 50% faster. you can do that? we can do that. then do that. can we do that? we can do that. can we do that? so that's the idea. what do you think? hate to play devil's advocate but... i kind of feel like it's a game changer. i wouldn't go that far. are you there? he's probably on mute. yeah... gary won't like it. why? because he's gary. 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"we got a yes!" start saying yes to your company's best ideas. let us help with money and know-how, so you can get business done. american express open. raphael: just fourt are brothers who hate bullies, and love this city. leonardo: woo! michelangelo: whoa! haha. leonardo: gear up guys! directv has been rated number one in customer satisfaction over cable for 17 years running. but some people still like cable. just like some people like pre-shaken sodas. having their seat kicked on an airplane. being rammed by a shopping cart. sitting in gum. and walking into a glass door. but for everyone else, there's directv. for #1 rated customer satisfaction over cable, switch to directv and for a limited time get a $100 reward card. call 1-800-directv. hey, steve we're just about aeleightminutes before the opening bell. let's bring in art cashin. director of floor operations of ubs. welcome. >> thank you. >> does it feel less low as it was yesterday? what should we be watching today? >> yesterday was a waste of hair and a clean shirt. >> you can use a clean shirt if you only use it for a certain amount of time >> but i think with boxing day, with a lot of europe closed, it was difficult. this doesn't look awe inspiring however. we hope to be a little bit busier we're still waiting to see if the santa claus rally can get started. this has been a dreadful year for seasonal patterns, almost none of them have worked and so far the santa claus rally is not up and running for those of us who may have forgotten, it's the last five trading days in the year and first two in the next year so far we've been down not up as we're expected to be so -- >> why do you think seasonal patterns haven't held at all this year? >> i don't know, maybe the debate on the tax policy and whatever i think that certainly distorted tax law selling at year end. people didn't know how it was going to be treated. that's been postponed. that may have also thrown other things off we'll have to wait and see luckily congress is out of town. we can't get any big problems there. the negative news surrounding apple was cast a shadow over everything most of the tax, the apple suppliers, et cetera, et cetera. we'll see if they can shake that off and get started again here. >> trying to look at some themes, art, this month, it seems as if maybe some of the rotation action that's happening is people getting ahead of the sort of january losers become winners type trade energy and telediagnocom had a month. i wonder if that's something that is sort of taking that activity from january -- i'm trying to figure out if there's any reason to think that the tone and character and market change because the year changes. nothing really has disturbed this low volatility crawl higher all year. >> it hasn't but i do think you hit the nail on the head. we are seeing some real rotation here, which is good. the market fell back and nothing got started but as i said yesterday, i was a little disturbed last week to see the big drawdown in both etf stock funds and in bond funds also so we'll hope that's not a trend. i hope it again may have had something to do with the tax reform bill and see where we go. >> do you think people were selling in order to prepay taxes at all could that at all be enough? >> the prepayment of taxes hits a rather small universe of people i'm not sure that would have that big an impact i think it's just ledge ar gi, today would be a good day to try. we'll cross our fingers. >> art, thank you. opening bell is about four and a half minutes away. stay tuned, you're watching "squawk on the street. hey! yeah!? i switched to geico and got more! more savings on car insurance!? they helped with homeowners, too! ok! plus motorcycle, boat and rv insurance! geico's got you covered! like a blanket! houston? you seeing this? geico. expect great savings and a whole lot more. when it comes to travel, i sweat the details. late checkout... ...down-alternative pillows... ...and of course, price. tripadvisor helps you book a... ...hotel without breaking a sweat. because we now instantly... ...search over 200 booking sites ...to find you the lowest price... ...on the hotel you want. don't sweat your booking. tripadvisor. the latest reviews. the lowest prices. you're watching cnbc "squawk on the street. we're live from the financial capital of the world the opening bell will ring a minute from now. you're going to have a long day today. anything in particular as you start with us and end on fast money, anything particular you're going to be keeping an eye on as the day goes on? >> we'll continuing to watch apple to see if any of that from yesterday spills over to today there's a report today that apple is facing eight lawsuits across different states, all seeking class action status regarding the software change that they say helps the phone real estate main on as the battery life wains there has been a conspiracy theory they did this on purpose to make you buy a new phone and now facing lawsuits. we'll see if this impacts the stock. >> yesterday's report maybe a little weak uptick in the x. in retrospect, it's rarely seen very smart to pay attention to sales surveys and the rest of it apple is up 45% this year. could take any excuse or none at all to pull back hard but it seems as if that isn't necessarily going to be a carryover theme for today. >> and there it is, the opening bell for this wednesday. [ bell ringing ] >> the santa claus rally, as you heard art cashin say, here's the big board, mothers against drunk driving in its 37th year of saving lives at the nasdaq, cnbc's technical operations, led by steve, there he is in the middle. they do such a great job for us every single day. >> what a beautiful set. they are there to celebrate the new "squawk box" set and it is a beauty. >> it is apparently worth its weight in gold i don't know very expensive nice to see -- >> it should be -- >> bitcoin. >> could have waited until next year and written it off entirely in one year but nice to see those guys we've just gotten started trading, apple melissa, yesterday was one of the weaker members of the dow, given those concerns about the model x, what the sell would be and demand in china. but at least in the very early going here, down another let's call it .4%. it's still up over 46% for this year as it edged ever closer to the trillion dollar market value before backing off recently. >> also be an interesting test how investors treat big tax changes right? it's been the headline for overseas cash. but you have 250 or $270 billion overseas, apple has $100 billion in debt. they borrowed nicely against it. they've done a lot of stuff you would expect a company to do when they were tapping their cash overseas, they are almost the poster child for the big tech company with an enormous amount of cash it doesn't seem to need any time soon. >> no, we pointed out they have hit the bond market at very good times, consistently seeming to get what is below rate -- >> also a huge owner of corporate bonds. they put the cash portfolio a lot in -- they are tremendous in that market on both sides. >> we saw the fallout yesterday from the report from the taiwan economic daily on apple as well as the apple ecosystem it looks like the trade has stabilized with the inputs into the apple eco system skywork solution, they are trading higher and semiconductors finding stability after a stellar year smh up in 2017 another huge winner we're looking at this year in 2017. >> a peek at the bond market as you look at how financials are opening kind of flattish or soft here 10-year back down below 2.40 i guess. it seemsas if it's really -- the flattening theme has been well observed but the two-year note at 1.92 right now, just really seems like there's not much of a hard ceiling on that therefore, people expect the economy to be good enough and inflation to be picking up enough for the fed to stay very active but for now, it doesn't seem to be disturbing by the long end. we talked that up and down but it seems as if the bank stocks are okay and not worrying too much about the spread in between for now. >> we'll talk much more about banks in 15 minutes' time. that's a group we're watching. a quick check on bitcoin, why not? the gdax exchange trading 15,709 and a lot of bit coin related stocks, long island iced tea, which changed to riot blockchain, we saw the sell-off on friday and sell-off on stocks in the whole blockchain bitcoin sort of complex is stable to higher at least today. >> last week we got the news on boeing, the resilient champion,s not a large company given the importance in some ways to the brazilian economy and at least our knowledge of the company, because many people may have flown on some of their airplanes the market cap somewhat surprising how