Transcripts For CNBC Worldwide Exchange 20161013

Im wilfred frost alongside Courtney Reagan. Good morning. Good morning to you. You had quite a busy 24 hours. We have, indeed. Well get to those specifics in a moment. Lets hit the markets. It is 5 00 a. M. On the east coast. But first breaking news. The u. S. Military launching tomahawk cruise missiles against radar sites in yemen. This comes after incidents earlier in the week when the ship was fired on by a rebel controlled area. Well have headlines on that for you throughout the day. Markets, as you can see right now, pretty soft. Were down over 100 points for the dow. 108. The s p down 14. 5. Nasdaq down about 30 points. Significant weakness off the back of yesterday when we were broadly flat. We did have the minutes from the fed, they didnt change expectations. Were still looking at a 66 chance of a december rate hike. So, in the end, a relatively mixed day. But broadly flat. Down about a half percent to 1 for the week as a whole. The nasdaq is the laggard. Tenyear treasury note, we have seen yields tick up. Touched 1. 8 yesterday. Moved in the other direction just now. Were seeing a broadly riskoff traditional trade because of chinese data which well come to in a moment. The yen has gone up, the swiss franc has gone down. Weaker than expected china trade data. China exports nearly 10 year on year in dollar terms. Imports declining 1. 9 from the previous year. If we look at asian markets. The nikkei down about 0. 4 . Hang seng down 1. 6 . The shanghai up just a little bit. The point about the chinese trade data, its infected markets globally, yes, its disappointing on the face of it. The month on month figures are exaggerated to the down side because of currency moves. Year on year, its the first decline in a while. Thats something to be concerned about. But overall, china has a trade surplus and currency moves have exaggerated the data. I think its justified. We see a bit of selling today, but dont want to overreact on what this means for china long term. Weve seen the yen strengthen and the franc strengthen and bond buying. We look quickly at european equities. Tracking here for a softer open last we looked. Thats still the case. Germany and france down more than a percent as well as italy, spain and the ftse down least of the group. But, you know, the european markets paying attention to the fomc minutes out yesterday with expectations on the rise for the december rate hike in the u. S. Broader markets, commodities affected by this broad riskoff sentiment caused by the china data. As you can see, down by a half percent for wti. Back below 50 bucks. Again, given the gains weve seen recently, yesterdays decline of 1. 2 and today 0. 5 in perspective. Dollar board, lets look at that. Seeing the euro and pound soft again against the dollar. But the yen itself is a bit stronger. Only by 0. 1 . No big moves there. The pound slipping a third of a percent. Gold prices, very quickly this morning. Currently higher by a half percent. 12. 60 the price. Moving on to the top corporate story, john stumpf is out. Hes retiring effective immediately. Tim sloan will take over the job following the high profile scandal over sales practices. Shares of the financial giant are up about 0. 5 . Late last night, up about 1. 5 . Slipped overnight a bit. I spoke with the new ceo, tim sloan, late yesterday in an exclusive interview. I started by asking him whether he felt mr. Stumpfs departure was a necessary condition for the company to move forward. Mr. Sloan said mr. Stumpf thought it was. I think johns decision to retire is one that, you know, is clearly sad for all of us at wells fargo, because we think so highly of john and his leadership in the company over the last decade. But he concluded this was the right thing to do for the company, to allow it to move forward because he felt that the focus on him was becoming a distraction and hindrance to the operations of the business. But was it a sufficient condition . Oh, theres a lot to be done. Wells fargo is a company thats made up of 260,000 team members, all across the country and all across the world. And no one individual is necessarily going to make the difference. We all have to Work Together to restore the reputation of the company, to continue to focus on moving the company forward. So, one person, whether its john stumpf or candidly me is not going to make the difference. One person who clearly felt it was not a sufficient condition was senator elizabeth warren. She tweeted, as i said wells fargo ceo stumpf should resign, return every nickel he made during the scam and face dodge and s. E. C. Investigation. Hes 1 for 3, implying hes done one of those three things now and needs to do more. In a statement she added if