stock exchange. we await for a fed meeting to begin tomorrow. china slips 3.5% overnight. japan leaves policy unchanged. back here, retail sales okay. july revised up. good auto sales offset by lower spending at the gas stations. ahead of the rate decision, former central bankers are out today with more pronouncement force the fed. >> asia continues to suffer. shanghai down 3% as the bank of japan holds on a rate move. >> an upgrade forfe fitbit. more data for the fed to digest ahead of the two-day policy meeting set to get underway tomorrow. retail sales up 0.2%. last month stripped out auto sales up 0.1, that marks six consecuticon seco consecutive months without a decline. how does this get digested at the table tomorrow? >> the areas that are strong in the economy are rate sensitive. autos, housing. i know a lot of people say bring on the rate increase. but you just mentioned where the strength is. that strength can be taken away. it can be taken away by a belief that unless the statement contains one and done, you'll start building in what i regard as being bad numbers for manufacturers, because the dollar should go much higher and bad numbers for these areas because people will say in 2016, we can't be at 17 million units for auto. we can't maintain this housing number because rates will keep going higher. nobody will say we're out of the woods rates. not with unemployment where it is. >> unless they make it clear. >> that's -- go to extremes to say this is it. this is it. >> otherwise more of the same. it's incredible. we lose -- those who own individual -- the 57 variety of people who own stick stocks -- >> i think it's 56. >> you own a stock, you're down 38 cents. when i looked at the pc, she wantses to be called the wife, okay? none of that stuff on twitter. she says call me the wife. every time we look at a stock, your screen is frozen. frozen at minus 38 cents. >> before you go on, let's interrupt and get to mary thompson with some breaking news on ge. >> carl, as expected, the company has indicated that the expiration of the export import bank is prompting ge to move jobs overseas. 500 total. 400 to france, 100 to hungary and china. ge has $11 billion it's bidding on and it needs export financing. it's in talks with the french agency that would provide it and has some backing from hungary and china the countries would require jobs to move there in order to extend that financing to ge. the jobs are coming from texas, south carolina, maine and new york. they are in the power business. once again, ge is going to be moving 500 jobs overseas because of the expiration of the export/import bank. back to you. >> thank you very much. talking about the fed and expectations. summers out again today coming at the fed from a different angle saying that even if a hike were a good idea, which he does not believe, they have not gotten us ready to levels going back 20 years where expectations would not match a hike. >> i went to a charity event a couple years ago to honor stanley fisher. introduction, larry summers. larry summers saying this man taught me everything i know. this is the man who's right. this is the guy we talk to larry summers is on the exact opposite page as the stated stanley fisher -- the fish every we heard with steve liesman. i find this to be inconceivable that somehow the biggest hawk is alive with the biggest dove. there's some room here. maybe we get it done and fisher said we have to be on hold because the emerging markets can't handle it. i don't know. these two men are one in the same. they're twins. >> not anymore. i don't know -- we know what mr. fisher has said what we heard from him when he spoke to steve liesman a couple weeks back. larry summers, you want to call him now, he'll come on and tell you exactly. he wants the world to know -- >> you're telling me that maybe he would be the co-host? >> you can add summers to raskoff. >> summers is basically saying that the scenario that i'm most fearful of -- summers has been there. summers has been seen -- seen what the dollar can do. summers wasn't born yesterday. >> no. >> my alma mater and summers didn't get along well. >> didn't work out well, but still there. >> it's not like, you know, the hall of fame. not an hof figure like julio jones is, obviously. >> we'll talk sports later, trust me. another day of declines in china's stock market. the shanghai down 3.6 on worries about slowing economic growth and despite chinese government efforts to stem the slide. the bank of japan saying it believes the japanese economy can weather a hit from the chinese slowdown. fiscal spending in china in august up 26%, accelerating from july. they'll start spending over there. >> one thing that i think summers could add to his rap is to say we're in a quantitative tightening. the chinese, i believe, are selling everything. they're selling to be able to prop their economy up. if this whole thing is to keep the shanghai at 3,000, that's absurd. >> i don't know that it is. >> it's at 3,500. they've done a good job of that. >> the flat line. they shut the futures market down. you can now sell futures overseas. did you a piece about this. do you think they don't have an algorithm if they hear the word sell, not cell, don't you think they knock on your door. >> there's been a significant crackdown. there was an interesting story about cidic, one of the big brokerage firms, investment firms. they've been suffering, some of their senior executives. it's been broad ranging, but i don't think the stock market is where the issue is when it comes to china. it's a much broader question in terms of industrial production, how much things are slowing down. to your point, the fx reserves, how much they will continue to decline from 3.56 trillion now. coming down every day as they defend the currency to a certain extent. and what it's going to mean to the emerging markets that rely so much on china and deal with their own fx reserve problems. that's more important than the chinese stock market. >> this could be about brazil. brazil built its reputation on sending materials to china. the baltic freight has dropped 200 straight since i saw you last. 200. 1,000 down, 800. where is the commerce? there's no commerce. i saw they had some number last week about factory output at 6%. >> yeah. >> okay. i mean -- does anyone believe that? does anyone believe 6%? >> some people do. >> yeah. >> they do. >> remember the gentleman we had on from -- >> i'm trying to remember who it was. >> from the big producer. the big -- >> bhp. >> yeah. yeah. he's solid. he's solid. >> yeah. >> he's solid. he's got a stock that looks like top corp. i learned when i was in italy that alibaba means top that was the top. alibaba is the economy for the consumer. bhp is the economy for the industry. >> an article about the number of basic delivery jobs, guys who move to the city, work on their bicycle, deliver goods -- >> take them out of the army. they don't need an army. it's the nay i havy. >> yahoo! >> embarrassing. >> because of the irs, they're not issuing a ruling -- i haven't gotten an update on yahoo!'s plans, to those who believe it will mitigate their willing toness to move ahead one alibaba stake, we'll see. we'll get more on that. as i reported last week, despite there won't be a private letter ruling from the irs, they were focused on doing the alibaba spin. the stronger language from the irs about active trader businesses, wanting to see them be much larger than a simple small thing that goes with the spun company could be problematic. >> individuals learned a hard, tough lesson there. don't fear the tax man. they could have sold at 100. they played a bad game. >> though they were locked up. >> they were locked up. that was the strain. >> conceivably in a negotiated transaction they might have been able to unlock. i'm not sure. they were locked up, to be fair to them. >> this was a disaster. that they couldn't get the product out. >> we'll see. you can still move ahead with it. they have expensive lawyers -- >> well -- >> they can still do it. >> the stock has been a disaster. been great, now a disaster. >> it's a disaster because bob is 62.60. >> where is the actual core business? >> they lost their chief accounting officer. lost kathy sabbath this week. >> i thought she was an important gatekeeper. i'm still using the sun god, sun trust. i don't like what i see there. they are -- you know, they're in a foot race with twitter. >> oh. >> and twitter will lose that foot race. yahoo! could win it. alibaba is a stock -- i don't know. where does that stabilize? >> we will get industrial production in a few moments. also ahead, david has kyle bass of hayman capital. he has battles with big pharma. look at the pre market. yesterday the narrowest range for the dow since august 18th. 120 points. the average since that time, 405 points. back in a minute. i'm here at the td ameritrade trader offices. ahh... steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade. you got this. at ally bank no branches equals great rates. it's a fact. kind of like shopping hungry equals overshopping. we are still in the pregame two-day meeting beginning tomorrow. futures are moderately higher after china comes down about 3% overnight. optimistic optimism in germany low. back in this country, industrial production. rick santelli, hey. >> the litany of data continues. industrial production and capacity utilization for august is due out. the clock is ticking. capacity utilization, 77.6. 