small it is nonetheless, they are engaged in those talks to be purchased by boeing but the brazilian government will have the last word here. interesting potential deal for boeing, filling in sort of one other key product lines in terms of embraer is a key player, small passenger jets that continues but it's not necessarily about what embraer's management may want as having to get it through brazilians and how they view the company in terms of willingness to be sold. >> small for boeing, given the approaching $200 billion in market value, whatever it is at this point after this year it's been on a tremendous run. but it is interesting that therefore even in that context, boeing feels as if it has to play in that area and it's worth trying to get over those hurdles. >> bombardier is one of the competitors and they have a new linkup with airbus so that's important. fox and disney, getting a little more play today. maybe we'll get better movies is what the "wall street journal" decided to right. >> i thought it was more crappy movies to feed the best. >> they have come down to the idea we might get more critically acclaimed movies because bob iger expressed a willingness to go there. to feed the beast, the direct consumer offers they have, powered through hulu or another way, they are going to compete with netflix you just have a lot of stuff coming through the pipe. >> presumably where they can have an edge over netflix, original movies. >> if that's the beast you're feeding, you're going to budget them accordingly you're not going to necessarily say here's a $300 million budget for a movie that's going to be packaged into the streaming service at first look. it's been more about tv kind of scale projects there i mean, disney under bob iger made a big show of doing fewer me too movies. everything is franchised. >> it is by far the most successful of the studios. others have had their ups and downs and universal had a good run here but disney is by far the leader there's virtually nothing that comes out of there that doesn't make a lot of money as opposed to fox and warner. sony, any of the others that have had more of an up and down experience one thing to keep in mind as we head into the new year and still -- people are still digesting implications of disney and fox and of course what is still for some the mind boggling idea that rupert murdoch said i don't have enough scale so i'll be hyper rational the way some described his thinking to me and go the other route what that means for the other players and whether or not they are going to feel the need, those who are out there need to gain scale in some fashion or sell to one of the bigger guys out there. then i come to this idea, we've never seen apple do a deal or amazon do a deal of content of any significant, not to mention regulatory, would they want to raise their head up for a relatively small deal because it would expose them to other criticism they might not want to otherwise take on. >> do you think there's a chill in the deal front when it comes to media to say what happens with at&t? >> i think -- at&t time warner, march 18th is when the case begins if i recall it's going to be very important. it really will unless of course we get some sort of unexpected settlement between now and then because if the government wins that case, it's hard to imagine you're going to see a lot of activity when it comes to media. if it goes the other way, people may take and will take a different message and fox disney will be viewed in perhaps a different light although again we have politics playing a role here already whether it's at&t's decision to reward its employees and the way the president applauded that and therefore people saying that may change the calculus or co congratulating on the disney deal >> it's almost -- because it comes down to kind of judgment call interpretations, you're not going to resort to let's look at the letter of the law. it's kind of this look and feel type of a game so then the question is does the company want to lock themselves into a year or two process of maybe this completely uncertain type of deal if you don't know what the rules are >> yeah, that's -- right i think all of us would go back to knowing it's the rule of law and we're going to rely on antitrust doctrine right now it's a very gray area. not to mention these reviews take forever, for example, qualcomm and nxp, there was some thought that deal might have its regulatory approvals done by the end of this year not going to be the case another example of how long it takes, even for deals that seemingly do not have a great deal of controversy attached to them when it comes to antitrust implications, it just takes forever. and nxp i'm told is going to be bleeding into next year, unclear how long into next year as that review from the eu, chinese, kind of drags on far longer than perhaps many had believed it would when this deal was announced. we'll get to the price stuff let's call it next -- let's wait for a couple of weeks unless i get something in which case we'll share it with you immediately. bob pisani has more on what's moving this morning. >> good morning, david, happy wednesday, everybody quiet open and we have sectors moving to more the defensive tone health care doing all right, consumer staples and telecom been a loser recently and retail and banks have done better in december are on the downside not a lot of new highs out there but in europe we have a few. the ftse 100, the largest 100 companies in the london stock exchange hitting a new high here it's been side ways for a good part of the year but there's been more hope on brexit and negotiations recently. one of the things happening, the london stock exchange is very commodity heavy. a lot of big commodity players trade over on the london stock exchange you have glenncore and rio tinto, this has been a great year this is the global economic expansion. china is a big user of commodities but not only has it been a good year for commodity stocks but good year for commodities in general, aluminum, copper, zinc, brent crude, all up double digits for the year there you see that global economic expansion important thing for today, you've been hearing david talk about the tax cuts issues, royal dutch shell and barclay's out there talking about changes based on the tax law folks, reducing the value of tax deferred assets to me that's a very small price to pay when you get a large tax cut for most of the corporations remember fedex, fred smith last week the biggest reason they saw a boost to 2018 earnings, not the corporate tax deduction. it was exactly this. the reevaluation of their net preferred tax liabilities, that was according to the company it can work both ways. as for 2018, a lot of people are looking back at 2017 and saying this is an extraordinary year and it can't keep going like this so you'll hear very common wisdom now, we can't have another year where we're up 20%. the average for the s&p has been 7 or 8% since not 45 we've got to have reversion of the mean flat or something like that. this is very common wisdom a lot of people saying we can't keep hitting these all time highs, 62 days where we had all time highs in 2017 in years when you hit an all time high, the average is 29 we can't keep going like this. it has to slow down. we hear the volatility, this is another one i hear endlessly only had eight days when there was a 1% gain in the s&p 500, that can't keep continuing because the average since 1945 is 50. it's got to get more volatile. then i keep hearing about the big sector dispersion, between the best performing and worst performing sectors tech is up 40% and energy and telecom down 4 and 5%. that's a 44, 45% dispersion. that's a little unusual. that can't continue. i keep hearing known of this can continue i'm not so sure about any of that be a little suspicious of the perceived wisdom that's out there. number one, why can't we keep going? we are at peek earnings right now and it's going to likely continue into 2018 and they're still figuring out tax cuts. they explain about the high multiple it is high, 19 to 20 but when you get a global economic expansion and earnings at record highs, that's the definition of arguing for a higher multiple. this low volatility, it is not at all clear it is sicyclical o secul secular. we may go ahead and blame it on etfs or whatever you want, but we have been doing this for several years now. no reason to particularly believe that suddenly out of nowhere we're going to get higher volatility without some global economic event. bottom line here, we're flat on the markets here michael, back to you. >> all right, bob, thanks for that good context. appreciate it. time for a closer look at oil prices, pausing a bit today. seema modi is at the commodity price. >> oil slipping since mid 2015, surpassing the crucial $60 per barrel milestone as an explosion at a pipeline in libya brought supply concerns. they do produce 90,000 barrels of crude a day also adding to the concerns, a closure of britain's largest 40s pipeline currently pumping about half of its normal capacity. despite this disruption that we're seeing