Transcripts For CNBC Squawk On The Street 20171229 : compare

you can see we're set up for what would typically be -- what we've seen most days higher, european markets this morning as well. we'll look at right now and they are as you see largely in the red. no major moves the uk has come to light here in the last couple of trading days, though, making up perhaps some of the gap with the other markets. the 10-year note yield hanging around the 2.4 level where it's been and earlier this week we saw wti cross above 60 and it is there again. that has actually been a quietly big story you might argue. >> that just happened last night, right >> we did earlier this week and now we're back above natural gas prices you might expect also moving up a legal bit, recently given -- >> our kitchen pipe froze. >> oh, no. >> yeah. >> welcome to homeowners. >> these are the joys. but a quick public service announcement, you take a hair dryer on the pipe and we got it going again. then you let it trickle all day and hopefully we'll be able to make dinner tonight. >> if not, you let us know. >> i'm coming over. >> let's get to our roadmap. it starts with taxes, goldman's tax warning in a way they expect to take a $5 billion charge to q4 earnings due to the changes in the tax law >> plus, salt on the wounds as new york considers a constitutional challenge president trump says he could have made state and local tax impact quote less severe. >> wall street's record 2017 run as you saw futures are pointing to a slightly higher open, on what will be the last trading day of a very strong year for the afternoon markets. two companies reacting in dirvet way different ways to tax reform goldman sachs says the new tax law will reduce corporate earnings by $5 billion that's an estimate could perhaps be a bit less. partially it is due to repatriation of cash under new lower rates. as well netflix is giving top executives raises for 2018, citing the new tax law as the reason the law does eliminate certain surcharges on executive salaries, among those getting raises, reed hastings and david wells and three other executives i think it's bonuses that are in question here in terms of their tax deductibility. you may want to increase therefore on the salary front. let's start with goldman though, guys what i'm hearing is they simply want to start next year as a clean year we know repatriation tax, 8% on nan cash, 15.5% on cash. you can take it over eight years, i believe but in this case, goldman, which does derive as much as 40% of earnings from european and asian operations and has been generating a good amount of cash overseas taking it all now that's two-thirds of this $5 billion. >> it's more than going to wipe out the fourth quarter profit. it was only going to be $2 billion according to the street. this is a minus three now. they are going to kitchen sink it. >> the market will not react one would expect because the cash is free to come back without any further charge we'll see what they do no plan yet from them on what they are going to do with that money. and frankly, they haven't even detailed exactly how much it is but you can kind of try to back into it if you say two-thirds of 5 billion and what that represents. >> you don't know how much is liquid, other liquid securities and investments and things like that i do think the street will mostly look through this but does reinforce the idea that this repatriation thing -- >> it's you owe taxes on what's there. free to do nothing with it and free to do anything with it across the world and deserves flexibility on an ongoing basis. >> once they take the charge, they don't have to pay taxes on those earnings going forward. >> on the builtup earnings. >> that's a whole different system i can understand them saying we would rather dump it in q4 of '17 and have a clean slate going forward, we won't have to deal with the issue period. >> i would assume like other companies they are going to have to detail what their plans are it's funny, i had not thought -- mike and i were talking prior to the show how much could be over there. 40% is a big amount in terms of earnings over time. >> so companies had a choice of how you categorize what you earn overseas, if you say essentially for future investment, maybe you can defer taxes under the current system this is an amount they kind of categorize now in that fashion one third of it was a deferred tax asset. >> which we've seen other financial institutions, citi, say what the potential impact would be the other thing they are doing apparently, is accelerating stock delivery they have a five-year investing, get a lot of stock if you're a goldman employee or partner but a lot is do ue to come in janua and they are opening up. 25% as opposed to 21%, why not take the hit this year, a higher tax rate this year on that deduction that they can get. netflix thing, are we going to see other companies doing this they are not unique in facing this. >> pretty much every big company. >> over 1 million bucks. >> over 20 years ago, congress tried to say let's restrain ceo pay and only up to $1 million can you deduct above that had to be performance based. that's why you had the hoops being jumped through, these are standards by which you're being paid now there's no advantage to having a performance number above $1 million we're going to give you cash compensation as a salary. >> a lot more changes to come one would expect in terms of corporate behavior as they adjust to the new law which takes effect on monday andrew cauomo is considering a constitutional challenge to deductions which unfairly impacts blue states such as new york and california and new jersey and connecticut this as president trump tells the "new york times," he quote made the cuts, quote, less severe here's more on a story very close to home for a number of us here. >> david, president trump did seem a little retrospective and appeared to express regret in the gop tax plan that no limit will take effect starting january 1st and created a lot of confusion, particularly in president trump's own home state of new york. the president said democrats were the one to blame for this he said quote, if i did something bipartisan, i would have done something with salt. he went on to say if republicans and democrats had worked together, he would have gone to senate majority leader mitch mcconnell and asked for either a change to salt or knockout of salt this provision could prompt some legal challenges andrew cuomo questioning the constitutionality of the tax plan he told cnbc there's a disproportionate impact on blue states >> the way they financed it was by rating the blue states. why? because the senate doesn't have any senators from the blue states so they came up with a very convenient rationale, we'll raise money from the blue states and we'll give it to the red states so new york a blue state, california a blue state. jersey a blue state. they are paying a penalty. >> so, guys, this new tax code is days away from taking effect but the fight over the law is clearly not ending any time soon back over to you. >> there's also talk -- and it's not clear, but on cnbc.com being able to somehow change state and local into a payroll tax, which could potentially allow it to then be deductible it's not clear but any number of different avenues are being explored by the likes of cuomo and in california you had this talk of making it a charitable deducti deduction. your state taxes -- >> the government is now a charity. >> they go to a school or school board. >> they are not done yet. >> does it matter if it's not optional does anyone have a choice of paying taxes if it's not going to be a charitable contribution? >> you have to -- also said today he plans to introduce legislation that would allow people who try to prepay their property taxes in 2017 to ensure they can take that deduction so there's going to be a lot of potential fixes, patches and band aids for this issue as we go forward because people are really unhappy about it. >> well, guys, listen, there continues to be a larger conversation about the economies of california and new york to a lesser extent illinois and these states are fairly significant in terms of their overall contribution to gdp in this country. are they going to see a decline in their economies as a result of this either businesses leaving or business formation slowing. >> it's already happened you see trump also said reagan tried to do this years ago and couldn't because new york had a very powerful group of people including trump -- >> and all of the real estate pals. >> and the senator at the time and today they don't have the same representatives so a direct dig at schumer and new york representation there. >> what governor cuomo meant was there were no republican senators in the blue states. the blue states have two senators each but point taken. >> yeah, let's get to the markets now, a record run for the major averages, dow and s&p on pace for the best year since 2013 let's bring in jim lowell. more of the same >> as far as we can tell, the data seems to report really good momentum for just about every category that we look at if we look at financial markets, investors are willing to provide capital or willing to take on risk you see that in spreads, that helps the economy. the tax packet certainly helps as well. in global growth is getting a lift everything looks good from that point of view. the only question we might have, at some point valuations are starting to look rich. >> does the tax law change that? suddenly the earnings go up and therefore the multiple potentially comes down as a result of corporations have larger bottom lines because they are paying fewer taxes. >> yeah, well i think that's -- the numbers i'm looking at are pricing that in. a year ago, we had the s&p earnings at $131 looking forward. today that number is about $147. but that's a forward looking number and that takes into account some of those tax changes, what we've seen is a 12% increase in the forward looking earnings number to help drive the 20% earning growth in the s&p 500 but the remainder has all come from multiple expansion and that's the part of this we're starting to become more concerned about if we had something to worry about. >> jim, how would you like to play into next year? if you're an investor that had a normal asset mix, you're pretty heavily weighted in stocks the bond market has been about flat this year do you think it's time to trim back would you change where you are g oextgraphically. >> we agree