good morning. tech takeoff.f. shares of intel soaring after the chip giant posts sharply better than expected quarterly results. but not so fast. a group of former regulators warns president obama not to give the fed too much power. and an all-star performance. if you went to sleep early last night, you missed it, the a.l. does it again, turning in a 4-3 win as "squawk box" begins right now. ♪ hey now you're an all-star get your game on go play ♪ >> good morning, everybody. welcome to "squawk box" right here on cnbc.. i'm becky quick along with joe kernen and carl quintanilla.

our top story this morning is earnings central. intel shares soaring as the chipmaker posts better than expected second quarter profits, the company earning 18 cents a share when you strip out items. that was 10 krerts better than the street was expecting. at more than $8 billion within it handily beat analyst expectations. quarter over quarter, this is the best growth that the company has seen since 1988. stacey smith spoke with jim goldman last night. >> our second quarter results and the outlook we've set for q3 i think is to reinforce the view that we had a quarter ago, which is that we saw the computing markets bottoming in the first quarter, we saw improvement in the second quarter and we expect to be seasonally up in the second half. >> all of that helped intel soar on this news after hours. we'll dig deeper into that story in just a few minutes when jeffries analyst adam benjamin

joins us. >> that's right. abbot labs, commerce bank shares and gannett will be reporting before the opening bell. meantime this morning, economic data on the docket. at 8:30, june consumer price index and the empire state manufacturing index. 9:15, we'll get capacity utilization and industrial production. weekly inventory numbers follow at 8:30 opinion then this afternoon, minutes from last month's fomc meeting should hip the tape around 2:00. we'll see if they start talking about exit strategies in any way before the chairman appears before congress in the coming days. >> back us up a little bit and talk to us about intelling. >> i'm glad you brought it up. the thing that grinds me about

intel is that the company hasn't posted a quarterly loss since the mid 1980s. >> that dreefs me crazy, too. it's the eu socialist shakedown which pushed the company into a loss and it's because of some type of perceived -- something they did to amd. the amd is at three bucks. but whose benefit -- you hurt intel. who gets the money?y? the eu gets the money. and consumers weren't hurt because consumers get cheaper and cheaper -- who feels like chips haven't gotten cheap enough? >> and the growth at intel was driven largely by consumer purpose chass. >> you know, mind your own beeswax, socialist. the whole thing -- but the one thing that we can talk about here in the states, the one thing that is worrisome is that the latest appointees over here kind of look to nelly, whatever -- is her name nelly? >> as in --

>> whoa, nelly.y. leave our companies alone. >> i saw that, too. wiped out the entire quarter. fantastic profit, drove it into a loss. >> yep, sure did. and which consumers -- but they don't care about protecting consumers over there. they care about protecting weaker rivals. >> there is an argument to be said that if you drive all your competitors out of business, then you can turn into a mon open listic thing. >> who, like golden? >> no. like -- >> intel is already a monopoly, right? 85% of the world market or something like that. >> are we supposed to start suck because we have a monopoly on morning business news? do you want us to sink because nobody else has a strong business news in the morning?g? do you think that would be fair? >> is there another show on in the morning other than this one? >> do you want us to

deliberately not have -- >> you know what? we'll pay the fine. how about that? >> and consumers are benefiting, obviously. they have a choice. try it. just check it out. if you get bored with us. go pop let's talk about the fed. coalition of investors, regulators ready to attack president obama's plan to give the tech extensive power over all large financial groups. this includes william done alson, along with senior representatives of calpers, legg mason and the coalition is issuing a report today calling for the creation of an independent body, another one, to police risks across the financial sector. and anesthesia citing the ft reports that letting the fed regulate all financial intrups would sdraft it or retract from

its given the poor record in the run up to the crisis.s. mr. done the aldson and calpers chief investment officers will join us to talk about this in the 8:00 hour. rick wagoner is cashing in on his retirement. he will get an almost $8.2 billion package and plus more than $74,000 in an annual pension. but the amounts are far, far smaller than what he would have received last month. he would have received greater than $25 million. last month, this is when gm outlined big cuts in pension. he was fired in late march, but at this points, the 32-year-old will retire. it was cut from about $25

million down to $8.5 million. >> i saw a $20 million number total, right? did you see that? >> it has $74,000 annual pension. >> pension -- well, it says his pension was worth $20 million at the end of 2008. >> but it's not worth that any more. >> so they reduced it to only being worth $8 million. >> he has over 30 years with the company. but his cuts were in line with what other retirees received. >> all right. meantime, the lead bidders for aig's asset unit has dropped out. an aig spokesman says the deal remains on track. but others quietly suggest the process might be reopened to other bidders. trying to sell off pieces of that company is turning into a laboring process. >> yeah.. the cit story, cit group is now reportedly working out the details of a federal aid

package. we're talking about a report in the wall street journal reporting that customers drained $750 million from cit by drawing down their credit lines in the last two days. now u.s. officials are said to be considering giving the company a temporary loan as part of an aid package to help this company from avoiding collapse. another action might be giving cit discount woid to the -- i'm not sure what the -- actually, the journal was saying another bailout, which is no good, except if you don't bail them out, how do you bail everyone else out? i'm not sure what they're saying. are they saying do it or don't do it. no one is giving you a clear psh. >> he said yes. >> he said given the same thing that ge capital got. >> yeah.. >> but then they do point out that competitors would likely come in and take up the slack,

which is the way it's supposed to work. it says that this company ramped up its lending to risky entities right at the worst possible time and it's had losses for eight straight quarters. business is bad. it's messed up. >> the ceo will probably get foorsed out. but there are a lot of small business owners. you could see other companies coming in and taking up the slack. >> the small businesses that can't get loans will soon have their taxes raises. it's a biggish, isn't it, too >> if they're going to cap companies, dent hire -- as kudlow says, don't hire the 26th worker. that's the way to avoid a lot of these taxes. you sound like me when i try to argue from the other side. are you sincere about this? >> yes. >> you have a problem with this.

>> yes. >> i do, but i'm glad you're coming along, grasshopper. you're learning at the feet of the -- at the feet of -- i don't want to be him, though. >> you are not david keradean. >> yeah. anyway, dell, i guess they have $35 million in accounts receivable currently from cit and cit finances a lot of dell's computers. so that's all they need, too. >> we got an e-mail said from someone saying they have a line with cit. they use cash flows with cit on receivers. if they go bankrupt, it's possible they could take our receiverbles as it's thrgs. you're talking about a lot of small businesses that maybe at some point there's somebody that steps in to lend to them and it would ripple through the entire system? >> one more bailout. but next time, this is really the last one. but next time you're on your

own. >> we're serious. >> and then you look at the state of california. and the state of california is helped, where do you go from there? >> well within there are only 50 states. >> yeah, right.. i was thinking about gold pan, since they ramped up risk again. >> why not? it works. we win.n. if it doesn't, the government -- i mean, that's the problem with moral hazard, right? >> right. but to be fair to goldman, their leverage was 14 instead of 29 and they were still able to do pretty well. but they are benefiting from some of these programs, as well. but i wonder if you were -- if you're big now and if you're too big to fail, geez, let them roll, you know snm. >> jamie dimon is mad about the kritd default swaps. did you see he had $81 trillion in normal value and i was asking carl this morning, what exactly

is the national deficit or the debt at this point. you said the deficit is what -- >> $1 trillion. it hit $1 trillion in june. i like the article on -- morning! snk snuck up on me. >> yeah, i did. right behind you. >> let's check markets quickly before we get to all that. busy wednesday ahead. futures, throw, it looks pretty good. asia had a very nice night overnight and europe is up three straight. world stocks at a two-week high. intel, j&j, goldman, it's been a decent start to the earnings season. oil back above 60 at 60.46, up almost $1. ten-year topped out on a note yesterday and is still there right now. weep keep our out out for that. with more risk coming in, it is taking a back seat along with

treasuries, and there's gold, up six bucks. >> carl, intel is our stock of the morning. adam beb gentleman pin covers the chipmaker for jeffries and company. adam, in the past, maybe it's too simplistic, but you're supposed to buy intel when margins are rising and maybe sell when margins are selling. there's a big margin in the uplook, wasn't there? >> obviously. you've seen demand pick back up and they're spitting a lot more units through their factories. given that the margins come up, too. >> you know, the notion of intel being more involved in these consumer personal computers versus dell, which is more business, is that going to come back to bite intel down the road? because it seems like these are being commoditized. do you think they're going to use cheaper chips in these

computers down the road? what is it, the adam or something? >> i agree, joe. basically, that's my longer term thesis and why we have an underperform rating in intel. the short-term business is improving dramatically. it's really about the move to add sxm what that does to the good enough pc of 20$200, $200 . that's good enough for the majority of users. not only what it does for adam, but it bring down full feature laptops you're seeing come out to the market at $299 this christmas, 15-inch laptops that you need and it's the overall pricing of the market. >> adam, do you have any suggestion on how intel is better at intel and when you're seeing a lot of companies say that people are putting off purchases of jut grades of pcs. are individuals not doing that? where did they go the upside beat on revenue? >> well, it was really from the

consumer, as you point out. the enterprise, they point out, continues to be weak. obviously with jobs and unemployment, enterprises aren't quick to upgrade or add pcs. they have a lot of pcs in the closet. the consumer, however, is adding. the price points have come down. you're seeing more channels for pcs, specifically in carriers that are about 30% of these sales and they're giving away these for free in a monthly service. well, where are the consumers that you're talking about that we don't hear about them anywhere else? where are these consumers that intel is finding? >> well, i don't think the world has ended, joe, but -- >> oh, it has. we talk about it every day, adam. >> some of these consumers clearly are out of work and those that are out of work are looking for a pc to just look for their job search. so they can either go into a carrier, get a subsidized net book for free with a monthly

service or they can go into best buy and buy one for $299, $300 and it gets them what they need, an always on internet and allows them to continue their job search and allow them to be connected to the internet. >> seriously? you really think it's laid off people who are driving sales? >> i think it could be. rink there's some of that dynamic and also these things are so cheap. so you're talking about people that are buying a second or third laptop.. i think there is some can balancezation. there's been different data on that. call it 30%, 40%, 50% where the data is and people are trading down to a full laptop feature. >> surfing for work, i don't know. i think i know what they're surfing for, adam, and we have a special tonight starring melissa lee, porn, the business of pleasure debuts. >> is it tonight or tomorrow night? >> i think it's tonight.

