Transcripts For CNBC Squawk On The Street 20151020

Ibm shares as carl said moving in the opposite direction at least eight firms cut their price targets on the stock, this after disappointing sales and guidance. Tim cook optimistic about apple music and its more than 6. 5 million paid users. First up, yum brands announcing plans to split into two publicly traded brands, yum brands in china. Them focus on expanding those chains around the world. That separation expected to be completed by the end of next year and continues this trend of Companies Like alcoa, ge trying to spin, sell off, divide into two. Yeah, i mean, my problem here is that i dont like when this is happening, its happening at a time when there still isnt any stabilization in kfc. Taco bell might be added to china. They dont have taco bell in china, but it could be introduced over time, yes. New ceo, members from taco bell. The new ceo of china or yum overall . Yes, the new ceo for china, he has a good reputation. Look, i think that this is something that weve wanted. I would have liked it not to be done at the point of a gun, which i think you can tell us more about corvex and what happened. April Keith Meister introduced the idea of a split, at least to the public, but it does appear as is often the case that this is not something that was foreign to the company, jim. Right. It had been something they certainly had been thinking about and taking a look at was their pace quick nd as the result of him showing up as a Significant Shareholder and publicly stating he wanted to see this ham . Probably. Last week he was added to the board of directors. Right. Well, now they got it done. Now, its not as though they got it done in a weerks theyve been working on it for quite some time. To your point certainly it does look given the volatility in chooip as though somehow its a response to that, but it wouldnt seem to change much about how theyre going to go about operating in china. Now you are going to have a chinafocused company solely, which is going to own the restaurants that will be franchised to the yum brands, which will, by the way, become a noninvestment Grade Company so they are going to split it, then add a lot of debt to yum brands so they can return capital, operate this thing at four times, 4. 5 times. And i wonder whether thats not a risk if sentiment changes towards these high levered companies. I think dominoes went for that model and it worked. And it worked. This is probably the stock it up more because of that than it is actually up because of china. Remember, one of these these ease is that we have 7,000 units in china, we can put up far more. Mcdonalds has 18,000 units in United States and theres also youre buying these units at a very low pay back right now, very cheap. In other words, you get depressed numbers for average unit volume. If they can get the old numbers back then you will have a very inexpensive company. My problem is that last quarter their credibility was really shot because they really told you things were good in august and it turns out they werent. The companys response is you dont understand the volt tilt this have business and i come back and i say i dont want that volt tilt. I understand t those who want to play in china and feel left out by nike, apple, starbucks, you have a year for them to pull it together. Thats interesting. A lot of names that have been buffeted by china are resource weakness like a chesapeake or a wynn have had a miraculous october, yum has been left out of that club. A lot of it has to do with the fact that the company said things were going well and then in a very short period of time they werent. One of the things that this is not the old yum in the sense that china used to go straight up. Does seem like its week to week. Again, i dont know a lot of retailers, restaurants, that are literally week to week or month to month. They will give you transparency about the numbers. Lets say we were talking about mcdonalds and it was plus 2 down 4, plus 3. I mean, mcdonalds wouldnt be at 102, 104. In china they operate pizza hut and kfc. Kfc has been there for a very long period of time, pizza hut is the more casual of the dining experiences and thats where theyve seen nor pressure. Perhaps a reflection of where the Chinese Consumer is, or maybe not. We have gone back and forth about where things stand there. Again to put it in perspective, china owns all those yum brands is going to have 97 franchise restaurants once this thing is done t will move up quickly as a result of china, right now its about 81 but thats because they own almost all the units in china. They still have 20 margins over in china. Theyre still generating a billion dollars in operating cash. 1 billion in operating cash. In that country. Yeah. There is an opportunity to your point it gives people that is correct all right, i do want to own a noninvestment Grade Company with a stable cash flow profile thats going to return capital and or i can also go for the pure plate china now with the ups and downs conceivably but if theyre running the business well maybe more ups than downs. We have seen this. Phillip morris, fast growing overseas versus the altria. You have to separate yourself from someone who may have bought it at 85, 90 where it was not good and someone who bought it after this pre announcement and that person is feeling pretty good. I would say that it is a call not on china, but on their execution in china because i continue to believe that the consumer is doing much better in china, those auto sales are very good in china, the country is making a come back. You just have to hope that the execution has improved in pizza hut, not that good, and that the chinese suddenly discover that they like a burrito with a lot of chemicals in. You never know. Chipotle reports after the close. They have only eight ingredients in a burrito, some of these other guys have 80 ingredients. What are some of those other ingredients . Do i have to go to Westlake Chemical or or dow. Whats in those things . I mean, what is in someone give me what is that magic recipe. Final thought for me on yum if they do have that security that trades as high levered, if the high yield market runs into real problems they may fall out of favor. That at least is one potential risk here. Lets move on to ibm. Eight firms cut their price targets this morning o that companys stock after the dow component posted a revenue miss on a 14th consecutive Quarterly Sales decline. To be fair, theyve sold a lot of revenue. Ibm also lowering four year Profit Guidance in weakness in demand from emerging markets. Earlier in month on sidewalk on the streets jeannie spoke about coping with the head winds that face the company. Around the world there are different head winds that we deal with and it requires a different strategy for all different parts of the world. Obviously weve talked about currency and a number of these things before. These are all things that are part of the Global Dynamics that were managing right now, david. So that is all part about being a Global Business and all part about having a view on the longterm as well. The longterm. It is interesting, we have had two terms, ibm which has been in the midst f this transformation, if you will, making longterm decisions potentially that will benefit the company but short term dont look at the good and of course walmart last week, doing something somewhat similar. Right. Theres always the rick k its not going to work, but at the same time, jim, you always have to say, well, there is also a risk that if you didnt do it youre really dead in the water. Its easier to measure perhaps recognize the risk of action as opposed to inaction. I want to differ i think you are right in terms of what the thrust is, but going back over what Doug Mcmillan said last week, hes saying we are going to go amazon, were going to increase the revenues he didnt say that is correct youre saying he said that. Im putting words in his mouth. When you increase the revenues and dont do it to the bottom line what that says is we can be amazon, too. Take us off your screen for three years and you will think that were amazon and will pay more. Ibm i continue to wait for big clients to come in to say i want to be affiliated with ibm. Now, they do have the strategic growth businesses. Even there revenue decelerated. Decelerated growth rate 27 , i think. And when you go over an oracle Conference Call or you go over a sales force Conference Call its you listen to these huge clients that were won. Ibm does not have that. And instead you look at this older business and its dropping off too fast and it kind of takes my breath away because i dont know what they can do. I mean, ive been thinking back and forth about what they can do, can they split it up, can they try to figure out and then i come across a company that came public not that long ago called pure storage, okay, pstg, and what they said was that flash with this kind of enterprise flash is really just theyre getting killed. Whats the size of the company, 3 billion. What do cothey have bought it for a few years ago . 1 billion. Pure storage is killing them. No, theyre reactive yet, not proactive. They are, again, another year away from making a turn if theres a turn. One thing, 1475 to 1575 is a long way from 20. Remember the promise of 20 . The old roadmap that was abandoned i guess last year or a year ago. Its a tough one. Its a tough run. Now, that said the Company Still generates, what, 13 13. 