in supply, in the global context of things, it's still very small take a look at wti, trading 59.63. the focus will be on opec and the ability to keep the current supply cuts in tact with saudi arabia and russia leading those talks. as cold weather braces in the northeast, want to look at nat gas prices, higher by 3% melissa, back to you. >> seema, thank you at the commodities desk coming up, financials have been riding the trump rally in a big way. will we see more in 2018 now that the tax reform bill has been signed into law as we head to break, take a check on the movement in t treasury market this morning (siren blaring) ♪ working as an emt in a small town usually means hospitals aren't very close by. when you have a really traumatic injury, we have a short amount of time to get our patient to the hospital with good results. we call that the golden hour. there's nothing worse than when we're responding to the hospital, and the hospital doesn't have the right specialist. evaluating patients remotely, by an expert, is where i think we have a potential to make a difference. robots can do a lot in medicine these days, but they can't think. they're still machines. for nuanced decision making, we still need humans. we would save a lot of lives if we could bring the doctor to the patient. verizon is racing to build the first and most powerful 5g network that will enable breakthrough innovations to take place. as we get faster and faster wireless connections, it'll be possible to bring those capabilities to more remote sites, and be able to operate on a patient in a way that was just not possible before. when you think about underserved areas, you tend to think of remote locations. but the reality is, an underserved area is anywhere where the person that you need, who has the expertise for the problem that you have, is nowhere near you. low latency is crucial for things like surgery, because the response time has to be immediate, it has to be real. i could put on vr goggles like these, and when i move my hand, the robot on the other side will mimic the movement, with almost no delay. who knew a scalpel could work thousands of miles away? (dr. vasquez) it's going to be life-changing, and life-saving. yes or no?gin. do you want the same tools and seamless experience across web and tablet? do you want $4.95 commissions for stocks, $0.50 options contracts? $1.50 futures contracts? what about a dedicated service team of trading specialists? did you say yes? good, then it's time for power e*trade. the platform, price and service that gives you the edge you need. looks like we have a couple seconds left. let's do some card twirling twirling cards e*trade. the original place to invest online. banks joining american counterparts in warning inest vers to expect write-downs joining us kdw banking analyst and gerard cassidy on the phone. i'm guessing these accounting adjustments are things you really look through and that the net impact on the banks is a positive one >> sure, good morning, first off, happy new year. with respect to the capital implications from the tax reform, the banks are and we've already started to see announcements, preannouncements into the fourth quarter related to the writedown of these tax assets, noncash charges and they will impact book values but we believe we're in an earnings based environment, where earnings matter more than book values and balance sheet capital ratios, going forward, i think most banks and we as analysts would agree that the benefits from lower ntax rates and corporate tax rates in higher earnings estimates would more than trump the impact of a modest impact on the capital levels at this point of the cycle. >> gerard, can you give a concrete example how much it could impact a bank like a wells fargo or bank of america which have a lot of operations here in the domestic operations, what that tax implication would be if you lower that corporate tax ra rate >> sure, when we take a look at these banks on average, it's our expectation that the earnings for the largest banks will probably rise in the mid teens, 15 to 16%. and if you take a look at bank of america specifically, we think there's a 16 to 17% increase in earnings coming and that is our assumption that they only capture 70% of the lower tax rate they have not come out -- some banks have come out and given guidance where the new tax rate will take their earnings wells is about 15 to 16% again, this is an estimate that we've this is an estimate we have come up with based on capturing 70% of the lower tax rate across the board, higher earnings in cards for the banks. >> chris, does that mean that investors are going to sort of pay up for this bump in earnings growth in 2018 obviously, it raises the threshold for the following year it doesn't help you in terms of earnings growth. i wonder what banks are expected to do with it, and if that's going to determine how investors treat this in other words, if they get really aggressive on loan pricing, maybe investors aren't going to love it as much as if they just buy back a lot of stock. >> i think one of the imp implications is this raises long-term rates for banks. that will enable us to get back to long-term averages. long-term averages is an average, but keep in mind, the strength of the banks balance sheets and to your question about will investors pay up, we think investors will pay up for the quality of the earnings and the strength of the balance sheets we're talking about banks still at generational high capital levels and i think one of the implications from higher capital levels and earnings growth is they're going to return the capital to shareholders. we think double digits -- earnings accretions will lead to double digit earnings. and i think consolidation which is a big theme, will accelerate, especially with the deregulatory efforts gauche on in washington. >> on that point with the deregulation and the impacts of tax and the cash and balance sheets, what kind of deals could we be expecting from the banks and who in your view would be the most likely acquirer >> i think what we should expect is a definite increase, as chris pointed out, in terms of the number of transactions in the next two years if you look over the last three or four years we have been averaging over 225 bank deals a year, but they have been very, very small our outlook calls for bigger banks, so-called c-car to c-car merges so we'll see large regional banks coming together in low premium deals because scale is needed to compete the technology spending that's going on at our biggest banks such as bank america totals about $10 billion a year the bigger regionals are having difficulty in keeping up with that i think you will see companies like bbnt look to do a transaction some time in the next 18 months to combine forces with another large regional bank that's where the real change comes, we think on the m & a front, later this year when the regulatory rules in place go away big deals are coming, we think, starting the second half of '18 and into '19 >> gentlemen, thanks for your time happy new year >> thank you well, not everyone gets a break when it comes to tax reform coming up, we'll have a look at the groups and businesses that seem to be losing out. quk t see wl "sawonhetrt"ilbe right back at the lexus december to remember sales event. lease the 2018 es 350 for $319 a month for 36 months. experience amazing at your lexus dealer. when this bell rings... ...it starts a chain reaction... ...that's heard throughout the connected business world. at&t network security helps protect business, from the largest financial markets to the smallest transactions, by sensing cyber-attacks in near real time and automatically deploying countermeasures. keeping the world of business connected and protected. that's the power of and. kim kardashian received a number of christmas gifts from her husband, kanye west. she outlined in an instagram story video. take a look. >> okay, so for one of my christmas presents from kanye, he gives me this little box with a disney mickey toy apple headphones, netflix, amazon gift cards, and adidas socks. and i'm like, that's so sweet. but then i open the next box, and it is stock to amazon where he got the gift cards, stock to netflix, stock to apple. hence the little headphones. adidas stock and disney stock >> the amount of stock kim received totaled about $200,000. >> what's interesting is he gave her the stock certificates >> i looked at that. i had never seen that before >> you have to go through a lot of effort, you have to go through the treasury of the company. >> yeah. >> disney, i know, does a good business in physical stock certificates for the woman who has almost everything, although i would hesitate to draw implications for the stock. remember the mila kunis buys stocks scenario. she's up 80%, so don't think it's a contrarian sign >> it's a nice portfolio >> not bad >> all right, kanye. >> coming up, we'll look at the challenges facing new ceos in 2018 there's one man who's got a challenge on his hands flannery at ge, and a lot more 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[vo] progress is