mr. Stumpf is leaving, with all of his illgotten millions, thats still not real accountability. Mr. Sloan said there had been additional requests for information from both houses of congress but he hopes any potential hearings of his own will go more smoothly. We were disappointed that the hearings turned into a situation in which there were more speeches given than questions asked. Because we felt like there was more answers that we could have provided. But those hearings are over with. Were moving on. I ended by asking him whether this was a sad or proud day for him personally. Its a sad thats a very fair question. Its a sad moment because john stumpf is retiring in a situation that i think he would have never imagined. He has done such a great job in managing this company, notwithstanding some things that i think he wish he who have done differently. Thats what makes it sad. Having said that, i feel a great responsibility and im looking forward to being the ceo of this company. We have an amazing 164year history. We are not going to allow the last five weeks to define the success, the future success of a very well regarded and well known 164yearold company. Focus now turns to the companys earnings due at 8 00 a. M. Eastern tomorrow. Courtney, the bottom line for this, its necessary but not sufficient condition. Its interesting to see in the market up a half percent when futures are down triple digits. The markets applauded this but not recovered the losses of the last couple weeks. After hours up about 2 . Well see what actually happens when we follow through today. Is this what investors need to hear from wells fargo . He said theres more to be done. Some criticism, hes an insider. Is this really a step forward . He did come up through the wholesale, Investment Bank part of wells fargo, not the retail part, he became ceo and president , but that was in november of 2015. To sort of blame why he didnt also come out and do more from 2011 onwards is not fair because he was in charge of a different part of the bank at that point. He is an insider, but from a different part of the bank. Well have to see what he does on the Earnings Call on friday. There will be focus on the numbers, but more likely focus on this issue. And he began speaking immediately which is something that everyone wants, more transparency from banks. He came on with you. Great job with that. Thank you very much. Its great he came out, but still lots of pressure. Elizabeth warren quick to come out as well. South koreas central bank keeping Interest Rates unchanged. The Samsung Smartphone issue could hamper growth, but the countrys recovery remains on track. On the data front we get weekly data claims at jobless claims and import prices at 8 30. The budget figures at 2 00 eastern. More fed speak, Philadelphia Fed president , Patrick Harker will discuss Economic Outlook at 12 15 p. M. , and Neel Kashkari will speak at 9 00 p. M. Eastern. On the earnings front, among some names reporting, Delta Air Lines and winnabego. Lets take a dive into the Delta Air Lines. Landon dowdy has three thing toss look for. The street is looking for delta to land on 1. 35 a share. Guidance specifically q4 passenger revenue per available see the mile. 3. 5 to 5. 5 is down from the 6 in q3. Despite a recent rally in airline stocks, delta lacks behind the competitors down 22 . Yates pointing out expectation misses have been a big factor in that. Delta missed guidance 5 of the last 7 quarters. You want to see what management says about capacity, specifically 2017. They expect growth to be in flat to up 2 . And costs, just last month delta reached an agreement with its pilot yuunion for a pilot contract. So listen for that. Make sure you stick around after Worldwide Exchange for squawk box because phil lebeau will speak exclusively to deltas ceo Edward Bastian at 7 00 a. M. In other corporate news, snapchat choosing Morgan Stanley and Goldman Sachs for an ipo. Reports say the firm could be vying for a 25 billi 25 billion market valuation. Snapchat just changed their name to snap inc. They raised a lot of money earlier thisyear. Seemed like they wanted to stay private for a long time. I just wonder how much this is driven by instagram announcing their own story. Its a big part of snaps business. Will it eat into how successful theyre doing . Thinking maybe lets get this ipo done before those numbers come out. Im surprised theyre Going Forward with the ipo as well. Im sure they figured out this is whats best for them. These companies will always have all of the Investment Banks ready to go to pull the trigger. The Due Diligence was done years ago. Interesting timing given that they raised significant sums from two or three big Institutional Investors earlier this year which