the economic data suggests more expansion not just here in the u.s. but picking up the pace more so globally in the established emerging markets we would cast a wider net but be more selective in terms of what we take out of that net. we're experts at investing and active managers being able to find values when valuations are rich and being able to globe trotd and go to places where a lot of investors and analysts won't tread. we do think it does make some sense to look at your portfolio, if it's very tech heavy, might want to rebalance into the slightly more -- side of the ledger in particular we like financia s s heading into 2018. we think technology is likely to have by year end a fairly good year we don't see a lot of warning lights coming from the fundamental facts. it's the events that concern us more and chief among those concerns would be the recomposition of the fed come february with the potential for entering into a rising rate regime which we hope won't occur. >> you're concerned that the fed will be too hawkish? >> i'm concerned it's going to be thawkish. we think incoming chair powell will actually toe the line, we know a lot of cohorts around the table are certainly more hawkish when it comes to theory rather than practice. i think there could be potential for disruption we'll watch it closely and hope it won't exist. >> there have been plenty of critics like stanley drukenmiller saying it's been far too dovish for too long and i was going to say asset classes but meaning bitcoin, not sure i should call it that. are you concerned about a more hawkish fed and as we understand it, they are looking at maybe a larry lindsey or rich clarita or others to fill the vacancies. >> i think what you're alluding to, when you have very accommodating policy for a long time, look at europe, look at asia, you have the potential for misallocations and eventually that has to get washed out that's the nature of the credit cycle. for us we would be more concerned about places like china. the last several years since the recovery began, about 80 or 90% of global credit that's emerged out of china, not so much the united states. so even though we would be concerned if the fed got very tight, we still recognize that we're looking at rates that are below the inflation level and consequently, we don't see a lot of tightness here or expect that to happen in 2018. but we would be a little bit more concerned about emerging markets in china >> gentlemen, we'll leave it there. and today i will say happy new year >> saying it all week but today is appropriate thanks to you both >> and still to come, apple is wrapping up its year with an apology to customers for the slow down of older iphones a look at the best performers on the s&p 500 year to date and more squawk on the street live from post nine at the new york stock exchange when we come right back ♪ let out your inner child at the lexus december to remember sales event. lease the 2017 is turbo for $299 a month for 36 months. experience amazing at your lexus dealer. apple has issued an apology to customers following the revelation that its operating system does slow down older iphones to prevent shutdowns it does not intentionally degrade the user experience and that it's cut the price for replacing batteries and out of warranty phones to 29 bucks from 79. >> that's a big jump or big decline i should say i think this larger issue will be about replaceable batteries, were going to start to see proliferation of devices that allow you to replace the battery. >> was it blackberry where you could pop it off. >> for the blackberry, absolutely. >> will apple be under pressure for a device that allows that. >> how big a deal is it the battery is more replaceable? >> i have a couple of kids with phones too, i was paying the 30 bucks a month and then it stopped after a couple of years. he wanted a new phone, no way. you're keeping that phone. and that matters to people i think people may be keeping their phones for longer period of time given now you're paying for it under these installment plans and recognize the significant reduction in your bill when suddenly you're no longer paying, unless your battery goes in which case you are slowed down enough that you say, i need a new phone. >> i wonder how much actual performance -- or it's i got some new thing i want to test out. >> you've got -- it's interesting -- going to keep people in the phones -- people in first month of the new phone sales are not replacing them nearly the way they were with the 6 and other devices. >> that has been a continued concern as we watch of course apple sales this week as people know did take a hit on concerns of the x as we say often -- art cashin is taking on markets as we count you down to the final trading session of 2017. here's a look how the russell 2000 performed this year the small cap index lagging the major indexes with only a 14% gain we have more "squawk on the etfr t n sait gh ahead. let's begin. yes or no? do you want the same tools and seamless experience across web and tablet? do you want $4.95 commissions for stocks, $0.50 options contracts? $1.50 futures contracts? what about a dedicated service team of trading specialists? did you say yes? good, then it's time for power e*trade. the platform, price and service that gives you the edge you need. looks like we have a couple seconds left. let's do some card twirling twirling cards e*trade. the original place to invest online. you myour joints...thing for your heart... or your digestion... so why wouldn't you take something for the most important part of you... your brain. with an ingredient originally found in jellyfish, prevagen is now the number one selling brain health supplement in drug stores nationwide. prevagen. the name to remember. when it comes to travel, i sweat the details. late checkout... ...down-alternative pillows... ...and of course, price. tripadvisor helps you book a... ...hotel without breaking a sweat. because we now instantly... ...search over 200 booking sites ...to find you the lowest price... ...on the hotel you want. don't sweat your booking. tripadvisor. the latest reviews. the lowest prices. here's a look at the top gainers in the nasdaq 100. the top name will be familiar following the s&p 500, which also saw align technology, the maker of invisaline, there's the top five "squawk on the street" will be right back ♪ we're about four minutes before the opening bell for last trading session of the year. let's bring in art cashin. many people may know you write always a witty daily market commentary that typicall includes historical illusions and thank you for tolding me what auld lang syne means. it means old long ago, the good old days. >> yes. >> and it is scottish. thank you for that now tell me what the market is going to do. >> it's scottish because it's not scotch that comes out of a bottle hopefully the market is going to stay a little perky in the final trading day of the year. we've got a mini santa claus rally started here and if we can keep santa in gear, that will bode well for next year. we've only had six down santa claus phases over the last 50 to 24 years or so and the others have worked out pretty well with the following year we're crossing our fingers for that. >> as we know it has been a good year look at the dow, it's somehow statistically irrelevant given the s&p. >> well, it is. >> but they are neck in neck. >> they are very close. >> always, which is the weird thing about it. >> the price point index. >> the fourth quarter, neck in neck obama did better since -- from his inauguration to the end of the year than trump has but not bad, 25.8%. >> he does watch sometimes but he does trail. those are numbers, can't change them. >> he has today to make it up. >> think we're going to be up almost 3% today? >> how about 1%? >> i was thinking about you when we saw futures up as much as they are we need to hold on to this only a couple of days to make up for the fact that the santa claus rally did not start out so good. >> it's today and the next two trading days after that. then we can put it in the books. let's be optimistic and wish all of the viewers, the very happy new year and start with a happy trading day today. >> big question as to -- you had this long trending move, art in stocks, bonds have held together okay if january is going to be one of these kind of reversal situations, we sometimes get it. we don't always. but it seems like you have to be on the lookout for some of that. >> i think the concern will be when washington gets repopulated, what is the move about the partisan shift are we going to get an infrastructure deal? what's going to happen we'll know in the early days of trading. >> what did you think about the president saying he would have changed the salt issue -- he could have brought democrats on board for the tax deal >> there is this constitutional challen challenge. i will tell you that i don't fancy myself a constitutional scholar but i think it's got at least a 10% chance of being overturned on a constitutionality. >> wow >> double taxation i mean, municipal bonds are tax free the power to tax is the power to destroy. so that could be a problem. >> finally, art, oil, any impact at all we're above 60 on wti? >> i think it will remain strong in the first quarter but then i think things change. >> art cashin, thank you here's the opening bell the last trading day of the year. back at headquarters here at the big board, global credit income 2024 target term fund >> got it. >> memorize that. >> it has a recent listing they are celebrating. at nasdaq, times square alliance co-producer of the times square new year's eve which will be up in a couple of days. there we are, more green than red on that board right now. >> the upper drift of the last couple of days seems like it's about to continue. gathered strength through much of yesterday and had that strong close. one veryminor kind of rooting interest element here. everybody knows tech has been the best performing sector this year, far and away up 30% in the s&p 500, the race for second is nip and tuck, between consumer discretionary and materials, very small sector but it's kind of interesting. >> you could argue it's just amazon. >> a lot is amazon. >> it's netflix but also things like hotels, travel related, sort of nonphysical store discretionary. >> to me that makes the materials rally look even better you take out fang and what do materials have going for them? >> it's global and cyclical and chemicals and inputs like this and metals and