77.6. industrial production down 0.4. the down 0.4 is fascinating. this year started out with five -- five negative industrial production numbers. this makes it 6 out of 8 of these numbers. that minus 14.67 on an empire was a back-to-back some of the worst data that we've seen on manufacturing since the credit crisis. we'll continue to monitor the data. i would like to point out the early data wasn't that spectacular. retail sales wasn't bad. but yields may be moving to a different drummer. maybe it is the fed meeting. getting close to 3% in the 30 and very close to testing 2.25 as we went up to 2.21 in ten-year notes. back to you. >> thank you very much, rick. billionaire investor carl icahn boosting his stake in cheniere energy. he owns 22.7 million shares in that transporter of liquefied natural gas. it's up from a 19.4 million position not long ago. he already has two guys on the board, remember. he did enter a standstill, but it's interesting he's going again jim chenos who came on last week. nobody can question icahn's instincts. he lost a lot of money on energy in the last year, but he's willing to take long-term views and often mr. icahn ends up being right. that's how he ends up having $30 billion. he's down from that high because of his holdings in chesapeake, for example. >> i talked to the ceo of cheniere. it's very clear two things. he welcomes icahn. guy is a smart guy. guy wants to be on the board, give him a couple seats. second the cash flow here, once all the so-called trains are going, could be as much as 8 billion. that's a lot. in the interim, chanos has been right. it has the term energy in it. you see that term energy, you know what that means? sell. only baba is a more negative thing to have in your title. imagine if baba went into the energy business, you would have a double short. >> you're all over them. energy, if you get -- it's radioactive, energy. >> the last few weeks i've been trying to articulate this -- this thing that will happen. thing. which is that the bank also sta banks will start cracking down on some of the energy guys. i talked about it last week. the journal today did a big story on it. in october the banks will be looking at their lines of credit to many of the energy companies, starting to potentially pull back reviewing them from the capital consideration point of view. the banks are in a strong position do that now. that will bring another potential wave of not necessarily defaults, but restructurings, forced mma, the journal reporting it today. interesting quote from the vice chairman at freeport, a stock we talk about a lot. he says it's raining, it will rain for a long time. we're all going to get wet. a few people will drowned. we just have to make it to the other side. >> bob dillon fall thesis. i agree with him. one of the things is you have to watch is we'll be down 500,000 by year-end because of what you mentioned. which is that if you felt that oil was going up and you wanted to get a bank credit line to expand, no more credit. i think it's important. you have to watch a stock that i lost money on, marathon oil. mro. they cannot cover things without making sales. remember, there's a great slit up, marathon oil refining. refining was the slow growth business. enp was the fast growth. watch mro as the point of pain because they are the most exposed now that the chesapeakes of the world -- chesapeake keeping the wrong asset. >> journal looks at this and cites a citi report where they argue bargaining basis could be cut by 15% as the credit runs out on some drillers. >> even though halliburton is doing frac now, pay later, the banks don't want to give these guys more money. >> this is going on right now. i'm hearing it from bankers, they're trying to understand what the landscape will look like. if you're one of these companies, you know it's coming, so you will either sell assets and/or engage in some sort of merger discussions if you have to as a last resort instead of worry being potential default coming down the road. >> i watch the preferreds, preferreds giving you the signal you need. a lot of the common stocks are hostage to the various etfs, as so many other groups are. this is a group that's not done going down. i don't buy the goldman $20 thesis because we'll stop producing -- we'll jusp producing as much as we can because of what you mentioned. when we come back, we'll get cramer's mad dash and count down to the opening bell. more "squawk on the street" in a minute. it's more than a network and the cloud. it's reliable uptime. and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next. i've got two reasons to take that's why i take meta. meta is clinically proven to help lower cholesterol. try meta today. and for a tasty heart healthy snack, try a meta health bar. more data means more freedom to do..whatever. that's why at&t is giving you 50% more data. that's 15 gigs of data for the price of 10. because the more data you have, the better. and right now at at&t get $300 credit for every line you switch when you trade in a smartphone and buy any smartphone on at&t next. we got a mad dash finally. a long time. it's tuesday. feels like a monday for us. it's tuesday. >> absolutely. >> where we going first. >> happy new year to everybody. doesn't matter. gw pharma. one of my favs. they have proof positive in schizophrenia. they had remarkable results. literally on the hardest to treat schizophrenia. this is marijuana that is legal. it's a class one felony to do it in this country. this is a greatibritish company. if you get offline with doctors, they're afraid to prescribe marijuana. some of it is laced with ketamine. this is a standard pill. this will be the talk of the psychiatric profession instantly because of how difficult it is to beat schizophrenia. >> you've been on the stock for quite some time. positive throughout. >> i talked to the medical profession about it chronic diseases, chronic are all reacting to this thing. this is not something -- it started with epilepsy in kids. horrible. schizophrenics don't know they're not cured. it's a terrible disease. this has got dramatic results verses what we have on the market. there's a small sample, phase two. but very hopeful for people. i'm not going to say it's not. it's big. >> let's go to kimberly clark. >> typically what's happened when you get a high quality consumer starks that are down 10% from the high with the 3.3, you buy them. now, this is a rate sensitive stock. why? if the fed raises rates, a lot feel they will get out of the consumer products story. this is your what to watch. >> get out of them because their dividend yields -- >> a lot of people are long these, short treasuries. that will be a painful trade algorithmically. >> 25 basis points will bring about that change? >> i don't want to go into the m mumbo jumbo of it, but let's watch this closely. >> we'll watch a lot of other things closely. we have the opening bell coming up. four minutes from now. stay with us. good. very good. you see something moving off the shelves and your first thought is to investigate the company. you are type e*. yes, investment opportunities can be anywhere... or not. but you know the difference. e*trade's bar code scanner. shorten the distance between intuition and action. e*trade opportunity is everywhere. "squawk on the street" live from the financial capital of the world. the opening bell in about 60 seconds. we're getting some macro data. retail sales a slight miss on the headline number. industrial production a bigger miss. empire was a dramatic miss down almost 15. the estimate "downton abbedown . >> what is the urgency of tightening. if we were at 2% fed funds rate, we would be cutting. this industrial output is daunting. and this is the strong dollar. this is the strong dollar. trade partners. i see -- i believe we're peak housing. >> auto production down 6.4. it was up 10 in july. a volatile series. >> i prefer auto sales in europe. dramatic increase in auto sales in europe. 11.5%. the number there, i was looking for 4% to 5% auto sales max. i was bullish. europe can save the united states. >> at the big board, arrowshar s arrowshares. and over at the nasdaq, danske bank doing the honors. we're getting headlines out of reuters the that deutsche is looking at job cuts. >> i saw that. i like this new fella at credit suisse. goldman says buy to strong buy for credit suisse. a lot of people think they put their problems behind them. >> i'm not sure. >> new ceo, tough guy. >> just lost that day against highland. they are on such a short leash with the justice department. you have to keep a close eye. >> you're absolutely right. you're -- i have overstated the positives. you're absolutely right. >> meantime, tesla is in the news. not moving to a large degree, but there's a report that apple insiders are poaching employees, and all over the papers today is news of porsche's electric concept car called the mission e. $100,000. 