key corp., regions financial, it was mostly on credit deterioration issues here. we saw pfizer, earnings from drug company. pfizer was in line. lilly beat, we'll give you more. have you seen the chinese stock market? new 52-week highs again today. they're rushing back into the market. they opened more new stock accounts last week than the prior 18 months. tradertalk.cnbc.com. scott, how are we looking at the nasdaq? >> ten straight up days for the nasdaq is where we stand right now. we've got a tail of two teches this morning. starting with apple off the back of the strong results. profit is up 15%. they couldn't even keep up with me the manned for the iphone and the mac. that is the headline there. the other tech this morning is yahoo!. week online advertising sales continue for this company. the stock is under some pressure this morning. down 4%. there are reports out this morning that the talks with microsoft have at least

progressed a bit. starbucks is the other big one this morning. up 9%. cost cutting help results beat expectations. guidance helping expectations. upgrades as well today from deutsche. this is another one to watch. they initiated with a buy at deutsche bank. they are giving 5% back at bernstein this morning. wynn reports is up 2% premarket. they filed for a hong kong pp oshs. a and d had weak results. intel under fractional pressure. google is a bit weaker. google in motion is down. if apple is do so well and the iphone sales are so strong, at the expense of research in motion and blackberry sales. let's go to sharon at the nymex. >> oil prices is below $65 a barrel. got a surprise yesterday from the american petroleum i understand tut showing often increase in crude supplies. first time since april. they were up by 3 million

barrels. most folks expected a decline around 2 million barrels. we're going to get data today from the energy department to see whether or not there is consensus there between those two reports. we are looking at the weak demand picture influencing oil prices. we have seen a nice run-up in oil, $6 in the past week or so. we may be needing a pull back right here. china's oil demand, bob was talking about the stock market growth. look what's happened in applied demand in june 2% versus a year ago. that may settle the losses we see today. traders paying attention to what's happening on the hill, not just bernanke but schapiro talking about derivatives. >> we all know morgan stanley and wells effected the pre-opening levels and traders keenly aware of wells on credit quality, loans, bob pisani brought that up. the dollar is slipping just a bit. the dollar index on the issue wruns again, stocks lower p the yen higher.

traders are paying close attention to some of those relationships. and keep in mind, we had a huge drop in yields yesterday led by the long end, flattening the yield curve. the motivation, of course, in part was mr. bernanke and his testimony. and just the general notion that some of the medicine, especially some of the potential fiscal expenditures down the road, may be in and of themselves a fundamental negative for growth and small businesses. this is not lost on the bond market. we don't have anything going on with coupon supply, a buyback was yesterday and tomorrow. but we are going to pay close attention to what is being called home base by home technicians. that's a yield of 3 1/2% in the ten-year. mark, back to you. >> thank you. mixed picture in asia overnight. japan's nikkei up. south korea's kospi rising to the seventh straight day. china's shanghai composite up 2.6%. highest finish since june '08. hong kong's hang seng down 1.3%.

india's bombay down 1 1/2%. guy johnson in london, what's up? >> down, mark. i hate to say it but we are down. we're coming off the best run the european markets have had in four years. but it had to break sometime and it has now. most of the main european markets are trading lower if not down by much. frankfurt down 0.4 of 1%. stoxx 600, fairly choppy. this is the impact the bank on your side of the pond had on the european markets. they dragged us firmly below the flat line and stoxx 600 trading down. glaxosmithkline coming out lower. it's favorable, the currency impact sterling weakness playing well into the numbers. the other thing awant to talk about is the second half of the year where gsk is talking about

the strong performance mainly driven by swine flu. it's talking to 50 governments at this point in time, saying that it aims to buy vaccines to those 50 governments by early 2010. but as a real rush to get it earlier than that, particularly here in europe where the full term is going to be in a situation where a lot of people are likely to be infected. it's interesting, gsk saying today a number of governments are offering it, legal safeguards to do with safety, i.e., prepared to make big compromises on that front to make sure they get the drugs. gsk is hitting session highs. fears the other stock i want to talk about as well now, 20% owner of chrysler, of course, run that business. it is talking about a very difficult operating environment at the moment. it's a net line that's really impacted the stock today, down by nearly 3%. mark and rebecca, back over to you. >> thank you, guy. up next, we at the earning central nerve center for more on wells fargo and morgan stanley.

and we continue our wall-to-wall coverage of quarterly results with yahoo! with a quarter that is nothing to yodel about. what does it say about search and ceo of strykstryker? he will join us first on cnbc. the company is down 2% year to date. is it just one operation away from recovery and what does he think about obama's health care plan? we will find out. stay with it.

♪ hotwire.com earnings central today, joe and carl standing by at the command center for us. they have all the details. joe, you're going to kick us off with wells fargo. one thing that stood out to that report and the traders i've been talking to this morning is the credit losses they're anticipating going forward and the fact that credit quality doesn't look like it's improving in some elements of their business. >> we had an analyst say the reserves didn't seem to be as substantial of some of the other financials that have reported, added more anticipating credit future losses. i guess the notion that big upside beat, that 57 versus 34,

that there were some things in there that probably aren't like to be quite as easy to replicate in future quarters. but the shares are under pressure this morning. and despite beating numbers by a wide margin now, actually they're back down below 24 again. the per share earnings you saw well above expectations, the concerns about raising more capital, maybe to cover those losses, dragging on the company's shares this morning. >> yeah. and then we got morgan stanley reporting its third consecutive quarterly loss. cfo is on some wires saying the quarter included a lot of what he calls accounting noise. all the same, earnings did miss expectations with a loss of 137. analysts were lookingt the loss only at 49 cents a share. analysts were in line with test mates. here's the deal. morgan says it lost more than $1.2 billion in 2-q as it took a charge to repay government bailout money. the shares are trading -- called

lower today. the question, joe, then is, are the results getting worse than they were last week or is the rally fading because we've had such a strong one over the past seven or eight days? >> goldman is not -- morgan is not goldman. wells maybe is not jpmorgan. let's switch gears. now, we're -- do you know where the clutch is here in this command center? >> figure of speech. >> i don't want to grind the -- >> which gears, yeah, figure of speech. >> all right. then let's just do it. let's switch gears. i don't want to -- anything to happen. we can go blank. >> you're driving. >> i'm driver. let's switch gears. i haven't been drinking, i can tell you that. >> yeah. >> it's before noon here. dow component pfizer reporting 19% profit decline for the second quarter. earnings however beat wall street estimates. earnings per share coming in better than -- a penny better than expectation. >> also numbers from lilly this morning. we talked to the cfo, mike huckman did, the drug maker

reported earnings of ten cents. the conference call is under way right now. the aforementioned mike huckman is listening in. let's get details. mike? >> the conference call is just getting started for lilly. they're sticking close to the script at this point before they get to the q and a session. but revenue, you mentioned there was a ten-cent beat on the bottom line. revenue was in line with expectations but the company is saying that that was not just due to cost cutting and spending controls. there were some true volume growth there. if you took out the impact of foreign exchange, that revenue grew by 7%. as far as new products are concerned, the company says it's going to launch the new blood thinner in early august. its partner amylin indicated after the closing bell yesterday there could be an fda decision on the first-ever once a week diabetes drug in the first quarter of next year. and finally, regarding the bigger picture we have president obama tonight talking again about health care in that

televised news conference. and on "squawk box" this morning lilly ecfo said they support health care reform but he indicated he thinks that they need to find a happy medium here. >> we do believe that we need to improve access to health care in the u.s., while at the same time improving quality and affordability. the thing we're also equally interested in is ensuring we can sustain and encourage medical innovation that allows us to bring improved patient outcomes for those patients are unmet medical needs. >> all right. so i'm going to stay on the lilly call and then the pfizer call gets under way at 11:00 eastern time. back to you guys. >> mike, i don't know if i'm allowed to do this. just refresh my memory. what's better about this blood thinner? is it a side effect profile? why would it be better than the existing stuff that we have? >> no, it actually does thin the blood better than the potential competitor which is plavix. but the downside was, joe, is that it may thin the blood too