an unstoppable force. the season of audi sales event is here. audi will cover your first month's lease payment on select models during the season of audi sales event. to "squawk on the street." i'm david faber look where mike santoli and melissa lee. we're live at post 9 sara and carl have the day off today. let's get to economic data we have crossing the tape right now. jim has those numbers for us jim. >> hey, david. we have the consumer confidence number came in it came in at 122.1. we expected 128. that was after a fairly blockbuster number last month of 129.5. even that was revised a little lower. so a tiny bit of a disappointment in consumer confidence numbers still very high, hovering near 17-year highs. reaction in the stock market was a tiny bit positive. also pending home sales. we were expecting negative .5. it came in as positive .2. that was after last month we had a 3.5, but that was because we pulled from hurricane related months and kind of front loaded it in those months the reaction is pretty muted stocks are up about 1.5. the ten-year yield is about 2.446, which is where it started. back to you, david >> thank you, jim. >> our road map this morning starts with huge multignashes who are announcing changes to their bottom lines in light of tax reform we'll take a deeper dive into how those companies could be impacted >> plus, a number of ceos in the hot seat for 2018. they got new bosses last year. we'll discuss the challenges they face as the calendar turns. >> speaking of executives in the spotlight, under armour's ceo under fire as that stock is down nearly 50% this year we discuss the outlook for the one time wall street darling >> major averages are flat, looking to avoid a third straight day of losses stocks down in four of the past five sessions. so much for the santa claus rally so far joining us is michael, chief global strategist, and jeffrey sought welcome. michael, i'll start off with you. what are you expecting in 2018, given what we have seen in the markets in the past month, which seems like a distinct rotation into value >> i think there is some digestion here, but if you look at the rotational value, you have to look at what was getting sold tech stocks and faang stocks that were way overextended and in fact, that selloff in tech that helped support some of that move higher in value, that was just like the earlier selloffs we saw earlier in the year so i'm not really looking at that i'm looking at that as almost a very logical and expected sort of tactical move i'm not looking at that as sort of a big turning point to say you have to go into value and you have to underweight tech next year. >> you're not saying switch from the sectors that have been working? >> only on a tactical basis. strategically, through the end of next year, i think tech will continue to be an outperformer >> jeff, your take on whether the markets can contain the gains we saw this year into next year >> i think it will i agree with mike. i think if i only two sectors to invest in, it would be the technology sector and i like the financials your previous guest before the break came on and talked about that the reason why financials are going to have the wind at their back i would expect 2018 to be almost a repeat of 2017 people are still way underinvested. earnings are starting to come in better than expected with the tax reform and especially the corporate tax cuts, i think earnings are going to surprise on the upside. >> jeff, just to pick out one thing you mentioned there, you think people remain underinvested? almost every measure of equity exposure looks like people are pretty loaded up on stocks going into 2018. >> i have a pretty good purview here at raymond james, and that's not the way i see the individual investors the professional investor, yes they are all in for the most part but the individual investor is not all in, at least as we see it here. >> so to pick up on that theme, though, should you consider whether or not people are underinvested in certain sectors. that would go back to, let's say, value, which is what we have seen energy and the bull case for energy, and i pick on energy because we have see noun brent and wti at 2015 levels. and the stocks are finally sort of getting a little bit of traction here. >> i take the energy sector a little out of the value discussion only because it's so oil-dependent. and after the last sort of three years of trauma in the oil patch, it's been very, very difficult. yeah, no, i have been bullish on energy equities there. but full stop, it is a call on oil. at least staying alt these levels and there's a catchup trade of energy equities performing with oil. but i think oil is going to be, you know, tricky if you think oil is going to be up in the 70s, you know, through next year, that's a very different discussion and very separate from this sort of value versus growth discussion >> even though we're seeing copper, for instance, at 3 1/2 year highs data that indicates demand for raw materials overall, not just oil, is pretty strong right now. you think oil's gains are capped >> you have to disconnect oil from c from copper. copper is a different discussion and ties back to the environmental reforms happening within china that's helping that it's not just copper you can see a lot of metals that have been surging, have been great longs over the last 12 months, and well may stay that way. oil's different. obviously, because of the supply dynamics of change drastically there. but ultimately, there will be great individual stocks in the oil patch to be long, probably some great ones to be short there. i'm just not sure you can get too excited about oil, oil equities from an oil call itself >> let me follow up on a comment you made about the individual investor not being fully invested what are you seeing, then, at raymond james? where are they are they largely in cash isn't that a good sign i think too often in the past when individuals are all in, it sometimes means that we're very close to a top >> yeah, i would agree with that and i won't say -- they're not all in cash, but they have on balance, you know, a decent cash position in their account. and it's because the markets haven't really given you a chance to add to positions it's been straight up since our models turned positive the week before the presidential election, pretty much stayed that way i think we're in the second leg of a secular bull market it's always the longest and strongest and when earnings start to come in better than expected and when the economy picks up >> second leg. how long does that go? >> it's unknowable and then you go into another upside consolidation like we did between may of 2015 and february of 2016 where the bear boos were telling us that we're going to get a crash and the earnings were never going to recover and we're making this big round to top and all it was was an upside consolidation. at the end of the second leg, you get another upside consolidation and then you start the 30 or speculative leg. in the 82 to 2,000 affair, that began in early 1985 and lasted into the spring of 2000. >> go ahead. >> just to jump in on that i think what determines really how long that second leg is is really inflation if inflation shows low and moderate, and the banking sector doesn't get too aggressive, then i think you can have a very extended second leg. you're going to have investors, professionals and retail, having to allocate into this low-rate environment, low-inflation environment. if we start seeing a surge in gdp that we all have been waiting for for years, and that brings up rates and inflation with it, we have -- i think that's going to foreshorten the credit cycle and bring in the top much faster. >> i think it's worth mentioning as we talk about secular bull markets, we're talking about '82 to 2000 as a comparable. that's the one you're shooting for, the late '90s move. there's nothing left in terms of valuations to feast on from prior cycles >> right, no if bond levels were to go lower could you expect expansion there. it's also relevant to look at 1962, '63, '64, '65. 