600 horsepower. 0 to 60 in three seconds. some of these high-end makers trying to get back what tesla took away. >> tesla is a cold stock it doesn't matter. just be careful shorting tesla. tesla has a very -- guy runs that stock better than anybody, who also happens to run an auto company, musk. be careful of musk. he can run a stock better than anybody i've seen. he'll come out with somebody in the next two days. he'll say, you'll forget porsche. >> i know some guy who can't run a stockwell. jeff immelt. >> doing everything right. i tell you. that interview last week, brilliant. >> we got the headlines from ge. he made no secret of when he joined us on "squawk on the street" last week, week, you ha reauthorize the xm bank or you lose jobs. ge takeinging 500 jobs out of t country because of nonreauthorization. >> what about halliburton? >> that's thought to be problematic but we'll see. antitrust is a huge issue these days. >> maybe their acquisition in europe not as bad -- >> the concern is that they'll not -- even with the investors, they agreed to make a proactive move at the time the deal was announ announced, you can't create a viable competitor to who may buy them. that's a concern for that deal. >> enough is enough. >> not to mention the hmos. the hmo thing won't be done for another year. >> no. no. >> we're talking fourth quarter next year. a lot of concern there. not as much about the humana deal as much as the anthem/cigna deal. >> i read your transcript of the deal. is there anything else this guy can do? he's raising a huge amount. they can buy back a lot of stock. he said no dividend increase in 2016. >> ahead of schedule on the ge capital divestitures. it's an industrial company. 24.84. down one-third in 14 years since he took over. >> i don't know what to say. when you do everything and it doesn't matter, i don't know what to say. honestly. i read the transcript, i said, wow, this stock will go up a buck. no. no. this thing is stuck. like a lot of industrials. >> we missed you last week, jim, as apple had their event. the 6s, 6s plus, tim cook on colbert tonight. got into new york yesterday and made a brief appearance at the fifth avenue store where he actually was seen photo bombing eddie q. we have that picture. your view on apple, has it evolved? >> own apple, not trade it i'm hearing people getting excited about the idea of a subscription fee. you'll love this. a lot of people talking about apple going uber over the top. >> uber over the top? that has nothing to do with travis, just uber as in -- >> value goes up in a minute. >> what would that be uber over the top? >> they'll make a deal. they'll have an option on apple tv. what apple has lacked is a subscription business. that's why i wanted them to buy netfl netflix. that didn't happen. apple tv, if they get a subscription business, oh, my, the string of cell phones has to run out. apple's acted very well during this period, in a period where almost nothing acted well. i say own it. i was in -- in italy last week, there's a new apple store opening. i think that apple retailers are nowhere yet. very few stores. >> really, underpenetrated. >> a lot of people are wondering what angela aarons is doing. the results are not clear, how she changed the apple stores. >> that's a very good point. i was looking for some of the burrberry stuff. it's very, very exciting. a lot of that was related to sales force, which i will be with the foo fighters. i won't be part of the music -- >> i'm sure you will be. dream force, by the way, the guest list, we were talking during the break, travis calinic, foo fighters, jessica alba. 150,000 people? >> a cruise ship. it seems like -- it's the cannes film festival of tech. i'm going to the cannes film festival. and i'm cool there. >> are you cool there? >> yeah, i'm cool. >> really? you can be cool? >> they're saying i'm cool. >> i like it. i like it. >> that's -- the size of this thing is amazing, dream force. >> i'm worried about walking around trying to get from "a" to "b" in san francisco. i find this is an amazing event that overshadowed ces. remember when ces was big? now it's the combination of entertainment and -- i'm sure there's more people we don't know about. the guests are in, the keynotes. it's kind of exciting. world series of -- i was going to say super bowl, it looks like somebody may not be in it world series, i'm giving you the benefit of the doubts on the mets. >> please, don't put those two things together. i'm not sure of the playoffs. as a mets fan, you have to take it day by day. >> and the clock management problem of another team. >> what was that? >> don't let them score. please don't score. >> getting word from u.p.s., we'll hear bits of news like this. expecting to hire between 90,000 and 95,000 seasonal employees to handle volume increases as we head into the holiday season. 85 days away. >> you have to be in the stocks ahead of time. one thing that i like about this group is that united parcel has figured it out. they are turning back business. this is a first for u.p.s. they're not going to get the bulky stuff that fills up the truck and makes it so that they have bad yields. so watch u.p.s. i think u.p.s. is a good story. anything that's a good story goes up immediately. by 11:30 everybody has forgotten. >> speaking of what was a good story for quite some time, allergen, shares fell below 300. >> i think everybody is waiting for brent do something. >> they are. they basically come out -- they come out and say when will you do a deal? we're getting asked that question? jpmorgan saying it's trading at 17 times and 14 times forward. >> 14 times for the fastest growing major -- >> 50 billion thein debt capaci. then they throw out the pfizer rumor. >> yeah. talk about something that's not going to happen that people put out there. >> that never stops anybody. >> that's what people do. >> yeah. who are those people? who are those people? i'm not one of those people. >> who are those guys? >> it is butch days and sundance, the people talking about pfizer. brent saunders will not be involved with pfizer me. >> he has shown a willingness to sel sell. >> i'm saying -- >> buyer/seller. >> if you bet against brent saunders you're betting against the -- the most aggressive man in fapharma. he's like a general manager ins nfl, look s at talent who do yo buy? don't count him out. >> must have a lot of clients. the stock is higher. >> i don't know. >> it's going up. don't worry they'll do something. >> with all -- with all of that, the dow is up 35. led by chevron. haven't seen that every day. >> chevron? >> let's get to bob pisani on the floor. >> 2/1 advancing to declining stocks. exxon also helping the dow. financials, industrials, technology leading. utilities are on the down side. nikkei was up slightly. bank of japan left rates unchanged. the head of the bank of japan fairly upbeat, he said the fed rate hike would be a positive. i was surprised to see that. he said it would be a positive. by the way, a bit more fallout from mr. abbe, the japanese prime minister's comments on japanese telecom bills. he weighed in saying japanese consumers are paying too much money for their telecom bills. he didn't say what should be done. but for the last couple of days the telecom stocks have been down. nippon is down 7% in the last several days. there may be pressure to give discounts to the japanese consumer. over in china, another bad day. we talked about this shanghai down 3.5%. shenzhen down 5%. shanghai down 7% for the year. the shenzhen up about 10%. that's not far away from going negative. in the u.s., i was intrigued by the alcoa and ford announcement. they have new technology, alcoa does, for building cars and trucks. the huge ford f 150 will have aluminum parts from alcoa manufactured in a new way. it makes coils of improved aluminum in 20 minutes versus the 20 days it used to do. so they are moving towards roll products like this. claus kleinfeld very excited. he said new car parts out of aluminum are now possible that were never possible before. you can see alcoa, down 40% this year. hopefully this will turn around alcoa's fortunes. i have been asked a lot, sirwhy isn't the vix higher? the important thing about the vix, it was spiked over 50 a while ago. 23 is still high compared to where it used to be at 13 or 14. it's true. right now at 23 the vix is applying a roughly 2% move potential this week. that's not a lot given the volatility. you can see out into the future, they are not expecting much volatility out past the fed meeting into september, october, even into december. the numbers are roughly the same here. as for why this is happening, they've been trying to find a bottom for a long time. buying protection has not particularly paid off except for that one period about two weeks ago. i think a lot of people closed out at that point. the market is betting that the fed move one way or another, whether they raise rates or not, is not going to result in too much volatility this week. i'm not sure i agree with that. that's the way the market is reading it. the dow up 28 points. carl, back over to you. >> let's get over to the bond pits. rick santelli is at the cme. >> hi, carl if we look at the data objectively, you can make a case that retail sales certainly wasn't terrific. but there was no -- there were no negative surprises. the rest of the data didn't matter as much as retail sales. so the hurdle mentality of, listen, there's only a few numbers before thursday, we're not sure if it will make a difference or not. we're not sure what will make a difference. but the fact of the matter is no negative surprises, and the market responded as if it was a much stronger number. look at an intraday of two. everybody is watching short maturities because of clues. 