good morning. the search for a deal, microsoft and yahoo! nearing a partnership could be as early as today. china rising, the world's biggest ipo this year surging 56% in its shanghai debut. and the markets at this hour, a mixed picture out of asia. strong start in early european trading, but u.s. equity futures are under pressure as "squawk box" begins right now. ♪ but i still haven't found what i'm looking for ♪ >> good morning, everybody. welcome to "squawk box" here on krpz. i'm becky quick along with joe kernen and carl quintanilla. good day, everybody. after months of speculation, a

yahoo!/microsoft search deal could be announced as early as today. yahoo! reportly won't by paid in advance. instead, these two companies are expected to share revenues generated by search ads. it's been something that's been talked about for quite some time, guys, but now it looks like it might actually be happening. >> and those are two results where the quarterly numbers weren't all that good for either microsoft or yahoo! so they could definitely use each other's help. although there is conflict about whether this is happening today or not. >> they said it could happen as early as today. i tend to side with the journal on most things. they actually haven't sources. my favorite part of this story is the failed bid that we're talking about that microsoft made a couple of years ago.

for 30 -- what was it? >> $47.5 billion and yahoo! said no. >> guys, wait. time warner is out with earnings. it looks like an adjusted 45 cents a share. the street was looking for 37 cents, but obviously with a time warner and many of these other companies, it's not necessarily just alternatings per share that you want to look at on these x things. they talk about how there's comments from the ceo who says he's encouraged by the operating numbers in the first half of the year. the economy delivered 4% year over year. we've affirmed our business outlook for the rest of the year because they spun off time warner cable and you're talking about a -- >> and we can head back to microsoft/yahoo! by talking

about aol because the other day we heard this aol bought back that google stake. that is worth a quarter of what it used to be worth just a couple of years ago. yahoo! $47.5 billion, jerry yang, no way, man. no way. what, do you think we're stupid? i think it was like $32 a share, wasn't it? >> i was thinking it might have been $34. >> might have been because the market cap now is $24 for yahoo!. at $17 a share, it was at 26 billion. and that had to do with him being a founder. what happens with shareholders? >> oust yang? >> not just oust him, but what about your fiduciary responsibility to have -- well, he was a member of the board, i think. yeah. but i would be unhappy is my 34

had fallen by the wayside. nick wings, do you remember him? he was the slimy lounge lizard and -- >> the one who sang star wars? on saturday night live. >> oh, yeah, yeah, that guy. that guy. he would talk to people about soccer. nick wings. he does it all. >> he's the technology reporter. he must have a love of soccer or something. >> well, the story is are american becoming soccer fans? but i'm not going to talk about this, but that was a mini visit of the paper. >> you did football yesterday. >> i did? >> yeah. you just talked about the japanese -- >> oh, yeah! lou holtz. today i'm on something else.

you know there's a frank lloyd wright exhibit coming to the gugen hyme. i'm not going to talk about that. i'm going to talk about beer kegs. >> okay. >> let's talk about time warner's numbers. joining us now is larry halferty. lar larry, we've been watching these numbers. what is your instant taking from what you're hearing about time warner today? >> i think furch alone in the desert and someone asked you what was the best content company you would say time warner and i think the numbers justify that, becky. they had very good results. the film business, i think we've got much more good things to come with harry potter and hangover having much more impact on the income statement in the second half of the year. and the network business was

very brooi vibrant. they had a very, very strong i think it was double digit increase in operating income. and so the idea is that this thing produces very, very strong content. it has a dominant market share with disney in this business. it's cable networks are kind of at the top end of the advertising food chain. it doesn't have radio or distinguish which is dragging everybody else down, but the consumer is going to watch this struf. advertiseders are going to pay for it. the multiple is reasonable. we think in a reasonable trade environment, it can trade into the mid 30s. >> mid 30s? wow. >> joe, sth a consumer company and it's the best of breed. >> you didn't even mention aol,

larry. what is that, like an option or something? >> well, i think aol right now, the market value of the company is $44 billion. market value of equity plus debt. aol right now, we thought it would belly sshs $24 billion and $4 million. well, the price right now on google is $5.6 billion and so that's worth a $33 billion valuation. and it's going to go up and we'll see how tim armstrong works as a manager. but i think what else here is you can concentrate on the rest of the businesses and aside from the magazine business, which under the best of circumstances is challenged and under the worst of circumstances has a shot of going ex tickets, which