>> it can't come fast enough, so to speak.k. i think it's tonight, isn't it? >> i don't know the date, but it is this week. >> adam thinks they're looking for jobs. i'm trying to -- this is pretty good internetwork cross promotion, isn't it? >> just direct them to cnbc.com. how about that? >> to find out when it is? >> or just to see our website, e-mail us. >> if you're talking about surfing the web? >> yes. >> this could be a big special tonight that we have. remember our marijuana special has been the highest rater of anything we ever have done. man. >> anyway, adam, thank you and thank you for helping out with our promo. >> no problem. not sure i could beat that story, but good luck with that. >> i think it's 9:00, 9:00 p.m. check it out. >> it is tonight. >> i think it's tonights.s. >> yeah, it is, wednesday night. >> there it is. pleasure. >> you did that pretty well.

that looks like the paula zahn -- what was the cnn, the -- >> just a little bit sexy, right? >> who was that for? >> that was for paula zahn. >> okay. intel having a big impact on the broader markets this morning.g. in fact, joining us right now is kurt carl who has been waiting patiently with swiss re. also fred davidson. why don't you tell us what you think as we get into the earnings season.. it's not just intel we've heard from at this point. but from j&j, geeldman sacks, it's early on, but the numbers are better than many people were expected. >> the troik ya of earnings reports coming out yesterday i think should give a lift to investor confidence. intel will be looked at as a technology leader and i think there was some question whether analysts may have set expectations too high this first wave of earnings reports should at least give the market a stable tone.

i think the march 9th bottom will hold up pretty well as we go through the process. >> kurt, as you hear the guidance in these companies, guidance has been better and what does that make you think about the second half and what we're looking for in terms of the economy? >> well, this should be the turning zarter. it's the national rio of economic research designates as the very bottom of the downturn. either august or september according to my forecast. so the earnings surprises should start getting better and better, particularly in the fourth quarter, but even this quarter. >> we can't pull together something we're hearing from these companies right now and then what we hear from david rosenberg who says you are on the edge of a real big problem as unemployment continues to climb. how do you match those ideas up? >> well, i agree.e. there's a 25% chance, at least, that we fall off the cliff. but the other 75% is we're still growing and we just sort of squeak through and start looking at better numbers in the fourth

quarter. >> are you talking about a tipping point? >> yeah. exactly right. we have to falling employment, wage res being hammered in aggregate because employment is down so much. we have some tax cuts and some, you know, unemployment benefits to help income growth. but the consumer has to get back in the game and so far we haven't seen that. >> you know, fred, we watch what intel has been saying. we hear how they're seeing a return in the consumer, how they think the pc market has bottomed out. is that something that you read and say this is great news for technology across the board or do you think this is more intel specific? >> i think it applies to technology, although we don't take and extend a euphoric read from intel's numbers. we've been watching things like electronic manufacturing production in asia, pick up over the last three months. i think what we've seen has been that there was a tremendous inventory reduction on the part of major electronic component --

or major manufacturers. that's stabilizing.. i'd look at the economy as finally stabilizing at a low level. we have volatility ahead of us and i think that applies to technology, as well. really, the worst of the declines seem to be behind us and that's the message we take away from intel. >> the worst of the declines when it comes to technology? technology has outperformed the other major sectors. >> i think thilg more in terms of the earnings and revenues. there needs to be inventory filled. we've been pro technology all year long. we've been on your show many times and we continue to look at technology as a leading sector coming out of this and is we share your other guest's caution about the consumer, consumer spending is going to be tough, but i think that we are seeing signs of stability there. we're going to keep our eye on back to school retail sales. that's going to be another telling sign as we work our way through the summer. >> you know, kurt, today we're getting a lot of data points. we have mortgage applications coming out, we get cpi, we get

the cap utilization and production numbers coming out. which of those are the most important? i forgot about the fed notes, as well. >> the fed notes will be interesting. industrial production is what we have to watch. industrial production will be turning first and then consumers' comfort confidence bolstered. i'm watching that carefully, expecting a 0.4, minus 0.4, which is better than minus 0.5%. >> if it's. off of that, what's it telling you? >> if it's minus 1%, we're falling off the second cliff, unfortunately. >> kurt, thank you so much for joining us in studio today. fred, it's always good to talk to you. >> when we come back this morning, intel is not the only chipmaker on the move today. we'll talk about the names you need to know. the most innovative companies in the world

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morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and carl quintanilla. our big story this morning, the after hours move in intel from earnings central. the shares soared. chipmaker posted much better than expected second quarter results wh back out the shakedown from the eu. the company earning 18 cents a share x items, that was 10 cents ahead of consensus. revenues fell 15% from the year ago quarter, but it was well

above expectations at $8 billion and a nice sequential bounce from the previous quarter, although it was below last year. it handily beat expectation. we hear from the cfo, stacey smith, who spoke with our own jim goldman last night. >> our secretary quarter results and the outlook for q3 reinforce the view we had a year ago which is that we saw is markets bottoming in the first quarter, we saw improvement in the second quarter and we expect to we seasonally up in the second half. >> intel up about 9%, up to over $18 from the mid $16. >> in other headlines this morning, june data on credit card default sess starting to trickle in and those numbers are on the rise. capital one says its net charge rates for june is 9.3% compared with 8.56% in april.

again, you are ticking towards 10%. a net charge-off rate is the money that a company believes it will never collect. they're basically writing it off figuring they're never going to get it back. >> the u.s. losing 2 million jobs since the government passed the stimulus package in february. here with more is the ceo of the world's large ft recruitment firm. good morning. >> good morning. >> the jobs number that we got the last time didn't have good action on temporary jobs, right? >> no. >> workweek extremely low. was it as bad as people took it to be? >> yeah. there is millions of americans unemployed. literally in october companies shut down. they had an inward focus and there was a tremendous focus on cash. we've certain seen a trough over the last few months, but yeah, it was bad.ñ >> you say you're seeing signs

of recovery in some services. >> in financial services and health care. financial services is one that usually goes in first and leads us out and that hopefully is the trend there.e. >> characterize the comeback.k. are they hiring in droves or making up for the layoffs they made earlier in the year? >> it's not in droves and it's been over the last six weeks. but it has been across the board, with the exception of real estate and that's been true around the world. >> gary, what happened? in october when businesses just kind of froze and shut down, when you talk to companies, do you get the sense that they are eager to jump back in or that they are still nervous that they're going to dip their toe in when they come back? >> i think there's been a wait and see.e. the banking system was in an absolute meltdown. it's summertime now. it's going to be probably a little slow. i think in the fall you'll see some big mergers and acquisitions. maybe that will get activity going. but generally speaking, employment lags to turn by about six months. >> do you believe the stimulus

package is -- if not adding jobs, keeping more jobs from being lost? >> hard to say. hard to say in the short run. that's going to have an effect over many, many years. certainly when you look at it, the investment in infrastructure and health care, it makes sense. health care spending is going to be 20% of this economy in five years. >> and what do you actually hear from your ceos, though? do they say we're going to try and work people for as long as we can, maybe bringing them back to full time work because some people's hours have been cut and then we'll start using them as overtime workers? my guess would be they would be reluctant to hire anybody until they feel fairly confident.t. >> they certainly would. this great consumer society that we have is not consuming. i was at the airport yesterday in los angeles at 1:30. it was dead. i look to my own son's baseball team. four dad's are unemployed. it's been a tough time. but we have seen great companies making their best move in these markets. this is when you can plant the

seeds for growth. >> do you have people laid off from lehman and bear stearns coming to you try to find them jobs?? >> it's the former. you have wall street firms looking? >> yeah. >> can you tell who has been more active? >> well within i wouldn't do that, but i would say what we've seen is -- >> goldman, ubs, barclay's? will you just nod when i -- will you twitch or something? >> sure, sure, sure. >> all of the above. >> certainly. certainly uch seen foreign firms over the last two months become more aggressive in the marketplace and try to, you know, establish greater reach here in the united states. we've definitely seen that. >> is that because they aren't bound by some of the same rules that some of our homegrown guys have gotten trapped into? >> sure. and they see this as an o opportunity, right? one person's loss is another one's opportunity. >> if we become -- if the government eventually -- i know, i know, the public plan won't force anyone else out of business and the government

won't by a big hire of health care professionals. that will never happen. but let's just say that it did. would the government come to you, to korn/ferry and say we need people, we need recruiting? >> we hope so. we are employed by governments around the world, absolutely. now, whether it would get to that stage, who knows. >> is adding your business plan and your model, what are you assuming is going to happen since health care is such a big part of the economy? what are your contingencies for what's likely to happen? >> well, the one thing is clear. despite all the technological innovations of the last century, people make businesses successful now. we've gone through a terrible cycle. we've lost more jobs over the last several moss than were created in the entire expansion. but if you look at the long-term demographic trends, they're pretty powerful for u.s. citizens. and if you look at the baby boomers, the age group 55 and older is going to grow four times as fast.

>> so is that powerful in a good or bad way? >> it's powerful in a good way because there will be lots of people coming into the workforce. i mean, today, if you look at the baby boom generation, there's 85 million baby boomers. you know, 30 million generation x.7 >> one could flip that around and say there will be fewer people working to pay for the -- >> for the angio blasty. >> you probably wouldn't have a hard time picking a job with a quarter of your salary or larger is going to go to pay for the rest, right?t? >> a lot of these severe economic bears say unemployment is going to go into the might tell mid teens, perhaps. do you think that's ridiculous, possible, likely? what?? >> i'm not an economist.t. i think that would be unlikely. but clearly, if you look over the past 30 years, we've been addicted to spending, you know?

that's clearly the wild card over the last ten years because that's driven the economy. >> dpaer, thanks for the insight. we'll see what happens in four to five years, but have you back before then. >> sure. >> now let's get to the cme, jessica hoversen. big move yesterday. have we shaken off that -- what would be be called, a cyclical bull market correction of a bear market rally? >> i don't know. try saying that ten times fast. >> yeah. but for about four or five weeks, we had a lot of trouble making any headway, jessica.. the financials have started asserting leadership again and we're even reading goldman swagger is back, jpmorgan's swagger is back. what does all this mean? >> i think that some of the earnings releases have been positive.

intel yesterday, goldman obviously had favorable results. but the market will only react to the earnings insofar as how the earnings predict the future. what do we see going forward? they made a good point yesterday saying that they do see -- they downgraded their outlook for chain store sales because they saw a down 4% year over year growth in china. we said china has been holding up the rest of the world. and now it's yum brands suggesting that they're slowing down, i think that has implications for the global economic recovery. the market is looking at this earnings picture and saying, are we recovering? is this organic demand or just cost cutting? in terms of financials, we did have a great quarter for investment banking. fixed income currency and commodities trading was up, but there are still problems in commercial real estate, still problems in the consumer sector. becky was just talking about the capital one charge-off data. that shows that the consumer is very much beleaguered by debt and they're not paying it off

very quickly. so far we've got a health care company handling the beat, j&j. the biggest chipmaker was better than expected and the most successful bank was much better than expected. we're 3 for 3. are there going to be disappointments, too? >> of course there will be disappointments. you have your leaders gaining, which is a positive, but does that mean that the gains will trickle down to the rest of the market? i'm not sure that that will necessarily be the case. we fwleed to watch the economic figures. i'm not sure if all of them have been very positive. we'll get industrial production today. we'll have to take a look at cpi, past utilization. we'll see some die verging trends there. it's expected to fall to its lowest level since data collection began. and yesterday you saw cpi suggesting that it will go higher based on fuel cost. so the consumer is weighed down by higher fuel costs and yet productivity and production is not ramping up. so that suggests it's a

deflationary environment. so i would say the overall macro picture is quite baroque. >> we heard art cashen saying we would know quite a bit more by friday. maybe if the front part of the week is about the winds that you've been mentioning, maybe the second half is about confirmation. >> or maybe it's the big getting bigger, the market share ticks higher. walmart is going to get better, mcdonald's b will get bigger. >> except for the fines levied in the eu, that will be good news. but i can tell you one thing.g. you will know what's happening.. you will have my finger, our finger, the e-team will be on -- we'll be on the fuls of these earnings and we will know exactly what the state of corporate america is. >> will you wear an e-team leo tard? >> i want an e-team -- where? >> we will dress you up in a cape. i want the -- >> i'll wear a cape..

