volatile day yesterday on good volume. energy retreating as opec cuts its demand forecast. >> yum brands problems continue in china. cutting their profit outlook for the second time this year. >> costco out with earnings, beating estimates. stock's up more than 20% this year. looking to add to those gains today. oil prices sliding again this morning, close to some new multiyear lows. opec cutting its demand forecast to below 29 million barrels a day, more than a million less than the cartel is currently producing. it's actually a 12-year low, guys, on demand. goldman out today saying the tax cut that consumers are getting, not 75 billion like they thought. now after that opec meeting, it's going to be $125 billion. >> well, look, it's remarkable for 317 million americans. there are many companies that when we get to 50 then become different in that they're not as positive because there's some companies that rely on fuel conservation as a major business. they will not -- you will not want to conserve fuel as much because the price has gone down. i know we've looked at some of the companies and some of the debt that could be in trouble, some of the business development companies that could be in trouble. so there's a little bit -- there's a much more positive spin. i'm not trying to be a downer. but as it goes down, there are other people who will be stressed that you'll be hearing about. it's still important to keep that in front of you. >> there will be pockets of great distress conceivably as you point out. high yield, 18% of the high-yield market is made up by energy. that's already been taking it very hard over the last few weeks. to the larger point, which was in a goldman report recently, the only other two times you've seen oil fall like this not related to demand destruction, you've seen a much larger acceleration in gdp the next year. >> yes. and that is going to happen. >> when you think about retail and going into next year as we are and the comps and the bad weather we had, i mean, you could imagine we're going to have some pretty decent numbers, one would imagine. not to mention, we're still finishing off sequestration last year also. our gdp numbers, who knows. >> those who do not know own individual stocks but can do 401(k)s where you can do small and mid cap, you must overweight those because they're largely domestic. it's just a very basic american company. that is just going to do so well in this environment. >> some strategists are worried about s&p earnings. you take energy earnings and cut them by a third, right. this dollar strength, they argue, is just getting started. we're going to see more mcdonald's-like announcements in the coming quarters. some are saying 3% maybe on s&p earnings for 2015. >> 13% directly back impacted. i'm trying to do some numbers this morning where 4% or 5% will be under stress. we have 34 states that are pure takers of energy. they're just takers, period. when you get that phone bill down, which will happen, that gasoline comes down, it's fabulous for small business. it's fabulous for anybody who commutes. those people are going to spend. opec has been a huge tax on america for a long time. yes, it's true, we're going to produce up to 10 million barrels maybe in the next 18 months. we'll be more energy and self-sufficient. try as i might to be able to talk away from the distress, the potential pin square, big lender in the '70s and '80s. it's just a positive. i know you'll see the airlines up. why was spirit down so much? because you don't need to have new planes. gas guzzler planes, which have been retired, you can buy a bunch of those and create a new airline with the umbrella fares that are so high. there's an industry i know the barclays note says, why aren't they up more? the answer is because the three of us could go buy some older plae pla planes and with this pricing umbrella do it. boeing really does better between 80 and 120 than it does down here for oil because you don't need necessarily those planes. as great as boeing is, you're saving 20%, say, on fuel. well, you know what? it's not as imperative with jet fuel down so much. >> right. finally, something you did say, which is new energy type plays, whether it's solar or wind. if you're in that business right now, if you're an entrepreneur, out there trying to raise money, it's getting really tough. >> i had david crane on last night. he was saying there really is this great disconnect. we're going to be putting solar panels on every roof and people are saying, wait a second, oil is coming down. very few people in this country still use oil as heat. mostly new england where there isn't going to be that much solar anyway. that's the one place where solar really doesn't do well. if tesla is going to be a gigantic company, you'd like to see oil up more. solar shouldn't be impacted, according to david crane, but it doesn't matter. >> and they're a big company. those who are smaller who are not necessarily public who are relying on venture capital, on -- that becomes a much more difficult proposition. >> at the same time, if you're a small business and have four trucks and you're not able to pass through that gasoline, suddenly your quarter is looking good, you buy another truck. >> meantime, yum lowering its current year profit guidance for the second time this year. the parent of kfc, taco bell, and pizza hut citing a slower than expected recovery in china, where the company has been hurt by a food safety scare. they're expecting an eps growth of at least 10%. that's well below wall street instrument estimates. >> david novak, who's retiring, they have a new guy coming in. greg creed, he's from taco bell. he dealt with the 2006 e. coli scare very well. my understanding from greg novak is that's not going to occur. >> say that number again. >> 20% same store sales. >> 20%. >> it suddenly makes mcdonald's look a lot better. here's the problem with all of this. when you sit back and you look at what the analysts say, does anybody -- other than clsa, no one really downgrades. the stock has bottomed 69, 70 almost each time. it's bottomed on the breakup analysis. again, david novak, who i've been close to over multiple years is saying that's not going to happen, that's not a good reason to buy this stock. >> i wish i had a better understanding of why it is they have the adverse publicity, as they say, from july. july is a long time ago at this point. yet, sales have not rebounded the way they thought they would. china is a very different place. you can't go in with assumptions you might have how things work here. they work differently there. >> i'm going to default to the way howard schultz handles starbucks. when howard schultz goes to china, he has parents day. he invites parents of the employees in. he spends a lot of time at a grassroots level. kfc will say they do grassroots too. starbucks wasn't hit by a scandal, but the chinese government, as you have explained, david, many times, does have its favorites. i think kfc is not a favorite anymore of the chinese government. and that makes it much more difficult to tell a positive story. >> also, the mind set of the food supply over there much different than in the united states. it's very hard to understand. >> for the longest time we did feel because it's american, yum was therefore safe. obviously, yum did everything it could. yum is not trying to buy crummy supplies. >> when you go over there, as carl and i did recently, and you see the pollution in the air, it also begs the question, where is my food coming from? where is all this stuff falling? where are they growing whatever it is i'm eating? >> you have dead pigs in rivers in major cities. >> i want mres from the army there. i want those meals ready to eat if i'm going over there. >> it freaks you out. >> one thing that's not freaking people out, costco's numbers. fiscal first-quarter profit $1.12. that did beat forecasts. revenue essentially in line. comps better than expected. 7% in the u.s. once you take out fuel. expenses were really the only issue. 8%, pretty much in line with sales. that's going to be an all-time high. membership fees, now 589. >> they raised the price of fees and had an increase in the number of members. i think the important thing is the consistency here. they all added apple. there is a sense at costco of the great treasure hunt. let's not forget while some costs may be up, this has the least rollover. when you go to costco, it's the same people that have always been there. it's really incredible. they greet you as if it's a small merchant. they've created an ambience that justifies this. >> stern today says no reason to jump off this train. >> there isn't. >> when is? yesterday you were saying take some profits, enjoy your bounty. >> i'm never against taking profits, but i'll come back the other way. we did take a big profit, but we left money on the table. costco is the superior retailer in america right now, with much more room to add stores. plenty of growth, fantastic management. i think it's interesting they pay their people almost more than any publicly traded company in retail. i know container store may disagree with that. but they're not having the success costco is. >> gros margins, 20 basis points to the upside. >> did you guys shop there? >> yes. >> then you know. when they have -- you will see brands there that shouldn't be there. i mean, it's really incredible. i think that also undercuts the actual -- the merchants, they have no choice. they have to be in costco. you'll see fabulous italian designers. you'll see amazing ties. an amazing story. >> it's been the source of litigation in the past where merchants say, we don't want to be associated with your brand, but costco finds a way to get ahold of the goods. >> and they don't even make that money on tvs. we talked about amazon breaking price. the 70-inch tv, which i still don't understand how you carry that thing out, they're