Transcripts For CNBC Squawk On The Street 20130725 : compare

monetizing mobile, and contrary to popular belief, teens are still using it. >> and general motors is beating expectations and showing signs of improvement in europe. plus one of the cars gets a rare award from consumer reports. >> and michael dell is writing a letter saying that he at peace because of what shareholders make. >> and sac capital could come the kaye and we -- could come today, and we could have more on that. >> and at least eight wall street firms raising the stock on facebook and the stock is growing after the second quarter results were out last night. they make up 41% of facebook's edadvertising revenue s and mar zuckerberg on the conference call last night. >> when it comes to mobile, i am pleased with the results. we have more actives on mobile than desktops and more than half a billion people use facebook on their mobile than desktop. >> and jim, everybody is buzzing that it is within 14% of the ipo price of $38. >> well, it is a big position for the charitable trust and looking bad for a while. this is a remarkable call. as great as the call was bad a year ago. they have figured it out. they are making a ton of money on the mobile, and the only people who are making money. this time last year, they didn't have a mobile strategy to speak of. this is the end of the programmatic tyranny, and programmatic floods the zones with ads and you can't make money, and they have personalized ads and last year they talked about a gaming company to offset syn ga zene zd people like the calls. zuckerburg was on the call. and there was a call from schact ter, and he was trying to throw the call, and zuckerburg kept focused. >> there was a joke about 1,000 fathers, because there was good news. >> and when sacheryl sandberg i not out selling stocks, she is terrific. >> and now up 50% and more than a half a billion? >> well, the cap x is not as bad as i thought, because the content is made by other people and not them. people want to advertise against it. if you want the younger people, you can get to them. remember the more people who watch the super bowl watch it every single night. it is clear that you are the expert on twitter. twitter has not taken huge share from facebook and maybe expanding pot for everybody. >> interesting. one thing that came out of the call is the way that facebook is perceived around the world. it is not as passe as some make it seem in the states. it is a big deal and seen as upscale which is one of the reasons that the global metrics were so good. >> yes, if you want to be an emerging markets player and advertise, and lieber not that happy with the margins this morning, but you have to funnel money to facebook. facebook is funny. for instance i asked my kids, hey, you guys ever click on an ad? what are you kidding, dad. of course not. okay. we bought ten t-shirts of the red hot chili peppers. and i said, how did you get there? and they say an embedded ad. they don't want to admit they are ordering a lot of pizzas from domino's. >> and 409 million daily active users. up from 425 last year. >> it is incredible. >> all of the upgrades and you took a shot at ridgefield green going to sell to whole or going to neutral? >> well, i have a little fun. you know me, with the charity call and malice towards well, get that lincoln guy, because sometimes i miss him. >> if they are getting to the monetizing without alienating, do you buy here and how long until it gets to 38? >> well, i think that it will go to straight shot to 38 to be honest. >> you do? >> no one, and everyday we sit here and say if anybody had revenue growth we would love them and margins, but this company has the most outstanding growth even better than slumb schlumberger in terms of expectations and everything is falling to the bottom line, because they don't have a cost structure, and when you have local advertising and consumer goods and advertisers, you will take shares from everybody. this is google. when they read this, they will say, holy cow, we have been panted by facebook and they use the verb. >> they were panted. >> and google is not monetizing mobile. >> it is great, but facebook said, basically, hey, listen, you want to advertise with us, it will cost you more money than last quarter and not less. >> so a company that managed to execute over an incredibly important challenge that it faced. >> yes. and zuckerberg, look, these guys didn't know how to run a call last time. >> right. >> this call was a well orchestrated and it had the feeling of tom brady and the patriots with 2:00 left. okay. you just know he had total con fi dense and the first quarter was not that good and the second not, but the third and the fourth quarter, they put them away. >> and going back to all of the quarters, g.e., the goldmans and all of the good quarters, jpmorgan, dupont, is this the best quarter? >> they all wish they were facebook. >> this is the best? >> yes. >> in is a real growth stock. >> yes. >> we have talked a long time especially when it went public that growth was decelerating and went public too late in the growth cycle, but it is a real growth company. >> it is and more than 70% of the average users use the services daily and increases local businesses love it. remember, when they talked about the lysol ad and the airwick ad five times the investment, and they said last year we have war craft. no, these are mainstream companies. ad impression is up 40%, and price per ad up 13%, and how did they do this? how did you do this so much more and saying i stead instead of 1.8 cap x, and how did they do it? >> and remember that gm said they did not want to advertise. >> a long way from that, and we should talk about gm because it is going to bu g ting to be up, much as facebook. and they had earnings far above estimate estimates. and now earlier on "squawk box" the gm cfo was asked if the company has turned the kocornern europe. >> we have made some very, very good progress year over year in europe through the first half of the year. really led by a new product launches into the marketplace and aggressive cost control working on, and we have a great team on the ground in europe that is executing, and what remains a challenging macroeconomic environment, but it is the product driven and cost driven and progress year to date. >> what can i say? they deliver -- >> indeed. >> the guy should have gotten a bonus for the ceo. and remember -- gm is remarkable and europe a turn, and this is the resurgence and this is going to sound like gingo-ism, but ford and gm back. >> and today, chevy impala is called the best new u.s. sedan and the first time that a u.s. car has been kacalled that. >> have you been in one? >> no. >> i went to the wedding and a guy pulls up in a black car and said, what is that? it is an impala and i wanted to drive that, but i am too busy driving my f-150 super duty truck. >> well, plugging that thing in, and i don't know how many things you need to work on the roads. >> i like cars and the impala rode smoothly and terrific and so was the wedding. >> they worked through the inventory of the pickups and the european loss we should point out narrowing to $110 million from 394. >> alan mulally, i love what you did in europe, and gm did better and you were behind ford. gm is back. the stock is a total winner. i know that this is an example of the torch of housing seems to be passed to the torch of auto, because the housing numbers of the home builders were not that great. >> and industrials here, 3m is reporting second quarter earnings 1.71 and slightly above and the revenue in line, and scotch tape said it saw sales grow across most of the business units and organic local currency sales up 2.3 and hit 1.3. >> well, last quarter they slashed the outlook, and this is going to look at the outlook they slashed. they are doing a great job, but it is a world wide company and frankly moved from 108 when they reported from 108 to 103 and now from 117 back to 115 and that is going to make sense because they verify what they would do and no more than that. >> and dow chemical beats by a penny and the revenues beat, but flat. ag revenue up 10%, and the latin american farmers are spending like gang busters. >> that is what ag-co told me, and we all think of deere, and obviously, monsanto good, and you know, we are not seeing the turn in europe that he necessarily wants, but he has been taking advantage of a great guest this morning and taking advantage of the natural gas glut tons and making plastics for a far cheaper price than he can. >> one of the takeaways from the quarter are the food scares forcing the shoppers the buy more prepackaged goods and one reason that the plastics revenue was up one-third. >> well, in china, and i saw yum coming back, too, and people are remembering that there is less corruption in the food chain but a lot of people are buzzing about smithfield and what the chinese would do. >> what would the chinese do? i mean -- >> and then there's raytheon. raytheon with 164 beating 1.30, and they raise the forecast and sequestration is -- >> defense, defense. northrup grumman is much better, and look at the gold standards, and northrup grumman is upgraded by merrill lynch and people were behind in the move. mcnerney said in the call that we are beginning to see the sequestration, and u.s. air talking about how sequestration hurt the airline industry, but the defense contractors and everybody was short and believed it was a laid up short, and it w wasn't. >> maybe not for now. but everybody has to believe. >> eventually. >> the defense budget over time will not rise as much as it has, and in fact, maybe go down. >> well, the government, and well telegraphed that a lot of the guys took out costs and you could see still some mergers and remember that the allies are coming, and the people who were not defending are buying stock. i know you want to be the world wide policeman. >> no, the cost of the joint strike fighter and for per plane. >> each one worth a gilead. >> yes, close to it. not quite $91 billion, but not far from it. >> and they are sell gene. >> and we will get to celgene and bios. >> the bears will say, but crocs, crocs. yeah, i went to the playground and i got that wrong. >> when we come back, michael dell says that he is at peace and should dell shareholders feel the same way? the latest on the company's buyout battle coming up. and the economist who is putting the kardashians and u.s. gdp in the same sentence. we will have him explain why he is doing that. as you listen to the musical stylings of kim kardashian, look at the futures and we will see if yesterday was the beginning of something new for the market, but the futures are down 54 and more "squawk on the street" back in a moment. dell founder michael dell says that he is at peace at whatever the shareholders decide over his offer to take the company profit. in the letter to shareholderings he repeated that the current voting rules are unfair and should be changed. the rules say that the shares not voted and this is the delaware standard, essentially counts as votes against the going private transaction, because you need a majority of the outstandings as opposed to the majority of those who voted and in this case, it duds noes include mr. dell's 16% holdings overall. and we will see that yesterday highly unlikely that the special committee will see it that way, and the protests and those of silver lake and marty lipton is making impassioned pleas as to why they should change the standard to simply a majority of the shares voted or even allow mr. dell the vote his shares as well. that is not going to seem likely, but one question that i have seemed to explore because i continue to hear that michael dell is willing to go higher than 13.75, if he is willing to put his money in and silver lake was not required to as by the way took place in the sixth bump that they did in the process of trying to buy the company. that is when michael dell tookless for his shares, than he was putting in, allowing it to be a bump essentially, but what i continue the hear is that silver lake continues to refuse with the partnership given that they will be together in owning the company, and wanted to have a different return on investment parameter than the other, and we kind of get that. it does appear that 13.75 is going to be best and final as mr. dell of course said in the letter, and we have heard a number of times including from the bank mark shafir yesterday on "squawk on the street." if i heard a buck for best and final and didn't turn out that way, i would be richer, but in this case, i hear that the guys are tired, and they want to go to their homes in hawaii. the ceo from silver lake owns a house in hawaii and michael dell owns most of hawaii. >> do they live near each other? >> yes, they live near each other, and they want to get the vote over with one way or another, and be at peace and call it a summer. >> at peace. at peace -- >> well, i don't know. >> what does that mean? >> i don't know. >> by the way my name is ten bears and i want peace. >> well, this is the last thing that will be happening if it is voted down for michael dell. and i have a guy carl icahn who does not understand that word at all. >> no. >> at peace. i don't know. to me, this thing -- >> no. >> so maybe they -- >> 13.75 and get rid of the conditions here which is that the special committee has to change the voting provisions and put it to the shareholders at 13.75 next week. >> hawaii, 13.75. >> i argue that it is taking a toll on those involved and those who have to cover it and those who have to listen it, because we have the comments from the viewers everyday saying, when is this going to be over? >> i am hopeful next week over or just starting. >> right. >> and meanwhile the whole pc world continues to decline dramatically. >> and the report of the chief -- yeah. technology officers saying, hey, you know, you guys have to figure this out. >> this company has lost value literally by the day. so, to you, i am still waiting for the sold to you. >> eight days until august 2nd. meantime, does your portfolio need a wakeup call? cramer is on the case. get ready for the mad dash coming up next. the futures are looking weak on what is probably the single busiest day of earning season. a lot more to come today and tonight. we are back in a minute. n? people find out state farm does car loans as well as they do insurance, our bank is through. good point. grab an edge. look there's two guys on the state farm borrow better banking sign. nope for real there's two dudes on the state farm borrow better banking sign. 