be the open, and that is perhaps the key to every story out there. 2.417%. that is a 15-month high on the 10-year note. yes, if you are shorted over the last three years, you are finally seeing a little bit of progre progress. gold plummeting by 2 1/2-year lows. you look at that there, down over 5%. and most of the major markets in europe down more than 2% after our significant slide yesterday. after the 2:00 p.m. fed meeting the press conference from fed chairman bernanke and the follow-through on the s&p and there you see it. let's look at asia overnight, the shanghai composite is down sharply. weak pmi in china compounding what is this growing fear of cash crunch in the country. interbank rates and money market rates are shockingly high in terms of where they were a week or so ago. you can see the shanghai composite was down 2.7%, and nikkei in japan as it is almost everyday and certainly almost a 2% loss there and seems it goes up or down everyday one or two percent. let's get to the road map starting with the markets and what all of today's news means for your investments. we will bring in the top strategists from the equity and the fixed income side, and we are going to break it down for you. >> all right. dan loeb, don't hold your breath, sony's ceo saying that the company is considering to spin off the entertainment business burk a decision won't come quickly. and weeks of testimony from executives after apple, amazon and google are coming to a head. the price fixing case of apple case, and we will be live on the scene. all right. so what happened? amid all of the market volatility and the fed speak so much made of the rise in the rates on "squawk box" and ceo of wells fargo john stumpf said that the rates need to continue. >> and the fact is that we need to get back to normal. and it has been four or five years. >> well, the market, david and kelly, certainly doesn't like the fact of where the rates are going, and i'm almost shocked that the market reacted the way it did after all of the build-up and everybody saying, yeah, he will talk about tapering and they will talk some of this or that, and yet notes out this morning, ubs surprise, and goldman sachs, sans shock. >> and you look at what is coming with the expectations of the inflation coming off and the fact that the news is good but not great, and if i 'm the fed, why wouldn't they use the opportunity to correct it and assure people that they are not going to go anywhere and they did exactly the opposite, and it was a surprise to people. >> and in fact a surprise that in some point that the qe is going to end and the bond buying is going to end, and did people think it would go forever? >> one thing for the market to push it in and talk about the pricing and the timing of it, but it is another thing for the fed to come out to say, yes, this it is, and this is the time frame. >> well, we have had qe stop twice already and on the third version and not like we have gone down the road and haven't come back, because we have done it yet. >> and mark my words, we will do it again. i am willing to raise prospect. >> you are not as sanguine as the fed? >> no, i am surprised that the expectations of the market have come off of 1.5%, and fallen off 2%, and look agent what the investors are pricing and they are saying that inflation, what we expect is falling not only from january, but plummeted yesterday after the fed's decision, and people are reacting saying that the fact of what they are doing is not only allowing inflation, but the fact that it won't come down. and now the u.s. economy has to take into account that and the move of rates and the 1.5% move in rates is a hard pill to follow. >> and scott n the last three or maybe four, the feds have come in, and they have said, i am short the 10-year and take a boatload and every year they are wrong, and perhaps now, but to this point, we are waiting for an appreciable move in rates for year and years and the fact that the economy may not stand on its own legs is curious to me. i am curious what you are hearing out there, as well, scott, in terms of the pain people are taking on the fixed income side, and those who are not short credit and obviously watching the equities sell off. >> the market, whether it is treasuries or equities, the market was probably hoping and probably against the better judgment probably that bernanke yesterday was going to sort of walk it back, and walk back the notion that they were going to mention taper org that -- tapering or going to do it any time soon and we know that the people you are talking about who have been in bonds and stocks and talking about the investments were going to be soothed, but, in fact, that is not what happened. and now, everybody is trying to figure out what in the hell do i do now as you see the rates pushing, what 240? 242? >> oh, my god, 240. >> that is a good point, right. the sky is falling and you mean the 10-year treasury is at 2.42%? >> well, it is incredible when you think about it in historic terms bu s terms, but many people feel that the cheap money is the asset class, and allowing them to move and now most people don't believe they will successfully engineer an exit, and they believe that the risk assets have to be sold, and they are doing it now. >> you can have rising rates in two environments and up until this point, we have had it unfortunately in the kind of environment where it seems like morning in america, and the articles in 2009 -- and not '09, but 2010 and 2011 and the narrative, morning in america, and the fed is doing too much, and we have finally gotten to the point of sustainable growth, and now, they laid out the exit strategy two years ago and we have been at this point before and what happens every time? the economy is not as strong, and the important difference is that maybe it is, and we want it to be the case, but it is not entirely clear to make sure that it is going to handle it bu, because we have seen the incredible tightening. >> and if you are not knowing what has to be done, you are not listening. this is what he had to say. >> people are expecting the prices of homes continue the rise and we see that in the michigan survey, and that compensates to some