74, 74.5 base points is magic for a two-year. we have not seen that level since mid 2011. i went back on an intraday, i looked at the last 31 days. about ten times we traded dramatically intraday above 74, 75 base points. have not closed above it yet. that's significant. two days of 10s and 30s, same dynamics in place, and it escalated because at of the technical nature of trading. if we open the chart up to july 21st, 22st for 30s, that's the last time we closed above 3%. switch gears to currency. so much talk in the market post abbe and post bank of japan. look at the year to date chart. we've been flirting with 1.19 a lot. same is true about the dollar index. we're stronger than the middle of the year but it's in the middle range when you look over the last several months. carl, back to you. when we come back, kyle bass on china, the fed, and his battle against big pharma. david has that exclusive. later, it's been 5 1/2 months since godaddy went public. we will talk to the ceo. dow sup dow is up 31. awe believe active management can protect capital long term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform. because active investment management isn't reactive. it's active. that's the power of active management. ♪ 800,000 hours of supercomputing time, 3 million lines of code, 40,000 sets of eyes, or a million sleepless nights. whether it's building the world's most advanced satellite, the space station, or the next leap in unmanned systems. at boeing, one thing never changes. our passion to make it real. ♪ twitter share holders may have to be patient when it comes to the naming of a new ceo. the selection process could stretch into october or november. the board is certainly not going to be rushed into this. that comes after "vanity fair" reported that the board begged dorsey to take that job at a meeting earlier in the year. >> i know -- one thing i learned in my career is if someone has a better handle on things than you, don't feel you have to invent it. i think peck who at a 50, talking about bob peck, didn't like it. when he turned bullish, mentioned the losses and wins. but as this thing gets down, it's much more attractive. the october rollouts will be very exciting. i think this is an exiting situation. the man who hated it has turned positive when everybody else has turned negative. that says, listen, he's the axe who am i to say -- i find product improved every time i go the wife said no tweeting for a week other than once a day when she was still sleeping. i come back, i think the product is vastly improved and it's being improved. i'm getting bullish because peck is getting bullish. i've been wrong. i thought the charges would be current. i think you have to look at the product. the product is getting better. anyone who hasn't been on it in a while ought to look. >> as for the ceo search, when they first said they were looking, when they said they were looking, it was three to six months. you would love the earlier side of that. dorsey was always the first pick, but will he give up square? that's a nonstarter. my understanding is he has not been willing to give up ceo square, which is expected to come public. you can imagine, how could he be ceo of two public companies? if that's the case, they have to keep looking. >> the longer it goes on, if the stock keeps sinking again, people will say listen, i want in. i want this company. a lot of companies on the web, a lot of these companies that were unicorns, they die. a lot of companies need growth in the space. i could name one, yahoo!. yahoo! won't do it. they should do it, but they don't want do anything that i can see that's break through. but this twitter, again, it just keeps going lower. if it keeps going lower, it's auction time on twitter. >> dow is up 37 points. don't go too far. k. lease the 2015 gs 350 with complimentary navigation system for these terms. see your lexus dealer. it took joel silverman years to become a master dog trainer. but only a few commands to master depositing checks at chase atms. technology designed for you. so you can easily master the way you bank. i could get used to this. now you can, with the luxuriously transformed 2016 lexus es and es hybrid. ♪ nice have cramer back. is skinny here to stay, a growing number of packages that are the skinny packages that don't include disney channel and espn. this is interesting. talking about the liability of fixed sports. liability. geez, because of the step up in pricing. bob iger is buying all the shares. but this piece is the type of piece i find quizzical. using a $6 number in 2017. why would you sell it here given cash flow generation, star wars. if that's the case what is the rest of tv like? what is the rest of tv like? >> this week goldman sachs media telecom conference begins not far from here. i'll have a lot of these guys. >> viacom. >> time warner. >> certainly trying to answer these questions about what's going on in they're industry. >> do i need go there or can i watch it on netflix after? >> maybe you can download an app and watch it on your phone. >> i don't think you need go anywhere or do anything. >> they're talking about 3.5 million skinny subs by year-end. 2.5 million without espn? >> i don't know. as a great concession to the wife, i said i'll watch princess prid bride, netflix wasn't on in italy. but we paid 4 bucks to rent it on amazon. >> they're still making money on that movie? >> one of the best movies ever made. >> it is great. my father -- prepare to die. >> what's on mad tonight? we have tom pike of quintile and fogo de chao. you have eaten there yet? >> no. >> steakhouse. >> welcome back. >> thanks. i missed you guys. >> we've missed you. "mad money" 6:00 p.m. eastern time. when we come back, kyle bass and business inventories. bring us your aching and sleep deprived. bring us those who want to feel well rested. aleve pm. the only one to combine a sleep aid... plus the 12 hour pain relieving strength of aleve. be a morning person again with aleve pm. at ally bank no branches equalsit's a fact.. kind of like mute buttons equal danger. ...that sound good? not being on this phone call sounds good. it's not muted. was that you jason? it was geoffrey! it was jason. it could've been brenda. my name is watson. i'm helping doctors keep people healthy. take ted here. i'm pulling together data he shared from his wearables, health records and family history, so we can analyze it. he's doing everything right... for the most part. no pain, no gain. you are a beast, ted. my name is watson. how can i help you? it's more than tit's security - and flexibility. it's where great ideas and vital data are stored. with centurylink you get advanced technology solutions from a trusted it partner. including cloud and hosting services - all backed by an industry leading broadband network and people committed to helping you grow your business. you get a company that's more than just the sum of it's parts. centurylink. your link to what's next. good tuesday morning. welcome back to "squawk on the street," i'm carl quintanilla. looking at the markets. hanging on to modest games today. the fed meeting gets underway tomorrow. rick santelli has breaking news on inventories. >> july inventories, so it's the first business inventories number of the third quarter, it's up one-tenth. as expected. last month being the last quarter of the previous quarter was originally up 0.8, now up 0.7. it's that type of inventory move that we experience on the june read that gave us a big revision to old gdp numbers in the second quarter. starting out on the slow side, but inventory builds and whether customers buy the widgets we stockpile has huge ramification force gdp. simon? >> thank you very much. we are up 52 points on the dow. stocks are edging up as retail sales continue to rise in august. everybody waiting to see what the fed will do on thursday and then the accompanying news conference. for more on the markets, michael hanson, senior u.s. economist, bank of america. and dan greenhouse of btig. guys, good morning. michael, let me ckick off with you. retail sales looked solid. not spectacular but solid. where does that leave us? >> that's right. we had upward revisions to july. we are actually tracking now a bit better than 3% growth for the third quarter. that's obviously one thing the fed is keeping a close eye on, the economy on a sustainable