things. there is this old time strategy of picking the second best sector for one year to bet on for following year historically it seems to outperform who knows. i throw the folk lor out there. >> in the financial sector, down a little less than half a percent, a number of its competitors, including jp morgan and morgan stanley both up slightly after the company did say it would set aside $5 billion or set -- take charge of roughly $5 billion two thirds of which will be due to the repatriation tax. remember that tax is 8% on nonliquid, 15.5% on cash that you have overseas. you have to pay it you can phase into it. i think it's over an 8-year period but you have to pay it. goldman making the decision to take all of that in the fourth quarter. and that and a deferred tax asset that will go down in value because of the lower tax rate and therefore lowers the value of the deferred tax asset comes to roughly what they are saying will be about $5 billion we should learn more when we hear from the company on january 17th when it reports -- when it reports its financial results for the fourth quarter and certainly we'll be asking questions about its plans for that cash that it will now have already taken the hit on so to speak. >> the hit. >> if any. you know, financials are an interesting one, they are big beneficiaries of lower tax rates, notwithstanding the hit on overseas cash and the nondeferred cash asset thing, noz as if they say raise our cap exbudget by x% that's not really needed for most of the banks. in theory, investors are the ones that front line beneficiaries if they decide to distribute more. >> i wonder now that goldman is out with it and not seeing much reaction in the share price, down half a percent right now. anyone else who needs to follow suit this is the last business day of the year i don't know if there's any benefit in making decisions and getting it out there now or if it will continue to trickle out between now and earnings season? >> it's interesting, goldman does sometimes act alone -- >> citi obviously was very up front early -- >> in terms of deferred tax asset. >> that's something all of the big banks will have to reassess. i still think all of it is a pretty good test how investors are going to treat purely tax related accounting changes that come through in the books in the next few quarters. >> so far they are totally shrugging their shoulders. >> not everyone is hurting -- i think it was -- they had deferred tax liabilities and not much of a shared price reaction. >> the value of a deferred tax asset, not talking about an impact on cash flow of any kind. >> by the way, looking at boeing today to see if there's any reaction to the fact that airbus did confirm that 50 -- listed price $50 billion aviation bill with a consortium of airlines putting together mega offers it was first reported at the dubai air show at the same time, as i mentioned, boeing not reacting much as the news was out there there were reports of airbus shutting down a-380 production depending whether they get enough support from the middleeastern airlines to ge the mega aircraft going. they want guarantees this will be in production long enough to support their needs for it and it's interesting how quickly we've seen this shift from huge bodied aircraft to the much more smaller nimbler ones and that factors back to the issue of airbus -- >> and brazil, yeah, boeing the best performing dow stock, up 90% this year. >> it's amazing. >> number two, caterpillar. >> 90% -- what is facebook growing top line in earnings, 30 or 40% boeing is up 90% this year >> i don't think it would have been the -- also the highest stock price in the dow. >> is it really? more so than goldman >> i think it overtook goldman. >> almost 300 bucks. we pointed out when they -- when boeing surpassed ge in market cap, we made a moment of that now it's -- boeing's market cap at $176 billion far surpassing that of ge and $150 billion down again is ge. yesterday we had a long time ge analyst quite negative on the company making a point as well it will be one of the few companies that doesn't benefit from tax reform because ge has always managed to have a fairly low effective tax rate being very aggressive as it has been in terms of pulling all of the levers needed to benefit from various loopholes and/or deductions available >> in terms of the mechanics of the stock into year end, you have to believe, if anybody cares about harvesting tax losses, and ge is such a widely owned stock by individuals, it would all have happened by today. it's all -- that's all done. so you have to see if maybe it's -- it gets a little bit of a mechanical lift going into january. >> the retail -- that turned around last couple months for retail, made it harder and granted a lot of names are down for the year but a little harder to take the losses there. >> match group by the way just as an aside of half a percent. did notice -- now everybody can guess, the top grossing app on apple's app store this year. >> tinder. >> tinder, really? >> it was tinder. >> pandora was up there too but tinder was numero uno. >> is new year's eve a -- gets a lift half a percent leading into it. >> need dates on new year's eve. >> apple, might as well take a look it is starting a bit to the down side, down seven tenth of a percent and nasdaq is sluggish this morning it's not necessarily apple but it shows it's under pressure after a really good run. about $170 market cap. still over 860 billion so -- >> oh, my gosh, we'll see if barron's is right. >> we were talking $60 crude, top gainers, we're seeing chesapeake up 1% some of the gas names, because of this cold snap. but chesapeake range, nrg, they are names leading the s&p this morning. >> natural gas had been near its lows we should point out until recently and a trend many people believe will bring it back down there given the incredible amount of supply that we have. interesting stories recently as well about a lot of electric plants being constructed to replace coal generation with natural gas given what many in the electric producing industry believe will be a very long term play here for them of low prices for that core fuel let's get to bob pisani. what's going on this morning. >> always a pleasure to see you, david. happy new year, everybody. the important thing today, it's sort of like what the rest of the year looked like let's look at the sectors, we know what the winners have been, but it's semiconductor and it's been bank stocks later in the year home builders and arrow space and defense, all winners the big themes for 2017, i would say number one, synchronized global expansion, it's a very key point why the markets went up it wasn't just the united states we did have record earnings towards the end of the year and low, low volatility, low rates, low inflation, those three themes very much impacting the market and of course throughout the year the expectations of tax cuts winners and losers in 2017 not surprising when you get low rates and you get an economic expansion, home builders were fabulous limited supply as well that helped, semiconductors on the internet of things in general and maybe the miners for bitcoin. global economic expansion and china continuing to hold up well and aerospace, airplanes a big deal around the world. whether people should be buying oil, i give the markets a lot of credit for being disciplined and not trying to again buy oil service and exploration production stocks at the bottom. they basically let them sit even though oil moved up towards the end of the year. very disciplined they tried earlier and got killed playing that deal telecom as rates started moving up they got hurt this is the year of the global markets. we keep using that word, synchronized global expansion but this is what it looks like vietnam, india, brazil, germany, everything double digits, that's the effect of a synchronized global expansion the big theme for 2018, it's the same ideas, is this the peak for global growth. is this the peak for earnings with the tax cuts in that, can we expect that much more and what's the valuation growth, should we be in tech or be in valued names like energy and bank stocks. do we continue to get low inflation. those are the big themes for 2018 and finally, can't do something without mentioning crypto currencies. ripple has been moving, an alternative cryptocurrency, focus on transfer of money between banks. look at the gain, 20 cents a few weeks ago now $1.60 here this is what happened recently is the asian subsidiary announced they might have some agreements with a group of japanese credit card companies around a new consortium. if they can figure how to move money quickly, that's some kind of advance the two things here, you're going to have headline risk in 2018 from any kind of m and a deal and finally also going to have regulatory risks. we saw that with south korea yesterday. right now the dow is up 16 points guys, happy new year michael, kelly and david. >> happy new year, bob thank you very much. for more on today's movers let's go to bertha coombs. >> doesn't look like the nasdaq is going to go out on a record right now but the record run this year extends a six-year winning streak that'sthe nasdaq composite's best run since 1975 to the early '80s really strong run and right now it's led by apple, which didn't even go public until 1980. apple very much the biggest contributor to the entire market in terms of its move up the technology company apologizing for the problems with battery life and actually going to lower the cost of replacement batteries starting in the new year to $29 for iphone 6 and later. amazon has been the other big lift as well even as the president has attacked amazon for exploiting low prices at the post office. amazon has been a big contributor this market. even though the large caps gained twice as much as small caps these -- tech overshadowed it. take a look, all of them up more than 400, 500% for the year. back to you. >> all right, bertha thank you very much. we will see you in a little bit let's head to the bond pits. rick santelli joins us from the cme in chicago. >> good morning. a lot of things have changed this year, one thing that's darn close to unchanged, 10-year note yield. let's look at the september 1st start of 2008 for two-year note yields, we're comping back to september of '08 we settle at 119 for a two-year up 189, up 70 basis points, last time up at 2.22ish, granted a little fuzzy, we're not at the highs we're in neighborhoods, two base points from the highest level