selling them like hot cakes. >> when we come back, mark cuban fires a salvo at alibaba. and later, instagram's ceo. one more look at the premarket after the nasdaq staged its biggest intraday reversal yesterday in two months. more "squawk on the street" from post nine in a minute. you can bring back a lot of things from a trip around the world. but you can't always bring back customer data. because many customers don't like it when their data moves around. can i go now? if you're going to do business globally, you need a cloud that can keep your data where it needs to be. today, there's a new way to work and it's made with ibm. it's been almost three months since alibaba debuted here at the big board with the biggest ipo of all time. yesterday on "closing bell," mark cuban told melissa lee alibaba shouldn't have been allowed to list in the u.s. take a listen. >> should the s.e.c. have turned alibaba away? >> yes. >> they should not have been allowed to list in the u.s.? >> no. this is just my opinion, but if you're hosted and based in a communist country where the only rule of law is what the communist party says it is, how can you enforce any type of law at all? >> it's an interesting point. i don't know if cuban is who -- by the way, i respect him greatly and always love to listen to. there's always been a lot of concern, if you will, in these variable interest entities. so-called vie structure, which you need to do basically because the communist party and chinese government regulations restrict foreign ownership in the sector. what you end up with is the rights to the revenue of the underlying businesses through contracts, but there's always been a question as to whether that's going to be long-term enforceable. that's why when we talked to jack ma, i asked and he makes point of saying, you have to trust me. that's true, there is that larger issue there. again, everybody believes it will be the case. but the vie structure, which is not -- it's an important part of the revenue, not the bulk of it. nonetheless, is something akin to what may be cuban's referring to. >> i love cuban. he was on one of my "mad money" shows when we went to indiana. he's thought provoking. the s.e.c. has allowed a lot of junk to be approved, including some of the worst companies from china. you had nothing. i think the precedent that s.e.c. has set makes this one look a lot more understandable than a lot of the chinese junk they have allowed. makes it very hard to fight the listing. the s.e.c. has rubber stamped companies out of china for years. >> well, the reverse merger boom, which we reported on. greenberg did a very good job on that for a long time. it provided endless opportunity for hedge funds to short these stocks. it's sort of run its course. that was shameful. >> meantime, jack ma is not "time's" person of the year, but they have a short list of five. he is number five. a reminder of the pressure he's under to demonstrate that china is capable of cultivating capitalists in one form or another. >> he might buy "time" after this. >> he could do that with the change in his pocket. >> what's the market cap of "time" these days? i think he could do that. >> i like who "time" picked. the ebola fighters, those people are incredible. those are our angels. those people are angels. jack ma may have an angel on his shoulder, but those people are, well, let's say -- i don't know. >> did you read that story about it in the "time" this weekend, the guy who got ebola and wants to go back. it's incredible. >> when we come back -- oh, by the way, we have a new multiyear low on crude. west texas dipped below, if you can believe this, dipped to 61.97. we're now below $62. that's the lowest since july 17th of 2009 when it got to 61.04. >> extraordinary. >> just continue to shake your head at that. we'll get cramer's mad dash as we count down to the opening bell. one more look at the premarket. more "squawk on the street"s, back in a minute. (vo) watching. waiting. for that moment, where right place meets right time. and when i find it- i go for it. (announcer) at scottrade, we share your passion for trading. that's why we give you the edge, with innovative charting and trading features, plus powerful mobile apps so you're always connected, wherever you are. because at scottrade, our passion is to power yours. all right. it's hump day, baby. >> wow, david. there's a new world here in some very stable stocks we've known. at&t and verizon. citi today says at&t could trade down to $30 where it would yield 6%. that's pretty staggering because this is a stock we're all used to not having big volatility. sprint goes to underperform. they're saying it sells at 8.8, twice the premium of the other carriers. so it looks cheap, but it's not. the spending here that's required because you've got to keep up with these price cutters is maybe as monumental for your phone bill as it is for gasoline. >> we talked about it yesterday of course with verizon weighing in, with the good and the bad. but that word being promotional activity and the cost that is associated with that. i come back to the justice department here saying sprint and t-mo not going to happen. on that one, maybe they got it right given what we've seen in the marketplace, how aggressive t-mo has been and the aggressor, perhaps surprising. softbank controlling 79% of sprint as we know. but you're right, jim. this doesn't seem to be going anywhere but getting more vicious. >> yes, now, at t-mobile they've raised some capital too in order to be able to keep up. >> i talked to a couple of their investors who said, great, the company said we want to access new lines of opportunity for borrowing, for getting money. well, you know, the point was made, you could go to a loan shark, too, if i wanted to, but i'm not going to pay 25%. some people questioning why they chose to do that. >> opco says they're even talking about the tower stocks being under pressure. yes, these companies are raising money, but they're spending. >> who's the winner, except for the consumer? is there any winner in the market? >> the consumer. >> that's it. >> maybe you could argue if apple continues to be subsidized. they came out with their ibm, osm applications. yes, david, it is the consumer, like gasoline. these are all set up for good q-1 for the consumer. >> the only other answer i can come up with is those who own spectrum. maybe worth as much as 54 billion. then dish. >> dish is a big winner here. i should have immediately pointed that out. you're close to them. this is a remarkable situation because the stock has been a huge winner all year. >> it's true. it's been an incredible winner. blown out because of the incredible numbers we're seeing in that current auction. if it gets so high and these guys are capital constrained, what's he going to do? he can't sell it. nobody is going to be there to buy it. >> deutsch telecom, these are so deep pocketed. it isn't like the old days where verizon and at&t could spend these companies out of oblivion or get t-mobile to be sold. the justice department really did save them money for the consumer here. >> so interesting. i got to spend more time. >> you've got the best sources there is. >> all right. that's our mad dash. we still got that opening bell just a few minutes from now. stay with us. we're back after this. hi. pete and jon najarian here in new york city outside of the nasdaq, where we bring you live daily market updates. and today, we have a very special free gift for you. so many viewers e-mail us wanting to know our secrets on how we trade options. so we put our secrets into a new book. and if you're one of the first 250 people to call in right now and just cover shipping and handling, we'll send you a copy for free. look at the rate of return we've made on some of our recent options trades, versus what we would have made had we just bought the stock. there's no comparison. to make the best returns in today's market, you have to learn how to trade options. and our book will show you how to do it for free. jon has been trading options for more than 30 years. pete is one of the top 100 traders in the country. and our book will teach you how to trade options for free. so call now. 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(see the number on your screen) call now. you're watching cnbc's "squawk on the street." the opening bell in about 90 seconds. s&p on track for a third day down if you believe what the premarket is telling you. that big dip in the dow yesterday, jim, best nyse volume of the month so far. >> very interesting because that nasdaq turnaround which you mentioned was really rooted in a couple of the highest growth stocks. it's funny. tesla is a leader in that group. when oil came back, tesla moved up, which then triggered a lot of buying in some of these stocks that i regard as being cult stocks. i want to see which one continues. the nasdaq rally, which was going right into the bell, or the dow selloff, which made a nice recovery but got hit. i'm looking at a couple stocks. i want to contrast these domestic versus international. international is quite weak, but the domestic companies just start flying around noon every day. they just start flying. >> hard to ignore. apple in the context of the nasdaq, which did end the day in the green after a rough week or two. >> i want to know more about the ibm, the ios operating system. that combination, i think, could help both companies. it's important to watch. >> let's get the opening bell here and a look at the s&p at the top of your screen. at the big board this morning, internet phone company vonage doing the honors. at the nasdaq, "top chef," the culinary competition series. >> i like those shows. i don't know why. >> some family members, my son in particular, loves those. >> when we do our barbecue bake-off, we all just know. everyone is involved in this. it's much more exciting than people realize. if you don't