>> you can't react as quickly as we can. they are reconfirming the '09 outlook of $1.70 to $2.10. >> and the question on that is have they affirmed it once already? >> they've reaffirmed. >> i don't think so. i think they put it out and they're affirming it now, but the wire services say reaffirming. >> well, the company says reaffirming. >> i don't think it's a reaffirmation. i think it's an affirmation. what do you think? >> i think if the company says reaffirm, i think that's their word. >> i'll bet you this is the first time that they -- i think confirmed their previous -- >> maybe that's a better word. >> the sales of agency and nutrition, they did better. a lot of this they say was driven by north american corn and soybean increases.

sales for color coding was down because of the auto industry. >> sales in europe, down 38%. asia pacific, 18%. latin america down 20%. >> here is their macro outlook. anticipates prevailing weak demand across key markets other than agriculture, with gradual improvement from current recessionary levels during the remainder of 2009. it doesn't look like they're looking for any whipsaw action in the global economy this year. >> let's ask an analyst about some of this stuff. bb&t analyst mitch, do you have a machine in front of you or are you listening to us? are you ready to tell us whether this is good or bad? as they said in risky business, are you ready, frank? >> a combination of both, actually. it's interesting because this

result is a nice upside versus where the numbers were. the numbers had been coming down over the past month on where dupont was. but the result is relatively in line with what ppg, the sort of upside we saw out of ppg last week. they rt rod a 21% upside. this upside is a little less than that, but it shows that a lot of the external environment is providing the head winds, however, the companies are able to take a lot of costs out of their businesses and generate a better than expected results here. >> that's been our thesis and something that we've tried to focus on and that is where revenue is going to grow. ibm, good numbers, but weaker than expected revenue. ge, similar situation. here we are once again, this is a nice beat on a bottom line, but you can't cut costs forever.

>> well one certainly can't save your way to riches. yesterday after the close, monsanto and dow announced that their joint license product, their smartstacked corn, a revolutionary new technology and genetically modified corn seed, that that got approval from the epa for the planting season for next year and they're going to be able to reduce their refuge acre ves 20% to 5%. so this is a major step up for monsanto in its head to head battle with dupont's pioneer business. >> dupont points out that they made some gains when it come to the seed share. thoul do you think this would get eaten away once this new seed gets launched? >> certainly in 2009, dupont lost some market share.

so they were able to reverse that this year, not at the end of the mon santo. mon santo and dupont were able to gain share, but in 2010, monsanto gets the upper hand again. >> the 1.70 to 2.10, the company is backing that. normally a company would be conservative. are analysts undershooting if the company says they might make as much as $2.10? that's 30% more almost than the low end. >> well, you would certainly anticipate that that consensus number will materially move up into the low 80s or so. and again, it just comes back to the point that they are able to slash costs a bit more than the street had expected. and also, we are expecting to see a little bit less of a headwind on the currency side in

the back half of the year. and we, too, expect people will start making cars again. >> the company says it's going to continue to cut cost redaction. >> history as a guide, look for it to be in the mid single digits, i would think. >> are they confirming the outlook for the year or reaffirming? >> those numbers sound familiar. we're currently at $1.85. given the range that you just talked about -- >> you can't just give them once. you have to give them and say we're affirming and reaffirm the affirmation. you can't just give them once and reaffirm. that's our point. >> believe me, that's how we feel about it, too. >> did you leave, frank? >> no, i'm still here. i'm only on my first cup of coffee. >> all right.

we've all had a pot of coffee already, so frank, thanks for your time today. >> thank you. >> confirming. >> we've talked about dupont, coke and caterpillar. two others to walk today, utx and merck. shares of united technologies are up, expected to earn income. plus, merck is seeing earning 77 cents a share while revenue year over year reclined by about 3%. >> the fed chairman going to capitol hill, he will deliver a semi-annual testimony on monetary policy before the house financial services committee. that begins at 10:00 a.m. eastern time. then he does the same thing tomorrow on the senate side. a lot of trader res hopeful the fed chairman might offer more details about the fed's kwaupt tafb easing program. but in an op-ed today in the

journal entitled the fed's exit strategy, bernanke's says the fed's actions have softened the impact of the financial cries and then adds a policy of -- will the extended for some period. we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. he goes on to talk about how to do that. you can watch his testimony live beginning at 10:00 a.m. eastern time. >> did you see some of the comments in the wall street journal about ron paul who thinks the fed should be completely abolished?g >> yes. >> at least audited. >> and bernanke says an audit would be disastrous, to go in and see what these guys have been doing. i didn't think anyone needs to -- >> we don't need to know house

the sausage gets made? >> we're talking about pigs getting totally -- >> okay. some are eating breakfast. >> it's wrapped in intestine, carl. >> oh, anyway, california governor around 08d schwarzenegger and the state's legislative leader reaching a deal to close california's $626 billion shortfall. >> this should make government more efficient and we are cutting the waste, fraud and beautiful in some of the programs. all around, i think this is a great, great accomplishment. >> the agreement has to make it through houses in the legislature. the deal includes billions of dofrls in cuts, us plus a combination of borrowing, shifting money from our government accounts, and shifting taxes. how the golden stand lives

among its guest. tune in at 9:00 eastern time, that's 6:00 p.m. pacific. >> meantime, let's get a check on the markets and how they're going to shape up today. oish ya had a pretty good night overnight. the nikkei was closed for a holiday and played catchup with the nikkei up almost 3%. but guys, the dow is up 6 straight, right? we know this? that's the longest winning streak since april of '07. >> doesn't it get us back to levels that we haven't seen since november for the s&p? >> and the dow is positive once again for the year. about 0.8%. that's why we played back in black at the top of the show oh, that got me for a minute. shut up, mr. i drank a pot of coffee already. i was worried about my machine that wasn't working. >> i know. you had an anchor hissy fit this morning. >> it's not going to work! dupont is coming out any second. >> the last anchor that could do

that is over at some other network. >> who, oh riley? >> no, but the same network.u! >> you're not talking about do it live? >> no. i'm talking about 1,000 stocks in the s&p 500, that one. >> oil was up a little bit this morning. yesterday, $54.32. the ten-year note will be the center of attention today when we see the chairman testify on the hill. dollar edging a little higher, at least earlier this morning for the time being. the dollar index is at 78.91. goal, meantime with the dollar relatively steady, so is gold down 10 cents. let's get to our tuesday task force this morning. michelle girard of rbs and tim ko ori a n join us to put earnings season and they are

health care thing appears to have more challenges. what was your take? >> i have to say, the op-ed piece lays it out there. this seems like it's pretty much the testimony. nothing new. it's discussing in detail all the options the fed has. reassuringel everybody that the fed has the ability to reverse policy when it's time. he is trying to say, we're ready, we node what to do when it comes time to unwind all these programs and he doesn't want the market to think that's illustrate. and they're would about going to quickly. so it's trying to find the balance na we have the plan, but he doesn't pull the trigger yet.

>> he tells you the plan, but doesn't say when. >> it's a signal to the market that they're not ready to be raising interest rates so the markets don't begin raising interest rates ahead of the fed and snuffing out any sign of recovery that is sort of perhaps beginning to take hold. i think, too, there's a lot of disagreement on the committee. when he talks to date, he's representing the entire fomc. and that committee isn't really in agreement about where we are. you have some who think they're worried about inflation, they want to talk exit strategy and are probably closer to implementing it. and you have others and i think this is the chairman in this camp who are very concerned about the economy. i still think it's vulnerable. don't think that we're close to going down that road. they can't talk timing because there is an agreement among themselves as to what the time frame really is. >> tim, smt market take solace

in believing low interest rates will be here for a while? >> we've talked about the goal that government place and in regulating some of the markets. we feel ultimately it's the markets. the tep-year treasury was at around 2%. . we've not quite doubled that. offer the longer term, higher interest rates are a threat and obviously with, the things that they're talking about doing will be reflected in that yield. certainly the interest rates have not gone up at many people have feared, at least to the extent that they've feared. >> right. >> so i think that has helped the market that they have not gone up as much as maybe some people thought. >> one other thing that's helped the market is obviously these earnings. people are giving the 7% rise in

equities last week aside, people are beginning to at least pay attention to top line growth and revenue growth. do you believe the market is as good as the markets would have you believe? >> well, i think that the earnings expectations have been fairly low and that over the last several quarters, you know, companies have taken this opportunity or they've, in many cases, been forced to reinstruct tr their cost structures to get their earnings where they need to be. so i do think that earnings are not where the needs them to be and although the earnings over the last several quarters, over the next two years, focus years, the revenues will go up. we feel like we are in a recovery right now and that the

market is following a pattern that we've seen in several previous market recoveries where the market which hit a bottom on march 9th estimates or redikts that the recession is going to be ending in one to two quarters and it looks like that's happening again where we're most likely exiting the recession right now. and although the earnings are not where they should be right now, they're expecting expectations and have years to get back to where they need to be. >> there is some similarity that had you believe maybe we're in for a sign of surprise resilience in the economy. >> coming out of a dope recession, you usually get strong recovery. statistically, the levels of activity are so low, you can see a 50% increase, for example, in housing starts over the next years. the level would still be at

historically low readings. it's levels we didn't think we would see coming into the recession, and yet it translates into very strong growths rates, even though the overall activity levels are low. i have to say, though, with respect to the markets, we do tend to -- we keep swinging back and forth. the economy still tries to find a market here. the green shoots is done we thought. we have some greens. now everything seems better and brighter. t and the truth is here that these rvnt around here. it's going to take a while to dig our way out of this. on the other hand, i don't think they were as gloomy and all was not lost as people i think thought were the case after we got the disappointing jobs numbers. >> this economy is an athlete and a pretty good one. >> exactly. >> michelle, tim, thanks for

your time. >> thank you. >> thanks. coming up, chipmaker texas instruments beating the street after the bell, but it cautions the economy is being hit with a big fine.

