Transcripts For CNBC Squawk On The Street 20161223 : compare

of course spain and italy, we always like to have them when i'm doing this part of the show. but we don't this morning. >> italy a couple percent. >> thank you, sara. >> as for the ten-year note yield still hovering around that 2.5 -- yeah, there we are, 2.54 we call it this morning and crude down about 1%. let's get to the roadmap on this friday before christmas, and it starts with the trump twitter bomb. defense stocks on the move after the president-elect pits boeing super hornet jet against lockheed's f-35. investors are taking notice. >> going nuclear, russian president vladimir putin responding to president-elect donald trump's call for a nuclear arms race. >> and where's the santa claus rally? come on, it's that time of year. futures are plunging to a lower open as we see from dow 20,000. but the dow does remain on track to match its longest weekly win streak in two years. well, lockheed martin shares are falling as you see right there in the premarket. this after president-elect trump's latest tweet on the cost of the f-35. it says, based on the tremendous cost and cost overruns of the lockheed martin f-35, i have asked boeing to price out comparable f-18 super hornet, ending with his often typical exclamation point. lockheed has not issued a comment to cnbc about this tweet, but boeing has issued a response saying, it has committed, quote, to working with the president-elect and his administration to provide the best capability, deliverability and affordability across all boeing products and services to meet our national security needs. in the last few weeks it has been rarely a day that we haven't had at least some, it seems, market moving tweet from the president-elect. he is very much focused on the f-35 program, which certainly is one of the most expensive ever in terms of procurement for the d.o.d., and has been riddled with problems in terms of delivery and cost. but getting stuff done in 140 characters is a weird way of doing it. >> it was interesting the dimpx when the boeing's ceo went and met with him, came out, made remarks to the public after being down there as mar-a-lago and then then put out a statement later. how much did he raise with mar linn, race e raised with boeing itself. i know it's easy for criticizing it happening via tweet, but appears there's a lot happening behind the scenes as well. >> by all accounts if you read up on these two programs, the f-35 is considered way more technologically advanced than the f-15. you mention the cost, about $400 billion for 24 planes for the air force, marines and navy. which is cheaper. >> not $400 billion for 24 planes. >> 2,400. >> yeah, 2,400. >> initially the early planes because they did not size up in terms of delivery, were running at enormous cost and obviously that comes down as they deliver more of them. you do that and get to a per plane number. this is typical what we know from trump in terms of a businessman. i made this point yesterday. very tractional in nature. knows what he knows how to do is hammer down on contractors the best he can and try to work them against each other and get the best deal he can. but this is complicated stuff as well. and he doesn't have his full defense team in place certainly not yet. he hasn't even taken office of course. >> i think that's going to be the question is broadly for the defense sector as we've been discussing what is it going to mean for these stocks if he's going to go after individual companies? lockheed was down about 2% in the afterhours on this news. boeing's shares were up a bit. do you buy -- we were discussing this this morning, do you buy the trump twitter dip as an investor, which actually has proven to work over the last few weeks. though it is early and this is a completely different playbook. >> and phil is also making a point, if i'm quoting him right on this about how the cost overruns might be settled by the companies themselves at this point instead of pushing on to the taxpayers. if that happens too and you're a shareholder, you wonder how that changes what otherwise is one of your greatest clients out there. suddenly if you have to deal with a cost overruns yourself. >> yeah. although there are significant provisions in all of these contrac contracts. also had to do with the capability of the plane itself, i think, not that i have many sources in the military but i have one in particular who's helped me at least try to understand this. another issue that is interesting and will be for corporate america overall as we move into a trump administration is simply how you respond to what may be this onslaught of tweets dealing with corporations on a particular basis and individually calling them out. you know, from a communications standpoint, if you're the head of corp. comm at these large companies, it will be very interesting to see how they deal with it. do you respond? do you not respond? what do you do when your stock is down 2%, 3%, 4% in a given morning? it's going to have to be an evolving strategy. >> lockheed has not responded to cnbc on the very latest twitter comments. >> yeah. >> the other question is specific callouts for china. we've been monitoring this of course from the new administration reading the tea leaves from picks like peter navarro, the economist who wrote "death by china." well, now china responded in an op-ed, an editorial piece by one of the state-run media companies, china daily. that individual such as navarro who have a bias against china are being picked to work against leading positions in the next administration is no laughing matter, according to the piece. any move to damage the win-win relationship will only result in a loss for both sides. guys, investors are watching the reactions from beijing. what kind of collision course are we setting up between the u.s. and china with the picks from the president-elect, with the tweets from the president-elect and now with china, for instance, announcing this move against a joint venture with general motors. people say that was in the works before, but we're looking out for any potential retaliatory action. >> not just potential, they seized a drone. they seized a drone from south china sea from a naval ship. that's a pretty provocative act. so whether it's through their words or through some actions like this it's clearly meant to show china's going to take a muscular stance right back against the u.s. as you quoted, sara, from some of the ways they've described it as kinds of an immediate threat to the current state of affairs. >> it's going to be a reset with china, it's no doubt, sara. >> a reset? >> yeah. >> but some are worried it could be a trade war. >> right. i don't think you get to that immediately. one would hope that you actually work your way towards that or away from it. but they're certainly taking a more confrontational negotiating stance from the incoming administration. >> remember ambassador to china is going to be the iowa governor who knows president xi personally. >> he does, right. >> it's going to be interesting to see how it is that personal relationship kind of the situation -- >> congress coming up in china next year as well, i believe, right? isn't it? is it '17? who's been asserting a great deal more power and taking a lot more power over the last four years. >> xi you mean? >> yes. >> we have not heard from president-elect trump who was on the wires overnight talking about achieving their growth target, chinese economic growth target of 6.5%. >> but watch china come january. they've reset the $50,000 each individual is allowed to take out of the country. and you have to wonder what the risks are to a system which is already down from about $4 trillion in foreign reserves to just over $3 trillion. >> and a lot of questions about the banking system we've heard in the past in terms of it really having some significant capital holes to fill if they actually took the losses that are there. not to mention the bond market in china, which has been in something of a timult lately. >> yeah, we've seen that. epr putting out new numbers for this past week through wednesday reporting net redemptions from emerging market equity funds hit a five-week high of 3.7 billion and a lot of that is money coming out of chinese equity funds. the china market by the way closing down almost 1% here ahead of the holiday weekend. >> all right. well, we're not done with the president-elect's tweets. there's a lot of buzz surrounding his tweets on nuclear power. and that meaning power in terms of actual military power. russian president putin also responding. eamon javers in washington with more on that story. eamon. >> yeah, hi, david. markets may be watching this and feeling like this nuclear discussion comes out of nowhere. so let me walk you through the chronology between yesterday and today to how we got to this point where we are this morning. starting with vladimir putin, he was speaking in russia to a group of military officials. it's an annual address he gives on military issues. here's what vladimir putin said in that speech. he said we need to enhance the combat capability of strategic nuclear forces primarily by strengthening missile complexes that will be guaranteed to penetrate existing and future missile defense systems. donald trump responding perhaps to that a few hours later in any case he tweeted this, the united states must greatly strengthen and expand its nuclear capability until such time as the world comes to its senses regarding nukes. note there that both putin and trump are using that word capability in terms of what each respective government is able to do. now, this morning on "morning joe" on msnbc, the host there, said she had been on the phone this morning with donald trump asking him to clarify just what exactly all of this means and this question of whether or not we are headed for a new nuclear arms race. and here's the way she described that phone call on "morning joe" this morning. take a listen. >> mika asked the president-elect while we had the opportunity what his position was on trying to clarify the tweet yesterday regarding the nuclear arsenal and the president-elect told you what? >> let it be an arms race. we will outmatch them at every pass. >> and outlast them all. >> and outlast them all. >> so let it be an arms race. that comment getting a lot of attention this morning on twitter and throughout the media. sean spicer, the president-elect's new pick to be press secretary in the trump white house, was on the "today" show this morning where he seemingly walked back some of those comments. here's what spicer said this morning. >> well, the tweet continued unless other countries come to their senses. and i think the point he's making is we're not going to sit back as a country and allow other countries to expand their nuclear capability with the u.s. just sitting idly by. this president is going to take action. >> sean spicer also saying there's not going to be an arms race here. he said what's