growth path. the data today suggests it is. does that mean they'll hike on thursday? >> it's been our call for a while, while it's a close call, it's probably better than not that they'll hike. granted inflation is still low. they seem willing at least for now to look through that. >> dan, i'm glad we have you on here. if i'm reading your notes correctly, you thought there would be a rate rise on thursday. you're moving away from that. correct? >> we thought that they would hike in september. we sort of articulated initially the one and done argument as far back as the fourth quarter of last year and held to that until last week. at this point, you have to believe that the market as traders, investors more generally haven't coles wealesc around a decision to hike. i don't think their first hike in ten years, i don't think their first hike in ten years should be a surprise. >> dan, how do you view a rate hike? is it a mechanical thing? is it a psychological barrier that you break through? the reason i ask, let's say on thursday they say let's hike by 15 basis point the and do everything in our power, move the dots, the way we talk to suggest there won't be many rate rises from here on the horizon. can you defuse the effect on markets by doing that? is it psychological or mechanical? >> it's -- the easy answer is both. the latter point of your question, the latter part of your question is considerably more important, i'm sure michael would agree. the fed's guidance about what it will do going forward is more important than whether they will hike or don't. i have had numerous conversations with clients about whether the fed will do a micro hike. i can tell you with near certainty that clients do not want to see a 10 point or 15 basis point hike. i don't know what the right word is on tv, but didn'ts do not want but clients do not want to see a hike. >> both stan fisher and i think lockhart said the first move will be 25 basis points. it's about the communication thereafter. i think the fed is trying to hard to emphasize gradual pace. a lot of accommodation in the system and this is the first of many steps overtime, very gradually. if they're data dependent they won't hike for the sake of hiking. they'll hike in response to the economy. again, obviously a close call. i would say the economy is doing well enough for the fed to start liftoff. it's not a big surprise for the markets. >> so how do you think they will react? have you moved into this camp that says actually it could be positive? >> well, look, there's certainly a risk that there will be a short-term telloselloff. as we go further out, is this a much more sustained hit to market psychology? i'm not concerned that's the likely outcome. certainly some risk. that depends on what happens in china and elsewhere in the globe. >> dan, where is the opportunity here for investors? >> to some degree it's been given already with the market's delclin decline. our argument is that the fall would prove a much more attractive investment opportunity than the time period before. i think largely speaking that was in line with our view. from an investment perspective if you think, as michael articulated and we would agree, that the bull market does not end with the first rate hike and you think higher equity prices are the way in the future, the investment opportunity has already been presented to you. the question comes how much further do equities have to run before the cycle runs its course. >> what's your view of that or feeling of that dan? >> i'm not above telling you i'm not sure right now. i think -- listen, economists and strategists have spent years not calling bear markets, not calling recessions. i'm going to be one of the many that misses the next one. i think you do have room to run here before the cycle ends. >> the waiting game is almost over. thursday approaches. dan, michael, thank you both for your time. >> thank you. sticking with the fed t has been nine years since the last rate hike. our senior economics reporter steve liesman has a look at the economy then and now welcome. >> thanks, carl. you can tell by looking at the data why it's such a tough call for the fed. the last time the fed raised rates in 2006 is very, very different. we will start with the unemployment rate. it was 5.6% in 2006. now it's 5.1%. payro payrolls, around the same place. those look okay. the participation rate, that creates a huge argument of just how much slack there is in the economy, how wide open the federal reserve should be. moving on, looking at some other data, the fed will be looking at and comparing between then and now fourth quarter -- much stronger growth in '06. today 2.67% with the sense that the underlying growth of the economy is lower. and look at the difference at the inflation rate. nearly 3%, and the dow much higher. the ten-year much lower than before. even the funds rate, where they're starting -- starting at zero. back then they were raising from 5 to 5 1/4. there is no play book. everything is up in the air. >> do you think it was a mistake in retrospect to set an inflation target? >> i think that's the way modern central banking theory says the fed should run it. what may be the mistake -- a lot of conversation about this, debate and argument, did they set it too low? if they need to get it up to a higher place, setting that 2% suggests maybe they should create more fear or concern about inflation in the economy. >> my god, i would thought they would cut it wouldn't they cut the target and say we're in a low inflation environment. >> that's where we should be. no. >> really? >> because they believe in the efficacy of 2%. they want to aim for 3%. >> what struck me is the fact that they started raising rates in 2006 which was so close to 2008. just a two-year gap. >> finishing the cycle then, simon. they had been raising for a while. >> that was not the beginning. >> that was the last rate hike. >> the point is the cycle then, was so much shorter than we are now. we've been at zero for so long. we're not anticipating a great move in the business cycle at all. back then it was moving rapidly. >> there was no ipad, no iphone. as somebody else said with the fed -- when the fed raised rates back then, there was no twitter to tweet about it. could you imagine that world? >> but there was 4.25% gdp growth. >> yeah. that was a one off -- >> when do we see that again? >> probably not. the notion that the -- if you take productivity growth and population growth, the two essential elements that go into growth. both of those are quite a bit lower. >> does summers have a point that the market is not ready for this? >> i've been trying to think of one of those -- remember if the glove don't fit you have to acquit? i was trying to think of one of those for the fed. the one i came up with, tell me how this is. >> -- >> if you don't know, they probably won't go. >> don't know what that means. >> if you don't know if they're going to hike -- if you're not sure if they're going to hike, then they are probably not going to hike. i would think they would go into this meeting with this monumental, historic action. my idea is if you don't know -- >> they made it this way. they created this situation. >> that's true. >> entirely of their own creation. >> if you don't know, they're probably not going to go. >> i think you're off to a promising start. >> it's all i got. i've been trying to do all kinds of things. if it's not clear, it's probably not here. that's the best i can come up with. >> steve liesman. >> keeps trying. >> big news out of the frank fort motor show. porsche unveiling a potential competitor to tesla's model s. what that all means for auto stocks when "squawk on the street" continues. can protect capital long term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform. because active investment management isn't reactive. it's active. that's the power of active management. prge! a manufacturer. well that's why i dug this out for you. it's your grandpappy's hammer and he would have wanted you to have it. it meant a lot to him... yes, ge makes powerful machines. but i'll be writing the code that will allow those machines to share information with each other. i'll be changing the way the world works. (interrupting) you can't pick it up, can you? go ahead. he can't lift the hammer. it's okay though! you're going to change the world. and i am a certified arborist for pg&e.ughes i oversee the patrolling of trees near power lines and roots near pipes and underground infrastructure. at pg&e wherever we work, we work hard to protect the environment. getting the job done safely so we can keep the lights on for everybody. because i live here i have a deeper connection to the community. and i want to see the community grow and thrive. every year we work with cities and schools to plant trees in our communities. the environment is there for my kids and future generations. together, we're building a better california. germany's vw unveiling the battery driven porsche that it says will beat tesla at its own game at the frankfurt motor show. the road-hugging four-seater prototype may resemble the 911 but