much in certain patients and cause excessive bleeding. that's why the fda, as i mentioned on your show, is putting a very stiff warning on the label for this drug, warning doctors not to use it on a certain population of patients that might be at risk for excessive bleeding. >> prone to bleeding. thanks, mike. >> sure. >> we would be remiss if we didn't revisit apple. apple earned $1.35 a share. that was 18 cents ahead of expectations. revenue also beat the street. and the shares are going to trade higher this morning. and they've been trading higher all -- since late yesterday, up around $1.58 or so. $1.57 to actually -- that's more like it. i would take $173. >> sure p. >> i think some price targets were taken to $180 today. >> let's go to brian marshal, senior analyst at broad point. one of your peers says the

guidance was comica krrcomicall conservative. >> i think the june quarter was flawless. apple really established itself as the growth name in the technology sector, in my opinion. and i think the estimates are conservative going forward. in fact, i raised my price target today to $210. that's up from previous levels of $175. >> they talked about the back to school quarter being maybe a little bit pressured by component prices, back to school promotions. what, to you, would signify a successful back to school season? >> sure. i imagine they've obviously increased their discounts for back to school. we saw that actually drive some demand in the june quarter. i think that will continue a little bit into this quarter. so what we're really seeing from apple is an increasing richness of the revenue mix as the iphones as well as the ipod touch actually carry higher

growth margins as well, it will benefit and offset the higher component costs. >> is it always good to not be able to satisfy demand or do you ask your people to make the stuff, why can't you satisfy demand? is it good or bad, brian? >> i think it's a good thing because obviously demand is solid out there. it would be nice to have the supply to actually fix that demand. apple had over 5.2 million iphones in the quarter, june quarter. we're expecting to ship 7 million this quarter. suppliers in asia are under pressure to deliver those products in a timely fashion. we think they will catch up and apple will be able to meet demand in the second half of the year. >> this was one of the first quarters -- i mean, i guess where steve jobs was not at the center of the earnings of the call, it was all about tim cook. did we witness, was there an inflexion point in terms of how management communicates with the street? >> i don't think so. i think the investment community is comfortable with tim. he's currently the coo.

he's been de facto coo two times in the past. we expect tim over time will emerge into the full-time ceo. i think steve, you know, would be -- obviously very important from a company perspective, but we expect tim over time, his daily responsibility to become somewhat mitigated, you know, him to move into more of a senior adviser role in the future, is our expectation. >> is this company just not -- does it not respond to the economic backdrop at all? would this number have been even better if we didn't go through this financial crisis? or it just doesn't matter one way or the other with a until. >> clearly they're in a good secular growth trend right now. they've got the right products and the right markets at the right time at the right price points. we think that the apple brand continues to permeate the planet. and we don't expect us to slow down any time soon. the entire technology sector, what we view as the most interesting emerging growth opportunity is smart phones. clearly, you know, they've got

about 3%, 4% global share of the handset space. their pc share is about 4% of the global market. from a penetration perspective, there isn't any reason why they can't double that over the next several years. >> thanks. we found our product. baby powder trades down. contact lenses, they wear longer. none of the stuff we think of that is in lastic is in elastic is iphone? >> harleys, they don't buy harleys. >> they can't finance them. >> thank you, brian marshal. >> we will be back in an hour because the earnings continue to fly. but for now, back to you. >> oh, goody! another episode of techs and necks. coming up, the nasdaq up 10% during this winning streak is the revival for word on the street and the buzz beyond coming up. >> plus, later, the national

small business association out with a new survey, 62% reporting sales declined 61% reporting profit decline, only 13% are play planning to hire. it's not looking good. small businesses account for almost 94% of all new jobs since 1989. is the economy farther from recovery than we think? that's coming up in a little bit on the show. "squawk on the street" returns after this message.ere live... ...or if you're already sick... ...or if you lose your job. your health insurance shouldn't either. so let's fix health care. if everyone's covered, we can make health care as affordable as possible. and the words "pre-existing condition" become a thing of the past... we're america's health insurance companies. supporting bipartisan reform that congress can build on.

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okay. futures have come off their lows. we were down a couple more points last time we looked.

30, 40 points on the dow is what it's going to be on the open. >> we're going to get the buzz dwrond big board here. joining us from san francisco, steve massocca, managing director with wedbush securities. as this earning cycle emerges and grows, do you get the sense that we're going to see a best in class reemergence as opposed to lumping out industry groups together? more along the line of the nba where you have a couple of great players on the team and then all of the background players? >> i don't know if you want to call it best in class but there's clearly two areas doing well. one is china and if the other i technology. technology is personal technology, sort of handheld technology. does those businesses occur to be doing very, very well. you're seeing substantial revenue growth there. what you're not seeing is any revenue growth anywhere else. corporate america is doing a great job managing the bottom line.

they're doing a great job holding the line on costs. i think really get it going, we're going to need to see more than good cost control. we're going to need to see real honest revenue growth. and i don't think we're really see that yet this anning season other than intel and apple. >> a lot of companies have come out using words, for example, caterpillar, using words like stabilizati stabilization. does stabilization, in your view, mean more of the same of a flat line as opposed to downside risk or is there upside to that stabilization view? >> i think stabilization is a code word for crisis is over. and i think that that's already priced into the market and has been priced into the market for some time. i think what we need to see is something beyond stabilization. we need to see growth. we need to see business improving. and we need to see people, honest to goodness, really raising guidance, not widening the spread of guidance. >> in light of your view, what do you do right now? >> i think short term they're going to back off here a little bit. i think you can buy stocks for

the long term. i think we're going to see lower prices in the next few days. >> steve massocca, thanks so much for being with us. countdown to the opening bell coming up on the other side of this break.

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you are watching cnbc's "squawk on the street." we're live from the financial capital of the world, the opening bell is going to ring in 30 seconds. >> interesting thing to note here, mark. futures here pointing down, but overnight in china, things were looking strong again. the premier there for the very first time really officially saying we are on a buying spree and we are looking at buying foreign assets, mark. this is a country with the largest reserves in the world. that's going to be obviously an important story to watch in terms of what is china buying, where is china's appetite going to be going forward? >> they just did a deal for offshore oil in africa. >> yeah.

>> within the last week. they're very aggressive that way. here we go! emerging global advisers celebrating a listing of the dow jones emerging markets tightens index fund. ticker eeg. and at the nasdaq, sky star bio farm ticker skbi. >> and as usual, the market reporters are standing by. we are going to start with bob pisani down on the floor. take it away. >> thank you. a couple of companies of under pressure here today. here's wells fargo, here's the crowd, waiting for it to open. just opened down $1.70. the story is simple. they beat on the bottom line. did better than expected on the top line. some of the beat came from mortgage re-fi as we noted earlier. the credit issue is the real problem here. net chargeoffs, nonperforming loans, to metrics we use, showed additional losses here.

key corp., same situation, they're up around the corner here. theyed a larger loss than expected. that was also due to credit deterioration. they are building loan loss reserves right now. let's talk about amd which is right around here on the corner. story is simple. they had a loss but that was expected here. their margins were much worse than expected though, slower than expected. that stock is down about 12% just prior to the open here. we also talked about pfizer. you heard earlier mike huckman talking about pfizer. basically in line, lilly also beat here. those stocks did well in their earnings report. bowing is doing well around the corner here. right around here, they beat by 20 cents. key story for boeing here, they reaffirmed their full-year guidance. tradertalk.cnbc.com. >> we've been up for ten days in a row. the nasdaq has opened down seven points to a third of the percent.

the tale of two technology stocks. apple profit is up 15%. great demand for the iphone and the mac. they couldn't keep up with demand for both of those products. apple shares up 4%. deutsche bank raising the price target today to $2.25, that's up from $1.50. yahoo! is in the opposite direction. down 3%. they did pose a profit thanks to cost cutting. continued weak online advertising. starbucks shares up 11%. cost cutting, another story there. guidance aheaof expectations. also upgraded over in a couple of firms today. take a look at this one. i want you to watch onxx pharmaceuticals. it's a big winner this morning early on. they had positive results for their breast cancer drug this mornin morning. wynn resorts is going to have an ipo casino business over in macaw. intel is up. google and research in motion to the downside.