5 billio in cash flow over the last 12 months. I mean, its always fascinating to watch these as they try to. Reinvent themselves, can they or can they not . The pace of change only accelerates and then its also about execution. Lets look at it this way, go back to your walmart analogy. The wall tons have clearly bought into what mcmillan wants to do, which is to grow, even at the cost of the bought ton line. Buffet, largest shareholder of ibm, is saying i dont want the growth, i want the buy back oochs and i want to be sure the bottom line is preserved. I think that the wall ton family is taking a longer term view than buffet is taking. Thats an interesting way to think about it. Youre right on the wall ton family, which controls walmart. If hes got them he doesnt have to worry. No. I have the level that he has them, its almost as if he is their view, which is that were tired of hearing about amazon being able to play with wampom, crater the Earnings Guidance and go beat amazon. Warren buffet is saying i want that buy back, i want that dividend, theyve hamstrung, they cant pay for pure storage, that might upset warren buffet. But they have done acquisitions. That wouldnt have been a big acquisition. Okay. Youre absolutely right. They will tell you that they have done today snools oodles and oodles. Have they done the right ones . If theyre saying that enterprise flash is hurting them and im not talking about sandisk flash, enterprise flash, pure storage came here and talked about the customers they are taking theyre taking ibms. Theyre taking ibms. We have a lot more on ibm and all the other earnings including utx, verizon, lockheed, harley and a lot more. Just like the eagles disney was a big winner as millions saw the trailer for the new Star Wars Film, ticket sellers felt the force as well and we will get to tim cook, his comments not just on apple tv but on the number of paid users for apple music. Take another look at premarket. Back in a minute. Tim cook expressing optimism about how apple music is faring out of the gate. Last night at a wall street journal tech conference cook said the Music Streaming Service has more than 6. 5 million paid users. Here is what else he said. Apple music i know im finding personally that i am discovering a whole lot more music than i was before. Because i was getting into a rut listening to that same old those same old songs and so i think its i think its fabulous and honestly to have, you know, over 15 Million People on there and 6. 5 million in the paid category and people just started falling off in the beginning of the month, im really happy about it. Also talked about apple tv shipping at the end of next week, said traditional tv theres 700 channels but you cant find anything you want to watch. Well, i think that i want to hear what verizon has to say about their offering with fios. When i interviewed loul mic cadden from verizon he indicated they were seeing significant pickup for that slim bundle of programming. Right. And i think the more you talk to millennials, it is true. Ive been watching disney trade up and i think that thats because espn turns out to be a little more irreplaceable than we thought. Yeah, he is right. The open secret is that from channels channels like lets say 14 to like 78 on mine, i dont know, if i dont want that crucial, you know, Catholic Pope paul vi game. Maybe i want to watch the millburn game against chatham. What are those games . I have no idea. You get up at 8 00 a. M. And go to the bar to watch them. That crucial womens lacrosse contest, i dont know if you missed it. It was a good one. Madison kept it against johnson. Thats like where i would like to see like, say, espn 2. No. Which is just highlight films of last nights game over and over again. Where is that that channel . I dont want to watch the rerun of summit high took the big match away from got it. Do we know whether apple music is a success . I dont know. You have the 40 of people who didnt take it. Spotify has a quarter of their yufrs paid and pandora doesnt break out paid. Its still early. Very early. Its early. Its interesting he said he likes younger people i know really like it, older people like me are saying, look, now i have more offerings than i know what to do with. Im deeply focused on trying to get bad blood. Bad blood. Yes. I thought it was bad blood. I thought it was like taylor swift. That is a taylor swift song. Bad luck. Thanks for clearing that up. I thought it was important. And giving us the latest rivalries in new jersey sports. Some of those are really incredible. You wouldnt even believe what soms ghost on in Central Jersey. In only channels 38 to of a had Central Jersey tv instead of bergen county. With the way sports is going you never know. It is live. Its live and hard to dvr. Curling. When we get back we will get cram cramers mad dash and s p is actually 1. 2 for break even for the year, but ibm is going to make the open a little bit more difficult. Were back in a minute. My language skills, ive read all of your lyrics. Youve read all of my lyrics . I can read 800 million pages per second. Thats fast. My Analysis Shows your major themes are that time passes. And love fades. That sounds about right. I have never known love. Maybe we should write a song together. I can sing. You can sing . Do be bop. Be bop do. Do be do be do. Do do do be do. All right. Here it is tuesday mad dash. Lets get to it. Where are we starting . Theres something happening at eton, what it is aint exactly clear. What it is here, this is oil and gas related. Youre going to start seeing these. Any company that has a line item related to oil and gas its just going to go down. The same way schlumberger said its going to get worse than better. United technology is trading up, doesnt have a lot of oil and gas, you get more aerospace and buy back being aggressive by jack hayes. This is out there. This is not part of the cleveland rent nance. When speculation starts with industrial this is the name that always comes up because inverted. Ohio company. Its in dublin. It has helped them not one bit, daftd. Paying a lower tax rate. This was frank, i have to tell you this is the industrial that people are most fed up with. Why . Because when things got better they didnt get better, when things get worse they get worse first. Its not doing the job. Somebody said how about parker hanifen, but eaten did not have such a bad business mix that they should be doing this badly. Lets move on to valeant, meg terrell was reporting on it a lot. Fascinating call yesterday morning that we reported on, some saying, whoa, did this Company Change its strategy . Now some would say no, but its a note where it takes your breath away because it says, wait a second. This company valeant a drug company is going to have to start making money the Old Fashioned way. New launches, commercial execution, r d. David, those things cost money. They do cost money and they are not the strategy thats been followed by mike pearson that has won him so many adherence certainly in the hedge fund world, namely, i acquire assets, i do everything cheaply, i get rid of people, i keep costs low, i use an extraordinarily low tax rate to help me do thindeals, generate cash flow, stay fairly levered. Thats the strategy, jim, it has been and the question is is it really a change or not . One thing they cant do is use this currency for deals. No. Valeant does not equal bristolmyers. Enough said. There you have it. Thats the mad dash for this tuesday. 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Here at td ameritrade, theyre always working. Like a custom screener on your desktop, that updates to all your devices. And you can share it with one click. Wow. How do you find the time to do all this . Easy. We combined every birthday and holiday into one celebration. different holidays being shouted back to work, guys i love this times of year. For all the confidence you need. Td ameritrade. You got this. Carl kant flquintanilla. On the street. We will get the opening bell in a couple of minutes as the dow has now joined the s p for having october be the best month of the year. Ibm is going to kill a little bit of that rally at the open, going to open down about 5 , but whats going to open down more, jim, a harley. Another revenue miss, earnings miss. The company saying the Third Quarter ask d. Not develop the way they envisioned, cutting their shipment forecast. Here is a Common Thread of the companies that blow up. Theres going to be significant spend coming up. That means that however they did the number beforehand, they didnt invest enough in the future. Thats one we heard from walmart. Significant spend needed. Its the kiss of death to hear significant spend. I was worried about albertsons, that they had to do significant spend. So when you hear that you just say, guys, when you really coasting . Polaris spends a lot and its hurt their bottom line, but i dont want to hear that a company has to step up spending. What it says to me is we werent doing it the way we should have been doing t Good Companies invest constantly, like amazon which by the way is adding 25 more people for the Holiday Season. 100,000 workers. Right. But of course the contrast amazon to walmart is that amazon has never been penalized for not earning money, has been simply rewarded for top line growth. Significant growth. Which has enabled it to constantly do exactly what you are talking about and not worry about t thats a high class thing to be able to have walmart but mcmillan is talking about were going to add this, this is all the revenues, then he names four big companies. Hes saying were going to add more revenues than you would believe and dont worry about our bottom line because were having more infrastructure than amazon. 