going to happen is that other countries will come to their senses and we'll all be just fine, kelly. so a lot of nuclear saber rattling this morning both in russia and here in the united states. so we'll have to see how all this plays out, but some real uncertainty as to what direction u.s. nuclear policy's going to go now under the donald trump add amex. >> you know, eamon, it's interesting of course a $600 billion defense budget roughly right now, i think that's not including the cost still of the wars in afghanistan at least. >> right. >> you've got him hammering on the f-35 program, but at the same time talking about what might be a huge buildup, sort of hard to figure out exactly where all of that is going, isn't it? >> if you're a defense contractor, you look at this and say, maybe this is a carrot and stick approach saying we've got to lower costs on some of these overruns we've had on other programs, but there might be more opportunities for us in terms of government contracts in the nuclear space going forward. and maybe some other areas where donald trump wants to buildup. so they're going to have to take some time, the defense industry, and figure out what exactly the trump administration is planning here. a lot of this is catching a lot of those folks by surprise. they were not prepared for this necessarily. and they're trying to digest it all and figure out exactly where the president-elect is going. my sense is that's where donald trump wants them. he wants them to be uncertain a little bit about where he's going. >> yeah. >> he wants to push them back on their heels and get them to respond in his timeline and not on their timeline. >> eamon, thank you. by the way, david, to your point about, you know, there are some people i know in the nuclear industry, let's say, just if you're working it all in that capacity, you're probably a couple generations out of college, there hasn't been a lot of new talent or a lot of people going into that industry for a long time because it's been perceived as it's not growing. it's not growing geopolitically, in terms of the energy supply, and yet here we are on the precipice of what could potentially be the need for a lot of brains and a lot of manpower could be a huge catalyst for the industry but takes awhile to develop the expertise and work in it in the first place. if he's serious about this, there's a lot -- if you want to talk about labor shortages, this is one area where there's actually quite a bit of one. all right. let's focus on the markets right now. of course we are in a full trading day ahead of a long holiday weekend. and that dow 20,000 level looks farther and farther away. let's bring in global market strategist at j.p. morgan. jeff kravits, regional investment director. okay. farther away, whether we get there or not, i wonder, david, how much of this big rally we've seen since the election still heading for the best december since 2010 has been borrowed from next year in terms of looking forward to some of the trump policies? >> so i definitely think we've pulled some returns forward from 2017. you know, it's our view that the u.s. economy was picking up before the election the second half of the year was looking much better than the first half of the year. but what the presidential election really did is unleash animal spirits in the market. and we've seen things move very far very fast really on promises at this point we're not sure whether or not they're actually going to come to pass as policy. so i think there's a bit of a wait and see here. but we've definitely pulled some returns forward from 2017. >> jeff, is that your view? i mean, reading some of the wall street research notes, the look aheads to 2017 right now, the general feeling is optimism sdp strategists like this market but thing potentially in the short-term we're due for a bit of a pullback just because we've run up so far so fast. >> we would share that view. and the reason for that is dow 20,000 is a major hurdle, a major psychological hurdle for investors. and to move through that barrier, we need to move from optimism to reality on fiscal stimulus, inflation and earnings. so we're going to get there, but we need a catalyst. and that catalyst is likely to be fourth quarter earnings, positive fourth quarter earnings and better clarity on trump's first 100 days. >> are we going to get that, david? >> you know, i think that earnings are definitely improving from where they were a couple of years ago. the third quarter saw the first positive year over year operating earnings growth in over a year and a half. and our view is that the fourth quarter should be positive as well. but i would say that the risk next year is what happens with the dollar. you know, 2015 we saw s&p 500 earnings hammered by a very strong u.s. dollar. and while our expectation is that dollar strength will be a bit more tame than it was a year ago. you know, i think that's still a risk. you get about 50% of s&p 500 revenues from outside of the u.s. and if the dollar starts to go up, that weighs on revenues and weighs on earnings. >> yeah, david, jeff mentioned the first 100 days. and we talked a lot this morning about the defense department and nuclear weapons, but it's my understanding at least that the first 100 days is still going to be very much focused on tax policy. have you guys sort of done the deep dive yet as i know many of your competitors and everybody else is trying to figure out here. what is it really going to mean industry by industry if we do get meaningful tax reform as really does seem to be likely, only question is sort of timing. >> exactly. you know, i think that you need to think about the tax question in terms of, one, corporate taxes, but also in terms of individual income taxes. you know, lower individual income taxes will obviously be good for things like consumer discretionary, and lower corporate tax rates in the u.s. frankly will just make the u.s. a more competitive place to be domicile. if you look over the past decade, we're one of the only major economies that is left their corporate tax rate unchanged. it sits right around 40% when you include state and local taxes. so i think there's a huge tailwind here from potential tax reform. but like we've all been saying, even if donald trump starts to engage with that in his first 100 days when it actually takes hold is probably some time in the second half of 2017. so, again, we need to see which policies really come into being. we need to see reality meet expectations. >> jeff, can you telt us a little bit about how that might affect various sectors and which one you like and don't like based on the tax reform? >> the sectors we really like are the one which is have lagged during the trump rally. and that would be growth-oriented sector which is do well in a moderately rising inflationary environment. and that would include technology, health care and consumer discretionary. and the reason for that is we believe the consumer's very strong. not only from a balance sheet perspective, but psychologically there's really a lot of optimism. and we believe that that optimism will be harnessed and the consumer will spend more. and it will benefit those sectors. >> all right. we will see, guys, thank you so much for joining us. happy holidays to you both. when we come back, procrastinators will be out in full force today. we'll take you to the mall as retailers brace for the final shopping rush before christmas. and taking a look at futures up this hour, dow futures have m e moved further down over the last hour or so down 19 points. looks like a little selloff at the open. s&p down one, nasdaq down 10. much more "squawk on the street" live from post nine at the nyse when we return. did you know slow internet can actually hold your business back? say goodbye to slow downloads, slow backups, slow everything. comcast business offers blazing fast and reliable internet that's over 6 times faster than slow internet from the phone company. say hello to internet speeds up to 250 mbps. and add phone and tv for only $34.90 more a month. call today. comcast business. built for business. retailers are looking to capitalize on the last-minute holiday shopping rush. our courtney reagan is live at queens center mall in elmhurst, new york. courtney, good morning. what's the scene there? >> good morning, sara. that's right. today is the day where traditional retailers like this jc penney should begin to see traffic and sales pick up. citi says christmas falls on a weekend this year, like it did in 2011, so he's expecting the traffic and sales patterns to be similar. now remember, we often see a lull between thanksgiving and that final week of christmas. it's sort of a tradition, albeit an unwelcome one. now, from this npd chart which tracks point of sale data but just through december 10th you can see this lull. it's pretty clear and it's deeper than last year down 4% for those first six weeks. online shopping we know has been dominant. online has taken a bunch of it. 37% amazon sales according to slice intelligence. but with two days to go until christmas, hanukkah starts tomorrow, gift givers are out of time if they want to shop online unless they want to pay expedited shipping. so we talked to a couple last-minute shoppers. take a listen. >> today's my first day. >> oh, no. >> yes. >> what are you looking for? >> pandora for the kids, for the girls. and i have no idea for the guys. >> i saw hot topix running some deals, jc penney, macy's, so that's going to be mostly my stores. >> now, most retail consultants are still confident we'll hit those sales forecasts for growth between 3% and 4%, but we have to see a lot of traffic here today, tomorrow and the day after christmas, back to you, kelly. >> courtney, thank you. we'll check in with you in just a bit. taking a look at futures as we head into the opening bell. i'm keeping an eye out for ballerin ballerinas. s&p by one point, nasdaq by nine after red arrows yesterday. more "squawk on the street" from the new york stock exchange straight ahead. ♪ ♪ get up to $2500 customer cash on select 2016 and 2017 models for these terms. see your lexus dealer. ♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade. sometino big deal.shing my gums bleed. but my hygienist said, it is a big deal. go pro with crest pro health gum protection. it helps prevent gum bleeding by targeting harmful bacteria on your gums. left untreated, these symptoms could lead to more serious problems including tooth loss. gum crisis averted. the opening bell just a few minutes away. i'm sure you'll recognize that music, the new york city ballet about to ring the bell celebrating the annual production of the nutcracker. i haven't gotten to it this year, unfortunately. >> i want to see it. >> it's a wonderful, wonderful production. we're back with the opening bell right after this. my name is cynthia haynes and i am a senior public safety specialist for pg&e. my job is to help educate our first responders on how to deal with natural gas and