perhaps the sell-off in research in motion, 2% is what the stock is selling off right now because of apple and the iphone being so strong, at the expense maybe of research in motion. let's go down to sharon in oil. >> oil is up for the first time in five sessions. the fact that supply is robust and demand is weak may be the reason why we're seeing the sell-off today both in london and in new york. we're looking at oil prices falling. shell said the output in ney je nigeria, 115 barrels a day. they say right now current production levels is 1.4 to 1.5 million barrels a day. that's slight i lower than the opec target. we're looking at supplies here in the u.s. the american petroleum institute saying they rose by 3 million barrels. last week when most were expecting a decline, energy department statistics are expected to show a decline in crude supplies and increase in refined fuels. other factor that traders are

watching, the weather. two tropical waves in the caribbean, not expected to develop into anything material, but again, traders keeping their eye on the weather as this is the middle of hurricane season. rick santelli, to you in chicago. >> thank you, sharon. we've all looked at and are considering what was reported today in the mortgage bankers association weekly survey. you had 26 basis points in the 30-year mortgage, 15-year mortgage. they're still by in perspective on the cheap side. interest rates and housing prices are correlated indirectly. if you look at the bank of england minutes, this was really key because, of course, they were one of the first to embark on the asset purchase plan, quantitative easing, printing money, however you want to describe it. in their last meeting they basically said they're not going to increase it. market expectations, though, are the issue. and it shows you the unintended consequences of government involvement in the market, especially the interest rate

market. when they continued in the minutes to demonstrate some of the reasons why sand potentially they won't embark on increasing it or maybe stop it all together, yields moved higher. mark, back to you. >> one of the big trends developing this earning season, the haves and the have nots. in tech, apple, google, rim and everybody else. in retail, walmart, the 800-pound gorilla. what does this say about the health of the market and your profit potential on wall street? your cnbc edge now with president and chief economist and dan jenner, president and ceo of jenner capital management. i'll start with dan. where are the opportunities, in your opinion, dan? >> well, mark, i think what you're looking at right now is it's a little bit of a tale of two cities. to some degree you have to stay with those who brought to the momentum and clearly on the tech side. the tech is going to benefit

from the cyclical upswing, benefitting from strong earnings growth asurprises. tech in general overall, the ciscos, intels and so on, have more or less gone up in line with the markets. i don't think it's run away from you. there's opportunity there. then i think there's the other side. there's those sectors that have been left behind here. you look at the health care, consumer staples sectors. i think you're going to have a tortoise and the hare. i think if you look at some of the health care, certainly j and j, really going to be the leader. i think again, looking at the consumer staples. look at the old stabbed byes of coke, pepsi and so on, there's opportunities there while they catch up. >> in tech, at least you're getting some top line growth as well as bottom line. >> right. i think you're getting it in tech. you're also seeing it in some of the consumer staples. that looks like it's going to be the only sector mildly positive in earnings growth. but it's going to be positive. and so again, i think an evaluation situation now that

they're going to play catch-up. they're going to come on. people are going to look for opportunity in value here. i want to go with the momentum leaders but i also want to be with those who have real revenue and earnings growth. >> jim, sticking with this tale of two cities vibe, who is making the best use of worst of times right now in your opinion? >> i think there are certain finance stocks that have been overlooked. i think hudson citibank korms has dealt in jumbo mortgages successfully. if you take some of the smaller participants in the health care area, a company called martech has performed very well. it has an additive for instant formulas, infamil and similac that's been in the general use of foods which it's believed to have a positive effect on alzheimer's. and we see an economy that is turning reasonably predictably now and the market should extend as we go forward. >> we got this news out of china, the premier coming out and saying that china is going

to use the foreign exchange reserve to start making purchases of foreign assets. do you think in terms of what china could be looking at, there are opportunities to buy into that story here in the united states? >> well, i think that the chinese economy is truly an amazing one and will continue. it's now the third largest economy in the world. they have enormous sums to deploy and obviously has the largest market outside of china, we are going to be a rescipient of those funtds. i think we will see their activity in buy and hold companies increasing in the next quarters. >> jim, should we be concerned that we're not seeing top line growth? >> if this persists, yes. but i think that we're right at the cusp of the turn. the economy is showing that we have had a tremendous runoff of inventory in the automobile

assemblies are 3 million below the scrappage rate. we have a serious deficiency of merchandise on the shells of ve our retailers at the moment. >> dan do, you agree with that, of the assessment of the any as a whole? >> i do. what we're seeing in earning increases is due to cost cutting and american management was aggressive in that regard. i think it will start to turn. i think what the market is looking a right now is that the sequential growth in earnings looks positive. even despite the fact we all knew we were going to have a big quarter year over year we look like we're going to be up $14 in the s&p for the quarter versus $10 in the first quarter. we may end up at $16 in the fourth quarter and still see about $54 for the year. when you look at multiple growth going forward, you know, i think the top line is going to be slow but it's going to be positive. and cost cutting containment is going to offer good earnings and

we're going to see good valuations available in the market. >> all right. jim, dan, thank you both very much. >> thank you, mark. up next, inside the numbers from yahoo!. stocks up more than 25% since the bottom but started slipping after earnings. if you're in it, it's time to maybe start searching for the exit. plus, one man who says analysts just don't get it. find out what he thinks they're all missing this earning season and why you should talk or rather take a second look at company's quarterly results. you're watching "squawk on the street" here on cnbc. stay with us.

welcome back to "squawk on the street." i'm mary tamp son.

we are looking at how the regional banks are r. trading this morning. u.s. bancorp is trading to 12 cents a share. stock is up 2%. minnesota bank is setting aside $1.4 billion for the credit losses for chargeoffs linked to falling home price, commercial real estate as well as consumer loans. home trust was less than expected. stock down slightly. it says recession related costs continue to hurt its business, offsetting the deposit growth it saw during the quarter. commenting on t.a.r.p., he wants to repay it but it's mathematically not possible right now. it's expensive and inefficient. he would like to repay it as soon as possible. at bank of new york mellon, second quarter profits fell. credit losses continue to mount because of weakness in the housing market. stock, as you can see, off 6 1/2%, excluding items that

concerned 67 cents a share, 5 cents ahead of estimates. >> thank you, mary. yahoo! beating the street but the forecast for the third quarter falling short of expectations. the nation's second largest internet search engine to google trading down right now. about a percent lower. joining us to go inside the numbers and beyond, steve wi wienstein, senior analyst. what is the reaction to the numbers and the outlook? >> you know, i think it looks like a little bit of a setback maybe to a turn around story. not in a material way, but i think if you look at the upside in the quarter, it really came from the noncore components of the business. so that creates a little bit of muted effect. and i think, you know, the investments of the company wants to make in q-3, some of them were unexpected and so rather than taking numbers up, there were refinement in numbers down. that's a little bit of a disappointment. >> it sounds like, steve, some of the investments will include

investments in people. they talked about hiring engineers and sales in marketing staff. is this a company, in your view, in tech land that's going to win based on the fact that they market themselves well or based on the fact that they can beat on technology? >> i think their investments need to be more in product than technology. there are areas of marketing where you can invest and get success. revamping the sales force and those sorts of areas. i think trying to build a brand at this point the probably pretty difficult. i don't think there's been a lot of success. it's an unusual time with microsoft coming in, spending a lot of money, trying to build out and feeling pressure from that. longer term, i think putting out a quality product, it tends to be viral and that's what's going to drive the success for yahoo! >> you rate yahoo! has out perform. has this caused you to change your mind? >> no, you know, we recently upgraded yahoo! because we think there's a turn in the industry fundamentals that are about to get positive going forward.