of the five-year but close. up 29 basis points for the year. they settle at 193 let's look at what's going on in tens we settle at 244.5 last year 242, call it down three. hovering in a neighborhood highest yields since march of this year. if you look at the 30-year, i can't give you a comp. i'll give you a november 1st start. you can see the 30-year reflects flattening curve 30 years are down -- they are around 308, we'll call it down 32ish, 33 basis points let's look at europe the shots, two-year note yield even though it's down 61, 62 basis points, it's actually still up 16 basis points on the year close to minus 77 bunds close at positive 21, they are up 23 basis points hovering in the zone around october this year since we last hovered there and finally, the winner in the losing race, that is the dollar index down a dime from 102.20 to currently almost exactly a dime at 92.30 not having a good year, down basically in the neighborhood of 9% mike santelli, back to you. >> rick, thank you very much now for a closer look at oil and metals prices. seema? >> it may be a holiday shortened week but we've seen a lot of activity starting with oil getting above the $60 level. the big question is whether crude can close above this crucial mark for the year. eai inventories last night showed a decline of 4.6 million barrels and saw a slight dip in all of u.s. production this is what opec wants to see, switching to gold which has been building on gains, now above $1300. highest level since october 13th, still underperforming the s&p when you look at the year to date performance in the outlook for 2018, goldman sachs sees prices trending lower and fewer geopolitical risks commodity traders will be play s a close eye on china, a consumer of half of the world's raw materials, main driver behind copper, which is up 30% this year the top performing commodity in 2018, palladdium, prices could dip. gas prices up 3% on the cold weather concerns >> palladium, thank you very much coming up, a banner year for boeing too the best performer with the 90% wel 'lsee if they can keep the momentum going when "squawk on the street" comes right back excuse me, are you aware of what's happening right now? we're facing 20 billion security events every day. ddos campaigns, ransomware, malware attacks... actually, we just handled all the priority threats. you did that? we did that. really. we analyzed millions of articles and reports. we can identify threats 50% faster. you can do that? we can do that. then do that. can we do that? we can do that. can we do that? this ♪s electricity. this is a power plant. this is tim barckholtz. that's me! this is something he is researching at exxonmobil: using fuel cells to capture carbon emissions at power plants. this is the potential. reducing co2 emissions by up to 90%... while also producing more power. this could be big. energy lives here. ♪ there you saw the dow lag gards, 90% year to date as airbus confirms a $50 billion jet order this morning for more on the big year in the 2018 outlook, we're joined in the cnbc news defense industry, carter good morning >> good morning. >> so here we are with boeing not just a 90% gain this year. its forward pe multiple is around 27, highest pretty much in a couple decades. everyone seems to love the stock. at $176 billion market cap what can boeing do for an encore what are you implicitly betting on if you say boeing can outperform >> there's two phases. boeing this year has been a great example of the market becoming overly confidentin th view the old cyclical playbook is all you need to get the stock right. the upturn in aircraft production being the longest on record, that told you you were supposed to stay away. that clearly ignored the view that what continues to be the strongest and i think most sustained period of growth in air travel that we have seen on record, you know, that combined with the 787 problems being behind the company and a huge increase in cash flow really forced folks to re-evaluate whether or not they believe that the end of the cycle was here. while that pe multiple is really high, boeing is throwing off an amazing amount of free cash flow the pe multiple may be high, but the free cash flow is among the lowest in the industrials. depending on your perspective, a stock that has an amazing correction, but it still has a lot in front of it, i think. >> we mentioned the airbus order. how does the competitive setup look at this point is boeing where it is? >> the outlook for both companies is fantastic i mean, you're putting orders on a backlog that's already seven years deep both companies have a fantastic backlog of orders, but really, the big benefit in terms of what's happening for the aerospace sector, at least for the manufacturers themselves is they're going through what should be a sustained period of increasing profitable, sort of once in 50-year upward move in margin rates to levels that have never really been seen before. what's driving that is both companies decided to take their existing airplanes and just put new engines on them about five or six years ago as they transition to the new products, they really don't have any of those big money losers in the p & l. what you have is a situation where most of the planes that come off the production line make an immense amount of money. there's still a lot of growth in earnings, in cash flow a lot of capital deployment still to come. that's the next leg of the boeing story that takes us higher >> all right carter, doubling down in 2018 on boeing thank you for your te.im appreciate it. >> "squawk on the street" will be back right after this 2017 was a record breaking year for etfs, bob pisani is on the floor with a look at what to expect from that sector in 2018. >> it was quite a tidal wave of money that came in in 2017, inflows, almost $500 billion. $476 billion to be accurate. $3.4 billion assets under manager. it's moving up rapidly where did all this money come from they poured money into u.s. equity funds international equity, the global growth and the u.s. fixed income here not everything had inflows we had outflows from high yields companies. mexico had outflows. gold miners had outflows as well utilities and transports and a lot of hype around smart data and environmental social governance people wanted low cost here's the trends for 2018 we're going to see out of mutual funds and into exchange traded funds that's going to continue, specifically out of active management and into index funtdz that's going to continue, and generically, out of higher cost into lower cost. the average etf will cost you less than 40 basis points in 2018 that's $4 per $1,000 that's half of the overall mutual business fund right now here at cnbc, there's a reason, people are buying it and there are lower costs. that's the biggest one, the spy. >> an important area to keep a close eye on >> coming up, more on this year's historic market run and how you can make mey ionn 2018 keep it here whoooo. i enjoy the fresher things in life. fresh towels. fresh soaps. and of course, tripadvisor's freshest, lowest... ...prices. so if you're anything like me... ...you'll want to check tripadvisor. we now instantly compare prices... ...from over 200 booking sites... ...to find you the lowest price... ...on the hotel you want. go on, try something fresh. tripadvisor. the latest reviews. the lowest prices. right in the heart of the was in his financial crisis, and saw his portfolio drop by double digits. it really scared him out of the markets. his advisor ran the numbers and showed that he wouldn't be able to retire until he was 68. the client realized, "i need to get back into the markets- i need to get back on track with my plan." the financial advisor was able to work with this client. he's now on track to retire when he's 65. having someone coach you through it is really the value of a financial advisor. good friday morning. welcome back to "squawk on the street." i'm david faber along with kelly evans and mike santoni we're live from the new york stock exchange carl and sara both have the day off. let's give you a look at the markets a half hour into trading. as you see, this has been a year typified by lack of volatility we're just getting more of the same wti crude has been a bit of a story recently it did cross above 60. you can see a few cents below $60 a barrel right now let's get to our road map. it begins with this being the last trading day of the year, and the question as to whether that record rally will continue into next year >> then the president talking taxes, saying those s.a.l.t. deductions could have been made less severe. >> and crude rallying above $60 a barrel again this morning. what twaent 18 holds for the commodity market >> the last trading day of 2017. hard to believe and what a year it's been. s&p on pace for the best gains in four years. joining us is alliance u.s. investment strategist next to peter costa. welcome to you both. where to begin mona, in a way, this year has been extraordinary, but at the same time, it's not that unusual for the s&p to see gains this large. so what do you think about the setup for next year? >> yeah, so you know, we actually continue to feel that the markets will perform well next year. we think we're set up nicely from an earnings perspective, from a gdp growth perspective, and rates, while they're rising, continue to remain relatively low. we see mid-single digit s&p returns for 2018 we don't see the same 20% plus type returns we have seen this year >> not like anyone saw it this year, by the way >> yeah, it's funny because it's been such an amazing year for investors. nasdaq up 30%. s&p up 20%, but we don't see -- the only time you see a huge bear market is typically when you're entering a recession or in a recessionary environment. that's not on the horizon. >> it took you a while to become a believer >> yes >> now what? >> i am a believer i think for the first quarter, we'll probably see continued gains. i think the momentum is there. going into the second quarter and third quarter, i'm not so sure i mean, you know i like to remain cautious. i was very cautious at the beginning of the year. i thought the valuations were a little ahead of themselves, but the earnings did catch up. the earnings have done well this year you know, do i think it's going to continue next year? i think for the first, maybe going into the second quarter, but after that, i might want to take money off the table again and see what happens >> mona, as we look into next year, people seem pretty