1964 is literally half of what is now if you had a vix back then, you would see 7 and 8 handles back then you had low and stable inflation and high valuation that cycle went on for quite some time. it really was inflation that helped sort of nudging bond yields higher and ultimately dented the equity markets. >> jeff -- go ahead. >> the previous bull secular bull market ran from 1949 to 1966, to give you a comparison >> all right >> noted >> previous to the '82 one >> right >> for several years within those periods, it didn't feel like a bull market it's worth saying it's not like 18 years of effortless >> yeah, exactly so the question -- >> i agree with that >> jeff, in terms of your perch and all those retail investors out there with a lot of cash on their balance sheets, what gets them off the sidelines >> greed >> and when you say next year is going to be as good as this year, that's not enough for them >> yeah, i think they'll start to come in the stock market in the short to intermediate term is fear, hope, and greed, only loosely connected to the business cycle. greed always brings back the individual investor. a lot of times at the wrong time, but it always brings them back >> all right thanks, guys, for your time. happy new year, michael and jeff >> happy new year. >> turning now over to taxes not everyone gets a break in the new bill turns out some very specific groups and businesses are losing out. ylan mui joins us from washington with more >> republicans have promised to close the loopholes in the tax code, and they did for the post part, but it also creates unexpected losers in the system. take bicycle commuters the law gets rid of taxes for employers that encourage biking to work. so right now, companies can reimburse employees up to $20 a month tax free for biking, and that's an estimated annual savings for workers of $89 starting january 1, that's going away also caught in the crosshairs, maria college in kentucky. all the kids at this school come from low-income families, and none of them pay tuition they get a free college degree it was supposed to be exempted from a new tax on colleges and universities that have been endowments, but at the last minute, lawmaker husband to scrap this carveout because it didn't comply with the rules of the senate remember how the house had to vote twice on the tax bill that is one of the reasons why maria college's president issued this statement, quote, it seems so unfortunate that the political strife over tax reform in our country will result in greater difficulty for colleges seeking to serve low-income students now, one of the biggest shockers of all is that congress got rid of some ofilities own tax breaks the deduction for lawmakers living expenses are going away, and they won't be able to write off settlements they pay in sexual harassment claims closing that loophole was probably long overdue. >> i can't believe it even existed. i mean, really >> routine cost of doing business in washington, i don't know >> it's awful. >> all right yl ylan, thank you. >> when we come back, we're going to have a look at the biggest corporate changes over the last year. at the top, ford and others got new ceos in the wake of underperformance or some struggles in management. we'll dig into the challenges the new leaders will face in 2018 when "squawk on the street" returns. at the lexus december to remember sales event. lease the 2017 rx 350 for $399 a month for 36 months. experience amazing at your lexus dealer. prices of the season' on the only bed that adjusts on both sides to your ideal comfort, your sleep number setting. does your bed do that? right now our queen c4 mattress is only $1199. plus 24 month financing. ends monday. visit sleepnumber.com for a store near you. wifiso if you can't live without it...t it. why aren't you using this guy? it makes your wifi awesomely fast. no... still nope. now we're talking! it gets you wifi here, here, and here. it even lets you take a time out. no! no! yes! yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. several major companies made ceo changes this year. macy's, uber, ge, ford, wells fargo, starbucks, coca-cola among the many seeing a transition in their chief executive role which ceos are set to succeed in 2018 and who will face an uphill battle here with a report card, jeffrey sawnenfield. >> happy new year. >> who's got the biggest challenge ahead of them in 2018? who took a job in '17? i have to guess, i know who you're going to say, but i don't know, so tell me >> you thought i was going to say ge, but i think uber i think ge is everything that's bad out there is known so in fact, the yardstick is a little more manageable not that it's an easy task and there's going to be a lot of disruption, a lot of new board members, going to cut the board in half and things like that, but i think at uber, dara is a fantastic choice not the best choice, but better than having picked jeff immelt, who was a serious candidate for it, but mark fields would have been the best for it >> why would mark fields have been a better choice than dara >> because mark fields knows about smart mobility he understands ride hailing, ride sharing systems and dara has a big learning curve here also, mark understands a difficult board. he's been through that at ford >> you think they should have kept him at ford >> without doubt i think jim hackett is a very good guy i don't know that what ford needed was a commercial furniture maker. without a lot of consumer experience a very smart - >> plenty of innovation under his tenure i think in some ways we treat him a bit unfairly >> a very unassuming guy just teasing about that. he's very accessible, he's smart. kind of like a philosopher king. he can execute well, a big picture thinker, and ido that he brought into the world of furniture and all, he is fantastic, and mark had him running smart mobility for them, but mark was on the edge of all this the thing that got mark was the three best years he was ceo, the best years in their history. the model innovations, the f-150, bet the ranch on that was a big home run the lincoln recovery and all the rest and they had to pull out of europe for gm, and he fixed europe but the stock was flat actually, had been down 35% from where it needed to be. and elon musk is soaring past him, making a couple thousand cars a year, losing money. as you were talking in the last segment, seems like a new model a day he's going to produce, and their mark is making great profits but the smart mobility is what messed them up because sergei brin pulled out two hours before a board meeting i would have thought mark would be great, but there still are fissures at uber the fissures are profound. john lain is in there, the former ceo of xerox. where did they come from >> it's going to take a lot to sort of navigate all of that >> i wonder what soph bank is up to they have an agenda with divvy to sell the whole operation. >> they may, or have a significant stake. let's talk about a number of other names. this seems sort of note, starbucks. you come in, you're johnson, but you still have the man standing over you howard is still there. how do you navigate that >> it's a tough one, as howard schultz has had fitful exits before, like michael dell, who came back in, and we're lucky to he did, did a great job coming back in, or ralph lauren, who left and not two years later, he came back in and howard himself, 17 years ago, stepped out and then what happened howard then pulled the rug out from somebody, came back in, and then five years later he did the same thing now he seems ready he realizes that with the jim donald succession before --? now he seems ready what does that mean? >> he's interested in the roasteries and other projects and he is serious, you remember at andrew ross sorkin's "new york times" event, his interview there seemed genuinely interested in running for office especially since he's not running against bob iger right now. so what you look at with the exception of ford, all these guys, i realize i'm talking to a group of distinguished gen xers and i'm representing the tail end of the baby boom, this is a tailwind of leadership every one of these others with the except of jim hackett who is very good, best thing about him is he's following mark fields' plan, is that they're all in their mid-50s, early to mid-50s. >> dara is young you brought this up. we hadn't had coke on our list, but that's another one quincy taking over as well that's a young guy taking over an enormous company for somebody leading it for a long time >> and the other guys, pepsi who came out with the pepsi generation they were a boomer generation. now taking a look at what it means coming in with this crew i think wells fargo is a story that doesn't get quite the celebration it should. on your list, as you said. >> tim sloan coming in in a very difficult situation. >> difficult situation massive board overall, half the board is new. they replaced a lot of senior management they have been accountable, transparent, and one of these things where no good deed goes unpunished if you remember the shu lallic he got from senator warren in october, they have done what you are supposed to do when you're in trouble they're accountable, transparent. >> were they, but then the report came out with a lot more information. jim cramer sat here and excoriated them for days >> it isn't like they hid it they had others doing investigations, former attorney general holder doing investigations they were trying to find these things there are times when you have a problem, like mattel once had a problem with lead paint. they said we're all done with the problem. turns out we're not done they had to go back three times. sometimes the problem is unfolding. i think they have been transparent, held people accountable, and they have been building trust for the future. >> i want to end on exits that may come in '18 as a result of sexual harassment. we're not done i hear we're not done. what do you hear >> we're definitely not done it's been so focused on media and politics heavy industry, where this used to happen, it's interesting is old line companies like the old at&t and others were the ones who used