i think that's still playing out. i think this management team is focused on driving, you know, their costs down, driving efficiency in the business. so on the growth, we should see the leverage. that was evidence in the quarter. you know, the margins were actually the highest since 2006. you take out the restructuring chart. i think the management is putting the company in position to benefit from that uptake. and there's a lot of new products and innovation coming down the pipeline. the fact that we didn't see it all right here over the next couple of quarters doesn't change the longer-term story, which is positive. >> what's your take on the numbers? >> my sense is this took a long time to get yahoo! into these problems and it's going to take a little while to get out. carol barts has demonstrated leadership here. yahoo! clearly has the products in place in search and messenger and mail and entertainment and sports and a whole bunch of other properties out there that will do well. that's a lot more than you can say about google which is a one-trick pony. google is still trying to compete with microsoft on a

bunch of different fronts. and yahoo! is out there trying to partner with microsoft. the approaches in the marketplace is far different. yahoo! might actually represent a better longer term play for investors. but it's going to take a while for this investment to mature. we'll see what happens. it seems like based on what we saw yesterday, might be a little setback. by and large, it seems like yahoo! is on the right track. >> jim, speaking of that track that yahoo! is on, how much more of a sense do you get that yahoo! is going to invest on the technology, the engineering side of the business versus the marketing side of the business? >> well, it seems clear based on what carol bart said yesterday on the conference call that yahoo! does want to invest on engineering and the company has played catch-up in many respects to google as far as technology is concerned. algorisms that they've tried to put in place. technology that really didn't pay off the way the street was hoping for and the way the company was hoping for. i do think we'll see

expenditures as far as engineering is concerned but it is going to be a two-pronged approach. yahoo! has to capture that back. the company is trying to do that first and engineering second i think over the next couple of quarters we will see that reverse and both of those things will start to meet in the middle. >> thank you so much, steve and jim. up next, medical equipment and implant maker stryker. keeping costs suppressed as sales fly. but what must it do now to get a leg up? >> bada-bump. >> exactly. the ceo joins us first on cnbc on that. plus, at the top of the hour, fed chair bernanke sits before the senate committee on banking housing and urban affairs to redeliver his address on monetary policy. we heard that address here yesterday on cnbc. when the q and a portion begins today. we will bring it to you live and unenter rpt rupted.

technology company stryker makes products rang mging from hospital beds to implants. its devices are used in over 120 countries and the company is one of the largest players in the orthopedic market. stryker soft pulled back in sales, prompt in higher than expected. joining us now the stryker ceo steve mcmillen. good to see you again. what pulled down the sales? >> one is foreign currency as you're seeing with most companies. we were flat on a local surrency basis. the other is med surge businesses. the hospitals are pulling back their purchases of, say, new hospital beds, stretchers, video cameras, monitors. that makes the business a little softer. it was offset by strong growth in our orthopedic implants, hips, knees, spine, trauma, and those products. >> well, the orthopedic stuff, i would imagine, you know, people who need a new hip are going to

nind the money somewhere. >> it continues to be very strong demand. and particularly with baby boomers around the world, we saw tom watson this weekend do a tremendous job in the british open, had a hip last year. we're extending the longevity and performance of people. we feel good about the underlying fundamentals there. >> in terms of the administration's health care proposal, if it goes through, as it is on the table right now, what changes for your business? >> in the long run, we probably see slightly greater pricing pressure but greater vol you. i think there's more uncertainty that's of concern. we feel good for the reasons mark just articulated. people are going to continue to need our products both in the u.s. and globally. i would say on health care reform in general, we support broader access, everything else. i would hope people just take a big deep breath and we don't ram something through and worry about a lot of unintended consequences down the road. >> you mentioned hospitals buying hospital beds, for example, at a slower pace.

is that something you would potentially see taking place if the plan were to go through as is stated now? >> we see that much itted by the capital markets today in the pullback of hospital endowments. over time we don't see that having a traumatic impact. the hospitals will need to replace beds. >> the turnover time is going to be the same either way. >> give or take 12 months or something. >> interesting point you make, and i'm hear that more and more. even people who are in favor of reform, et cetera, saying, wait a minute, what's the big rush. unintended consequences can be very damaging if you plunge into things. so what's the outlook here, you know, give us -- what's your feel for when the stuff that's being effected by the economy is going to bounce back? >> sure. we see 2009 as being a digestion year as the hospitals figure out their own situations.

and frankly there's a lot of uncertainty if you're a hospital cfo or ceo right now you're conserving capital because of both the endowments and your operating budgets, but also the uncertainty around health care reform. so we think over time, frankly, is that probably settles out into early next year. we feel those businesses will really come back for us nicely. they bottomed out. sequential growth was flat in those businesses in the quarter. we bottomed. we're not ready to go out and declare, hey, it's turning around and coming back quickly. >> as the softness in the economy and the softness in the stock market presented any opportunities in terms of acquisitions? i assume you're always looking at who is developing new technology. >> we have been establishing a very strong cash position. we've got about $2.4 billion on our balance sheet. last year we were critical for not being leveraged enough. we were being criticized. we feel very good and we do see some opportunities out there in the markets. >> acquisitions. >> for potential acquisitions. but we don't talk about those.

>> oh, come on. >> we do like our position to be able to be on the prowl during these times. >> all right. thank you very much, sir. appreciate your time. steve macmillan, me runs stryker. coming up, small business essaying the stimulus package isn't doing much to stimulate their bottom line. results of the new study painting a not so rosy picture about this all important part of the american economy. introducing one a day women's 2o.

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we're back. fed chairman ben bernanke to redeliver his semi annual address on monetary policy to the senate committee on banking, housing and urban affairs. now, the reason is, you have to understand how it works. the members of the senate are deaf or too busy to watch yesterday. so, bernanke has to come all of the way back to capitol hill, go to the other side of the building and say it all again tuesday>> and then open it up for q and a. >> and this makes sense to them. tuesday was for the house senate house and services committee.

opening remarks from the senators will be first, followed by bernanke's testimony again. and then a second round of q and a. now, that's valid. that might bring out something new. that might bring out -- so anyway, we're not going to bother with all the stuff we heard yesterday but we will bring you the q and a when it begins. >> look at the markets. they've turned around, mark. >> yep. >> back in the green. we're going to get market's perspective from bob pisani at the big board. kick us off, bob. >> we're off the highs today as we started negative and goings to pif the one of the reason wes moved positive is because financials had a better tone. they started off poorly but they have been moving up. look at morgan stanley. we're waiting for the conference call of morgan stanley to start. that will start at 11:00. here's one of the reasons financials in the market is coming back. they had a loss bigger than expected. it was disappointing. this is the third loss in the row they've had. they're repaying t.a.r.p. money. that was a factor in the whole thing. because of the accounting issues

that go on they had a larger loss than expected because of a negative mark to market because of their own debt. that's confusing but that was a major facting in why the loss was bigger than expected. you see coming back here, same situation with the rest of the financials. we talked earlier about decreasing credit deterioration. wells fargo sow it, keycorp saw it, regions financial saw it anr it weighed on them. pnc, a lot of regionals are weak here. finally, i do want to note, i want to talk about it the next hour, home building stocks have been acting much, much better in the last couple of weeks and have been moving better in the overall mafrkts. we're at three-month highs on a lot of the big home building names. i'll talk more in the next hour about what that means. tradertalk.cnbc.com. are we going to make it 11 days at the nasdaq? right now we are. >> yeah, bob, we turned around, up ten points. that's good for half a percent. ten straight up days. we're working on our 11th here.

there's optimism around the results from apple after the closing bell. stocks up 4%. profits up 15%. huge demand remains for the iphone and macs. apple is having trouble meeting demand. you can see the turn around in the overall market from yahoo! even though the stock is down 0.10 of a percent. it's come back as well. weak online ad sales still remain a problem even though cost cutting helped yahoo! beat expectation there's. speaking of cost cutting, helped out starbucks. they beat their results better than expected. guidance was better than expected. stock was up 16%. added momentum into starbucks shares. pharmaceuticals was the one i referenced. up 26%. they had a positive study for the breast cancer drug. wynn is going to go for an ipo in hong kong at the macaw business. stock is up on that news. google is fractionally higher.

research in motion though still remains a little bit under pressure. perhaps it's a little giveback there from apple. the iphone was so strong perhaps the street is looking at that at the expense of research and motion because of the blackberry there. apple shares is higher. nasdaq is higher than ten points, 11 straight sessions to the upside. let's go to sharon at the nymex -- sorry, let's go back to mark. >> thank you. financial housing finance industry, home price index later. reales state reporter diana olick has the analysis. >> the fhfa index has loans on fannie and freddie, conforming loans. keep that in mind when we tell you these numbers. according to the home price index, home prices month to month, i don't like month to month but it's up 0.9%. home prices for may year over year, which is the better indicator, fell 5.6%.

important note though, that 5.6% drop is actually dress worth. we're seeing home prices still down but coming up a bit because they were down 6. % year over year in april. that's a good sign. indicator we're getting more action on the lower end of the market on the conforming loans and beginning to see price stabilization. in fact, for the the five months the year is up 0.3% or 0.7% on annualized basis according to that. let's roll down here where we see it regionally based. the worst, of course, again, pacific region, year over year prices are down 14%. and in the mountain region, down 10.1%. also south atlantic down 6.6%. that region, of course, includes florida. some of the bet erie joregions down 0.4% a year ago and northwest central only down about 1.5%. still new england down 4% and middle atlantic down 3.4%.