electric emergencies. everyday when we go to work we want everyone to work safely and come home safely. i live right here in auburn, i absolutely love this community. once i moved here i didn't want to live anywhere else. i love that people in this community are willing to come together to make a difference for other people's lives. together, we're building a better california. you're watching cnbc "squawk on the street" live from the financial capital of the world. the opening bell ringing in about 30 seconds from now as we get started here for the final day of the week's trading. of course got a holiday on monday. we've had quite a rally over these last few weeks though a bit more muted of late. >> yeah, last couple days have been tough. it's like we keep getting further away from dow 20,000. we barely held 19,900 in the session yesterday. >> and first two back-to-back losing days for the dow since november 4th. >> there it is that opening bell of course as you look at the realtime exchange at hq. at the big board the new york city annual production of "the nutcracker." over at the nasdaq the salvation army which is helping those in need during the holidays and throughout the year. i like that singing thing they do over the last few years. >> the salvation army? >> yes. brings life to a lot of corners here in new york city. >> they've been doing that forever. >> yes, but i guess it's more upbeat now. it's more -- it's tunes we know. more hip hop. >> they've gone pop. >> they always have the bells. >> one place to look right now for some direction is the european markets. we actually had some big news on european banks, finally a settlement with the u.s. justice department and deutsche bank. the number there $7.2 billion. that is significantly less than the $14 billion originally that the justice department charged deutsche bank. this all relates to its sale of mortgage backed securities during the u.s. financial crisis. deutsche bank guys, shares, were higher and continue to be higher, about 1%. breathing a sigh of relief. remember, in september they hit a record low. since then they've rallied about 80% off of the lows. and the idea here is we've got some sort of resolution and they don't have to go out and raise capital, which you remember at one point was considered a serious risk. >> it's interesting. so deutsche is going to try to settle this one for less, credit suisse saying the same thing, bar cclays saying no. in barclays case i think they wanted it was rumored to be around $5 billion settlement. he said if he felt like the price was too high they weren't going to settle. the question for investor ss whether just to get this all behind them ten years on. >> right. the u.s. government is suing barclays over the fact there's no settlement there. and according to to reports barclays is hoping the next administration might be friendlier when it comes to making this sort of deal. >> or that they simply have a chance to fight back. in other words for a lot of people there is this pressure to just resolve it. they'll say, all right, as long as capital can handle it, et cetera, but in this case where they're taking a stand, whether to prepare time to respond or feel like they'll get a better shot, maybe you're right, new administration or just in general to have the opportunity to try to do something about it instead of just handing -- >> yeah, it will be interesting how the jeff sessions justice department takes on these sort of cases in general. this is an administration that is considered much friendlier to the banking industry. but this is a foreign bank, right? >> i mean, it's not like donald trump ran on a campaign of, you know, we all love the big banks and i'm going -- >> no, but he's filling his cabinet with a lot of wall streeters. >> yes, but if there was a bend to it it would also seem like a strong pro community bank bend to it. reflecting on the populous tone of the whole thing, not necessarily about the big guy. yes, he has some people in there from goldman, so it's not as if they're entirely shut out of the conversation. >> yeah, in charge of secretary work there and then obviously the guys running the nec was c.o.o. of goldman sachs. >> even bannon. >> and bannon was a banker there many years ago as well. a close advisor to the president-elect. as we all know we've been watching it all the banks have been perhaps the greatest single beneficiary of the incoming administration. it's a combination of less regulation, to our earlier conversation here. the prospect that there might be some rollbacks in dodd/frank and just a more per miss regulatory environment, with the ten-year yield surging above 2.a% over the last four or five weeks and lower tax rates. add all those up and you still have a lot of people who seem to come on the air saying these banks have a lot further to go, kelly. >> yeah. >> we'll see. >> the earnings -- >> that rally has been extraordinary. >> right. it's interesting jpg which was at all time highs yesterday, i don't know if it closed, it was there in the session even in a more difficult tape you look at the analysts on the street covering it, it's not as if it's widely bullish, the higher it climbs the few people have a bullish -- the question is the street going to come around and see there's significantly higher run for the banks, or do things slow down? it would probably be better if the yield curve went steeper in terms of their future earnings. >> we have sort of paused here when it comes to that rise in the treasury yield. but they have been underperforming for the last eight years. >> they have. a good way to make up particularly versus the s&p. even when you look at them now. interesting to note and i made this point yesterday with jim, we're moving into compensation season for many of the big banks, goldman, morgan, jpm, bank of america, citi, compensation structures were changed to try to at least align risk with compensation a lot more equity being delivered. well, those who are getting it now are feeling pretty good about it, although these last few years to sara's point have not been particularly good in terms of performance overall. as we head into next year it has been great time -- >> those were great results the other day. if that's an early signal -- that captured the post election -- we'll see how that filters through to everybody. >> there's an expectation when it comes to pure investment banking you're going to get more m&a given what the expectation is of more lax regulatory environment because certainly that's been seen as a break to a certain extent on some though this was a good year for m&a. and more capital markets activity. very few ipos right behind us and the expectation is next year we'll get more. >> also the repatriation factor into the m&a picture, if that really gets done. how much is $2 trillion? >> depending on how much you bring back and what the tax is on it and what's left. it's going to be a very large number. how much will be used for share buybacks or dividends versus capital investment, which i think is more of the hope. >> or deals. >> or to your part for deals. borrowing has been done against foreign reserves as opposed to using the money itself. >> sort of talking about the italian banks said italy up about 1% -- >> the italian market -- >> speaking gdp ratio in italy is not getting better as a result of their support for the banks. very different issue obviously from the ones that talk in the u.s. that talk about settling mortgage suits. if this were a different market that could have us done 200 points before the resolution may be up the other way. but seems like people are taking it in stride right now. >> one step closer to a state bailout for this troubled bank, oldest bank in the world, monte dei paschi, that is a good sign italy has moved in that direction. another stock to watch in the opening trades of course is lockheed martin, first chance to react in open markets after that trump tweet last night. let's look at shares because they were down pretty sharply about 2% in the afterhours. they're down about a percent right now this of course after donald trump took to twitter again saying that he's asked boeing to price out a comparable jet to lockheed's f-35 because of the, quote, tremendous cost and cost overruns of the f-35. to be continued on this one as defense companies are really going to have to pay attention to the twitter account, even though they've also had a pretty spectacular rally after the election on this idea he's going to beef up military spending. tweeting about nuclear arms. >> exactly. if there was probably a story this morning that is going to weigh over the whole sector, i mean, to look at these comments made to colleagues at msnbc just makes it more clear, david, what was implied by his tweet the other day already. >> that's right. given at least that reporting. it is hard to discern exact -- his precise thought process in 140 characters. >> context. >> or the context. he has yet to hold a press conference. would be helpful, i think, to be able to ask some real questions and get more full answers in terms of some of these issues, which are pretty important. >> and he's named his press team now. so there's an opportunity. >> yeah, speaking of his press team, i was watching shares in the open of twitter to see if there was any sort of boost. >> they were down like 4% yesterday by the way. >> down, they continue to fall on this brain drain that comes from the top of twitter. and not really get any boost from the fact that twitter is now one of the most powerful communications tools. in fact, sean spicer who was just named the white house press secretary saying that as president donald trump is entitled to continue to use that medium to communicate with the public. twitter shares are unchanged. >> they were down 29% -- you're totally right. it's a massive missed opportunity. >> if twitter said everybody wants tweets in realtime you have to pay up what would you put on it $100 a year? $1,000 a year? he's almost handing you a business model if you really wanted to go that direction but they've shown no appetite to want to monetize it in that way at all. >> certainly a boost of credibility. >> twitter has suffered from something we covered closely which was the courtship that went on for quite some time between salesforce and disney to a certain extent and itself. the failure of the process particularly in terms of salesforce, which had been so aggressive and then marc benioff meeting with his own shareholders said, no, you can't do this and backing off left twit ner a very difficult position dealing with the fundamentals and as you say this brain drain, which has gotten a lot of press. and also a lot of analyst notes on how many people they've lost in the upper ranks. >> so as a result though twitter shares are back down to the low end of the range. >> yes. >> you wonder if that's going to fuel m&a speculation to heat up again. >> they want the price to be at a certain level that i think the question is who