cook, you don't make ribs, you're thinking, what the heck? >> still fun to watch. >> airlines are going to be the star at the open. southwest is up 2%. we mentioned the barclays upgrade of ual and american. some might ask where they've been, jim. sector is up 40% in 12 months. >> barclays did also say, listen, the group is underperforming of late, so let's get involved. i come back to this notion. the competition, you need oil a little higher for these guys. the gross margins would be great. but you will begin to see startups. it always happens when those older planes can be valuable. so let's be careful there. i still think the numbers are going to be huge. i'm saying the price multiprles are not going to expand like you would expect. >> a bit of a costco halo. walmart, kroger gainers at the beginning. >> kroger has been the untold story. we had the ceo in a time ago. everyone had thought the stock ran out of steam. a bit of a whole foods within kroger. they were the most aggressive for the natural and organic. yeah, there's an umbrella. what can i say? these are just gasoline plays. you spend more money at kroger. you just do. if we were talking about a gigantic -- what was your figure? the figure you gave about how much we're all saving. >> $600 million a day. >> i keep thinking, what if the president and the republicans got together and announced a tax cut equal to $700 million a day? we'd be buying stocks hand over fist. we'd be buying walmart. guess what? it's the same thing. except for it doesn't upset the debt picture for the government. >> no, there are some people who argue we should now impose some sort of a tax on gasoline to help for the infrastructure, which we are in desperate need of in this country, in terms of improving our infrastructure. >> how many people would it take to clean the canal to make it, you know, like venice? >> how about we start with the streets and the sidewalks in new york city? can we start there and then get to the canal? >> you see certain streets and fix the darn potholes. >> i'll just go around picking up litter by myself. i'm all alone out there trying. looking at some of the stocks we were just mentioning. not a big move here. verizon down yet again. at&t about the same percentagewise at this point. maybe the moves down have abated. yesterday they were the leaders -- amongst the leaders on the downside. >> did you see the way the banks came back? >> i did. >> mike corbeck coming out saying we're going to have a terrible quarter. stock is down $1.55. then it rallies. >> being singled out to a certain extent for having to increase its capital. this is not happening tomorrow. this is over years to come. they're all well capitalized. >> this felt more like the fort. every man must do his part. >> but it gets to this larger issue of are they trying to prevent or force the banks in a way to become smaller. >> it does seem like there's the smallest element to this. jpmorgan's balance sheet is fantastic. they have the greatest balance sheet. why do i keep my money? in the absolute depths of the scare, i never worried about my money being at jpmorgan. it did cement a little bit, well, we don't like how big this bank is. this was a little bit over the top, versus what jpmorgan did. >> this new pricing plan for t-mobile, $ 100 unlimited data, texting, talking, 4g lte. that's 49% off. and there's more to come. >> i'm going to have my daughter -- we're on this big family plan. i don't know. just make me an offer. i can't refuse it. my phone bill is gigantic. i'm not kidding, guys. >> give me a ballpark. >> it's too obscene. >> is it really? >> just an obscene bill. i know the obscenity could be cured. >> are you watching a lot of live sports programming on your phone? what are you doing? >> i have what's called kids. kids do not respect -- >> so they're still on your plan? >> yeah, it's kind of like how the federal government -- >> is the cutoff 26 like health care is now? isn't it 26 for the aca? >> i sure hope so. >> you're not there yet. >> no, i did get a 4:30 a.m. text from my daughter. that made me feel like she's studying. >> that's why you pay the bill. so they'll text you at 4:30 in the morning. >> i think that's terrific. she said, why are you up? she's looking at me on twitter. i said, i have to work even harder. i've had some articles. the idea i don't have to sleep could really make it so that -- >> it would be nice if you could do away with that. >> sleep is such a drag. >> sleep is very important. >> not if you're trying to work, my friend. >> yum is down 5%. burger king up 1% on that upgrade. mcdonald's down again to 91. >> i'm calling timber on that one. >> in what sense? >> in the kesha, pit bull sense. we feel the 4% level is not going to go below. i still can't believe the activists at a certain point don't just say, okay, burger king has made moves and it's right. yum is doing things we think behind the scenes. i don't think so, but a lot of people do. what is mcdonald's going to do in response to turn around? wendy's was very challenged. burger king was very challenged. why are they doing so much better? i believe something has to happen there. it's not just going to be that suddenly they're going to start doing tofu burgers. it's not going to happen. >> "fortune" has a piece this morning looking at the construct of mcdonald's board. it's older than other boards, more insular. the relationships between directors more connected. >> that's the beginning. when you start seeing mainstream press going after a board, this is going to change things. >> but you have to have an activist who has an opinion on how you would operate the business better. not sure on the capital structure, which is often the weapon of choice for some of these activists, what it is. >> you have to be a little creative here. they don't necessarily -- >> that's the old ackman move. he's already visited with mcdonald's years ago. >> i think the idea that a company looks like it is and therefore always has to be like it is is wrong. mcdonald's created chipotle. they can do things. >> burger king is the 3g guys. they're well known as good operators. >> it doesn't have to be the way it is, mcdonald's. that's why the trust owns it. you're being paid to wait for something good to happen. maybe nothing good happens and you still get that yield. but the balance sheet is still there. mcdonald's has that unbelievable food lab. can they not come up with a simplified menu we all like? >> you got to convince franchisees, 14,000 restaurants. it's got to be done at scale. and you got to make it quick. >> it feels like the typewriter. wow. >> pouring it on today. >> i am. >> everybody get down. >> when i bring in the woman who has a dollar sign for an "s" -- ♪ ♪ i'm going timber >> how did you know that? >> i got kids. make me listen to pop music. >> dow is down another 72. let's get to bob posani. >> hey, guys. good to be back. half of that decline, 30 points, is chevron and exxon. all the energy stocks are down. there's all the big names to the downside here. airlines doing better. airlines are going to make even more money than they thought back in june. they're talking almost $20 billion in profits. 18 billion in june. they're talking 25 billion in 2015. the airlines are up. we had some upgrades over at barclays for ual and american. jetblue had some november metrics. all around, pretty good day for the airlines. you guys were talking about costco. the numbers are just terrific here. 17% above the same period last year for their earnings. gross margins were up. lower gas prices helped the margins. fee income was up 6%. these are great metrics. look at the stock here. it's taken off in the last four or five months. 125 or so. now up 145. here's the problem i have with costco. it's expensive. look at forward earnings projections right now. we're at 27 or so on costco. this is a problem with a number of these consumer names. they're all expensive. target is at 22. home depot at 22. so costco is not alone. kroger is relatively modest. walmart is only 17. that's a real modest one overall. i think this is a bit of an issue for a lot of these stocks going into the end of the year. speaking of the end of the year, we are pushing ipos. this is it, folks. this week and a little bit of next week, they're going to try to get a number of big names through. the big one tonight right here at the new york stock exchange. lending club. this is the biggest peer-to-peer lending service. 57 million shares. the price talk was 10 to 14 just a couple days ago. consumers like this peer-to-peer lending because they can consolidate their higher credit card debt and investors like it because there's a wide range of investments. they don't -- they take a fee on the origination. investors buy into it. depending ones risk profile, you can get 7%. i've seen as high as 30%. there's a lot of interest in this as an alternative to high-yield investments. the problem, of course, is that there's not a lot of recourse in case those consumers default on the loan. that's the risk you're taking. but there's a lot of interest in peer-to-peer lending. there's another one that's going to be going next week. on deck capital. i'll be talking about that as well. on the nasdaq tonight, one of those chinese mobile based social networking platforms is going to be going. alibaba owns 20% of this. 16 million shares. 