40 bigger, amazon reports thursday night. Mahanney of rbc with a 705 target. There is the opening bell. At the big board the american israel Friendship Day celebrating israel day over at the nasdaq. A cloudbased platform that facilitates realtime interactions celebrating its 20th anniversary. Weve done ibm, done hog. Have we done utx . No. Greg hayes was the cfo, he is just a solid guy and what he has done is basically tell people, listen, its not yet, we have problems. I want to hear the Conference Call obviously. They bought back a lot of stock. They will continue to buy ak a lot of stock. As the cfo people are thinking he is making a lot of right moves buying back that stock. The stock is down a lot, unlike a lot of the other industrials and its rallying. The organic growth is not what i want, but the buy back was quite aggressive. They do affirm the full year, add 12 billion to the buy back. A lot of people thought that they were going to not reaffirm and thats a very big move for them. I think this guy hayes is good. I still think that you have to wait for otus to turn, but if he tells the story about positive otus in 2016 then the stock is probably done going down. Traveler is the best. I know you were looking at that earlier this morning. Fishman, i wish him the best of luck and the number was a good number, travelers is writing a lot of business that no one else is writing and my favorite is going to be chubb because of that combination with ace. We should mention united. United continental of course, has an interim ceo who is the general counsel who got unexpectedly promoted to that job, a young gentleman who has been with the company not that long, of course, taking over for the ceo who just took over for supply second, but unfortunately suffered a heart attack, did mr. Kn munoz. When you bring in a guy you want to generate an enormous amount of change, hes 37 days into it and then suffered a Serious Health issue. A lot of criticism about disclosures and how much do investors need to know. On the board is Walter Isaacson who went through a similar period when someone didnt know how much to disclose about steve jobs pancreatic canser he will do it right if its done right. Heart is a difficult issue. Those of us who had relatives who suffer from heart it can be more day to day than you would like. I value some of the privacy. Delta had a big move yesterday, the Airlines Want to move even though spirit really cratered. I think a lot of this is because the flow throughs to the bottom line for fuel oil, whether for for jet fuel, whether united or delta is pretty positive. Bill miller was on last week saying that this group amazing mutual fund measure still the cheapest group in the market. I think the numbers kromg back for this group sniefs surprised by the way first articles about parker and american and how smoothly that transition has been so far. Surprising. Yeah, you will want to wait and see. We havent mentioned verizon as well. We should probably get to that. The stock is up a bit after the Company Reported earnings that actually met and in some cases exceeded the expectations, the analysts who followed the enormous telecom company. 99 cents in earnings per share. Thats overel 9 cents for the Third Quarter of 14. 28. 4 billion year to day in cash flow from operations. Overall numbers not bad in terms of bottom line. Churn was good,. 93, but you are watching average revenue per user or average revenue per at, however you want to do t down, down a good amount, not necessarily more than some expectations out there, but concern about pricing pressure continues to be the over some of an over arching theme as we do watch the battles take place, not just between verizon and at t, but including sprint and of course, mr. Ledger, tmobile. The call is ongoing. Theyve hit a number of different things. Remember, the company has been in the midst of repricing its Subscriber Base with these equipment installment plans. When i spoke to Lowell Mcadam the chairman and ceo a month ago is when verizon told us were looking for flat numbers. Here is what he had to say back then. Were going into the Digital Space with aol and with our over the top would play instead of linear tv. So as you read as you readjust the model theres some theres going to be some issues with earnings and comparables. The comparables are going to be relatively flat or plateau between 15 and 16, then i think from 17 on we will be back on our growth trajectory. So 17 on back on the growth trajectory. The market treating it fine today. The yield had gotten over 5 , actually continues to be over 5 . I think you can really help here. 28. 4 billion in cash flow, very nice operating margins, 5 growth total revenues. Even though the eps doesnt look like it supports the dividend its the cash flow that people should look at. Which is why it figures so prominently in their earnings release. But that does matter. People should not be to fearful about the dividend. They have very strong down margins, always v i think the issue here is how you know, he will say, listen, the pricing envelope we can still be above the market. He did say by 15 or 20 above some of our competitors because we have the better network. That said is pricing it becomes more and more competitive and it is. They get caught up in it. So you are going to keep seeing these numbers potentially come down. Watch apple today as well. Apple is moving a little lower here, the Conference Call going on and verizon cfo does see lower q4 phone sales volume year on year, which is the big debate about whether iphone sales would go negative in the december quarter. Okay. We have to stay focused on that. And that call just ended, the verizon call. On that subject of competitiveness, again, in the call they said basically wireless has always been getting more competitive, our focus has always been competing on network quality, as i said, reliability, simplicity and thats sort of where theyre going to keep the focus in terms of the millennials especially and what matters to them. And remember they are now introducing this mobile streaming video product go 90 at verizon, no real numbers to share with us as yet other than to say it seems to be doing well, but that is something important to watch with the acquisition of aol, the advent of the streaming video product and the various things they are trying to do. A call this morning, jim, they said they also think they will be in the data business in a significant way given all the data they can capture. They want to be data center or actual right. Not just data coming over the network. They tried that once before. But actually using it as a product. To be able to win business over from others. A lot of people are saying this this is the biggest really gap between what two phone companies are. At t going directv, verizon doing these other things, they are no longer six or half dozen. Im beginning to believe that. These are diverging in a big way. Im inclined to think that at t is doing a lot of good with directv, but we have to see. These are getting very different from each other. They did buy direct at the top of the long cycle. The long cycle of how people watch things. Its like is google going to come in and buy the rights to the nfl some day . Yes. Yes. Thats why people are so worried. Lot of ads, though, good directv ads. Always good. What people are watching to a large degree are the mini pa parabolic action in nike, best performer of the dow, and then facebook was look to go make a run at 100, its 98. 70 this morning. Chapel trust owns facebook. Ive got to tell you nike you are so right. Every day someone comes out and says im a believer. I think a lot of this is because people were truly getting negative about nike in china and its the opposite. They blew the doors off in china. So its become the dee factor china play with good western europe, good United States and its just an extremely well run company. Under armour reports this week, theyre well run, too. I couldnt think of a worse competitor than to go against nike. They are to good. Yum was our lead story. The stock up, jim, but not that robust a response. Up a little less than 4 as yum brands after announcing the plan to split the company into its china operations and yum brands is an enormous franchiser of all of those restaurants. Not just in china but around the world. You can see it there. Theyve got a strong board of directors there, we were talking earlier. Keith meister is a smart guy, on the board now, do remember man and cavanaugh on that board as well. Our producer came in with some of the ingredients in taco bell and sure enough they have the cocoa powder and the salt and the phosphates and soy and wheat. This is for some of the things the sodium iocinate. You want that in there, right . I do. Though about the treahlose, thats in your burrito. I like mine without gluten. When you talk to jack that are tongue who is the cfo of chipotle, they have beef in it thats a chipotle flour. And the carnitas when you you can get them. I see what they do with the pigs, its a horrible thing, i get that, i say no mas. Down is down 75 here, a lot of that 40, 50 points of that is ibm. Lets get to bob pisani on the floor. Good morning. The dow is down about a half a percent, s p only down a quarter percent. Ibm is reflecting the difference between those two indices. General weakness, but not dramatically so. Sector wise led by energy to the down side and not surprisingly tech also there with ibm. Industrials also weak. I want to concentrate on its still early in the q3 earnings season but analysts are looking at the most important thing. Whats moving stock per fepgs now is q4 guidance. The numbers are coming down more aggressively than norm a let me give you an example. This is fact sets numbers, s p 500 was expected to be up 0. 2 . Today its down 1. 5 . You know the trend that you generally move the numbers down as youre going into the quarter but this is a little more aggressive than normal. I want to show you examples of how aggressive the numbers have been changing. Rooirt across the board it doesnt really matter what youre looking at chips had very negative posture, micron was negative, rambus was negative, ibm and tech had very tough guidance, posture was not great in agriculture from monsanto, the china consumer story wasnt looking great for yum or wynn and the commodities picture wasnt looking good from alcoa as well. Let me show you how aggressively the numbers have been coming down. If you look at ibm on monday the consensus for the Fourth Quarter was 5. 