i probably think is 1% probability, the other businesses are top drawer consumer businesses. every bid is as high quality as something like a procter & gamble and i think the valuation is going to compare this company against companies such as proctor & gam blg, walmart,co ka coal what and it's reasonably priced compared to a lot of those and i think it's growth contacts are equivalent. >> but larry, none of those companies are faesing the question about piracy and everything else that -- >> you haven't selecting digital pennies for harry potter for a hangover. >> those are cage toll $100 bills.

>> that's a great movie. have you seen it, joe inspect. >> i saw hackover once, mercifully so. >> what about harry potter? >> no. >> harry potter has raised over $200 million. >> hangover cost $ ,35 hin and it made over $3,.5 million. hairly is going to do over $1 billion worldwide and harry potter is a preview for the last two episodes. >> and harry is reportedly going to get nake. oh, no, that was something else. >> i think this google meek row soft deal effectively

marginalizes aol pirp mean, i think the sthing that was fascinating to me, bomber did an ad introduce and he more or less threatened yahoo! with $5 billion on search if they didn't do the deal. now, if you're aol and v a cash flow somewhere in the neighborhood of $1 billion and a market value of near $6 billion, and you're looking at a monster spending $5 billion at the at the heart of your business, i think n consumer sector, joe, it's quinnble right now that the consumer is pressured. what you have to do is you have to own the best company in the subspace that you're looking at. the number three or number four

mblth share is worth effectively nothing these days. you can see it in consumer packaged goods, retail, so this company here, as i started this dialogue, i think the numbers indicate that this is, along with designee in the content business, indeed. >> thank you for joining us this morning. >> see ya. earnings season is gradual le drawing to a close. >> you're ready for it to be over, aren't you? >> it will be used geg again. >> in addition to time warner, we'll get on the calendar before

the bell today, cobco phillips, sprint nextel, moody's, time warner and general dynamics. >> that's all right, though. >> dmuth like last week. >> weekly upside surprise numbers we've seen. case shiller yesterday and new home sales. really, a real change. >> confidence wasn't so hot yesterday. >> people worry that jobs are harder to find, which is understand knowledge whether you're talking about a job market 90 pirs employmen%. also today, bill dudley speaks on the state of the economy. at 10:30, weekly inventories and

this afternoon, the economy's beige book is coming out. >> no, no, i meant -- by the way you said that was good, as well. >> i'm watching you, how you do snap. you're interested in everything. >> because everything is interesting. >> on a busy wednesday. >> that's right. back to you. >> the obama add 34i7b administration pressing banks to speed help to distressed mortgage holders. by november 1st, treasury owners want $500,000 home identifier makes things good. they have had personal meetings with some of these banks. yesterday, markets rallied back to 2ri7el digits, down by 11 points. right now, it looks like the pulse are in demand.

dow futures right now down by about 3.5% points below fair value. oil prices down by more than $1.50 yesterday. right now down another $1.58. we will see more hearings today. the cftc continuing to talk before congress and hold these hearings if they schoob more closely regulating exactly limits on what people can and taent tray been let's take a look at this ten-year note. we had an auction yesterday. that puts even more attention on what's happening today. you can see right now the yield on the ten-year now right now you're talking about 7902 for

the morning index and we'll keep an eye on hm, as well. now to the overseas market, county county is starting things off in london with steve sedge winl wick. did good morning to you. >> plenty to account for on the european earnings calendar. we're not winding down just yet. we're building up a big head of steam. the markets have managed to rally today. we've had a stunning run off those marleaus. 40% higher. but today, the major european markets up between around about 0.5% and 1.5% after falling by a tim lar imaginin yesterd yesterday. at the moment, s.a.p. is the world's biggest software produces for businesses.