would have covered their financial needs. This is a strategic decision, perhaps simple as Instagram Storys being launched or something else. But i dont think its a funding issue. They already covered it. Competitive pressure perhaps. Shares of samsung rising in asias session today rebounding for the first time after three Straight Days of declines. The smartphonemaker offbegan sending fire proof boxes and protective gloves to customers returning the potentially explosive devices. I spoke to amazon and they said, look, you dont have to return it to us. Well give you the refund without actually shipping back the phone itself, which might be the safer option at this point. Might be the safer option and a necessary condition for them to keep any kind of Customer Loyalty moving forward. They have to make sure they refund everyone in full. Still to come, weak chinese trade data pressuring metals and mining stocks. A live report from overseas coming up. Portunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you toeach Global Markets and drive forward with broader possibilities. Cme group how the world advanc. When youre on hold, your business is on hold. Thats why comcast business doesnt leave you there. When you call, a Small Business expert will answer you in about 30 seconds. No annoying hold music. Just a real person, real fast. Whenever you need them. Great, thats what i said. So your business can get back to business. Sounds like my rides ready. Dont get stuck on hold. Reach an expert fast. Comcast business. Built for business. Welcome back to Worldwide Exchange. If youre just joining us, good morning to you. Lets look at the market action. Yesterday we were broadly flat. We got the fed minutes, they didnt change expectations, about a twothirds percent chance of seeing a hike in december. Today we are soft. Triple digit declines for the dow, just shy of that, 99 at the moment. About a half percent as you can see. Weighed down by chinese trade data that has given a riskoff trade globally. Also affected commodities, oil prices slipping today. Lost 1. 2 yesterday. A half percent today. 49. 9. Still significantly higher than a couple weeks ago. British foreign minister Boris Johnson in london arguing that punishing the uks Financial Sector during brexit negotiations would not make economic sense for the bloc. He also says the post brexit goal of lower immigration and tighter border patrols does not mean it would have to close its doors to skilled workers. The china data overnight pressuring metals and mining stocks. Gold and equities in europe were lower. Nancy joins us now to talk us through with more. Thats right. Its full of red on the european map behind me. But the real story surrounding the chinese export data that shock 10 plunge in exports has been weighing on basic resources, off now 2 . They have pared back some steeper losses of 3 . Were seeing the brunt of this action falling on uk miners. Lets check on how the uk miners are performing. Besides randgold which is getting a bit of a boost, mainly losses of 3 and 4 . I wanted to mention rio tinto and bhp. Citi downgrading from a sell to neutral. They expect bhp to deliver flat volume growth over the next few years. When it comes to rio, citi thinks valuations are stepped. Bhp off 3. 9 . Rio tinto down nearly 4 . Back to you. Thank you for that. Todays top political news, and more accusations against donald trump. Details of that straight ahead. Switched to sprint. Sprint . Im hearing good things about the network. All the networks are great now. Were talking within a 1 difference in reliability of each oer. And, sprint saves you 50 on most Current National carrier rates. Save money on your phone bill, invest it in your Small Business. Wouldnt you love more customers . I would definitely love some new customers. Sprint will help you add customers and cut your costs. Switch your business to sprint and save 50 on most current verizon, at t and tmobile rates. Dont let a 1 difference cost you twice as much. Whoooo for people with hearing loss, visit sprintrelay. Com. Welcome back. Lets get you up to speed on the u. S. Market action. Futures are marginally negative. Holding about the same as we have been for the last 20 minutes or so. This is after we had a mixed session yesterday on the back of those fomc minutes. If we can look and see where the basket of currencies are trading this morning, about four hours before the opening bell. The dollar is actually pulling back a bit from the sevenmonth high of 98. 