bought those first? does twitter start to accept a lower valuation than what it would really want right now? >> you want to sell off as high valuation as you can. right now nothing going on as far as i'm aware, but i think you will have that idea speculation swirl around from time to time. we'll see if it reappears in 2017. you know, it's not that large a company. >> no. it's now smaller than the value of bitcoin, as a lot of the bitcoin enthusiasts like to say. >> i wondered when you were going to mention bitcoin. is it back to 900? >> i don't know for sure, but if you look at we talked about with china and the capital flight issues they're having, if you want to get your capital out of that country, bitcoin is one way to do it. >> also india, there's a lot of demand there because they've cracked down on cash. and the government. bitcoin back above 900 it has soared 90% so far this year. outperforming -- >> after collapsing. bitcoin behaves like the market. you hate it, it rallies. you love it, it sells off. let's get to a man storing up that bitcoin, bob pisani on the floor with more on what's moving this morning. bob. >> i'm a boring old dread bogle disciple. it's more valuable than twitter if you add up all the numbers. this is another day groundhog day where there's no market leadership. look at the sectors, we've been complaining about this all week. remember, materials, energies and banks, those are the market leaders just a few weeks ago, banks have been doing nothing. goldman's been laying here all week. the industrials another market leadership group, everything sort of stopped going up at this point. i said all week there's been no stock for sale and this is a good thing. it's holding the market up. but yesterday we saw stock for sale in a very particular group and that was retailers. now, retailers are more stable yesterday. a lot of talk about why we saw 4, 5, 6% decline in these retailers. some people were talking about bed, bath & beyond's poor earnings, some talking about tariffs on imports trump might be talking about. whatever very heavy volume yesterday. you want to pay attention when that happens. i'm not seeing it today. you see the bounceback in some of these names. they were all down 5, 6, 7% yesterday. that's something you want to keep an eye on. also of course on lockheed martin, huge topic of conversation among traders yesterday got a lot of phone calls saying, wait a minute, i own lockheed martin and again i've got overnight risk. suddenly i'm down another 2%, down 5% or 6% since mr. trump started tweeting that the f-35 was too expensive. now we start talking about potential portfolio risk. so the trump tweets in the market this week has now become a bit of a market issue overall. and the issue is how destabilizing is -- i'm not talking lockheed, i'm talking overall markets. that's where the debate has gone to right now. markets hate uncertainty. it's an old chestnut of the market. but does this increase market uncertainty overall? not just on something like lockheed. is this the start of four years of a new form of portfolio risk? and not just the f-35s too expensive, fill in x, y, z, how about the cost of x, y, z, diabetes drug is too expensive for abc drug company. or how about the cost of crushed stone for xyz cement company is too high and we're not going to use them in our infrastructure highway program. you get the point? it gets to overall portfolio risk and people get a little bit nervous. this is a topic this week, and i haven't heard it this loud before. let me move on. why no dow 20,000? this has been -- people have said, bob, last thursday you said we were going to hit dow 20,000 this week, and i did, and i made that statement on two facts, two theories. one, the tax cut and stimulus momentum was very strong in the middle of last week. i thought that was unlikely to fade away because we were so close to dow 20,000. and secondly and more importantly, we're in a seasonal rally. the last two weeks the dow tends to rally about 1.6% historically. that got way over dow 20,000. on those two ideas i thought we would make it. what's happened is since the middle of last week both of those have stopped. the momentum rally has faded and the seasonal rally has not come forth. a lot of people feel -- you heard some people earlier today say we have pulled forward the gains because the first part of november and december were so strong. maybe. but we haven't gotten there yet. now, sentiment, this is risky because sentiment is very bit o now that i think people weren't anticipating. overall it's a good month. take a look. the problem is leadership has faded away. banks have held up well, but industrials and consumer discretionary all on the downside. there's your leadership for the day, microsoft was big this week, it's down today and that's my point. you can't get anything going. one day something's up, the next day it's down. pfizer, merck, bad week, they're up today. got to get a clear momentum going. that's what we don't have. have a happy and healthy holiday, everybody. >> bob, you too. thank you so much. bob pisani on the floor there. he mentioned momentum, let's head up to the nasdaq where we find our bertha coombs seeing if there's any movers to the upside there, bertha. >> well, you know, blue chips this morning a little below par, but chips have really been the momentum movers within the nasdaq. that's really what's moved the nasdaq all this month. in fact, we are on pace for a 2.5% gain this week when the rest of the market has been absolutely flat. and for the year the chips sector is up 39%. some of the stocks there that have been at all-time highs taking a little bit of a breather today, but they include nvidia and micron, they've been moving higher all year helping to lead this rally. meantime, take a look at fred's, this is a small pharmacy discount chain which this week its stock propelled 80% on tuesday after it announced a deal to buy rite aid stores. now it turns out that alden global, an investment firm capital has a 25% stake in that company, and they are apparently interested in talking about this deal although they are reportedly supportive of the deal. that deal key for walgreens and rite aid to merge and have that merger -- as far as what's moving to the upside, a little holiday trade, some of the retail names, toy makers, hasbro is up here, tractor supply, it's one of my favorite stores. they have such cool stuff. i found a screwdriver there for a teeny tiny screw, it was great. >> i love tractor supply. it's great. i mean, you walk in there and you just want to get a flannel shirt and, you know, a pair of carhart's and go out and garden or something. you're not going to do any of that around here. >> i don't know. tiny screwdrivers don't do it for me. let's head to the bond pits. rick santelli at the cme group in chicago where the dollar has now turned higher against the euro, rick. >> yeah, it has. a little bit anyway. you know, if you look at the week, it's a pretty flat week. if you consider today, it's an interesting session. we're down unchanged in twos, down one in fives, down two in tens, down three in 30s. so once again getting a bit of flattening even though tens to twos is about the steepest it's been in a year. and yesterday was a fresh steep. so let's look at the week. a week of tens, yes, we've drifted to the bottom of range, but it's been a tight week. but the month of december has been anything but. 2.35 the low yield so far, 2.60 the high, pretty decent amount of distance. one week of bunds, a big downward drift there, a bit different than the tens. but still tight until you look december 1st where the downdraft is really exaggerated. their low to high for the month of december so far 22 basis points to 40. might not sound like a lot, do it in percentage basis and you might think differently. if you look at the dollar index, there's a one-week, as sara pointed out there is some improvement going on. dollar index stands up three, up three right now. so not even, you know, a minuscule amount. but if you look at it since december 1 st, anything but minuscule, basically 100, which by the way once you closed above you never looked back, all the way to 103.25, and even as flat as it is now hovering at 103.13. so we want to continue to monitor the holiday potential flattening of volatility versus the big more macro development for the month of december. add horsepower if you look at it since november 20th at least with respect to the fixed income markets four weeks before the election we're already on the move rates higher. sara, back to you. dollar's fourth up year in a row. rick santelli, thank you. coming up, it appears there's a stock-related controversy surrounding one of president-elect's donald trump's cabinet picks. we'll have details on this story when "squawk on the street" comes right back with the dow down only three points. the president-elect donald trump's pick to run the health and human services department is in the spotlight today. congressman rice traded more than $300,000 shares of health related companies over the past four years while sponsoring and advocating legislation that potentially could affect those companies' stocks, trades included amgen, bristol-myers, eli lilly, pfizer, aetna, as controversies continue to swirl around all of these cabinet picks, not just the business members of them. >> and one going to get some discussion as well a smaller company, it's australian based, he bought a lot of stock there. chris collins is on the board of that company. he's of course -- there's been a lot of profiles about him and the role he's played on the trump transition team, an early support eer of trump's. >> both the house and senate they were able to outperform the market. but there's nothing illegal about it. it is there -- it is not trading on insider information. eamon javers has done good reporting on this quite some time ago, but it is an interesting subject. we'll talk a lot about conflicts in a more general sense, i'm sure. >> we need a conflict expert and a tax expert. >> yes, we do. >> still to come, arizona governor, doug ducey, on uber moving to his state. what's team spirit worth? (cheers) what's it worth to talk to your mom? what's the value of a walk in the woods? the value of capital is to create, not just wealth, but things that matter. morgan stanley ways wins. especially in my business. with slow internet from the phone company, you can't keep up. you're stuck, watching spinning wheels and progress bars until someone else scoops your story. switch to comcast business. with high-speed internet up to 10 gigabits per second. you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. welcome back. it's time now for a closer look at oil prices. jackie deangelis is at the energy desk with more. jackie. >> good morning to you, kelly. stocks just turned marginally higher. crude oil is still lower. you have a market today really taking a pause here, not just in equities but in crude oil too. there's some caution, some profit taking. we're going to have a three-day weekend, this is typically the action we see ahead of a holiday. you've also got a dollar index over 103, and the prediction right now is that the dollar will continue to move higher. that weighs on crude oil prices. what's remarkable here is we're stuck smack in the middle of the range just over $52 in that $50 to $55 range. while traders wait to see what happens. remarkable to look at the gains we've seen in oil. we've had about 20% move in the last three months, 40% in the last year, and the financials have -- excuse me, energy sector has been the strongest performing, financials right under it. back to you. >> all right. >> sorry. >> that's okay. >> energy's up 25% year-to-date, financials up 21%. >> coming up, breaking news on consumer sentiment and new home sales, plus the latest on president-elect trump and putin. world ugly and messy. 