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dlvb sharp inventory corrections in the last four years. joining us now is talk about this is adam from jeffries and company. adam, we had numbers coming out last nibert than the street had expected. a little bit of caution ahead of

the numbers. >> they have had a very big move. there were very high expectations going into the quarter. the quarter was very solid across the board in terms of revenue gross margin and the guidance was quite strong. there was a decent size range to that guidance, but clearly, things are recovering nicely for them right here. >> what would it have taken for that stock to trade higher last night? >> that's a good question. obviously, expectations were high, but we'll see where it trades the rest of the day. obviously, after hours is just what of an indication here. but as you look at what they're doing, they're still shipping below end demand here. they have shipping below where they were. their distribution channel goes reduced by 10%. so they've narrowed that gap. but still, that's a good sign that they got the ghap gap to close and later in the year they could build inventory as we get

into a seasonally strong second half. >> first of all, when you have back to school sales start to come in, how much strength have we seen to date? have we made it through the worst of the economy. >> that's a good question. obviously, the consumer has been more resilient than we thought. people are cautiously optimistic. in terms of semi conductors, the supply chain has been cautious. it's been relatively lean. people are taking a cautious approach, which i think is a good thing given the economy. but in my view, the second half should be stronger than the first half. >> texas instruments has been up 13% since we heard from intel. across the board, semi conductors have been rallying after what we heard from intel. which stocks do you like the most at these prices? >> so we have a group of names that we prefer and we're trying to focus investors beyond the downturn recovery.

and you mentioned qualcomm and that's one of a small group of companies that we're trying to point investors to that when you look beyond the downturn recovery in semi conductors where there is maturing going on, they have some very good secular tailwinds going on in terms of share gains and market dynamics. so qualcomm in terms of the move to 3g and beyond to 4g and lge, they're going to pick up share. they don't have much share at nokia. we like qualcomm and think that's a much better play here over the longer term. >> we just showed your disclosures. you didn't have any disclosures on texas instruments. can we assume it's the same on the other stocks that you've been talking about today? >> that's true. >> when we come back, kevin ferry joins us plus a report, california in crisis, tonight at

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good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and carl quintanilla. this is like march madness for us or october for a baseball player. this is earnings central when the week when most of -- i thought, you know, you were originally scheduled out. but because of your love and your -- >> i wouldn't miss it. >> no. and today, five dow components. we already have dupont, came out with results in the last half hour. i'm waiting to get an indication about whether the market likes it. still too wide. >> the bid keeps coming up,

though. >> yes. 5 krebts versus estimates of 53. however, like we've seen some so many cases, the revenue number was below where the street was and the company continues to talk about cost cutting. to make these better numbers. sales fell 23%. a lot of that was forex related. and the outlook was confirm for the year from $1.20 to $2. they just beat by 11 cents in this quarter, so we have an abdomen list saying probably you'll see the street come up to at least $1.80 or so and still not know about the recht of the year, but come up on the full year based on this quarter alone. so one down and four to go before the opening bell rings. we're getting a lot of s&p companies, too. but in the dow, we're waiting for caterpillar, merck, united technologies and coke cola.

we have many, many other numbers that will be manning that desk and womaning that desk all day long. >> also our other top story of the morning, fed chairman ben bernanke will be delivering his semi-annual testimony to monetary policy. he goes before the house financial services meeting today at 11:00 then does the same thing tomorrow in the senate. he lays out much of this today in the wall street journal in an op-ed piece. you can catch chairman bernanke's testimony live at 10:00 a.m. eastern. meantime, the president launching a media blitz, making a personal pitch for health care reform. he says the august deadline for legislation may, in his words, spill over.

but the president repeated his call for reforms enacted soon. he alsory load on the government's action to take action. you had a wall street that took risks, acted irresponsibly and almost dragged the u.s. economy into a recession. we had to intervene and did to stabilize the financial system. >> a new gullup poll shows americans are becoming more optimistic will a recovery. president obama says he is not seeing enough change on wall strut. >> he mentioned that he has less control now over the banks that have paid back the t.a.r.p. money, goldman sachs, jpmorgan, but interesting how he thinks wall street knot contrite enough, so don't expect the pressure to go away any time

soon. >> even in the u.s. day today -- >> day today? >> pointing out that yesterday's health care beat, i think it was at the children's center, was six out of seven days or seven out of eight days -- >> the only time he didn't talk was yesterday. >> cleveland clinic on thursday. >> the top thing -- >> absolutely. but have you ever seen anyone speak eight out of nine votes? and he struck a more populous tone yesterday, saying that insurance companies and executives have reaped a windfall because of the broken system and it kind of got more populist than that. >> sympathy em lar to the same thing he said last night. >> and he talked to mayor detective on "today." >> people on the other side mentioned that a republican

senator said this is about me and it's notice about -- when we go over to the chairs, then you see something like a lead editorial today. and this is owned by rupert murdock. do we have to say that every time? >> you need to know who is back this. same thing we just talked to the analyst and said what are your -- we've got your disclosures. what about the other stuff? >> i think there's a double standard. >> i think people understand what the biases are for the "new york times" and the wall street journal. i think there are a lot of other organizations that are less well known. >> i think it's all dependent on your view of the journalism. >> depending on relatively, i

think a lot of people would say you're in the middle. >> people on the other side of the world we think are upside down. they're not upside down. they're rightside up. >> oh, no, they have off the mark. >> the dow was ready for that. >> yeah, it was. you can sink your still in the universe and as an object goes by, you might be moving or the object might be moving. you don't know. it just is all relative. >> depending on how fast you're going, it's -- you're lame. it is much shorter. >> okay. >> futures are still trying to digest dupont. we haven't really moved since

those numbers came out. we'll talk about for how long companies can cut costs later on this morning. oil is up more than 7% in the past four sessions. i think we're still above $64 at $ 6/4.14. the ten-year note, around 3.6%. the dollar is relatively steady. gold really hasn't changed at all, just about a dime at last check, now down 60 cents to $948.20. standing by is kevin ferry. kevin, what do you care about today, five dow xhoent or whcom what ben bernanke has to say to the fed? >> he's playing very smart ball here by getting out into the op-ed. we thought he would have a tough pass because what we would had r have liked to have heard was he is going to have to lay out a

exit strategy and say but we're not ready to sdoout execute. instead, what he put out is we're not ready to execute it, but here is what it look look like. so i think the market should embrace it better than it is right now, except to say that the futures market for this type of rate structures moved aggressively in the direction of these type of comments. so the overnight reaction or the mortgage reaction, as we read the article is maybe more muted than you would have thought. >> oil and gold are on the move again, kevin. is that permanent now between commodities and equities that represents the risk trade or something? will it ever be simple? >> that's a great -- you know, i've skravpd my head about that one, though. so i would say we're on the

lookout for it. so far, no signs this week. last night, larry summers made a comment that they were going to make a push in the administration for more ex ports. we feel that's code for we would like to see the dollar lower. certainly the market has moved substantially in that direction. so traders are embrace that. i think that you have to watch that. other countries may not allow you to drop your kushtssy on them. is he i'm not sure that's the best policy. but the other things that you pointsed out, the earnings and the smart plays have led to a positive environment. >> do you remember summers' comments are the other thing indicating that the administration would like to see a lower dollar or providing if

the dollar does fall under pressure for all the spending being done on the federal level? >> that's a good point, becky. maybe i'm not giving him the benefit of the doubt. but i think from the administrative policy should go back to a universal policy of dollar strength. they should say, and especially with what's going on with regard to spending, that they would stand by the standard by which we're going to use this debt. and again, i think it's difficult to say that you're going to lower your currency on another country, you could get into a situation where everyone tries to put their currency down on the other guy and that is not a good situation. >> kevin, rick is back. rick is back. >> i hope i did okay for him.

>> you did well. i know you were hoping you could keep doing that at 8:30. don't -- >> you know, kevin is a regular player. >> but don't throw your alarm clock away, because you've got a future there. a future? he has a present. >> hopefully there's still something for me to do in the markets, too, joe. >> no, no, television. >> you know, you can lose money or make money there. do you have an agent yet? >> no, no, hook me up. . >> you'll have my aekt, for johnny cars yoon, thars hit hund fund i bet. joining us this morning to talk

about it. ken hines. good tovpz you back. if fist quarterly asset since q2 of '08, how is it going? >> we saw a lot in the second quarter that was the first increase since a year ago and largest since two years ago, the second quarter of 2007. the area of the industry that was most supportive of that gabe or most of the contributions from that gain was actually from the performance in the second quarter as the industry posted a gain of better than 9%. the strongest quarter that it's seen going back to the fourth quarter of 1999. >> and largely on the back of emerging markets, right? >> exactly. emerging markets, three of the areas that were down most in 2008 and most out of favor have posted in a berts than 20% gains

in across the board. emerging markets, ash trorn and basic material. >> investors continue to slowdown. the past two quarters, you've seen $250 billion from deans of investeders over the first and second quarter. last year that only partially upset the approximately $140 billion increases associated with the performance. >> i think week gore to look at the sponge. >> i can with the consolidation playing out in the auto industry, i think it's playing in the funds to funds industry. a disproportionate amount of capital was redoomed, reaching

from fund-to-funds in the second quarter. i wonder, you know, markets are basically flat for the year, although people are hoping for more than that. in the meantime, we're getting decent numbers out of the hedge fund industry. is the managed getting any vindication or digging out from the hit its took to its model last year? >> you know, i think it is. it's tough to say because last year was difficult for so many reasons. it was such a difficult year for equity markets. it was a very difficult year for the hedge fund industry, as well. on average, the markets declined. >> interesting numbers. anybody who needs to know more about it can do to your research.

ken, thanks for the time. >> thanks, carl. >> we'll get to the news making headlines outside the world of business.

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if you were paying attention during the braeng break we just came back are from, you saw something, and i'm not talking about the ad for "funny people" -- >> which looks good. >> with seth grogan, which was mentioned on entourage. why would katherine hagel ever be with that guy -- >> from the movie "knockoff jt ." >> this is setting up to be a battle royale. once hillary was devoted, feate never came up again. once immigration -- it was dead. that's why the president, i think, wants to do this by august. now, listening to all the promises we try to figure out, if i can keep my plan, i would be happy. and the president tells me, i can keep my plan. if i like it, i can -- i'm

sorry, i don't want to go in the public plan. i'm sorry. with all due respect, i don't -- >> you don't have to. >> now, just to show you the difference, in "the wall street journal" today, i mean, if you're this strident about it, this is setting up an argument between two opposing sides of ideology. if you like your health plan, you will not be able to keep it, under the president's plan. >> this is where i get confused. >> then they go and show why. because in the house plan, arisa, there's a five-year grace period, 5% of all public plans is because of ari is a. there's a five-year grace period that you get that after five years, the government will be able to decide, and will have to approve whether you can have that retirement plan. this is in the body of the piece. if you like, it you won't be able to keep it. more the we inspect the house bill the more we view it will be one of the worst pieces of

legislation introduced. >> introduced. >> right. >> in the house. >> in the house. >> we had paul ryan sayed, it's going to get discussed. they're complaining about -- >> this now get into the area we saw in 1993 where people get very concerned and very afraid about what's going to happen. i have concerns, too. we have pretty good health care plans, pretty good packages. >> we have the cadillac plan. >> things that make sense are the idea of taxing us. we should be taxed on the benefit we receive. that i have no problem with. >> if you have a cadillac plan, maybe it should be taxed because it's like a benefit -- >> income and benefits, it should be taxed. i have no problem with it. >> then the union plans get taxed and -- >> everybody has to give into everything. everybody's going to have to give on something. >> what is the president willing to accept? how low can he put the bar? >> what does he need to be able to bend on it if he expects to get anything taxed. >> he'll throw rich people under

the bus before unions. >> the democrats in congress are backing down. they're saying, forget it, too many of our own guys are coming. up and complaining. we're waiting for merck, coca-cola, caterpillar. yeah, i'm looking for car insurance that isn't going to break the bank. you're in the right place. only progressive gives you the option to name your price. here. a price gun? mm-hmm. so, i tell you what i want to pay. and we build a policy to fit your budget. that's cool. uh... [ gun beeps ] [ laughs ] i feel so empowered. power to the people! ha ha! yeah! the option to name your price -- new and only from progressive. call or click today. tdd#: 1-800-345-2550 including who i trust to look after my money." tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "the dust might be settling... tdd#: 1-800-345-2550 that's great, but i'm not." tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "i guess i'm just done with doing nothing, you know?"