comfortable with that general view that you set up there it's really hard to argue with it because all the inputs are working in that direction. i do wonder where the surprises might come first of all, everyone says, oh, ten-year yields should probably go up a little bit, as they have been saying for five years in a row. we were flat this year is that an area where people have been wrong enough for long enough that we're going to get rates to go up >> that's a great point because that's one where there is a lot of debate. we tend to see inflationary pressures rising because of unemployment being at post-crisis lows, probably going to get sub-4%. wage pressures should start to rise as well we see gdp growth above 2.5% in 2018 but on the other hand, you do have inflationary pressures from globalization or actually i should say pressures that on the ten-year yield remaining low from globalization, from automation, from just demand for-year-old which is why we're calling for a 2.75% to 3% on the ten-year yield. our bias is toward the low end of the range until we see the pressures emerge >> and just looking through parts of the market you like here, i mean, this is financials, energy >> yeah. >> those are areas that have become more popular, the value parts of the market. also talking about disrumgz in the chinese stocks doing well. so it doesn't sound like this is a major inflection point for you guys just a continuation of more of the same >> right, and one part i would add to that is we also are encouraging investors to look at international stocks alt this point in the cycle europe, japan, china that are behind us in their cycles but have better valuations >> peter, are people underestimated the potential for rates to rise dramatically next year as the result we have a stimulus you could argue with the tax bill coming into the market, corporate profits and to some of the points that were made in terms of employment? >> in the second half of the year, we may see an acceleration in rates only because i think the data points that the fed uses are going to be starting to pick up a lot faster than they're expecting. part of it is from the tax cut but i think the momentum of the economy is picking up steam. you know, and the fed likes to slow down momentum, which soome, i have said it for two years now, i don't think there should be rate hikes because i think you should let the economy go, let it find its level, and then start being proactive after that a lot of people disagree with that >> mona looks like she disagrees. >> believe me, i don't think -- i never thought they should have had any rate hikes let the economy go an overheated economy is an easier thing to solve than - >> oh, that sounds like 2005 and 1998 all over again. >> well, i mean, it was fixed. i mean, you know, the market corrects itself. >> peter >> i would just add, you know, i would say i think the fed is going to continue its normalization path i think they are actually looking to get more tools in case of the next downturn. i would see them continuing the rate hikes i could see them continuing the tapering i think while conditions remain accommodative, while the market gdp growth is good, jerome powell and his new team have an opportunity to get tools back in their pockets. >> quickly on that point, i was going to hit the yield curve point. if the fed is full steam ahead, should we be concerned on where we are right now >> the flattening of the yield curve, we have been watching it. a bit of a concern we don't see it calling for a recessionary environment by any means. we think maybe given rates at 2.5%, maybe the spread makes sense, but i think as inflationary pressures build, we could see the long end of the curve rise we could also see the short end of the curve rise. we kind of foresee a relatively flat environment, but maybe steepening down the road >> anything else >> i think that's a great point. i don't see recession in any way, shape, or form coming up in the next year or so, but recessionary pressures can happen from the strangest places we have seen it happen before. but i don't see it i think we're on a very good trajectory right now to me, i'm very concerned about what corporate america is going to do with the money they're basically been given for the next year. and i do think that's going to take at least three to six months to work into the system i do think companies are trying to figure out, they have already had plans in place, but they have to look at what their growth pattern or growthmodel looks like and where they're going to spend the money or how they're going to use it, and i have been saying this for years. if they start to buybacks, everyone should just give it back i think that's the worst thing any company in this country could do, is having buybacks it does nothing for growth at all. it helps the market. >> helps that underlying eps number a bunch of ceos whose compensation -- >> i do think that plays into it >> no doubt. >> good stuff, guys thanks very much >> happy new year. with mainstream interest in bitcoin rising after the cryptocurrency's latest surge, seema mody revisited what it takes to live solely on the digital currency in new york city she's here to tell us about it >> the first time i attempted to live on bitcoin was back in may. since then, bitcoin has gained 400% i decided to put bitcoin to the test again to see if the rise has coincided with more merchants accepting it as a means of payment can i give you $10 worth of bitcoin? >> with what >> with the bitcoin? >> i have never heard of bitcoin. >> never heard of bitcoin. >> our system doesn't take that. >> you don't accept it >> no. >> after being rejected countless times, i found a workaround, logon to gift.com, which accepts bitcoin, and bought a gift card to retailers i like and use when it came to eating out, a limited number of restaurants, afewer than six, though more bitcoin atms than last time. bitcoin's rise has not resulted in more business owners embracing the cryptocurrency, and most people we spoke to who own bitcoin are not trying to spend it but hold on to it if you would like to use your bitcoin, there are companies that accept it, expedia, microsoft, overstock, and gyft, but be aware of high transaction fees bitcoin cash is 50% cheaper to use as a means of payment. >> seema, you have to tell david about ripple so he can talk to his son about it >> we had the ceo on the other day. tell me about ripple is there something to tell me? >> that's definitely a story to watch in 2018. a lot of bitcoin experts will say bitcoin is so passe, and 2018 is about digital tokens, if you will, they say that they have a better transaction fees and they're also easier to use so if that's where you want to look at the future, that might be one place to look >> i think the point is, they aren't really currencies because you can't actually exchange them for services and goods. >> exactly >> seema, thank you. seema mody >> as we head to break, take a look at the year to date winners for the dow. only got about six more hours so the chances are these are going to stand up. here it is boeing, of course, leading the way at a more than 90% gain. later on, pulitzer prize winner columnist jim stewart will join us for what has been a big year. i'm a little aware of this, in di& a. a little more "squawk on the street" on the way after this. cannot live without it. so if you can't live without it... why aren't you using this guy? it makes your wifi awesomely fast. no... still nope. now we're talking! it gets you wifi here, here, and here. it even lets you take a time out. no! no! yes! yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. decision to slow down their phones to protect battery stability. josh lipton joins us with more this morning >> kelly, apple officially now responding to what some have been calling battery gate, saying we know that some of you feel apple has let you down. we apologize there's been a lot of misunderstanding about this issue, so we would like to clarify and let you know about some changes we're making. first and foremost, we have never and would never do anything to intentionally shorten the life of any apple product. or degrade the user experience to drive customer upgrades our goal has always been to create products that our customers love and making iphones last as long as possible is an important part of that now, beyond just the statement, apple is also taking some concrete steps here to address this issue cutting the price of an out of warranty iphone battery replacement by $50 from $79 now down to $29. that will be for anyone with an iphone 6 or later whose battery needs to be replaced starting in late january and early next year, apple's also going to issue an ios update with features that offer users greater visibility into the health of their battery. all this comes as iphone fans were up celt and lawsuits have been flying. apple is dealing with a real technical challenge here lithium ion batteries do decline over time, so apple introduced a software tweak, iphones with older batteries are throttled at specific times to make sure they don't get overwhelmed and shut down apple says it isn't trying to get people to upgrade their phones by crippling older ones in facts, it's trying to make the older ones last longer we'll see if this apology and explanation satisfied its critics. back to you. >> we will josh, thank you very much. >> crossing over now to oil, strong gains for crude this year rallying above the $60 per barrel mark. 2015 was the first time it ended the year above $60 joining us to talk more about what it looks like here, gary ross and john luforge, head of real assets strategy at wells fargo investment institute gary, we broke above this range that we thought was capping the market, maybe in the mid-50s here around $60, what got us here, and do those things remain in place into next year? >> i think a big part of it is a very dramatic decline in inventories we have seen in the fourth quarter and our balance for the whole year opec's rebalancing global markets has been working it's working extraordinarily well with the key factor in my mind being demand growth. demand growth has been extraordinarily strong with 3.5%, 4% gdp growth, and demand has responded and this has pulled inventoriy ies down, so e surplus is virtually gone. >> does this mean the price is virtually well supported at these levels >> exactly right, the price is well supported watching horizontal rig counts, we have been stock at 650 horizontal rig counts in the