to have the biggest problem with this, but it turns out those kinds of companies with a lot of their formal pipelines and procedures have put in a lot of corrective practices. it's a lot of these companies that are the technology companies and others, where they believe it's all merit driven. we don't have discrimination here, all the best and brightest. we see in google and other places, until charlottesville, the flash point was the e-mail that went out at google. that's all people were talking about until we had the backlash in charlottesville a lot ofother companies are going to deal with that. i thought ford dealt with this well about harassment in two plans. we'll see heavy industry coming back to that >> we're not done yet. next year you'll come on and tell us about the ceos and left and took over for those forced out in '18 thank you. >> good seeing you >> when we come back, the big business of bowl games why there's a lot of money to be 'rli aven on the losers. wee vedd yankee stadium when "squawk on the street" returns. " something we all think about as we head into retirement. it's why brighthouse financial is committed to help protect what you've earned and ensure it lasts. introducing shield annuities, a line of products that allow you to take advantage of growth opportunities. while maintaining a level of protection in down markets. so you can head into retirement with confidence. talk with your advisor about shield annuities from brighthouse financial established by metlife. show of hands. let's get started. who wants customizable options chains? ones that make it fast and easy to analyze and take action? how about some of the lowest options fees? are you raising your hand? good then it's time for power e*trade the platform, price and service that gives you the edge you need. alright one quick game of rock, paper, scissors. 1, 2, 3, go. e*trade. the original place to invest online. well, thomas, you've got prediabetes. but with more exercise and a change in diet, it can be reversed. but i've tried exercising, and it just makes me hungry for bacon. i love bacon, too. and who really likes to exercise? not me. me neither. nobody! [both laughing] mmm! so we're good? what? oh, you still have prediabetes... big time. first comes holiday spending, then come the gift cards. kate rogers takes a closer look at the impact on retail sales figures from those cards kate >> hey, mike good morning this is a really big week to unload gift cards like the ones next to me and retailers are eager to get consumers in and spending. this year, the national retail federation says shoppers were set to spend $26.7 billion on gift cards that's up just slightly from last year's $27.5 billion. they say consumers are feeling better, perhaps allocating some of their gift dollars to other bigger ticket items throughout the year when it comes to gift cards, holiday shoppers were set to buy about four on average, totaling about $45 each when you look at the most popular places to buy them, restaurants came in first, then department stores and then the generic visa, mastercard, discover gift cards, followed up by coffee shops like dunkin' donuts and starbucks we also note this year was a really strong retail season. we got the figures yesterday from mastercard showing from november 1st through christmas eve, retail sales were up by about 5% we did catch up with shoppers yesterday in the mall. they told us they were spending more money because they're feeling good about the economy under president trump. >> i have good feelings about the economy this year. i think the policies are headed in the right direction and i think he's doing a good job. and i think for the financial stability of the country, i think it's going well. >> i would guess $800 or $900. i spent money on toys and things like that for my grandchildren since president trump's been elected, i think he's done a lot of help with the economy in certain things >> the nrf says given consumer sentiment and tax reform on the horizon which will be good for consumers as well as retailers, the next season will likely be strong as well don't forget, just because christmas is over doesn't mean shopping slows down at all this week consumers are set to spend around $69 billion, that's nearly 10% of the overall $682 billion the nrf has projected. back to you guys >> kate, thank you very much see if the cold has anything to do with those numbers. as we head to break, a look at the major averages this hour the dow trying to avoid its first three-day losing streak in more than three months so far, up just slightly from the flat line. when we come back, big multinationals resulting change as a result of tax reform. we'll take a deeper dive into how banks pe texcto be impacted when "squawk on the street" returns. well, it's earnings season once again. >>yeah. lot of tech companies are reporting today. and, how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. i'm contessa brewer. here's your cnbc news update at this hour. boy, folks in erie, pennsylvania, white christmas might be a bit of an overstatement. they're digging out from record breaking snowfall. more than five feet has fallen since sunday, bringing the city to a halt. it shut down government offices and the region's airport >> britain's prince harry is giving journalism a try and landing a big interview. the royal sat down with former president barack obama as art of his guest spot on bbc radio, which aired today. they discussed health care as well as obama's last day in office starfish are making a comeback after a suspected virus wiped out millions sea star wasting syndrome spread from british columbia to mexico between 2013 and 2014 and now researchers say starfish are beginning to reappear. >> starting next year, the library of congress will no longer archive every single tweet, which it's been doing since 2010 in a statement, the library said it was storing tweets to preserve a record of knowledge and creativity, and that it figured out that a lot of tweets have neither knowledge or creativity actually, that's just my addition there at any rate, it will be more selective in the tweets it decides to archive that's our cnbc news update for this hour. back to you. >> all right, contessa we'll see how that plays out thank you. companies continuing to announce changes, financial changes in the wake of tax reform barkl barkley's and bmw revealing expected charges or benefits as a result of the legislation. for more on how banks will be impacted, let's bring in wilfred frost. >> although tax reform is a big positive for banks, barkley's has become the latest bank to highlight that not every line item of their accounts is benefitting. they'll have to take a roughly $3.5 billion write down due to reducing the value of their deferred tax asset a deferred tax asset is a balance sheet item which holds value of past losses allowed to be offset against future earnings a lower tax rates means lower notional value of the losses this follows a slew of u.s. banks making similar announcements earlier this month. the standout being citi's ceo saying their write down could be as much as $20 billion however, all banks are agreed the corporate tax cut is a major benefit, both in terms of future earnings since they'll pay a high rate of tax around 30% and in terms of boosting the economy more broadly, which they are so heavily linked to. this benefit has been highlighted by banks including bank of america, wells fargo, and pnc, woo were able to pay workers a bonus or pay raise last week and is likely to lead also to bigger than previously expected capital returns for shareholders next year, as flagged by bank of america earlier this month banks index up sharply over the last month, thanks in large parts to hopes for the tax bill improving and then passing guys >> thank you wilfred frost. under armour shares down 46% for the year as sales decline. the ceo facing scrutiny about whether he's balancing his role as ceo and head of his private investment firm. responding saying my job is running under armour, period for more on under armour, we're joined by retail analyst simien siegel great to have you with us. all these things are fine as long as it's a growth stock and the stock is well, but it's not fine when the stock is not doing well what is your opinion >> that's exactly the point. by the way, you said a growth stock, not a growth company. that's also important. let's just take a step back, give kevin plank his due he built a phenomenal corporation and he's building now diversifying his assets. it's very successful, but we're talking about the stock. right now, you're seeing a company that has pulled back on sales. definition, fautd only a growth company, but it's still trading like one if that's the case, if kevin plank is the man running the show, you need to know he's running had show >> what are the chances he goes away >> goes away sounds nefarious >> if he steps down for some reason, they replace him, what does the stock do? >> you have seen other companies in the past where you had founder ceos, visionary ceos who have then stepped aside and allowed for the next leg of growth