52. This morning when i came in it was 4. 92. You know, do the math. Thats like a 16, 17 decline in the numbers. That is huge for a company of ibms size and that includes tony sakinagi at bernstein, he took his numbers down overnight as well. This story about ibm not being able to replace new revenues faster with the revenues declining from the older businesses, this has been going on for years. Ibm versus the s p since 2012. The s p is up 60 , ibm is down, i dont know, what, 20 . Weve known this for a long time. The numbers are still going in the wrong direction. You can look at yum . Yum came out a couple weeks ago, today they are splitting into two companies, but october 13th just before their earnings came out the consensus was 78 cents. A day or two later the consensus for Fourth Quarter was down to 69 cents. Thats another 14 or 15 again. Thats a pretty big decline. The story about yum splitting into two companies to get a boost, but yum was 9 0rks they put up yum this year i think 90 in the beginning of the year, 72, went up to 90. A similar story with united tech, they did beat on the top line but revenues were on the light side. The guidance is 615 to 630. That sounds like good news, stock is up on that, but remember the consensus is very high, close to 6. 30. I can assure you analysts will take down their consensus by 10 or 15 cents in the next 24 hours or so on this to reflect the more cautious outlook that the company has had. They keep taking the numbers down as soon as the Company Comes out with body language badge or direct guidance. Eaten is the same situation, here is another one of those global industrials that i love, makes the stuff that a lot of Industrial Companies need around the world. Their guidance, 95 cents to a dollar, we had a dollar to 1710 for the quarter. They just came out and said we are getting lower revenues in. 70 early in the year, the cap kp is down about 25 . My point about all of this is the q4 numbers are the ones that matter and the guidance so far still very, very conservative. What this means, guys, is we have 10. 5 margins right now. With the revenues coming down at this kind of speed they are going to have to do something on the cost end. If the revenues dont come up to maintain the mar jns. Thats where the next Battle Ground is going to be to main tone those 10. 5 margins, thats the average for the s p 500. Right now the dow down 70 points. Bob pisani. Lets head to the bond pits and check in with rick santelli. Good morning. There is a lot of traders scratching their heads why rates are going up, but if you look at todays housing data, mul multifamily, rents are up a big amount, anywhere from 3. 5 to 4. 25 year to day depending on who you talk to and research you pay mind to. We know that prices on the inflation side have been moderating because of energy issues, but whatever the reason is we all know that the car is the new house for many millennials and rents keep going up. You can see were moving higher basically one week highs depending on where these yields close, but maybe more significant lets go overseas for a minute. Look at a two day of boone. Yes, they popped over 60, open the chart up, these are shy of one month high yields going back to the 25th of october. If we look at the long end of our market in terms of 30year bonds, pretty much the same dynamic exists in a more aggressive fashion. For its settlement last year 275, tens of toys with 2 . The difference is tens settle at 217. What do i mean . Theres only three, several, just like below twoyear closes since the end of april, theres only three closes that were below where the two year settled and those three mid to end of august closes were 2. 5 basis points of unchanged. Why am i bringing all that up . Because it f. It takes this long to suppress yields, buy treasuries, push yields down below significant levels it seems to be rejected in a slow moving fashion over time which leaves one other side to the card, the sell side. Yes, if we look at the dollar index over two days, well, yesterday it was all about the big drop 2. 7 in the crb, dollar backed into a rally it is moderating a bit. Even though the dollar is story for every multinational failure its pretty much been in the range for the several plus months. Back to you. Rick santelli. When we come back, disney goes prime time with the trailer for the new Star Wars Film as tickets also going on sale and the response is forceful. We will be right back. The internet of things. What were recommending as your consultants. The new consultants are here. Its not just big data, its bigger data. Were beta testing the new wearable interface. Xerox believes finding the right solution shouldnt be so much work. By engineering a better way for people, process and technology to work together. Work can work better. With xerox. Of fixodent plus adhesives. They help your denture hold strong more like natural teeth. And you can eat even tough food. Fixodent. Strong more like natural teeth. Fixodent and forget it. Last night star wars fans got a prime time peek at the upcoming film star wars the force awakens, the trailer aired during halftime on monday night football which like lucas film is owned by disney. Tickets went on sale right after the trailer aired. Heavy online traffic from fans crashed ticket sites like fandango apparently overwhelmed by the large volume of orders, abc is saying it was viewed by tens of millions of people. Incredible. I have to tell you that disney has been creeping up, up, up and it is now up 15 points from when it had that mediageddon. He has been telling people, listen, star wars is bigger than you think. It is and i think hasbro benefiting from the disney franchise being hurt by 4 x to set snool you might want to revisit this was amazing. This is on espn. This is not on network tv. While the game was two big cities playing, it wasnt exactly somebody said the game last night was a star wars trailer wrapped in three hours of ugly football. Thats kind of what it was. Yeah, it is. That may be right. It didnt start off well. H 2 d 2 was the quarterback there and pitching to, i dont know, not luke skywalker, the original mark hamil. We will get stock trading with jim in a moment. Dont go away. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Time for stop trading. When you see a company pre announce that its earnings arent going to take it, which is eaton, and the stock doesnt go down, people are saying thats washed out, 4. 2 yield, ever been knew it was going to be bad. Thats going to bring in buyers back to united technologies. Really the weaker group when it comes to earnings is going to be these Big International companies with currency exposure. This is heartening people. Before you go crazy, remember its the yield. This is an accidentally High Yield Company right nouchlt dont go nuts for t i think people im taking notice and saying why isnt this one down. United technologies helping the tape, too. Just looking at the yield, 4, 4 plus. Thats what people want. The fed is not going to raise. Remember, dover came out today and dover has things that are okay. Look, the group is just beat up and people restate. There is a rotation going on in this marketplace, every 48 hours we have a new rotation, its really extraordinary, ppg had good things to say, that stock was the beginning this have rotation. Now, be careful, caterpillar is going to come up but they, too, pre announced already. You may find out that caterpillar with a nice yield if they can maintain . Yahoo, chip holt lay tonight. Carizo, these companies are raising cash by doing spot secondaries, they are making people money, they take the money and buy cheap assets from companies that are struggling. Mmimedx. I think that they dont have to suddenly start doing r d. Down another 7 . Its making the rounds. If they are a real company who needs t they were always a real company they just didnt have the same business mod snool thats what people liked. Jim, we will see you tonight, when we come back yum and ibm moving in opposite direction this is morning, we will take a closer look at what to do with those stocks. The dow down 44. Keep it here. 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 isnt reactive. Its active. Thats the power of active management. Good tuesday morning. Welcome back to squawk on the street, im carl quintanilla. Earnings kick noog third gear as we look like things like ibm, verizon, utx and harley. Markets down 34 points and oil managing a slight gain at 46. 