12.50 to 14.50. a lot of interest in social-based networking platforms. the problem i have is they're getting crushed. i'm not sure exactly why investors have lost interest, but they started out strong. this is a new low. just started trading not that long ago. cheetah mobile, that's another one. that's got to be down about 16% this month. for whatever reason, we're seeing these social mobile networking platforms start strong and fading in the months since the two biggest ones have been public. back to you. >> thanks very much, bob. that's interesting. yesterday had a chance to sit down with a number of ceos of major media companies. it's been a tumultuous time for those who create programming, buy programming, and not to mention those who distribute it as so much change is potentially out there. not necessarily a bad time. one certainly with a great deal of opportunity but also risk. i spoke to the chairman and ceo of time warner, for example. a company that produces an enormous amount of content and also buys a lot for its hbo unit, for example. i asked, well, you know, given how much need there is for high-quality content as they say from hbo, from starz, from netflix, from amazon, from so many, is the price going to go up? >> the demand for program good series is going up. we can make the most of that. we're the biggest producer at warner, turner, and hbo of that. that's a driver for us. but it's not like sports. it's not a limited supply. if you look at the number of great tv series that are out there, there's twice as many as there were five years ago. >> so the producers of content are making more of it, hence you're not going to have this incredible rise that we've seen for those who pay for sports programming, such as what tbs had to pay or tnt for the nba as we know. although, we don't know exactly what the numbers were. spoke to david zasloff. we talked a lot about the current ad market. he had a lot of salient points about what they're seeing the discove discovery. raising that bigger question of, is market share starting to move to digital platforms because advertisers believe the efficacy is there? that said, as you might imagine, he comes back as so many of these guys do to the fact that, in his opinion, content is king. >> for the next few years, i think there's probably never been a better time. if you own your content and if it works around the world, to be in this business. the directional issues of the impact of digital and the impact of platforms like netflix and how people watch linear, there's no question that those are going to have an impact. but if you have great content and great stories and you own it, then you could take advantage of that content in every ecosystem. >> also spoke to chris albrect, the man who runs starz. you're talking about a subscription service that is gaining. a question there as well is, well, how are you going to keep growing and what about over the top opportunities? he approaches it by saying, you know what, there's 50 million broadband homes that don't pay for a premium channel. he sees that as an opportunity. although, it continues to be not completely clear how you get there. >> it's not a binary world. most of the people that have premium have netflix. it's nont an either/or. most people have more than one premium. the opportunity for us is the opportunity for our distributors, which is to get these high-value products, these premium channels to potential customers, to new customers in innovative packaging. >> so a little bit of a rundown of yesterday's interesting conversations with a number of those guys who are grappling with so many of these things we talk about here. >> these were very -- i wish i could get those good interviews. these guys are very forthcoming to you. congratulations. these relationships are built up through multiple years. i found it very eye opening. i tend to think, i read all these stories and if they're cord cutting, how do -- really, 50 million as a target mark explains why you continue to see these cable companies. >> and if you get the distributors coming up with creative approaches to programming. all right. let's move from all this to the bond pits. rick santelli joins us from the cme group in chicago. rick? >> well, thanks, david. if you look up at interest rates right now, highly unchanged. but a two-day chart shows you what's going on. yes, rates are unchanged, but they're at a lower level, not bouncing, we're not seeing a lot of big selling coming in. at the beginning of the year when rates started to fall from the highs of the year established in the beginning from over 3% in tens, it was weak equities. we have a bit of that. relative value trade in europe, we have a bit of that. nervousness about global economics. open the chart to mid-august, you can see where the market seems to be headed. 30-year bond wins today. it is, of course, leading the pack on lower rates. that's called curb flattening. haven't seen closing 30-year rates at this level since very early may of 2013. let's look overseas. let's look at bunds. 20-year chart, you won't find a lower one. let's go to jgbs. they almost breached the 40-year basis point level. won't see a lower rate on that chart either. now, fascinating. you know a water balloon? you squeeze it, it pops out, no matter how you try to contain it. keep that in mind when you look at the nikkei. best levels since july of '07. what about the dollar/yen? seems to be at the worst levels, meaning the yen, since the same period. you let the value of your currency go down, your equities reflect that. but not everybody shares equally in that. july 25th is the last time the dollar versus the yuan was down at these levels. there was a bit of a bounce by the chinese currency. watch this trade. it's important. carl, back to you. >> thank you, rick. want to get to brian sullivan at hq. has breaking news on insider trading, i believe. >> yeah, in fact, carl, this is a biggie. this is not only a case that reverses the fate of two former hedge fund insiders but also could change insider trading laws and prosecutions going forward. okay. todd newman and anthony chase were convicted of insider trading in may of 2013. their convictions have been overturned by an appeals court in new york. basically, the chaase goes like this. they were convicted of receiving insider tips on both dell and invidia. in reversing the lower court's ruling, what the upper court said was this. there was no knowledge that these two knew where the information was originally coming from, and here is the key, guys. there is no evidence that the initial tipee received a benefit. the judge making a point. i'm going to read it here to get it exactly right. here's what the appeals court said. the government must prove beyond a reasonable doubt that the tipee knew that an insider disclosed confidential information, that's the basis, and, this is key, that he did so in exchange for a personal benefit. here they said these guys did not know where the original information came from, and there was no benefit derived. so i know, you know, guys you're sitting there jim kraim we are his harvard law degree. this is a biggie. okay. i'm getting yelled at. back to you. >> don't get yelled at. this is a big story. >> it's a jgigantic story. i'm sorry to continue talking about it. >> this was a key part of the convictions of these two gentlemen that we're talking about here. this chain, this long chain of information being that those who received it may not have actually known from where it originated and not having received a so-called benefit as a result is key. people have wondered whether these would be overturned. certainly in the case of newman. >> and the record had been so spotless. this is basically saying, listen, maybe you're overreaching. >> when we interviewed him at delivering alpha, we spoke to him specifically about this. he didn't entertain it too much, but it was a real risk to his record. >> i'd love to hear what he has to say because i think there are people who will use his defense coming forward. >> as if it wasn't hard enough to prosecute as it is. very difficult crime. when we come back, julia boorstin's exclusive interview with instagram ceo kevin systrom. the dow down 109 points this morning. 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cloud-based companies that are customer service related in the case of data. service now is a remarkable company from enterprise software. these were the yesteryear stocks that cratered in march. watch those as tales we repeat yesterday's comeback. that's what i want to see. because these mornings have been false tells for a lot of the stocks in the afternoon. >> people say the same thing about a go pro, loco, or crazy chicken, as it gets called on twitter. >> that's been remarkable. 52-week high yesterday. domestic on fire. >> all right. what's on "mad" tonight? >> we have pet fresh, which is a company that makes food -- fresh pet, i'm sorry. they make the food that looks like human food that -- my dog didn't like it, frankly. don't count me for taste. my dog likes ligaments, cow ligaments. then isis with a big breakthrough. fresh pet has the food that looks like it's in refrigerated cases can and looks look boar's head. >> it's meant to appeal to the owner of the pet as opposed to the pet? >> some dogs like boar's head. >> overall, jim, the tone, cashen was on yesterday and said even though the seasonals this time of year are generally good, this is the least good of those weeks leading into the end of the year. >> you have some big-cap stocks that i think it's bifurcated. if you have domestic, retail, oil, and gas, costco will be your umbrella today. restaurants will be great. we're bifurcated. people are trying to figure out what to do with china, what to do with europe, whether the numbers come down off the dollar. there's a little more confusion. at the end of the day, i think there's more companies that benefit from oil being down, and that's why the market has a bit underneath it. i'm not fretting this. by the way, i think if you look at jpmorgan, this is -- that story had real impact. i think that story about the $22 billion hole -- again, i question whether that story is necessarily the way you should view jpmorgan. but the banks were the leaders in the turnaround yesterday. watch those along with service now and tableau. >> among the worst dow performers along with exxon and chevron. >> stanley fisher, who's just a brilliant man. 22 billion capital. that