>> i saw a ten cent drop in premiums at my bellwether station on gas. that was a quick drp from $2.75 to $2.65. >> across the nation, in two weeks. $2.56 is the average now. >> in a stressed economy, a consumer can only weather high gas prices for so long and soon he or later, the companies will have to lower prices. that does lower itself to a level that's appropriate. consumers will be able to step back up to the gas tank. i think a big, big wild card for the market right now is politics. i think the market is engaging itself or pardon me, the term administration is implementing a series of robin hood economic policies and it's not going forward. i think you're punishing the one class of poem that still has the ability to generate economic activity. and so in the long -- right now

maybe we're not seeing those policies effect earnings. but two or three quarters from now, what is that going to mean for health care and big business? are those policies going to -- are they going to be tock ix? they very well could be. >> we've seen it before. talking about it is one thing. and, you know, you always have the senate. that's what everybody falls back on. the house, they're crazy. once the senate get it, it's not going to look anything like this. but maybe that's when we would start to see the effects. because at this point, people are saying, i don't intekt that to -- how much of this do you expect to become law? >> i don't think this health care bill is going to make it through the senate. but if it does, i think that's going to have -- >> cap and trade was not supposed to make it through the senate. >> hopefully it won't. >> we have guys coming in today saying the financial reforms aren't going to make it. >> they've indicated that

they're going to punish companies that compensate over a certain level.l. so regulation is permeating the market. it is happening. >> well, they already have cap and trade and socialized medicine in europe. they do it all over there. >> that's the difference is that the u.s. have gone from capitalism to socialism in the blink of an eye. >> trendy. it can be reversed. >> it's like leg warmers, in and out. >> now you're -- now, that's the guy i'm looking for. >> i think you have to be very careful because i think the u.s. has moved political ideology so swiftly and in the long run, that will have negative implications. we are in an economy that enjoys spending. if we don't have those luxuries, what will drive growth? >> jessica, i'm not going to give out your e-mail. >> i appreciate that, joe. thank you. >> but it's what, the

h-o-v-e-r -- >> well, jessica probably doesn't want to hear your e-mails, but we would love to hear from you. if you have comments or questions, joe is dying to hear about it.. we're going to take a quick break right now john harwood on health care reform, supposedly to the point it's going to get marked up in the house tomorrow. when we come back, we'll be talking about that. first, the cnbc currency check. welcome to the now network. currently, thousands of people

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you cannot be denied care for a prexifth condition if you change jobs, lose your job or lose your business, you still have health care. this is important to the entrepreneurial spirit of america. >> john harwood is our chief washington correspondent. he joins us this morning to talk about this and a lot more. john, you said at the beginning of the week, it would be a big week for health care. now, the main headline there, nationalized health care, here within weeks. the times says that house democrats were jubilant. how important is what happened yesterday? >> well, i think it's significant because it's a step towards the house doing something. you know, when you're behind closed doors debating all sorts of options, everybody has objections to things. you can get paralyzed by that discussion and what the house democrats did yesterday in response to some of that prodding from president obama earlier in the week was to say, okay, this is our position. we're going to get this bill or something like it through the house in the next couple of

weeks.s. and then the discussion and the real bargaining is going to take place with the senate, which is going to do something different. i don't think this is going to become law. and by at a, could you, like, pour a mamosa for joe and jessica or something like that who have this idea that all of a sudden that some switch is flipped and we're in a socialist country now? that's ridiculous? >> how is it ridiculous, john?? have you looked at this house package? there's a surcharge tax. a family making $1 million will pay 9 grand just on this. >> are you saying that a crippling burden for something who makes $1 million? >> i'm saying it's more than the change in their couch. are you saying it's insignificant? >> no. look, all these things are subject to disagreement. this is why the senate is not interested in this. it's striking that the rate goes from 1.5% at $500,000 to triple that. my point is, you've got a

political continuum out there. you've got the state of nature on the one side and total conti government control on the other side. and the changes that happen in american politics tend to be a couple of degrees this way or a couple of degrees that way.y. it's not one thing or the other, night or day or black and white. though it is with this health care plan.. >> slippery slope, my friend. slippery slope. >> that's where they always go. >> we don't far very far on the slippery slope -- >> thank god. there's cooler heads and reasonable minds that don't -- do you have to come on here to try and minimize what -- i didn't have a mamosa, i was asking her questions. >> i'm saying you should have one. >> you've got to go back and try to correct the damage control for the democrats that this woman might have -- that's going beyond your traditional spin.

>> do your own report, you can't control it all here. can't use all of your talking points from the dnc. >> put your lleotard though. >> how much of the stuff is going to go away? >> well, here are a couple of points to keep in mind. first of all, house leadership aide told me last night they expect the top rate to be adjusted in committee. we'll see what happens there. second of all, and this surprised me, actually, a democratic political operative reminded me last night that president obama in his campaign proposed a 2% to 4% surtax on people over $250,000 as a means of shoring up social security. to be perfectly honest, when the house came out with this proposal yesterday, i was quite surprised by it, thought it was out of step where obama would

want to go economically. suggested maybe less out of step with barack obama than i had realized. however i don't think the senate wants to do it. i still think that there is support within the senate and support within the white house for some variant of the idea of taxing health benefits of a certain kind, not for everybody, not for people with spare plans, but people who have elaborate health plans.s. >> not for unions. >> no. no. >> that's the only thing saving us on the benefits. >> no, i do think that some union workers have the kinds of plans that would be subject to taxation. but we'll see how the debate plays out. >> john, thanks, we'll talk to you soon. all right. coming up, "squawk" takes flight. former delta ceo ron allen is our guest host. we'll go from the cockpit to the board room when we come back. ♪ look at this man

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good morning. the e team is in and ready for action. signs of life in tech with intel closing a profit and the stocks soar in after hours. could it mean that the ailing pc business finally on the mend? abbott labs expected to get the minimum going as it issues its quarterly numbers this morning. the latest data from our earnings command center. another housing bubble and a second stimulus package? yale university economics professor say both are coming.g. he tells us where the next bubble will occur and whether animal spirits are to blame. plus a man with the president's ear, sam will be here to talk about health care, the t.a.r.p., and more stimulus. what will it take to restore confidence in the market? and ron allen, former ceo of

delta on the show. as "squawk box" begins right now. good wednesday morning, welcome back to "squawk" here on cnbc. i'm karl quintanilla. futures in nice range this morning, well above fair value as asia had a good day overnight. shanghai still at a 13-month high, and those positive numbers from intel last night boosting some confidence. the tech sector is on the mend. i want to get straight to becky who was at our commander center with more on what the chip maker said. >> reheard from intel, they posted a much better than expected second quarter profit. earning 18 cents share when you exclude some items, 10 cents ahead of expectations. revenue falling by about 15%

when you look at a year ago quarter. more than $8 billion, this number also beating the expectations. by the way, the gain they saw, the best the company's seen since 1988. the data suggests that the pc market could be bottoming out. market researcher says that overall global shipments could be down 4% this year.. there are some bright spots out there. it's now predicting low-cost notebook shipments will rise 12% and expects pc growth to return in the year 2010. the semiconductor industry looking for chip sales to improve next year. $208 billion from $196 billion from this year. intel at this point is aggressively expanding its reach beyond the personal computer market. last month acquired wind river systems, a company whose software is used in mobile devices and tv set top boxes. jim goldman spoke with intel's cfo after these earnings were announced. >> our second quarter results

and the outlook we've set for q-3, reenforce the view we had a quarter ago which is we saw the markets, the competing markets bottoming in the first quarter, saw improvement in the second quarter, and expect seasonally up second half. >> this morning, we'll be hearing from abbott labs, and the focus is humira. it's actually racking up approvals for half dozen uses. but last quarter, the company reported lower than expected sales of this drug that worries some analysts out there. and it's put some pressure on the stock ahead of this report. now abbott labs is one of the biggest pharmaceutical companies out there, ranks number 26 overall in the s&p 500. it's got a market cap of $76 billion, and take a look at some of the company's past results. you're going to see not too shabby of a picture. in the last 12 quarters, beat the estimates about 83% of the

time, if met expectations 17% of the time.. and get a look at this.. it has never missed, not too many companies have a record like that. other names you should be watching, commerce bank shares and gannett. and among the names that are reporting after the close today, right now back over to you. >> becky thank you. playing a team music. there's e-team, which is -- i-team, that stands for eyewitness news. that's the thing they -- they say i, but it stands for e-y-e, right? >> we are the e-team, though. >> we are. we're the e-team. >> are you like -- >> dwight schults probably, the nut. hey, boy, looking pretty good in those jeans. our next host is no stranger

to dealing, he join us now, ron. i love talking airlines. but we get a unique look at the economy too from your sprek here. and i don't know, were we a little premature on the green shoots? >> maybe a little bit so, joe. i'm surprised to see you here. i thought you'd be in scotland today. sorry to bring it up, i know what a golfer you are. >> is it on tv right now? don't check. >> today's wednesday. it doesn't start till tomorrow. >> yeah. >> tiger, look at that guy, he's like a specimen, isn't he? >> he really is. >> how you control that club speed. anyway -- >> much rather talk about that. >> i know, i know, we do. at this point, who do you talk to? you're not running delta any

more. you're not running the company, so who do you talk to in the business who lets you know how business is. >> well, i was at the international airport transport association meeting, and the news was very negative coming out of that as you might expect. spoke and does not expect this year to turn around at all. expects a downturn continuing g through 2009. some of the middle east carriers are doing well. they are actually still growing and alike, but in general throughout, including asia, we're seeing downturns. i'm an optimist, which you need to be in the airline for strur and i'm not sure i completely agree with that. the airline can turn around, the airline can turn around pretty quickly. right now we're not getting much corporate travel, the airplanes are reasonably full, but the yields are low, a lot of leisure business, happening in the airlines and hotels, as well. but that can turn around.