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[ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. you are watching cnbc "squawk on the street" live from the financial capital of world and the opening bell is set to ring in a couple of minutes after a slew of earnings this morning. we have talked about facebook which may set the tone, jim, but futures indicate maybe not. >> i remember that we are still going to have one eye on the 10-year again, and that is one of the reasons that the home builderers are not doing that well. you have to remember the fact that the economy may be so strong that people are trying to sell some bonds. >> and 10-year is about 2.6, and the dollar, too. >> and we are at a moment where europe has to get better really fast, because the caterpillars of the world are controlling the tape as much as the home builders as much as the under armour s and the bowings. boeing got knocked down yesterday because of interest rates. >> people wonder what happened with the sox yesterday whether or not the transports declining are going to disappoint the dow theorists, and is the russell not keeping the pace the way it had been? >> well, that is the case back and forth and yet the advances continue, and the western digital call, they did not raise the guidance enough, and seagate, and therefore i hedge h my skepticism about dell. i was on the usair and delta call, and those were phenomenal, and delta ran against the long lines of customs at kennedy, and they said, you cannot outsource customs to abu dhabi and one of the funniest lines that i have heard in a long time on a conference call. >> and good quarters out of hershey, and hog and some of the chips and the airlines obviously, we will get to it all later on this morning. in the meantime, the opening bell here at the new york stock exchange and a look at the s&p at the top of the screen. already a hugely active premarket. facebook is trading at 11 million shares before the bell has even rung. at the big board wci communities a florida home builder celebrate ing the ipo today, and at the nasdaq, columbia and sony pictures animation celebrating "the smurfs 2." i didn't see that yet. i didn't catch the first one. >> debuting on july 31st, and good to see papa smurf and those guys again. let's talk about some of the quarters and you must want to talk about biogen and celgene. >> you look at them and gill yard, and secelgene is raising e numbers and these are companies that are doing everything. bob nug in talking about gettin a blood cancer and i know you know that better than anyone, that area, but they have a t tremendous franchise developing through an tie sor rye sis which can be used for a number of illnesses and anti-cancers for really killer cancers inside of the -- let's just put it this way, they are hitting on so many cylinders and the stock, they could earn $8 or $9 in a couple of years, and that is still inexpensive. >> and amazing. hershey beats by a penny, and we had citi added to the top picks the other day list. and volume growth is 7% in developed markets. these guys, though they are down today appear to be continuing to take the share. >> well, a lot of the hersheys are sold at convenience stores and people buy a chocolate bar and nelson peltz wondering why frito-lay is not doing as well as hershey, and we put that to bed yesterday. >> you think it is done? >> yes, mondelez is getting its butt kicked by innooyi. so over in europe, unilever is reporting a number that he was abject, the ceo whom i really love saying that the emerging markets are not doing that well, so you have to be careful of the group, because it is split. the consumer products group. >> you called visa a giant. they raise the target to 207, and this is up 2 1/3 percent. >> well, it is a beast with double-digit growers and visa is coming down one of the best managed companies in the world. everyone keeps trying to call a top on visa, but forget about it. it doesn't work. >> that said, do you want to explain what happened with crocs, with the stocks down 20%. >> and inventory issues, and there is a lot of, and i will tell you frankly, that there were a lot of good analysts being a blowout quarter, and people looking exactly the wrong way, and this is the analog to facebook and analysts who thought it would blow up, and people were playing this as a momentum, but they should have been playing under armour where plank delivered and periodically plank and i, and he is not crazy about the other show, but he ought to be. >> and the home builders you mentioned before the bell. pulte, and k.b., and they are leading the losers. >> the optimism betrayed them. not unlike and we have been seeing the optimism at caterpillar and the home builder optimism and they should have home builder pessimism, because it is not working right now. i think that although they keep saying that the mortgage rates didn't matter and really out of inventory, this group has passed the torch to others in terms of where the money is going. >> is that something that is going to be a permanent state of affairs with the mortgage rates at still -- come on! we are nowhere near normalized rate rates. >> pulte was one of the best performers in the s&p last year and it is not going to repeat. we have to accept they didn't deliver the numbers, and we are yuse ed to blowout from pulte ad this is anything but a blowout. when i go over those things, d.r. horton and all of them, miss, miss, miss. >> they will keep saying that affordability does not get hit until 25% appreciation of home prices or the 30-year mortgage is above 6.0%, and we are long way from both. >> empirically, they should do better. horton, and you go through line by line and a lot of good, but not where people want to be. they genuinely believe that rate increase will make it fewer homes sold, and if you see the interest rates ticking up, people don't like them. yesterday was a seminole day in the group. more mortgage increases, and it is not what you want to see as a home builder. >> a lot of the target increases for trip adviser and we saw what expedia said earlier on, but mcquarry going to 6. >> well, a tremendous amount of travel, and the boats are full, and the airplanes are full, and the trip advisers and i own it in summit, new jersey, and you have three, and you say, what happened to the customers? it is the most powerful, most powerful site for people to try to figure out where to stay and great advertising and i misjudged trip adviser and i swear by it. >> and the 52-week low on trip is 28. ima imagine riding frit 28. >> people thought it was an advertising with me that good and priceline and people feel that travel -- this is a quarter where the travel is amazing. people are traveling in europe, and the numbers in travel in europe are extraordinary. i am not kidding. >> what accounts for that? >> they like the holiday making. >> regardless. >> regardless of the discretionary earnings, enjoy your life. >> well, they are into that, and we like to work and they like to play. >> right. >> who has it better? >> and when we all die, what do we say? i wish i had worked more. oh, yeah. >> wish i had spent more time at the auoffice. >> yes. >> and let's just revisit qualcomm quickly, because it is one of the best performers on the s&p and we talked about the numbers in the last half hour and raising the full-year outlook, and citi is going neutral. >> yes, the valuation is there, and if you put a 15 multiple on the possible $5 they make next year, the stock could go the $75. i listened to one of my favorite strategists at delivering alpha talking about qualcomm, and everybody yawned, david. well, it is not a yawner today. lee cooperman suggested exactly what would happen and very good numbers. and china, i saw that frankly thing s t things on the qualcomm call, and they readjusted and did what was right, and qualcomm reported an amazing number, and looks like the l.t. rollout in the emerging markets is great. and the downgrade and frankly, the best in show semis, so i would not take it down. >> and finally, before the bell, you sailed that it is a straight shot to 38 on facebook, and -- >> before coming in. >> and is there a feeling that people want to show they own it the month-end? >> well, when you look at that what has cloud, and social and mobile and the holy trinity of tech, this has leaped ahead of the others, and now on a good day, a stock can't be up six and if we come off, guys will flip it. there are a number of upgrades and skeptics and short sellers and so you went from a story of so-so internet story to exciting story on the internet and reminds people who went public at google for 80 and went to 200. this is a do-over, and people again, zuckerberg was masterful on the call, and so was sheryl. >> and this is not the heyday, but the inversion of when it first rolled out. >> yes. >> and when? >> oh, i don't know. >> the poem, right? >> the original cats from the early '80s. >> i like the cats. that is fantastic, and it is bigger than that. >> some are suggesting that the quarter was so good, it is the perfect opportunity for sandberg to exit. >> no, that would be terrible, because my charitable trust owns it, and if we short it, i want her to go run the state department, and that job is taken and so is the ambassador the japan, and we don't want her to go anywhere other than operations of facebook. she is out there, i believe literally selling consumer product -- it would not shock me if she is at disney and procter saying, the results are there. when pat dole has one of the five top apps and uses facebook, and he says this is the way to get customers, please do not leave, sheryl sandberg. >> and we get to bob pisani who is watching. >> this is not a great day for home building, but wci is a very well known community in florida, and they will open somewhere around $15, but it is the low end of the price talk of $15 to $17 and earlier before that, there were higher price talks floating around, but the problem is that this is the fifth home builder public. we had a 10-year drought, and no ipos for ten years and this year, five of them. we had ucp trading down from the initial offering, and william lyon homes went in may, and down, and taylor morrison started in april and above the initial price and tri pointe is also below. so three of the four are trading below the ipo, and that is the thing. pu pulte is a problem this morning and everybody knows it. the analyst, and the call started at 8:30, and a lot of the analysts are on it, and i didn't have a chance to get in on it, because of so many news reports out, but the big problem is new orders down 12%. everybody is scratching their head and holding off until we get the comments on the conference call, but they came out to reiterate that higher rates had little effect on the activity, but we know that the cost costs were higher, but that is a problem. interesting that horton didn't have those problems so some people are talking about one-off for pulte and down 8%. elsewhere, looking at close to 15 on wci right now. and elsewhere, the earnings are not bad. did you see qualcomm's numbers? no slowdown on the smartphones. what is everybody worried about? wci opened slightly above 15, and pricing at $15 and opening just a little bit above 15. and qualcomm, the ceo is talking about rapid adoption of mobile technology and that is good news for the overall business there, and elsewhere, the airlines numbers have been great for the last few numbers and alaska's numbers and southwest reporting inline numbers and still good news. the defense companies are illing can it. boeing raised the guidance and l3 was lowered slightly, but the numbers were better. guys, back to you. >> allow me to interrupt, bob pisani on the floor. we have news out of roeuters tht the united states has filed an indictment against sac capital inv investors and s.e.c. is charging securities fraud, and wire fraud and forcing them to file because of roughly up to 2010, they traded inside information to boost their returns and fees according to the indictment that is being sourced through reuters. something, gentlemen, we have been expecting for the last couple of days. >> yes, and reports that there may be further arrests today, and so we will see if they were baseless or further news there. the key point for sac is does it maintain the relationships with the prime brokers. >> right, right. that is what it is. >> when you are managing money at the sac, you are still managing the money. you have your portfolio, and you have the equity allocated to you, and they have not pulled back from what i understand at all, but the key for them is going to be if the prime brokers who by the way stood by in '08 apparently, and do they now stand by them and not pull the lines, because leverage is so important to everything that sac does. bythe way, i will give you updated returns on sac, 2.5 billion in profits overall for the firm this year. 15% gross and remember a lot of the many knee is that man right there, the $8 billion or so is mr. cohens, and it is up 15% on that and 9% net to the outside investors and so sac is having a good year. >> a clawback? >> well, nothing like that, but the question is if the lines get pulled by the prime brokers and cannot conduct business at any point at this point, and essentially not in business, and then he takes the money, and becomes a family office. >> well, to be sure, they have a lot of capital, and why can't they, i mean, just play it out, because innocent until proven guilty, and can it flatten out and trade for cash? >> yes, you could. and use no leverage at all. that is not the strategy. >> well, sometimes the strategy is dictated by the events and we don't know. >> it is all speculation right now in the realm as to what will occur at the firm. they were telling employees yesterday, we will stick it out. we are not guilty. we believe that we can stay in business while we fight the governmen government. >> and floyd norris today in the times trying to put in some historical context how these things play out. he argh use today, that this is not an arthur anderson with a lot of retail customers. >> right, right. >> cnbc now confirming what reuters is reporting from the indictment, and maybe with a smaller customer base not as painful, jim, but having spoken to preet bharara at delivering alpha, does that interview inform anything for you? >> he said this is not arthur anderson and it is something, and he didn't say sac, but they can wipe out any firm they want to. and now we know that the government did regret arthur anderson, and they went after x-y-z bank and a huge bank in the country, it would be poorly received, but this one is not that huge, and e.f. hutton. and drexel. >> well, drexel caused significant issues in the high yield market. >> well, if we talk about arthur anderson, we forget that there was a history of companies where the credit lines ended, as you correctly pointed out. but if you are a broker, you need credit lines no doubt about it. look, we need to know more. you don't want to deal with something that is -- >> well, he has $8 billion of his own money, and not to mention the outside money. >> he is a fighter. >> unknown territory to say the least. what does it mean to the ability to keep employees, and again, back to the key relationship with the prime brokers, because we are providing them credit every single day in significant amounts, and wall street will suffer from this if the firm is reconstituted in a smaller way, because they are a huge deliverer of fees and conditions and trading of course and too much of wall street. >> does the time frame here, david, 99 to 2010 a surprise? >> it is an awfully long period of time. it is an awfully long period of time. >> it is ongoing conspiracy. i have to know more about this. >> so much as changed in that time, and even in terms of where the bar -- listen, insider trading is trading and trading on material that is not public information and regs that came in. >> 1999 is when it comes in. >> that is essentially saying it has been a criminal enterprise in some way? >> well, we have actually a copy of indictment as you do, too. let's get to kayla tausche on this news and again, breaking news the indictment for sac capital. kayla? >> well, carl, i have it in my hands and it is a sealed indictment and 41 pages and in it four securities fraud charges and one charge of wire fraud, and very thick document, and a grand jury charge described throughout the bulk of these pages. we haven't had a chance to dig through it, and we will do that shortly. certainly a lot of information there inand confirming all of the suspicions there would be criminal charges filed against sac capital and also listed in the charges intrinsic investors and cigna capital management, the two subsidiaries in which matt martoma and michael steinberg were reporting directly to steven cohen and they have been charged with criminal charges over insider trading. we will get more on this, but i want to comment on the state of some of sac's dealings with the banks. i have been talking to the banks and discuss iing the relationsh between sac capital and the brokerage firms. a lot of the firms have been evaluating the relationship with sac capital, but we are waiting to stee the nature of the charges and exactly what is in the document before they made any final decisions about the relationship. the majority