122. That was set earlier. But a negative reaction going on in currencies across the board. If we look at oil, below the 50 a barrel for wti crude after a decent build in inventories, which was much more so than expected. You can see wti below 50 here. Brent 51 or so. Well see what that action does throughout the session today on thursday. Back over to you. Thank you very much. Lets move on to politics. Trumps troubles mounting as four women are accusing him of inappropriately touching them. Tracie potts joins us now with the republican candidates reaction. Good morning. Reporter good morning. Donald trump says this is just a distraction from Hillary Clintons emails that the claims are old, baseless. Today well tell you about both, about the trump allegations and clintons emails, beginning with some of those women accusing him. He was like an octopus. It was like he had six arms. Reporter jessica leads tells the New York Times that happened when she sat next to trump on a plane. Pageant contestants also coming forward. He turned to me, embraced me, gave me a kiss on the lips. Reporter several women making allegations including one in south florida where trump rallies today. Nbc has not verified their claims. The Trump Campaign denies any of it ever happening, and questions why these women waited years until weeks before the election to report it. Hes doubled down. He doubled down on his excuse, its just locker room talk. I have to tell you, after he said that in the last debate, the most amazing thing happened. Athletes and coaches starting speaking out. Reporter trump says the allegations are distracting from leaked emails from Hillary Clintons aides. The latest wikileaks document shows conversations that trump calls anti catholic and down playing terror. The wikileaks email show the department of justice fed information to clinton. She deleted the emails. She has to go to jail. The Clinton Campaign calls it a faux controversy pushed by Russian Hackers determined to get trump elected. Here in washington today, theres an antitrump union Group Lodging a protest. They want to talk about how donald trump is treating workers out in las vegas. Well be out in vegas next week for that debate. There have been these sort of wild card developments throughout the campaign, whether its email related or Health Related for secretary clinton or some of these over the top comments from mr. Trump. Typically would Hillary Clinton be suffering a lot more from these wikileaks releases if mr. Trump wasnt making such aggressive comments . Probably so. If donald trump was not facing these allegations at this point. The only thing that there was out there to focus on were the wikileaks content. There would be more attention paid to them, thats the argument donald trump is making. But if you have a president ial candidate being accused of Sexual Misconduct that will draw a lot of attention. Tracie potts, live in washington. Cant make up this stuff this year. Coming up, the top stories and a complete round up of the Global Market news, plus wells fargo fallout. Well talk about the future of the banking giant after john stumpf steps down. Changing of the guard. John stumpf steps down as ceo of wells fargo. Well talk to top financial watchers coming up. Markets now. China exports plunging more than expected. Global stock reaction straight ahead. And harry potter hits the really big screen. The wizard heads to imax. Its thursday, october 13, 2016, youre watching Worldwide Exchange. Very good morning. Warm welcome to Worldwide Exchange on cnbc. Im wilfred frost alongside Courtney Reagan in for sarah today. Good morning. Good morning. Lets get straight to the Global Market action. Yesterday we ended broadly fl l, the nasdaq down about 1 week to date. As you can see, were expecting to add to those losses today. Down about 104 points for the dow, the nasdaq down about 30 points, the s p down 14 points. Trade data out of china disappointed, fell quite significantly, around 10 year on year. Exports falling, but they still have a big trade surplus. Its not derailing china longterm, but its justifiably a riskoff day. Lets look at europe. In the red, miners and Metal Companies down the most. Ftse 100 down a half percent. Another day of weakness for the british pound. Asian trade is suffering, too. We have the nikkei down 0. 4 . The yen has rallied today in the eyes of the poor chinese data. Hong kong down 1. 6 . Shanghai a good marker for you not to overreact to that disappointing trade data out of china. Its flat. If we look at the broader markets, lets start with oil. You know, this has been very big leader when it comes to equities following closely. Wti down below 50 a barrel. Down a half percent. This after yesterday when we saw that surprise build, the first increase in supplies in six weeks. The largest single inventory increase in six months. Understandable pressure there on wti. Brent around 51 there. Were seeing weakness in the dollar, pulling back from a 2 1 2 month high, at least against the yen. If you look at it against the basket of currencies, the dollar is pulling back from a 7 1 2 month high. You look there, you can see against the yen, the pound and euro. If we look quickly at whats going on with the tenyear treasury, seeing riskoff falling from 1. 