we're beginning to see stabilization on the lower end of the market due to more activity there. now, we have seen prices on the higher end of the market really falling. that's because of the jumbo loan issues. now we've got some more stabilization for conforming loans. again, improvement, still down but less worth of it. rebecca? >> thank you, diana olick with more of the less bad situation on the housing market. meantime, small business lender cit off of life support for now but that doesn't mean the companies are getting the financing they need to stay afloat. the national small business association out with the economic report today. and the news is not very encouraging. 80% of small business essay they run able to obtain adequate financing and almost 75% say they have not seen any impact from the stimulus package at all. whatsoever. joining us now first on cnbc is todd mccracken, president and ceo of the national small business association. great to see you, todd.

the news is not looking good. what caught my eye the very first time in your survey, the majority of respondents said that they're seeing revenue decreases. that's not unlike what we're seeing a lot of companies listed here at the nyse. but the first time you're seeing it in your survey. >> it is. and it's pretty significant. the number we're having in revenue decreases that number increases 3-1. and that's a big turn around from where we were last year. >> one question i have because you talk about financing in the survey and that a lot of people find it hard to come by. we just heard from diana olick, the housing numbers, the housing prices continue to decline. maybe the rate isn't as bad as it was. but they continue to decline. a lot of small businesses use their homes as collateral in terms of how they get financing. is that what you would say the key problem? >> i'm not sure it's the key problem. very significant problem. essentially for companies trying to get started because those are the runs that often use their

homes the most. and with those the companies lead us out of these recessions as people start a new business, see new opportunity and these tough economic times and help us grow out of this. we're a little bit worried that's not going to happen like it usually does this time. >> where is the system failing? is this cit, ge capital? what? >> it's the whole package. i think that's -- when you hear of small business essay we're not being helped by the stimulus, most of the stimulus money directed at small business was focused on lending. so they heard all of this stuff in the first quarter about how we're going to get more lending out to small companies, but they're not seeing it because the banks are using it to shore up the bottom lines and a lot of the administrative hurdles in washington are keeping the programs from being effective. so there's a disconnect between what they were expecting and what they have seen. >> not to change the subject, but it's hard to, in my mind, to

separate the two. oh, rats. i'm sorry, sir. we have to go to senate committee on banking, chairman dodd is speaking now ahead of chairman bernanke. >> -- grappling with these many complicated issues. and so i'm very supportive of the efforts you have been trying to make as the chairman of the federal reserve but i have some serious issues about the institutional response to all of this as we go forward as well as we've talked about. so i appreciate your testimony. if the success of our government's attempts to get our economy back on track would be measure bid executive compensation or large institutions, financial institutions' bottom line then per hans would be a day to celebrate the success of all what's happened over the last

number of months. the economists, believe these indicators are signs we have overted utter catastrophe and a recovery may be imminent. while this session may have begun on wall street the recovery won't be real until, of course, and unless it's felt on main street. so today is a day to ask fundamental questions, when will working families in our respected states as well as our colleagues not on this committee, when will they start to feel the effects of our work to restore the economy? after all, today we meet to receive the semi annual monetary policy report mandated by the 1978 humphrey hawkins employment act. if the xwoel goal is still employment, the news today is rather grim. unemployment in june was 9.5%, highest level in 26 years. most economists from the fed itself believe that it could top 10% before the end of this year. meanwhile, americans who have lost or are worried about losing their jobs, their homes,

retirement security have watched while others wreep the benefits of our government's response. they hear about a stock market rally and wonder if it will ever be enough to make up the retirement savings that have been wiped out. some cases almost within minutes. they hear about million dollar bonuses going to ceos whose firms caused the melt down in the first place while rank and file workers have lost a nation, laid off or forced to accept pay cuts. they hear about large financial institutions, large banks bailed out with billions of taxpayer dollars and government-backed credit and now reporting billions of dollars in profits but they still can't get a loan themselves, or a small business or commercial enterprise, they can't find institutions willing to lend those resources so they can begin to grow again. families worry about whether they can borrow the money necessary to send a child to college or buy that new automobile that's critical as well for economic recovery. they're still getting slammed by the very same institutions but

have seen fees in credit card rates as we've out witnessed. despite hearing from everyone in washington that stabilizing the housing market is key do stabilizing our economy, is still having trouble modifying their mortgages even as 10,000 familys a day are hit with foreclosure notices. mr. chairman, i appreciate the work you've done as i said at the outset of these comments. on monetary-to-monetary policy, the indicators we've seen in recent weeks. these positive indicators seem to be stuck at the top in the process. it's not insignificant, the accomplishment. it's a critical component. we on this committee, i think, as well as all of news this room, certainly the chairman, all work for the same people that is the american taxpayer. but when can we expect a recovery that they have funded, when will we start seeing working families see the rally, pay raises, their jobs being stabilized?

what are we doing as the holding company, supervisor, as you're doing, holding company, supervisor as these recipients of t.a.r.p. funds to ensure that we're serving the interest of the american people, the struggling people, as we all know, aren't ready for an exit strategy for economic recovery efforts. first, recovery must reach them. as we move forward, we need to make sure that we lay a strong foundation for economic recovery that will reach every corner of our nation. part of that foundation will entail reforming financial regulations so that the mistakes that got us into this mess aren't repeated. as you know, many of us here have called for and the administration has proposed an independent consumer financial protection agency as part of that mission. but the administration has also proposed expanding the fed's powers over systematically important companies. i have a number of concerns about this proposal, as many of my colleague s do on this committee. not the least of which is why does the fed deserve more authority when institution ali

failed the current crisis. we understand the work that you are doing and that's just not a pl platitude or generous comment. the financiers who engineered this crisis isn't the reason we're here. it's the millions of families struggling and falling further and further behind. i hope that they can be the focus of our attention today as we talk about what needs to be done to get our nation back on its feet. so the basic questions i have for you is, when will this recovery, when will this effort that we're making meet those families that are facing foreclosure, people who have lost their jobs, worried about their savings, worried about their long-term retirement security, what are we doing as the fed to help see to it that they are going to reap the benefits of this effort? and then secondly, as we talk about these large institutions, the powers that already exist within the fed over bank holding

companies, we can up here and jawbone and ask these institutions to make a difference. but the fed actually has the authority to make that difference and many asking the question why that authority is not being exercised to commence these institutions that need to be to be moving more aggressively when it comes to bank lending. with that in mind, let me turn to senator shelby for opening comments and then engage in this conversation of how we not only deal from the top, which is critically important, but also those who depend upon these institutions recognized in the value of what consumers and small businesses need, why we need to do more to assist that side of the equation as well. senator shelby? >> thank you, mr. chairman. welcome back to the committee. the purpose of today's hearing is to oversee the market committee's conduct of monetary policy. there's no doubt we're in a very challenging economic environment. the economy is extremely weak. bank lending remains sluggish and unemployment is rising

rapidly. the unemployment rate stands at a 26-year high and is expected to increase. although the fed has gone to great lengths to inject liquidity into our economy, the efforts is largely designed to assist banks, especially large money center, financial institutions. many small businesses, however, are desperately seeking capital from the financial sector and have not been able to secure it. i've heard that from a number of my companies in alabama that have been virtually abandoned by all of their traditional funding providers for years and years. while it's important to bring stability to the financial sector, if the part of our economy most responsible for job creation, that is small business, cannot obtain funding, mr. chairman, such to ability will be short lived. going forward the measure of success will have to include whether main street businesses are retaining or even adding jobs. while i understand that the

foemc cannot by itself solve all of our economic reports the effective conduct of the policy is a necessary condition for economic recovery. therefore, today i hope to hear from chairman bernanke whether fomc will need to take additional steps to revive our economy, and if so, where. because interest rates remain at record lows, i'm interested in hear what other specific actions the fomc can and is prepared to take if additional easing becomes necessary. in addition, i would like to know what chairman bernanke believes can be done to spur lending to small and medium size businesses. while monetary policy is a central focus of this hearing today, i believe we must also examine the fed's performance as a bank regulator as well as his participation in bailouts over the past year. i do not believe that the board or the regional banks have handled their regulatory responsibilities very well. many of the large financial