22. Lets get get to our roadmap. Big news for yum . The Company Planning to sin off its China Business into a separately traded company. The stock spiking higher. Ibm the biggest loser on the dow after revenue falls for the 14th straight quarter. Nd at former chairman of the council of economic advisories, ed lazeer talks about preventing the next financial crisis. Lets start off with yum shares of which were up a bit more in the very early going than they are right now but still positive on the session, this after the Company Announced its plans to split into two companies, the stock up a little less than 4 . One company will be its assets in china, kfc and pizza hut restaurants that are owned by the company largely, i think 90 or so owned, this will become a separate company and will give investors obviously the opportunity to focus on china should they wish to do so as a pure play on the growth of the middle class in that country and their needs to eat at kfc and more importantly perhaps for the companys fortunes recently pizza hut. Given the volatility there many people know and the lack at least of growth in that market lately, the stock has been suffering. The plan has been worked on for quite some time, it didnt just got to fore when they added Keith Meister on the board last week. Of course, corvex one of the larger investors in the company has been arguing for this same split for some time. The company has been working on and looking at the possibility of that split and i a nouns it today. It will not take place for at least a year. You will also have yum brands, a company that have have basically franchise restaurants around the world, pizza hut, taco bell and kfc. A stable cash flow profile and the plan for which is to make it a noninvestment Grade Company that levers up its balance heat by putting debt on that Balance Sheet and returns many of the proceeds from that debt in the form of repurchases or dividends. You will have a significant Capital Return Program in place at yum brands and you will have perhaps more of the Growth Opportunity on china in the chinese focus part of the company. Again, splitting these two companies, one has to wonder if high yield should fall out of favor to a certain extent. Whether a highly leveraged company will do so on the equity side. China still jeb rates over a billion dollars in operating cash despite setbacks in that market and has at least 20 plus margins. So the thought on the part of the company is there will be no dis synergies from doing this, two different capital structures, no debt on the china company, a growth vehicle for those investors who want to be focused on that market and then a company on the other side that looks like dunkin donuts, dough knows, wendys. Market at least applauding it to a certain extent this morning, although frankly it was no stranger as a possibility to those who follow the company closely. After a really disappointing quarter also put more pressure. You mentioned the stock up 4 . For more on what the yum brands split means for investors joining us is karen short. Karen, the stock it up about 4 or so. How much value is really going to be created for shareholders by doing the split . Well, it would mean we published some of the part and on that basis we value the combination or the new structure at 74. I think the market is telling you that its pretty fairly valued even after this announcement. Its somewhat surprising. This is tax free, this is something investors wanted, its going to mean more capital return to shareholders, exclusive rights for kfc, pizza hut and others in the china geography. Do you think you are going Bill Griffeth too conservative . Why the conservative estimate . Well, so in the sum of the parts obviously we assume that the ex China Business is levered to six times, we assign no debt to china. We assume that the incremental leverage that they take on is used to buy back stock so were really factoring in a lot of things that they should be able to do with their new structure and it still gets up to only 74. The big question really is what do you pay for a company thats going to be six times levered in nonchina and then what do you pay for a company in china that has had extreme volatility on the top line. A lot of uncertainty there. Im curious about the prospects for yum china. Is this a story about the Macro Economic slow down in china or do you agree with jim cramer that this is a story about yum s execution problems in china given what were seeing from other Companies Like nike . My sense is especially pizza hut its very much about execution, but its also about competitive positioning because and pizza hut china is a third of the division. You know, theyve demonstrated greater volatility on the top line than kfc china. The issue is theyre losing share on the high end to the mall based competitors and the mom and pops and aggregators. Mall space now 40 of mall space is allocated to food and yum doesnt have very much presence in the malls. They may not have competitive in the malls but they are not in the locations that the higher end consumer is. Are you surprised about the timing . They didnt wait for any china recovery or any visibility into the Chinese Market is going to look like before announcing this . A little. Were assigning a multiple of China Division of 12 times. Thats pretty generous given how much volatility there is. I guess i would have said with more stability and still pretty Significant Growth in china you could have at this stage gotten a slightly higher multiple. My sum of the parts still assigning a pretty generous multiple to a volatile business. If they were to get they talk about getting to as high as 20,000 stores in china over time. That certainly would benefit the yum brands part as well, given they are going to be paying i dont know what the number s actually i could ask you, 2, 3 of revenues to the other company as a franchise fee, right . Yeah, no they definitely to the extent this is still a growth vehicle for them obviously it makes a lot of sense to separate it out. As you know from Conference Calls, i mean, 99 of the conversation is about china and so it makes sense to have the two separate and then it can operate as a growth vehicle when things stabilize and that would benefit obviously the consolidated yum over time. Theyve given no guidance on what the leverage ratio at the levered company would be, but you are going with six times. That seems fairly aggressive. Well, they said they would be noninvestment grade so thats why we are using the six times. And to your question on royalties, i mean, i think my assumption is we would get more color on this at the analyst day in december, but, yeah, somewhere in the 3 to 5 range has been thrown out as a royalty fee percent. I was just going to ask how long you think the china recovery is going to take. Well, given that its, i think, to come extent structural with pizza hut i dont think its going to be something that recovers that rapidly. I mean, if you go with the timeline that the company gave us, they gave us segments of comps throughout the quarter and, i mean, pizza hut just whip saud from a plus 20 comp in their recovery to minus 20 in a week or so. That gives you a sense of how volatile the business is right now. I mean, it is striking, sorry, that china that carl yum brands was the first Fast Food Company to enter china back in 1987. And a lot of i mean, there has always been talk, karen, that yum managed to beat mcdonalds. They really did have first strike advantage in china. I wonder if their strategic shift signals any willingness on the part of, say, mcdonalds to do something with their real estate structure. Well, its interesting. I mean, as far as china goes, you know, obviously mcdonalds exposure from an ebit perspective is almost nonexistenonkpiexist existence ent thats a very complicated analysis as well, obviously, because because of the nature of the relationship with the franchisees. Karen, thanks for weighing in today on one of the big movers. Karen short, analyst at buch a bank with the dow down 20 points. Another big move with ibm, the biggest loser on the dow pulling the index down 55 points. So presumably it would be in positive territory were it not for big blue. What do you do with the stock now . Squawk on the street will be right back. They come into this world ugly and messy. Ideas are frightening because they threaten what is known. They are the natural born enemy of the way things are. Yes, ideas are scary, and messy and fragile. But under the proper care, they become something beautiful. Ibm is down sharply today after Third Quarter revenues missed expectations, Quarterly Sales declined for the 14th consecutive times. Ginni rometti spoke about the head winds of facing big blue. Around the world there are different head winds that we deal with and it requires a different strategy for different parts of the world. Obviously weve talked about currency and a number of these things before. These are all things that are part of the Global Dynamics that were managing obviously right now, david. So that is all part about being a Global Business and its all part about, you know, having a view on the longterm as well. Here to talk about the results tony sag knocky, he is ranked the top hardware analyst by Institutional Investor for the past 14 years. Good morning. Good morning. Looking at the revenue disappoint, looking at the cash flow guidance, Earnings Guidance, the Strategic Revenue deceleration, are you seeing any evidence of traction at all . No. I think its too early to point to evidence. In fact, we might be seeing incremental erosion. Ibm is much like many Traditional Technology companies, they have an old set of businesses which are about 70 of revenues which are declining about 20 as reported this past quarter and they have a new set of businesses around 25 or 30 of revenues that are growing nicely. Right now the old businesses are winning out, per se, in terms of pulling down the growth rate for the company. Each if you take out currency software, revenue down 3, hardware revenue down 2. When something begins to turn, what turns first . You know, i think you ultimately need to see software turn. That is almost half the profits of ibm. Hardware tends to be cyclical around product cycles. Thats not going to give us a good indication. Really what we need to see is software stabilizes. Its been down the last several quarters at Constant Currency and we are also seeing pressure in services margins, so thats the other key issue for investors to look at. There are members of the big Tech Community that are doing well, sap from germany, main competitor from oracle has just said it might beef its financial targets, its stock it up 15 so far so some are winning through. What is it about for ibm, is it something more they could do . Does watson hold the answer . They are always pushing watson forward. If that was suddenly to break through, could that be transformative, do you think . I think watsons technology is transformative, but as a business it needs a lot of time to better commercialize. Wednesday their revenue are in