78 early, now down below that. 1. 74 on the yield, below that even. Well see what continues as we move forward. We have the fomc minutes yesterday in the afternoon, putting the december rate hike possibility on the table. And if you look at gold prices this has fallen as the dollar strengthens. We spoke earlier about how some equities in gold and the miners overseas are getting hit. Gold prices up slightly here this morning. Were sitting at 1260 and change. There is lots on the agenda today to get to. On the data front, weekly jobless claims and september import and export prices at 8 30 a. M. Eastern time. We got those from china overnight. The u. S. Treasury releases its budget at 2 00 p. M. And some fed speak, Patrick Harker at 12 15, and minneapolis president Neel Kashkari speaking at 9 00 p. M. Eastern time. Earnings season starts to pick up today among some of the names reporting, unilever, delta and winnebago. We still have the wells fargo news. Lets hit the big headlines. Embattled ceo of wells Fargo John Stumpf is out. Hes retiring effective immediately. Tim sloan will take over the high profile job. Shares of the wells fargo are up nicely, up 1. 2 , thats in perspective of a triple digit decline in the market for the dow. Decent relative move for wells fargo today. In an exclusive interview last night, mr. Sloan said mr. Stumpf felt it was a necessary condition for him to leave in order to allow the company to move forward. Mr. Sloan made it clear there was more to be done, particularly with customers. We reached out to customers to make sure they know if they have any concerns how they can contact us. We remediated and corrected any errors we made for any of our customers that were aware of. Well continue to focus on our customers as we have for 164 years to bring them the best products and service and convenience that we can. Sloan also said the pressure from lawmakers had not gone away. There have been some additional requests for information by both the house and senate. We are continuing to comply with providing them answers to whatever questions they have. Joining us now to discuss more, christopher whalen, good morning to you. Good morning. Is this enough of a change . Hes an insider. I think it is, but, you know, the real issue is how does the bank address the larger questions Going Forward. Will tim sloan be able to survive this process . Clearly a good choice, strong operator, but he was also in the room when the bank let this problem go on for years with jowithout addressing it. He came up through the wholesale, not the community bank. Is that his fault . Its not his fault. When you talk about a large bank and the officers and directors have to attest to the internal controls, including the cfo, thats an issue. We dont see it as a financial event for the bank. We just reaffirmed our ratings for wells. For investors, this is, to some degree, a nonevent. Probably more of a concern for equity investors. The question is will wells go back to the premium valuation that it had . Or will it languish where it is now. It was 50 better valuation than jp morgan. There was a lot of ground to make up this will not do it on this news alone. What are you looking for out of earnings . Is that where the markets should be more focused . I think earnings will be a very interesting thing. Youre seeing a slowdown in cni lending which has been a big driver of Bank Earnings for several years. Seeing some bright prospects on the mortgage side, which is kind of surprising. Banks have been backing away from Residential Mortgages for years. We could do a 2 trillion in new originations this year, up 25 from last year. So that may be a bright spot. By overall, i think what youre seeing is banks running into a wall in terms of having enough capital to continue making commercial loans. The occ has a 300 guidance out there against total capital. Once you get there you have to go out and raise more capital or stop. Literally it fell off the cliff. It was cut in half in july, now the growth rate for cni loans is negative in august. That will affect Third Quarter earnings. Across the sector, and also Capital Markets, that was slow in the first half. Could we see a nice bounce for the sector there . One hopes it would recover to something close to last year. I dont think were there yet. M a, ipos are weak. The abs market has not come back. Were still down compared to last year. Most banks have had to simply continue cost cutting, pretty much all the universal