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. ♪ good morning and welcome back to "squawk on the street." i'm sara eisen along withwe are the new york stock exchange. someone didn't get the holiday memo over there. carl has the day off. let's take a look where we are on the markets. stocks try to push positive here. the dow is up a whole four we s half an hour ago. s&p up fractionally, so is the nasdaq though oil continues to decline it is down half a percent, david. let's get to breaking news on the economy. we begin with rick santelli in chicago. rick. >> yes, we have a november read on new home sales, 592,000, seasonally annualized adjusted units, that's a bit better than expected, follows an unrevised 562,000. and to give you some perspective, you know, the high for this series is 1.39 million from 2005, the year high is 622 million seasonally adjusted annualized units. 622,000 seasonally adjusted annualized units that's from july of this year, and that was the high water mark going all the way back to 2008. now for the money ball, the final read on university of michigan sentiment and we were expecting a number somewhere in the 98 camp, we ended up with a little more at 98.2. so 98.2 isn't a bad number. that replaces 98, which was the mid-month read. and of course the inflation gauges are interesting. one-year 2.2, down a tenth from our last look. on five to ten-year 2.3 down 0.2 from the 2.5 last read. and markets right now rates haven't moved up much, they're lightly lower. kelly evans, back to you. >> thank you, rick. defense shares are on the slide this morning with lockheed leading. morgan brennan joins us now with more on this developing story. morgan. >> hey, kelly, that's right. so the trump tweets about defense just keep coming including this one from the president-elect. based on the tremendous cost and cost overruns of the lockheed martin f-35 i've asked boeing to price out a comparable f-18 super hornet. but can the f-18 super hornet actually compete with the f-35 joint strike fighter? short answer, no, not really. and for that to potentially change it would take years and billions of dollars, that's according to analysts i've spoken to, but it also isn't that simple. so the f-35 is a fifth generation stealth strike fighter. different variants cost upwards of $100 million, though lockheed says it is working to drive that down to $85 million in the 2019-2020 timeframe. its low radar signature means it can get closer to targets before it's actually in danger. the f-18 super hornet on the other hand a fourth generation, does not have stealth or censor fusion and that means it has to rely on standoff weapons for a strike. all that said, the two jets do compete. the navy for example has limited its f-35 buys while boosting budget for super hornets. and last month canada, one of our allies announced its purchase of 18 super hornets after dropping plans a few years ago to buy f-35. so all of this as the government and lockheed martin are gearing up to negotiate more f-35 contracts. so if you take a look at the stocks, they are reacting to this. lockheed martin is down about 1.5%, boeing is actually slower right now and northrop grumman one of the top suppliers also about a percent lower and so is united tech develops the engine for the f-35. >> morgan, thank you very much. we're going to look at the broader market now. looking to rebound here after the dow suffered its first back-to-back losses since early november. now sitting higher by about four points. let's bring in doug ramsey and our own steve liesman, cnbc senior economics reporter. doug, on the defense stocks, what do you do with that group in a trump administration? >> we actually like those stocks. pretty good values. good momentum. you know, obviously these tweets are just a complete wild card that i don't know how to read. you know, maybe you have some sort of, you know, back room discussion sort of like you had with carrier or maybe with boeing over the 747, but we actually we like the group. >> on this idea that we're going to see a ramp up in defense spending here and potentially abroad? is that the thesis? >> yeah, i mean really, you know, we're kwauquads are how w look with a group. the stocks have started to move. i mean, post election. so we typically require a little bit of a relative strength turn in our group work before getting onboard, so, you know, our quantitative work sees fundamental change coming in the next 12 to 18 months. so i guess i'd leave it at that. >> all right, steve, defense -- go ahead, did you want to say something? >> yeah, i was going to add if you listened to what morgan said, it was a really interesting report. and what she's telling you in that report from what i've gathered and i've covered some defense stuff in the past is that these are not competitive markets. you do not come forward and bargain for a fighter jet the way you do, you know, a chevrolet versus a chrysler. these are not interchangeable commodities. i'm not sure the president-elect has come to that conclusion yet, but one of the things one might do in making an investment decision on these is to understand that eventually the president-elect will come around to understanding that you don't replace f-35s with f-18s because one is cheaper than the other. one is a stealth fighter, as morgan told us, one is not, so they're not interchangeable in that regard. >> that's a good reminder. different technologies as i understand it as well. doug, let's move on from defense. talk about some other winning and losing sectors. we had a whole debate earlier about the bank stocks. will that be the ticket, say, to dow 20,000 and continued gains for the markets next year? where do you come down after the double digit rally we've already seen? >> i still like them. i mean, the values have been depressed for years. kind of lost among all of, you know, the rate talk here. we've had a little bit of a widening in the yield curve that should help them out. but financials overall is our number one sector. so i'd extend, you know, bullish outlook to a group like the asset managers as well as the regional banks. so, yeah, i think there's a good chance that they're leaders as we go into 2017. >> and that's based, doug, just on the charts? on what? you guys are momentum investors to a certain extent and the momentum's there? >> relative strength is a piece of it, but we look at the valuations as well. so, you know, both of those are now in place. we've had the valuations for years, and now they finally had this strong breakout as well as earnings estimate revisions coming up. so those are some of the factors that go into our quant work at the group level. >> steve, just talk about the fundamental in rates -- the composition of the fed saying is it going to be structurally more dovish, is there a chance that the economy could run hotter if that were to be the case, so, you know, we haven't heard much from the president-elect at all when it comes to the fed. >> no, he's been kind of quiet. he spoke about it during the election, during the campaign. >> right. >> talked about complaining that fed chair janet yellen was keeping rates low for political reasons. and i'm guessing that he would hope that she keeps rates low for political reasons again during his tenure. what our hawk/dove index at cnbc shows, kelly, is that there's a more dovish fed coming in. that's before you count the potential appointees from the president-elect. in fact, we have a number where five is the middle. we have never been below four, but we are below four at 3.9 because what's happening is you have two hawks coming out. loretta mester ande esther george, and being replaced by charlie evans, among others, who is the most dovish member. but what we did ask is, well, what kind of person will the president-elect appoint? and what will be their attitude towards interest rates? some people seem to believe you'll get a more hawkish appointee from donald trump. >> we will see if he tweets or comments about it at all. all moving parts, the fed, the markets will influence doug's financials. guys, thank you. doug ramsey and our very own steve liesman. coming up, vladimir putin putting u.s.-russia relations in the light. we'll get more on "squawk on the street." mary buys a little lamb. one of millions of orders on this company's servers. accessible by thousands of suppliers and employees globally. but with cyber threats on the rise, mary's data could be under attack. with the help of at&t, and security that senses and mitigates cyber threats, their critical data is safer than ever. giving them the agility to be open & secure. because no one knows & like at&t. did you know slow internet can actually hold your business back? say goodbye to slow downloads, slow backups, slow everything. comcast business offers blazing fast and reliable internet that's over 6 times faster than slow internet from the phone company. say hello to internet speeds up to 250 mbps. and add phone and tv for only $34.90 more a month. call today. comcast business. built for business. financials are up almost 22% by far the top sector this quarter on pace for the highest gains since the third quarter of 2009. many capital advisors president and ceo joins us on the cnbc news line with more. anton, we've been talking a lot about this, of course, lower tax rates, higher interest rates, less regulation, the prospect of all three added up to at least a great rally. the question is do you buy them now? >> well, the answer is, you have to continue to stay the course and own these companies because the one thing you did leave out was less regulation and a much stronger economy potentially much faster gdp growth caused by, you know, less regulation than other industries and caused by environment where lower tax rates for others to reinvest in their business. so i think you can continue to own financials. and in a rising rate environment financials always outperform the s&p as a whole anyway. >> right. give me some fundamentals here in tuerms of where we are on multiples, where you expect we'll be in terms of earnings given the scenario you just outlined. >> sure. >> and