the hundreds of billions of dollars, ibm is an 85 billion company. Its going to take time and ibm needs to find a way to better commercialize watson. Its a terrific technology, but often it might take one or two years to sort of educate watson about a client or about an industry before it can be helpful. That requires a significant investment by by a client and thats just so long right now. So, yes, ibm has interesting technology, certainly watson is one of them, they have a cloud business, they have a very strong Data Analytics business. These businesses are growing, but, again, the preponderance of the portfolio is selling on Premise Solutions and the world is moving to off premise, its moving to cloud as a service and thats the big challenge. In the meantime where are we theyve been very keen to return cash to shareholders, sometimes criticized for it. Where do we stand on the dividend . For people that are looking specifically four yield what does the future hold there . So i think the dividend is safe, were seeing a 3 plus dividend were ibm now, its safe. What we have seen less of is less share repurchases. I think to its credit ibm is saying, look, weve got to continue to invest organic clee and inorganic clee in this business. Weve seen share buy backs come back a lot but believe that the dividend is safe Going Forward and seeing a 3 plus yield there. Tony, i know you cover apple, we are watching that closely today as we get guidance from verizon on q4 unit growth. They say lower year on year. Are you taking anything away from that . I dont think thats unrealistic. I mean, the preponderance of apples growth has come from china. There was a comment by verizon about strength of iphone in china. Its possible we could see mature carriers down particularly this quarter. Last year was a fantastic launch, a lot of excitement going into the launch. So on net i wouldnt say that thats particularly surprising. Just on ibm, just to finalize how to play the stock, i guess im just wondering how much. Bad news is priced in. The stock is near 20year low, analysts are overwhelmingly bearish. At some point does this become a contrarian play that you want to buy ahead of any fundamental turn around . I certainly think thats the case but quite fraichkly thats been the debate for the last couple years as the stock has really underperformed, was the worst performing stock in the dow the last two years that many people believed at the beginning of each of the last two years that this would be a great dogs to the dow play. Our sense is that 2016 numbers could be pretty tough and so we would encourage investors to wait until potentially a meaningful reset in january when they report and provide guidance for 2016. That could provide the capitulation that would present the opportunity, but right now my belief is that numbers are still going to be too high for 2016. Tony, always good to get your point of view. Appreciate your time. Thanks for having me. Verizon also out with earnings actually this morning and they were a bit better than anticipated. A buck 4 a share, at least a nongap numbers for the Third Quarter. That was ahead of most of the estimates that were out there from the analysts who follow the Large Telecommunications company. Consolidated revenue up 3. 1 year over year, that excludes aol, an acquisition that took place a number of months back, ebitda was up 4. 4 . Retail net ads 1. 2 million, the company on its Conference Call of course says you might expect entertaining questions about competition in the wireless market. Churn was quite good as i said the numbers themselves were fine. The one concern continues to be on average revenue per account, if you will. They dont go with users anymore, but accounts or devices. The concern there is pricing pressure and of course they are in the midst of repricing their Subscriber Base to a certain extent behind some of the others, including at t that have moved faster to the equipment installment plans that consumers seem to favor. It doesnt really have an impact overall on the revenue or really but it does have from an accounting perspective on the bottom line. The Company Spending a lot of time talking about its communications with millennials, not just by selling them Wireless Service but trying to reach them in other ways, including its go 90 mobile video streaming service. In fact, when i sat down with Lowell Mcadam the chairman and ceo a few weeks ago he was very much focussed on that offering as well. As we looked at the customer segment that we want to go after, the millennials, which everybody wants to go after, they are not buying linear tv. 40 of them already say, i dont have it, ive never had it and another 20 say, i got t but im probably going to disconnect it because i dont use it. They are just fundamentally opposed to these 300 channel bunless that theyve been getting. One reason why the company of course is offering a slimmer bundle on its fios offering. Some comment on that going fairly well in terms of that is correct although there was at least a couple investors i spoke to this morning within the numbers had first come out before the call wondered why the fios numbers are not better. Is cable catching up . Is there less perhaps of a gap in terms of what they bring to bear in broadband, the key product for all these companies between fios and the cable companies. Overall as you see the stock reacting positively this morning. The yield still right around 5 , which is certainly an attraction for many investors. Sara. Im surprised to see that the stock is down a little for the year given all of these new announcements around streaming technology and changes. Thats in part because they do see earnings per share flat in 15 to 16. When we come back find out which ceos are donating money to jeb bush and Hillary Clinton and which president ial candidate has the most back frg corporate executives. The numbers may surprise you. We will be right back. Ceos of some of the biggest donors to president ial candidates so who are they giving most of their money to this time around . Eric shemy is back at hq breaking down the numbers for jeb bush and Hillary Clinton. This is interesting, eric. Thats right. Even though the polls show leads for gop outsiders like trump and carson, Corporate America still behind the establishment candidate, jeb bush. He is by far more contributions from ceos than anybody else in the republican gain, like financial heavy weights dan lobe, and Steve Schwartz man. We will see how he has held up with fading polls. Possibly more surprising is the number of ceos behind Hillary Clinton. She has more donors than bush done. Some of the ceos i spoke with said while you might think executives would be firmly republican they have become a more Diverse Group so their contribution right side more diverse as well. While hillary has been talking a populous game, things like breaking up the banks most executives believe she has a wink and nod relationship with them, knowing she has to say these things but having faith she wont actually do t the ceos i know say the community isnt 100 sold on hillary. Her average contribution is much lower per person than jeb. Thats because hillarys donors are buying insurance that if she wins at least they will be on the list. Simon. Okay. Thank you very much, eric. Fascinating. The big one, be sure to tune into cnbc next wednesday, october 28, for the republican president ial debate live from the university of colorado. Carl and others will be moderating along with becky quinn and john harwood. When we dom back ed lazear joins us live to talk about how to prevent another financial crisis. Dow is down 15, s p is in the green. Back in a minute. Hi watson. Annabelle, your birthday is tomorrow. Im turning seven. What did you ask for . A princess. And a pony. You like things that begin with p. I like pink frosting too. Will you have a cake . Yeah. I was too sick to have one last year. The data your doctor shared shows you are healthy. Are you a doctor . No. I help doctors identify cancer treatments. I want to be a doctor someday. I can help with that too. Watson, i like you. Good morning, im sue herrera. Here is your cnbc news update at this hour. 43yearold justin true dough will become canadas new Prime Minister. His liberal party won a majority of parlance 338 seats. The son of late Prime Minister pierre true dough ends nine years of conservative rule under steven harper. Xi jinping beginning his visit toit u. K. Where he was welcomed by Prime Minister david cameron. His visit is intended to cement close economic ties between the two done geez. Israel Prime Minister Benjamin Netanyahu accusing the palestinian Prime Minister of inciting violence. He spoke just haurg before the u. N. Secretary generals scheduled visit to that region. Oscar pistorius family say they want to emphasize that his sentence was not reduced or shortened. This after his parole from prison last night. He will serve the remaining four years of his fiveyear sentence for killing his girlfriend in house arrest at his uncles residence. Thats your cnbc news update. You are put to date. Thank you very much, sue herrera. Wants to show you whats happening with Weight Watchers stock. It is surging again today, up 28 after more than doubling yesterday on news that Oprah Winfrey was taking 10 stake, becoming the company spokesperson. The power of oprah, surging again, still with all of these crazy gains more than 165 over the last two days, Weight Watchers shares are actually down for the year, down 30 , the Company Facing all sorts of questions about this whole pay to lose weight kind of model. But, boy, oprah certainly giving this company a confidence boost. Its a bit like an ipo, theres lots of promise but at some point you have to follow through. Oprah has been one of the most powerful celebrities when it comes to brand endorsements. She could have taken money tone dors the brand, instead she smartly took a grit deal of equity she has to be up of 0 million bucks. She bought is at 6. 