story jumped out at me. >> see you tonight. >> okay. thank you very much. >> simon is here to tell us what's next. >> so many questions about energy and shale in this country. financier john raymond will join us in the next hour of the program. we'll look at costco. the beating on the top line, the sales obviously an issue. we'll also importantly have tom lee here to work out what will do best in 2015. second hour of "squawk on the street." here's some news you may find surprising. we're for an open internet for all. we're for creating more innovation and competition. we're for net neutrality protection. now, here's some news you may find even more surprising. we're comcast. the only isp legally bound by full net neutrality rules. welcome back to "squawk on the street." i'm carl quintanilla. take a look at the markets today. dow is down 112 after that attempt at a comeback yesterday. a lot of this being driven by oil. once again, a new multiyear low. we were below 62 on west texas intermedia intermediate. the financials not helping matters. jpmorgan and goldman sachs also near the bottom. >> let's get to our road map this hour. stocks extending the week's losses as both brent crude oil and brent hit multiyear lows. >> yum brands cuts its profit outlook. >> costco beating estimates, building on its more than 20% gain this year. >> julia boorstin sits down with instagram's co-founder and ceo kevin systrom. you don't want to miss that. first up, costco delivering a nice earnings beat. a boost in same-store sales and membership fees. let's bring in chuck grom to talk about whether or not this is the time to sell. good to see you again. >> how are you? >> i think your headline was, no reason to jump off this train. why not? >> why not? the top line is phenomenal. traffic trends remain very good. this company has a lot of you want a growth ahead, particularly on the international front. the margin outlook is extremely bright, as we saw this quarter, posting their best profit margin ever. they've got a lot of dry powder to buy back stock. where else can you get that in retail, carl? we like it. >> we had a discussion when they had their comps out for the month a couple days ago about what point gas margins really begin to bite. when is that? when does that happen? >> well, for costco, when gas prices drop, they actually make a lot of money. we think that was probably a few pennies of upside here in the quarter. if gas prices continue to fall, which we think they will, into the first half of next year, the profitability and the margin outlook for costco is extremely bright. what's interesting here on the gas price drop, historically costco would see their prices drop when gas prices fall. their volume is actually accelerating. they're getting a double benefit on that front. >> i guess to carl's question earlier, obviously the stock has been in an uptrend. you mentioned you can't see those comp store sales anywhere else in retail. is the strategy next year to stick with the winners after such a strong run-up in the stock? why not look toward a target or walmart which has so much more scope for growth, just starting to see positive comps and some improvement in the underlying sales trends, whose stocks have not been the strong runners like costco. >> yeah, that may be the strategy for some. for me, i like to find retailers that have good traffic growth with good store growth. if you look at walmart and target, their comps did improve, albeit modestly, say 50 basis points up, which isn't that much. and traffic trends for both of them was still negative. i just would prefer to stick with the winners here. i think costco is a much better model with a membership fee relative to the other two at this point in time. >> you think they have room to hike their fees once again, chuck? >> the membership fees? >> yeah. >> yeah, i mean, i think in the next couple of years you'll see costco raise the membership fee. typically every five years they'll raise it $5 on the gold card program and another 10 on executive. i think the more compelling case for costco, one thing we want to hear from them on their 111::00 conference call is what they're doing with their cash. they're underlevered. their yield is only 1%. much lower than the consumer staple peer group. it's time for the board to step up and start returning more cash to shareholders. that's the missing ingredient. >> i'm trying to remember, i don't recall them being a classic buyer of their own stock. are they historically? >> they're aopportunistic. we don't think they bought back a lot this quarter, but like i said, they've got a lot of cash. they can self-fund their growth. there's no reason for this company not to have a better dividend. two years ago they did the $7 special div ahead of the tax increase. to me, that's the opportunity. >> the few people who were trying to quibble with the quarter look to expenses, 8%. i know they're trying to invest in some technology, get the lines down at the cash register. does that raise any questions for you? >> i mean, there's always going to be some one-off things in the pnl. 30% of costco's business is outside the country with the u.s. dollar being stronger. there was a little bit of an fx head wind on sg&a. i think it's hard to find too many issues with this quarter. it was a clean quarter. gross margins led to the upside. >> you know, i'm looking at some of the consumer staple names in stocks wondering who is riding this costco success story. you can look at the different categories. they sell everything from deli to hearing aids to apparel. where's the real growth drivers? which ones are the strongest for costco? >> over the past couple of years, it's really been in that fresh food category, particularly organics. it's about 3% of their total sales right now. that's about $2.5 billion in sales. that's about 25% of whole foods' business in only a few years. their growth has really come in the organic side. you know, costco's private label brand is now a third of their business. one of the best brands out there. costco keeps their prices lean. they've got margin ceilings in place. there's reasons for their success. it's their dedication to their customer. >> chuck, fascinating to watch, especially today's action. good to see you. thanks a lot. >> all right. thank you, guys. >> indeed the market looking for aly interesting as well. u.s. stocks clearly in the red now, down 118 points on the dow. oil prices are also obviously under a huge amount of pressure. we dipped below $62 a barrel on west texas. that's the lowest since july of 2009. joining us now, tom lee, founder and head of research with fund global advisers. good morning. we've discussed many times on the show and the network what lower oil prices mean, but we're having difficulty finding a bottom here. the energy sector is down another 3% today. are you sure that's positive for 2015 net-net for the market? >> yes, i mean, i know commodity volatility is something that's uncomfortable to watch, right, because it has effect on underlying businesses and inflation expectations. at the end of the day t l, lowel is lower gasoline, which is a positive for the u.s. and positive for consumers. >> deflating so rapidly, down now 40%, there's a lot of tail risks there, aren't there? >> i think that's right. i think right now -- because we've been meeting with investors. they're very concerned. what we've seen is investors trying to liquidate anything related to energy. material stocks. but -- and of course we're worried about the financing risk, the production risk. at the end of the day, the underlying thesis in terms of what's good for the u.s. is really the consumer getting stronger, balance sheathets bei repaired. >> but it's not good for the u.s. if we see a negative cpi print, an actual negative deflationary print. with oil at these levels, isn't that a realistic scenario? >> that's true. you know, generally when we think about inflation, it's really wages and housing. so energy is not really what you and i would consider inflation. in fact, when oil was surging in 2008, we didn't say there was inflation coming. we said there was a recession coming. so as oil has fallen -- >> because you can't push it through the cycle. you can't raise wages. we would call it cost-push inflation years ago. >> when oil prices are high, it slows the economy, slows the consumer. when it falls, it's stimulative. it's a $66 billion tail wind. >> what's this do to your projections on s&p earnings next year? >> i think on balance. i know this is going to sound counterintuitive. i think it's positive for s&p earnings next year. >> wait. with energy earnings off 30%, 40%? >> energy is a 13% weight. we have offsets, though, right? it's really the $66 billion is going to flow through consumer spending. >> what works next year? >> i think the core groups that we like is technology because, you know, they're -- it's a re-rating story. health care has a lot of secular visibility. we like financials as well. here's the thing. i think as a contrarian bet, our guess is that energy could actually do quite well next year. we're seeing this sord of liquidation now. i don't want to own it into year end. let's figure this out later. >> small-cap energy or the big energy companies? some of those small caps are down 40%, 50%. >> that's right. i think in small cap land, there's been a real sort of get me out of everything. but i think the integrateds could be interesting too. they haven't really done anything for several years. >> let me just pick up on financials, which you also think will win next year. a lot of people focused on the possibility that jpmorgan under the new rules could have $20 billion it has to make up over five years or citi or bank of america warning on trading revenues yesterday. >> yeah, that's right. those are big, big numbers. it would be a huge problem if they had to meet these requirements in the next six to nine months. we have several years. i think a lot of this will be achieved through retained earnings. at the end of the day, if investment activity picks up, it's great for financials. >> good to see you, tom. thank you. >> when we come back, yum brands just can't seem to shake that food safety scare in china. the company lowering its profit forecast, sending the stock sharply lower as we speak. find out what the company wants to do to solve the problem and get customers back into the restaurants. we'll be right back on "squawk on the street." ♪ ♪ my baby drove up in a brand new cadillac. ♪ ♪ my baby drove up in a brand new cadillac. ♪ ♪ look here, daddy, i'm never coming back... ♪ discover the new spirit of cadillac and the best offers of the season. 