of the comments that i heard from the banks is sac capital has 1,600 stocks and situation is liquid and the first priority is making sure that the positions are liquid, and they can be collateralized and if they need to sell stocks or exit the relationship, it is easy to do that. and so we will dig through it and get back to you when we have more detail to add to the exact charges. sdwlt tha . >> thank you, kayla tausche. looking at paragraph nine, offenses committed by numerous employees were institutional practices that encouraged the widespread solicitation and illegal use of inside information, and is that a departure from the lack of oversight element that we heard about earlier in the week? >> well, you will hear a lot about how steve cohen was not directly indicted and that is meaningless, and the journal keeps writing that story, enough already. you take the firm out, and it is like his life. i mean, let's not -- it does not have to be and it does not have to be mike millken going to jail, but you put a firm out of business if you charge it criminally. >> well, it is clear for many years at this point with this huge insooider trading investigation led by preet bharara, the u.s. attorney, and the sac, and we were big fans of the wire, and remember the blackboard, and you remember -- >> yes. and kept going a after it. >> yes, they kept going after it, and mar tomo and when they charged him or steinberg, there was a belief that one or both of them would flip and perhaps implicate mr. cohen, but it did not play out here. >> and has not as of yet. >> but nonetheless, they come with the indictment that to carl's point earlier in 1999 to 2010, and some of the key languagethat i'm reading as well, they fostered a relentless pursuit of a business edge. and there was no means to see that it came from legitimate research and not insider informati information. jim, you were an aggressive hedge fund manager and you have written a book about that time. >> yes sh, i did. >> the line can change, too, can't it in some ways of what is legitimately obtained information in some way, and the -- >> the line did change and if you read "confession of a street addict" when you were to get the inf information, and that is where you got information. >> because a lot of the hedge funds were. and they were smart money guys going after the ceo asking how's the quarter, and how's the quarter? >> yes, rog is another guy who did not change the business model. >> well, stevie cohen did change his business model to a consent. >> i asked preet, was it a terrible compliance issue, and one of the big bugaboos is that you you have to have real compliance and he has written great speeches about it. what they are saying is that it is anything gs here, and you can't have and anything goes business model. >> in the words of the indictment, substantial pervasive and insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry. let's bring in bethany mcclane, contributing editor for v vanityfare." good to talk to you. >> good to talk to you again. >> at the time, you suggested that it is a persecution or prosecution, and you have had time, i assume, to look over the kimt, and what is your take? >> a little bit. i have not dug through it, but it corroborates what everybody said basically which is that this is a company where compliance was set up in name rather than in practice. and a place that thrives on the insider trading if you believe the pages of the indictment. >> where's the line between charging illegal activity from a compliance standpoint and in the words of the indictment actually encouraging the widespread solicitation of inside information? >> right. well, that's, you know, the allegation against sac from competitors was always that the place was set up to encourage insider trading, because you had pod where is the people operated independently, and very much kill or be killed and eat what you kill. and people were encouraged the operate without a lot of of sight and do whatever they could to make money, and then to feed the ideas up to steve cohen, but without any necessarily, and without cohen necessarily having to understand where the idea came from. and it would be very difficult to prove that cohen, himself, engaged in insider trading, but you could make a strong case if you believe all of that, that the firm was a place that encouraged it. >> bethany, of course, always worth pointing out that the bar is higher in criminal than civil which the s.e.c. showed last week with the failure to supervise, but here it has to be beyond a reasonable doubt. but there is still a lot of doubt as to whether the firm can survive this in part given the credit that it needs to survive in the current state in wall street. give me your take on that? >> well, interesting thing they have done is chatter about former sac people who have not been criminally charged, but still may be cooperating with the government. i expect to see some of that emerge as the case moves on. it is really interesting thing, because it is not like an arthur anderson which the government obviously put out of business by criminally indicting them, because it is a firm that depends on the reputation. if sac depends on the reputation, the firm would have been out of business a long time. a hedge fund depends upon the ability to make money. i don't know what it means in terms of the big banks, goldman, or morgan, and willing to do business with sac. it is doing to be interesting how that stakes out, and there are currently cases of firms surviving an indictment, so we will see. >> bethany, thank you for coming to the phone on short notice as we continue to work through the paperwork, too. >> and forfeiture allegation. they have the give back the money if they win. >> bethany, thank you. cnbc contributor. we will take a short break and continue the read through the indictment by the s.e.c. against sac capital. "squawk on the street" is going to be back in a moment. geico's defensive driver,ke 13. good student and multi-policy discounts could save you hundreds of dollus. engineer: uh geico's discounts could save you hundreds of "doll-ars." it sounds like you're saying "dollus." dollus. engineeif you could accentuate the "r" sound of "dollars." are...are... are... engineer: are... arrrrrr. arrrrr. someone bring me an eye patch, i feel like a bloomin' pirate. geico. fifteen minutes could save you fifteen percent or more on car insurance. honestly, i feel like i nailed that. if you are just joining us this morning the big news of the day, the u.s. has filed an indictment against sac capital advisers for wire fraud and securities fraud alleging institutional practices that encourage the widespread solicitation and use of illegal inside information. the indictment goes into various ways that s.e.c. did this. >> it is almost, carl, as if the government is saying that they set it ip so that you could not investigate the company. and steve cohen was never supposed to know what you knew, and you weren't supposed to tell steve cohen and they delete a lot of messages, and the compliance was not that strong. so that way of doing business is fine, and criminal. it will be a tougher case than people realize, but maybe, david, you indict and the case is over, but there is a forfeiture allegation saying, look, we are going to take everything. take everything. if you have got this -- >> i don't know how you define what is an ill-gotten gain as opposed to legitimately derived gain. >> that is like that you see a forfeiture allegation, in is a very serious set of crimes that they are going for here. >> right. >> wire fraud wrapped in, and it is not insider trading and they meant, but they are using the wire, and they want to put him out of business and no doubt of that, and that is the goal the put him out of business. >> you will talk about it at "mad" tonight. >> yeah, sure. >> and earnings today, and the "squawk on the street" is going to be back in a moment. about ri. about ri. i don't like the ups and downs of the market, but i can't just sit on my cash. i want to be prepared for the long haul. ishares minimum volatility etfs. investments designed for a smoother ride. find out why 9 out of 10 large professional investors choose ishares for their etfs. ishares by blackrock. call 1-800-ishares for a prospectus, which includes investment objectives, risks, charges and expenses. read and consider it carefully before investing. risk includes possible loss of principal. people find out state farm does car loans as well as they do insurance, our bank is through. good point. grab an edge. look there's two guys on the state farm borrow better banking sign. nope for real there's two dudes on the state farm borrow better banking sign. 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[ male announcer ] talk to a state farm agent about car loans that can save you hundreds. that's borrowing better. . >> breaking news this morning the u.s. filing an indictment against sac capital. kayla tausche has more details. >> carl n the 41-page indictment, the government says that insider trading was substantial and pervasive at sac capital and oftentimes the information edge that was fostered at the firm, quote, resulted in hundreds of million ogsf dollars of illegal profits and avoided losses at the expense of members of the investing public. now n the document the government raises serious questions about compliance at sac capital noting that the sac entity defendants failed to comply with the measures to prevent or track trading on insider information, and not only detailing the compliance process at sac, but the hiring process and noting that when they were interviewing candidates they placed emphasis on inside contacts at companies and noting in one case that a potential candidate had a hampton share with a fortune 500 company and that is in the pro column for hiring that potential person, and the culture was questionable with several quotes pulled from the document and note that conversations between steve cohen and portfolio analysts and managers saying my guy at this company or inside contact at this company, and the question of course raised there is why steve cohen or why other bosses of those employees were not raising questions about what exactly that information was and why that person was telling that information. the final note i want the give you, carl, a lot of questions raised about that culture, and when they said things like my guy at company a, and why there was not a question pressed further on who that person was and what that information was saying that sac rather quote fostered a culture focusing on not discussing insider information for openly this document cites instant messages between portfolio message and steve cohen and the employees as well as e-mails saying, let's talk later and discuss this offline and compliance hiring and culture all noted in the substantial and pervasive trader inside trading that occurred at sac capital. >> kayla, don't go too far, because i want to bring in jim and david. now, this hiring people with n contacts of proven public contacts that possess information. >> i don't like that charge. come on. there is fluff in here. they are basically saying that listen, they hired anybody who had a contact. well, that is the way that wall street worked and post reg fd, well, the guys had contacts. >> and you are allowed to talk to people at companies and ask them what is going on. >> and the notion of the compliance basically that cohen is insulated and created an insulated world where they can do anything and decentralized thing. hey, "don't ask, don't tell." >> and yes. he denies anything that comes in, because he didn't ask. >> because people flipped, we are presume nag ting that the e operation is inside r trading. they are saying, well, we have a number of ways to approach this, and all of the guys seem shady and shut it down. >> you have to imagine a very good defense lawyer saying, come on, think about this in a different way, and steve cohen is inkrcredibly busy and gets thousands of stuff, and he does not read this stuff. >> and they put that out. >> but not a decent defense in part of a jury. >> if it gets that far. criminal indictment by the united states attorney of the united states of america. i mean. >> and to recommend high conviction trades in which the p.m. had an edge. how does that sound different than regular life? >> well, if you are at a major mutual fund you hope that the guys have a edge, but legal edge. if steve cohen takes this and says legal edge, legal insooide and lots of insight that you can have that is legal but that you don't trade on, and i'm playing devil's advocate, because this s is a sweeping thing, that we could not get the guy, so get the company. but that is all that you need to do sometimes is to get the company. >> no greater way to get a financial company even though it is different than many other financial companies in indicting them. >> are you reviewing the credit line right now? >> they have to be. nothing says that i won't. >> why do you need that business so bad? >> well, maybe some loyalty. >> from wall street? buy a dog. >> i know. i know. >> ackman. >> well, yeah. let's get to bertha coombs who is live at the u.s. attorney's offi office. good morning to you, bertha. >> good morning, karm. we are awaiting a 1:00 press n conference and this is a high profile case for preet bharara who said they are very patient, and according to the complaint, they believe that sac capital engaged in what they call systemic insider trading saying it is part of the culture of the hedge fund for at least a decade. from 1999 at least until 2010. among the things that you have all talked about is the sense of passing on the high ideas and people hired with arn edn edge, one of the incidents in the complaint in fact on at least one occasion, the defendant hired a candidate despite a recognized reputation for insider trading. that candidate richard lee had previously worked at a hedge fund which is not identified is known for being part of that fund's insider trading group. and so they subs subsequeequent informed richard lee as cohen decided to hire richard lee as a fund manager p.m. anyway overruling the objections from sac's legal department. so there is certainly a lot. you can talk about how this is a case that is being built up, but incidents like that are some of the things that they indicate. this is the biggest indictment of a financial firm since the indictment of arthur anderson, the accounting firm in 2002 with relation to enron, and that indictment and prosecution did lead to the collapse of that firm. they had 28,000 people, and lots of ripple effects here. sac capital employees some 1,000 people across the globe, but it is a major wall street player, so that the ripple effects here will go well beyond just the one firm. back to you. >> bertha, we are getting word of a press conference later on today and can you walk us through what the rest of the day may look like? >> i would imagine that we will get the press conference hearing first from the firm to hear their response from this and no doubt they will rigorously defend themselves against the charges. they say in the complaint as well that there are eight fund managers who are employees who are identified as being involved in the scheme. but others, they say, that are not named. so it might be interesting to see whether there might be other individual charges coming down the line here. >> yes, entity defendants. thank you, bertha. jim? >> maybe the government has someone who says, listen, they used to tell me, listen, keep it out and don't put a piece of paper on it, because this whole thing in entirety says that the compliance operation was a sham and the whole company was set up to hire people who had an edge and not ask them how they got their stuff. that is what they believe is a criminal violation to create a sham compliance. because that is a totality of the evidence and not individuals. >> well said. >> thank you. >> you're