and they have come back that's worked for some i'm not saying he should step down by any means. i think he has done an incredible job, but the notion of figuring out under armour ran very far very fast to their credit now the question is did they go too far too fast or did they go too far. there was a sprinkling of potential that there were certain categories they felt they could pull back from, so tennis, some hunting there were certain areas where they may have gone too far because they were benefitting from the logo, from the brand. and felt like they could stretch. and now what they're doing is taking another step back, looking and saying what is the value of our company what do we do really well? figure out the core and make it healthy. that's a good thing to do if you're a company >> there is, of course, this scrutiny on him and some complaints, but what is the substance of the complaints. what should he perhaps be doing otherwise that he's not doing if in fact people think he's distracted by his own personal investments. >> he pointed out, i don't know if the number was 95% on under armour or not. you have to figure out, that's the question, less the time, it's what is the under armour? that's what we want to know, what are they doing from here. i think that's exactly what it is, you have a core business that you started with compression, you built out you are looking at a footwear business and apparel business, figuring out what's the right size you should be, looking at the competition. sometimes going deeper is better than going broader you can go broad once you have that ownership but you need to make sure you do you need to make sure your house is in order from a margin profitability perspective. i think what we're going to see, i wouldn't be surprised -- we saw it with handbags really interesting because you had a whole -- think about michael kors, how far and fast they ran, then they took a step back to shrink to growth >> coach too >> exactly, and ralph lauren you have this idea of broadly distributed brands that achieved levels of sales that took companies decades to do. sometimes it's worth taking a step back, slowing down, and figuring out how do we shrink to grow and to do this well that's not a very comfortable process for investors when you're a growth stock. and that i think is important from the share's perspective >> priced like a growth stock. as an investor, do you buy the stock banking on a kevin plank-led shrinking towards core business, returning to its roots turnaround >> and by the way, that description is maybe garp but value. that's not growth. so any company that has to then do that type of restructuring, the investor base, they're looking, it's a turnaround investor, not a momentum growth investor base. i think that's the important point, where the one valuation metric that still looks reasonable is sales. if you have a shrink to grow story, sales come down i think it's very hard to ignore the profitability metrics when thinking about where the company is going >> more downside to the stock. >> we believe there's downside to the stock a lot of ifs you need to price in to see meaningful upside. >> thank you well, sticking with sports, it is bowl game season if you haven't noticed, a lot of teams participating don't even have a winning record. another reason they're getting in on the action eric is at yankee stadium with the story. eric >> yeah, that's right. tonight it's the new era pinstripe bowl at yankee stadium. iowa versus boston college and these bowl games are all about profit now this bowl game behind me didn't even exist ten years ago, but the yankees created it, they own it a for-profit game. different from a generation ago when the rose bowl, the fiesta bowl were nonprofit community events everyone gets a piece and they all want a piece new era, the sponsor, worth about $4 million to sponsor the game some of the bigger games could be worth as much as $11 million, but if you're new era, there's good relationship value because the yankees are the number one team selling hats. if your business is selling hats, you want to keep them happy. the schools, iowa and boston college, have had their players all up and down new york city this weekend, visiting the opening bell at the stock exchange, the 9/11 memorial. that's a lot of good media and press and good recruiting for future students to come to the schools. you look at the broader picture, schools in the conferences for all these bowls, $600 million in revenue. they only spend about $100 million in expenses. a profit of about $100 million in bowl games, and you wonder about the tv ratings and who is going to watch a game like this. it turns out every game last year except for one had at least a million viewers. even for a game like this, that's guaranteed ratings. good for holiday sponsors as well back to you guys >> all right, thanks eric chemi at yankee stadium >> when we return, why prepaying a certain tax this week might save you serious dough in the new year orwh "ua othwkn e street" returns. it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. the name to remember. i used to have more hair. i used to have more color. and... i used to have cancer. i beat it. i did. not alone. i used to have no idea what the american cancer society did. research? yeah. but also free rides to chemo and free lodging near hospitals. i used to maybe give a little. then i got so much back. i used to have cancer. call 1-800-494-4357 today. your contributions to the american cancer society fund valuable research. but that's just the beginning. a cancer diagnosis can kick off years of challenge. and that's where your donation truly shines. you help us fund free rides to treatment. a live 24/7 help line, free lodging near treatment centers. and even efforts to expand access to insurance. so, please - donate today at cancer.org and help attack cancer from every angle. ahead of the new year, many homeowners in high-tax states are looking to prepay their 2018 property taxes the "wall street journal" reporting today on this trend. it says filers are lining up at municipal offices before the gop tax reform law kicks in on the first of next year and effectively raises the levy on higher end homes it caps at $10,000 the amount of state and local taxes you can deduct if you itemize. joining us on the phone, the mayor of 10 apply, new jersey. are you seeing a lot of your constituents lining up to prepay their '18 property taxes >> yes, that seems to be the case >> and what does it mean for the town how are you dealing with it? does it make you flush earlier than you might have airported? what are the ramifications >> the prepayment of taxes for the year 2018 certainly won't hurt our cash flow you know, our biggest concern is we want to make sure that our residents are aware of the benefits and the detriments to prepaying their taxes, and our recommendation is that they speak with their tax accountants prior to doing this. we're not in a position to give them advice because each person's situation is different. for example, my tax accountant sent out a generic letter to all his clients suggesting you consider this prepayment of taxes. but when i spoke with him, he told me in my case, it didn't make sense to do so. so we are also advising residents if they're going to prepay their taxes and at some point in the future would want a refund, you know, because their taxes are paid early, we could give them that refund, but they would have to fill out a 1099, and -- i mean a w2, and they would receive a 1099 at the end of the year. so this is something they may not have considered. you know, law was passed so quickly that even the people that voted for it may not have been aware of all the nuances of the bill we certainly aren't. but we are prepared to take prepayment of taxes for the year 2018 >> right as is the state of new york as well governor cuomo coming out with a statement last week saying that. but not all the high-tax states are doing so you're going to be flush with cash, does that change any of your allocations as you head into next year, given this unexpected number of funds that are coming towards the state treasury or the city's treasury? >> well, we have always prided ourselves on being very conservative and since the option is still there for people to ask for refunds, i don't believe it would make a lot of sense to spend money that, you know, we may have temporarily it is certainly not going to hurt us. it certainly is creating a lot of work for our tax office, our finance office, but we're here to serve the public, and if our residents can benefit from prepayment of taxes, we're going to help them as best we can. >> mr. mayor, what happens in 2019 in the year where people feel the full impact of tax are you concerned? >> i'm very concerned. i'm concerned about the property values in new jersey the good news for tenafly is we're no worse off than any community, although we may be because we're a high-end community, and people are paying in most cases more than $10,000 a year in property taxes if you're paying less than that, it doesn't impact you. i'm also concerned about