u.s. for the la six months that's something key to watch, but importantly also, we have now a million barrel a day flow deficit. that's what pulled down surplus stocks first, we need to see supply grow faster than demand by at least a million barrels a day before you'll see any kind of stock build-up, i think 2018 oil markets is looking very constructive >> how would you play this investment wise? do you actually think we're going to see that supply response that's going to dampen this price move? >> yeah, i definitely do and the other part i have a negative on. so i have more of a negative bias and part of that is financial. if you look at money managers short positions, we're about as extreme as we have been since last year. last time that happened, we saw a 25% correction the point being everyone is on this trade everyone knows everything that was just said. >> the short position is very low, you mean? >> yes in other words, on the professional side, everyone is long everyone is into this trade already. so sentiment wise, i think we're going down from here >> let me just add something there is some risk because as he's saying, financial length is rather long, but you have to keep in mind that a lot of the length is playing the role yield. with the ten-year at 2.5%, the yield on the roll, where they buy the second month of roll, they're making 5%, 10% i think financial length is far more well supported by the structure in the market, plus, if you want to hedge against equitly markets, against middle east tension, the place to be is in oil there is some vulnerability and his point is well taken, but i also think that you're not going to see any wholesale liquidation. >> i'm curious, a lot of coverage lately about the inv t investment community pressuring shale producers maybe to actually focus on profits over production right now but at the same time, we're hearing maybe there's an opportunity to expand that production more if we're back in balance here so how do you expect those forces to play out what do you think will happen with u.s. production into next year >> yeah, i think we're doing a redo of the '80s if you look at the bear market and commodity prices in oil as an example, you saw the cost to produce the next marginal barrel of oil go down through the '80s, which kept more players around producing longer than they should have. that's what we have today. we have too much production still that's sitting on the sidelines. these wells that are uncompleted, they're drilled but they're uncompleted and haven't brought oil out. they're at all-time highs. lots of little things around there that tell me i think we're going to start the year heading south, not necessarily north, and on a short-term basis, we have the potential for more supply than what the other guest is saying. >> all right good two-sided debate here thank you very much for your time this morning, gary and john >> thank you and when we return, what the president said about the s.a.l.t. tax ahead of the implementation of the gop's tax bill we'll tell you about his interview with "the new york times. but first, a bigger look at the biggest winners for the s&p 500 this year. there's a line again, invisalign the selfie trend it's up 135% for the year. boeing is number five on that list more "squawk on the street" right after this you have a reay traumatic injury, we have a short amount of time to get our patient to the hospital with good results. we call that the golden hour. evaluating patients remotely is where i think we have a potential to make a difference. (barry murrey) we would save a lot of lives if we could bring the doctor to the patient. verizon is racing to build the first and most powerful 5g network that will enable things like precision robotic surgery from thousands of miles away. as we get faster wireless connections, it'll be possible to be able to operate on a patient in a way that was just not possible before. when i move my hand, the robot on the other side will mimic the movement, with almost no delay. who knew a scalpel could work thousands of miles away? ♪ your new brother-in-law. you like him. he's one of those guys who always smells good. his 5 o'clock shadow is always at 5 o'clock. you like him. your mom says he's done really well for himself. he has stocks and bonds. your dad wants to go fishing with him. your dad doesn't even like fishing. you like your brother-in-law. but you'd like him better if you made more money than he does. don't get mad at your brother-in-law. get e*trade. we're all debating this. goldman sachs is releasing it 2018 tax reform outlook this morning and it's expecting a significant write down as a result wilfred frost has more >> goldman sachs as you say will take a $5 billion write down relating to the new tax bill this is two thirds attributing to repatriation and one third to write down of a deferred tax asset. the main difference to other banks' write-downs is a higher portion coming from repatriation issues while this was expected, the repatriation figure is slightly higher than some analysts expected therefore, shares are lower today. all of the big banks have taken a one-off writedown for a few billion for jp morgan up to $20 billion for citi, the size of the write-down is not what matters. what matters is the size relative to expectation. the only other overshoot was citi it only led to a single one-day 2% share price revaluation all banks are up sharply over the last two months as the tax bill progressed. the tax bill is unquestionably positive for the sector. why? all future earnings will be taxed less, leading to a 15% eps boost next year, according to morgan stanley and its boost to the economy too. goldman sachs has also brought forth the award of stock deliveries from january to december this was so that the firm could take the deduction for the tax expenses this year rather than next year. it will also benefit some of the individuals, down now almost 4%. guys >> thank you very much the president tweeting again this morning on amazon and the postal service morgan brennan joins us now to break it all down. >> hey, mike that's right so peak shipping season wraps up, the president tweeting this. quote, why is the united states post office, which is losing many billions of dollars a year while charging amazon and others so little to deliver their packages making amazon richer and the post office dumber and poorer should be charging, capital letters, much more yes, postal service probably should be charging more for package delivery, and i think it would like to, but it can't because rates are regulated and there's a law that caps hikes for usps services. for package delivery, it pretty much breaks even amazon relies heavily on the u.s. postal service for that last-mile delivery to homes. by some estimates, two thirds of its packages it makes sense usps already goes to every residential address so it's a less expensive option for amazon, and at times fedex and ups who also used the postal service, but unlike the private carriers, the postal service is in financial trouble, even excluding the 10s of billions in unrefunded retiree benefits, they have plunged. package delivery has become the answer they have been expanding that. keep in mind, even in fiscal 2017, it wasn't enough to stop the overall declines which brings us back to rates. regulators dictate what the usps charges and those charges are capped even megan brennan wants to see those caps removed partial rates are low. artificially low, according to fedex and ups which has testified and lobbied about this on the hill. but unless congress passes legislation, that's not going to change the post office would like to be smarter rather than say dumber about package pricing and shipping, but the question is will congress let them do it that's why i would argue this was more likely a tweet geared to lawmakers more than the postal service or amazon >> is there any legislation out there that you're aware of that would fix this in the near term? >> it's been discussed i know the usps is in the midst of its 10-year review right now, but every time there's sort of talk or proposal to restructure the usps, it has sort of fallen by the wayside because you have lawmakers who want to address their constituents but there are models for this out there. deutsche post in the '90s was restructured and it's doing well the postal service itself would like to see potentially a restructuring and these lawmakers to get together and help it clean up so if can do even more and be even more profitable >> yeah, of course, always worth mentioning the president has made a point of focusing on amazon often in his tweets at least amongst companies, given jeff bezos, of course, his owner, separately -- the founder of amazon, separately owns "the washington post. he's gone after them on taxes they pay or don't pay and on a number of other areas as well. thank you. >> sure. >> when we return, pulitzer prize winner columnist ppw, is how we go about calling him here, jim stewart, is going to join us with his thoughts on the tax plan, on the lack of deductibility, on state and local income taxes and some of the comments from the president on that very subject when this bell rings... ...it starts a chain reaction... ...that's heard throughout the connected business world. at&t network security helps protect business, from the largest financial markets to the smallest transactions, by sensing cyber-attacks in near real time and automatically deploying countermeasures. keeping the world of business connected and protected. that's the power of and. i'm morgan brennan and here's your cnbc news update at this hour. new york city's mayor saying investigators believe a child playing with a stove may have been the cause of a fire that killed 12 people the fire broke out on the first floor of a five-story building around 7:00 p.m. thursday night and city officials say it spread to all floors within minutes not including september 11ths, it's new york's deadliest fire in more than 25 years. >> forecasters warning of hypothermia and frostbite as an arctic blast grips half the country, with temperatures dipping into negative numbers from the midwest to the northeast, advocates for the homeless trying to get people inside and officials are asking residents to help elderly neighbors. >> den people are dead in egypt after a gunman opened fire outside a church outside of cairo. the attack left at least one policeman dead and eight others injured including two critically egypt's christian minority has been