welcome. >> i went to law school. i went to law school not to get stupid. >> but it is a long time ago. and there is a lot of intervening years where stupid can creep in. >> i don't pretend to be a lawyer. >> and we have other news today, and we have been talking a great deal about it. and including the earnings of gm and 3m, and we have not talked about a stock up this morning which is air products. this morning quietly air products the large, you know, the distributing all sorts of gases and things of that nature installed a poison pill. it is important because of the language associated with the reason to do so including quotes saying that air products has observed unusual and substantial activity in the company's shares. you can see of course those shares are up. they went on the say that the plan has not been adopted in regard to any specific takeover bid or other proposal to acquire control of the company. we can tell you that speculation of air products is the target of one mr. william ackman who runs pershings square to create a all purpose vehicle to target a company to raise as much as $1 billion and that company is to have predictable, and simple precap characteristics and enjoy high barriers to entry all of of course could be said about air products. now n t now, in the memo to those he is trying to raise money from, he says that the stock price could perform better and substantially lower in a multiple of the earnings than some of the come pet or thes, but that is not the case here. prax air is considered the leader in the business, and air products does trade at a multiple return or so below that. i can tell you that at least it does appear that air products believes that ackman has amassed a position in the stock not from the has been specifically come into beings, but out of pershings, and it has exceeded 5% thacht 5%. that is perception, and so we must leave it in the realm of speculation that out of nowhere they put in a poison pill and cited this substantial and unusual activity in the shares and it does fit the characteristics of what is released of what ackman was looking at. but this stock is $100 already. >> this stock is -- >> why would you go after this, and it is trading okay on multiples -- >> no, it is not as good as air g gas. they attempted to make the takeover of air gas. >> and lower guidance today we should point out. >> yes, the group, itself, ups and downs and air gas the weaker one, and this stock -- okay. let me put it this way, and i have watched the stock everyday and said what is going on? the stock is going up everyday and the business is not that strong and air gas has said it is not that good and you are saying everyday, something is going on, something is going on and bingo, something is going on. >> bingo, and i would add by saying there is not a clear m&a opportunity either. >> and the oligopoly in the business. you can't have a takeover of this, guys. >> we want ed to point oit out about the poison pill and mr. ackman. i can't wait to hear from him. >> everyone has been trying to figurehe heck is going on with the stock. >> but i don't know why you would go with the special purpose vehicle, because if it is the nad, ride along. >> yes. great reporting. >> and you are going to unplug now? >> i have to go to work. i have another show to do and stuff to go to, and i have lunch and off of the record lunch and things to do and places to go. >> you have things to do. >> we will see you tonight at 6:00 and 11:00. gm did beat expectation, and we will talk to bob lutz, the former chairman later in the program. and you are looking at the latest product from google which is about the size of your front door key called the chrome cast which could cause problems for competitors like apple tv and locu, and we will talk to the chairman of roku, and what he plans to do to compete. and at the center of it all is a surprisingly low price -- just $7.95. chairman of roku, and what he plans to do to compete. u, and w chairman of roku, and what he plans to do to compete. u, and we will talk to the chairman of roku, and what he plans to do to compete. rou, and we will tal chairman of roku, and what he plans to do to compete. ku, and chairman of roku, and what he plans to do to compete. d low fes are another reason serious investors are choosing fidelity. now get 200 free trades when you open an account. if you are just joining us this morning the u.s. has indicted sac capital for wire fraud and securities fraud looking to get back what they are calling illegal profits and 41-page indictment that we have been talking about for the past 45 minutes or so, and we will talk more about it. i wanted to mention facebook because the stocks are soaring and in the true result because of the guidance that beat the street. if it closes that way, it is the best one-day performance since going public. and firms are raising the targets on the news that facebook has found what is a working formula in mobile. listen to ceo mark zuckerberg on last night's conference call. >> when it comes to mobile, i'm very pleased with the results. we now have more daily actives on mobile than desktops and more than half a billion people use facebook on the phones everyday and soon more revenue on mobile than desktop as well. >> i want to bring in two analysts who have raised their guidance. guys, good morning to you both. >> good morning. yousef, it is getting praise today and how much is deserved? >> really deserved. what they did last night busted two myths. the first one was around mobile and facebook's ability to migrate to mobile and without breaking the p&l and the second is user engagement, and the u users continue the use it be it older or young, and the user engagement continues to hit records. they deserve it. >> ben, what about the monetization of mobile, because it is a trend that in some cases has not been a friend for these kinds of companies, because it has meant lower margins and rates, et cetera, and isfixing ? >> well, that is what they are proving that the content uniquely works for mobile monetization, and when you consume the content as you do with the news feed ads, they get in front of the user, and advertisiners are willing to paa lot of money for them. >> and people are looking at the expenses, and ben, up 51, 52%, and more than a billion dollars. is that part of a piece of the growth or are they slap happy in terms of the spending? >> no, the revenue up 60% on the advertising side, and greenfield ahead, and you want to see them hiring as many people as they can to take advantage of the opportunities. you don't have a lot of the large cap companies who can grow a meaningful part of the business 60%. this is a significant surprise to the upside and i would echo what yousef said, this is a well deserved uptick in the stock. >> yousef what happens when they cannot grapple with the video ads which is something that we were looking for last night, but we didn't get the announce from sheryl sandberg that people had hoped for. >> well, video is coming and we think late summer or early fall when it comes in. and when it does come n you will see the dramatic improvement to pricing, because the video ads are priced higher than a static ad. and you know, we think that they have the platform the reach to become a, you know, probably one of the largest if not the largest player in video maybe right next to youtube. >> it is interesting that both of you have a $40 price target on facebook and calling it substantially higher. ben, for many people, this is a, as kelly inferred a watershed moment not just for facebook, but for social media in general and the ability to monetize mobile. where else in the space should people put their money in your view now? can they follow through on what facebook is doing? >> well, really, we think that facebook and search are the two ways to play mobile at the moment. on the flipside, where are the dollars coming from? i do worry about companies like yahoo! and aol taking the dollars away from the traditional old line display companies and putting them in the mobile feed. >> and finally, ben, people want to -- this candy crush thing we are getting up to speed on. do you extrapolate the way that game is affecting the number of users? are they all true users even if they are in there for the game? >> i would not expect too much from just candy crush impacting facebook numbers. overall, games such as farmville last year and candy crush this year, and people play games on facebook, but it is not what is driving the growth here. what is driving the growth is the engagement, and the users and people looking at facebook all of the time when they have mobile devices. >> good to remember, especially since a lot of people wrote gaming off not too long ago. ben and yousef, we will watch the stock. thank you. >> up next, bob lutz is going to give us his take on the general motors quarterly report. stay a. while a body in motion tends to stay in motion. staying active can actually ease arthritis symptoms. but if you have arthritis, staying active can be difficult. prescription celebrex can help relieve arthritis pain so your body can stay in motion. because just one 200mg celebrex a day can provide 24 hour relief for many with arthritis pain and inflammation. plus, in clinical studies, celebrex is proven to improve daily physical function so moving is easier. celebrex can be taken with or without food. and it's not a narcotic. you and your doctor should balance the benefits with the risks. all prescription nsaids, like celebrex, ibuprofen, naproxen and meloxicam have the same cardiovascular warning. they all may increase the chance of heart attack or stroke, which can lead to death. this chance increases if you have heart disease or risk factors such as high blood pressure or when nsaids are taken for long periods. nsaids, like celebrex, increase the chance of serious skin or allergic reactions, or stomach and intestine problems, such as bleeding and ulcers, which can occur without warning and may cause death. patients also taking aspirin and the elderly are at increased risk for stomach bleeding and ulcers. don't take celebrex if you have bleeding in the stomach or intestine, or had an asthma attack, hives, other allergies to aspirin, nsaids or sulfonamides. get help right away if you have swelling of the face or throat, or trouble breathing. tell your doctor your medical history. and find an arthritis treatment for you. visit celebrex.com and ask your doctor about celebrex. for a body in motion. [ male announcer ] it's a golden opportunity to discover a hybrid from the luxury car company that understands that one type of hybrid isn't right for everyone. come to the lexus golden opportunity sales event and choose from one of five lexus hybrids that's right for you, including the lexus es and ct hybrids. ♪ this is the pursuit of perfection. ♪ so you can capture your receipts, ink for all business purchases. and manage them online with jot, the latest app from ink. so you can spend less time doing paperwork. and more time doing paperwork. ink from chase. so you can. on to general motors and now the company's earnings conference call starting moments ago and the stock is slightly lower after the second quarter topped expectations. phil lebeau is back at headquarters keeping an eye on that, and with the surprising strong results, it is interesting that the shares are down. >> that is the same thing with ford that you saw the stock move up higher on the better than expected results and then everybody pulled back saying, well, is this as good as it gets for a while? look at the numbers for general motors for the second quarter and they beat the street handily with nine cents better that on the street expected and the revenue is stronger than expected by almost $1 billion. so what you are looking at here is a company that did beat the street. two things standing out in the second quarter for general motor s. first of all in north america, they did see an improvement in terms of the profitability up to $2 billion, and some people are focusing on the net profitability, and lower compared to the second quarter of last year, and dan ammon told us that tax issues are to blame there, and less than the focus on the costs in launching costs there. the other issue getting a lot of attention is that they lost $100 million in europe which is an improvement compared to losing $400 million last yee, and this morning on "squawk box" this is dan ammon talking about correcting all of the problems in europe. >> have made progress in the first half of the year and led by market launches into the marketplace, and cost control we have been working on. we have a great team on the ground and improving in a very economic-challenged environment. it is good progress today. >> another story getting a lot of attention today is what consumer reports say about the 2014 chevy impala, and rave reviews. they gave the car 95 of 100, and s essentially, putting it on the list for large dance and yoused. it has always been a foreign brand and you to go back 20 years to get a american-made car to the top. if you look at the shares of general motors and go back to the ipo in 2009, the high point is over $38. there was a lot of discussion, could we get there following the better than expected earnings, and you would think so, but the day, the investors are saying, we will take a pause, because of the run over the last several months. >> okay. phil lebeau with the earnings report. thank you very much. and now let's bring in the cnbc contributor bob lutz, and former gm chairman. thank you for joining us this morning, bob. >> good to be here. thanks. >> i wanted to talk about the chevy impala that knocked off the consumer socks off. how important is the impala and on a morning where they have that going for them and the strong report that, again, shares are not getting a bid. >> well, you know, i'm absolutely used to that. i lived through it at chrysler and ford and every time we had a quarter with record earnings, the stock would go down, because the reaction on the part of a lot of investors is maybe this is as good as it gets. but look good news remains good news regardless of the stock on any given day. chevy impala is a large segment of the large sedans and very profitable. not exactly a growing segment, but if the impala dominates it, that is going to be good news. and also -- go ahead. >> in -- sorry, bob, i thought you had finished. in fairs on the the shareholders we should point out that this stock and ford are up 30% so far this year, and that may be why you haven't had a huge move. >> yes, sure. >> let me ask you, bob. you have a huge wave of new products coming now. 18 new products in the course of the year, and presumably, this is -- you have to build margin from here, and particularly in pickups, and at what point do you think that they might start delivering on the dividend? >> well, i have no idea, because i am no longer a member of the company. but one thing is for sure, the financial results are bound to get better, because don't forget that the last two quarters have been selling down a large inventory of old pickup trucks which naturally had to be discounted in view of everybody else's new pickup trucks. but the new big pickups and later the new sport utilities and the escalade and yukon and tahoe are going to come in, and they are enormously profitable and going to carry large margins. there's a huge body that is going to want to replace their vehicle vehicles and that bodes well for future earnings in my book. >> bob, i'm curious that one of the demerriits against the impa is that the return is not that great. as you said that the return of suv sales and pickup sales, we have seen it, but is it a mistake not the double down on the fuel economy? >> in the class n the class, the imball la h impala has outstanding fuel econo economy. highway is 35 miles per gallon or slightly more. people who want a large sedan and a lot of the corporate fleets need a car this size, and it it is very good business by the way, an full margin business. they look at the needs for a large five-passenger sedan and large trunk and in that universe that car has outstanding fuel economy and plus every probability to have a hybrid version offered on it someplace. >> yes. >> and the car is great, and the fuel economy is not an issue. it is going to be a terrific seller. >> okay. we will see ift mo needle on shares going forward. i it has been tough, but it may get tougher from here. bob lutz, thank you for the time this morning. >> sure. goldman is calling it $45 a share. we go to the mercantile exchange with great news from sharon epperson. >> the latest report coming out from the energy department natural gas storage levels for the past week shows increase of storage to 41 billion cubic feet. that is 41 billion cubic feet which sin jection of less than what the ammists were anticipating. they were looking for increase of 47 and 51 billion cubic feet according to the platte survey analysts. we are looking at nat gas prices declining here. it is a decline here fractionally low here below 3.70. tra traders will continue to watch what happens with the natural gas storage levels in light of the fact that temperatures have cooled off dramatically from the hot temperatures that we had last week, and that could have an impact. they are also watching the tropical storm dorian to see if it will have any impact in the gulf of mexico, and right now, of course, it is having no impact, but they are also watching that, because, of course, we are in the midst of hurricane season. carl, back to you. >> thank you, sharon epperson. and straight ahead, fabrice tourre is back at the courthouse, and we will have more on his testimony. >> and breaking news a moment ago as steve cohen and sac capital were indicted by the s.e.c. 