extent for a slightly higher mortgage rates. and in fact, the change in mortgage rates is not that dramatic. so, yes, our forecasts and projections do factor that in. >> sorry, that is a wrong sound bite as we like to say. that is about housing which of course is adding to the strength of the economy. >> which is now the critical question, with the rates going up, what is the impact on mortgage rates? and cramer tweeting watch the t etf that tracks the real estate, the ytr, and there is a shift that people are going to be looking at investing in the market, and the builders and the reits and the utilities and the tell co telecomes and other stocks fallen out of favor. >> and there's jim's tweet. he is not here, but here in spirit. my theory is that the fed is simply trying to make the bond market's slide more orderly so mortgage rates don't go to 5% in straight line. >> the fact of the increase in mortgage rates has not come out of the off increase in the 10-year, but because the mortgage investors need clarity from the fed and important to watch the spread between the 30-year mortgage and the 10-year treasury, because if it is not compressive, the fed has to worry about that as well. yesterday they said they are not going sell mortgages out of the port fo portfolios which is a change from what people are thinking and may cure some of the indigestion in the mortgage market. >> let's bring in a guest. doug mccabe, the president of and chief investment officer and also the chief investment officer from janny, doug, and let me ask you, what does that mean to me, 2.46 or 2.43 and anything that i need to worry about? >> well, i think that i have seen a lot of baseball games, and it is hard to -- sorry to change gears on you, but the last three years the fed is playing catcher. if you don't have a strong catcher, people are going to run willy-nilly around the bases all of the way to third and the fed has been playing catcher in the bond market game. a lot of people have been penalized for going against them. right now, what they have done is to have stepped back and saying, we are more of the traditional umpire role and we have not moved beyond the game, but the game is improving on its own and its own market fundamentals and let the game be played. the only place that you can be is equities or stocks for the long run, and we can discuss that more, which areas of the stocks i would like. >> all right. well, let's do that. which areas of stocks do you like? >> well, i think that we are moving beyond the phase where p.e. multiple expansion is relevant and the interest rates fall to where it is going to be driven by earnings and you have seen it in the fed guidance in that they think that the economy is mildly improving through the dynamics of the housing market which has trickled down effects of the labor market. so i would rather than focusing on the defensive ends of the market, the yield-hungry plays, you would go the where it is a marginal improvement in revenues. so the industrials and i would look at the technology plays much more so than the utility plays and the staples plays, and yes, i would look at home building. it is a choppy summer for sure and i'm convinced it is a choppy summer with this move by the fed, but if you have a long-term time horizon, each last three years, it has been shown a time to buy. >> and guy, are you stunned by the move in rates? >> well, the magnitude of the move is certainly puzzling. as you were talking about a couple of minutes ago, it kind of contrasts what the decline in inflation expectations signal of longer term structural slow growth within the u.s. economy. to some degree, i wonder if the scary play is the fed saying we can't do anything to pullback the economy, but try to do it in a smoother measure, because we cannot keep buying $85 million in infinity. so scary because the fed is pulling back not because they are not working, but because they have to. >> and so this is a critical point, guy. so to the extent that there is a feeling out there and the response is that the fed can do more, but practically speaking, how constrained are they? is this a question of being constrained or a question of potentially seeing the costs and the risks associated with this policy as outweighing the benefits? >> well, i think that charles foster the head of the ph philadelphia fed would argue that risk is the biggest issue, but look at what the federal reserve have done with the stimulus. they have done a few things. they have boosted the amount of risk assets an increased people's expectation of the future, and altered the demand for spending and saving today. the rates are so low that tradeoff is really skewed towards spending today, and ultimately a couple of basis points here and couple of bond buys here can't alter the tradeoff anymore so functionally less and less points for the bond buys and the scary version is that they are reducing the bond buys, because they see the risks and the lack of results than they are seeing the economic improvement. >> doug, you said that the place to be is stocks, and maybe the only place to be, but you worry that the fed killed the rally? >> well, it is going to cause a choppy summer, but the fed would not be taking those moves unless it felt it could control it. i don't believe they are out of bullets. i wish bernanke would have been stronger with the views, but back to the baseball analogy, the fed can step right back into the catcher role and throw out the bond vigilantes if they get out of control and wreck the recovery, but i don't believe they would make the moves light ly. i don't think that you ever want to fight the fed in how many times do we have to learn that. you mentioned all of the hedge funds waiting to short treasuries, and how long have they been burned by that? >> well, they have, but guy, i wonder, is there a chance that it gets out of their hands? are we watching that right now? >> that is why, compare it to playing baseball. >> i don't believe that we are watching it right now, but one of the big issues is that the federal reserve needs to be leading the market and particularly over the last 6 to 8 weeks when bernanke stood up in front of congress, they were watching the market to a degree, and so this clear economic policy does go back to the baseball metaphor and put the fed ahead of the markets rather than playing catcher. >> i love all of the baseball analogies, guys. it is a great sport. >> doug has a stadium over the shoulders there, and that is obviously where it came from. >> we have a ballpark behind you. that is what you do. >> okay. well, you know, it is summer, dan. >> and we are a step closer to the final chapter of the apple ebook price fixing trial. we will have a live report from the courthouse. and also, a report from mark matheny and what the downgrade could mean. it is a rocky open, and there is the implied open from the dow, the triple-digit loss off of the open, and more "squawk on the street" live from post 9 from the nyse when we come back. 