what we need -- we hope the stimulus will make a difference. i just think we've got to see more optimism in the marketplace and see -- >> confidence. >> more confidence so people are willing to go out and hold conventions and meetings and that type of thing, the tourism -- >> as long as it's not in las vegas. >> well -- >> the president catches you in las vegas -- >> you're in big trouble. >> how many jobs are lost because -- >> i know. >> it's a real concern but, you know, i think the administration's getting a lot of experience and that happens with a new administration regardless of who it is. and hopefully we'll see some changes in that regard, or encouraging news coming from the administration for the years out which will encourage business leade leaders, i think, to take more risk. >> how the airlines have done a good job managing fares, capacity, but if unemployment stays this high and people stay this worried for long enough, , that the balance sheets will start to crater later in the year. >> right. >> are you looking for, what a

couple of fresh chapter 11 filings? >> well, i hope not. every major airline's been through bankruptcy right now except america and i admire gerald for keeping american out of bankruptcy. as you well know, delta airline should never have been in bankruptcy, they would not had steve been running it, i can assure you of that. i'm encouraged now if you look at the management, the management teams. they've been through a lot. in previous years, there were brand new managements to look at what the board did at delta, brought in a team with no experience whatsoever and they were bright people, but took the airline to bankruptcy. >> they studied a lot. they studied business strategies in the past. >> you mean -- >> yeah. well -- >> they read a lot of stuff.. >> exactly joe, and they could manage numbers. >> they got good grades. >> managing numbers, but not really the business. >> you've got a good guy now. >> richard anderson has a good team.

i'm really impressed. and one thing they're doing, they're restoring the attitude in delta about the importance of people in the business. let me tell you one quick story, i flew delta yesterday from atlanta and we had a full flight and the captain was waiting for all of the customers to get on. still at the gate in atlanta and walked down to see me and said i haven't seen you in a while.e. so glad to see you. i've been wanting to thank you for something. i said what's that? he said 22 years ago i had a heart attack and you sent me some flowers and never had a chance to thank you. doesn't mean a lot to me because that's the way we ran the company, really care for the people and it was lost when a couple of the board members took my management team and brought in some people with no experience. and mullen is not a bad guy at all, but he shouldn't have been running the airline. >> when you look at the

airlines, it's one thing to look at consumers but the biggest profits have always come from business travelers. and once business has stopped traveling, what has it taken in pass down terms? what has it taken to actually get businesses to start sending people around once they get used to the idea of saying no more travel? >> good question. and i don't know if it's going to start up as quickly as it has in the past, becky, because all of the technology.. that's always been a concern in the industry. but face to face meetings are still very, very important. and, you know, i think a lot can be done with marketing promotions and advertising. if you look at hotels. i'm on the hotel board, the management company, and we have some really fine hotels that are full right now with leisure business, but not much business travel. and we have to go out and get the business. we have to go out and talk to the businesses about the opportunity to bring people in, the location, and what they can

do in face to face meetings, that type of thing. most importantly, though, i believe as i said earlier, we need encouraging words from the administration to businesses to encourage them to get back on the road and get back to business as usual. >> you're also on the board of coca-cola, what do you see when you look around the country and the globe on small ticket items? very small ticket items like coca-cola? >> very good question. coca-cola is an outstanding company, as you know. and you had neville on here not too long ago. came in five years ago and really restored faith in the company. he put a smile back on people's faces. and he made the people believe and understand we could be a growth company again and we are. coca-cola is a growth company and an outstanding leader and probably the smoothest transition in the history of coca-cola from ceo to ceo. >> there's been some rocky ones.

>> there's been some rocky ones. with a lot of new products out there. i just got back from seoul, korea, meeting with some there. and better understanding how we're marketing our products through various economic areas of the city, i did the same thing in the philippines last year and istanbul, and it's fascinating the marketing skills out there and placing our products where they are affordable through the economic groups in the cities. >> well, we're going to tap your brain for a lot of stuff, not pick your brain, tap it. that's better, right?t? we'll talk about credit, where people can get it, airlines. >> you said it. >> in good times, oil prices are $150, in bad times, nobody's flying. who came up with that business model in the first place? it's like a catch 22. >> it is. it's difficult. last year when i was on, i was here august of last year, $145 a

barrel. and i predicted it would be down below 90 at the end of the year. it surprised me to drop as quickly as it did, and you have to try to manage it. it's one of the exciting things about running an airline. >> be around until 9:00. >> in the meantime if you have questions or comments, our address is squawk@cnbc.com. europe has put three in a row together of solid gains. and we'll see what happens if the earnings stream continues later on this afternoon and tonight. when we come back eric cantor joins us. later on "squawk," abbott labs will come out with quarterly results and any updates on the best-selling drug. remind me, humira? >> i think it's humira.

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own company traf-o-data with his friends? the answer, billgates. a coalition of analysts and ex-regulators ready to attack the president's plan to give the feds large power over financial groups, including william donaldson and leavitt along with representatives of black rock and mason. issuing a report calling for the creation of an independent body across the financial sector and argues that letting the fed regulate all of those large financial groups would detract from its focus on monetary policy. donaldson and calper's chief investment officer will be joining us. a full committee mark-up on america's affordable choice health act tomorrow. the minority whip joins us, where to begin congressman. the time says that house democrats are jubilant in their words and i guess the question will be what republicans are going to do about this.

>> well, it is astounding this bill, everybody wants to do something to help health care reform alone, but this is nothing but a job-killing, tax-raising measure that will actually take away the quality of care we've been used to. and in a recession narrow time we're in will kill jobs. it doesn't make any sense. we're going to try to raise these issue, try and improve this bill, but certainly looks like pelosi's got this thing on a fast track. >> when it comes to surcharge on people with higher incomes, or the mandate, the penalties for employers that don't cover insurance, do you have to pick and choose which you have to fight? or can you fight them all? >> first of all, what we're talking about here is employers with payrolls at $400,000 and studies have indicated you're talking about employers who employ maybe five to nine people and they're going to have to pay over $30,000 extra per year when they're having difficulty paying

the bills as it is and maintaining their payrolls as they are.. it just doesn't make any sense. we ought to being looking at trying to do this where we maintain the system we've got, reduce the cost from the system that we can help promote job growth right now as well as provide americans with the kind of health care they're used to. >> my question is, are there aspects of it that you find more egregious than others. the egregious aspects of it are the way speaker pelosi and the democrats want to go about penalizing those who are successful. okay, their surtax does go in and charges the rich more. but what it also does is taxes small businessmen and women. if you look at the group of people that they're targeting with this tax of incomes over a couple hundred thousands dollars, in that group is about 50% of the folks who derive 56% of their income from small

businesses. if we want to grow jobs, why do we want to tax job creators and make it more difficult, more expensive for them to create those jobs? >> we had this go around when the budget was up in the air. people are asking what's then the republicans' alternative? are you going to finance the shortfalls in health care? >> well, the republican alternatives are out there, we've got to go about reforms.s. number one, we know where the examples of the private sector have taken place, where they've actually reduced costs.s. some of the large employers that operate have demonstrated if we give them flexibility, allow them to provide some incentive for individuals to improve their behavior as far as their health is concerned, they're able to bring down a managed cost. that's number one, we ought to be going about trying to do that. number two, the medicare system in and of itself is one big price fixing system. you've got the best hospitals getting reimbursed the same as the worst.. same for the doctors. we've got to go in and implement

a merit pay type of system. pay for performance. people who can provide more efficient quality care should be rewarded for that. and lastly, we do have to begin to provide incentives to individuals to get into the game. and this was a lot of the discussion in the '08 presidential campaign where john mccain had come out and said he wanted to provide individuals the ability to purchase health care insurance just like employers have and give them the tax benefit. we've got to move in that direction. ultimately that will help bring down costs. you can't right now do that by requiring individuals to play and if not require them to pay. that's a job killer. we can't afford that. >> when we watch the cap and trade vote in the house the week before last or whenever it was, the sense was they revived it, but just barely and it's not going to go very far. are you sensing the same dynamic with health care? is this going to get large support on the fringe and run into a brick wall?

>> i think so. this is one of those examples where the agenda by speaker pelosi is so far out the mainstream that most people in this country are really beginning to scratch their heads and really asking a couple questions.s. one, who is going to pay for all of this?? and obviously in this bill, the small businessmen and women are going to pay for this as well as working families. and number two, how is all of this going to work? it doesn't seem this is the america we know. >> hey, eric, you talked to this guy at safe way yet? this bird guy, why don't you fly him down to washington to talk these guys. >> we've had him in several times and that's exactly right, joe, those are the kind of employer plans that we need to be promoting. and that's certainly demonstrable there when you provide incentives for individuals to be healthier, you help their health care all over, and you bring down costs. >> we're certainly -- this is a big proposal we're talking about here and they haven't done -- how much of the safe way plan

cost to implement? zero price inflation just right along with regular inflation, how much did that cost compared to what we're talking about here eric and the type of dislocation that we're talking about for the entire system? >> well, what you have, though, joe is a fundamental difference about where we need to go in health care. there are folks in this administration, and i met with the health care czar not too long ago, she and i had a discussion about why she thought we needed a government competitor to quote unquote keep the private sector honest. but behind that suggestion is the suggestion that we should remove the slice of costs that represents profit incentives because if we take that out, the government can operate without it and keep everybody else honest. again, we have never seen any party in this town reduce costs, either one, and where we know there's been success like the safe way plan and other large employers, we ought to be promoting that. >> congressman, if people

weren't watching before, they're definitely watching now. i'm sure we'll talk to you in the days ahead.d. >> thank you, all, very much. coming up on "squawk," what are the chances of another housing bubble? i know we're just starting to figure out when prices will stop declining at this point. but our "squawk" scholar, professor robert shiller and the creator of the shiler home price index has surprising thoughts about what might be next on the agenda. after the break, though, it was once too taboo to talk about, but not anymore. at cnbc original production, "porn, the business of pleasure" stick around. çç

well, piracy has hurt hollywood for years, but now it's hitting the other hollywood, maybe the valley, and hollywood. anyway, pornography is facing the very same challenges that mainstream is. its content put up on the internet for free. and that's forcing fundamental changes in how the $13 billion porn industry does business.