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[ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪ criminal charges for sac capital and kayla tausche has been reading through the indictment at hq. good morning kayla. >> well, eight defendants are listed and two of them plead gi guilty and two of them not guilty and the document in the back half goes through each of the specific people and each of the instances in which they are alleged to have traded on inside information. a few of the instances are familiar and you will recognize them from the s.e.c. action against sac owner steve cohen last week. one inside information about a drug trial used by matt martoma to allegedly trade in and out of those stocks. another one on dell where one of the portfolio managers or analysts had an inside read from the company on what their earnings quarter would look like. but a few new pieces of information. the west wing attack analyst was said to have traded illegally from eight companies in that k sector. he has plead guilty. and richard lee, somebody who is at s.e.c. who hired into the special situations fund despite a warning in the document says that the sac owner steve cohen had been warned that he had been previously involved in some sort of inside trading ring, and reuters reporting that the former hedge fund where richard lee was employed is citadel, and of course, the ken griffin-owned hedge fund, but he was trading in and out of the special funds on information on yahoo! and he had gotten an earnings deck from a previous contact and reached out about microsoft to talk about a yahoo! and microsoft partner thship which did come t fruition, and he plead giuilty. and michael horowitz talked about the company and the inside earnings, and pointed out when there were questions raised whether he was in come plins, he had e-mailed about a contactt the company, and someone rely ply and said, that is going to catch the eye of the legal eagles, sac ooo replied back pand said, not a trade, but investment idea, and it is just an idea at this point and paraphrasing and not quoting there. but a lot of the situations and the notes about the compliance culture, and matt martoma was working with an expert network even though they outlawed wor g working with expert networks. so they are defending their business and saying that any of the profits should be for fitted back to the government even though the capital has been returned. guys? >> the news conference will be 1:00 eastern. kayla, thank you very much. we turn now no the government prosecution under way and active in court, and former goldman sachs vp fabrice tourre is back in the courthouse with the case against him. mary thompson is live outside of the courthouse. >> yes, simon. the questioning of tourre still on the stand. he is accused of deliberately misleading investors on a cd called abbacus. the line of questioning is focused on the communication, e-mails that were either sent or received by tourre. specifically one that he suggest ed that there was a precommitted first loss on the cdo. this is a preliminary, and basically transaction statement about what it might look like. tourre has admitted it is inaccurate at the time, and he didn't mean to confuse anything, but the s.e.c. is continuing to hammer away with this, because it followed up with e-mails at executive of hca which took a long position in the cdo in which the executive from hca references paulson's equity perspective in the cdo suggesting of course, that they thought that paulson was long. the s.e.c. continues to ask fabrice tourre why he did not correct this assumption by the sea and they tried to say that he deliberately misled the investors to make them feel comfortable to take a long position in the cdo and a long position where they lost money, but paulson benefited being short the ceo, and profiting by $1 bhillionbillion. the s.e.c. is expected to continue the questioning of mr. tour ray an hour and hour and a half, and this afternoon the defense team will cross-examination him, and that is expected to take another four hours and he could be back on the stand tomorrow morning for the redirect from the s.e.c. back to you. >> marry, thank you very much for that. as if watching abbacus, and the earnings were not enough, david, we are still working our way through the indictment on sac. there is a bunch of fires brewing today. >> yes, there are. we have talked about firms relying on capital when they are at risk and indicted. as i can tell right now, it is p business as usual. most of the outside money has gone, but it is $8 billion of capital there being steve cohen's or at least for now. and the banks are continuing to lend. they have the assets on balance at whether it is jpmorgan or goldman sachs or using for prime brokera brokerage. you have the collateral there to lend against the perhaps risk seen as not particularly great in any shape or form. all i can tell you is that the managers seem to be focused on the loans and the short, and it is business as usual. that is of course something that could change, but as of now, that is the case. >> all right. david, thank you very much for the additional color. dow is close to the lows of the session, down to 56. and google is making a big play for the living room making a bid for the latest product like chrome cast, and should companies like roku be worried since they previously owned that space. you make a great team. it's been that way since the day you met. but your erectile dysfunction - it could be a question of blood flow. cialis tadalafil for daily use helps you be ready anytime the moment's right. you can be more confident in your ability to be ready. and the same cialis is the only daily ed tablet approved to treat ed and symptoms of bph like needing to go frequently or urgently. tell your doctor about all your medical conditions and medications, and ask if your heart is healthy enough for sexual activity. do not take cialis if you take nitrates for chest pain, as this may cause an unsafe drop in blood pressure. do not drink alcohol in excess with cialis. side effects may include headache, upset stomach, delayed backache or muscle ache. to avoid long-term injury, seek immediate medical help for an erection lasting more than 4 hours. if you have any sudden decrease or loss in hearing or vision, or if you have any allergic reactions such as rash, hives, swelling of the lips, tongue or throat, or difficulty breathing or swallowing, stop taking cialis and get medical help right away. ask your doctor about cialis for daily use and a 30-tablet free trial. a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪ with fidelity's options platform, we've completely integrated every step of the process, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens, and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account. welcome back. with a quick update on shares of facebook trading near the highest levels since the day that the company went public up 25% today. this is on a day when there's actually, carl, a difficult tape, but the earnings continue to have people favorable on the stock who have seen a number of upgrades as well. >> all right. google of course releasing a streaming device to plug straight into the hd in my port on the tv and chrome cast will allow the viewers to stream content from youtube to netflix to the tv monitors and with competition like apple and roku who is the first in the race to stream? we talk to the founder of roku and the founder of modern dvr as we know it, and he joins us from mountain view. anthony, good to have you back. good morning. >> thanks. gad morning. >> we know about the mashgting muscle that google has, and are you terrified this morning? >> no. take a second to look at the history. fwoog google has had three major versions of google tv and it can be only described as unmitigated disaster, and they look at what is going on and what can we do next and improve the situation. they look at the devices that are doing well which is phones so from their point of view, they would love you to use the phone for everything including tv, and the approach now is to switch to having a device to use the phone to control. from roku's point of view, and the customers' point of view, the phone access, and using the phone as a remote control is a feature that we have, and a feature, but most of the customers want to use a traditional remote control and not just the phone to watch tv. then for $15 on the roku player versus the chrome cast, you will get over 1,000 channels of c content. search. games and music and much better and complete and robust platform. we are confident in the ability to compete with google. >> you mentioned the point of the consumer, and the streaming stick is up $75 or $85 and chrome cast is $35. what keeps the consumers from trying out the chrome cast to on a lark, because it is less expensive. >> the entry level roku which has 1,000 channels of content, music and games and traditional stuff and the traditional remote control is $15 more than chrome cast and the best selling is the $99 roku three which has the remote control and the game controller, and one of the coolest features is a headphone jack to hook up to the remote control and listen to the tv without disturbing anybody in the family and super pop ular product. we streamed over 1 billion hours of content last year up from 420 million the year before. it is growing like gang busters. on of the things that to look at is that streaming is hugely pop youer will an mainstream. this is just more of the companies realizing they need to try and become involved in stream i streaming. >> yeah. of course, we work for a company that is working on the different ways to receive signals from the tv and of course with chrome cast and you sh, and where does this leave us in the overall narrative of the marriage between your tv and your wi-fi? the tv and the computer? what is the next big step? >> well, what we see is a huge opportunity within the television sets, themselveses, to have a operating system and platform that is focused on the tv and the great user experience and we think that roku can be that platform. we raised $60 million recently tok isk is -- to accelerate the opportunity, and legacy devices like cable boxes and blu-ray players will go a wway and beco integrated into the software inside of the tvs. >> isn't it likely that the t that we know it is the legacy part of it, if you like, and the people will pull everything down from the clouds. that is more likely to be on where they operate the computer, ie, a laptop or ipad. >> well, we looked at the data and streaming is popular on many forms, laptops, and ipads, and bigger devices. but the most is the big screen. content is going to stream from the cloud, and be based on different standards than today. 4k is going to be popular and come on streams first. it is streaming from the cloud to the big screen tv is what people want to do. that is by far the most pop ula way to watch tv still. >> anthony, when will we get a programming, a group of programs essentially for those who consume only broadband. i'm not saying it as clearly as i might. but those pulling out the video entirely obviously just using the broadband and building a number of cable channels and other aspects, other things that they want to watch. >> well, that is starting to happen. with the roku customers the top users stream 35 hours a week, which is basically all of their tv. they are using netflix, hulu and pandora and all of the challenges on roku, but majority only want the content that you get on the pay tv. so what we are seeing is the big step that is happening is tv everywhere. so for xam example hbo tv on th, you have to have a paid subscription to tv service, because it is valuable content, and we have been announcing fx and what we are seeing this year is that all major paid tv networks are starting to offer versions of the services on roku and the streaming devices. that is the next step. what we might see is a virtual mso or a pay service that looks like the traditional services only on the internet, and that is going to happen and a matter of time whether it is next year or this year or the year after, we don't know. >> we all certainly know where we are headed over time. anthony, thank you. great to see you and come back. >> okay. >> and throughout the morning, we have been carrying the news that the sac has been indicted and we have us from roku. >> throughout the morning we've been carrying the news that sac has been indicted. we also have the former goldman trader in court. now we learn that the u.s. attorney's office in jersey has broken up a massive credit card hacking crime ring. you'll be shocked when you hear some of the names that are the corporate victims. details on that coming up and a live news conference, and be sure to tune into the show tomorrow when the british open champion, phil mickelson, will join us right here at post 9. you don't want to miss that. we'll be right back. ♪ see you next summer. ♪ [ male announcer ] get exceptional values on the highest quality cars at the summer of audi sales event. ♪ bjorn earns unlimited rewards for his small business. take these bags to room 12 please. 