sales and sales related to services, they have been lowered on the outlook. but what they are giving us is visibility for the second half and that's saying things are stable and rising intha. not such a rosie picture over arcelormittal. this is the world's largest steel producer. they're saying things will be very slow. global demand seen down around about 10%. some really big interesting moves on some of the asian markets, let's speak to christine dm singapore. >> thanks, steve. most asian markets fell today. the big news comes from china with a listing of china's state construction. the company soared in its debut today. but the overall market tanked as investors took profits worried that banks might restrict lending. the shanghai xotit slumped 5%. ipo, chinese building

manufacturer searches as much as 65% in a day today. the happening sang fell 2 much 4% on profit thag. yesterday wp, steelmaker jeremy holdings gained. profit taking in techs led the taiwan market lower. that's it from asia, carl. back to you. >> christine tan, joining us from singapore, thank you for that. joining us today is pa trishg ya. michael, we've been pretty bit for a while ago, now you seem to agree with the notion that is put forth on the judicial's front page today that we might be seeing a bottom in housing.

is that right inspect. >> that the, carl. i think we're seeing accumulation of data that speaks to a bottoming in any prices, whether it's influence home sales, housing starts, record affordability and probability most recently the recent action in home prices where if the april data showed eight cities up, this from case spiller showed a majority of the cities ov over. any way you slide it, we've had made on the of progress. to the stint that that is arrested, i think is plays tt strongly into the recovery discove discovery. distressed sales make up a big piece and then they look at the option arms issued from '04 to

'07. 40% of those guys are delinquent and in the face of rising unemployment, is there going to be more trouble ahead? >> well, i think at some point you have to reach a bottom. and i think at least the good news is that the economy is continuing to accelerate in its decline. be it housing or automobiles, you'll get people bottom fishing and inventory rebuilding. but the key thing to watch is is there going to be sauce sta stainable person. what we're waiting, i think, is a real sea change where in this country after lit ra rally a full generation of overspending and under saving, we're now facing the baby boomers realizing that they have to start saving again. and it's just -- you know, the arithmetic, if you're going to have to save, you're not going

to be able to spind as much. and so while aing steep recovery. and i think we'll see a very anemic issue. >> you don't take issue with the fact that the economy is responding? >> i don't know a problem with that at all. is it going to be slow? now, the positive thing is, i think we're seeing significant product i havety gains. unfortunately, some of that is because they're laying people off. >> and they're not going to bring them back, right? >> they aren't going to bring them back. >> how do you answer that, mike? >> well, i think we're going to have a recovery that ends up spreesing to the up side. that could by considered a weak recovery, considering the depth and duration of this recession.

a strong recovery off of a recession of this magnitude would be like 6 to 8%. so conum sear spending mraint be exa . we've got this side 800 billion in government spending that's essentially in the six quarters in front of us, so that will add something. >> what's your idea that ex ports, restocking, the magical improvement in production is not something to build a long-term economy on, michael? >> well, it may not be something to build a long-term economy on, but we can cross that bridge when weblth to it. if wire going to have six to eight quarters of decent growth in a good stock market, we can start to get conis him servive or a bit more constructive. but that's not are the for the hear and run. >> but it will be very apparent

if the recovery is from inventory managing. the last few sessions we've had, it's partially because we were able to basically export a fair bit of the unemployment because we were producing stuff abroad. this one has been much more sfrts sector oriented and those are our jobs here. and i think we're just going to find it's a much slower recovery in terms of employment and ultimately, you've got to get people back to work to get the economy strong. but i gray with michael, a 4% recovery is actually somewhat anemic, given the enormous, you know, decline that wlooefd. >> guys, good stuff. we'll talk to you soon. coming up, uncle sam squaring off with ubs. the issue here, offshort tax lavens. first, as we head to break,

take a look at yesterday's winners and losers. here we go.

welcome back, everybody. ubs is continuing its talks with the u.s. government. the talks are likely to result in a postponement of a court date in florida. about we come back this morning, the top stories and the futures pits. don't go away. tomorrow on "squawk box" -- a nation diagnosed with a severe economic illness, but what's the right treatment? .