the property values down the jersey shore where people have second homes. i don't think this is beneficial for new jersey or new york city or connecticut or california and i'm very concerned >> are there any measures, mayor, you're looking to take in anticipation of what might be sort of some challenges on that front? >> well, no, because for the most part, it impacts everybody equally. i mean, everybody is in the same boat and once again, this is all so brand-new, and i preface my remarks by saying i'm not an expert in taxes or accounting, and i will look towards our experts, our auditor, our financial people, as to what steps we should take in order to make sure that this does not have a negative impact on our community. any more so than, you know, anything that we can control, we want to do the right way >> yeah. mr. mayor, the fear has been, of course, that let's call it a couple years out, given the high tax burden in new jersey, both income tax at the state level and the property taxes, people will leave that they will move out and your tax base will shrink and you'll have less money to offer services with. is that a concern for you at this point >> of course, but it's not a new concern. we have had a flight out of new jersey for many years now, and this is the challenge that our new governor has i wouldn't want to be in his shoes. but this might certainly accelerate the problem >> well, mr. mayor, we appreciate you joining us this morning to update us on that property tax payment schedule being accelerated. >> having spoken to a number of my fellow mayors, i believe many communities are doing the same thing. they're accepting the prepayment of tax said, but the most important thing is before doing so, residents should speak to their personal accountants and make sure that their situation warrants the prepayment of taxes. >> all right they will do that. thank you for the advice state of connecticut, i don't think, has allowed it yet. coming up, deficit politics. why less government revenue could make house speaker paul ryan's job easier in the new year "squawk on the street" is back right after this welcome back to "squawk on the street." markets are up this morning, the dow up 30, but energy noticeably lower, currently the worst performing sector, down nearly half a percent mosque t among the laggards, devon energy and eog. down over 1% oil prices slipped a different story for copper which is at a three year high. now back downtown to you thank you. and a new name is surfacing for possible krgts as the next fed vice chair man the wall street journal says richard clarita is under consideration, he was assistant treasury secretary for one year under president george w. bush former fed governor lawrence lindsay and also mohammed he will el-erian are also candidates >> vice chairman >> makes it easier to call them up and hopefully get their thoughts when either get the job. >> yeah, have them break confidentiality when possible. >> of course, always looking for that >> and we do know that clarita spoken about monetary policy recently and he seems to be a continuation of yellen, the path that she set so it would be more sort of civility on top of jay powell. >> and i think they are all in the general wide middle of economic policy. lindsey might be seen as a bit hawkish, but hard to say under this fed chair >> but civility will be key here >> and of course the view is powell is more are or less much of the same as yellen at in point head of the fed. well, there has been a shift in the deficit debate. in light of the tax changes and the rest of the agenda coming in 2018, that is the subject of john harwood's new column. and he joins us now. >> and we go in cycles in the deficit debate during the obama years when we had the great recession which depressed government revenues, we had the economic stimulus which increased government spending, republicans made a huge case about the deficit as a mortal threat to america's economic future. now we've seen during the tax cut debate democrats were raising the deficit impact, republicans were dismissing them but we have new projections from the bipartisan policy energy that we will get back to trillion dollar deficits in the next fiscal year and what that will do from paul ryan's perspective is to increase pressure to trim spending on those entitle mment programs whc he has wanted to trim for a long time and it is a challenging debate for republicans to have though because so many americans depend on those programs and want their benefits preserved >> so this i would imagine would shape what is on the next part of the agenda for the republicans in 2018, whether they do entitlement reform versus infrastructure. infrastructure obviously would worsen this problem whereas entitlement reform would be probably looked at more favorably by the ryan-like republicans. >> and that is exactly why i think that it will be difficult for a major infrastructure plan to get passed. president trump during the campaign talked about a trillion dollars in infrastructure improvements now they are talking about a much smaller plan, $200 billion over ten years to leverage private money, leverage local government money to spend on those improvements i think that they are not likely to get democratic support for that initiative and republican tsz aren't going to want to lay out money. on the other hand, yes, paul ryan wants to go after welfare programs as well as entitlements medicare, medicaid he has talked about partial privatization of social security in the past or raising the retirement age but people like mitch mcconnell who are trying to proeblgts his senate majority know that those are very dicey steps and last weekend in an interview with axios he does not see sdilgtsment reform on the agenda so it is unclear as to what republicans will be able to passipass on their own, what they will get democratic cooperation for and here is the backdrop a poll asked people do you want government to do more to help average families or do you think government is doing too much by 57% to 39%, they said that they want government to do more to help average families that is the highest number we've gotten in more than 20 years of asking that question and that is an indication of the political drift of debate after 2016 when people heard donald trump say i'm going to help the forgotten people >> i wouldn't underestimate the ability of the republicans to move quickly given how fast they moved on the tax bill. but the 2018 midterms are looming. so realistically how much time is there before everything gets taken up with that >> they have a few months before they are essentially going to decamp and campaign full time. i think the issue is less timing than finding an agenda that they can agree on you look at the polling right now, republicans are down double digits in the so-called generic ballot you saw what happened in virginia and alabama republicans though they have favorable district lines which will provide them some protection against this democratic wave. nevertheless, a democratic wave is coming and they have to figure out whether the best approach to that is to do more of the traditional republican paul ryan economic agenda or actually pull back, stand pat and try to sell those tax cuts >> john, thank you coming up on squa"squawk a," apple is facing legal challenges after it was revealed that it purposely slowed down older versions of the iphone we'll speak with one of their first employees. ♪ (news anchor) downtown traffic is still bad. expect massive delays. (news anchor 2) all lanes on highway 50 remain closed at this hour. (news anchor 3) the stats are in and this city leads with some of the worst traffic, with the average driver sitting in gridlock the equivalent of three days a year. for every hour that you're idling in your car, you're sending about half a gallon of gasoline up in the air. that amounts, over the course of the week, to about 10 pounds of carbon dioxide. growth is good, but when it starts impacting our quality of air and quality of life, that's a problem. so forward-thinking cities like sacramento are investing in streets that are smarter and greener. the solution was right under our feet. asphalt. or to be more precise, intelligent asphalt. by embedding sensors into the pavement, as well as installing cameras on traffic lights, we will be able to study and analyze the flow of traffic. then, we will take all of that data and we use it to optimize the timing of lights, so that traffic flows easier and travel times are shorter. and sacramento is just the beginning. with advances in cameras, sensors, and network speeds, we have the ability to make cities smarter, and happier. what excites me about this technology is that we're using some of the most cutting-edge machine-learning, and ai, to help solve the most fundamental challenges that cities face around the world. who knew asphalt could help save the environment? (lani) and the possibilities are endless. good morning it is 8:00 a.m. at tesla headquarters 11:00 a.m. right here on wall street and "squawk alley" is live ♪

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