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earning central, full of blue chips, dupont, merck, coke, and cat all on today's agenda. southwest on the earnings runway. ceo gary kelley talks to "squawk box" first about the quarterly result. where are people putting their confidence, wall street or washington? "squawk box" begins right now.

♪ i'm living where the devil is due ♪ ♪ and i'm burning i'm burning i'm burning for you ♪ >> good tuesday morning, we will to "squawk." i'm joaquin that nil la along with joe kernen and becky quick. we're waiting for do you components, merck, coca-cola. futures responding to dupont which we got a half an hour ago. here are the stories we're following. the fed chairman on his way to capitol hill. i think we do have merck, though, joe. if you're ready, i'll go to you on that. >> what's the expression? i was born ready, is that what they say? >> you were born ready. premature but born ready. >> i can start with the sales number on merck. looks a little below like we -- no, actually, it's above. $5.9 billion versus 5.8. that's a shocker that merck's actually able to beat on the top line as well.

i saw sheering earlier. on america, i don't see the bottom line number that has backed out all -- i don't see the nongap yet. let me see if i can get it on a different service because the estimate for merck is 77 cents. looks like 83 excluding items. so that is about, what, six cents ahead of expectations. nongap, 83. and the estimate was 77 on better than expected revenue. looks like gardasil, the company sees fiscal '09 revenue at 23.2 to $23.7 billion. >> we're looking for the earnings -- >> that's -- $23.3 is the estimate for revenue. did they give an outlook? >> they call it reaffirming the gap share ranges. they say they're looking for

nongap earnings per share for 3.15 to 3.20. >> utx at $1.05. they beat by a penny. for the year looking for $4 to $4.20. the street's at $4.07. straddling expectations there. >> here now with their instant reaction to merck's numbers is katherine arnold, senior pharmaceutical analyst at credit suisse. will the pharmaceuticals, katherine, beat on the top and bottom line? will they be the only group that does? >> we're seeing a little stronger top line than we expected. keep in mind, the first quarter top line disappointed a little bit. this quarter it looks like we're slightly beating expectations from the three companies on far. >> i remember one that was not gray -- maybe the consumer product business isn't as good as the -- merck's more of a pure pharmaceutical play, right? >> right.

they have a small kurm play and they have animal health and some diversification but mostly pharma. >> that might be specific with the company, whatever's going on with patent expiration or new drug may have more to do with the macro virment with pure pharma. >> we weren't sure how much of the pricing would fall through. but we are seeing numbers that better aproximate numbers. >> did you as an analyst have expectations for the big drugs merck has and have you been able to look and break those down to see what was above and below? >> it looks like singular number of 1.3 was better than what we were looking for at 1.2. we were above the street. genuvia, slightly above the street there. cholesterol business, seeing the numbers out of sheering and

merck, better than what we were expecting. so i think merck had a weak first quarter last time. we really felt if they just beat it, if they just met expectations and had solid product revenues the stock would real estate positively. >> and it is. closed at 27.94. sheering's results were above expectations as well. what do we need to know that the company is saying here about the eventual merger? >> you know, the expectations, obviously, fourth quarter. most people think it will be earlier in the fourth quarter, not later. so looking for any commentary about the reviews going on with european authorities, china, where there's less -- you know, perhaps less visibility. >> did that number, the sales number, is that above or below a year ago? >> the sales number was -- >> down 3%, is that right? is that what i'm seeing, second quarter sales?

>> second quarter sales last year were 6051. >> so the down a little bit. i'm just wondering if you back out forex what would have been? >> the dollar to euro exchange was about a 12.9% effect for the quarter. so they were all battling -- they have 50% of their sales outside the u.s. so these guys were all battling that. >> do you make any calls based on what will happen to the pharmaceutical companies if the health care plan that get put forth start hitting them more for paying for this plan? >> i think investors are still bracing related to health care reform and what it means for these stocks. you know, the proposed $80 billion that came out of the pharma organization in the white house was pretty pleasing to most. you never know. late stage games can provide surprises on the upside or

downside so investors are watchfully waiting and hoping for medicare rebate not to be touched. >> anything on the new drug front, either approvals or key data, released for merck or sheering? >> the next three months on merck and sheering are all about the deal. sheering plow has the squ schizophrenia drug. 2010 could be different for a lot of names in the group. >> katherine, thank you. we appreciate your quick read on that. we have merck up nicely. now dupont is up nicely, too. 28.62, up about 30 cents on the bid. 40 or 50 cents on the ask. uts is still too wide. >> it is.

$1.05 which does include a gain of 6 cents and restructuring charges of 22 cent. so $1.21 but who knows what analysts were -- >> we can go with that until we find out that weren't. >> $1.21 over $1.04 estimate, they'll fall about a billion short. they say a decline in order appears to have stabilized although orders remain lower than previously anticipated. that's part of the reason they're lowering the revenue outlook. currency took out 11 cents, so that was rough. they say four out of the six business unit increased margin by 100 basis points or more. the theme, the dynamic on all of these big international companies is revenue that looks a little light but the cost cutting puts earnings over the top. >> ceo saying focus on working capital across businesses drove this performance. that's what you're seeing from a

lot of these companies. cost cutting, cost cutting and focusing on where they're spending this stuff. >> for the full phil fiscal year, revenue is -- >> no, about a billion. they're looking at 53 where the street was at $51.4 billion -- >> no, the previous, $2 billion than their previous -- maybe analysts were already down a little bit. their prior view had been 55. how is that 4 to 4.20? >> the high end before was $4.50 so they -- >> but the street was looking at $4.44, so well above that range. >> 4 to $4.20 is their guide -- >> they had guided at $4.50. >> they had? >> yeah, they had said $4.50, so that's well below. >> this doesn't -- well, we'll see. $2 billion coming off the company's own revenue guidance and you've got --

>> at least 30 cent off their -- >> off the analyst -- or what was their -- it was $4.50? >> the street's at $4.44. the analysts are saying -- the company said $4.50 before. >> that's interesting. i don't know you would have necessarily thought that about uts. >> a year ago -- well, two years ago we were talking about air conditioners in china, right, elevators in shanghai. >> yes. >> helicopters, but orders -- i mean, the order flow year over year is what you would expect. 40-plus percent, declines in orders. maintaining the backlog is going to be the challenge in years to come. >> but did they really -- what i don't understand is how they could beat this quarter by so much and then lower the year -- >> all business units achieved double digit operating -- you're talking about six units that are squeezing to make sure they could do it to offset the $2.7 billion revenue -- >> but analysts are already at

$4.07 for the year so that's okay. analysts were well below the $4.50 so $4 to $4.20 isn't bad, right? >> again, coming down from the previous top end -- >> $4.07 is where the street is so $4.20 is not that bad. we'll see if this eventually -- how this plays out because dupont and merck are both helping the dow. >> uts is -- >> it's not all going to be roses and sunshine? >> it can't be christmas every day. >> every other thursday. >> what about stock market furgts? >> a little above by a point and a half. >> is school out? did you just ring the bell? does we say something inappropriate? we have an inappropriate bell upstairs. mack, what are you doing over there? >> he's trying desperately to stay out of this shot. >> you're on camera, mack. inquiring minds want to know. you're making noise, disrupting

the show. is it a monitor? what's the problem over there? this is -- this is unacceptable. anyway, we're wondering what the focus is going to be today when you start looking at the markets is it going to be on the fed chairman's testimony? let's ask matt, a trader at la salle group. what do you think? are you mulling over the numbers out or the op-ed ben bernanke had in "the wall street journal"? >> i think bernanke took the element out of surprise for today's testimony in his memo written yesterday. the bottom line, rates will be held low for some time to come. i don't think he sees inflation as a problem we have to deal with right now. so essentially the main concern staying on the economy, keeping the economy -- i should say, getting the economy back on track. really dealing with, you know, inflation right now is the lesser of two evils. i think the market will continue to focus on earnings which have

certainly been welcome with open arms thus far. one thing we'll be looking at is the retail sector. you know, that's something i think that could potentially derail this rally. i think that's going to be a very good real-time meteric. >> retails come at the end of earning season, after the very beginning parts of the season we've seen six days in a row of higher numbers for the markets. can those trends continue and where do you start to run into resistance, do you think? >> i think we'll start to run into some here. we're at the top end. we're basically breaking out of this summer trading range we've been in. if enough people get in and volume picks up we could see buy-stops run up to 1,000 very, very quickly. but i do think a run at that level will be premature, over at least the next couple of weeks and i think it would be met with strong resistance and fail. the other thing to keep in mind, as you were discussing, a lot of these numbers, based on extreme cost-cutting numbers.

if you set the bar low enough a lot of expects will beat expectations. that's what we're seeing right now, what i call a relief rally. >> matt, thanks. got any comment or questions? our address is squawk@cnbc.com. when we come back, he ran president bush's message on everything from the economy to health care reform so what does dan bart let make of the obama administration? he'll join us with some pretty interesting information about how the public sees politicians. time now for today's aflac trivia question. on this day in 1904, louis rigolly broke the 100-mile-an-hour barrier while driving a 15-lighter gobron brillie in what country? d how come? well if you're hurt and can't work it pays you cash... yeah to help with everyday bills

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now the answer to today's aflac trivia question. on this day in 1904, louis rigolly broke the 100-mile-an-hour barrier driving a 15-liter gobron in what country? the answer, belgium. >> i new survey shows the public is losing some trust in washington and gaining trust in wall street. here now with some numbers on that, first on cnbc is dan bart let, president and ceo of public

strategies. awe probably know him as former white house communications director under george w. bush. he joins us. good to see you. >> how are you doing? >> i'm good. your new firm does these surveys of public trust in government and business on regulation in conjunction with politico. you've done this, what, three times now, right? >> correct. we've been charting this since the beginning of the administration. >> it sounds like if there's a headline, trust in business is rebuilding and trust in government is slipping. is that fair? >> that's exactly right. we saw at the beginning of the year there's a freefall in confidence of the business sector in wall street, across many different sectors of our economy. we saw an unprecedented level of trust in the new president. we've seen in the second quarter that kind of stabilized. in the find gdz we have out today, we're showing it's actually reversing. that trust in government, trust in this president is on the decline. and trust in the private sector

and in the business community is -- now, it's incremental. i'm not saying all is well but it's ticking back up. that's a worrisome sign for this administration which is pushing for such aggressive administration intervention. >> 53%, a lower number, at 53% believe businesses are on the right track. really, those who think increased regulation is going to be the answer, that's in freefall as well, down 19 points from december. i guess the question, then, dan, as someone who's done this for a living, if this window really is closing in on the white house, how much time do they have to fix it, to arrest the problem, and is the president's very busy schedule this week the answer? >> well, i think you're exactly right. that window is, slammed shut right now. this administration recognized it. they have a real challenge here, carl, in the sense that trying to change public opinion in the middle of the dog days of summer was always a difficult challenge. something i faced many different times, in which we were facing

challenges on the economy or the war, trying to move the needle, so to speak in late july, early americans are focused on vacations or other matters. it will be difficult. i think they're putting their best asset forward and we shouldn't lose sight of that and our poll demonstrates that while barack obama's personal approval ratings and trust is down somewhat. he's still king. he's now king of the hill relative to other political figures and those in the business sector but it's definitely on the decline. they're going to try to arrest this decline by putting him out there on a prime time press conference tomorrow. i'm skeptical that that's going to be the answer. i think the real answer's going to be, they're going to have to cut a deal with congress. >> cut a deal with a democratic congress. that's a little strange, dan. in the past, a lot of people pine for the days of the divided government of the '90s with bill clinton or even earlier in this decade, but that's not what we have. but suddenly it seems like it kind of is divided.