good morning. welcome back to "squawk box." i'm joe kernen. becky is back today. are you off friday? >> you know, i haven't decide yet. >> can you tell us? >> you'll know. you'll know in advance. same with you. >> you may stay home with the

girls? >> friday in the summer, you know, might as well. >> you wouldn't miss us. >> you guys are taking a lot of vacation, though. i'll be here, holding down the fort. >> joe and i were talking about vacation days from my vacation. >> suddenly carl doesn't want to go home. it's crowded, number one, and it's chaotic and it's crowded. let's get right to the cme. jessica hoversen is there. >> it's like being at home. >> of mf global. jessica, we gave back a little yesterday. we're giving back a little it looks like on the open today. but are the bulls still in charge, would you say, equity wise? >> well, i think momentum had an has been running the equity markets. i believe 74% of all the earnings releases in the s&p have been positive surprises. but it does beg the question, again, are these earnings on cost cutting activities organic

demand? i think agency we look forward, equity traders are forced to look at that fact. however, right now, 82% of all the stocks in the s&p are trading over their 200 day moving averages. and so i think that does, again, argue for this momentum higher and, you know, if there are a lot of -- there's still $3.6 trillion of cash sitting on the sidelines. a lot of people are very under invested. and i don't want to miss the move higher because they were caught long on the way down. >> under invested. housing seems to be stabilizing. so those are, like, long-term positives. the gdp number that comes out on friday will give us an idea of whether the overall economy is better than people expect. and for those people that are worried about a lot of government involvement, things have gotten more positive maybe for investors in that regard with the delay of some of these programs, right? yes, they have, definitely. i think as far as washington

goes, things are not moving through the senate as quickly as i'm sure our president would have hoped and that is much to the delight of many investors. and so i think that if that -- if these things continue to happen like they are in washington and we start to get policies that are more favorable for markets and for income -- all income classes, i think that will most definitely be a long-term positive. i think with the markets continuing to focus on are the jobs market. i think if the jobless repair will be seen as effective government stimulus. and if we get a jobless recovery like we did in 2001 or we see stag nating job growth like we did after the '91 recession, i think that will be a long-term bearish factor for the markets and even for the dollar. >> that drives people crazy when you say things like that, that investors would be happy when things aren't going smoothly for bigger government. and it just seems -- it's almost

a given for people like you and people down on the floor, isn't it, that if resources move out of the private sector into the government sector, it just necessarily means that it's not necessarily a good thing for investors, no? >> i agree. it is the job of the government to discipline the government. and right now the markets are saying to the government, no, we're not in favor of your policies and thus you need to change them so that they are more favorable to what we need right now. the market is telling the government, we need repair, not change. while change isn't a bad thick, it's not economically sustainable currently. >> if government derives its revenues from the economy, the private sector paying taxes to the government to pay for things, right? so you need a vibrant private sector. that is what i don't think people understand. >> but not just -- just wild,

right? >> but not everything should be running all willy-nilly. there is regulation for a reason, but it needs to be within reason. >> i just know there's people out there going, look behind her. you can tell where her bread is buttered and she's saying any government programs are going to be bad for -- >> just like milton -- >> there is nothing wrong with free market economics. it got us this far. >> you're right. 300 years, it got us this far. >> you you do some have big fans, jessica. i don't know what you were saying the last time, but -- >> was it my mom? >> the last time you made some progressives really angry. >> well, you can't make everybody happy. you have to have an opinion and right now my opinion is with those who believe that the government should just take a step back. >> thank you, jessica.

progressive, you like progress, right? >> yeah, as opposed to the "l" word, is that what you mean? >> i'll use that if you want. >> the journal is right there. >> liberals fear losing public plan. >> i saw that. as they mentioned bernie sanders' friend. and nadler, he says if there's no public option, you can forget our vote for health care. >> a once in a lifetime chance. >> can you progress backwards? >> you can, but it makes that noise, that doo-doo-doo. >> you might run into something. >> the "new york times" pointing out that the health care costs are ridesing much more quickly than our economy as a whole and every solution they've come up with to try and pay for this has fallen short of covering it. >> now they're talking about taxing the insurance companies that provide the cadillac

benefits. >> this arlg says this is probably one of the only ways to tax the health care coverages, as well. >> it's a john kerry idea. now you can say, i have a plan. >> if i come on and i look like this some day, do you think people will notice? >> no. i'm sure it will slide right under the radar. hello, dear. >> what about that? that looks a lot better, but i can't talk. >> every time you go on vacation now, people will be watching when you come back. >> september 4th. i'm never gone for more than a week. take a look. >> if you have any comments or questions about anything you see here -- >> i can get firmed up,

implants. >> did you know you can get butt implants? >> yeah, i'm going to get butt implants. >> extra large. >> thank you, carl. >> anyway, squawk@cnbc.com. we're going to recap last night's earnings and we'll give you the names of stocks you need to know today. b oof!