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stock is movie ing sharply lower after sales fell in its latest quarter as its store base dwindled. overall sales fell by 2.8%. its internet and catalog sales also declined by over a percent. hurt by weakness abroad. the company was spun off by sears back in april. those shares, though, still down by about 14%. simon, near their session lows. back over to you. >> and it never ends. thanks, dom. home builders are out with quarterly results today. missing profit forecasts while the other didn't do too badly. diana olick has more on that from d.c. >> hi, simon. it missed expectations by 2 cents. q-4 earnings rose 49% year over year. revenues and deliveries higher, up 29% in dollars and 22% in units. toll is the nation's luxury home builder. the average price of homes delivered now hitting $774,000, up from $702,000 a year ago. toll ceo doug yearly expressed optimism about the upcoming spring season, which starts in january. hovnanian ceo echoing the sentiments. called 2014, quote, disappointing for both the industry and his company, citing a slower sales pace than 2013 and still substantially below normal levels. q-4 revenue for the new jersey based builder did beat expectations at an adjusted 23 cents per share. deliveries up 5.5% from a year ago. home builders as a group trading lower now. toll, a mixed bag. those not-so-nice comments. then head winds going into the overall market today. not to mention those mortgage applications. i feel like a broken record. on the purchase side, they're just stuck at anemic volume, moving just 1% higher for the week. still down 4% from a year ago. sarah? >> all right. with the update on housing, as always, thank you very much, diana olick. check out shares of yum brands right now. they are moving quite lower after yum lowered its current year profit forecast for the second time this year. the parent of kfc, taco bell, and pizza hut citing a slower than expected sales recovery in china where the company has been hit by yet another food safety scare. for 2015, yum is expecting eps growth of at least 10%. that was below what the street was expecting. street was looking for a number more like 17%. back in july, yum brands had predicted 20% growth in eps. kfc saying it wants to start to let chinese diners into the kitchens to try to alleviate those food safety concerns. carl, simon, the read from alice this morning, it's going to be a slower recovery in yum. we did hear from the ceo, greg creed, who's the incoming ceo he was coming in from the top f taco bell. he said we fully expect to bounce back as sales rebound. the question is, when does that happen? because now they're saying same-store sales are going to be negative for the year out of china. >> they have an investor day in new york tomorrow. one of the question questions will be whether they're seeing the china slowdown at the macro level is impacting more than they think at the moment and it's not so much yum specific. >> stock currently off the low. a lot of discussion about whether they spin off china. you mentioned clsa today cutting their rating. target goes from 83 to 79. >> in fact, at one point, yum was down the most in more than four months on this news. david palmer, who we have on a lot, rbc capital, says that's still a positive story. he had to take down his forecast on these new numbers. interestingly enough, he upgraded burger king today on the deal with tim horton. a lot going on. it's a challenged sector in this restaurant space. and they're taking different strategies. yum is obviously the china play. >> when we come back, more on that insider trading news this morning. a court vacating the convictions of two former hedge fund managers. dow is down 108. we're back in a minute. she inspires you. no question about that. but your erectile dysfunction - that 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 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terms of some of the things that they used in terms of getting the conviction. specific to the jury instruction at the time of the original trial where the appeal, which was based on the fact the court erred in its instructions to the jury. four people removed from the original set and had no idea who he was and had to know the tipper received a benefit in exchange for the information, something they say they did not know. that appears to have been the crux of the overturning of this important conviction. i have a statement here from the lawyer for chasen. he said, today's decision is a resounding victory for the rule of law and for anthony chasson personally. he's always conducted himself according to the highest ethical professional standards to many of the world's leading hedge fund investors who were his clients for years. he's deeply gratified that the verdict issued today re-establishes his innocence under the law. newman, for his part, was a diamondback as well. this had to do with receiving a tip about dell that was, again, one person to another person to another. yet, another. importantly, this also will bring up questions about the prosecution of michael steinberg. you may remember that name. of course, he was a senior member at s.a.c. who was brought down or convicted on a similar sort of charge where he claimed, i didn't know that it was inside information. i want to bring in kate kelly, who's been following so many of these different cases for quite some time. just get your take here on the significance of this and, you know, the steinberg case also does come to mind here as one that could be in jeopardy. >> david, i think there's no doubt that case is in jeopardy. although michael steinberg was not technically an appellant here, so not technically one of the convicted insider traders whose case was overturned, there's also no doubt that will be the case, that he will end up a free man here. although, the technical legal details will have to be forth woman i coming. i've reached out to his lawyer, hope to get a statement imminently. definitely very good news for steinberg and the fact his case would almost certainly be one that was affected. one thing that made this particular appeal certainly interesting. this is a stinging defeat for the prosecutor, who handled these cases and is now in private practice. but also for her boss at the u.s. attorney's office. joined the office at a time when the nation was reeling from the financial crisis and looking to see people held accountable for that. has really made a name for himself with these insider trading cases, having been successful in 80-plus cases. we're recalculating the exact numbers in light of today. this is obviously a setback for him. especially, david, the fact these judges have said in their opinion they're dismissing these indictments with prejudice, and it just seems that it casts appall over future efforts. >> it raised this idea, kate, of the inconsistency in the body of law that was developed, so to speak, in the southern district as they prosecuted case after case after case. >> well, david, i'm sure you've had this conversation with hedge fund sources and lawyers, as have i, that the insider trading laws are very, very murky. it's hard to ascertain in some gray situations what constitutes insider trading, what's appropriate. you have issues like reg fd. you have times when companies seem to pass things on with full knowledge they're not material, but if they do it to a wide enough audience, it's acceptable. in this case, as you mentioned, there's a question of what we call a drown stream tipee. in other words, if you're an executive a firm and you have material information you pass on and the person who benefits from it by trading with that material knowledge that others don't have is sort of the fourth hand recipient, the fifth hand recipient, as was the case with michael steinberg. are you really guilty of insider trading, especially if you're not aware of where the chain started and whether or not that person had some fiduciary benefit from passing on the information. in the case of dell, for instance, that was a big question. >> does this point to the structural challenges in prosecuting these types of cases, or does this point to bharrara's execution as a prosecutor? >> i think both, carl. the importance of this decision can't be overstate. this is landmark decision, an embarrassing rebuke to a powerful attorney's office in manhattan by senior judges. one of the judges on this panel is an elderly judge who taught insider trading at yale law school as a professor. a very important fissue for him obviously. these are very seasoned jurists weighing in on this issue today. it's bound to have far-reaching effects. >> kate kelly on those insider trading moves. straight ahead, oil prices are still falling. what does it mean for the energy industry now? we'll be joined live by john raymond, son of the former exxon ceo. he's also betting big personally on aubrey mcclendon's new venture. we'll be back after a quick break. kid: hey dad, who was that man? dad: he's our broker. he helps looks after all our money. kid: do you pay him? dad: of course. kid: how much? dad: i don't know exactly. kid: what if you're not happy? does he have to pay you back? dad: nope. kid: why not? dad: it doesn't work that way. kid: why not? vo: are you asking enough questions about the way your wealth is managed? wealth management at charles schwab we're for an opens you internet for all.sing. we're for creating more innovation and competition. we're for net neutrality protection. now, here's some news you may find even more surprising. we're comcast. the only isp legally bound by full net neutrality rules. welcome back to "squawk on the street." i'm jackie deangelis reporting from the floor from the nimex. department of energy out with its weekly crude inventory report. the department reporting a build of 1.5 million barrels. not too shocking considering the fact that the api data last night was bearish as well. prices right now 61.60 on west texas intermediate, down $2.25. looking at brent prices. under 65. 