it's like the blue dogs are providing the divided government at this point. you couldn't -- look what happened to social security. that just -- that just died. that was the biggest -- he said, i'm going to use political capital, w. did, he said, i got it, i'm going to use it. that went nowhere. if that happens with health care, does nothing happen for four years? >> two of our biggest domestic defeats for george bush was immigration reform, social security reform. those were impeded by republicans. we're seeing on the other side of the aisle, now where he's trying to push through a very aggressive agenda, that the democrats are going to pose some of the biggest challenges for barack obama. and i think that's why he chose rahm emanuel as his chief of staff, someone who understood that. with all the intellect and strategy he brings to the table, the reality is the american people, and what this poll shows, are not supporting more regulation. they had this narrow window of opportunity, they used that to

pass the stimulus package. the public, according to our poll, is losing confidence the stimulus package will have any real effect in their personal lives. a lot trying to be done if a short period of time but not enough time seems to be the headline from this poll. and this administration is going to have to double down to get it done. >> i can just tell you, people that don't agree with you, whatever the percentages, are going to write off everything you're saying because of your last job. plus, earlier when you first started, you said, we're seeing a little bit of a move back to the corporations and business and the private sector away from government but all is not well, as if we can measure our wellness by how much people are rejecting government fixes and coming back to business and private sector ficks. >> that's exactly right. one of the most sobering realities is americans have a dim future about the economy. as they look around the corner

and think about their prospects personally as well as for the overall economy, those numbers don't bear well either. that's something the administration, and particularly congress, is going to take a look at as they start thinking about the mid term elections next year. politics and economy and public opinion are all mixed together here. and it's a combustible equation. when you look at the fact that the issues we're facing, the lack of trust in which the public has across the board. you're right, this is nothing that ceos across america should be cheering about, the fact it's starting to uptick because they're coming off historic lows. but it is a sign there's kind of a right balancing or a balancing out of the ee quul lib yum between the private sector and government. that's something most americans -- you know, we are still a center-center right country, that's going to happen. this administration pushing so aggressively is now going to have to deal with that fact. that fact will find itself in moderate democrats, moderate conservatives -- moderate republicans. that's where, obviously, usually

that's when a deal has to be cut on this big legislation. >> it's going to be fascinating to watch over the next few weeks. we hope you'll come back with more numbers in the future, dan. >> will do. coming up, more earnings on the way, including coca-cola. 

you thought earnings were already at a fevered pitch. guess what? you have not seen anything yet. we're going to be getting the numbers from dow components, coke and cat pirl. they're expected within the next few minute. taking its rightful place

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welcome back to "squawk box," everyone. let's get a check on the markets this morning. the futures have been slightly above fair value. just barely. as we heard from many dow components out with earning. right now you're talking about dow futures up by almost five points above fair value. the dow components we've heard from, dupont first out of the gate, beating expectations by eight cents, mostly because of cost cutting as the company tries to continue to deal with the weakness in some key markets, like the automakers. that's been a big issue. also beating consensus today, drugmaker merck. it earned 83 cents a share when you strip out items for the second quarter, six cents better than expectations. united technology beating consensus by a penny, earning

$1.05 per share. for the full year it said it's looking for $4 to $4.20. we'll keep an eye on all of these this morning. we've been talking about a continuing trend as many companies have had to deal with cost cutting. we mentioned that with dupont, revenue below expectations once again but they did a very decent job of keeping numbers in line. they did talk about some strengths they saw in the agricultural side of things -- >> coca-cola is out. >> another dow component out. numbers on that one? >> if you use -- i want to see whether this is a clean number. it's not. 88 cents would have been a penny below. the nongap number is 93 cents, that's ahead of expectations for coca-cola. strong worldwide on case volume, growth of four cent. >> that's pretty good. >> that is good. >> people were looking for 2, 2.5 worldwide. >> is that right? >> yeah. >> the 8.27, $8.3 billion above

expectations of $8.66 billion. so all this looks -- it's pretty solid for coca-cola, which can't get a decent indication on that either. we're still waiting to get a decent indication on united t h technologies. what else is hitting? >> caterpillar. >> cat is now hitting, okay. let's go through this again. one second to hit this up. >> which had an amazing day yesterday. up 7%. >> after it was upgraded by bank of america/merrill lynch talking about how they're looking at the second quarter possibly, the low point for construction. >> as the stimulus package may be starting to -- >> i mean, caterpillar, 22 cent estimate and they're reporting 72 cents. so that is -- we'll have to see whether that's -- whether that's right. 2009 seen -- look at this range, $1.15 to $2.25.

and that -- either one of those is well above the $1.01, well above the $1.01. company seeing signs of stabilization, it says. you usually don't see stuff that overtly positive. seeing signs of stabilization. >> cat is usually very conserve ty. you said they missed? >> no. it was a 22 cent number and they're reporting 72 cents. the stock is up almost $4. >> interesting. of the last 12 quarters they've missed -- >> it's very volatile. it's like the ultimate cyclical. look at that. we just had -- it closed at 36.65 and bidding 40, asking 40.20. committed to meeting goal of $3 billion, i guess, in cost cuts. capital expenditures 1.45. fiscal '09 sales 32 to $36 billion. that's, -- $34 is where the

street is. but cat looks a lot better at this point. >> let's bring in an analyst right now, eli lustgarten for his numbers. eli, i know we're just getting these. i'm just taking a look at the release myself. what's your instant reaction to what you hear? >> it's just a big number. the question is, what else is in there? and there's inventory, so we know there are lipo profits in there, which nobody anticipated. the volume is sort of, you know, below expectations. i mean, the consensus number for the quarter was 886 or so, and we're getting 7.9 as a number. so, you know, it's a much, much weaker volume. the odds are there's stuff in there we haven't figured out yet. >> the ceo, jim owens, makes comments about despite the sharp decline in sales this is a tribute to caterpillar's

response to get through a severe global recession. is this more of what we've seen, cost cutting at many major companies? >> i'm sorry. >> is cost cutting the major reason for this? >> well, cost cutting is a big reason. there's lipo profits, i'm looking for an income statement -- >> there's 41 pages. it takes a while. >> cost cutting, tax credits. all sorts of stuff in here. this is a typical, you know, caterpillar long press release with lots of stuff in it. >> i mean, it's a good report, is it not? >> no doubt the number beats everybody by a lot. no matter what you do -- >> and the guidance, they're raising guidance. >> they said their guidance is not clean. the real issue is not so much what happened in 2009, it's what happens with 2010 because the street is split whether it goes up and down. they're shipping out a backlog of big equipment. that's the fear for next year. >> they do talk about 2009. they don't offer anything up for

2010. i guess you'll be waiting for the conference call? >> i doubt they say much about 2010. they have an analyst meeting coming august 3rd and 4th. >> eli, are you convinced cost cuts and any tangential benefits from the stimulus package can outweigh the global structure? >> infrastructure is not going to do a thing for caterpillar this year. infrastructure spending was probably going to go down in '09 and a little bit in 2010. not because of the stimulus bill but the federal government has no money, the highway trust fund runs out in august and state and local governments have no money. they're trying to hold infrastructure spending flat in this country and that will be a real challenge. >> thank you for joining us. we really appreciate it. if you hear anything on the conference call, let us know. >> southwest airlines is out with quarterly results minutes ago. we are always careful to say results with airlines because we usually aren't expecting a

profit. the a profit. gary kelley is the company ceo, joining us from dallas. eight cents a share, penny above the first call and two cents above reuters. business travel still awful, right, gary? >> yeah, it's always great to report a profit, $59 million or eight cents a share. it is nice to be different. yeah, business travel is very weak. you see it across the travel segment. hotels, restaurants and certainly the airlines. no improvement yet this year. >> do you have any visibility at all when you could expect things to get a little bit better? >> well, we've at least some transits stabilizing from the may-june now into the july time period. near 90 days. we were seeing unit revenue declines of roughly 9% in may and june. and it looks like we're going to be somewhere in that area here in july. maybe a slight uptick. but july is the peak month of

the year. so i don't think you can read too much into that. as far as business travel goes, no, there's no evidence of any improvement at all any time soon. >> you got a hiring freeze. some people are, i guess, in an early out program, 140e 0 employees, things like that are happening, yet do you normally do this? you're not sure you're going to earn a profit in the third quarter? am i reading that right, even though the street's looking for you to earn six cents. >> well, that's what we're reporting this morning. and it's really two factors there. of course, we've been talking about the weak revenue environment. there's no evidence that that's going to improve any time soon. and fuel prices. they're extraordinarily volatile. we're looking at higher fuel costs in the third quarter than we had in the second quarter. we're projecting right now to be somewhere in the $2.15 range per gallon. so that's going to put significant pressure on second half earnings alone, absent some

improvement on the revenue side. we have a number of revenue initiatives under way, so we're not sitting sti still, but nonetheless we've got a very tough second half in front of us. >> hey, have you ever given guidance for the third quarter or did analysts come up with that six cent profit on their own? are you lowering your own guidance for the third quarter? >> well, we're providing the guidance that is in the press release. in terms of how analysts come up with their future estimates, yeah, they come up with those on their own. we don't tell them a number. >> right. did you know that -- is this new? did you know that prices for fuel were going to affect the third quarter, or is this new information you're giving us? >> well, i think that, you know, the futures markets are available on a daily basis. and how people, you know, base their forecast is up to them. >> okay. is your -- >> right now we're looking at futures prices above $70 a

barrel. and i do think a lot of analysts are assuming that crude oil costs are going to be down in the $55 to $60 a barrel range. you would have to ask them why they think that's a good assumption. >> but the hedging, you live by the sword, die by the sword. is it hurting you now, your hedging operation? >> it's hurting us some. all year long we have expected to see a penalty of somewhere between 15 and 20 cents per gallon. here in the second quarter we had a 16, 17 cent per gallon penalty. so it cost us $60 million in the second quarter. overall our fuel costs are down significantly from a year ago. so the main culprit, of course, is the recession and the pressure on revenues. but we're certainly not helped by increasing energy costs from the second to third quarter and then the fourth quarter, if, in fact, that's what happens. that's what we're expecting at this point, based on the futures market. >> thank you for the update this morning. good to see you. hope to see you next quarter.