banks that depend on the Capital Markets business. Wells fargo took the hit for the 185 million fine already in q2. Will we see specific expenses set aside in this quarters earnings for potential future Legal Expenses . What are you looking for . Whats a win . Whats a loss . I dont think so. Numbers are not significant here. Whats far more significant is whether or not the banks management can recover their reputation. This was a bank that had a really sterling reputation when it comes s ts to management, t been damaged. And the fact that the bank allowed mr. Stumpf to go to washington and be so clearly unprepared, i almost dont blame him. The staff, the lawyers, the lobbyists should have had that man better prepared for the hearings. I grew up in washington, i worked on capitol hill, you dont let somebody go up to the hill and be so clearly unprepared for what he faced. I think it was a big mistake. I hope the bank takes that to heart Going Forward. They have to make sure mr. Sloan and all of the key people are prepared to deal with the Public Communications challenge. You guys know what im talking about. You have to be ready. They were not ready. Im still not sure that they are. Great stuff. Thank you very much for joining us. Thank you. Chris whalen. There is more when it comes to stocks to watch today beyond wells fargo. Csx shares are rising after the firm released results, earnings and revenue topping consensus as the company benefited from cost cuts. Shares are higher in extended hours. Unilever reporting results early this morning. Price increases helped the ben jerrys ice creammaker. The company said it is on track to meet fullyear targets. And medicare ratings weighing on shares of humana. A report showed the Health Insurers membership in certain highly rated plans declined. Moving on to the top trending stories. The wait for sony play stations vr finally over. The company releasing the Virtual Reality add on for the playstation being offered today. Best bay and Gamestop Stores are opening early. 499. Thats a lot of money. Thats a lot for an addon. In my opinion. But im not a gamer me ergamer. Nor am i. My brother wouldnt let me play. I was a spectating. Would have made spectating better. Potter fans are in for a special treat starting today. All eight harry potter films are hitting imax theaters across the country. Imax will show the sorcerers stone and the chamber of secrets. The oneweek festival will build to the relalatest potter pil etg out in a weeks time. Im not sure if i like this. Theyre going to milk it. These are going backwards in time, and then a plan to go forward in time. My issue with it, theyre not outright written by j. K. Rowling. Its just monetizing a franchise without the core creator. Look at what star wars did. Thats fair. Theyve done well with that film. Well wait and see. Im nervous. Im nervous. As a deep harry potter firm, im nervous. I have to catch up. I have not read any of the books. Bmws new 5 series sedan is trending. The german automaker giving the luxury car a makeover including new engines, more tech and better fuel efficiency. The 2017 model will be on sale in february. It is estimated to have a starting price upwards of 50,000. More than 499 for an addon. I get a bit more. I like it. Still to come, the must reads. First a look at where european equities are trading at this hour. They are soft in light of that chinese trade data. Commodities suffering. Down about a percent for the german index. Youre watching Worldwide Exchange. Honey, arent we having friends over . It reeks in here. I know [goat noise] i stole the other teams mascot for good luck. We need to wash is room. Wash it . Yeah, wash it with febreze. For all the things you cant wash, use febreze fabric refresher wow [inhales] it really smells great in here. Dog barks and try pluggable febreze, with up to 4 times the freshness in one refill. Pluggable febreze and fabric refresher [inhale exhale mnemonic], two more ways to breathe happy welcome back. To todays mustreads. My pick is in the washington post. Ohio Governor John Kasich writing this one. He frames this as a trade deal but also on geopolitical areas. Donten fooled by divisive talk in the president ial campaign that tpp is only about trade. At the core this agreement is about making sure the United States continues to strengthen its essential alliances and is willing to sustain its standing as a global leader, something weve done for more than a half century. For this deal to get ratified, it has a massive uphill task. Something to watch in november and december after the election. Hes framing it in a way that can galvanize support. It will be the policy to watch once the election is done. I wonder if it can get through. Still some crossparty