also return on equity for this group as well. >> so, you know, if you look at the current multiples and most analysts haven't adjusted for any of these impacts yet, if you normalize for a lot of these impacts, particularly a tax rate that's much lower, you're talking about regional banks trading about 12.5 times earnings. if you look throughout history, that's really kind of in the middle of the pack of where regional banks have traded. so, no, they're not very expensive on a price-to-book basis, they're trading at a higher multiple. again, return on equity is going to move dramatically off these low single digit numbers and to, you know, the low to mid double digits. so, again, you know, massive improvement in terms of financial outlook. >> anton, steve eisman was on cnbc recently, he was saying that we were entering a golden age for the banking sector, a golden age of investing in financial stocks. that certainly gets your attention, but as an investor in these stocks, are you concerned at all that this is becoming a pretty consensus type trade going into 2017? >> well, i still think they're underowned. and, you know, the thing that i've always done throughout my career is look for, you know, strategic changes in companies and mergers and acquisitions. so if you remove some of the regulations that have been hampering transactions, ie the $10 billion level for durbin, d fast and the $50 billion level for ccar, you could have a lot more activity happen in mid cap banks in terms of m&a and i think you could create a lot of value from those transactions. we've started to see some companies use their stronger currency to create value. ibtx in texas did a very smart deal, immediately accretive to book value, immediately accretive to earnings. you see those kind of transactions out there that are smart and create value for shareholders. so i think there's a chance use those currencies and create value. >> right, i assume you're not talking about something akin to the great consolidation wave we saw call it '90s. you're talking potential consolidation candidates? >> yes, exactly. think about the top, you know, top four, citi bank, bank of america, j.p. morgan, wells fargo, they're out of the acquisition game. u.s. bankcorp, which is just below that, hasn't done a deal in a while, they can. bbnt has done a bunch of deals, regions, suntrust, they can all be involved. and they're all going to get bigger. and then down below that you have -- company which just closed and first horizon. so you're going to see a lot of regional guys getting together and getting bigger and stronger once these regulations go by the wayside. none of those had anything to do with causing the crisis. i think the big banks are going to have to carry too much capital. fair enough. i think that capital guards against, you know, any sort of risk. they're probably going to have to carry more liquidity. but some of the other roles that really had nothing to do maybe in volcker as well, may go by the wayside pretty easily. >> we'll watch for some specifics on that front, anton. we mentioned a number of headlines out of europe this morning. seemingly positive ones for european banks, deutsche bank finally a settlement at half as much was expected. credit suisse makes a deal, barclays not so much but looks like italian banks are going to get a bailout. does this remove a layer of uncertainty for the u.s. banking system? we know how interconnected it was though haven't seen much of a reaction there. >> yeah, i mean, i think at the end of the day most people have sort of looked at the u.s. banking system, spent a lot of the last few years making sure they ins slate themselves from some of the issues that were obvious. some of those italian banks have been obvious for a number of years. hopefully some of these settlements lead the way for the european banks to start to recapitalize themselves. you know, i'd love to see deutsche go out and raise a whole lot of capital now we know exactly what their fine is. and certainly, you know, credit suisse ought to certainly also do some of the same things. italian banks are going to need a lot more capital than the italian government is promising here, but it's a start and a positive start. we need to put a lot more capital in the european banks, particularly italian banks. >> it's an ongoing story. anton, thanks for your insights. appreciate it. >> always a pleasure. happy holidays. >> and to you. >> goldman sachs up 50% so far this quarter. wow. we're just crunching the numbers here. arizona gets good news from uber, the company moving its self-driving car program to that state. stay tuned for an exclusive interview with arizona's governor, that's coming up on "squawk alley" with the dow on the flat line right now. we'll be right back. welcome back. call him the twitter negotiator in chief. shares of lockheed martin falling this morning as we've mentioned after president-elect trump tweeted about the cost of the f-35, calling on boeing to price out a comparable f-18 super hornet. meantime, russia president vladimir putin saying he's not surprised by this trump tweet calling for the u.s. to greatly strengthen and expand its nuclear capability. take a listen. >> translator: regarding the president-elect, mr. trump, there's nothing new about that. during his election campaign he mentioned the need to strengthen the nuclear capabilities of the united states on strengthening and expanding the capabilities of arms forces. there's nothing new about that. >> joining us now is russia expert, aerial conan, and alex conant. we'd already been through one reset with the relationship with russia, there's been not a lot of news flow this week about, you know, kind of an arms race that might be starting to happen here. so how would you analyze the situation? >> well, really we've been through two resets. remember president george w. bush said he looked into the eyes of vladimir putin and saw his soul. and then obviously obama and clinton tried to do the russian reset, which failed. so president-elect trump is inheriting a massive relationship with russia and with vladimir putin, specifically two presidents in a row have tried and failed to negotiate with him, to improve relations with russia. and so i think trump needs to be eyes wide open about the challenges that exist with russia that putin is a tyrant, that putin is acting aggressively and that putin does not have the u.s.' national interests in mind when he's talking about policy changes. so i know that people in the united states senate including my former boss, marco rubio, take vladimir putin very seriously and want to make sure that putin -- excuse me, trump and the people trump nominates to his cabinet similarly take him very seriously. >> aerial, it's not clear that that's exactly how this is shaping up at this point, especially with the selection of rex tillerson as secretary of state. so would you agree with alex that the stance needs to become more muscular? or is it simply a wait and see? >> i think there is a consensus at least among the republicans that the united states needs nuclear modernization. that's what president-elect trump said. we neglected our nuclear weapons. we got a lot of fatigue in people and material after the two wars in the middle east. clearly massive -- nation of both conventional and nonconventional capabilities is necessary. but i just came back from moscow a couple weeks ago, and there is an eager commitment to try and open a new page. i think alex is right -- >> wait, aerial, who's commitment? is it russia's commitment to open a new page or the u.s.'s? >> no, russia's commitment. russia's desire. and actually in today's presser putin said that we were the only ones -- russians were the only ones, who believed that trump would win. and a lot of americans didn't, clearly. >> but what you're saying about the need for modernization of our arms, does that imply a threat to russia? do the russians perceive it that way? >> the russians are more concerned about our antiballistic missile defense. they were hammering about the need to -- for us to stop ballistic missile defense, which i don't think trump ever said he's going to do that. and i don't think he will. the other thing we need to remember that trump as the author of "the art of the deal," would look at the situation with russia and say, hey, you want xyz, you want recognition of crimea, you want to stop the war in ukraine, what are you going to give me, trump, in exchange? and unless and until we hear the clear quid pro quo that mr. putin is willing to offer, i think all this discussion about how all of a sudden we're going to reset relations is moot. >> alex, you are the d.c. insider. how do you think these new developments are going to go down within trump's own republican party? >> well, i think clearly there's conflict within the republican party about how best to approach -- about how best to approach russia. you saw this play out during the primary campaign where other candidates including my former boss, marco rubio, took a very strong stance against vladimir putin. and trump was more open minded about vladimir putin. but it's not just how u.s. and russian relations play out, i traveled extensively throughout eastern europe and i can tell you eastern europe is very worried about what a new opening in u.s.-russia relations would mean. does that mean that russia gets to keep parts of crimea? does it get to keep parts of georgia that are currently occupied? i can tell you senate republicans care very strongly about georgia, about ukraine and about the relationship. >> so let me ask you this, you mentioned trump's stance was at odds with basically the whole gop field, but he won. did he win in spite of there being at odds with russia or was that partly because of it? >> well, i don't think he won because of russia one way or the other. i think he won because he was able to connect with white wo working class voters in a way that other candidates weren't able to do. and he was able to, you know, talk about draining the swamp in a way other candidates weren't able to do. i think that was the core of his appeal. but now he's president-elect. now he has to govern. and now he has to have a foreign policy. but the executive alone does not determine u.s. foreign policy. the senate has a big role in that to play. >> yeah. >> and that's where the oversight comes into play. >> all right. guys, thank you, this morning. alex conan, aerial conant talking about our potentially new relationship with russia. >> thank you. going to be an interesting hearing for rex tillerson. when we come back, ways to make money in the new year. we'll pull out the 2017 playbook on my beloved consumer products sector. "squawk on the street" will be right back with the dow now down about 6.5 points. a winter weather emergency... announcer: soon, insurance companies won't pay for damages, that is, not if they can help prevent damages from happening in the first place. at cognizant, we're turning the industry known for