companies that have been the focus of the fed's bailout efforts were also subject to the fed's regulatory oversight. and while they were regulated by the fed, these firms were allowed to take great risks both and off their balance sheets. when the housing bubble burst, those risky positions were exposed and firms had to scramble to shore up their finances and the credit crunch quickly followed. i'm not aware of any effort on the part of the fed prior to the crisis to question or require such firms to take any actions to address this significant risk that they were taking. in fact, the only effort of which i'm aware is an effort to modernize bank capital standards. this effort could have resulted in a significant reduction in overall bank capital levels. i wonder where we would be today if the fed had been able to fact on its desire to eliminate the leverage ratio. i cannot imagine a scenario where banks would be fair better

with let's capital during a period of financial stress such as one we're currently experiencing. if the fed had conducted the regulatory oversight with greater diligence, id not think a financial crisis would have achieved the depth and scope. in the end, it's the failure, i believe the fed to adequately supervise our largest financial institutions that require the deployment of monetary policy to stave off financial disaster. in light of the fed's record of failures of bank regulator, it should come as no surprise that congress is taking a closer look at the fed and reconsider its regulatory mandate. thank you, mr. chairman. >> thank you very much, senator shelby. chairman bernanke, again, welcome to the committee. >> thank you. chairman dodd, ranking member shelby and other members of the committee, i'm pleased to -- >> okay. bernanke is about to say we heard yesterday, right? >> yes. >> so we're going to take a break. up next, the man who says

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welcome back. he's a wall street veteran. goldman,headed up research of loo man for seven years. and he said the a lists, they just don't get it. joining us now is vice chairman of beak and trust company. over a billion dollars in assets over management. i think we've got to start out with a basic question here. and that is why do firms issue research? it's not a very profitable business to be? >> rebecca, that's a really good question. it isn't a good business. it's done to support all of the other active is of an investment banking brokerage firm. it attracts investment clients and corporate finance clients to the franchise. that's basically the reason it's been kept in place in size at so many different institutions. >> given your experience on the research side of things, does the research have to be right in order to generate revenue for those other parts of the

business? >> well, now you're hitting on one of the main issues. analysts really aren't paid mostly for being right. they can't be wrong all the time but they're not paid to take the risks that would be associated with being right at turning points. >> so they just don't have an incentive to be right. >> mark, they don't have a lot of incentive to call the turns in the business cycle and apply that to their earnings forecast. they want to be right. they want to be right on stocks. they want to be right on their estimates. but prognosticating involves a risk and the people they talk to mostly are their companies and their companies are not that particularly good at it and they're not particularly good at it. >> don't they risk being cut off from the company if they are too independent? >> well, i think if they're too negative. it's really not the independence, per se, or varying from the company's forecast. if you vary dramatically positively you could be in

trouble. yeah, you want to mostly be in the mainstream, you want to be outside of the mainstream enough to get noticed. >> but here's my point. if they're right, if they're negative and right, it doesn't really help them because they can get cut off from access. >> yeah, unless you're like a meredith whitney and you start your own firm and do your own consulting but that's really an out liar. that's true. it's very scary for an analyst to be very negative on a company and then never be allowed to talk to them. that's an issue. the big issue here, however, is they're just not good at forecasting a productivity profit to start at the cycle. that happens every time at the start of a business cycle. and they don't do it until three or four quarters after the top line has started to strengthen. that's when you see dramatic increases in earnings estimates. unfortunately they should be doing it now because the cost associated with all of the

layoffs are showing up in productivity increases. >> fred, would you say you're more well equipped now to make a call outside of the land of lehman and gs than you were while you were there? >> there's no question. just being older and having lived through a number of cycles you learn things that maybe you didn't know at the start of your trek. but i do think that it's more than that. if you look at the economists and strategists on wall street, even in those firms, a lot of them do try to get out in front of what's happening. some of them do. some of them are very good at it. and in general, if they call a turn in the economy, it's not kicked up on and pushed through the annin inearnings estimates. >> when things turn down, the analysts are always behind and they have to -- you get into this cycle where they spend the quarter revising their estimates down. >> no, you've got it, mark. they're fighting the last war. >> then when things turn up, they have the problem that you just pointed out, not seeing the

productivity, i mean, is that just the nature of the beast? >> yeah. >> that's never going to be solved? >> yeah, the beast is -- that is the nature of the beast. it only lasts a quarter of a whole business cycle. 3/4 of the business psychologistle you're growing threw the business cycle. you get to this 1/8 when you're going down hard and they miss that. because they were way too optimistic on that way down, they become very, very conservative on the way up. >> fred -- >> those two turning points are not good. >> sorry, we've got to wrap it here. one quick last question. does this information make them the contrary indicator? that is to say as an investor you do the opposite of what sell side tells you and you're right? >> rebecca, first of all, some of my best friends are analysts so i'm not going to say that. i do have to say that, no, they're not a perfect contrary indicator, either. they're just not good at the magnitude of the increase in earnings. >> have a good time with your friends tonight. thank you, fred fraenkel.

coming up, oil down a buck. yesterday up a buck or more. now we're down a buck or more. eia inventories. >> and the analysis from the trading tips when we come back.

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welcome back to "squawk on the street." i'm sharon epperson. oil supplies fell in the past week according to the energy department, down 1.8 million barrels. nearly in line with expectations. gasoline and fuel supplies both rose. gasoline supplies up 800,000 barrels. pretty much in line with estimat estimates. we're seeing prices right now still down on the session. but off of their lows of the day. i'm joined now by ray carbone. ray, this was not a surprising report from the consensus estimate, but really surprising come parpared to what the ameri petroleum institute sent out yesterday. >> yes, definitely in line with expectations.

i was expecting a little bit of more of a bearish number on the crude end. i think that's coming down the road. >> there's still the supply issue that seems to be weighing on the market if we have iraq, talking about increasing crude export in the next year or so with $60 oil. and in nigeria, eni and shell. is more supply really weighing on the markets? >> i think the market is not performing in line with the fundamental picture of supply and demand. that is the key ingredient we've been missing throughout the whole rally. not only are we well supplied but there's just not the demand we were expecting in the gasoline demand for the summer which has proved to be a bit of a fizzle. >> at love of people are pointing to the distallate fuels, and a another build this week. what does that mean going into this winter? will we be able to work down all the heating oil out there? >> when i look at the ditstillate and the natural gas price, as the indicators really

of industrial demand, not just in the u.s. basis but on a global basis. that remains anemic. we're going tv to have some very, very cold weather, hurricanes active in the gulf for natural gas to raise its head, really. unless we have a very cold went we're the heating oil issue. that shows global demand not very good. >> what do you think prices are going to be right now based on what we're seeing todayed in inventory data? >> if we don't have financial flows affecting the dollar/euro relationship i expect us to go lower in the near term. >> lower to $50 a barrel? >> let's deal with last week's low, last monday probably around 50-80ish area. and then back down to maybe 56. f mid 50 ss is where i'm expecti to go back down to. >> thank you so much, sharon epperson. we want to bring you attention to toostocks on the move with m

tofr s thompson with your real time c flash. >> it lost for the third straight quarter but unexpected loss of six cents a share. you can see up almost 7%. the maker of computer disk drives raising the full-year guidance for the current quarter. small stock, she said, but a big move today, you can see media general up 42%. 99 cents. who says media companies can't make money right now? cost cutting helped media general continue operations at 57 cents a share. even as ad revenue for the owner of newspapers and television stations fell by 26%. they are up big on the news, onxx, treatment of liver and kidney cancer is effective in delaying the progression of late stage breast cancer. and finally,st. jude medical trading on the big board, lower today. down 6 1/2%. this despite second quarter profits rising 14%. however, the company's third

quarter outlook is in-line to slightly lower. investors are putting pressure on shares of the maker of medical devices today. back to you. >> all right, thank you, mary thompson. let's take a look at the markets and the markets infernal internals. the dow right now, oh, negative again. not by much. not by much. 0.1 of 1%. s&p down a little more than a quarter of is 1%. internally, how do we look? not as you would expect. slightly negative. >> this one is a close call. >> 300 or no so more than losers than winners. that's not bad. and the nasdaq is slightly positi positive. so no surprises whatever. the first round of less than stellar earnings reining in the markets pushed higher. bob pisani and peter costa, empire executions president, cnbc market analyst.