>> reporter: like youtube, these sites allow people to post porn online, anything from amateur home video porn to potentially pirated movie clips, the gate way to the world of free porn and no surprise these sites are popular. tube site operators declined to comment and porn studio bosses say many sites take the content down once a cease and desist letter has been sent. >> 131 clips. >> clips that are labeled under the girls' names. >> the damage has already been done. it's already been up there. so now we have to spend money policing the internet. >> foreign hub. red tube. oh, i'm sorry, much more -- much more on the big business of porn tonight in melissa's new cnbc original production "porn, the

business of pleasure." it premieres tonight at 9:00 p.m. eastern, i'd watch it tonight, but you will get another chance. i think we may run this -- you combine business and porn, we don't get to do it very often. this sort of scintillating stuff. you don't get to do it as a business network and we're going to. and we're going to do it hard for an hour. there you go. >> for sure. >> it does. >> when we come back this morning, a scholarly outlook for housing with yale professor robert shiller.r. why he says a second housing bubble is coming. we'll be right back. (announcer) this is nine generations of the world's most revered luxury sedan.

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welcome back to "squawk" for the wednesday. futures are looking pretty good after a few r few nice days of earnings and market action not just here in the states but overnight. asia had a great day with shanghai still at a one-year high. oil is up $1 to $60.50, back above $60 with some of this renewed appetite for risk. we're awaiting quarterly earnings for abbott labs. sales of the popular rheumatoid arthritis drug humira. and intel giving the overall

market a boost after the earnings and outlook beat the street. the largest chip maker said demand in asia especially strong, biggest sequential growth for intel since '88. and encouraging news from housing mortgage apps rose last week, mortgage bankers association says the average 30-year fixed down 29 basis points now at 5.05, it was entirely accounted for in a surge in refi activity.y. new applications dropped.d. could another housing bubble be looming? our next guest says it is a possibility. joining us now is robert shiller, a professor of economics at yale. also the co-creator of the influential case-shiller home e price index. he's also the chief economist at macro markets and it's great to talk to you today. thanks for joining us. >> hi, becky. >> before we get to this idea of a second housing bubble. i'd like to get your thoughts on the economy right now.

i've seen some things where you don't use the term green shoots, but you say there are a few rays of sunshine starting to come out. what are you seeing? >> well, i don't know about the last few days, but this year, we've seen confidence come back. as measured by the confidence indices. and i think that is fundamentally important to a driving -- you know, we had a depression scare and it seems to be over, really. that's a good sign. >> that's a very good sign. when you look at the housing market, you think that the slow down and declines in pricing we're seeing, do you think that will continue? >> probably. we have had massive drops in home prices, as you know, can't go on forever. in our latest s&p case-shiller report, 20 of the cities were going up, most of them incrementally, part of that is seasonal, but it looked better. >> is that where you get the idea of the potential second

housing bubble. explain that to people. >> well, i'm not raising the alarm of another bubble, but i think it's inevitable that sooner or later we will have one because we've had them before and i think that we've developed much more speculative attitude toward housing. and we tend to view it as a speculative asset. and, you know, i've talked to some investors who give me a sense that believe it or not, some people think this is a wonderful time to buy because it's over and they're going to go back up. but i've heard some excitement from some people. still the market is really in the doldrums right now. >> this is ron allen here, first of all i would like to sit through one of your classes after reading your background. i think it would be interesting. what do you feel we need to do at this point in time in addition to put a new dose of confidence in the marketplace? >> well, i think we need a second stimulus package. i wish we'd gotten the first one out faster.

and we still have fundamental problems, loans aren't really being made aggressively enough. the fed has to continue what it's been doing. we're still in a problematic economy. a lot of these macro measures s have to be taken.n. >> you know, professor, i understand your point just about the idea that you'd like to see the money get spent faster, but do you think we really need a second stimulus or talking about a second stimulus when we haven't spent the first one?e? >> well, the first one is spread out over a couple of years, right? so it's not happening fast. and the continued decline of the housing market is one example of that. we've done a lot to try to support things, but there's still, you know, i mentioned the possibility of another bubble, but it's not present yet. and right now our securities at umm, macro shares are predicting an 8% decline in home prices over the next five years. so the psychology hasn't come

back yet. we're still in the doldrums. it could surprise us. but, you know, i'm still not that bullish at this point. >> where did we go wrong with this first stimulus? can that be adjusted? is there anything that can be done with the money already out there, professor, to stimulate the economy with the money that's been approved in the first stimulus? >> well, the problem is, they've had trouble spending it fast enough. and, you know, the bush stimulus came out quickly because it was done through a rebate check.. maybe we have to think about something like that to get it out faster, it's going way too slowly. >> so you actually think the idea of giving it to consumers again, letting them spend it again is what we should be doing? >> well, i think we should do both. the idea of doing infrastructure investment is a good idea because people see the activity

and they have a sense of forward progress and infrastructure's generally underinvested in this country anyway. i think we need to do both. >> where do we get to the point where we're spending too much. is there a limit? >> yes, now that is critical. i wish we had had a government surplus in recent years, it would put us in a better position to be doing deficit spending now. but still, i think that these worries about the debt are still premature because our debt to gdp ratio is well under one. it's not like the japanese.. the japanese have it closer to two. you know, i don't think we're in a position where we are going to be unable to borrow. the bigger concern is that we get clearly out of this recession, which could dwindle -- it could continue for some years.s. that's my big concern. you know, we started out talking about bubbles, but my bigger

concern is a period of languishing for some years. maybe a recovery, the end of the recession, but a disappointing end. that is the most -- the more likely scenario, unfortunately. >> professor, what about a tax break, particularly for small businesses? wouldn't that be more effective than an additional stimulus? >> well, i am a small business owner, entrepreneur, so it sounds good to me. i think that it's true that a lot of the stimulus for new ideas comes from small businesses. >> no question. >> and we've been encouraging bigger and bigger businesses with recent bailouts. so i think some encouragement of small business is a great idea. >> and professor, how do you take what's happening in congress right now where they're talking about health care and major new spending initiative there, also talking about cap and trade, when you add all that up, what does it mean for your outlook for the economy? >> well, i think that -- you know, my outlook is that times

of crisis like this can be times of opportunity. and fixing the health care system, we have, you know, something close to 50 million people without health insurance is a serious and important matter. and i'm glad to see that it's going on at this time. the really important thing is to get health coverage for -- a much bigger share of americans. >> no matter what the costs? >> well, now there's an issue about how to be done. it's not -- it could never be without concern for cost. and we have to be concerned about maintaining a free enterprise system where people areproper ly incentivized, and having a government option is not my favorite part of the government health care proposal. >> oh, say it harder than that, bob. glad to get that out of you, at

least. >> not my favorite part. of all the things i could think of, it might not be the -- but we're happy. i perked up when you said that at least. >> okay. >> obama critic robert shiller. robert, it's interesting to say you're a small business owner because i'm sure you've seen the cover of "the journal" today, if your payroll's over $400,000, you're going to be those to finance the health care coverage. does that send a chill up your spine? >> well, actually, i think that income and equality is one of the biggest problems facing this country. and i can hope to have high income, but i'm not worried about this additional tax. it's not -- it's not such a major readjustment anyway. and i'm not worried. i think people of high income

really to think about the sense of community that we have in this country and that maybe high income -- i'm saying this -- maybe high income people could pay a little bit more taxes. i've written papers on the income distribution problems. another big issue of mine, and i've written a proposal in one of my papers for what i call the rising tide tax system. i think we should actually index the tax system for inequality to make -- this is my radical side -- free enterprise. but i also think that we have to worry about rising inequality. it's a big issue for this country today. >> well, professor shiller, we will have to get back to talk about that soon. we thank you for your time today. >> my pleasure. >> all right. still to come on "squawk box." we head to -- are we going over there? >> someone will. might be you. >> someone is going to head over to earnings central for a look

at this morning's stocks.. up next, though, lawyer, politician, and an informal adviser to the president a southern democrat, a conservative democrat, former senator sam nunn is our guest. stay tuned. when a major hospital wanted to add on

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from washington to wall street, our next guest is a veteran of both. he sits on the boards of dell. general electric, coca-cola, and chevron and he has the ear of the president. joining us now former senator sam nunn, currently ceo of the nuclear threat initiative, working to reduce global weapons threats. great to see you this morning. >> welcome. good to be with you. >> we've got to talk about your current position. i was wondering, you saw that piece in the journal last week, how does that -- how do you juxtapose what you're involved in now with his contention that we still need some type of deterrent? >> well, certainly we need some type of deterrent. there's no question about it, the united states has got to keep our nuclear weapons as long as others do. we're basically saying that we

need to, all of us, those that have nuclear weapons move in a different direction, making nuclear weapons less relevant, keeping them out of the hands of terrorists, making sure we avoid proliferation, and also ultimately ending nuclear weapons and materials that would make nuclear weapons as a threat to the world. this requires cooperation. this requires steps to protect our security. and without the cooperation, you aren't going to be able to take the steps. i would agree with a number of points that the secretary made. the point where i would disagree fundamentally is where he basically says clearly that we are to keep nuclear weapons in perpetuity. and if we do that, you can toss the nonproliferation treaty right out of the window and you can toss cooperation around the globe out of the window, and you will not be able to take the steps necessary to protect america from proliferation and from catastrophic nuclear terrorism. that's where i would disagree with jim. but i have enormous respect for

him. and the points he makes about reassuring allies like japan and europe while we're on this long-term path toward an ultimate goal of getting rid of nuclear weapons, that point is absolutely valid. we're going to have to continue to maintain a strong deterrence position and to maintain a nuclear umbrella to avoid proliferation on that front. so i would agree with a number of points he makes, but i would disagree on the fundamental point of keeping nuclear weapons forever. i think that's a mistake, i think it's a very big global political mistake, and i think it would be counterproductive to our security. >> ron allen, good to see you this morning. >> thanks, ron. >> how would you prioritize your top concerns right now? you look at north korea, look at iran. what concerns you the most? >> i think pakistan concerns me the most because pakistan already has nuclear weapons. they have a lot of instability, they are bordered by afghanistan where we have a conflict going on, a lot of radical elements, a

tremendous amount of tension with india, and there could be a mistake there. it could lead to an accidental type war, but we really have to worry about all three, but i would put pakistan at the top of the list. >> i know you spent a lot of time in russia. a year or so ago, you told me we need to show more respect to the russian leadership and to the country itself. are we doing better in that regard? and how often do you get that? the president was there last week, are we cooperating fully with them on nuclear disarmorment? >> i think fully would be too strong, but we do need to understand that russia's the only nation in the world that can destroy us while we're having a meal. and i don't think they have a motive to do that. i think the chances of that war has gone way down, but the chance of accident miscalculation, mistake and judgment, renegade commander, those kind of things we need to work with them. we also need to work with them