accelerates faster than its gasoline powered ancestor. hitting 62 miles per hour in 3.5 seconds. more importantly it can recharge to 80% capacity in 15 minutes. that's half the waiting time required for elon musk's model s. >> we are proud of tesla as a competitor. we accept that. but porsche always wants to do it better. the facts and figures of that car, we will launch today, that should be better than everybody in the market. >> that said, the germans seem to lack the conviction of their billionaire rival. vw says a decision to put the vehicle into production will be made at the end of this year with a launch date of 2019. all that as gm's mary barra says the automaker has sufficient scale go it alone and that a tee-up with fiat chrysler is not in the share holders best interests. >> right now in florida, huge news from jeff besos, and blue origin. he is announcing they're investing $200 million into florida and will be building their reusable launch vehicle there. let's listen to what bezos has to say. >> you residents of the space coast have enjoyed this for -- >> they will also be building an engine, american made engine which the united launch alliance can use in its rockets. this is a big deal. this is the third of the so-called new space companies which is setting up shop in florida after spacex and sierra nevada. it's rejuvenated the space coast. and it's unusual because bezo's never talks. if you want to see what he's building, we have a short video of that right now. watch it real quick. >> our next speaker is a native floridian -- >> it is a reusable launch vehicle and rocket completely reusable that will go straight up to the edge of the atmosphere, stay there for three minutes and land back, kind of vertically on the surface of the earth again. he's planning it for tourists and maybe for some research projects. it's not to carry cargo or take crew to the space station. it's his first effort to get something up and down. also working on the enjoin. this is big because bezo's never talks about blue origin. it's very secretive. we have no idea how much money he has invested in it today he's announcing a $200 million investment in the state of florida. he will be launching from the cape. >> what is the aim here? what is his dream? what is he trying to do? >> he's trying to build a space company. he won't reveal where he wants to go with it. he revealed there's a second space vehicle, an orbital vehicle which they're starting to work on. he's taking baby steps. what has been surprising is that united launch alliance, which is this consortium between boeing and lockheed martin, united launch alliance chose blue origin to build its next engine. it's a virtually untested company. that's what is so fascinate being it. congress is insisting that ula no longer use russian engines. whether blue engine will have its american made engine in time, we'll see. bezos hopes to have the engine ready for ula by 2017. >> jane, thank you very much for that breaking news. let's turn to the discussion that we were having on the automotive sector, not least of course, porsche with its new electric vehicle. and gm's mary barra suggesting she can go it alone and she doesn't need a tie up with fiat chrysler. david wiston is senior equity analyst with morningstar. good morning. >> morning. >> is it in share holders interests not to do a deal with chrysler? >> i totally agree. i do not think gm needs fca at all. gm is merging with themselves still. it makes no sense to throw the divisions of fca on top of that. there's a lot of product overlap. gm can get the scale that they need without fca. >> okay. let's talk about tesla and this electric car from porsche at the frankfurt motor show. bmw launched their own. perhaps not sold as well. how big is this threat from the germans? >> it's going to make the space more crowded for tesla. at the same time it may spur more interest in these two. what's interesting about that new concept vehicle from porsche is the voltage is much higher, roughly 800 volts. the tesla super charger is about 480 volts. that's why there's a faster recharging time. if you're porsche, you have to have the infrastructure in place. >> what about the stocks in the sector, ford for the year now is down 10%. are you disappointed that the stocks have not done better. i have been telling clients gm and ford are cheap. both companies are about to kick some serious butt in the earnings realm. gm sells roughly over 3.5 million units more a year than ford. they always had the size but not the scale. they're on the verge of getting that scale. when they do, it will be a different company. even without full execution, you're talking a $5 per share company next year. >> we keep hearing how great the automotive sales are in the country. >> we'll hit 17 million. that's a great figure. everything is rock and rolling. yet the stocks don't respond, despite what you said to us. i'm not sure if we can throw up year-long charts, but they're not performing which the rhetoric suggests they should do. >> i agree with you. i'm frustrated. i'm always willing to say i'm wrong, but when you have a company that's not transformed themselves yet, but will, also buying back share and paying with a generous dividend yield, for this stock to be trading at mid level multiples, it's ridiculous frankly. >> then there's the issue of porsche. people wonder whether or not porsche who has a concept car now, which ostensibly will look like tesla's car, whether or not these big players despite their capital and history are too late to catch musk. >> i guess that depends on how much a fanatic you are about tesla. they have a strong loyalty base. but they're still a very, very low volume manufacturer. people forget that. people forget growth is not free. these factories cost about $5 billion. tesla was able to get supplier partner to pay for one in nevada. if tesla is serious about bringing electrical mobile to the masses, it will take a lot more factories, many billions of dollars in cap x. this is not free. this is not apple. they're still selling cars. >> thank you for your time. when we come back, hayman capital's kyle bass will join us for an interview. we'll get his take on the haven't market volatility, the slowdown in china and what he's investing in now. don't go away. or the freedom to choose what doctor you want to see. so if you have medicare parts a and b, consider an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, these let you choose any doctor who accepts medicare patients. you're not stuck in a network, because there aren't any. plus, these plans help cover some of the part b medical expenses medicare doesn't pay. so why wait? call now to request your free decision guide and find the aarp medicare supplement plan that works for you. like all medicare supplement plans, you'll be able to stay with the doctor or specialist you trust, or look for someone new - as long as they accept medicare patients. but unlike other plans, these are the only ones of their kind endorsed by aarp. rates are competitive. so call today. and learn more about choosing the doctor's you'd like to see. go long. let's get to the cme group. rick santelli in the santelli exchange. >> i would like to welcome peter bekfer as my guest. thanks for taking the time peter. >> thank you, rick. >> on this trading floor, there's a popular refrain for those who don't want to see the interest rate subsidy go away. this was list in the "wall street journal" about all the countries that thelma and louise raised interest rates only to lower, that's the refrain for our central bank for many investors. what's your thought on that log logic? >> in a perfect world, interest rates would go up and down based on supply and demand for money. central banks need to get off this idea that you're either in a rate cutting cycle or a rate hiking cycle and you can never get off until you firmly change your mind. interest rates should go up and down. i don't fault other central bankers for trying to raise the cost of money and having to respond to lower them. that's what interest rates should do. that's what any market should do. go up and down depending on the supply and demand for money. >> so you're saying the cost of capital ought to have actual price discovery? you will be banished, peter. >> i know. i know. >> now, let's get down to the nitty gritty. do you think we're going to see a normalization of rates on thursday? >> i think they do raise rates but are extremely dovish and let the markets know they won't do it for a while. i think the criticism that they've been under in -- that they're under the thumb of markets at all times, they need to get out from underneath that. they feel if they raise rates and are dovish, it won't be that much different than doing nothing. by doing nothing, they are telling the world there will be a better time to raise interest rates. seven years into an expansion, at least with the stock markets, since that is their third mandate, the third longest bull market of all time, i don't know why they think by waiting that there will be another better time. i said this for years. there will never be the perfect time to raise rates, especially when you've been stuck at zero for seven years. you brought up the definitive issue peter that is the length of the current bull market. we can slice that in a variety of ways. business cycle is long in the tooth. in the end, i'll ask another simple question. was do you think the chances are of a global recession in the next 20 months? >> greater than 50%. >> wouldn't that alone be a reason to be more circumspect about the ability to deal with something along those lines when you're at zero? your final thought. >> no question. but central bankers are guaranteed a messy outcome from the reversal of policy. we either get it over with now or it will be worse down the line. there will be a recession when central bank policy reverses. as night follows day, a recession follows expansioexpan. we have to look at it as a healthy cleanse rather than something to avoid at all costs. >> i like your cleansing analysis, because a lot of garbage is stuck in the global and credit economy. i don't see a way for it to exit. carl, back to you. >> thank you very much. let's get over to sharon epperson and get a cnbc news update. >> a massive firefighting effort still has not made much of a dent in california. 