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(announcer) scottrade. voted "best investment services company." all right. welcome back, lawyers for apple and the justice department are expected to make closing arguments today in a trial over whether there was a conspire over ebook. the trial is about to get under way. and we go out to courtney. >> yes, the court will get under way at 9:30, and both sides will have an hour to present their closing arguments. this is a non-jury trial so expectations are a week to a month or so for the judge to render her decision. the departmentf of justice will wrap up with facts and statistics showing that the ebook sales increased when apple increased the e-bookstores. and it says they changed their pricing model to better compete with amazon. the publishers settled the case before this point so it is apple versus the department of justice at this point. lawyers of apple will sum up saying that the tech giant operated legally with contracts with the book publishers and shows other books showing that the best sellers and the new releases actually fell. before the trial got started the judge told the court that she had drafted a preliminary decision based on the evidence ahead of time saying that she believed that the department of justice would be able to prove its case, however, yesterday in court she said, quote, i thought i had prepared so well, and i learned a lot, but it seems to me that the issues have changed during the course of the trial. things change, and i'm looking forward to understand where we are now. these comments give apple a little bit of hope that perhaps they have helped to sway the judge's initial opinion during the trial. so what's at stake here? well, if the department of justice wins, apple and amazon will be the two main competitors and cut the margins on ebooks, but it could prevent further competition from entering the market. and if it goes the other way and apple wins, consumers may end up paying more for ebooks, but some of the content distributors say it is worth it and that is the true value that should be paid. david. >> all right. thank you, courtney reagan. we will be checking in. we are about to be visited at post 9, and find out if the markets are overrun. little higher. that is why you have to keep it tuned to "squawk on the street." right here. [ male announcer ] i've seen incredible things. otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ the ones getting involved and staying engaged. they're not afraid to question the path they're on. because the one question they never want to ask is "how did i end up here?" i started schwab for those people. people who want to take ownership of their investments, like they do in every other aspect of their lives. about seven minutes before the bell rings today. let's bring in art cashin, and in charge of floor operations. did the market overreact, art? >> well, it reacted to other markets and less its own analysis here, and while people were talking about what bernanke was saying, the traders on the floor were screaming, did you see what gold just did? look at the brazilian real, and the 10-year, and the fear is that the yield on the 10-year were to spike above 250 then it is a jailbreak. it would mean that the skeptics in the bond market had taken over the process, and bernanke and team may not have control. so it is a rationale fear here. >> and it seems that the line in the sand that we have seen over the last 24 hours and in some cases over the last three weeks is a problem. >> it is a problem, and has everybody alert, but again, it is a process. you have to see how far do they go. if they stop here, that might be all right. we are wrestling with the 240 level this morning, and there is also believe it or not, news out of japan, and out of china -- >> yes, china. that is kind of bizarre a little bit how they are letting the short-term rates run way up. >> and it is not unnoticed in some of the speculative circles. the cdss are beginning to move up, and for viewers who don't know cdss are the canary in the mine. if you remember what happened to a company named lehman, it was the cdss that gave you the warning. >> and people who were playing with the cds to make it look like something that exacerbated the fears that led to it. i don't want to go down that road, but i am curious about the market action. i would have thought after yesterday, i'm curious why you think that we are opening up a lot lower after yesterday's significant sell-off. >> well, i hate to do the history repeats routine, but i mentioned here, and wrote in my comments yesterday, if you look at the june meeting last year, for the four sessions before collectively, it ran up, the dow ran up 327 points. in the three sessions afterwards, it went down 327 points. so we look like we are repeating. this i don't know if this is the new groundhog or not, but we will tike a -- will take a look. you have to look away from the other news tickers and look at the currencies and the yield on the 10-year, because everybody is worried about that jailbreak, because if bernanke is not in control, we don't know who is. >> i hear the same, art. that is great advice. we will be watching that closely, and of course, we will be on top of the bigger movers out there, and see which one we are talking about right up to the opening bell. 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