on catastrophic terrorism. they really have huge stockpile of nuclear materials. we have been working with them under the program that dick lugar and i sponsored for many years on that.t. we made a lot of progress, we have a long way to go. but we also need to work with them and i'm glad that president obama and president medvedev agreed to restore discussions because we need to increase warning time and decision time on both sides. so we reduce the chances of any kind of accident. we need to get control of nuclear materials as i've mentioned. we need to work with them to provide reassurances that would lead to getting rid of tactical battlefield, small nuclear weapons that are a terrorist dream. we need to work with them on chemical and biological, and fundamentally we could work with them on missile defense. i think today is a possibility and working with russians will be difficult, but it could be a game changer in leading to a much different attitude and

substantial offensive reductions. so, yes, we need to show them respect, but it's in our self-interest to do so. >> senator, i know you advised the president on a lot of these things. do you advise him on domestic policy? and in your view, all of these initiatives, do we need to maybe put them in an order of importance? or do you think what we're doing right now, tackling each one at the same time, is that feasible? >> well, first of all, i'm honored any time the president asks me for my opinion, but i wouldn't want to give anyone the impression it happens frequently because he's got plenty to do without going to outsiders, a lot of advice inside. i think in my views that the president's done a lot of good things on foreign policy. i worry about the fiscal side. i think without any doubt we had to have a great deal of fiscal stimulus, without any doubt, the fed has to really step in, but if we don't get on a long-term glide path to show the world and

we're borrowing a whole lot of our money from outside of the united states, over half of it. if we don't she them we have a glide path to get our entitlement programs the growth weight of them under control, then we could have some very serious repercussions with the value of the dollar, and also with the long-term interest rates. that's not going to happen while we have a slack economy. but if we come out of this and get a spurt of growth and then we have this kind of fiscal problem we haven't dealt with, we've got real problems. so i think we have to be able to deal with the long-term responsible fiscal path. at the same time, we are stimulating in the short-term. and right now, i don't give us good marks on that. >> okay. senator, we're out of time. and i wish we could get you up here and we've got this chair ron's sitting in and some days, you know, he's not there, somebody else is, but we'd love to have you there some day for an hour or two. >> well, ron's got -- he got big

shoes, i don't think i could fill those, but nevertheless, it was great being with you. >> thank you, senator. we'll talk. let's talk. our people will call your people. >> good to see you, sam. we should mention that abbott labs is out with the report. came in with earnings right in line with expectations. you're looking at x numbers of item of 89 cents. the gap number was 83 cents. abbott talking about the guidance for the current quarter the third quarter says it's looking for a number excludeing items of 88 to 90 cents, street is looking for a number of 90 cents. for the latest quarter also points out that humira sales $276 million. that's rheumatoid arthritis drug for the company. we will keep an eye on this. but the bid ask was higher a little bit earlier. the bid is below where the stock closed yesterday. we'll keep an eye on this and have more on this with more from earnings central and stocks to watch. you have questions. who can give you the financial advice you need?

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stocks to watch quickly. abbott labs is down now, maybe 50 or 60 cents or so after the company reported earnings that were in line with expectations. also the outlook, 88 to 90 for the third quarter and that's versus the first call estimate of 90 cents a share. and full year guidance brackets where the street is, as well. carl? >> when we come back from bringing down the house to the

accidental billionaires, ben on his new book about facebook. and the regulation revolution with former zek chair bill donaldson, he's a wall street insider who has a road map to keep these investors from getting burned. a lot more "squawk" after the break. more and more active trs are turning to fidelity for a smarter way to trade online. only fidelity lets you back-test your strategies against an entire portfolio of stocks. plus you'll get advanced, customizable trading platforms. and you get the kind of execution you'd expect from fidelity... ...with a dedicated specialist to talk about even your most complex trades. they'll even help expedite the account transfer process. trade like a pro. trade with fidelity.

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earnings central magic. intel's results cast the right spell for the market. >> did you see the boy? >> but will this banking wizard provide tomorrow's fireworks? >> fight back! >> could you introduce me? a new regulation road map. >> you're lost. >> former sec chairman bill donaldson has new regulations and shares them with us. first on cnbc.. the founding of a social networking phenomenon. >> you won't be my friend. >> what? >> do you want to be my friend?

confirm or ignore? >> author of "accidental billionaires" gives us the story behind facebook, a tale of sex, money, genius, and betrayal. >> i got your post last night. >> what? >> just sent me 3,000 toilet paper rolls. >> "squawk box" begins right now. >> i'm going to delete you my friends list right now. ♪ you've got what i need but you say he's just a friend ♪ ♪ oh, baby you welcome back to "squawk" backsebox on cnbc. hopefully phil donaldson wasn't watching and hopefully you weren't paying much attention either. that wasn't him. our guest host today ron allen former chairman and ceo, that is ron allen, i can vouch for him. so much to talk about. i really am joe kernan, right?

>> i thought you were bill donaldson. >> i was as close as -- anyway, let's move from airlines to -- it's hard. this is hard work. hard work. hard work. anyway, talking about the state of the economy today. ron is here as the futures are trading sharply higher after big days on -- a big day on monday and then consolidation yesterday, not too shabby when it was all said and done up 27 points. let's get over to becky at earnings central where, i think, a lot of this strength today is because of intel, beck. >> that's right, intel coming out last night and that's what we're focusing on this morning, the futures got the pop immediately after hearing from the company. the chip maker posting better than expected profits after the bell on tuesday. the company earned 18 cents a share when you strip out items for the second quarter. that's ten cents better than expectation. revenue falling 15% when you look on a year-over-year basis. but again if you look to the sequential basis, the company coming out with better revenue than they've seen, at least a jump in the revenues they've

seen since all the way back to 1988. intel shares jumping after hours and helping out all of the rest of the indices, as well. you're going to see a lot of strength because the company had plenty of things to say that were very positive, including that they are seeing some sort of a turn in the market.t. we may be seeing a bottom for the pc market. also, check out chip maker altera. as you can see, up by about 3.5%. getting a boost from stronger than expected demand from the defense in telecommunications industries. the chip maker is forecasting long-term growth from china as that country starts to rollout a high-speed network. earnings coming in line with expectations. the company earning x items, 39 cents a share, right in line with expectations, giving guidance looking for somewhere between 88 and 90 cents x items,

streets at 90 cents, where the street was looking, as well. >> we'll keep a close eye on earnings. in the meantime rick wagoner is going to get an almost $8 million package. plus a more than $74,000 annual pension, but the amounts are far smaller than what he would've received before last month when gm outlined big cuts. while wagoner was fired in late march, he will officially retire on the first of august.t. and we talked about at the top of the show how that's a lot less.. he's taking a cut kind of in line with a lot of retirees. >> yeah, what kind of cuts? about a 40% cut, isn't it from -- >> more. >> initially -- >> yeah, about 60%, less than about 40. >> and the lead bidders for aig's asset management have dropped out. franklin templeton investment left those two-month talks this weekend because of differences within the bidding group.

the spokesman says the deal's on track, but others suggest the process might be up to some other bidders. cit group working out the deals of a federal aid package. the journal says customers drained $750 million from cit by drawing down their credit lines in the last two days. now u.s. officials are said to be considering giving the company a temporary loan as part of an aid package to help the lender avoid collapse. another option might be giving cit access to the fed's discount window. we're back to that.. >> yeah. this is a great story. we could talk about this the entire time. what do you do? we don't know what to do with cit at this point. both sides have -- >> plus we've sunk about $2.3 billion into the t.a.r.p. company. the taxpayer being on the line for at least that much money. >> and we know we want to get unemployment down.n. >> yep. >> and if you cut off the biggest lender of small businesses, how do you get it -- how do you deal with

unemployment by 2010? >> i don't have the answer. >> by the midterm. >> right. >> how does this administration get things looking a little better by the time it's trying to get even more of congress on that side of the aisle? we're going to save them.. that's the bottom line. that's what the journal said a couple days ago. given the importance of getting everything, you know, all politics is local, but everything is positive turns out, doesn't it? >> right now it is. >> our next guest has plenty of ideas of how regulatory reform should take shape. joining us from new york, first on cnbc is bill donaldson, former sec chairman and co-chair of the investors working group. what do i call you? i guess i'll call you chairman. i could call you bill because i know you, but i'm going to call you mr. chairman. how's that?t? >> that's fine. >> just overall, what about the proposals at this point, bill? you give them what kind of grade and don't put it on the curve. >> it's the proposals from our report -- i think it's an excellent report. it was sponsored by the cfa

institute and the institutional investor group. arthur leavitt and i chaired the group. it is a group of 20 prominent investors, and the thrust of the report is that investors that have been sort of left out of all the talk about how regulation should change and be strengthened. and this report speaks from the point of view of what investors want in new regulations. >> all right. compared to the proposals that we've seen put forth by congress and the administration in terms of the powers given to the feds? >> well, in our report, we recommend that the -- that there be an oversight group. the reports from the administration and certain parts

of congress have suggested different ways of having so-called systemic oversight. one suggestion has been a college of cardinals, as it will, will be a group of regulators overseeing the systemic inquiry. and another suggestion from the administration has been that this be put into the federal reserve system. and our suggestion is a third. and we think a better way, which is to create a totally independent systemic oversight group, appointed by congress, totally independent, a strong three or four or five-person board. a very powerful set of people working for it who will have free reign to go anywhere and inquire and look for systemic risks.

>> go ahead.d. >> chairman ron allen here, it's good to see you again. i've not read the whole report. i've skimmed part of it and it's very interesting. the question i have is how do you get this report before the decision makers? how do you get it before congress, before the administration? how will you take it? >> how do we get our reports? >> yes, and how will you get them to read it, understand it, and really take a careful look at it? >> well, we hope that the report will be gained publicity. we're prepared to talk about it. anybody that will listen. i think one of the things that we feel very strongly is that there needs to be full of discussion of all of the issues here. and we need -- we must not rush into new sorts of regulatory things. we'll be talking to anybody that is willing to talk to us, particularly in the congress. >> i'm sure you have a plan of action going forward, though, pretty aggressive. again, i think there's very interesting ideas in the report.