>> thank you. on coke, let's get to the "squawk" news line with david, with exit strategies. whether coke, dupont, stories are the same, earnings beat but revenue turns in light, right? >> you're absolutely correct. it's been the theme for all earning season right now that the dollar weakness, the -- we're just seeing everywhere revenue is coming in under and the companies, able to cut out the fat as much as they can and they're really able to beat the bottom line. >> were you encouraged by case volume? you can krong me if i'm wrong but worldwide may be above expectations, in north america a little narrower than some thought. >> you're completely correct with that again. coke, we've seen earlier from earning season from pepsi bottling that the volume trend in north america has continued to increase. it's continued to be less bad than it has before, just stick with that bad little cliche, but

we are also seeing latin america, asia-pacific and even the middle east, they're really reinvigorating the volume growth for the company. they were relatively slow in the first quarter but they came on strong during the second. >> coke likes to talk about share of stomach. are they taking share from pepsi or smaller regional players around the world? how's that working out? >> they said they've been taking share for the past eight quarters now. it looks like it's coming a little bit from pepsi but more from the local brands, the local, you know, nonalcoholic beverages you're seeing in these local markets. they're making a push into china. right now, they're the biggest player in china. they're trying to get into -- even more into the juice market. we heard earlier this year about the chinese department of justice really blocking the deal to get into the -- to become the largest juice maker. so it's really -- that's their growth market right now. and they're continuing to take market share from most people. >> stocks gone from the high 30s

earlier in the year now above 50. i wonder whether or not you think we may be getting to a top heavy level here? >> i think it's still -- it's a value play right now in that it continues to pay a strong dividend. it's not going to be extremely volatile. it's come off extremely well off the march lows. i do think we continue to see a little room. i think we have room up to about 65 before it gets too top-heavy. >> are currency trends going to get it better or even worse or maybe stay the same? >> well, we had a 9% negative currency impact during the quarter. i do think it's going to be relatively flat through the remainder of the year, into 2010 i do expect it to come down a little bit, to be less negative than it has. but it's still going to be a negative impact through at least the next three, four quarters. >> company beat earnings expectations, at least the data we have going back three years. at least on the bottom line, no different this time, david. appreciate your time this morning. >> thanks a lot for having me. >> david silver of wall street

strategies. revenue misses, joe, from utx, from dupont, from coke, and from cat today. like two different earnings seasons going on. >> there's an earning and revenue season, i guess. cost cutting -- a lot is forex. you can't overstate how much is like that. if you were basing multiples, priced earnings multiples, if you base it on revenues, six straight days up. >> i don't know if we've looked at at caterpillar bid/ask lately. up $4. major gain. this stock was up 6% yesterday. >> more than that. when we come back, we'll continue the discussion about this pretty interesting earning season with quarterly results hitting fast and furious all day long. we'll consult the earnings pit crew after the break. a programming note, tonight on cnbc, california and crisis, how the golden state is going to lift itself out of troubled

times, some say, and shine again. among the guests, two leaders of the state's push to get things back under control. that's 9:00 p.m./6:00 p.m. pacific right here on cnbc. the bid-ask on cat. d#: 1-800 "i'm rethinking everything... tdd#: 1-800-345-2550 including who i trust to look after my money." tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "the dust might be settling... tdd#: 1-800-345-2550 that's great, but i'm not." tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "i guess i'm just done with doing nothing, you know?" tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 "oh, i'm not thinking about moving my money. tdd#: 1-800-345-2550 i am moving it."

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welcome back, everybody. if you take a look at the futures, they have picked up some ground this morning. right now the dow futures up by 40 points above fair value. this comes on a day when we've seen the release of five different dow components in the last hour and 45 minute. of those five, caterpillar, dupont, merck are all indicated to trade higher today after coming in with numbers better than the street was expecting. utx and coca-cola also out this hour. it's a little too soon to say where those stocks will trade. we'll keep an eye on all of this. joe has this morning's stocks to watch. much more detail on what's been happening with many of those names today. coming up at the top of the hour, he has rubbed elbows with the likes of alan greenspan, geithner and ben bernanke but

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are we ready? can i go? oh, okay. take a look at a celebration, really, from the animal orchestra for future up again today. the dow futures up. that would be seven straight days if it were to turn out the dow did close higher today. let's go over the five dow components we have and others. caterpillar, 72 cents. that's well above expectations of 22 cent. a nice pop seen in caterpillar today. company is also guiding full year higher. a like this range, $1.15 to $2.25. so some visibility. that's above the consensus estimate of $1.11. you'd have to call that a pretty wide range for, you know, they don't know exactly what they're going to earn for the year. 32 to 36 on revenues. that's a wide range with first call at 34. coca-cola, 92 cents, 3 cents ahead of expectations. on revenue it was slightly below, 8.27 versus $8.57

billion. let's see if we have a decent idea where dupont's going to open. i think it was 20 or 30 cents high other the bid and the ask. actually now it's a big, widespread again. for a while it was $28.45 to $28.60. we'll see. 61 cents, 8 cents ahead. revenue was below. but the guidance for '09 is 0 affirmed at $1.70 to $2.10 versus an expectation of $1.70. united technologies reported $1.05. there was a 22-cent restructu restructuring charge and a 6 cent gain but it looks like analysts new about this because the company is saying that the number, $1.05, is the apples to apples comparison. full year is guided to $4 to $4.20 that's below the $4 to $4.50 where the company was before but okay in terms of the street. the street's down $4.10. merck reported nongap of 83 cents. that was 6 cents ahead of

expectations. in this case, revenue was above expectations. and the guidance is affirmed for the year at $3.15 to $3.30 versus a $3.22 estimate. blackrock, let's do some we may not have mentioned. reported $1.75, unclear whether that's comparable to the $1.56 reuters has, although revenue was up. lockheed martin, ahead of expectations. better than -- or revenue was above expectations here as well. full year guidance is affirmed at $7.15 to $7.35. the street, though, is at $7.41. state street reported second quarter losses of $7.12. but that included some items, the operating earnings per share of $1.04. looking for the estimate. i can't really see what the estimate and how that compares

to -- oh, yeah, operating -- i don't know if that's above or below expectations. united health, three cents ahead of expect takings, revenue slightly below the $21.76. continental reported a loss. we just had gary from southwest on, the ceo, talking about a profit of penny ahead perform continental, i'm trying to figure out what the real difference would be between continental and southwest. $1.36 is ex-items and that's in line with loss, that's in line with the reuters' loss estimate. i wouldn't be surprised if it had something to do with hedging because you know that next quarter continental -- or southwest is not sure it's actually going to be able to earn a profit and the street has it at six cents. lexma lexmark, five cents below expectations. that stock is indicated lower. revenue $904 million versus $915

million estimate. region financial reported second quarter net, a loss of 28 cents. that was five cents wider than expectations. that stock, one of the regionals that hasn't really come back from the much lower levels. finally, this is my last one, goit through them all, aameritrade, four cents ahead of expectations. revenue, $613 million, was also ahead of expectations. so, carl, one, two, three, four, five, six -- i mean, i did about 12 of them and still was able to play the animal orchestra. so if you are going to say i wasted time on animal orchestra and didn't get to the earnings, i'm afraid that won't hold water this time. and they're playing it again for you. >> i wish -- some days i just wish i could get out of my chair. it's usually about this time, joe. it's all because of you. who's the star of all the numbers, all the reports? who's the star today? >> cat. >> yeah. >> cat? >> yeah.

>> that's big, right? >> it's a live cat sound. >> yes. >> all right. >> pretty good, huh? when we come back this morning, do you know where your billions in bailout funds have gone? t.a.r.p. special inspector general neil ba rof ski says he doesn't like what he sees. plus many wall street watchers know the central bank is tough but this guy knows. fred mishkin will be our guest host. more and more active tras 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

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then you probably wouldn't have had an accident in the first place. and we're walkin'! and we're walkin'... making it all a bit easier -- now that's progressive! call or click today. blue chips checking in. dupont, merck, coke, find out which stocks are on the move. bernanke about to take the hill. fred mishkin on the state of the economy. keeping tabs on the t.a.r.p. t.a.r.p. inspector general neil barofsky on why the banks are misusing taxpayer money. "squawk box" begins right now.

good morning, everybody. welcome back to "squawk box" here on cnbc. first in business worldwide. i'm becky quick along with jkoe kernen and carl quintanilla. our first guest host is former fed chief fred mishkin. he'll be joining us later. let's take a look. the dow futures have been building through the morning, as we've heard, from five individual dow components. right now you're talking about dow futures higher by almost 48 points above fair value. this is coming after six days in a row of gains for the dow. the dow back in positive territory for the year. we'll see if this can hold. let's get to some other top stories. fed chairman ben bernanke is on his way to capitol hill. he's going to be delivering his semiannual testimony on monetary policy. this is the old humphrey hawkins. he goes before the house

financial services committee today, starting at 10:00 a.m. eastern time. california governor arnold schwarzenegger and the state's legislative leaders reaching a deal to close california's $26 billion budget shortfall. >> this should make government more efficient and also be cutting the waste, fraud and abuse in some of the programs. and so all around, i think this is a really great accomplishment. >> the agreement is not a done deal. it still has to make it through both houses of the legislature. but it would be be the first step toward ending the ious california has been issuing. it includes billions of dollars in cuts, a combination of borrowing, shifting money from other government accounts and speeding up the collection of certain taxes. tonight on cnbc we have a special report. it's "california in crisis: how the golden state plans to lift itself up and shine again." we'll be speaking to two leaders of the state's push to get back in control. you can tune in here at 9:00

p.m. eastern time/6:00 p.m. eastern right here on cnbc. we continue to watch the earnings as they flow in. joe is at earning central. >> we'll see some dow components responsible for the firmer tone we're seeing this morning. nasdaq looks good. texas instruments last night probably helping the nasdaq. caterpillar -- okay. that's the bid. yeah, yeah. i did it. here's the bid right here. here's the ask, in case you were wonder. here's yesterday's close, right here. yeah, yeah. all right. caterpillar much better than expected. reporting earnings far ahead of expectations. also offering some upbeat full year guidance for caterpillar. that's the star so far in the dow. we are seeing gains in some other components. let's check out coke, second quarter earnings beating the

street. revenue was slightly below. if we don't show you abid and ask, that means the revenue doesn't show anything. the stock bottoming down here at this level down here and slowly making a move, as you can see, all the way up to here. we're going to have some clouds coming in later this evening, potentially, a little bit of precipitation -- >> this is your -- this is your dream, is to imitate phil conners, right? >> over in the northeast. >> are you going to blow the clouds -- >> over in the northeast we have some very tall trees -- i'm sorry, northwest. some very tall trees. no, let me go on -- you shouldn't put me over here. wow. who's the guy that does the best stuff? is he gone now because we bought weather channel? remember that guy? he could do anything. he would do -- >> you mean from accuweather -- >> yes -- no, no, the bill -- >> bill karins. >> right. >> he's a magician. everything's backwards.

this is not easy to do. it may look easy but it's not. >> you don't make it look easy. >> chemical giant dupont beat expectations by eight cents. the company's ceo says cost reduction efforts are paying off as dupont contends with weak demand. let's move to utx, earnings beat by a penny. let's see what happens. we don't have a decent bid/ask. revenue was slightly below. merck looking good, rounding out today's dow five. drugmaker reporting earnings of 83 cents a share. that was above expectations of 77 cents. the company -- oh, we do have a bid and an ask. it's up about -- you would subtract -- here's $28.60, that's the bid. you would subtract $27.94 from there and you would get 66 cents is what it's indicated higher. i did that on the fly, carl. >> you did that to make sure carl and i get sent over there more often.