processing claims, into one focused on prevention with predictive analytics... helping them proactively protect the things that matter most. get ready. because we're helping leading companies lead with digital. we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley. good morning everybody. i'm sue herera. here's your cnbc news update at this hour. two hijackers who took over a domestic libyan flight today have surrendered. the airbus a320 was forced to land in malta and luckily all 118 people onboard have been freed. with the main suspect in connection with berlin's deadly truck attack dead, authorities are now trying to figure out if he had a network of supporters. an italian police officer shot and killed 24-year-old tunisian at a train station in milan overnight during a routine id check. police say the suspect killed 12 people and injured 56 after plowing through a christmas market on monday. and australian police reporting today they have detained five men suspected of planning a series of christmas day attacks using explosives, knives and a gun. they were allegedly targeting a major train station, bar and restaurant in melbourne. police say though that they were inspired by isis. and all you procrastinators, listen up, it's the final hours to send packages in time for christmas delivery. the postal service recommending sending priorityail express no later than today. i'm surprised you can even do that. that's the news update this hour. i'll send it back down to you, sara. >> i think amazon has a two-hour delivery on some products. >> they do in some cities, yes. it's amazing, right? >> yes. sue herera, thank you. >> sure. the calendar of course is set to flip over to 2017 very soon, so it is that time when cnbc gets out its playbook predictions for the new year. today we're looking at what to expect in consumer products. 2016 was another big year for deal making and cost cutting in the consumer staples industry as the quest for growth remains elusive. 2017 will be a year that distinguishes the winners and losers in this industry. hopes of lower corporate taxes from a new trump administration and republican congress are fueling expectations of big profit boosts. it's a smaller consumer names with sales coming from the united states who pay the highest tax rates, think hershey, pinnacle food, reynolds american, that means they'll get the biggest benefit if reform actually does pass. big food beverage and household products makers have struggled for years to connect with the younger generation, missing key trends like greek yogurt and energy drinks, they're also trying to adapt to new spending habits like buying food and staples online. add it all up and you've got an industry that is behind the curve with little to no top line growth. forcing companies to beef up their marginmargins, cutting co raising prices, lack of growth also means you'll see more mergers and acquisitions. there's already word that brazilian p/e giant 3g and warren buffett gearing up for next big tie-up. mondelez is seen as a contender. monster brands, ripe acquisition targets as food and beverage makers look for brands that are actually resonating with younger consumers. and by the way, ever since the election the trump rally has not included the consumer staples industry so much, not considered as attractive in an era where interest rates are rising and so are treasury yields. david, ended on the m&a note just for you because this is an industry that continues to be ripe for acquisition, as they struggle with finding growth. >> it's true. and there have been no shortage of potential rumors through the years and i'm sure we'll get them in 2017. one thing i do wonder in a trump administration far an acquirer of u.s. company where there are going to be job losses associated with it, does that raise any flags? or is it going to be no holds barred in terms of antitrust? >> right. the deal this year deknonone bug white wave. >> we did. >> i wonder what's going to happen with coca-cola? >> why? >> maybe nothing. >> a new ceo. >> yeah, so the divergence between coke and pepsi is interesting. now the pressure to me feels like it's more on coke to show they can perform. >> yeah, some people think they'll actually have to buy monster beverage. they already have a stake in that and potential new deals, that's how the new ceo is seen. it's not just products on investors minds heading into the holiday weekend. from traditional big box to e-commerce, we are also looking at retail front and center. joining us now to discuss how to play this industry, ebonn clark and jiran martes, so thank you for joining us here at post nine. some of these stocks have actually had a rough couple of days. the retail sector, consumer, discretionary, does this have to do with the trump policies or are traffic trends not looking that great this holiday season? >> i would say it's more of a consumer shift. what we're seeing is consumers are more geared towards experiences over things. so we're seeing when you look at the estimated earnings growth rates, the strongest are coming from the travel companies like expedia and marriott hotels, on the flip side it's definitely evident online has disrupted the food and staples category. when you look at the food category, they're actually expected to post a drop in earnings of negative 1. and this is a drop from the previous quarter which was double digit growth. so what we're seeing is that online meals, programs and discounts, are finally disrupting the groceries. if they want to move forward with it, they're going to have to compromise and try to implement some sort of strategy to work with them in order to progress and move earnings forwards. >> evan, what would you say are some of the threads you're picking up on during this all important season for retail so far? >> i would agree with everything she said. i think that's spot-on in the fashion world too. bottom line, santa's going to come this year, boys and girls and moms and dads are going to get something under the tree. i think there's going to be very little for brick and mortar retailers. we're seeing sort of steady growth across the sector, but more than half of that growth is going to the e-commerce guys. so i don't think anyone knows the exact right way forward because margins are very good for the e-commerce side and margins were never good on the retail side. so there's sales growth but no one ice figuring out how to make money. i think a lot of the fashion world is trying to understand this year the key to watch will be how do they interact with amazon? do they sell on amazon? do they work with amazon? do they compete there or not or find their own path? i think that's kind of where the emphasis will be in 2017. >> i thought the story was walmart and target were finally getting their online strategy and finally being competitive this holiday season with amazon? that's how it felt like it started. >> right. at least going into this quarter inventory levels were very lean and we saw that the promotions actually were very strategic this year. so we started promotions starting in november. and then we saw less and less promotions going into those products that were strong in demand. now we're seeing more discounts on those items that are massive in inventory. so we're seeing products that are on demand, less discounting and products that are less on demand more discounting. it's going to be very telling what's going to happen with margins at the end of the quarter. >> that sounds like a good story for margins, but what we've seen in the stocks and everything the last couple days is quite the opposite. is it we're looking selectively and this is a category where it's kind of hard to put it all into one bucket? >> i think because consumers are leaning more towards the experiences over things that we're seeing everybody else is suffering. but when you do look at the winners, the five out of the top ten are in the athleisure space. so you're seeing lululemon, finish line, foot locker, dick's sporting goods, those are the companies benefitting from the strong athleisure trend. >> i'm so glad you mentioned that because they were the big winners in last year's holiday season. but evan, you cover nike as do i, that's not a winner this year. it's at the bottom of the dow. under armour's down i think almost 30% so far this year. so why the divergence? and what's going on with the athleisure trend? >> well, i think there is -- trends come and go. athleisure were certainly at a high, i think we're seeing things swing more back to denim, even despite the recent performance, i think the active wear guys are the sector that have a lot of heat. we talked about experience, retailers are trying to figure out how to provide that experience in the store on fifth avenue here, there's a new adidas store that's got, you know, it looks like a stadium. there's places to sit and watch the game and kind of very experien experience, retailers are trying to figure that out. the nike's, the under armours, those are the ones doubling down in that area and i think they'll be among the first to figure it out. >> i think they should go to japan because that department store experience is unlike anything else. >> yes, the japan one? >> it's so fun, yes. >> i also wanted to mention experience over things. that's why ulta salon has the same store, they like to go into the store -- >> need to get ready for a night out. >> exactly. do your hair, makeup and ready to go. >> all right, guys, we're going to leave it there. thank you for joining us. evan clark women's wear daily, jhronne thompson. still to come, pulitzer prize winning come umist jim stewart joins us at post nine. as we head to break, a look at shares of apple. they're fractionally lower this morning. the company's latest mac book pro, the one with the fancy touch bar, failing to achieve ratings from consumer reports for the first time ever because of inconsistent battery life. we'll have more "squawk on the street" in just a moment. [pony neighing] what? hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade. welcome back. let's get back to the cme group this morning. rick santelli with "the santelli exchange," rick. >> thank you, kelly. i'd like to welcome my last guest before the christmas and hanukkah holidays and that of course is andy brenner. thanks for taking the time. >> rick, happy holidays to you. >> you as well. let's talk a little about next week what you see for the markets in the last trading week of the year. >> rick, one of the things, the most important thing we're looking at for next week is the fact that equities have still outperformed bonds in the month of december. there's going to be some pretty large reallocation trades from bonds into equities -- excuse me, from equities into bonds. we figure it's going to be somewhere between 35 and 55 billion out of equities and into bonds probably 30 billion to 40 billion. i tend to feel that's going to leave a good bit for the bond market and maybe you'll have to wait until the year