>> all right. chairman, you seem to have a real problem with giving the fed more power.. i mean, can you -- just to slow it down to whether you think it's -- is that a real fumbling point for what we're proposing by the administration? >> well, the fed has got a specific responsibility, which is in over simplified terms to keep the prices level and to keep unemployment low. keep full employment. when you get away from that responsibility and get the fed into all sorts of other things, you start to get into a political arena. and we feel very strongly that the whole regulatory mechanism would benefit from a totally independent group whose total responsibility is investigating the systemic risk areas.

those areas that have fallen in between the regulation of individual exchanges or companies or financial institutions. >> that seems like the most logical -- i mean, the fed dates back though in this last crisis, was the agency or the entity that handled the systemic risk problems of the system. and here we are, the system's still working. so they did a pretty good job this time around. i think that's why it seems like the path of least resistance for future problems, and that's why i think treasury is sort of signing off on the fed to do this. >> well, i think, you know, the system is still working. but, you know, we've been through -- horrendous ringer. and you know, one questions whether we had to go through that. >> well, you know, if the fed had been the agency five years ago that it was supposed to -- maybe they could have prevented it, as well. it seems like starting from

scratch is difficult too. you could see why it would be easier to pass it off to the fed. >> but we're not talking about what's easy, we're talking about what should be effective. >> yeah, this is washington, all right. >> well -- again, i think that at this point in time we need to face up to a full discussion of just exactly how the systemic oversight would work. and i think one of the things we feel very strongly is to bring expertise in there that's not affiliated with any of the regulatory agencies that have license to go anywhere. but what it does with what it discovers is to turn it over to the regulatory agencies. and i think that's an important aspect of what we're suggesting. >> all right. our last guest, now we talked a lot -- just to you about this. we can talk about the sec, we can talk about all of this different stuff, i mean, your name is donaldson. you remember dlj, we could talk

to you about that.. i'd like to ask you about goldman and everything else that's going on and former chairman of the big board, health care. we need to have you come back too, mr. chairman. >> okay. well, i'll try to come back. >> thanks, see ya. when we come back this morning, a lot more on the regulation revolution. and the next half hour with the cio of the republican employees retirement system, you know them as calpers. and a story of accidental billionaires, how the guys behind social networking phenom facebook were actually just looking for some dates at harvard and the rest turned into history. we're going to talk to the author with a fascinating new book about this in a moment.

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facebook, the estimated value may be down, but there's no doubt that the social networking site has achieved unprecedented popularity crossing the 200 million member

threshold and launching the young founder into wealth and some controversy, as well. joining us this morning is the author of "the accidental billionaires" the founding of facebook and joins us from new york with, i guess a story although it is well known, they may -- people may not know exactly what the initial motive for starting this one or at least discovering the model, right? >> really it was a couple of geeky kids at harvard who could not meet girls and they essentially, it was a college prank that led to facebookment late one night mark zuckerburg was in his room and hacked the computers and pulled up pictures of every girl on campus and he made a hot or not website. and that crashed all the servers at harvard and led to the creation of facebook. >> you have put this story together. it sounds like with the help of his friend at the time, right? >> yeah, his best friend at the time was a kid edwardo.

they were geeky kids, met in an underground jewish fraternity in harvard. neither one were meeting a lot of girls. and mark basically built the company, edwardo put up $1,000 in the beginning to help do it. they were best friends for a while. until it fell apart. >> why? >> it was a dorm room company. the thing exploded, suddenly there were millions of people on it. mark went off to california and really built the company in silicon valley and edwardo finished school, and slowly but surely mark, you know, decided his company and edwardo wasn't doing anything. he feels like he was betrayed and there was this kid shawn parker, the rock star, the bad boy of silicon valley, got involved and really brought facebook from a dorm room company to $1 billion company. >> so does zuckerburg deserve as much credit as he gets. could it have happened without him? >> absolutely. he's an absolute genius.

without him, there would be no facebook. the kid is like a bill gates. i can say, you know, nothing good enough about mark. but, you know, he's socially very different. he has this kind of wall around him. and it's ironic that the kid who created the biggest social network in the world is very socially awkward. and i think he sheds friends along the way because he's so focussed. he doesn't think like everyone else. his best friend is his computer and the world he's created.d. >> you paint a picture of him as a kid who is literally writing codes all the time. >> he's a work-aholic. he's not going to be the guy with the giant yacht and hanging out with the supermodels, hooe going to be the guy with the glow of the screen on his face because that's what his obsession is. >> so how much, to what degree is there sour grapes of the other guys there at the beginning that are obviously not living to enjoy the fruits of some of their labors? >> there's a lot of kids who claim they founded facebook. that's the first thing i

discovered into this story. there are definitely people who feel like mark, you know, did them wrong along the way. and the way mark looks at it essentially he was a kid struck by lightning and everyone around him tries to hold on as he goes up into the stratosphere. there's anger from him, edwardo, the twins who are these giant 6'5" olympic rowers, good looking guys, the kings of harvard and they were making a dating website something called the harvard connection. they brought mark in to do their code. mark essentially didn't really do anything for them, blew them off and launched facebook. they feel he launch facebook and they feel they stole the idea from him. >> the big question people have, what comes next with social networking? what knocks out facebook? or does facebook evolve? >> i really feel that facebook is the next step in human evolution. i feel like we've gone from the village, to city, to facebook. it is a 200 million users and

getting bigger and bigger and bigger. i see no reason it doesn't have a billion users in the next year or two. it evolves. twitter's fun, everyone's having a great time with twitter, but it's like the macarana of the internet. >> i don't know, i tried facebook for a couple of months and knocked myself off of that. >> there are people that don't love it. but the majority of people that go on spend three or four hours a day on it. >> that's the rest of our creation if people are spending three or four hours a day -- >> this is the new form of human life. look at colleges and high schools, these people spend their whole lives. dating is through it, you live on facebook. >> did mark ever meet any hot girls? you're implying no. >> he did, actually there's a groupie scene at harvard, they became famous at harvard and there's a scene where mark actually went home with a victoria secret model according to sources.

he's had a girlfriend through the whole process. he's been with the same girl. >> wow, he's going to be mad at you. >> i don't really know what the details are what he did with the victoria's secret model. >> they were big tall guys. >> they were giant guys that looked like ben afleck. >> ben, i'm sure you heard the response from facebook. this is what they've given us. he clearly aspires to be the jackie collins of silicon valley. in fact his own publisher put it best, the book is report as big juicy fun. we think any readers will concur. does that bother you? >> no, i love jackie collins. why can't it be both reportage and big juicy fun. i understand why facebook is terrified of the book. but the reality is i'm the biggest proponent of facebook, i think $6.5 billion is too small. i think this company is the

future. they should love me, but they don't. >> the book has been auctioned by sony pictures. >> scott reudan are producing the movie, adapted it, and i believe david fincher is going to direct it, which is amazing.. >> do you have a facebook page? >> i do and a fan site for the book. >> they haven't shut it down yet? >> i don't think they will, they're all about freedom of information, right. so i have it, i love facebook, i've been on it, i'm a fan. i'm on it all the time. >> ben, it's fascinating, best of luck with that and of course, with the film. >> thanks so much. >> i appreciate it, thank you. >> it was fun. not the first guy to launch a business to -- >> or to try to make money, you know the expression money in a world without women is what, meaningless? ever hear that? >> oh, yeah, i say that all the time. >> what would we do? >> anyway.

>> it'd be very boring. >> it would. money would be meaningless. >> take another nap. anyway, breaking news, can't stay away from "squawk box" at 8:30 a.m. eastern. could someone toss me an eleven sixteenths wrench over here?

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we have more breaking economic news on the way today. we're going to get the government's second report on inflation in just a moment. this is the consumer price index, the cpi, the numbers in the instant market reaction right after this right here on

"squawk."

more breaking economic news on the way. the consumer price index is about to be released. we've been focusing on earnings as the e-team.

we got the ppi the other day. yep, the ppi. rick santelli's on vacation, steve is on assignment. give us the numbers. >> reporter: up .2, year-over-year down, up .7 right on the expectation of the whole number. >> both of them? >> reporter: so a good year-over-year figure still at least that might help the bonds were a little bit soft this morning. so holding steady at marginally higher yields right now. >> remember when we were outside the comfort zone, kevin. >> yeah, definitely. >> a couple of years ago when we cared about these numbers, but that was a few years ago, i guess. when do you think we see something that really makes our mouths open when we see -- it could be months or years away, right? >> well, it could be, joe, but i think you're touching on what the trading community's going for. and that is they're not waiting around.

and the big story this morning is the weaker dollar, it is the commodity play, everyone's talking about the massive jump in foreign exchange reserve. so the hot commodity play, the reflation trade is back to popular. the dollar's up 3 cents in 72 hours. that's the hot trade and people are jumping back on it quickly. >> you guys look at micro, where's the tenure if that's a hot trade? >> well, it's certainly not in the disarray that it was joe, but that might actually be providing some stability to the over all system.m. >> we've got a gapping day in the s&p, we'll see if it goes back and fills it. we talked about 890, i think the low yesterday was 892. that move is spurring up side also. >> the contributor, a little bit, to do this extra gig at

8:30 for santelli, do you get any extra for that? >> well, it keeps me from the market for a little bit. >> don't have to make -- >> i'm not that good. >> at the end of the day a lot. >> this is rick's stomping ground, not mine. >> rates are higher. all right. thanks. >> higher. higher. >> there's rick, all right. let's continue our conversation with our guest co-host ron allen the former chairman of delta. we had some stuff come in from airline employees. are there a lot of leases and financing that need to be rolled over in a non-credit friendly marketplace soon with airlines? >> with the details now, but from what i read, yes. there are some. >> how are we going to handle that? >> it's going to be challenging.