>> really? because this is painful? >> i know, i know. >> it's not going to happen, i just heard in my ear. i'm coming back. >> we're getting real comfortable on set. >> good night and good luck. >> you're the worst person in the world for not liking the animal orchestra. >> first person in the world. fed chairman ben bernanke is on capitol hill delivering his sem any annual economic analyses to the committee. first here with a preview, jeb hensarling. congressman, good to have you back. >> thanks for inviting me again. >> chairman sort of stole his own thunder by putting this op-ed in "the journal" and said what he would do about taking money out of the system but no clue as to when or if that might happen. your reaction to that? what are you going to ask? >> number one, i'm not sure as the editorial title bears, i'm not sure i saw an exit strategy

there. maybe i saw a bunch of tools in the tool box he could use at some time. but, you know, i was disappointed to see that, you know, the fed chairman believes we will have an accommodative monetary policy for quite some time to come. i think we will hear, obviously, more about his -- his comments at the hearing later today, which will expand on his op-ed. i think he'll speak about the minutes we now have public from the federal open markets committee last month where they're predicting, as you well know, 9% to 10% unemployment, not only this year but for next year as well, which clirly doesn't speak well to the president's economic plan. >> right. >> i think it shows again it's been an abject failure. >> you think it's entirely reflective of president obama? >> not entirely but we had the president say if we would put our nation in debt $1.1 trillion with the stimulus program, that

jobs would be created. and since he's come to office, instead, we've lost 2.6 million jobs and have the highest unemployment rate in 25 years. i mean, you cannot bail out, borrow and spend your way into prosperi prosperity. and i think the fed's comments clearly evidence that policy, what's happening. >> so you don't think the president's spending has emil rated the jobless situation but you think -- >> well, i think it's clear. >> right. i'm trying to repeated your point of view. but you believe the fed should not be as accommodative as it is right now? those seem to be in conflict. >> no. what i'm saying is i'm disappointed that the fed clearly believes we will be really, i guess, in the economic doldrums for quite some time. there is obviously concern about the size of the fed's balance sheet. they don't see any winding down of that position for quite some time. i mean, the -- i guess the exit strategy is not going to come in a matter of months, but in years, according to the federal

reserve. what i'm saying is i'm disappointed that their opinion is that we're going to really, to some extent, have to deal with this for years to come. clearly, i think there's a better policy to be had. that is to get more capital in the hands of small business, of entrepreneurial capitalism. i think we could, for example, cut the employer match on social security and medicare in the short term. we could cut the capital gains tax rate. a number of things we could do to help stimulate the economy. but bail out, borrow and spend isn't getting the job done. >> health care is really almost -- it's almost the number one topic, even as the chairman makes his way to the hill. it looks like the president's under some pressure here. we're beginning to hear about deals getting cut. any idea how that might happen? >> well, i mean, it's been going on since the dawn of the republic, for lack of a better term, people do get bought off in this process. i don't mean that in a legal

context. >> right. but in the context of this particular policy proposal, which is huge. >> well, it is huge. you know, you say it's the number one issue in washington. the number one issue in washington ought to be, how do we get jobs created? and i don't think spending an extra trillion dollars on a new entitlement in health care is the way to get it done. clearly we've got problems in our health care system. clearly, the policy we have today is unsustainable over the long term. but the number one priority today ought to be job recovery, economic recovery. even, you know, the congressional budget office, appointed by democrats said, you know what, it's a trillion dollar program. that's just table stakes. that's just to get the whole thing started. i mean, people need the health care. they need it when they need it. but this whole new trillion dollar entitlement that the president wants to give to essentially ration health care is going to hurt jobs, not help job creation in america. so, again, i hope that my colleagues will keep focused on what should be the number one

issue, and that is, economic recovery, job preservation, job growth. >> so you think health care reform ought to be off the table completely? >> no, i didn't say -- >> or is there a compromise to be had? is the white house -- >> i would hope a compromise is to be had. again, something needs to be done. the system we have is unsustainable. people can't afford health care they have today. increasingly, it's not affordable. increasingly it's not affordable. again, to create an entire new entitlement and thrust another trillion dollars of debt on top of the debt that we already have. we have the first $1 trillion deficit we've had in our nation's history. we're looking at more debt in the next ten years than in the previous 220. >> so does it feel to you like blue dogs are -- are you talking to them? are they saying things like, we can envision a package in which a public option is not on the table? >> well, we're seeing, i guess, more backbone from the blue dogs, the so-called fiscally

conservative democrats, and they are in short supply in the nation's capital. i hope that they're effective. you know, we've heard similar protests through the national energy tax debate and yet we got cap and trade in the house anyway, though. >> just barely, though. >> well, you know, there might have been votes in reserve. you guys have been around long enough to know how this system works. again, i have high hopes, low expectations. you know, i think they're put between kind of a nancy pelosi rock and a constituent hard place and their constituents are saying, whoa, wait a second. i mean, how much debt are we going to have? and as bad as the system is today, do i really want a government bureaucrat telling me what doctor i can have and when i can get the health care i want under their approval? so i think the blue dogs are hearing from their constituents. i hope they'll stick to their principles. >> we'll be watching that august recess, as you well know, not far away at this point, congressman. great to talk to you. thanks for coming in advance of the chairman's speech and

testify. congressman jeb hensarling joining us there. the chairman begins speaking 10:00 a.m. eastern time. cnbc will cover that live. you can catch it all right here on cnbc. of course, tomorrow he talks to the other side of the hill. when we come back, former fed chairman fred mishkin. neil barofsky not so happy about the treasury keeping the american taxpayer in the dark. so, katy kicked off the conference call... but we missed the first half trying to download the docs. which turned out to be the old-new docs... rather than the new-new docs. then bob dialed in from home and his... dog starts barking. so jen jumped in with her "two cents"... which katy missed because she was buying shoes online. and then i hit mute... to talk timelines with my team. getting lots of dirty looks through the phone in the process. - overall... - a great call. - great call. yeah. introducing a better way. learn more at cisco.com/newways [ dog barks ]

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take a look at futures this morning, which have been high are on earnings news. we're hearing from five dow components on out this morning. caterpillar, dupont, merck, coca-cola, many trading sharply higher. caterpillar has been the real star shiner, earning 60 cents a share versus the 22 cents the street was expecting. also talking about revenue for the full year, about $32 to $36 billion. all of thatle is helping caterpillar look like it is going to open about $3.50 higher

this morning. we'll keep an eye on that. when we return, we have a first on cnbc interview with the special inspector general for t.a.r.p., neil barofsky. he says the treasury department is coming up short on some big promises. treasury doesn't necessarily agree. stay right here.

welcome back, everybody. today is the day that ben bernanke goes before congress. he's going to be speaking a little later. already he is speaking to the public. he has put out an op-ed in "the wall street journal" today. steve liesman is here to tell us what this means, how much is a surprise and what this may mean to economists who are watching everywhere. >> becky, don't think too much of what was in here was new except he did say specifically we would combine two different ways we're going to fight -- or be able to ease off or get rid of accommodation out there. one is paying interest on the reserves. the second is that various financial operations they could make to actually drain off the accommodation that's out there, or the excess reserves that are there. i think this is part of an effort by bernanke to, i guess, have his cake and pay a low

price to eat it, too, later on. so it's a do youle thi-- dual thing. down the road, what he wants to say is, there's no particular concern down the road because you can take it off. he want to drive down long-term rates. >> you know, steve, we spoke with some traders earlier today who gay him kudos for this. said he walked a fine line and did it well, by saying it's going to be a long time before we need to use this, but here is the idea of how it happens. now, some of the republicans we have spoken with this morning have been a little less forgiving of this. but the guys in the bond pits don't tend to be people who are always on his side on this. they say he did a good job. >> i think the average trader understands the game here, which is we have a deflationary threat right now but that creates inflationary concerns down the road as to whether or not the fed ends up withdrawing that accommodation in time. so there's a bet on that. most people don't think today, tomorrow, six months from now, there's an inflation problem.

what they do say is a year from now, two years from now, the fed gets it wrong. i think that's what bernanke is -- there's a huge political element to this. when was it published? on the day it goes to the hill. he's telling the hill, hey, we have a plan to get rid of it. >> what's happening behind the scenes? there's so much talk about whether or not bernanke will be receiving a second term, what the administration is thinking on this. it's political not only in that he's going to the hill but people wondering if he's getting a second term. >> obama is keeping his options close to his vest right now. we haven't heard anything officially yet. he has generally commended the chairman so that raises the bar on the president himself to have a reason to get rid of bernanke. i think the betting is that bernanke keeps his job. >> that he does, he keeps his job. we're, joined by rick mishkin, who's been held up in traffic this morning. >> he can answer these questions. >> he is the former federal reserve governor, also a columbia university professor. rick, it's great to see you today.

>> great to see you, too. >> we were talking about the fed so you popped in at the perfect time, talking about what ben bernanke has put in the op-ed piece and also talking about the politics at play here. not only with him going before congress but whether or not he will keep this job. and the real pressure that's been put right now on the federal reserve just to remain an independent institution. >> yes. it's wild and crazy in congress right now. i testified recently in congress. there's tremendous hostility right now to the federal reserve. and a tax on independents, which i think could get worse over time and could be very serious in terms of damage to some important thingd we care about to the economy, particularly in terms of inflation. >> why do you think there's so much anger right now? why do you think there's so many attacks? >> i think it's natural in that the federal reserve has made decisions which i think took great courage. i think ben bernanke has shown great courage in items of making the following choice, which is, taking unprecedented actions which have shown that the

federal reserve sometimes has to be extremely powerful in order to prevent a great depression. there's a tradeoff here. one hand, possibility of a depression extremely real. i think we really had a possibility of that happening. taking extraordinary steps, interventions in the financial markets in a way that has not been done before by the federal reserve. of course, the problem is that this creates fears of this very powerful organization interfering in the economy. >> part of the concern here is that congress has created this entity that it really has no power over, in a sense. like the kid has the credit card and the parents can't shut it off. it's like we gave them power to do what? there's some second guessing now. >> there's always been tension about this issue. remember from our history, the united states was one of the last countries to set up a central bank. so that we had some very famous political events in history, particularly under andrew jackson when he killed the second bank of the united states. there's always been concern about the federal reserve. indeed, it's one of the reasons we have a very unusual system