23,000 people have been displaced. hungary's foreign minister announcing that the country will build a fence along the romania border. so far 174 migrants have been arrested today. new laws now make it a criminal offense for damaging the country's new border defenses. israeli police armed with stun grenades and tear gas clashed with rock-throwing palestinian youth who barricaded themselves into a mosque. it's the third straight day of violence at the sacred site. taco bell will begin serving wine, beer, sangria and frozen mixed drinks at a location in chicago next week. marking the first time it will sell alcohol in the united states this as it attempts to increase appeal to millennials. that's what we're watching this hour. back to you guys. >> sharon, thank you very much. still ahead, an exclusive interview with hayman capital's kyle bass, courtesy of david farbs faber. [ male announcer ] whether it takes 200,000 parts, ♪ 800,000 hours of supercomputing time, 3 million lines of code, 40,000 sets of eyes, or a million sleepless nights. whether it's building the world's most advanced satellite, the space station, or the next leap in unmanned systems. at boeing, one thing never changes. our passion to make it real. ♪ my next guest can't seem to keep himself out of news even when he's not on cnbc. he is ryan bass. he's been in the news because hayman has been challenging weak patents to the pharmaceutical industry that it feels do not deserve to be enforced and has been using a mechanism to do that that was developed a few years ago in a particular court and getting feedback for the effort. kyle bass joining us from san francisco. let's start there, if we can. you have gotten a lot of attention, even though you have not spoken publicly about this. why you are challenging these patents? you already lost the first two that you have challenged. many say you won't win any of them. >> well, if i listen to many throughout my life i would have never found any of the successes that i found so far. number one, i don't like listening to the many. second of all, when you understand how the pharmaceutical business works, and how you really look into how drug pricing works, it really got under my skin when i met my partner, eric spandenberg in dallas it came to the point where there are plenty of pharmaceutical companies that innovate. we are filing challenges on those drugs that allege innovation, that might be a dosing change. things that are silly that shouldn't be backed by the u.s. patent office and shouldn't allow them to have monopolies. we stated pubically in a filing with congress that we'll file on less than 1% of the drugs that exist, but the ones we're after are the egregious examples of evergreening which cost the public at large tens of billions of dollars of year. >> you call your effort the coalition for affordable drugs. you formed a fund to raise the money to invest here and pay the fees needed as well. many say you're shorting the stocks in question, potentially benefiting if these patents are disaloud lowed by the entrants competitor. what do you care if drug price are higher or lower? this is just about making money for your investors, isn't it. >> gosh, i don't know where to start. i hope the irony is not lost on anyone that the drug companies and their lawyers are alleging that i have a profit motive. very few people are going to undertake a crusade like we have without a profit motive. i'm sure there are few, but they are far and few between. when you look at the sale ga allegations, we have been in a fight with celgene. they have a drug that's been around for a couple decades and shouldn't be under patent. they raised the price of that drug, you know, 400%, 500% in the last several years. and yet they have the ability to do so because the government enables them to do this through an evergreening patent portfolio. and we're challenging what we think are the worst patents. there are 3500 drugs in the system, we will file on less than 1% of the drugs in the system. the fact that we have a profit motive is a truthful irrelevancy. if we win, it benefits the public at large, both the public and government. and otherwise what happens is the drug companies, when they fight between a generic and a branded drug company, what you see is they end up settling all the time. nine times out of ten there's a settlement where they agree to share monopoly profits or there's a pay for delay for generic entry. if we win, we enable generic entry of these drugs in very high priced scenarios, we bring the prices down 80% to 90% if a generic is allowed in the market. >> you know, kyle, you lost your first two challenges. i read some legal analysis in which people question the thinking behind the patent trial and appeal board, the ptab, if you will, that was set up to move this patent process along more quickly and discourage patent trolls. you lost the first two and you are facing a fuselage of criticism from the pharmaceutical industry, which is well funded. you are a fiduciary. why not just say maybe we're taking on something too big, not worth my time. fold it all up, return the money to investors, go home. >> number one, i'm not a quitter. number two, we filed 36 challenges so far, david. the first one, the patent office threw out on a technicality. basically asserted that some poster boards that evidenced prior art at various neurological conferences weren't sufficiently documented and publicly available, within a couple weeks the ptab asserted that an obscure russian thesis that exists in one place in russia was significantly public accessible to be deemed prior art. in our opinion, they hold us to a higher standard than the rest of the market which is expected. in the second one that we lost with biogen, the patent office got it wrong. they said a phase two clinical trial did not construe prior art, that's in direct opposition to what the appeals court has said in the past. michele lee, director of the patent office, we think she could be influencing the judge there's and playing a political game and not allowing our challenges to get heard on the merits alone. they would like to have our challenges thrown out. we refiled the first two and two more on accorda and are reviewing our options. in the end we'll fight this fight. we're well funded and have all the time in the world the way we have this set up. we want our challenges heard on the merits. if we win, drug prices get lowered for everyone. it's a fun fight so far. look, like you said, pharma has spent $3 billion lobbying congress in the last 14 years. they're number one. >> they're number one and they're trying to get congress to exclude, if you will, this drug patent review -- the kind of ones you're sending to the ptab, they're trying to get them barred. they may be successful in that given the success in the past that would seemingly end your pursuit. >> i know. i mean, think about how funny it is that an industry can pay enough on both sides of the aisle of congress and the senate to say, you know what? there's an intellectual property law passed in the united states. we want it to apply to everybody else, all the other industries except ours. the fact that the senate was even considering that was, i think, silly. and then what you heard was the cbo scored it. and the cbo said, well, on the minimum it will cost taxpayers 1.3 billion. on the upper end it will cost 93 billion. we just don't know because we don't know how the cases will roll through the patent office. so if you look at congress and the senate today, if the cbo scores 1.3 billion on the low end, they'll have to find 1.3 billion in budget cuts, which they can't do. so i don't think they can exclude themselves from intellectual property laws. >> it's a conversation due a lot more time. we have more things to get to including a new thesis you developed on china and the emerging markets. let's take a