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[announcer] you are how you sleep. tempur-pedic. welcome back to "squawk on the street." i'm josh lipton. we are watching one oak, which is soaring today. the news it's going to separate its gas distribution business into a stand alone publicly traded company called one gas. in terms of volume today, it is trading action more than five times it's ten-day average. oneok up more than 20% right now. simon, back to you. >> thank you very much. let's kick it down to chicago and rick santelli for the santelli exchange. >> thanks, simon. we're going to talk a little yield curve today. there's still a large paying presence in the treasury market. even though there was an interim period between some of the highest yields we experienced the day after the fourth of july, we have seen yields come down a bit. they've resurrected their upside. why is this important? a lot of longs, big longs, around the five-year part of the curve. of course, there's an equal number of long as and shorts. i'm talking about a location issue. something today is going on that may mitigate that and give you, the viewer or listener on radio, a trade. we have three dates on the magic board. the 25th, the 5th of july, and today. and here is the deal, if you look at a five-year contract, they had a level of yields that peaked around the 25th. then we hit the high yields on the 5th like all maturities, and today we're a little bit lower. okay? this is key. but if you go to the seven-year, you will see a basic formation that's the same but ths about here. if you go to the ten-year, it's about here. if you go to the 30-year, it's about here. which means the yield curve is steepening. the longer the maturities are, the higher they are relative to a very significant first time top on the 25th. now, why is this important? because if you are long fives and you want to mitigate some of that distress but you don't want to give up the ruse, what many seem to be doing is just selling longer maturities against it. remember, if you make up ground on the long maturities, even if all rates go down, as long as the ones that you're short go down faster, you make up ground on the long leg of the spread. let's go to another area. today there's a million stories out recently, journal had a good one, about the great rotation. and like all stories and like cnbc.com and patty's great stories, the recent outflows have approached about $45 billion, and the taxable bond mutual bond market. and where are they going? they're going into money funds. money funds as of the 17th of july are up about $8.5 billion. get this, to 2.6, yes, $2.6 trillion with a "t." if we really want the great rotation, obviously the fed does, but nobody is working along with them. otherwise there wouldn't be $2.6 trillion. whether it's big insurance companies still fighting the allocation more heavily invested in bonds than stocks. if you want a great rotation, you need to end the great manipulation. that 2.6 billion, excuse me, trillion with a "t," doesn't trust the fed programs. isn't it obvious? back to you. >> rick santelli this morning. rick, thank you very much. lots of news we're following for you. sac, blockbuster earnings. we'll get you the latest on all the stories. all business purchases. so you can capture your receipts, and manage them online with jot, the latest app from ink. so you can spend less time doing paperwork. and more time doing paperwork. ink from chase. so you can. ♪ the world is changing faster than ever, creating new opportunities for those who stand ready to seize them. in a time when the biggest risk is playing it safe, we believe outshining the competition tomorrow requires challenging your business inside and out today. at cognizant, our flexible, collaborative approach helps forward-looking companies not only run better, but run different... to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because now more than ever, the future belongs to those who challenge the present. welcome back. we're still making our way amazing through this 40 page indictment with sac capital. learning a surprising number of things about a firm that's been so scrutinized. like the fees, in some cases 3 and 50. >> they've been high for a long time in part because of the incredible investing acumen because of the founder known as a trading whiz for many years, certainly when he traded his own book and the significant changes that took place at the firm. he took in a lot more money, put teams of analysts to work essentially that would then funnel information up to him, and that is kind of key to the indictment here as to what he knew or didn't know and why they did comply or didn't comply. >> exactly. >> david, thanks for all the good work today. we'll talk europe in a little bit. if you're just joining us, you have missed a lot, but here is a look at what you missed. >> welcome to "squawk on the street." here is what's happened so far. >> the good news is our unit revenues are up about 3% so far here in july and that's a very nice turnaround for what we've seen since the end of february. >> the most significant thing the federal government can do is have a bipartisan deficit reduction long-term program adopted. that would create certainty for the business community. >> one thing that came out of the call was the way facebook is perceived around the world. it's not as passe is some want to make it seem in the straights. it's a very big deal and seen as upscale. >> allen mullally, listen up, i love what did you in europe but gm did better and you were behind ford. gm is back. the stock has been a total winner. >> in this case i also hear that these guys are getting tired. they want to get this vote over with next week. one way or the other, be at peace, and call it a summer. >> the united states has filed an indictment against sa c capital visors. >> carl, i have it in my hands, a sealed indictment, 41 pages. in it four securities fraud charges, one charge of wire fraud. >> good thursday morning, we're live at post 9 at the new york stock exchange with a check on the markets. the dow having some trouble getting out of the red after yesterday's somewhat worrisome reversal. transports were down, the chips, and today more red arrows. the dow is down almost 60 points. s&p losing two back to 1683. shares of facebook though still on an absolute tear this morning. stocks up over 20%. comes after the profit and revenue did beat expectations last night. monthly user base also grew 21% in the latest quarter, and mobile ad revenue rose to $656 million. meantime, shares of pulte tanking this morning. the stock falling after earnings fall short of expectations. net income down 14% after they paid charges for settling a legal dispute, buying back some corporate debt and relocated corporate headquarters. >> back to this morning's breaking news. the u.s. government announcing criminal charges against hedge fund sac capital. we're all over this story. bertha coombs is live at the u.s. attorney's office in new york. kayla tausche is back at headquarters. bertha, first to you, what can you tell us? >> well, essentially we've had a 40-page-plus indictment, five counts against the firm sac capital in which the government alleges that the hedge fund was essentially operating on a business model of insider trading. they said it was systemic insider trading on a scale not seen anywhere else. they talk about the fact that steven cohen did know about trades that were funneled up to him including one in 2008 on dell. it appeared to have been based on insider information, but it doesn't directly tie him, which is why they have not directly indicted him. he was handed that information funneled up through a research assistant. the very big indictment is on sac capital's lack of any type of compliance. effectively no compliance according to the indictment. up until 2008 they would erase e-mails and let them go after 30 days, something that most firms don't do, certainly don't do now. the firm has recently beefed up its compliance, but they effectively say the compliance here just had a blind eye. noting just one instance in the entire history of the firm of insider trading despite the fact that we've now had six people plead guilty. it's one of the things that pete bharara talked about while not specifically mentioning sac last week at delivering alpha. take a listen. >> there are lots of situations in which compliance programs are simply lip service and they're on paper and nobody actually cares and everyone understands that they're not to be followed and they're just to be used in a conference room with prosecutors when you say don't indict us because we have this thick compliance program, and people understand what that means. >> preet bharara will be at a press conference in which they will detail the charges against sac. that's expected to start at 1:00 eastern. >> bertha, thanks very much. kayla, looking through the indictment, you can't help but get a sense there's been a culture of insider trading at this hedge fund and potentially at others. one of the people singled out was basically hired despite the fact he had this reputation for insider trading at another fund. >> it was a flag raised to steve cohen in that employees richard lee's candidacy process at sac capital. in this lengthy document, four charges of security fraud, one of wire fraud for obtaining illegal information and carrying out those trades on interstate communications system. the indictment says the firm placed importance on having this information edge. one of the the edges the fed says cost the investing public hundreds of millions of dollars. the government is seeking disgorgement from those illegally obtained profits. among the issues, hiring. they placed an emphasis on a candidate's industry and company contacts. they really valued that in the candidacy process and whether they were able to obtain that information edge. hiring richard lee despite the fled flagging. lee's former involvement was at citadel which is the chicago based hedge fund. the other issue is compliance. had a compliance department that the feds are saying investigated communication at random, managers failed to alert the legal team to specific issues even when they were presented to management. cited one analyst who has since pled guilty to insider trading noting on an '07 sun microsystems trade, quote, my edge is contacts at the company to which his manager replied and forwarded it, i suspect that line may wake up some of our legal eagles. when the coo replied, he said, no, just a general inquiry to confirm we're not in possession of nonpublic information. the coo went on to say it was just an investment idea and to make the analyst more comfortable with the direction of that investment. finally, it was the culture. the presence of inside information wasn't openly discussed. the situation is described in the indictment showed that they were often discussed offline, in short spurts, and that there wasn't really any focus on alerting the compliance department when some of these issues were raised directly. now, of course, we want to update you on the status of a lot of the banks that work with sac. they work with roughly seven prime brokers to carry out their trades and to borrow funds in the middle of the trading day. and i have talked to some banks who say they're evaluating sac's positions. sac as of yesterday had $14.2 billion under management and its president said in a memo was operating business as usual. the majority of that capital is steve cohen's money which is leaving a lot of banks very comfortable. they feel like it's sitting in cash, it is very liquid, and if push comes to shove, they don't feel like they will be in a bind with sac capital. >> that's an important point to make. we thank you for that. kayla back at hq. joining us on the phone is richard holwell. he joins us this morning on the phone. it's good to have you back. good morning. >> good morning. >> people are reading this indictment and wondering about the viability of sac. how would you characterize the quality of the indictment? >> a solid indictment. it's a logical conclusion, if you will, of all of the investigations that have been going on over the years against sac. i don't see any legal surprises here. a company is responsible for the acts of its senior managers, and that's the thrust of this indictment. >> if you're the defense, where do you lean first? >> well, that's a very interesting strategic issue. obviously mr. cohen is going to be making decisions here since he owns 100% of sac, and the question that will have to be asked is do i roll over and forfeit whatever the government wants me to forfeit or do i fight it? and the issue is if he fights it, does he increase the risk that he personally will be indicted? >> judge, looking through the indictment, there are several examples where asc employees had contact with employees current or former at many huge u.s. companies. what are the implications for the people from the companies named and involved here? >> of course, anybody who chips information is just as liable as the tippee. so the tipper can be pursued. it depends on what benefits they received. if you're giving information to your buddy in passing on the golf course, maybe the government will look the other way or just seek a fine. if the tipper is actually getting proceeds in some manner, it's not going toob looked at too kindly. >> is it your impression after looking through all of the evidence related to the rajaratnam case, is it overstating it to say there's a culture or is or was a culture of insider trading on wall street among these hedge funds in general? >> that is certainly the picture that has effectively painted by the u.s. attorney's office over the past four or five years. just the sheer number of indictments, the number of pending investigations, and now the ultimate step of indicting one of the largest hedge funds in the world. certainly points to that. there's an active campaign by the government to eradicate what it sees as bad and criminal behavior. >> finally, judge, with the abacus trial taking place, there's so much discussion about juries and the challenge of prosecution to get some of these complex topics into the heads of jurors so they understand it. would you consider that a challenge for the u.s. attorney in this case? >> not really. insider trading is a pretty straightforward prosecution. jurors can understand it without having to understand the complexities, the synthetic obligations. they just want to know what the defendant knew, when the defendant knew it, and what they did with the information. so the government has a very high success rate in this area. >> judge, appreciate your time. always good to have you. richard j. holwell joining us to talk about the sac indictment today. a huge day for facebook. the stock is still surging in a pretty rough tape after a good earnings report last night. we'll talk with a facebook shareholder and find out if they're happy. first, rick santelli talking about binflation. >> the economist has a big mac index. not the least of which is i have a dog named big mac but that's another story. for the big mac, would you like to pay $3.40 or would you like to pay $4.56? why the difference? i'm going to tell you, but you'll have to come back to the talking mac index in about ten minutes. ♪ summer's best event from cadillac. let summer try and pass you by. lease this cadillac srx for around $369 per month or purchase for 0% apr for 60 months. come in now for the best offers of the model year. we used to live with a bear. [growl] we'd always have to go everywhere with it. get in the front. we drive. it was so embarrasing that we just wanted to say, well, go away. shoo bear. but we can't really tell bears what to do. moooooommmmmm!!! then one day, it was just gone. mom! [announcer] you are how you sleep. tempur-pedic. david faber brought us some news on bill ackman earlier in the show. he's back with more details. >> this story begins a couple weeks ago on july 8th when pershing square sent out a letter seeking contributions for a special purpose vehicle that it was going to use to invest in a large company. more on that in a moment, but fast forward to this morning when air products unexpectedly announced that it had installed a poison pill because of what it said was unusual and substantial activity in the company's shares. the company going on to say in a press release this morning release theed a 7:00 a.m. that the rights plan has not been adopted in response to any specific takeover bid or other proposal to acquire control of the company. you can see, of course, when they talk about unusual activity, look at a chart of air products. i think we can also show you to a certain extent the volume in the stock. well, perhaps not. i think we tried to do so, but that volume -- there you go. we do have that. as you can see it has spiked, especially there in the latter part of july where we are right now. you can