64.85, down almost $2. a couple things to think about. some nuggets out from opec. first of all, revising downward its 20 15 demand estimates. bearish for crude. you have the eia trimming its u.s. production forecast for 2015. a slight trim. still over 9 million barrels. that's a strong, robust number for u.s. production next year. i also want to talk about the idea that we've got goodrich petroleum saying it's selling part of its shale assets to boost lick wiquiditliquidity. look for other small producers to make similar moves. again, the prices right now, 61.70, down more than $2 on wti. back to you. >> all right. thanks very much, jackie deangelis. i want to stay on energy as well. my next guest runs the largest private equity firm that invests broadly in the resource sector. he is john raymond, the ceo of minerals group. a great time to do it. watching at decline in the price of oil. what does that do to your business and how you approach capital allocation? >> we, with respect to the price of oil, it's been a very volatile conversation globally for the past -- you can measure it in 10 years, 20-year increments. so volatility in these commodities, be it oil, which is obviously very topical of recent, but even the iron ore business. you have seen a lot of volatility there. this is something we live with in our businesses each and every day. so as we invest in these businesses, we know that going in. so, you know, i think it's important to level set the conversation as it relates to commodity prices. the last time anybody on this planet could successfully predict the price of a commodity was never. so when you go into these businesses, you have to understand that. so what that means in turn is you really need to focus on the fundamentals of the business, which starts with the rock quality. are you pricing high-quality products from good rocks? are you a low-cost producer? are you doing that in a strategically market location? as long as you can do those things, you're going to make money through the cyclical peaks as well as the tickly call troughs. >> can you make money at $50 oil? >> absolutely. again, i think a lot of that depends on exactly where you are. >> and the rocks. >> it all comes down to the rocks. you can negotiate in the business, but you can't negotiate the rocks. the rocks are what the rocks are. there's no reset on that after you buy those rocks. you don't get a mulligan, so to speak. you have to understand the constructs of those rocks, of what i called fundamentals before you start making big investments. if you think about the permian basin, that's been producing oil for the better part of a century. if oil goes to $60 a barrel, it isn't going to happen. >> you have focused on that and not the bakken. there can be great rocks and areas that are not nearly as fertile. >> we have a big crude oil upstream position of a bunch of reserves, so to speak, in the permian basin and the core of it in northern reagan county and you have good rocks and good location with respect to getting the barrels out. it's got all the key attributes. you touch on the bakken, there are certain parts people typically think about it as roughly a million acres. 2 200,000 or 300,000 of those are what we would define as the core. it produces about 1.3 million barrels a day of crude oil. i think the question going forward is at current prices, you know, how sustainable really is that. currently you run about 485 horizontal rigs. >> how sustainable is it? >> we're going to find out. i think we're going to find out across all the basins in the coming three to six months as you start to see what happens with rig activity. one of the big questions i think everybody was trying to get to is how many drilling rigs are you running in 2015? it's not an easy answer. there are a lot of variables that have to be sorted through. to really set those budgets and drilling programs, how many rig lines you have going, et cetera, it takes a lot of hard work and inputs that i'm sure he, like us, are still waiting to figure out what those are. >> our viewers may know you from our energy with minerals. you've put in over $3 billion. when you go see him in oklahoma city, as i'm sure you do, and you talk about the capital program and where things stand right now with all that capital you've allocated, do you change it? >> yeah, clearly. it's a very variable conversation. so what you're really getting to is are you going to run 11 drilling rigs or seven? how long are you going to do that? adding and dropping rig lines, it's not necessarily an easy thing to do. that's a misconception out there. it's not like you pick up the phone, call the guy, and say lay a rig tomorrow. there's a lot of inertia behind that. it takes a long time to lay those rigs down. >> hence why we may not see a decline in any way for some time. >> three to six months. i think six months from now, you're going to have a good picture with respect to what exactly is going to happen in this industry. there are different people out there. we all read a lot of different things, trying to synthesize the information conclude challenging. there are people who would argue you'll lay down more than 500 drilling rigs. cost structures are going to come down. it may have cost you $8 million to drill, at $60 a barrel, that cost may be $6 million. now we're getting to what's the margin in your business. so if you offset decline with commodity price with the reduction in the cost, you still capture a similar margin. i think that's why these basins where you have very good rocks are very resilient. that's one of the things you're going to find. the core of these quote/unquote shale plays, really the resource matrix as a whole, and the core of those plays where you have very good rocks, you have a tendency to have a good resilien resiliency. >> service costs come down. your margin will be able to maintain even if the price of the commodity comes down. >> precisely. >> but the high-yield market. we pointed this out. 18% or more is made up of energy. it's a huge percentage. it's a huge number. do you think there's going to be -- is there distress already perhaps amongst some of these? >> there will absolutely be some distress. you know, if you look at the industry, and again a lot of people have different numbers on this, but the industry outspent its cash flow by $50 billion in the past four or five years. a lot of that came out of the high-yield market. which you take the elixir of a lot of cheap debt and put that on top of questionable rock, clearly the spectacular collision of those two isn't a good thing, okay. i think that's a little bit of what you're seeing shake out here. it's one of the reasons that you've seen such a quick and precipitous drop in prices. >> how do you play that at energy minerals? buy some distressed properties if you can? >> as long as they, you know, meet what i would call the standards of good assets, of good rocks and good locations that produce good high-quality products. simply going out and buying distressed debt for the sake of, you know, spending money on distressed debt isn't necessarily a good idea. it's got to be underpinned by the fundamentally good assets. whether this is energy, iron ore, manganese, all different commodities we invest in, it's all grounded in those key fundamentals and how good the rocks are. if we can find, you know, opportunities off the back of this where you have very good assets, good rocks, good cost structures, et cetera, where there's some financial i did stress, we absolutely will do that. >> real quickly, before we move -- let you go, iron ore. we have spent this entire conversation on oil, as we probably should have. but iron ore has been getting crushed. you invest in this area. what about the demand picture there and the frankly destruction that's gone on in that metal? >> yeah, so candidly, we don't think -- if you think about the iron ore business in the context of a couple billion tons a year of consumption, you know, that business isn't fundamentally out of balance by more than probably 20 or 30 million tons. so i think a lot of what you've seen here has been exacerbated by, you know, the futures markets and that type of thing. when you look at the fundamentals of the business, you know, i think 2015 is going to be interesting to see how much additional supply is brought on at these levels. there are a lot of people out there who talk about a lot of prospec prospects, not to be confused with projects, and how those prospects get converted into production out of producing projects. current price level is going to be very interesting to watch. my guess is, you know, again, the crystal ball game here with respect to predicting commodity prices is inherently unpredictable. >> understood. >> but i think we're probably getting to the cyclical trough, if you will, in the iron ore business. you've seen us make some investments there recently. some relatively distressed situations. so there's been some good opportunity i think we can capitalize on. >> we won't