with both the center in washington and then having a federal reserve bank in new york but then having reserve banks in the hinter lands. this is a key issue. it has worked extremely well in recent years. people have to remember during the shock we've had in this case in many ways has been worse and more complicated than the one that created the great depression but in contrast to that period, where the federal reserve sat back on its hands, this fed has been extremely aggressive. and i think it has made a huge difference in terms of where we are right now. >> you hear comments from congress, from individual congressmen who will say things like, look, unemployment is on the rise, greater than expected, you're hearing about all of these problems when it comes to real estate problems cropping up down the road. how do we fix anything? your point is it would be much, much worse? >> i have to tell you that this has been the scariest time that i've ever seen as an economist. i've been a student of financial history, done a lot of research on this topic and i've never been more terrified than during

this period. particularly when we were in march and i saw that there was really a potential for full-scale meltdown of the world economy. so the answer here is that, yes, we're not in great shape right now. we have unemployment getting near 10%. but on the other hand, you have to consider what could have been the alternative. this is always a problem when you have aggressive action by an institution if it actually has a very negative shock, they're coming in at the bad time. it's the same thing when you see a traffic jam, what do you always see? some cops there. you could say, gee, it's those cop who is created the traffic jam. >> i usually do say that. >> i have a good friend who says that all the time. >> but they do. many times. >> the cops. >> congress has big problems with new york. i don't -- they haven't really focused on that. it's the new york fed and new york fed's relationship with the banking center -- with the money center backs. >> with wall street. >> what they're going to do, they're going to end up killing

the district system here in order to get at new york. that's really the big concern, i think, because what's interesting is the district banks are the ones that are the real counter veiling force between washington -- the washington/new york access, as some people put it. >> i'm not sure that's the only issue. but it is actually true and correct, as you point out, that one of the beauties of the federal reserve system is that it has elements that mean it's not just a new york/washington operation. and that's one of the reasons why the system, which in many ways is very peculiar, actually makes a lot of sense, because you have actually contacts with people who are not just washington or new york. i've been in new york all my life but i think it's important we hear from people in chicago, that we hear from people in california, that we hear from people in texas as to what's going on in terms of monetary policy, to keep monetary policy real and more focused on the basic issues and needs of the american people. >> stay with us. more to come. steve will stick around, too. we'll take a quick break. a lot more with rick mishkin.

up next, his job is keeping tabs on the t.a.r.p. inspector general for the t.a.r.p. program, neil barofsky will speak to us first on cnbc on how the government is handling the funds. he has a mind-blowing figure. we'll talk about how reliable it is. futures are up. caterpillar up almost 10%.

welcome back to "squawk box" here on cnbc, first in business worldwide. we are just one hour away from the opening bell. our guest house this hour, former federal reserve governor rick mishkin. we have much more to talk to him about this hour, but our next guest right now is going to be giving congress his quarterly status report on the usage of t.a.r.p. funds a little later today. joining us right now on on a first on "squawk" interview, special inspector general for the t.a.r.p. program, neil barofsky. thank you for joining us today. we appreciate your time. >> it's a pleasure, back. >> we've been talking about your report. the findings that you have. it looks like you have a lot of questions of how these banks are using t.a.r.p. and also how it's been accounted for. >> really one of the main focuses of this report is transparency. what we see as a failure on treasury for requiring the right amount of transparency throughout the t.a.r.p. program. what you're referring to, of course, is our recent audit we put out about banks reporting on their use of funds. in our view, treasury's failure

to require that type of reporting on a periodic basis. >> you know, one of the findings you brought up, you talk about the 360 banks that have received the t.a.r.p. money. you say, 110 had invested it, 52 repaid debts and 50 used those funds to buy other bank. how do you figure out what are the t.a.r.p. funds, used versus other items? >> sure. i think, first of all, the whole point of the survey isn't to make any moral judgments on whether acquiring another financial nutrition is a good or bad use of funds. our purpose is to bring transparency so policymakers can make that decision. of course, money is fungible. i think what we've demonstrated in our audit and arguing for almost six months is that although money is fungible, if you ask the right questions and put the right parameters, you can get meaningful answers. if a bank, for example, says, we're going to take this money

and invest in mortgage-backed securities and you look at what their level of mortgage-backed securities were before they received the t.a.r.p. funds and what they were after they received the t.a.r.p. fund and if that number goes up by $00 million, that's a verifiable question you could ask and an answer that could be published so people can know what's going on with t.a.r.p. funds. >> some of the money -- or some of the amounts you've thrown around, though, have certainly sparked quite a bit of debate on capitol hill. you talked about how our exexposure totals up to $23.9 trillion. steve liesman has a report from treasury that he had taken a look at some of these things and says that estimate inflates it in a lot of different ways. the treasury pushed back and said there's not as much risk there and many of these programs were designed with fees and other charges that actually compensate the u.s. taxpayer. what about the difference you're seeing versus what treasury sees? >> i think what treasury has done is they've taken a number, taken it out of context, erected a straw man and knocked it down.

if you look at what our report says, and you look -- i think it's on page 13, we make it very clear what we're talking about with these numbers. what we've done is, in the name of transparency, there's so much controversy, so much discussion, not only about the t.a.r.p. but the context of the t.a.r.p. the other bailout programs, the other financial support that the federal government has. we often hear about a bank not only is it borrowing from the t.a.r.p. but also taking money from the federal reserve under the taft. so we decided to put all of these programs in one place in our report. so we go through 50 different programs, approximately 50 different federal programs. what we did for each of them is take the numbers put out by the government, the treasury, the federal reserve, the fdic and we put three numbers up. one, total number outstanding as of today, which about $3 trillion in total. two, what the high water mark is as of june 30th, which is about $4.7 trillion -- >> your high water marks have been tossed around by congressmen as well who are

saying this is the big problem with t.a.r.p. it's not just treasury who's using these and looking at this differently. i've seen it as talking point that have been out there from congressmen as well. >> this is what happens with transparency. our $27.3 trillion is the total amount, if you add up all of the programs from inception of the various bailouts until today. these are -- we hear knees numbers with inflated. these are the numbers put out by the treasury, by the federal reserve, by the fdic. we collected them in one place and added them up. when you do transparency, when you bring this information out and collect it, people are going to use it for different purposes. >> yeah, but you -- but you're the inspector general. knowing -- i don't know if you saw the circus that was house oversight last week where they took paulson over the coals but why would you give them a number like $23 trillion, knowing athey're going to do with it, knowing how they're going to mischaracterize it? >> if i started doing my job and tailoring transparency and bringing summary of different programs to the american public and worry about how is congress going to react, how is treasury

going to react, how the media is going to react, i wouldn't be doing my job. >> but you acknowledge the information is going to be mishandl mishandled, used for political purposes, yes? >> i don't -- acknowledge information is going to be mishandled. the information the what it is. these are the facts. all we've done is gather public nfrgs. you can get this information on -- probably on your own website. all we've done is put it together. so when you're evaluating the t.a.r.p., you're evaluating in context. our goal isn't to create a political firestorm. so often what we're seeing here is, i think, more and more, something we almost refer to as bailout arbitrage. you have an institution that taps into one program to pay off another program. chrysler financial did this last week. they got out of the t.a.r.p. by using the taft to pay off debt. our job isn't to worry about -- how people will use numbers, our job is to bring that information to the american people. >> mr. barofsky, the trouble is people think you're doing this because of whatever agenda that you may have. in part, you say it was on 138

page 138 of your report but in fact that number was in your testimony that you're going to deliver today. so it was something you pulled out from page 138. in addition, there's a sense from the treasury that you double counted. for example, you included the total amount of exposure to fannie mae and freddie mac, and you then again counted the amount that the government is purchasing -- or the fed is purchasing in gses. you said there's $300 billion of treasuries that the fed is purchasing. that does not, as i remember, create any new taxpayer exposure to the government. >> which -- which, by the way, all these things are completely disclosed in our report. and my testimony, which is pulled from our executive summary, is meant to be just that, a summary of the report. look, this is the total amount of financial support. it's not an untrue number. this is a number -- let me be very clear. these numbers didn't come from the ether. these were vetted, as we always do with our report and these are

accurate numbers of the total support. we don't suggest there's a total risk there. >> i don't want to put words in your mouth. i want to make sure we're understanding this properly. you're the inspector general. looking at all these numbers and how they add up, what's your general sense of was t.a.r.p. money properly used by the banks or not? >> i think that's -- our whole point, whether it's with section 3 of our report we're talking about or providing what the information is on the use of funds, is getting the information out there so policymakers can decide. it's really a policy decision. it's for members of congress, for treasury to decide if money is, used appropriately or not. we think it's absolutely inherently vital that treasury gets this information out so people can make this decision. that's what we're striving to do in this report is bring that necessary level of transparency. >> do you think they've been transparent or has it been difficult to come up with the numbers? >> i think treasury has failed to adopt new programs, whether

it's the taft and other programs, valuation of assets, i think they failed to meet basic transparency standards. >> do you think they're intentionally withholding information or there's so many moving pieces and it's difficult to get their arms around it? >> i wouldn't want to speculate on their motives. they responded and we included their responses in our report. but we do think these are fundamentally important things. we're going to keep pushing for transparency and using our reports to bring that necessary transparency. >> when congressman issa says congress is actively obstructing transparency and hiding how taxpayer dollars are spent, do you agree with that? >> congressman issa is entitled to his opinion and he can take our report and use his own words. we haven't used the word obstructing and i haven't used that word. >> all right. neil, we thank you for your time today. neil barofsky, inspector general for t.a.r.p. we hope to see you back here

again soon. we know you'll be presenting this. merck, one of several dow components, just starting up their conference call and mike huckman is listening in. we'll update us if there are any surprises. the numbers have been pretty good all morning long. revenue has been a different story. let's get more insight from our guest host, former federal reserve board governor rick mishkin, a professor at columbia university. your take on how corporate america is reporting in this quarter? >> i'm not an expert on corporate earnings so that's not what i do for a living. >> but i guess, are you paying attention to what they're big about the outlook or the outlook for business spending? >> clearly what has changed is that the big tail risk that indicated we have a disaster has really diminished tremendously. and that's something that's actually very important in terms of restoring confidence to the system, allowing people to do

investment and so forth. so we passed that bump. hopefully we won't have any new surprises that can change that. that's actually very important. i think that's what we're seeing in terms of a lot of discussion right now. >> rick, one thing we noticed with the earnings coming out through this season, including w today, both caterpillar and dupont, beat earnings expectations but did it on lower than expected revenue. a lot of companies are, forced to cut costs and skate back to the very bare bones. one question we've been asking is how much fat can you continue to cut off? is there a point these corporations can no longer do that? >> again, i'm not in the corporate sec store. i never have been. how they do -- part of the american system, by the way, is you actually have to get efficient when times get tough. so this is part of a natural process we need to see going on. but i think the key issue here is that they -- people recognize that we're in a situation which we're not going to get out of that quickly. but the economy is going to have a slow recovery. we still have a financial system