>> from what you hear -- we hear banks aren't lending and then the next breath, banks aren't lending. >> depends on who you talk to. and i hear that the fed is too much involved with the banks and then not enough. some of the banker friends say they can't make a move without the fdic overseeing every move they make. a friend of mine trying to float a loan, someone coming to them for a loan and could not get approval within the management of the bank. it's a mixed bag out there right now but credit's still very tight. >> when forbes is complaining about now securitization possible, is that the -- so the shadow system is shut down still? and that was a huge part of what was providing finance? >> well, there's a lot of fear about that, i guess, with assets were not that solid. but you look at aircraft, it's pretty solid assets. >> we had captain sully's land

in the hudson, that was good. air france, the airbus crash, we don't know what happened there. southwest had a football-sized hole open in the fuselage. >> i don't know any airline that would cut back on maintenance.i >> southwest has paid in the past for some checks, but some kind of inspection.. >> the faa maintains a pretty tight reign on that. and i'm sure the case is true today, we try to stay ahead of the faa. if they have a requirement for a certain standard, we strive to better that and we try to meet that standard before the deadline before meeting that standard. and most are in that mode. >> and for all of the dream liners problems, is there any doubt in your mind that boeing is still light years ahead of airbus. >> good question. airbus has come a long way. they struggle with a-380, the largest airplane in the world.

that will have traction again as the airlines come out of this recession time. i think the 787 will be a great plane. i think boeing's learned from their transition the way they produce this airplane. they really are doing a lot of what airbus has done over the years. had the modules put together separately and then assembled at the boeing assembly plant.t. but they've struggled with that with some of the suppliers. and they've gone out and bought a couple of them as you know.. but they have good management. i think they're -- running ford now. he came in the business without much background of the business. >> he's the man. >> i see a couple of fords i like, i actually thought about, you know, maybe a flex, i like the eclipse when i see them go by. and i like the idea of maybe not buying from one that needed the government help and trying to help the u.s. autoworker, right? i don't know. i think he's done --

>> he's a smart guy. a very personal guy, but a very focussed engineer. >> a good salesman when he's on here, right? >> right now, airline affairs, do they cover the cost -- when i fly somewhere, am i paying my freight? >> probably not. it depends on the route. >> how much do you weigh? >> i thought i dealt with that yesterday. >> did you -- did you see the new penn airlines? >> yeah. >> i was fascinated with that. they may make money. >> they can't charge lucky full fare. put that thing in the glove box. >> well, they have an attendant taking care of lucky. it was cute. >> and the main part is all, you know, places where you -- they have bathroom breaks.=ñ >> they get better treatment than the people do. >> they serve cats, which is fine with me.

>> yields are very low in the airline industry. and fares running big lows, but that's why the airlines are charging for baggage and extra cost items for the airline. they're trying to make as much as they can during this difficult time. >> sooner or later, you know, it's going to be a lot more expensive if they ever have the pricing power.. >> and they're cutting back on capacity. that's going to help. >> that's what's going to help. there was a hotel for dogs, a movie. but this is real. >> was that universal?l? >> no, it was not universal. >> i don't know who it was. >> anyway, next up, we're going to talk more about the future of hedge fund regulation, front and center for the senate banking committee today. you know this as calpers, he's going to be testifying, but before he does, he is talking to us first on cnbc. before we go to a break, let's take a look at the futures. it's been well above fair value all through the morning. in fact, right now, the dow futures up by 84 points.

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all right. the senate banking committee holding a hearing today to talk about the future of hedge fund regulation. our next guest is the cio of calpers. he's going to be testifying today before the senate. joe's also a member of the investors working group. that's the council that released the regulatory recommendations today. joe, thank you very much for joining us.. >> glad to be here. >> we're trying to figure out

what it is you're going to say today to the senate. do you have big plans to turn over more regulation to the fed? >> listen, the testimony today is about the importance of hedge funds, private equity, and other private pool of capital to investors. but the larger message is about the necessity to improve the regulatory system in the united states. and the report that the investor working group came out with today is about this specific recommendations to make that our regulatory system work for investors and to assure robust capital markets. >> and what would you like to see done? what do you think actually needs to happen? >> we've got to do four things, we have to strengthen federal regulators and revitalize, give them independence and resources so they can do their job. we've got to close regulatory gaps, we've got to bring entities like hedge funds, private equity, other pools of capital, within the regulatory structures so there's reporting and accountability. we have to strengthen corporate governance because corporate boards are the next line of

defense after regulators and we have to establish a means to regulate and control systemic risk in the overall financial system. >> you know, those are all great ideas, but i've heard them thrown around a lot of different times and it may get lost on people. what specifically you would like to see are some of the most egregious things you've seen happen. >> well, closing regulatory gaps, we need to bring otc derivatives on to exchanges in every case possible. we need trades and derivatives to have at least one party with an economic interest. we need to provide some kind of limits on proprietary trading so that we reduce the amount of speculation in the system.. we need better regulation of mortgages and mortgage origination, better consumer protection in that area. we need to do something about the nationally recognized statistical rating agencies.. they operate without a lot of accountability and they have had a major contributory role to the financial crisis. >> the agencies we have not heard as much about lately.. there was a lot of -- a lot of movement, and a lot of talk about trying to do something, but it seems like that has

faded.d. and do you see this happening again and again where there's a massive public outrage, capitol hill pays attention and then gets turned to other issues. >> calpers filed suit against the three major rating agencies. this is going to be a difficult suit to work. but we're determined because as in long-term investors, we're determined to see the regulatory system work for investors. that voice has been missing in the debate up until now. and i think as we mobilize that, we have a chance to move policy makers carefully and deliberately to change the structure of regulation in the united states. and then around the world. >> joe, ron allen here, good to see you this morning. i know you're relatively new at calper's and you've got new management, does this pretend a change in the direction of calpers, are you going to continue to be as active as you have been with shareholders and alike? >> i think we're going to be more active.

i think our board is looking for better action. calpers has a reputation for governance, but we need to sharpen the focus and relentless in our determination to seek the changes we sought for years can come to fruition this year. >> joe, who do you look to as examples of good corporate governance, examples of boards that have done this right?t? >> it's a wonderful question. we think of ones that haven't done it, as well. you think about steady, progressive boards that are actively engaged, that have their hands on the organization, but they're not interfering with the way boards operate. it's easier to come up with examples of where it doesn't work. >> right. but i guess -- are there companies out there that you have looked at, looked at the stock and thought this is a company we want to get behind and they're doing the right thing. >> well, we do that in concentrated forms through our private equity investments.

calpers because of our size, $180 billion has a position in every publicly traded security in the world.d. and the large part of our portfolio is simply market-weighted data oriented exposures. we have interest in everything. it's very hard at our size to pick individual companies and take positions and get behind that. that's why regulation is so important. because we need the entire system to function for investors, not just for one particular company and its management and governance. >> how have all of the pressures of california right now, the trouble it's run into with the budget, the ious being handed out and the early retirement of a lot of state employees, how has that affected the situation in calpers? >> well, we've been directly affected because three days of work have been taken away from us each month, which not only impacts our employees at 15% pay cut, but diminished our capacity to work. that's had a huge impact. the state is in a very fiscal condition, which is well known. but the condition of the pension fund, our ability to pay

benefits to our beneficiaries and execute an investment program is not affected by the california fiscal crisis. >> the early retirements, does that affect you? >> well, if we lose talented long-term people it will aft us for sure. and public services will be impacted if we're not able to replace highly skilled talented people that are leaving. but i think that with respect to calpers' investment program, we're going to be able to continue to do our job. it's too important not to pay attention. >> right, you've got to be fairly close to the ground seeing the changes pushed in the state. do you have hope that there is some sort of a resolution that things are getting closer to resolution? >> it's a $26 billion problem and some very talented people are working on it. and my hope is that they'll come to a resolution quickly.y. >> joe, we want to thank you very much for joining us today and again, you're going to be speaking to the senate committee a little later today, i believe around 2:30.. but thank you for joining us. >> thank you. when we come back, today it's intel, tomorrow the focus

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earnings central this

morning, a lot going on. shares of intel getting a boost, the dow component earning 18 cents 18 cents a share. 10 cents ahead of consensus. revenue falling 15% from the year ago quarter but more than $8 billion, that handedly beat expectations. and right in line with expectations. abbott labs and consensus on abt. and shares of the newspaper giant gannett, a 10 cent beat oñ earnings and revenue in line. surprising knowing what the newspaper business is going through now. and banking giant jpmorgan expected to report results tomorrow. analysts expect earnings of four cents a share, revenue 200.9. shares of the dao component have more than doubled since the low, which you might remember march 9th, right back there when, i think they hit 1590, was the low on jpm and bring art cashin into

the conversation, art, the bulls have a couple more arrows in their quiver with these numbers. do they not? >> it would appear so. get past the data on capacity utilization. for now looks like the bulls have taken the ball and the bears fumbled early in the week and are continuing to move it. so we said this could be a critical week when the market would reveal itself. so far we're seeing a couple of things nobody expected. >> will you walk us through, with the help of the telestrator, some of the head and shoulders patterns that people have been talking about and i'm guessing you'll say was drawn about right there, yes? >> that's about right. and the trouble with the head and shormds pattern, it started to get accepted by everybody, and, you know, the market likes to fuse the most amount of people. usually the majority. so it broke down through the neckline by classical, technical that should lead to account and

the s&p down to 820, 827. instead what the market has done, reversed back up through the neck line and so we've got to watch the area around 8:30. that's the right shoulder. if it breaks through that, it puts the whole thing in severe jeopardy, and if they get above 855, then they completely reverse it by getting above the head. so the shorts are going to be very worried here. >> yesterday with joe you brought up the possibility of some kind of super rally. how would that scenario, albeit rare, play itself out? >> well, what you would have is, when people look at something like a head and shoulders, you expect, particularly when they break the neck line that you're going to get fulfillment down that that 800, 825. when it doesn't do that, it has a rare occasion called a failed breakdown syndrome.. not just on head and shoulders, and when that happens you usually get a significant rally, because the bears who were so sure and short sewed much get

into a kind of panicky mode an run in on themself. >> we might be pulling up a three month. people, and i hate to get too technical, but if we're going to invalidate the bearish pattern, right. >> right. >> we talk about getting back above this right shoulder we're talking about, what, 930? about right here? >> 930 and 955. >> 955. okay, that's the hurdle. finally, you mention in your notes today the fed's balance sheet. m2. signs of that shrinking and the question whether or not the fed has already, is already opening the drain, talking exit strategy without actually talking exit strategy. what do you think is happening? >> it's hard to completely figure out. our mutual friend dennis gartman thinks the fed is already taking the punch bowl off the table in respect may be other things going on. maybe tomorrow if we get a chance we can put up on your telestrator the monetary stock and people can see for themselves that it had a rocket

shue and not is pulling back. there are a lot of strange things happening. u.s. treasury, mont tear stock. these will be an important several days here. >> yeah. we don't have the chart right now but you know we're going to at some point, art to play with this toy. talk to you soon. >> thanks. >> art cashin. coming up, the "squawk box" two-minute drill. former delta ceo ron allen. talk with him in a moment. before we go to the break, a quick look at gold prices this morning. slightly higher. in fact now up by $17. "squawk box" will be right back. welcome to the now network. population 49 million. right now, 1.5 million people are on a conference call. 750,000 wish they weren't. - ( phones chirping ) - construction workers are making 244,000 nextel direct connect calls.

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welcome back, everyone.e. time for "the squawk" two-minute drill. the former ceo of delta air lirns and sits on many boards including coca-cola's. when you look where we stand in the economy, what's your best guess? >> i'm an optimist. we're going through very difficult times but we have to keep in mind we'll get through it. a new administration pushing on a new program. some successful, some will not be, but we're getting more debate now on the issues which i find encouraging and it takes me back to 1992 with the clinton administration. a lot of new programs and ideas fwop years later the republicans came in with newt