support and also a lot of crossparty opposition. Interesting take from john kasich framing it in a way ive not seen before. I went to the wall street journal for mine. Karl rove is the author here. The former white house chief of staff under george w. Bush. He writes neither side will win the gop civil war, which is kind of what we were talking about. If mr. Trump wants a Republican Senate to approve his nominees and a Republican House to pass his agenda he should give gop candidates the freedom to do what they must do to win. Almost every one of them is polling ahead of him. He needs their coattails to get to the white house. He cannot imagine the intern tussle that goes on with some of these gop leaders. With all of the rhetoric coming out from mr. Trump himself and about mr. Trump and what they need to do to secure their spot in the white house and in congress. I cant imagine the struggle. I wonder how many voters will vote republican down the ticket except the top, and then what do they do . Do they abstain . Vote clinton, and think im a republican, clinton represents everything im against. Its hard for us to gauge what people will decide. I know the polls keep changing. Right now it looks like its in mrs. Clintons favor. I think we have a long way to go. Yes, its still a month, but a lot can happen in a month. A lot can happen in 48 hours. Were approaching the top of the hour. The team is getting ready for squawk box. Kelly evans has a look at whats coming up. Well see you down here shortly. Story of the morning, as you guys talked about, is the departure of john stumpf from wells fargo. We have mike mayo coming up to talk about the impact this will have on the stock which reports earnings on friday morning. We also get earnings from delta. Well talk to the ceo about those results, and just in general about the health of that company and of that space. So, you know, the Aerospace Sector has been under scrutiny, even going back to alcoas miss, honeywell, some other Industrial Companies involved in the making of these huge planes, theyve seen a bit of a slowing. Whats happening withc passenge. Good to hear from him. Plenty coming up. Good to hear from you. Im attempting to make my fastest journey yet. Courtney can handle it fine without you. I know you can i want to get there as early as i can. Well see you shortly. Squawk box in 13 minutes time. Still to come on Worldwide Exchange, a bullish call on stocks. Jonathan golub will join us with five reasons why the markets should go higher from here. Welcome back to Worldwide Exchange. Futures at this hour are soft. Down just shy of triple digits, 94 points. S p down 13. Nasdaq down 27. Joining us to discuss markets is Jonathan Golub from rbc Capital Markets. Good morning to you. You just released a new note, its come through and starts by saying s p 500 fumultiples are 55 over the last five years, yet you have five reasons theyll go higher. Number one, cash flow generation. Earnings have been really disappointing, but companies are doing a fantastic job of creating more cash flow for every dollar of earnings. It used to be 70 cents of cash flow per dollar, now its over 85 . So this is a quality of earnings factor as opposed to needing to be grown. In fact people talk in pes, but you pay for Corporate Cash flows, if companies are generating more cash flows per earnings, and its up 20 , you should pay 20 more for stocks. Your next one is on returns. Why is that a factor that youre applauding . If you look at the banking sector, theres a reason why its way cheaper than everything else, because the roes are down, thats been reflected. If you look at the rest of the market, whether they be Consumer Staples names, industrial names, or discretionary names, companies are doing a brilliant job of managing in an uninspiring economy. Yesterday we had minutes from the fomc. Looks like the december rate hike may be more on the table than folks thought before. Does that change your outlook or view at all Going Forward . Not really. In fact, when Interest Rates are really low, the market perceives there to be a growth problem what does the fed know that theyre leaving rates as low as they are . The market would prefer to have rates look more normal. The fed pushing rates too quickly on the market would be disruptive, but one or two rate hikes a year over the next couple of years should convince people. And savers, its important that theyre able to get a return on assets because if they cant get a return when rates are too low, they tend to save more money to overcome low Interest Rates. Its important that we get back to something more normal. Is a bigger potential risk to your bullish view earnings season . It has started poorly. If that trend continues, would you change your view