79, we are 10, 11 bucks above that. Pretty good. Lets send it over to sho. Rick santelli with the santelli exchange. Good morning, rick. Good morning. Id like to welcome my guest this tuesday morning, former head of the council of economic advisories under george w. Bush ed lazear. Great to be with you. We saw housing data today and it continues to be driven by multifamily. Whether thats a good thing or bad thing i think our first choice would be Single Family in the come Damage Industries grow the economy better but in the end low productivity seems to be at the end of every sentence when you look at whats wrong with the economy. How can it be fixed and why has it gotten to this level . Thats absolutely right. If you look at this recovery, which we all know has been a very weak recovery and you say whats the main culprit. It is productivity. We havent had the kind of growth we normally have during recoveries. There are a couple of explanations for t the president likes to say its pause weve recovered from the worst recession that we have seen since the great depression. That story doesnt wash. We know very deep recessions tend to be followed by rapid recoveries. Big mouns bounces, the harder you fall on a trampoline the higher you should bounce. The historic evidence does suggest that. The question is whats going on. Certainly policy must play a part in that. When i read your question answer that you sent me before the interview, everything to combat low product fifth ended in the work policy. Thats right. I think if you think about it the main thing is taxes. Number one on anybodys list for increasing productivity growth is to get Capital Expenditure up, get the productivity of the work force up, the way to do that to my mind is make sure we dont have excessive taxation. If youre running for president , we took in a record amount of tax receipts, closing in on 4 trillion. How could you tell an average american that that money if it was directed in a different fashion might have gotten up better return, like an investment, 1 versus 4 , explain what that would be. And thats exactly right. We know that the most mobile factor of production is capital. Capital can easily move to another country. If you tax it mere its going to end up in germany, ire lapped, even france, by the way, which is a cheaper place to start a business right now than the situates if you can believe that. Even france is a place that you say, well, look at their relative tax rate. So the best thing we can do to spur Economic Growth is lower taxes. Beyond that i would say trade. I must didnt work out well for harper getting reelected in canada. He did lower taxes. He had an energy shock i think that kind of hurt him pretty badly. But, you know, i would say that, you know, just coming back to what i was going to say is that if i wanted to give president obama credit i certainly would give him credit for his pushing the trade agenda recently. I think thats a very important component. I hope we get it done. Beyond that it has to be budgetary stuff and regulation. Which no progress will be made until we get into 2017 and swearing in a new group. All right. Lets switch gears. China is the number one story, everybody is talking about it. Off camera you and i agreed that we could talk about the china Balance Sheet, we could talk about how the data probably not highly accurate, but we ended up with another person important. Will you explain. All right. If you look at china and say could this possibly account for whats going on the answer is no. First of all, look in the fall in the chinese stock market, it preceded ours by a couple of months. It doesnt take two months for information to travel from china to the United States. Second if you do the numbers, do the arithmetic and say how much do coa fall in china affect the United States its 2 of gdp growth. It doesnt account for more than a 10 decline in markets. I think whats going on is what we were talking before, the chinese have to focus on things that are immediate to them. They have 25 Million People moving from rural areas into the city every year and that has to be their primary focus. What does that do to us . I think, you know, probably not very much in the short run. Our problems are elsewhere. Its not the chinese. If i read you right what youre saying is they could talk financial but its all about the social issues of keeping the people happy. They dont want them marching across the great wall with pitch forks. In the end that affects the Balance Sheet of the country. Absolutely. And hedge funds may be reluctant to come back when you change the rules of investor in the middle of the game. Absolutely. Thank you for being in chicago today. Lets get more on the markets, relatively flat overall. Obviously the dow is pressured by ibm, dragging the that index down in the wake of its earnings. What should investors be focusing on now . Lets bring in jim paulson with Wells Fargo Capital markets. Jim, in theory this is where the rubber meets the road. This is the height of earnings season and yet another low volume day, down about 30 on where we usually trade. What do you see . Well, i think more than anything, simon, that the market is dealing with a lot of technique calls right now. The real question at the end of the day is weve broken we retested the lows, weve broken up to the high end of the trading range weve been in since the august crash, weve slightly breached that. Are we going higher back up to old highs . Or are we going to break back down into that range . I think thats dominating what is happening. The earnings earnings season thus far, you know, its been sort of disappointing, but its been about as expected going . N. You raised the question was to where the market is going. I have a note from you, it suggests that we could retest 1867 on the s p which would be a fall of about 8 from here. Yeah, i still think maybe the correction is not over. I could be wrong on that. Why . Why do you think that . Well, if we just go right back up, i think the things that cause this correction wont really be changed. If we go right back up we will still be trading 19 times earnings which i think is unsustainable level of valuation if we are going to start raising Interest Rates and have some inflation and cost push pressure emerge. We are going to reinforce the calm and kplas ent investor attitudes that existed last summer. We still havent smart started the process of raising rates which still lies ahead and we still will have an old and aging earnings cycle we are dealing with. This market in order to sustain needs a lower valuation level, simon and thats what im looking for down around 1800. I guess maybe im wrong here, but i get the impression that the mood of the market is very much about this delay in Interest Rates. I mean, some people are suggesting deutsch bank is suggesting march now. I guess that gives us it clearly gives us head room. This is why the market has been rising presumablpresumably. That wouldnt give me great comfort if you are a bull right now because ultimately we are going to raise rates. Whether its december, whether its march, whether its june. Ultimately we have a great need to reset Interest Rates and if we never do, simon, thats not good for stocks, either. I think that the u. S. Economy is really doing fairly well. I think manufacturing is going to bottom out, and if it does the rest of the question is in pretty good shape, but thats just going to instantly bring back the need to raise rates and its going to alert attention to how undervalued the rate structure is in this country. I still think when we start that process the stock market is going to struggle with that, particularly now that the earnings cycle is much more mature and Earnings Growth Going Forward is going to grow much, much more slowly than what it has up until this point. I would still say a little cautious in here. Its a sober message. Yum paulson joining us from wells fargo. Coming up on the show, nike, the best performer in the Dow Jones Industrial average this year, up nearly 40 . Can it continue into the Holiday Season or has the easy money been made . The nike playbook when squawk on the street comes right back. The s p 500 has tripled since its 2009 bottom, but not everybody has come along for the ride. We talk the five stocks that are way down since then at tradingnation. Cnbc. Com. Check it out. More squawk on the street coming up next. Years now. Hing thinking about what you want to do with your money . Daughter looking at options. What do you guys pay in fees . Dad i dont know exactly. Daughter if youre not happy do they have to pay you back . Dad it doesnt really work that way. Daughter you sure . Vo are you asking enough questions about the way your wealth is managed . Wealth management at charles schwab. Its a wait and see market today in many senses. Dow up 25 despite ibm. Take a look at the healthcare sector. One of the best performers, dom chu has more at hq. Its a generally day to the upside, most sectors to the upside. Healthcare leading this s p 500 sector to the down side, dragging the sector down overall, names like vertex, endo international. Healthcare a lot of positive momentum for the year still up over 1. 