targeted by islamic militants in a series of attacks since late last year and actress rose marie has died she was best known as the wise cracking comedy writer sally rogers for five seasons on the dock van dyke show in the 1960s. she began her career as a toddler, and went on to perform on broadway and films, and on television, rose marie was 94. and that's your cnbc news update for this hour. send it back over to you >> all right, thank you, morgan. >> as the irs and taxpayers alike try to sort out the impact of the gop tax reform law, president trump adding to the concern that cuts to state and local tax deductions which will largely impact blue states such as new york and california, are too severe ylan mui is in washington and she has more on the story. >> david, president trump now trying to blame democrats for the new $10,000 limit on state and local tax deductions in an interview with "the new york times," he said he would have made the s.a.l.t. cap less severe if democrats had gotten onboard with the tax plan. trump said he would have gone to senate majority leader mitch mcconnell and asked for either a change to s.a.l.t. or a knockout of s.a.l.t new york governor andrew cuomo is particularly insensed over the changes telling cnbc he's threatening a legal challenge over the provision's constitutionality. >> there's no state in the united states of america that pays into the federal government more and gets back less than new york state we send in $48 billion more than we get back. we subsidize every other state >> also today, representative leonard lance of new jersey, a republican, said he plans to introduce legislation that would allow people who prepay their 2018 property taxes this year to take the deduction in 2017 no matter what. he tweeted that it's only fair and that the irs expand this ruling so guys, we'll see how this fight over s.a.l.t. shakes out back over to you >> okay, thank you, ylan >> for more, we're joined at post 9 by "new york times" columnist jim stewart who has spent a lot of time on taxes and tax reform we have talked to you often about it you looked at these things long before tax reform from a lot of different way said your taxes are -- well, i don't know if they're going up we talked about you becoming a passthrough. >> i'm definitely looking into becoming a passthrough, because my feeling right now is this is not the tax code i would have drafted, as anyone who has been listening to me would know, but now it's the tax code we have. so number one, maybe it will spur growth. i hope it does i hope it has some positive effects. and number two, we might as well take advantage of it so is it fair? i don't think so is it simple no but it's the tax code we've got, so let's go with it. >> do you think that on that note, i mean, corporations, but as individuals as well, will try in many ways to figure out how to become a passthrough, how to maintain, by the way, as a corporation, you're able to deduct state and local still not to mention, of course, the lower rate that would be available. >> oh, absolutely. i mean, it's going to be -- i was getting my hair cut yesterday, and the woman who cuts my hair was grilling me with questions about, well, prepaying taxes and how do you become one of these passthrough things i was thinking a lot of these service providers could easily become separate businesses as opposed to employees >> why not become a c-corporate? that has a lowest tax rate >> or go all the way, you know >> you have to retain your earnings, don't you? >> just saying >> you're not paying yourself a salary >> passthroughs are basically labor income converted into something else >> one thing that is clear is this is not a simpler tax code for many people. if you're heading down, as i'm already discovering, if you're flirting or interested with the self-employment, the c-corp, you know, the partnership, the llc, it gets extremely complicated in a hurry. and i suspect that there are going to be many, many, many litigated cases about who is or isn't qualifying for this. and that's going to really tax the irs resources. but we'll see. we'll see down the road, but this is one of the most complicated areas and one where zillions of people are going to try -- why not you want to try to get into the lower bracket. >> without a doubt to the larger point about the economies of states such as california and new york, i think governor cuomo would assert this is the case, though we don't know do you think their economies are going to suffer as a result of the higher tax burden there? particularly given what might be some migration of very high earners to lower tax states and therefore the loss of the revenue? >> modestly, maybe i mean, the fact of the matter is in terms of absolute numbers. these superrich hedge fund people, first, many of them i know are already not living in new york city more than half the year and then i was kind of walking down 57th street looking at all these billionaire towers the other day wondering, and again, they were all dark >> many are owned by foreign nationals. >> i don't think that super high end is going to be affected much at obviously, nobody is going to come flocking here as a result of this, but i think the migration is going to be modest, and the factors that keep people here will overwhelm it i will say about this whole state and local tax issue, it goes to me to the fairness question if we had had base broadening in many areas, which we could have done in order to raise revenue to lower the rates, i don't think people would be complaining so much. the problem is, like how many base broadening things were there? there was one, getting rid of the state and local taxes. so it, like, is glaringly sitting out there looking like a targeted dagger at the heart of democratic states. >> do you believe when the president tells "the new york times," it wouldn't have had to be this way if some democrats wanted to get on board, i could have bargained that away, and maybe people would have wound up with a higher corporate tax rate would that have been a better outcome, to your point >> first of all, hindsight, it's always easy to say these things. >> he's directly blaming that for the outcoming saying if the democrats got on board, this would have been different. >> one of the interesting things that happens is we'll get access to what was going on behind the scenes we don't know. i don't know if he even knows. i mean, i was looking into what happened to the one of the most egregious loopholes which was the carried interest thing i thought if they're not going to get rid of that, they're not going to get rid of real loopholes. i have been looking into why that happened. gary cohn has come forward to say he and trump tried repeatedly to actually close that loophole. and every time they just ran into a brick wall from powerful senators, they said of both parties, who - >> who was behind that the carried interest, they talk about it, i think it's $17 billion over ten years we're not talking about an enormous amount of money, but fa fairness the idea that the richest among us are paying less than almost anyone else as the treatment of not their labor, frankly, as capital gain >> right >> seems completely unfair >> completely unfair by the way, when you're talking about these people, they just had a huge windfall from this tax code, so they don't get to deduct their state and local taxes. they're billionaires if you're a billionaire, you can live wherever you want and are they going to move out of new york city to save a few thousand dollars on their state and local taxes? i don't think so meanwhile, they're harvesting this break i would love to see the names behind the scenes but we don't know exactly who did that. >> will we ever know will we know >> there's been some reporting on this, some reporting that steve mnuchin, the treasury secretary, felt differently about it than gary cohn and defended it, and kevin brady amongst some others, gary cohn said we ran into a brick wall, and that brick wall was congress there are a few names out there, and a couple others, i forget who even had the story, but there's some information about people who didn't want to give this up. i don't know if it coincides with the massive tax that a lot of hedge funds are taking at the end of the year. we talked about this because of the sunset of the 2020 provision. >> mostly private equity >> they moved it to three years which makes it more so a private equity tax break given the nature of their investments. far longer than hedge funds. >> going to the fairness question, they don't close the carried interest loophole, and then they take away the state and local tax deduction. you know, a lot of people just shake their heads and say, that just is not fair >> you mentioned if there were lawsuits, we might find out how this happens do you think there's legal merit to states like new york suing over double taxation >> not really, to be honest. that's a stretch if you can show behind the scenes it was a purely punitive political maneuver, maybe. but first, you're never going to show that. there's a very strong case to be made for getting rid of the deduction apart from any punitive thing i support getting rid of the deduction as part of a large base broadening. i do feel bad that it ended up being the only one they targeted >> final question here for this year to you. any predictions for 2018 i'll give you the broad landscape. anything you want to share >> i certainly never would have predicted a year ago we would be looking at the gains we saw this year look, it cannot go on like this forever. 