that you think we have upside from here . It has not really started poorly. If you look at the early reporters, theyre beating by Something Like 5 . Thats not really thats a decent number. Heres the bottom line. While the headline is well have a flat eps, typically during earnings season you beat by 3 , 4 , you also still have a large drag from the Energy Sector. This is the last quarter of that Energy Sector drag. So were probably looking at a 5 , 6 trend of earnings when you take energy out, which is, again, not inspiring, but more than enough to push the stock market higher. Looking at the election outcome, does that change your thesis if it goes one way or the other way . Probably not. The tone of what wins in the market will be important. What both candidates are saying, youre seeing the same for people at the imf, in europe, elsewhere, is theres a big push for fiscal stimulus, so youre likely to see, whether its a trump win or clinton win is the government doing more to boost the economy higher, and that would probably be well received by markets. Again, the winners on one would be different than the other. Jonathan, lets go through the rest of the five reasons for the bullish call. So we have done cash flow generation, return on capital. Next up is volatility. If you take dividends and buy backs together, money that companies have and giving back to shareholders, the yield on the s p is 4. 6 . Thats an unbelievable number given where Corporate Bond yields are. That makes stocks attractive. For those saying they did it through borrowing or something else, thats not true. 100 is from cash flow from operations. Thats a good factor in terms of quality of the cover of those dividends. Volatility . The vix or measures of volatility are down about 30 below normal. Normally the vix is about 20. Averaging 14. If you have less volatility, you pay more for an asset. And valuation of an asset is reasonable . Look at valuations over time, they get to a low level. In the early 1980s they were trading at 6 or 7 and then go up to a 20 or more. It takes a long time to get there. It doesnt move in sharp moves. It has a long, sweeping pendulum kind of thing. Right now were in the middle of that range. Weve been sweeping up. I would expect to see valuations over 20 pe multiples before were done. Right now in the high 16s. The final reason, you dont think any one sector is particularly overpriced at the moment. Right. The one group that everyone talks about is consumers staples. Its only a couple multiple points than the market on average. If you look at what happens when the market gets to an extreme like around the late 90s, around the internet bubble, those extremes get much, much more stretched than they are now. Were not seeing any excess that would lead to you believe this will break. Looking at 2017, you think were actually overstated there . We are overstated. Its interesting. The headline numbers for Something Like 14 or 15 Earnings Growth i stay overstated, not in terms of Market Expectations but earnings expectations, those will get ratcheted down. A big part was the Energy Sector again distorting the overall number. That will come down in the next couple months. Great stuff. Thank you very much for joining us. Five points for bullishness out this morning. Nobody needs to read it this morning, weve just gone through it in full. Main things to focus on today, really the fallout from this chinese trade data, and the fall outfrom wells fargo. Thats it for Worldwide Exchange. Squawk box coming up next. 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 dont. 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. Wells fargo fallout. John stumpf is officially out. The bank chief retiring, thats what were calling it in the wake of that accounting scandal. And overnight, china exports declining more than expected. And donald trump denying allegations that he touched women without their permission. Its thursday october 13, 2016. Squawk box begins right now. Live from new york where business never sleeps, this is squawk box. Good morning, welcome to squawk box here on cnbc. Im kelly evans along with andrew ross sorkin. Joe and becky are off today. U. S. Equity futures are lower at this hour. The dow implied to open lower, 105 points. The s p 50014, the nasdaq 30. We got some soft data and trade terms out of china exports dropping about 10 in dollar terms, some of the effect you can see across asian markets. The nikkei down about 65 points. The hang seng down by 1. 5 . And people are wondering if they push people out of properties, where is the liquidity in china going to go. European markets under pressure. The u. S. Session wasnt that bad yesterday, but selling has picked up as the dax is down 1. 3, sam for the cac i