break, then we'll come back and focus with kyle bass of hayman on china, on fx reserves, and what he thinks may take place over the next coming months. we're back on "squawk on the street" after this. it's more than a network and the cloud. it's reliable uptime. and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next. i'm watson. and today hundreds of companies are putting me to work. i'm teaching watson to help your vet speak dog. you're a dog, right? i'm teaching watson to help you make healthy choices. i'm teaching watson to help design a vacation around your personality. don't judge. i'm teaching watson to answer endless questions. how big is infinity? where do babies come from? why can't i have chocolate for breakfast? i'm watson and i'm ready to work with you. if you didn't have enough to worry about as a stock investor, should you start worrying about a possibility of a government shutdown? one investor says yes. we'll tell you why. the e-class has 11 intelligent driver-assist systems. it recognizes pedestrians and alerts you. warns you about incoming cross-traffic. cameras and radar detect dangers you don't. and it can even stop by itself. so in this crash test, one thing's missing: a crash. the 2016 e-class. see your authorized dealer for exceptional offers through mercedes-benz financial services. >> an hour and a quarter into trading, we're getting a nice rail rally. up 152 points on the dow. s&p 500 on session highs. the industrial sector is leading tha that. >> all those sectors in the green, like you said, the industrials are competing with technology. u.p.s. has given a boost to the sector on news that it will hire up to 95,000 seasonal workers for the upcoming seasonal shipping season. fedex is also moving. unite the rentals, joy global also higher. industrials a bright spot in this large sea of green in today's trade. over to you. >> let's get back to kyle bass from hayman capital management joining us from san francisco. you developed a new thesis involving china the slowdown on that country. the impact it's having on foreign reserves. even more importantly the impact on banks, both within china and within the emerging markets and on the reserves that they have as well. tell us exactly what it is you're targeting at hayman and what you think will happen. >> i think that when you look at what's happened for the last decade, as you've seen flows into emerging markets. you have seen developed nations run big current account deficits, and the other nations run current surpluses. what we're seeing now for the first time in a long time is a huge fx reserve drain. i think you have to think about this conceptually from the top. in 2009, when the global financial crisis was at its peak, q1 of '09, you saw the chinese banking sector grew exponentially. it added 50% of gdp in 2009 and 2010. chinese bank assets since 2007 are up 400%. let's talk dollars. they're at $31 trillion against an economy that's got 10 trillion of gdp. the chinese banking sector is 310% of gdp of assets. when you run a bank expansion that aggressively, that quickly, will you have some losses. our assertion is you're just entering the nonperforming loans cycle in asia. let's forget about chinese stocks for a minute. if you have 30 trillion in your banking sector and you lose 10% of assets, which we think is likely, you will lose $3 trillion. when you break down the fx reserve pile, it's kind of a loo known that they will have to raise more bonds and debt. that holds true japan asia. you look at malaysia, they have almost 700% of gdp in the banking system. it's run by someone that has magically found almost a billion dollars of money from his sovereign wealth fund, arresting people and journalists who cover this story, it's becoming problematic all over asia with fx reserve tradrains and the si of host banking systems. this is causing these banking systems to have stress now industrial production is looking lower. double digit deliclines in industrial production. those watching stocks going up and down are not paying attention to the real problem, the problem is the loans through this banking sector. >> to your point, kyle, even though china may suffer from this, given they do have 3.5 trillion in reserves still, do you believe that some of the smaller economies you also described are much more at risk, if so how do you go about benefiting as a hedge fund manager? >> well, our job >> spotting situation spz hedging them and investing around them, and in this case i think with emernling markets, i'm telling you global gdp is going to slow down more than people think it is. that doesn't mean the market is at risk. i think the u.s. market and the u.s. may grow instead 6 one to two. it may grow -- or instead of two to three, it may grow one to two. they hope that portfolio sfloes plug these holes because they have the last 25 years. that's not a hope. the upper investment strategy wrshz hose foez that are reserve managers and for those that invest in emerging markets, you better pay attention to the size of their banking systems, and you better think about what the losses are going to be when they run a regular nonconforming loan cycle lou their bank. what we're looking at are the countries around the world that run deficits. they have to come back to some level of competitiveness. we talk about this race to the bottom and this currency war. what's happening as we speak and china just let really just started with it devaluation process. >> i can remember having a conversation about your views on japan, which you formed four years ago. the interest rates would rise dramatically there. sfla that hasn't happened. i make the point simply because even though -- and i did -- like a sound one. it doesn't always pan out. what gives you the confidence in this case that you are going to be right? >> yeah. so let's revisit japan, david. they were -- >> we don't have a lot of time to do that. >> yeah. all right. quickly, there are two vows in japan. one is the currency. one is rates. what we did is we positioned three-quarters of our money roughly in the currency and a quarter in rates. we were wrong on rates. we were very right on the currency. can you see the data, and you can see the banking systems. in china alone loans greater than 90 day past due grew 167% in the first half of 2015. it's happened. we're already here. not forming loan cycles take -- we're one to two quarters in, and the next two years are going to be tough. that doesn't mean the end of the world. it just means you better pay attention if you have a big em portfolio. >> we will be doing that, kyle. always about to hear what -- things we don't typically hear about, and very much appreciate your joining us. kyle from haiman capital. joining us from san francisco. thank you, kyle. just want to draw your attention. we're bouncing in and out of corrections territory defined by 10% move on the dow. if the dow pulls above 16516, then it has declined less than 10% from its may 19 high. we'll be right back. here's a little healthy advice. take care of what makes you, you. right down to your skin. aveeno® daily moisturizing lotion with 5 vital nutrients for healthier looking skin in just one day. aveeno®. naturally beautiful results® at ally bank no branches equals great rates. it's a fact. kind of like shopping hungry equals overshopping. this is a great place to work. not because they have yoga meetings and a juice bar. because they're getting comcast business internet. comcast business offers convenient installation appointments that work around your schedule. and it takes- done. - about an hour. get reliable internet that's up to five times faster than dsl from the phone company. call 800-501-6000 to switch today. perks are nice. but the best thing you can give your business is comcast business. comcast business. built for business. >> we got the ceo of go daddy, and the ceo search, and alibaba investor will weigh in on that, and the ceo symphony, the new messaging platform. all that and more coming up on "squawk alley." surprise!!!!! we heard you got a job as a developer! its official, i work for ge!! what? wow... yeah! okay... guys, i'll be writing a new language for machines so planes, trains, even hospitals can work better. oh! sorry, i was trying to put it away... got it on the cake. so you're going to work on a train? not on a train...on "trains"! you're not gonna develop stuff anymore? no i am... do you know what ge is? sup jj? working hard? here at the td ameritrade trader group, they work all the time. working 24/7 on mobile trader, rated #1 trading app in the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of the other competitors do in desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivative pricing model, honey? for all the confidence you need. td ameritrade. you got this. good morning. it's 8:00 a.m. quarters in palo alto, california. it's 11:00 a.m. on wall street, and "squawk alley" is live. ♪ ♪ welcome to "squawk alley." it's great to have you back. >> thanks. >> john is here. kayla off today on a day when the markets are starting to g

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