ask you for your prediction on oil. as always, really appreciate it. >> my pleasure. >> john raymond from energy and minerals group. >> when we come back, financials gaining nearly 10% in the last couple months, outperforming the broader s&p. should we be buying the banks? more on that when "squawk on the street" comes back. take a look at energy today, falling sharply as oil prices hit some new lows. at the lows of the day, just about half a dollar from a five handle now. >> carl, it's like a recurring theme. the energy trade so much a part of today's markets. it's the big loser in the s&p so far on those falling oil prices. the majors, exxon, chevron, also the leading losers in the dow right now. conkoe phillips moving lower. one industry group that's performing well today on the heels of that is the airlines. barclays is upgrading american and united continental from overweight to equal weight. airlines are expected to see a $10 billion decline in fuel costs for the year 2015. you can see some of those major airlines doing well on the day. a very interesting divergence in those particular trades. >> as you said, it is a theme. we're also watching financials today. they are lower, not nearly as low as energy and telecom, but a lot of news to digest over the last 24 hours for the big banks. citi announcing additional legal charges. bank of america warning on fourth quarter trading revenue weakness. the federal reserve announcing new capital requirements for the biggest u.s. banks. david trone is with us, joining us on the news line. i know you like the banks. let's start with those new fed capital rules. does it change anything for you in terms of the performance and earnings, especially at jpmor n jpmorgan, who has the biggest hole to fill? >> yeah, you know, it's certainly a negative on the margin. i think these banks can -- now that they know the rules, they can start to, you know, actually manage their risk weighted assets to, you know, start to address these benchmarks and get to a point where they can return more capital. but yeah, incrementally, you know, hurting your r.o.e. by about 100 basis points, it's not a positive, but there are other factors out there that outweigh it for us. >> do they know the rules? i think that's the big question when it comes to the big banks. even if you think the economy is looking better an you think higher interest rates are coming, which benefit the big banks, you're still seeing -- i mean, $3.5 billion in new legal expenses. it's a big hit. >> yeah, well, i think when i said they know the rules now, i think that's really on the capital side. if you look back three years ago, they had no clue what was happening. they simply couldn't take any actions. now i think they have a clear enough picture that they can start, you know, managing their balance sheets in a way that will, you know, optimize the new rules. but yeah k on the legal side, very frustrating. these things keep coming when you hope they're cleaned up. you get another charge. that can be a little frustrating. but we do think we're in the eighth inning. libor is going to be the last one, i believe. hopefully after that you get into some smaller numbers that don't matter as much in 2015. i do like the fact that citi's cleaning it up here in '14 and setting up a better '15. >> we're very focused on energy prices and the energy stocks down 3% again on the session. today goldman's downgraded. they pointed out energy accounts for 22% of high-yield issuance and 16% of loan issuance through to december. i appreciate that for most of the universe that you cover it's a left-field issue. but what do these lower energy prices mean? >> well, you know, it is a factor in a broader economic menagerie of forces. if it's good for the economy, it's going to help us somewhere else, right. if you're talking about direct impacts on how these banks serve oil companies and, you know, perhaps some of the local issues that are affected when companies maybe downsize, obviously those are negatives. but there's obviously benefits to the consumer side. you know, these big giant supermarkets cover the whole universe. you know, one side tends to offset the other. >> okay. so give us your top picks for 2015 given this new legal landscape with the new capital rules and all of the charges and the fact that different banks are focusing on different businesses, very quickly. >> well, you know, i think the next big thing for these stocks, we've been on this big macro rising tide. of course, they've done real well. i think the next biggie for me is going to be the c-car process. i think citi is going to come out obviously much better than last year. they had the numbers, they just didn't have the process. i think they've done everything they can to make the fed happy. i think there's going to be a good capital release approval for them this coming spring. >> got it. citi is the pick. david trone, thanks for joining us here on the news line. >> cnbc's new millionaire survey is out, and there's some good news for the economy on the stock market. our wealth editor robert frank is back at hq with some numbers. >> good morning, carl. millionaires, as we know, have done very well in this recovery, but they haven't always been positive on the broader economy. now, millionaire optimism is back. we look at cnbc's millionaire survey, which polled 500 people with investable assets of a million or more. more than half of today's millionaires believe the economy will be stronger or much stronger at a year from now. that's way up from six months ago. this matters because millionaire confidence has a direct link to stocks. the top 10% of americans own 80% of stocks. right now, this group is fairly bullish on the stock market, about half think the market will be up 5% to 10% next year. another 17 believe it will be up 10% to 15%. only 14% think it will actually be down. half plan to put their money into stocks in the next year. 21% into fixed income. and the industries that the millionaires are planning to invest in are tech, financials, and the big one energy. now, millionaires say the biggest risk to the economy right now in the next 12 months is government dysfunction and global unrest. interestingly, only 2% said the stock market is a really big on stock market is really big risk. you can read more about how the millionaires, how they're investing, what they are buying and who they want to be president. >> it's worth pointing out there are 10 million millionaires in this country. the figure is actually quite high. coming up, instagram co-founder will talk to julia in an exclusive interview. hi. jon 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(see the number on your screen) call now. welcome back to squawk on the street. with my wednesday guest. peter. >> thank you for having me. >> the bible for fixed income trading is the late marcia stigem, money market. when it comes to invest iing in stocks. warren buffett supposedly read this book. ben graham's the intelligent inve investor. >> i just wanted to put the market in perspective. what i took about in valuation you could have said a year ago. i wanted to raise the issue that on four evaluation metric, price to sales, mark to cap gdp and the -- price to replacement value. going back post world war ii only 2000 are have we seen a more export expensive market. we're the most expensive we've been since the late 1990s. and to me investors need to be a lot more sentstive to valuation if the macro environment starts to change particularly with what the central bankers are going to be doing in 2015. >> so there is two categories i'd like to dig deeper in. one of course is central banking. they got us to mars. now they have to get us back. and they are on different pages. chinese are curtailing collateral and euro zone is talking about buying corporate security, u.s. stopped qe for the moment. japan has done boat loads of it. but the real issue continues to be this dynamic and whether it's energy or central banks. when things change you have to adjust. and there is so much that has been piled on to this cupcake in terms of frosting. how painful might it be? >> i think there is no question there is going to be. as there should be. but it is a question of also when. there is no doubt that the central bank put has created this valuation excess relative to the ounds lying fundamentals. and once that faith in the ability of central bankers to be this omnipotent guide changes, then a that's what will start to deflate asset prices. again it is a question of when. i'm of the belief a that after the ecb move, this is the final act of the central bank largest that we've seen since 2007. investors have to start evaluating whether that still has legs to the story of whether we should still be buying these egregiously priced stocks and fixed income. >> whether it was the government's roll in housing that led to the credit crisis or the stran central bank's own liquidity, there is going to be a lot of finger pointing but in the end once again the free markets are here for a reason. thank you peter. >> thanks rick. >> let's send it over to jon fortt with a look at what's coming up next on "squawk alley." >> hey sara, the next hour has it all. the head of instagram. facebook's unit. enterprise, the head of ibm's global business services talk that new ios apps and finally the head of art owe talking about why taylor swift wrote his name in the blank space and not spotify's. st take a closer look. it works how you want to work. with a fidelity investment professional... or managing your investments on your own. helping you find new ways to plan for retirement. and save on taxes where you can. so you can invest in the life that you want today. tap into the full power of your fidelity greenline. call or come in today for a free one-on-one review. i wish... please, please, please, please, please. 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