robert? >> you know, it's pretty simple, mark. the reason the markets have held up so well is that companies are making big noises about some stability in terms of the revenues that are out there. now, that doesn't mean they're going attorney crease a lot but at least some kind of stability. stability implies better visibility. oh, better visibility, what does that mean? that meensz we migans we might r sense of the picture. six months ago we had no clue, there was no visibility. the argument here is maybe we're going to get more stability and more visibility. >> yes, absolutely. >> all right. >> oh, i'm sorry. >> you, it's you. >> tossed off to me. all right. >> we've got to go, guys. sorry. >> oh. >> i'm sorry. bernanke and the q and a, we're going back to washington. >> what recommendations do you have as chairman of the federal reserve that we might take that you should take in order to stem

this tide. what are the looming problems out there? the commercial real estate issue may dwarf the real estate mortgage problems in the country. the consumer borrowing practices, the overdraft issues and so forth still persist. consumer debt issues obviously are looming as well. what are those problems you see coming along and what step, for instance, are you considering extending the t.a.r.p. program beyond expiration, i think it's december, and whether or not it will be extended to accommodate the problems in commercial real estate? what recommendations would you give with us to start the other recommendations. you mentioned some in your statement. >> certainly, mr. chairman. on unemployment, that is the most pressing issue. and it's the most difficult aspect of the problems that we're facing. both the federal reserve and the congress have already taken very aggressive action to stimulate economic activity.

and i'm hopeful we're seeing some stabilization in the economy. beyond that, i think the -- to address unemployment more directly, the congress has already extended ui, unemployment insurance, to help those who are without work. one particular problem, which is concerning, is that people without work for extended period may lose their skills and they find themselves with atrophying skills and inability to find work once the economy has recovered. and so i would call to your attention the possibility of expanding trading and other programs that would help people maintain those skills or develop new skills to enter new industries. again, i believe this is the most difficult and challenging part of our task at this point. on commercial real estate, we agree with you that this is one of the more difficult areas. during the last few years while residential investment was declining sharply, commercial real estate was actually pretty

strong. we see now in the last six months or so that vacancy rates are rising, rents are falling, prices are falling and financing conditions for commercial real estate have gotten a bit more difficult. we are working to improve those conditions. we are working with banks, frerkfor example, in the same way that banks should be encouraged to work out defaulting mortgages for residential borrowers. it's in their interest to try to make arrangements to work out problem loans in the cre areas as well, and many banks will be facing very extensive amounts of cre challenges going forward. on the talf as you know, we have recently added to the list of assets that we are supporting both a new and legacy commercial mortgage-backed securities in an attempt to open the market which is an important source of financing for this area in the past. it's early yet to know how much effect it will have. we were encouraged by the effects of it in other areas

such as consumer lending and small business lending. we currently have an expiration date of december 31st on the talf. we will be monitoring the situation and if markets continue to need support we will be extending the final date of that program. >> you have the authority to do that? >> we don't need action but we are using the 13-3 authority which requiring us to make a finding of unusual circumstances. we would have to continue to believe that financial markets were in essentially still some distance from normal operation. if they're in normal operations it would be more difficult to do that. >> i appreciate that. dealing with credit cards and dealing with the residential mortgage markets and steps. and i -- so don't misunderstand what i'm saying in terms of what you've responded to. obviously a crisis was emerging here. there is a history at the fed which is deeply troubling to me.

you go back to 1975 with the fdc act which gave the authority to the fed to deal with protecting consumers for unfair and deceptive practices. even as late as 2001 when the fdic and the occ wrote to the fed urging there were problems out there they needed to step up. the fed didn't respond to it. we've all talked about, listened to jim bunning, last week we talk about the 1994 fact, the hope of legislation. that was 14 years before the fed under your leadership stepped up and responded to that situation with a series of regulations, dealing with the residential mort galk mark mortgage market. there seems to be a pattern of the failure that leads us appear to be concerned about whether or not there is just a momentary response to a crisis in front of us, to step up rather than the kind of consistent behavior that we would depend upon for the federal reserve to act when it comes to consumer issues that have been hammered by the problems in the residential mortgage market as well as in some of these consumer products if give me a reason why you

think this is something i should be less concerned about given this pattern of behavior. >> i understand your concern entirely. it's not literally true the federal reserve was inactive. we did step takes and took the hope authority to broaden the scope of high cost loans, for example, but we were not quick enough or aggressive enough to address consumer issues earlier in this decade. i agree with that. i think what we have demonstrated the last few years is we have the capacity, we have the ability, we have the expertise, the range of abilities and the complimentary with the other activities to be effective when we are working in that direction. so my recommendation to you to consider, mr. chairman, would be to ask whether there are steps that could be taken that would strengthen the commitment of the federal reserve so that it would be strongly committed to this area in the future. and a few suggestions i would make. one would be to put consumer protection in the federal reserve act along with full employment and price stability as a major goal of the fed.

a second step could be to require the chairman to come before you or another committee at least once a year, present a report in the same way we do for monetary policy on our consumer protection steps, adopt a system of hearings or sufficiency reviews that would allow the public to see what steps the fed was taking and provide input to make sure that actions were being adequately taken in addressing problems. and yet another possibility would be to upgrade and strengthen the consumer advisory council to give it a higher, stronger status and ability to meet with the board on a regular basis. i think there are steps that could strengthen the institutional framework that would address your legitimate concern about the long-term commitment of the fed to this particular area. >> let me quickly jump lastly to this issue involving the power the fed presently has of the bank holding companies. and again, all of us here, we go back to our respective states and we get an earful on a daily, hourly basis about the unwi

unwillingness of these lending institutions to provide necessary credit at a critical time, when businesses are asking for it and dead manndemanding i no answer. we could jawbone on this issue. the fed has the power here. why isn't that happening? why aren't we getting more support in order to demand these institutions start being far more responsive to the demand of industry and business out there relying on these institutions to expand and grow and help recover? >> well, mr. chairman, i think the first order of business last fall was to overt essential think collapse of the system and that was a very important step. we did achieve that and the system now appears to be much more stable. it's still very challenged. some banks are still short of capital. other banks are very -- concerned about future losses. they're concerned about the weakness in the economy and the weakness of potential borrowers. there are legitimate concerns that banks have. that being said, the fed and other bank regulators have been

very clear that banks should be making loans to credit-worthy borrower, it's in their interest, the banks's interest as well as interest in the economy and we're working with banks to make sure they do that. i think that we are seeing improvement over time. we're seeing some stabilization in these terms and standards that banks are applying to borrowers. and i do suspect we will see continued improvement. we understand that issue and we are trying as best we can to support bank lending through pea sures such as talf. >> thank you. i would hope on the talf decision you might make that earlier -- >> quickly, we want to break in and point out that federal reserve chairman bernanke suggested one way to solve the problem of the fed monitoring consumer protection in the financial world would be to amend the federal reserve act, fed chair mann mmen don't usual that. they are biting in order to save this function that the fed has.

something the obama administration wants to move up to a separate agency. but he said one thing to be done is to require the fed to take it account to consumer protection in the action. let's go back to the hearing. >> i assume this is done in an effort to expand the range of things subject to limited congressional oversight. would you support an independent review perhaps by the gao so that we can establish a clear line as to what must be kept independent and what should get more scrutiny? >> our general view is that the congress should have the ability to oversee automatlls a seths operations including financial controls, whether we are lending on a good basis of collateral and so on. and so we do need to work with you on that. we do think that the congresses that right to see how we're

using taxpayer money. what we're concerned about is that the congress would be intervening in our specific policy decisions relating to monetary policy in the economy. >> i understand that. >> so, yes, we are quite willing to work with congress to try and figure out exactly where the line should be. and outside the area of policy determination, we are quite open to working with you and the gao to determine appropriate scope of oversight. >> mr. chairman, your monetary policy report notes rather casually that, quote, nontraditional monetary policy actions employed by the federal reserve since the onset of the current episode of financial turmoil have resulted in a consable expansion of the federal reserve's balance sheet, end quote. from $918 billion at the ends of 2007 to over $2 trillion last

week. by category rising these as nonmonetary policy actions, good choice of words, are you suggesting that actions by the fed that have more than double the size of the fed balance sheet are beyond congressional scrutiny? >> i think that all -- >> you see where we're coming from? >> yes, mr. senator shelby. so we have already -- the gao has already been given access to the rescues. the gao also has access to the talf, which is a major program. and i think we would be willing to expand gao access to any extraordinary program with the focus being on our operational integrity and making sure we are pro teching the taxpayers money. where we are nervous is when the gao begins to second-guess our monetary policy decisions per se. but in terms of safeguarding the money and making sure the operations are well maintained, all those things i think are appropriate for congress to

oversee. >> i'd like to get into something you've talked about on the house side on a number of occasions, but i don't believe over here yet. that is the bank of america/merrill lynch merger. what really went on between you, senator paulson, the ceo -- former secretary paulson, and mr. lewis, former -- i guess he's still currently the cao bank of america. there's been a lot said. a lot of charges both say. some that you and secretary paulson threatened mr. lewis. i think you basically said that you didn't. but i'd like to hear in your own words what went on there, because that controversy has not gone away yet. >> well, chairman frank yesterday said he saw no villains in the story and i don't think there's anybody in that story who did not behave appropriately and in appropriat.