20% annual gains that is not going to happen. there is going to be a reversion of the means some time, and that means have an asset allocation plan don't get swept into the euphoria rebalance. rebalance between sectors. don't let tech take over your whole portfolio. and stay the course. now, one thing i will say is there's some broad movements happening i think in commodities, those cycles tend to be very long-term, and it looked like the turning point there was sometime last year there's probably a lot of room there. if you're going to have the kind of growth that this tax code is supposedly promising, you're going to see higher interest rates, more inflation. that should be positive for the commodity sector >> jim, thank you. >> sure. >> and happy new year. >> happy new year to you >> jim stewart >> see you in 2018 >> let's get back to seema mody at headquarters with a market flash for us >> shares of dvr technology maker tivo are rising today following a report from the street.com that tivo has received multiple expressions of interest from potential private equity buyers. a report which only quotes a single person familiar with the situation says the potential buyers are targeting a price of more than $20 per share. in case tivo takeover sounds like a familiar scenario, last year, tivo was bought by digital entertainment company rovi, which then took the tivo name. back to you. >> all right very interesting we'll watch that thank you very much. >> as we head to break, why one portfolio manager is cautious on amazon and netflix larry joins us on "squawk alley" at the top of the hour stay with us how's it looking? >>i don't know. there's so many opinions out there, it's hard to make sense of it all. well, victor, do you have something for him? >>check this out. td ameritrade aggregates thousands of earnings estimates into a single data point. that way you can keep your eyes on the big picture. >>huh. feel better? >>much better. yeah, me too. wow, you really did a number on this thing. >>sorry about that. that's alright. i got a box of 'em. thousands of opinions. one estimate. the earnings tool from td ameritrade. [lagale force winds,s absolute chaos out here! accumulations up to 8 inches... ...don't know if you can hear me, but [monica] what's he doing? [lance] can we get a shot of this cold front, right here. winter has arrived. whooo! hahaha [vo] progress is an unstoppable force. brace yourself for the season of audi sales event. audi will cover your first month's lease payment on select models during the season of audi sales event. that's why feeling safe is priceless. with adt, you can feel safe with an adt starter kit professionally installed for only $49.00. call today, and install an adt starter kit that includes security panel, keypad, key fob, entry and motion sensors and for a limited time, get a camera included and installed at no additional cost. that's a $449.00 value, installed, for just $49.00. welcome back we're looking at a turnaround in the markets after a futures increase this morning. now the dow is lower by 28 points the s&p is down by one russell down by one. mike, you were looking at the level of the s&p we were talking about this earlier. this is the santa claus rally time of year >> if that indicator has merits. what you're looking for is the sapp sapp to stay at or above 25 preserving some suspend into the end of the year. this also does include the first two trading days of next year. >> we always see big moves on the close. goldman is the top decliender in the dow, down 1.2% after saying it's going to face about a $5 billion hit on the tax reform. >> let's get over to the cme group and rick santelli for his santelli exchange. >> thanks, mike. like to welcome my guest all the way out there in warm arizona, yra harris thanks for taking the time >> thanks, rick. thanks for having me, and happy new year to everybody. thank you. >> listen. you always meld politics and market together in a unique way. 2018 should have a lot of politics snap elections in italy, a weekend merkel party with respect to how she's going to proceed long in the tooth run in terms of leading the country how will politics affect the markets, equities, and mario draghi and the security markets in your opinion for next year? >> i think the important thing is going to be europe. europe is going to be a major focus in 2018. i know we have congressional elections in the u.s., but right now, we have merkel three months after the election who has not been able to form a government and the longer this stays out there, the greater negotiating partner of martin schultz and the sbd, so they're looking to exact more and more europe so this is going to be interesting. of course, then early march, we get the italian elections, and at this point in time, i don't believe the polls and nobody should either. but we have the more slow down the eu process parties, especially five-star, leading those polls. so these are going to play out and as we look to the role of the ecb, draghi is still going to be buying 30 billion euros a month up until -- up through september. he's promised he's going to keep interest rates negative, negative 40 basis points through probably mid-2019. this is going to get very interesting, of course, and then we'll see how it plays upon the dollar because the dollar has been surprised - >> let me interrupt you there. exactly, so everything you describe with regard to draghi makes sense that the euro would appreciate if there's some religion slowly creeping in to mario draghi and his policies. but we're much more -- we're further down the road in the u.s. than the dollar certainly doesn't exhibit any strength we're down a dime on the year. why do you think the dollar has been weak, or is it a proactive story? why is the yeeuro so strong >> that's the dilemma, and even stanley has spoken to it, that the dollar -- the currency markets have surprised you know, i think, and you know we talked about it earlier in the year, but when mark fields came out of that meeting with donald trump back in early february, i believe, because i blogged about it that day, when he said that currency manipulation was the mother of all trade barriers, mark fields, of course, is gone as being ceo of ford, but if you look, that's when the dollar turned because the dollar -- the euro was trading about 105, 106, and it's been a steady move up and most global macro players have had this wrong, but it was coming out of that meeting, especially mark fields representing the national association of manufacturers viewpoint, they wanted a weaker dollar and they knew to play this to trump. i think the markets -- >> just about out of time, yra, just like 2017, but i see where you're going on that i tell you what, from a trade perspective, the japanese and the german certainly would rather switch places and have a weaker currency next year. on the trade side it will give it assistance, export, economies. thank you, yra harris, happy new year, thank you for all your guest appearances for 2017 mike santoli, back to you. >> thanks to you, rick more "squawk on the street" after this ing we all think about as we head into retirement. it's why brighthouse financial is committed to help protect what you've earned and ensure it lasts. introducing shield annuities, a line of products that allow you to take advantage of growth opportunities. while maintaining a level of protection in down markets. so you can head into retirement with confidence. talk with your advisor about shield annuities from brighthouse financial established by metlife. when it comes to travel, i sweat the details. late checkout... ...down-alternative pillows... ...and of course, price. tripadvisor helps you book a... ...hotel without breaking a sweat. because we now instantly... ...search over 200 booking sites ...to find you the lowest price... ...on the hotel you want. don't sweat your booking. tripadvisor. the latest reviews. the lowest prices. welcome back natural gas prices are getting a big lift going into the weekend as cold weather continues to sweep through the u.s. take a look at the price as we mentioned it's been coming off significant lows, but rallying all week, up about 10% so far what can we expect going into the new year there it is up 2.5% today. patrick is a senior petroleum analyst with gas buddy what reaction are you seeing in terms of oil and gas any long-term effects from this mega cold snap >> well, certainly, as we're looking at this cold snap extending still for at least another few days, we're talking about intense demand for not only natural gas, but heating oil in the northeast prices have shot up. it's been a tremendous year and now we're ending it on a high note as they continue to surge because of demand going up with the cold weather >> can anything bring the natural gas market into more quote, unquote, supply/demand balance? >> we're in the midst of heating season right now, so it may take some time to see a rebalance there. when it comes to heating oil, obviously, some tremendous numbers from the energy information administration last week highlights that refineries are catching up to that increase in dissolate demands, so refineries are answering the call for dissolates. >> switching over to gasoline, this is supposed to be the time of year where it's weaker, but they are at a 2 1/2 year high. what does that mean for prices at the pump? >> unfortunately they are moving higher two refineries in illinois went down unexpectedly. that's causing a lot of pain at the pump for motorists in that region, and that's pulling the national average higher. we're going out, again, on a bad note of course, this is the time of year where inventories of oil do usually contract for those end of year tax moves, but keep in mind we're going to start 2018 50 million barrels of crude oil lower than where we started 2017 so look for high oil prices at least in the short term to continue as not only cold weather pressures prices, but opec's production extension of production cuts that they made just a month ago >> all right, patrick, thanks forjoining us. >> my pleasure >> patrick dehan of gas buddy. let's check in on stocks right now. the markets generally mixed. dow down 37. consumer staples the best performing sector this morning among the leaders, so-called sin stocks, tobacco producers, phillip morris international up about 1% today pepsico also among the leaders, all-time highs, back to the merger in 1965 coke also a leader this morning. i was not aware that was a 1965 merger that created pepsico. >> pepsi had a good run, as our viewers know it has not been necessarily a positive year for a lot of providers for the middle of the store, so to speak not done particularly well zero-based budgeting has been adopted across the board by so many of these consumer companies. we'll see what 2018 brings >> that pepsi-coke ratio keeps going up in terms of relative stock performance. it's one people watch. ever befo. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. yes or no?gin. do you want the same tools and seamless experience across web and tablet? 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[music playing] good morning, it's 8:00 a.m. at apple headquarters in cupertino, california. 11:00 a.m. here on wall street, and "squawk alley" is live ♪ ♪ good morning and welcome to "squawk alley. i'm david faber. with me, kelly evans and mike santoli. carl, john

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