5 as a sector overall. Again healthcare has been a strong performer so far this year and over the last couple of years. Today maybe just showing a little bit of weakness in todays trade, share rachlt back over to you guys. Thank you very much, dom chu. Strong performers, shares of nike trading near all time highs as they continue to capitalize on pricing power. Can they continue at this rate into the Holiday Season with europe and china both struggling in terms of their economies. Joining us john kernen retail analyst. Nike was already doing great and now all of a sudden it has rocketed to high nu highs. The question is how much juice is there left in this rally . The stock is at all time highs. We get its going significantly higher, its been our topic this year. Ultimately if you look at the algorithm they laid out at the analyst day in beaverton, 50 billion in sales and the margin tarts, we think theres north of 8 in earnings power. If it sustains the multiple it has right now. Which is way higher than it has been historically. Its returns on capital is accelerating and we think it deserves a higher multiple. Starbucks that stocks trades well north of 30 times and nike is in our view a must own Consumer Discretionary name and think the stock can more than double from here. Really bullish. Isi put out a 200 price target yesterday. China has been puzzling for folks who watch nike and watch out of the chinese Macro Economic data. On a day where yum brands is splitting off its China Division. Nike looks to china for double digit growth and mark parker stels me he doesnt see any compliance of weakness. Its their highest margin channel. They put up all time highest in china. We think their operating margin in china is heading higher, grow north of mid teens over the next five years. China is a Growth Market for nike chlt nike always tends to offset Macro Economic issues. Company has had one down year of sales in the last 20 years. Sales went down 1 . I am in awe at the innovation there is within this industry. If you look at the materials, price points, branding, its extraordinary. Under armour is the better performer if you take a fiveyear track. Thats where youve seen explosive stock market growth. Both stocks have been incredible. Of the two would you put both are our top picks. You need to own both of them. Under armour earnings are out on thursday and with under armour its such a game of expectations begin it is such a high flying stock. The last few earnings announcements have been disappointing because of this price to perfection mentality. How does it look thursday . We think the stock makes a new high. They raid their guidance for this year. The company laid out robust targets at their analyst day in september and we love under armour here, too. Ten years ago the question was will people continue to wear sportswear as they are now an obviously it continues to explode. What happens in society . Do more and more people end up wearing these brands . Do they cater to different sections of the community . Where does this go . Is there a structural end where you go thats enough, you cant go beyond that point . We have yet to see it with nike. Sport right now is inspiring consumers to be more active, be more fit and nike and under armour both play into that. Massive a ders i believe margts. Nike is a hyper growth retail stock. A lot of analysts that cover these stocks especially nike look to the olympics as a catalyst for the stock. Is there meaningful boost around the innovation that they put out around the olympics . We think their futures will accelerate into the olympics in 2016. There will be a whole new there will be a lot of new innovation coming out for the olympics, nike times the olympics to release new products, olympics should be a good catalyst. Whats the risk here . Its overly competitive as everyone gets into athleisure . The big heest risk is its highly consensus long at this point. Everyone is in agreement nike is an incredible company. The biggest risk is near term fluctuations in sentiment. Which you would say would be a buying opportunity. If can sustain a multiple in a 25 to 30 times forward pe on the 8 number its going significantly higher and also can double the dividends over that time period. So nike 25 to 30 is a big number, though. Its a big number but theres other stocks in the index like starbucks that trades well north of that is correct similar Growth Prospects to niemy, similar market cap size and if you look at nikes Free Cash Flow in five years there is a lot of upside in the stock. The man is bullish. John kernen from cowan. Our Sister Network msnbc is reporting that former virginia senator jim webb will drop out of the democratic race for president. An announcement is expected at 1 00 p. M. Eastern time. Sources say he is exploring the idea of an independent run for president after becoming frustrated with what he says is the Democratic Party leadership. Up next on the program, ferrari set to price its ipo tonight, but is this company being public at precisely the wrong time . Thats after this break. Jake reese, day to feel alive jake reese, day to feel alive jake reese, day to feel alive and welcome back to squawk on the street. The s p 400 midcap stocks are now positive on the day. Outperforming both the dow and the s p 50000 marginally. Still outperformance here. Beat up boston deer. There are also 3d systems and avon and swroi. Midcap stocks perhaps some say the sweet spot in the market, simon, posting gaenz in early trading. Back to you. Thank you very much. In the meantime, ferrari set to price its highly anticipated ipo tonight. The Company Might be going public some say at exactly the wrong time. Robert frank has more back at hq. Take it away. Silon, enzo ferrari said they will build one less car than the market demands. Ferrari is increasing production at a time when demand remains uncertain. We have slowing growth. That could put a break on sales net revenues for main land china. In the First Six Months of this year down by 26 million euros. Unit shipments down double digits. Thats according to ferraris latest sec filings. You youve also got higher emission standards forcing ferrari to change its iconic 12 cylinder engines and growing competition from bugati, lamborghini and mcclaron. The add to all that ceo uncertainty, the italian media reporting that the companys current ceo is about to retire. Feeat chrysler chief sergio is now chairman of ferrari. Some say he may also take this ceo title after the ipo. That would mean running two publicly traded companies at the same time. Now, guys, none of this seems to matter to investors. Hedge Fund Managers and investors telling me last night that despite the very expensive price, fer ay shares are almost as hard to get as the ferrari cars themselves. This is all proof this all the economics we can talk about all the Market Conditions we want, but this is a very emotional purchase. Just like the considers. Do you think the ipo could be reasonable . Weve had a lot of stories suggesting maybe its the wrong time, maybe its not a luxury carmaker. You still think theres juice in this from the people youve been talking to . Have sdmroo have the investors she want shares tomorrow. Theyve been trying to get shares at a high price. They cant get allocations. Look, well see you here a lot before ipos, and its over subscribed. I think its possible you could see a strong pop right at the open, and then well see, well, where they settle down. Again, the economics of this price of this ipo by any measure its a very expensive stock for whats essentially an auto company. Yeah. I guess the argument it was being set free from feeat chrysler. Presumably temporarily. No, and i know from speaking to sergio myself, he loves ferrari as a company. He loves ferraris as cars. I think, you know, he would love to run this company and run feeat chrysler at the same time. He has been driving them for a long time. Robert, thank you. Just want to focus quickly on the hotels today. Youre aware we had a number of profit warnings. Are people taking down their guidance. Ceos within the lodging industry recently hosts the big hotel owner la quint aand so wrosh today we had ihg, intercontinental reporting the revenue standard. Revenue per available room up 4. 8 . A boyant outlook for the rest of the quarter, and thats raised that group right across. Apples tim cook coming up off numbers how apple music is doing. Also, a drifry date for apple tv. Well dig into both of those. Pressure on ipo. Particularly the valuation. What does that mean for Silicon Valley . Then, finally, ibm. Feeling some heat from the cloud. Why it could get hotter tonight and throughout the week. All that and more coming up on squawk alley. When youre not confident your companys data is secure, the possibility of a breach can quickly become the only thing you think about. Thats where at t can help. At at t we monitor our Network Traffic so we can see things others cant. Mitigating risks across your business. Leaving you free to focus on what matters most. So wi got a job ews . Ill be programming at ge. Oh i got a job too, at zazzies. friends gasp the app where you put fruit hats on animals . I love that guys, ill be writing code that helps machines communicate. interrupting i just zazzied you. phone vibrates look at it friends giggle i can do dogs, hamsters, guinea pigs. You name it. Im going to transform the way the world works. proudly i programmed that hat. And i can do casaba melons. Ill be helping turbines power cities. I put a turbine on a cat. friends ooh and ahh i can make hospitals run more efficiently. This isnt a competition good morning. 8 00 a. M. At disney headquarters in burbank, california. 11 00 a. M. On wall street. Squawk alley is live. Somewhere you will find me caught beneath the landslide in a champagne super nova champagne super nova welcome to squawk alley. Joining us this morning Angel Investor jason from our one Market Bureau in san francisco. Kayla is live at jp morgans revolution conference in halfmoon bay, california. What a gorgeous shot. John and i back here holding down the fort. The dow up 27 points. First up this morning, apple ceo tim cook giving a wideranging interview last night at the wall street journal wsjd live conference. He said the new apple tv will ship by the end of next week and be available for purchase on monday. He was more forthcoming than usual on the car business saying i donk