you should remember that the way this became even an interest of congress was the report from attorney general cuomo that mr. lewis had said that we had -- we, the secretary and i, had urged him not to disclose material which he was supposed to disclose under s.e.c. rules. he later clarified under oath that no one had done that. there had been no such urging not to do appropriate disclosures, and that he is solely in control of his own disclosure decisions. so that eliminated the only issue that had any legal consequences, as far as i can nevertheless, the committee proceeded to collect e-mails and materials and to look for whatever possible problems they could find. in fact, as i've said in my testimony, we were dealing with a very difficult situation where we on the one hand wanted to make sure that we respected the rights of mr. lewis and his

shareholders. on the other hand, we wanted to make sure that the financial system was stabilized and protected. i think that we achieved that. we did that in a way that was fully legal, and fully ethical. and in which mr. lewis also performed his necessary fiduciary duties with respect to his company, and the outcome has been very successful, i think. that both companies have been stabilized. there has been -- merrill lynch has been contributing to the profits of bank of america. the overall financial system has been stabilized, and so i think the outcome was successful. and i don't think that there's anyone who violated any law or broke any ethical code, as far as i can see. >> you think the conduct with secretary paulson -- your kuk and mr. lewis, was all above board? >> yes, sir. and all in good intentions. >> thank you, mr. chairman. >> thank you, senator shelby. senator johnson.

>> welcome, chairman bernanke. as you know, this committee recently heard testimony regarding the possible creation of a new federal agency with a specific purpose of consumer protecti protection. the creation of this agency would take consumer protection off of the fed's plight, allowing the fed to concentrate in other areas of responsibility. do you feel that the fed has been effective in protecting consumers, and would this agency be more effective? >> senator, as i indicated, i think the federal reserve in the last three years or so has demonstrated that can be very effective. we have a lot of expertise which bears on consumer protection. we have been very committed. we have used consumer testing

and other novel approaches to develop really good approaches to solving these issues. so i defend the record of the federal reserve in recent years, and i -- as i reiterate what i said to the chairman, that i think with some additional steps to strengthen the commitment of the federal reserve to this area that we could maintain that commitment going forward. i also don't think that the consumer protection function is in any way detracting from our other activities. i think it's complimentary, for example, to our bank examination activities when we go in and look at a bank, we do one exam, both for compliance, consumer compliance, and also for safety and soundness oversight, and many things that we look at such as underwriting standards have bearing both on safety and sound and on consumer protection. that being said, i understand -- i agree with chairman dodd that the federal reserve did not do all it should have at certain times in the past. and i understand why some would

want to see a new agency that would be fully committed to this area, and i'm not criticizing that. i'm simply saying that from the federal reserve's perspective, we believe that we can continue to do good work in this area. >> in your view, does the president's restriction proposal allocate costs fairly between large and small financial institutions, given that most community banks and credit unions had a lesser role in the creation of the crisis. if you're referring, senator, to the fund or the cost of resolving failing financially systemically critical firms, my understanding of the proposal is that assessments would be based on noninsured liabilities. so a -- in principle, any bank holding company or any -- almost any financial company, might be

subject to assessments to help pay for a intervention when a large systemically critical firm is failing. however, small banks, small community banks, most of their liabilities are insured. their deposits, for example. and so the portion of their liabilities which would be subject to an assessment, which would be relatively small. so i would imagine that the bulk of the cost would be bourne by larger banks, and indeed make the cost progressive and put a heavier weight on the assets of -- liabilities of larger firms. so i do think that's an important issue. and i do think it would be appropriate for larger, more systematically critical firms to bear their fair share, obviously, of the costs of resolving any systemically critical firm. >> there has been speculation in recent weeks about the effectiveness of the economic

stimulus package that was enacted in february. and if enough has been done in the federal level, in your judgment is the stimulus package mitigating some of the effects of the economic crisis, and are there additional physical policy responses that congress can take to help the current economic situation? >> well, based on our economic analysis which draws heavily on previous experiences, you know, we would -- infer that, for example, income provided to workers and seniors and veterans would effect their consumer spending, to some extent. likewise, money flowing to states and lities should relieve to some extent their budget pressures and allow them to spend more on services than they otherwise would be. so the economic presumption is that there would be some effect on activity and spending from --

from a fiscal package. that being said, at this point, less than a quarter of the moneys have been disbursed and probably fewer than that have been actually put into action or spent. and so i think it's somewhat premature to make a strong case one way or the other in terms of the impact of this program. and i also think it's premature to consider an additional package at this time. with represent to strengthening the economy, i do think -- although it's not -- the impact is indirect, i do think that financial regulatory reform should be very high priority. i know that this committee will be spending a lot of time on making sure that our financial system is stable, and able to provide credit to the economy in the future. >> finally, we have repeatedly heard testimony in this committee that families and investors will continue to be

weary of the housing market untl the bottom can be found. has the mortgage market finally hit bottom? >> it's difficult to know. and we've had false dawns before. but the recent district attorney had been mildly encouraging. we have seen demand fairly stable now for some months in terms of housing. we have seen some increase, actually, in construction and permits. the data on house prices, there are a number of different series, they don't always agree, but there seems to be at least, for the moment, seems to be some leveling off in house prices. and, of course, in part because of the federal reserve's actions, mortgage rates are a good bit lower than they were last fall. and, indeed, housing affordability right now is the highest it's been in many, many years. so there are some positive indicators in the housing front. that being said, we still also have problems of foreclosures coming on the market, which will

put downward pressure on prices. and so we can't get guarantee by any means that the price declines are over. but we are seeing a few positive indicators in the housing market. >> thank you, gentleman bernanke. >> thank you. thank you very much, senator johnson. senator bennett. >> thank you, mr. chairman. welcome, chairman bernanke. appreciate your service in a time of great stress and difficulty. appreciate your willingness to hang in there and try to remain as calm and serene as you can. when we were having these discussions a year ago, and we've heard you now first with bear stearns and we thought that was over, and then we, you know, we had additional problems all the way through, through it all, the one overriding principle that motivated me was if we're going to get stability in the market in these very difficult

times, we have to inject public capital or sovereign capital. all right. welcome to "the call." i'm melissa francis. we are in day two of ben bernanke's testimony on capitol hill. right now he is taking questions from the members of the senate banking committee. larry. >> i'm larry kudlow. we have economist vince rhineha rhinehart, cnbc's steve liesman and rick santelli. they're all going to provide instant and brilliant analysis. and we will talk with elizabeth warren, the congressional chair of the t.a.r.p. overhaul handle. >> trish. >> we are 90 minutes into the session, up just barely on the dow and nasdaq. basically, weak earnings out of morgan stanley and wells fargo. they are offsetting the strong earnings we saw from apple. but let's go back right now and listen to chairman bernanke's q and a session. >> do you have any sense of

that? >> well, senator, we've had some recent success in this area, as you know. the federal reserve led an inner agency evaluation of 19 large banks simultaneously, which was an enormous effort, i must say, in the so-called stress tests. and what that did, apparently, was give the market some more confidence about what the eventual losses would be, and what these firm's needs for capital would be in the future. and as a result of the stress tests, virtually every one of the firms was able to go out and raise private capital. and of course about $70 billion is repaid. so i think what the private capital is waiting for is greater clarity and assurances both about the state of the banks, their potential losses, but also there's a lot of uncertainty the in economy. and as the economy has looked a bit better and stablized somewhat, the credit markets in general have improved, and i think that will lead to more