that's substantially impaired. as a result, you have to plan on a situation of not necessarily having just good times ahead  and, therefore, can be -- >> rick, in the short term what they're talking about, lower revenues, higher profits, is productivity. >> yes. >> productivity has remained strong -- >> absolutely. >> let me ask you a question -- >> one of the key things, a bright part of discussion, which people haven't recognized, is that productivity has been strong through this whole period. from a long view it's very important. >> it's very important. the basic equation for growth is as follows -- population growth plus productivity growth will give us the total and adjusted for inflation, total growth in the economy. has that basic equation changed? have the inputs to that equation, which told us that potential growth in this country is 3% when things get back to normal, is that different now from what it was when we get rid of the drag from the credit crunch? do we go back to 2.5%, 3% growth or have the laws we just talked

about, the rules we just talked about, been repealed? >> it happens what happens in the financial system from a longer term perspective. we don't know what kind of regulatory apparatus will be put in place, interference from congress, some things congress has proposed make me very nervous. >> so that's -- that's a shock to the system that could come if they come -- >> one of the big issues -- we really are at a crossroads. one is the whole issue of federal reserve independence. if we don't preseb it in an appropriate way, with the appropriate oversight of the fed, that actually could mean we could go back to an inflationary environment with all the nasty consequences that we had -- >> why is that, because it's tied too closely to what any administration is pushing at one time or another? >> we're in a situation where the fed has to have an exit strategy. it's key as to what chairman bernanke will testify about today. but the real issue is not the technical aspects, which is probably what chairman bernanke

will focus on, but whether there's sufficient support the federal reserve can do what it needs to do to make sure that inflation doesn't heat up again. the following issue is, the economy's recovering at some point, the federal reserve will have to raise interest rates -- >> in the short term. in the short term that's going to put the brakes on the economy. >> and so even now one of the big issues that's occurring right now is that the ability to have expansionary policy has been very limited by fears about future inflation, by fears of proligate spending, which there's no talk about the amount of government debt of gdp is expected to double for sure but it will keep on growing after that. these are things creating a huge, huge problem. the second issue is that people are furious about what has happened, and it's going to be a question about whether we'll get good regulatory policy from our government or bad ones. there have been cases of crisis

where we have had good policies put in place. this was true after the savings and loan crisis where it came out with a better regulatory and financial system. we don't know if that's going to occur in this case. some things coming out of congress right now, sometimes get you very, very nervous. we'll have to see how responsible they are and how responsible the obama administration will be -- >> just given the need -- >> in promoting a strong financial system. >> just given the need for the fed to take away this accommodation, would you say a double-dip recession is something that's very likely? >> the answer is, i don't think it's very likely, but that we are still not xleecompletely ou the woods. there's still vulnerability in the football system, commercial real estate is one example. and given that that's the case, you can never be sure there couldn't be more shoes dropping. i think the likelihood of that happening has -- >> the double dip comes from rebound in the economy, the fed removing the accommodation and that causing a more traditional type recession. >> but i think actually the fed is certainly aware of these issues, will -- understands

we're in a situation where you have to balance things appropriately. but when the economy starts to recover, i think that the likelihood of a double dip is not high. unless something happens, which is really out of control of the federal reserve. >> when -- >> so there have been big surprises. i was inside the federal reserve system and never could have imagined what happened in the fall of last year. >> when bernanke spoke to "60 minutes" he spoke about whether or not we'll have the political will to do things that accommodative. are the political will to do things restrictive harder or he'ser? >> i think there's a real issue right now. one thing that scares me about the ron paul bill, he's not centrist person. he has bills that would be very damaging to the economic health of this country. one thing we've learned in research and theory and very much in practice is that having independent central banks that can withstand the pressures to

create inflation is critical to help in the economy. >> it sounds like you were making an argument for bernanke to be serving a second term and not have someone coming from the administration? >> absolutely. i think that this is somebody who has shown great courage. he is -- i've never seen anybody who is more devoted to public service. this is not somebody who loved the washington scene. that's why he's there. this is somebody that really wants to do the right thing. he's willing also to do the right thing and have the courage to do things that are damn tough. it's not a case where you're sitting around saying, this is easy, i'm going to take the easy way out. the issue is this is just as important, or maybe more so when, in fact, we have to resist the inflationary pressures. if the market does not have confidence that the federal reserve is going to do the right thing, we'll see long-term interest rates go up, and that could create the issues for -- >> it's all about -- >> do we have room to just generally raise taxes on a marginal rate, maybe 5%, 6%, 7%,

from here, and everything will be okay, to address all the shorfalls you're talking about or should we just not be increasing the outlay? >> i think we have to think about where the country has to head. that if you want to provide universal health care, then you're going to have to pay for it. and that -- the idea that always -- that we never want to raise taxes -- >> that's what i mean. how much breathing room do we have? you've seen some numbers that go to 60 that put us -- only below denmark on the entire planet. >> there's an issue whether you can kill the goose. >> where is that? >> we don't know exactly. >> do you have an idea? >> i talk to people who are more experts in public finance. but we're in new york state here -- well, you're in new jersey, and new york has raised tax tax tremendously recently. so there is a point where you have to sit there and say that if you have taxes that are too high, it does -- it can make the economy less efficient. on the other hand, if you provide good services with those increased taxes that can benefit

the economy. so research, by the way,s the following -- you might think, can you find higher tax countries do less well? the answer is no because -- >> it depends on what you get for your money. >> what you get for your money. i think we do need to do something about health care. i think we'll have to raise taxes to pay for it. we are in a situation where having people who use health care inefficiently because they don't have insurance and go into emergency rooms does not make sense. but on the other hand, we have to pay for it. and there's a lot of issues here. for example, i think deciding the only way you'll pay for health care is taxing rich people is a mistake because it can lead to exactly the situation where the tax rates get so high that we're not a productive economy. we'll have to think about taxing benefits, which would create incentives for people to conserve on the amount of health care they use. those issues -- >> we said this morning that's immoral. >> yeah, someone this morning said that's immoral. i don't get that. >> all taxes are immoral. the answer is, that --

>> the taxes -- >> if you think tax in general is immoral but we won't have any government services. >> is there a good time to raise taxes and a bad time to raise taxes? is this a bad time? >> right after an election. >> there's clearly an issue when you're in a deep recession, that's not the time to raise taxes. what is really important is the long run here. so, in particular, a stimulus package can make a lot of sense as long as it does not lead to law-run fiscal unsustainability. the problem is that if you actually raise -- do a stimulus package and it indicates all bets are off in terms of future fiscal spending, then you have a big problem. not only does it mean you get into a problem with the fiscal deficits get out of control but you have a situation where the stimulus package is not as effective because people say i'm going to pay higher taxes in the future and i'm not going to spend now. so the issue here, and what we need to see from congress and from the administration, is that a serious discussion about long-run fiscal balance. the nightmares here are not is

discussion about long-run fiscal balance. it's the fact that medicare is spinning out of control, that we have to deal with social security, let's get serious about those things because that would stimulate the economy now and actually help interest rates low and allow the federal reserve to do its job to stimulate the economy right now but not to lead to a lot of inflation if the future. >> ric is going to be with us for the rest of the hour. steve more to come. are the trading floors focused on that orred fed? art cashin will join us next with "the trader's edge," "squawk box" will be right backa . . paris has smart healthcare. smart traffic systems in brisbane keep traffic moving. galway has smart water. smart meters in dallas, houston... and a smart grid in copenhagen keep energy flowing. smart ideas are happening... all over the world. i want to bring them all together in your city. a smarter paris. a smarter stuttgart. sao paulo. copenhagen. kyoto. a planet of smarter cities. that's what i'm working on.

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i'm back here. i thought last time i wasn't coming back. but here i am, becky and carl, you told me i wasn't allowed back. >> no, no, no i said you were doing your best not to be sent back. >> here i am again. five dow components dominating this morning. caterpillar reporting quarterly earnings far ahead of estimates. look at that. almost five points at this point. in the past, cat er perpillar d have volatile results. you can see where they give

guidance. i don't know, we could earn $1.15 or maybe $2.25. our revenue could be $20 billion or $80 billion because it's cyclical. they didn't quite say that but that's about right with caterpillar. it's cyclical. let's check out the dow heat map. the green squares are companies that posted earnings ahead of estimates and the red squares are below. not a red square on the board yet. >> you haven't a square to pair. >> not a single one. >> let's get to art cashin and bring him into the conversation. what are you focusing on today, art? i would say that you're probably looking at these corporate results more than bernanke testimony? >> well, we are, but there's a mild thread of disappointment in them because again revenues seem to be coming up short. so they're improving their earnings and matching or beating the estimates by cutting costs. now that's a game that has to

come to an end, if you get your costs down to zero, you can't go any further than that. so they were looking for them to be a little bit better and revenues continue to disappointment. so we'll wait and see. actually, the market is work on its own internal technicals. that's a critical week for the market. remember we had a checkpoint on the 17th, we moved it coming friday. we'll see between bernanke earn arings, solar eclipse, we gut a couple of cycles coming together, this could be a critical, critical week. >> if we close hard today at 7 and counting, art? >> yes, i do know. that's the longest streak for nasdaq. but a lot of things are converging in this week, joe. so i think we got it get past at least thursday and hopefully friday. then we'll what the market is all about, are we in a longer bull move or is this thing going to hit a wall and pull back? >> okay, art.

thank you, we'll see you later. >> a very life-like hologram by the way. >> is it life-like, isn't it? this is coming in. winter olympics, eventually. >> 2012 or -- >> no, 2010 winter. >> summer is 2012. >> if you're wondering where we are, we are in earnings central. >> our favorite place to be. when we return, "squawk" exit strategy. final thoughts from our guest host former fed chair ric mishkin. stay right here.

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zbrncht our guest host today is former federal reserve head ric mishkin. what's the most important thing to take away? >> people are focused very much on the short run and we have to think about the long run in terms of getting things right and we have to have a federal reserve that can resist inflationary pressures in the future. we have to have a fiscal policy that is responsible so we don't end up with high inflation or alternatively end up in a situation where taxes are so high that we lose the productivity this economy absolutely needs to have. >> thank you for joining us today. we have been watching those

futures. they are higher this morning after hearing from five different dow components. join us tomorrow. right now it's sometime for "squawk on the street." live from the financial capital of the world, this is "squawk on the street." good morning, everybody. i'm mark haines. investors's attention going to get caught in a tug-of-war this morning. on the one side, we've got bernanke, on the other we have earnings from big dow components out already, caterpillar rigging up the biggest premarket gaines. the dow looking to open not too bad. it's going to extend the six-day winning streak at the oerng the tenth day of gains. and at s&p starting off from its highest close of the year. in fact, the highest close since november of last year. >> not too bad. i'm rebecca jarvis in for erin

burnett. ben bernanke on the hill to deliver his most important semiannual testimony on monetary policy. the key words to listen for "inflation," exit strategy," also kw "timing" is going to be important because we wanted to know when we can expect an exit to take place. we'll also bring that to you live and uninterrupted at the top of the next hour. mentioned, noting too that bad. we are up 4.10. closed a point above fair value. it's all good. >> west coast viewers wake up this morning to california governor arnold schwarzenegger and the state's legislative leaders reaching a preliminary deal to close california's $26 billion budget shortfall. it still needs to make it through both houses of the legislature but it would be a first step towards ending ious, it includes billions of dollars of cuts, a combination of borrowing, reallocatif