see that there has been a good deal more volume than was typically the case for air products. jim cramer earlier said i've been wondering what's been going on in there. the company perhaps believes mr. ackman is, in fact, targeting air products. now, referring back to that letter on july 8th in which he was seeking contributions for two separate new co-investment funds, he did say that he was looking to a target in which he would acquire a position size of 15% of the fund's capital at cost. he noted that company has for many years underperformed its peers with regard to business productivity, operating margins, and return on capital employed. he went on in his letter to say they intended to acquire a greater than 5% stake in the company which would require them to file a schedule 13d. again, it's speculation. i reached out to mr. ackman and i have not gotten a comment from him on this situation as to whether or not air products is the intended target. also unclear whether he was successful in raising significant sums. he was targeting $1 billion for his spv, but if you believe it was air products, part of the strategy was pershing square buying a good deal of stock itself which may have been going on over the last few days and/or weeks and potentially filing a 13d. we will be keeping an eye open for that. some people though have spoken to about air products say it makes sense in terms of the language in his letter in many ways but stock has done quite well. there's not a clear exit in terms of an m&a, a merger and acquisition by which the company can be acquired. what is the strategy mr. akman would ploy were this the strategy? the poison pill has not gone unnoticed. >> we hope this ends the guessing game. thanks very much. >> growing ad revenue for mobile is helping shares of facebook this morning. look at the shares. they're up 24% latest. in the second quarter report, facebook said 41% of its total ad revenue came from mobile. it adds more than $13 billion in market cap. ceo mark zuckerberg talked about penetrating new demographics on the call. >> there's been a lot of speculation reporting that fewer teens are using facebook. based on our data that just isn't true. it's hard to measure this perfectly, but based on the best data we have, we believe we have close to fully penetrated in the u.s. teen demographic and the number of teens using facebook on a daily and monthly basis has been steady over the past year and a half. >> on that note, we have the investment you a ser for calsers and alvin. he has a buy with a $37 price target on the shares. good morning to you both. and arvin, $37, we could get pretty close. >> i think the stock tends to be quite volatile over the last one year but i think the long term students are still intact. they have a long runway. >> what is it in particular about the results last night that justify not just the shares rallying this morning but apparently completely repricing that company's earning potential? >> i think that to me it feels a bit like an inflection point in several ways. one i think they were able to show to their advertisers that the roi on facebook is very strong. at the same time they're able to maintain very high user levels and user engagement. that's a fine -- that's a balance that they've been able to maintain, and as you pointed out, mobile, they've been able to answer the question on the transition to mobile. those are the three key points and takeaways from the quarter that we're impressed with. >> okay. when you guys look at the shares and the performance today, obviously a nice bump in terms of your holdings, but what concerns do you still have about the company? >> we were very impressed with the quarterly earnings but we're really concerned about long-term sustainable value one year -- >> looks as though that line has frozen. arvind, do you want to pick up on that, what concerns people will have about the company still right here. >> i think the question is going to be how sustainable is their strength. i feel like it's sustainable. clearly the second half has tougher comparisons. we're not expecting the same kind of growth year-over-year, but i think that we're also focused on the long-term story here. by our estimates one in three people worldwide are coming to facebook every day and spending 30 minutes, and yet the company's market share in online advertising is a tiny 5% to 10%. so i think they have to continue to execute, but they've been -- they've proven in the last several quarters that mobile is something they've figured out and there's no reason why they can't continue to grow from here. >> there are some, of course, the bears haven't been completely convinced. some are worried what if sheryl sandberg where to leave? where does that leave the operating structure? still concerns about the quality of the metrics, whether or not these are active daily users, monthly active users are true users or if they're just there to play a quick game and exit. how do you answer some of those concerns? >> i think that's what makes the market. obviously there are bears still out there, and the stock is still below its ipo price. it still has that hurdle. but again i think fundamentally mobile was the challenge, and mobile has been answered. so when advertisers are going on facebook and they're finding that returns are very strong, they're willing to spend a lot more money. so you can look at it on a quarter to quarter basis, but if you look at it long term, i think this should be a core holding in internet portfolios. we've been seeing that for a while. >> a lot of people seem to be agreeing today. thank you for your time. >> thank you. >> former goldman sachs vp back to the stand this morning. the latest details live outside the courtroom. plus make sure you turn into "squawk on the street" tomorrow. british open champ phil mickelson will be right here live at post 9. you won't want to miss that. back in a moment. ♪ this is the pursuit of perfection. the most free research reports, customizable charts, powerful screening tools, and guaranteed 1-second trades. and at the center of it all is a surprisingly low price -- just $7.95. in fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. i'm monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. now get 200 free trades when you open an account. bjorn earns unlimited rewards for his small business. take these bags to room 12 please. 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[ male announcer ] come to the lexus golden opportunity sales event and choose from one of five lexus hybrids that's right for you, including the lexus es and ct hybrids. ♪ this is the pursuit of perfection. welcome back to "squawk on the street." you know, in 1986 the economist came up with the big mac index more in fun. they update it twice a year but i think it's great. go to the website and this beautiful chart is interactive. you can see which countries pay less or more than the average, but the long and the short of it is the price of big macs is different based on this index versus cpi. i'd like to welcome my quest from the economist richard davies. welcome. >> hello there. >> very quickly, the big mac index, why do so many find it fascinating? i have had so many maim e-mails over the year and how does it help us understand that another way to look at inflation or lack of it is purchasing power parity? >> the big mac index is just our quick way of looking at exchange rates and looking at the price that people pay for goods in different countries. normally with purchasing power parity you'd argue for a big basket of goods like thec pi basket of goods, the market's exchange rate will equalize those over countries over time. so what we do is focus on one good, which is the big mac. take london, big mac here costs around 2 pounds 70. with an exchange rate of 1.5 dollars to the pound that takes to you a price of $4 here in london. compared to america, the average price is $4.50. that suggests the pound is a little cheaper relative to the dollar, the pound is a little undervalued. >> if i think of this in terms of the united states and cpi, on your latest update on the big mac index, it said basically the average price of a big mac is $4.56, but calculated using the current methodology which has changed a lot on cpi is $3.40. can you go into that a little bit? >> yeah, absolutely. what this reflects is the fact that cpi is a basket of goods, a big basket of goods. we're just looking at one thing which is the big mac and that, like many things, is actually growing. the prices are going up at a faster rate than cpi. other classic examples that might worry people even more are things like education and health care. what that means is that people start to worry about is the cpi actually accurate. in truth, it probably is accurate because they spend a lot of time getting it right. the problem is if you're a person that tends to buy a lot of, say, big macs or you're an elderly person, you spend a lot on health care, or you're a college student where education is important to you, you're all spending a lot on prices that are going up a lot quicker than the cpi. >> richard, i'm going to have to cut it there, but i so thank you for taking the time with us today, and i want to every couple of months when you update, i want to invite you back. thank you. studio, back to you. and i will tell you this, folks, that in the end i get more e-mails when we do our cpi and ppi and don't find much inflation than any other issue, and the e-mails basically don't believe the numbers. back to you. >> rick, we just want you to send that chart over. that's a thing of beauty. thank you, sir. >> isn't it gorgeous. i did it free hand about 20 minutes ago. >> not bad. best in show. "consumer reports" giving top honors to a u.s. car for the first time in 20 years. we'll tell you who the winner is. plus bells are about to sound across europe. just a couple minutes left to go. simon will get you details on that when we come back. if you're serious about taking your trading to a higher level, tdd#: 1-800-345-2550 then schwab is the place to trade. tdd#: 1-800-345-2550 call 1-888-284-9410 or visit schwab.com/trading to tdd#: 1-800-345-2550 learn how you can earn up to 300 commission-free online trades tdd#: 1-800-345-2550 go. seeasit is to useive tdd#: 1-800-345-2550 our most powerful platform, streetsmart edge. tdd#: 1-800-345-2550 we put it in the cloud so you can use it on the web. tdd#: 1-800-345-2550 and trade with our most advanced tools tdd#: 1-800-345-2550 on whatever computer you're on. tdd#: 1-800-345-2550 also, get a dedicated team of schwab trading specialists tdd#: 1-800-345-2550 who will help you customize your platform tdd#: 1-800-345-2550 even from the comfort of your home. tdd#: 1-800-345-2550 and talk about ideas and strategies, one on one. tdd#: 1-800-345-2550 get all this with no trade minimums. tdd#: 1-800-345-2550 and only $8.95 a trade. tdd#: 1-800-345-2550 call 1-888-284-9410 or visit schwab.com/trading tdd#: 1-800-345-2550 to open an account. tdd#: 1-800-345-2550 and learn how you can earn up to 300 commission-free tdd#: 1-800-345-2550 online trades for six months with qualifying net deposits. tdd#: 1-800-345-2550 our trading specialists are waiting to help you get started. tdd#: 1-800-345-2550 so call now. tdd#: 1-800-345-2550 the european markets are closing now. >> european markets have closed. let's bring in simon hobbs with a look at what we learned today. >> the big story coming out of europe is that europe is bottoming economically or we think it might be bottoming economically. it's not borne out by what you see on the screen now. that's partly because there's been a very strong run on these markets, up 7%, 8%? just in just a month and there's a temptation to take profits. the other complicating factor is on the biggest day of earnings reporting on both sides of the atlantic, there have been disappointments from some very big blue chips. within power systems, within chemicals, within tires, and, of course, you will note credit suisse. those stocks are down. we had the coke effect playing out in europe. remember when coca-cola said because of the cold weather revenues have been affected. we're like are you sure? it's showing up in the beermakers. it showed up in sabmiller blaming the cold weather and it knocked onto rifle heineken. the biggest story is this question of whether the european economy is bottoming. today we have more indications that that may be the case. for example, you have second -- the gdp in the second quarter accelerated higher. the german and dutch business confidence indicators are higher. in italy the consumer confidence indicator is higher. spanish jobless has fallen for the first time in two years. we still have a problem in france. france is a major economy. let's move on, let me show you finally what that means for the treasury market if you like within europe which arguably would be the german bund. do you see what's happening here? there's a stabilization in the same way as treasury yields have risen here in the united states because the economy is looking better, so you finally see after a recent wobble that the german bund is also strengthening, selling off on the price. an indication, guys, we may, we may have bottomed on the european economies or at least there are green shoots. we'll betide anybody who sticks their head above the parapet because they will be wrong, they will be shot down, but i'm doing it anyway. >> brave man. >> there are some out there who disagree. yes. thanks, simon. crude continues to lose ground. we're back to $105. let's get a check on energy with sharon at the nymex. >> natural gas prices are lower as well after we got that supply data and that is because traders are more focused on the weather and the fact that temperatures have cooled a bit from the extraordinarily hot weather we had last week. so that's why we're seeing a bit of a decline in natural gas. we are seeing a decline in natural oil prices as well. we are looking at oil prices around $105 for the wti contract. a lot of traders saying some of the speculative longs are ready to get out now of this after we've seen such tremendous gains in the oil price and we haven't really seen any fundamental developments that will sustain those prices. that's what citigroup is saying. we may have further to fall here with oil. in terms of gold prices, $1,325, a very key technical level. it looks like gold is firmly above that mark. we're also watching options expiration and those options that are in the money today will be futures tomorrow. a lot of evening out going on, traders going in and out of positions. it looks like we're seeing a bit of a bid in the gold market. back to you. >> all right. thanks very much for that. just chatting here to bob pisani. there's so much going on. the sac issue, the issue with the sell-off. we're seeing 77 points. are they related? >> no, they're not, but interest rates are the major problem we've got. i want to show you a chart of the ten-year. i don't normally lead with charts of the ten-year yield but this is the week. notice this? we have been going up three days in a row. guess what the stock market has been doing? it's been going down three days in a row. this is the major problem that the stock market has got right now, rising interest rates. trust me and i know there's some issues with certain stocks on the earnings, but on the macro that's the big problem. talk about home builders. i spent the morning. pulte, d.r. horton, conference calls. the wlooin is thbottom line is missed on orders. the group is to the downside. let me show you how much they missed by. orders for pulte here were expected to go up -- put up the other one here. expected to go up almost 4%. they went down 12%. look at that. expected to be up 4%. d.r. horton expected up 25%, up 13%. these were major misses. d.r. horton and pulte just had conference calls. put that full screen back up here. d.r. horton did say that higher rates caused an increase in cancellations. how much? the