end to get your 20,000 on the dow. >> you know, that makes sense. i still think last year's settlement at 227 is going to play into drawing yields down maybe just a bit. in terms of next year, quickly, i want to talk europe and china. if we look at the dollar right now and look at all markets in dollar terms, dow's up about 14%, the dax in dollar terms up 2.5%, the italian stock market is down 5.5, and the shanghai composite's down close to 18%. let's talk europe and china next year. >> rick, well, let's talk europe first. you have four major elections next year with germany being the most important and then france and more than likely you're going to have an election in italy. netherlands not quite as important. you know, there's been a real populist view towards europe, and we think that if things go badly for the incumbents, you could start having more talk about the demise of the euro union. that will not be good for equities globally. and that should be good for u.s. treasuries, if it happens that way. on the other hand, if the europeans are able to muddle through it, then i think they'll probably be okay. the euro will improve. as far as china goes, you know, there's been a lot of talk about the chinese equity markets, the chinese banking system, the amount of treasuries that china continues to sell in order to support their currency. but we think the last one is the most important. i mean, the yuan is back to 6.95, 6.96. a high of 6.97. if the chinese because of peter navarro or any other reason decide not to support their currency, that thing's going to flip out. 7.20, 7.50, could go back to the old high of 8.20. that will cause a real problem in the u.s. equity markets -- in the global equity markets. those are the two things i'm looking at for 2017. >> now, real quickly, in like 20 seconds, if you had to peg which sector is going to have the more robust 2017, would it be higher rates or higher equities? >> that's a tough one because i think lower equities come first, but i think at the end of the day i'm very optimistic with donald got through all of us with him think he's going to do a great job, so i'm going to go with higher equities towards the end of the year but not without a correction first. >> excellent. andy brenner, thank you so much. happy holidays. sara, back to you. >> all right, thank you, rick santelli. let's send it to jon fortt with a look at what's coming up in the next hour on "squawk alley." good morning, jon. >> good morning, sara. well, uber might have been sent packing from california with the self-driving cars, but arizona welcoming them with open arms. we're going to talk to the governor about that coming up. also, trade tariffs being proposed by the trump administration could hit retail pretty hard. we'll give you some details on that, and the ceo of circop going to talk about the democktization of angel investing. all that coming up on "squawk alley." you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find smarter entry and exit points and can help protect your potential profits. fidelity -- where smarter investors will always be. take a look at the health care sector up about half a point today. check out what's going on overall with the s&p 500. we have ten s&p 500 today. we have ten s&p 500 sectors micked overall but health care stocks leading to the upside despite being the only down sector so far for 2016. leading the way higher today in those health care stocks, you have aler again, all over 1.5% so far in early trading. the health care sector is this year's worst performing group down almost 4%. we'll keep a close eye on those health care stocks. >> thank you, dom chu. stocks are flat today, but 2016 has been a good year overall for investors with the s&p up about 11%. returns for some hedge fund investors not quite as rosy. our next guest says it is because hedge fund math seems to benefit the funds themselves more than those who invest in them. joining us at post 9 as he does every friday, jim stewart. not a new column for you. kind of an evergreen story for us both through the years, jim. why the desire to write about it again this year in terms of what you found? >> well, the theme may be evergreen, yes, it is. hedge funds are high fees. hedge fund investors have not had such a great year but hedge fund managers have had another great year. yes, that's evergreen but triggered what but a report from one of the most prom innocent hedge fund manager, bill akman and his pershing squares holding fund that the fund was down as of november 30th, 13.5%. pretty bad, but that isn't what people were telling me they were upset about. that thing has been going for about four years. gained about 20.5% of which investors after fees only kept 5.7%, which means the managers kept 72% of the gains. so my question is, wait a minute, this is actually a fund that is a relative bargain. it charges 1.5% management fee. >> permanent capital raised a number of years, lists over in the netherlands. >> yeah. so it's a 1.5% management fee and only a 16% performance fee, not the 20%. so a relative bargain. nonetheless, when you add it up, it was keeping most of the gains. how could they have 72% when they only take 16%. when you think about it, it's simple math. off winning year, a winning year, a losing year and a losing year as they did. they take the fees in the winning years and the losing years they don't give anything back. but the investor profits go down. so as they go down, the percentage they've already taken becomes an ever greater percentage of the total. in many cases it can reach 100% of the gains or the investors can lose money while the managers are making it. >> yes. >> on the face of it, this seems like outrageous, and i think really the news in my column today is that the big -- some of the biggest investors i talked to the cio of cal stars, the number two pension fund in the united states, $200 billion, and he's saying basically we are not going to take this anymore. he told me they're going to be very aggressive this year pushing a new fee structure in which the managers must share some of the risk and there will be a claw back for the years where the fund goes down. >> you're describing a particular vehicle that mr. akman used, a great benefit for him, but that's not a typical hedge fund structure where there are high water marks and where, in fact, you don't get that performance fee until you make your investors whole. >> but here's what happens with a lot of the high water marks. once they are really under water amend they're supposedly going to be working for years to get you back up there, they could dissolve and you are stuck with the loss and they have all that money they took and they reappear under some oh name. the high water mark is not protection if you go far under water. >> if cal stairs is doing this, that's a big deal because the pension funds set the tone. if the hedge fund industry wants to keep that money coming in, describe what this future structure could look like. how much could they claw back? >> he said he's talking to some other big state pension funds, and he's telling me instead of doing it annualized year by year, we take, okay, 20% this year, 20% this year, zero if we go down, they'll use a rolling average. the way many endowments spend on a rolling average of the assets. so, like, the fee for year one, they would pay a percentage of it, they keep the rest of it back until year two and year three, and then if those go down they would claw back some of that. it's a little complicated. still working on the details but conceptually it makes a lot of sense. what the hedge fund people of course told me is we can't do that because we need that money to pay our -- >> people. >> our highly paid employees and if we don't, they'll go to another hedge fund. well, i think we could say, first of all, many are overpaid given the results we've seep yet again this year, and if everybody has to do this, if the big, big investors really insist on this, then where are they going to run to? they'll all be faced with the same pressures. >> you have to to risk adjust all those returns. you're not looking at it right. this is what i always get back. >> they have done a great job of selling -- >> marketing, my man. that's what the key is to business. >> they are genius marketers. i don't know oubt stock pickers in many cases but they are great marketers. they tell a good story. they have brought a lot of people in there, trillions of dollars under management, but are they delivering? i think that is what's finally coming through to people. the story is better than the result. >> thank you, jim. merry christmas. >> merry christmas to you. >> happy holidays. see you next week, hopefully. >> i'll be here. >> uber is moving its self-driving operations from san francisco to arizona. the state welcoming ub we are open arms and arizona governor doug deucy will be joining "squawk alley" to talk about it in the next hour. when you travel, you want your needs to be understood no matter where you go. you want an experience that feels highly personalized. with watson on the ibm cloud, travel companies like wayblazer can apply cognitive analytics to social data to understand what a destination is really like. and who exactly, it will appeal to. today watson is helping businesses create experiences that revolve around you. because that's what the ibm cloud is built for. there's a lot of places you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find smarter entry and exit points and can help protect your potential profits. fidelity -- where smarter investors will always be. it is not necessarily a cause for sell participaticeleb consumers or investors. julia has the details. >> hey, david. the north american box office will hit a new record this year, topping $11.3 billion kogtcom score. but higher ticket prices are driving record box office haul, not bigger audiences. attendance is expected to be pretty much flat from 2015, but that's down about 6% from a decade ago. and thanks to declining home entertainment revenue, high marketing costs and fewer bigger hits, average profits the seven biggest studios fell 17% through september according to cowan. and disney dominated, earning more than half of industry profits in that period with five of the ten biggest films of the year, including the top two, "finding dory" and "captain america: civil war." all the staud stooud owes suffering some from high-budget flops. while china's box office grew by almost half last year, boosting hollywood revenue, this year chinese growth basically flat lined. and another sign of cracks in the system, only 3 of 14 summer sequels outperform their predecessors. with so many entertainment alternatives and the cost of going to theaters on the rise, the bar for quality content is higher than ever. john, over the you. >> thank you, julia. and good morning. it is 8:00 a.m. at apple headquarters in cupertino, california, 11:00 a.m. here on wall street. 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