implication is the cancellation went from about 20% to 25%. that's not insignificant. i know it doesn't sound like a lot but it actually is fairly significant and that's the major problem we've got. let's look at the itb. basically the home builders are difficult to invest in group right now. we're near the lows for the year. this is the big etf in the group. the reason they're near the lows, they have to decide whether this slowness will continue into the third quarter and whether the fed will step in. you think mr. bernanke will watch any slowdown in housing if one materializes. it's not significant yet but believe me, that's the problem people are trying to figure out right now for this particular group. let me show you tech stocks. we're doing good in overall numbers. qualcomm had great numbers, facebook had great numbers as well. finally just want to make a little bit of a comment here. let me move over here to you guys about what's going on overall with sac. the street is very worried about this. sac is widely believed to be 3% of the volume down here. >> i was going to ask because there are different numbers out there, but 3% is huge -- it's huge and it's not. it's huge for one firm but does that really make a difference, bob, in the aggregate? >> yes, it does. 3% is a large number down here and that's a major issue. business has been very, very poor in the stock trading business for several years now. >> mr. bob pisani knows better than anyone. thank you very much, sir. look at the builders. >> vice president fabulous fabffa fabtor back on the stand. good morning mary. >> good morning. the s.e.c. again continuing its questioning of mr. tourre. he's expected now to be on the stand probably through friday. the s.e.c. has to complete its questioning, then the defense gets to cross and you have a redirect. again, we're looking at possibly until friday that mr. tourre is on the stand. recent questioning focused on what's a famous e-mail he sent to his girlfriend late one night in 2007, and it reads, the only potential survivor at the fabulous fab, standing in the middle of all these complex, highly levered exotic trades he created without necessarily understanding all the implications of those monstrosities. when asked about this, tourre said it was a silly romantic e-mail i sent to my girlfriend adding he was very stressed that day. the s.e.c. is presenting this as to tourre's mindset. he's repeating it was a flippant e-mail sent late at night. he added three times, i did not create a monstrosity when questioned about the synthetic cdo in question called abacus. a bet on the housing market that netted john paulson a billion dollars whole those on the other side lost a billion. the s.e.c. is accusing mr. tourre of securities fraud. the s.e.c. questioning, as i mentioned, continues. there's a break at about 12:45 today. after that we're expecting at one point the defense will begin its cross-examination of mr. tourre. back to you. >> mary, thank you very much for that. let's send it other to josh lipton for a market flash. dow down 83 now, josh. >> hey there, carl. we're watching the first day of trading for onconova therapeutics. it's a clinical stage biopharma company. it's up more than 50% right now. kelly, back to you. >> huge move. mr. lipton, thank you, sir. for the first time in 20 years, a u.s. car has taken the top spot among all sedans. we'll tell you which car has taken top honors and we'll speak to the magazine itself when we come back. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good. ♪ [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] coming up top of the hour on the halftime report, sac under fire with new charges emerging from investors to the banks. we're covering every angle and facebook stuns the street with a huge earnings beat, but is it enough to get the stock back to its ipo price? plus, it's a rumble in the jungle. two traders take opposite sides on sam zon. carl, down to you. >> thanks so much. i want to switch gears and talk some cars. after 20 years an american car wins the title of best new sedan. "consumer reports" giving top honors to the chevy impala calling it the best new sedan. want to bring in jake fisher the director of automotive testing. good morning. >> good morning. >> you're making some history here and you say it's one more indicator of an emerging domestic renaissance. what sold you on this? >> well, the car really just -- it doesn't fall down in any area. it's well-rounded. it's basically a luxury car but it doesn't have a luxury car price. it's quiet, comfortable, quick, it handles well. it's got all the electronic features you expect but it's easy to use. >> 95 out of a possible 100 points. and you point out it's outscoring vehicle that is cost $20,000 more? >> yeah, absolutely. this car really doesn't make any compromises at all. you drive this car around and you believe you're in a top level luxury car. it's so quiet, it's so roomy, it's so comfortable. it really doesn't make excuses. >> jake, what have you gotten like a wink from the white house. do they want you putting american brands back to the top of the ranks? >> no. we put these cars through a battery of about 50 different tests. it's very objective. there's some subjective pieces of it, but you look at the metrics, this car just really scores just like the top cars. we're looking at the numbers. the car accelerates and brakes better than volkswagen gti. it has a better ride than seven series bmws. >> we should point out gm has not had hits across the board here, is not batting .1000. you gave some pretty low ratings to other vehicles like the lacrosse. is it more a story about gm doing things better or is it about making one really good car? >> actually gm is doing better and the whole domestic auto bemakers are doing things better. you mentioned the lacrosse. it's a similar platform but it wasn't quite all there. it had some really good things underpinning it. this car kind of takes it the next step and puts that roomy interior on top of it and it's just getting everything together and doing it right. >> jake, you know what some are saying. when you liked the tesla and gave that a 99, there's allegations of grade inflation, that you have gone soft, that you guys like everything. why is that not true? >> well, it's not true. you take a look at some of the cars we've been testing. there's a lot of cars we don't like. we just recently released information about the acura lx and that's not doing well. some of the cars we're testing, they do worse than the outgoing models. it's true on both sides of the spectrum. >> well, it's definitely eye-opening for anyone who has not driven it like myself, although i plan on changing that sometime soon. always good to talk to you. please come back. >> all right, thank you. it's been another big day for big movers. 3m, general motors and more moving, markets today. strategy. and my local scottrade office guides my learning markets . every step of the way. because they know i don't trade like everybody. i trade like me. i'm with scottrade. 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[ sighs ] did you say something? ♪ got some breaking news on a massive hacking operation that targeted morning a dozen major american companies. andrea day has details live in newark, new jersey, this morning. hi, andrea. >> reporter: hi, carl. as you said, this was so massive, we're talking about at least 160 million credit cards and debit cards. that information all stolen and prosecutors telling us these guys were so relentless, they would spend hour an hour, day after day hunched over their computers just to get all of this information. here is what the u.s. attorney had to say about all of it just minutes ago. >> they targeted some of the largest companies in the world stealing millions of credit and debit card numbers and causing hundreds of millions of dollars of losses to their victims. >> reporter: all right. just check out this list of institutions the men allegedly got their hands on. major intruthss, nasdaq, visa, dow jones, 7 -eleven and jcpenney. they were able to covertly remove the data. after that they'd sell all of this credit card numbers along with reames of personal information. just three of the corporate victims lost more than $300 million. they would sell this information on the black market. credit cards in the u.s., for example, a krord coredit card coming from the u.s. would go for 10 bucks a pop. >> the individuals charged and arrested in this case are the ones at the top, the ones who steal the data that they sell to the folks who cash out. by arresting two of the key players and identifying three of the others, we believe we have take an major step toward dismantling this organization. >> reporter: all right, guys, i want to read to you a little bit from the indictment because these hackers were very excited about discussing ways enjoying wet seals network. they say wet seal is a big retail place in the usa. the other one says, okay. and then the other guy says, how do i get a shell into wet seal so i can look around, too? even more brazen when these hackers got into nasdaq, they say, they're giving each other text messages saying nasdaq is owned. i'll send it back to you in the studio. >> andrea, one quick question, just looking through some of the potential sentences here, it looks like this bank fraud charge could be a major sentence. we're talking 30 years or more potentially, right? >> absolutely. yeah, this was such a big charge. these guys are facing lots of jail time and major fines. i think the prosecutor said two of them were in jail. the rest are fugitives. once they come in, they'll be very sorry that they were behind this big scheme. >> incredible. some big numbers and truly global operation. just the number of countries at play is incredible. andrea day in newark. thanks. >> now, despite today's big news on sac capital, some people still appreciate steve cohen today. we'll tell you who they are. "squawk on the street" is back in two. ♪ this is the pursuit of perfection. play is incredible. so you can capture your receipts, and manage them online with jot, the latest app from ink. so you can spend less time doing paperwork. and more time doing paperwork. ink from chase. so you can. at farmers we make you smarter about insurance, because what you dont know can hurt you. what if you didn't know that it's smart to replace washing-machine hoses every five years? what if you didn't know that you might need extra coverage for more expensive items? and what if you didn't know that teen drivers are four times more likely to get into an accident? 'sup the more you know, the better you can plan for what's ahead. talk to farmers and get smarter about your insurance. ♪ we are farmers bum - pa - dum, bum - bum - bum -bum ♪ in case you're just waking up and stuck in meetings, manger news. a u.s. indictment against the hedge fund sac capital which has had at its peak $15 billion in assets. bob pisani saying it could affect volume in u.s. equities by 3% when you take into account all the positions this major hedge fund has. keeping an eye on what happens now. >> i think one of the more instructive interviews was judge holwell saying in his view the indictment was solid, logical, and some of these arcane financial topics would not be difficult to get into the heads of a jury. we will see. >> a lot of things here as you look through the indictment making you question the amount of insider trading generally going on across the u.s. hedge fund space and also making you wonder just what kind of involvement there was from employees at companies who provided some of the information. >> it will be a big story tonight beyond the financial press. it's going to be a mainstream story on the news tonight and tomorrow. one more angle to the steve cohen saga that not a lot of people have touched on is the real estates angle. robert frank is here with more. >> his purchase of a $60 million beach home in the hamptons helped the hamptons record its biggest quarter ever in real estate. sales in the hamptons hit $1.45 billion in the quarter. that's up and the highest total since miller started tracking this in 2005. the big strength was in the entry level market. that's $1 million to $5 million homes. the average price $1.7 million. the high end, the steve cohen end, that did really well. he had what is believed to be the biggest purchase in the quarter. that was in march with the $60 million deal to buy an oceanfront home on further lane in east hampton. it's an upgrade since he already has a house a few doors down. it's right on the water. it's 10,000 square feet and seven acres. he hasn't sold the first house yet, so he has two beach houses. maybe one for him and one for his lawyers this summer. >> man, that's some amazing gains. historic gains. interesting story. >> makes you wonder about what happens to them now. >> exactly. >> more on the cohen angle this morning. kay kelly joins us to talk about the indictment even on vacation. >> good morning, carl. i'm calling in from the newsline. just some reaction from sac. it's been radio silence today but as recently as last evening steve cohen and his number two, the firm's president, held a phone call for staff members in which steve cohen said he is, quote, unquote, dismayed by the prospect of charges, criminal charges i should say, against the firm which, of course, then were forthcoming today. in terms of the mood there today, steve cohen i'm told is in the connecticut office. trading is proceeding as usual or as usual as possibly can be on a day like this. there is a sense of concern but not panic. employees there do expect to see departures in the coming months or a year. remember that the bonus cycle in this business is such that many people don't leave until the beginning of a calendar year so it could be another six months before we see the real impact on head count. but obviously some concern, and one of the concerns is whether or not wall street brokerage firms might reconsider their relationships with sac, carl, because who knows what the liables may be going forward now. i'm told that sac has assured everybody they're good for collateral and cash and we know steve cohen himself has $9 billion in the firm, but it remains a concern going forward. >> kate, any clarity at all on the conversations between the fund and their prime brokers, their bankers, those to whom they pay fees? >> well, i can only assume that they're being proactive today. i know that going into today and the possibility of charges which were telegraphed in the media about 36 hours ago, there was every effort to make people feel comfortable that the firm was still liquid, that it would be as much businesses a usual as possible. i also know sac believes it was faithful to wall street during the tough times of 2008, continued to maintain prime brokerage relationships at that time even when banks like bear stearns were struggling to hang onto cash. i think they're hoping there's some goodwill there. >> kate kelly, we're sorry to bother you on vacation but we're glad you were there today. talking about the cohen indictment which, kelly, has taken some of the spotlight off earnings and probably not for the better because there's a lot of news we just couldn't get to today. >> there's multiple cases here. the case against sac, the case against cohen himself, and the arraignment which we understand will be tomorrow morning. >> we're watching the home builders. transports not acting well. let's get to headquarters. melissa lee and "the halftime." . welcome to the halftime report. i'm melissa lee. we're all over the story of the day and that is the u.s. government announcing criminal charges against hedge fund sac capital. preet bharara will be speaking at a news conference in just about an hour's time. bertha coombs is there live with much more on the story. bertha? >> melissa, steven cohen is not named directly as a defendant, but he is the owner of sac

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