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welcome back to earnings central. i know wa you're thinking, hey! they're in a different place! let's watch longer than necessary. look! they're standing somewhere derchtly. honey, come here! look! >> it is earnings central. >> let's leave this on until 9:00 today instead of 8:00. it really works. time warner reporting quarterly results at the top of the hour. 45 cents a share. i'll tell you what got me today, when halferty said mid 30s, i haven't looked at the stock price. >> $27.50. it's been on a climb for a while. >> i thought of carl icahn and how he got it moved up to the mid 20s.

then it dropped back down to mid 14. revenue fell slightly short, but that stock has been on a roll. but so has telecom and other media companies hit lower as many of the other companies did. >> you have to wonder whether the advertising markets are going to start to turn. i noticed they were thicker today. >> really? the "new york times" has been trading up. it had a surprise profit. >> there are a lot of other movers, as well. shares of mckessen get ago boost, as well, after reporting earnings per share of $1.06. it was up by close to 8%. >> fmc technologies might not be a household name, but look what happened after hours. the oil well services company beat estimates, street timts by

22 cents, even though revenue was in line. but then it raised full year guidance, as well. that's going to be a feature today on the big above. >> plus, live technologies and earnings raising its full year profit targets. again, another big mover after hours up by 5.8%. >> the next time people see us, we might be at the set or maybe even in a different place. >> you like doing earnings. >> a third location? >> yeah. but you'll need to stay tuned to find out. >> i will do that. coming back, we are reunited. becky is back and we'll go to chairs after the break. tonight, don't miss a cnbc special presentation, the cnbc ultimate fighting championship, the rise to the sport of mixed martial arts. many state athletic commissions

refused to recognize this sport for a while. scott wapner goes behind the scenes with the league that's making money hand over fist. >> mixed martial arts were once thought too hot to handle, considered unacceptable in society. as the president tells it, the league was shunned, not only by main street, but by the most important street of all. >> do you think madison avenue has been gun shy? >> yeah. i think everybody has been gun shy from the day we thought the thing. first it was venues. it's television, pay per view, athletic sponsors. >> after eight long years, the u usc has been embraced where bud light declares itself the official beer of the usc and harley davidson explodes the league's popularity.

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all right. we're over here in the chairs. we are in a different place. >> fancy. yeah, we are fancy. we spare no expenses for you. time now for a check on the world outside of business.

oh, oh, it's monica novotny. we've had alex for the past couple of days. good to see you, monica. >> great to be back. he was out visiting family in seattle. i am here at another location for you. >> nobody is going to change the channel, for sure, hopefully, because there's anything else on worth watching at this hour, i can tell you that. all right. let me start with the news. federal police searched the homes and offices of michael jackson's doctor on tuesday. last week officials searched the storage and clinic. they were searching for evidence of whether the doctor committed man slaughter. in a 13-6 vote, the judiciary approved sonia sotomayor's nomination. more than 200 applicants lined up under london bridge

dying to earn a job as a mummy. judges awarded they are thrilled to death. >> scary zombies, they are moving too slochl it's the ones with the rage who run fast that are the scary zombies. >> they sent them down, got some free work out of them to see if they would scare tourists. they showed up in their own gear, did their own makeup. >> the 48 weeks or 28 weeks later where they run around, those are scary zombies. maybe you can dodge your way around. >> they eventually catch them. none of them move that fast but they keep coming. >> the one in a rage do. >> zombie rage. >> depend guy work here? i'm not sure.

>> there they are. those are the two winners. >> $40,000, more than 200 applicants. >> is that a dead-end job? i don't know. did you cy those, monica? >> i might have some notes. >> monica, thank you very much. we'll see you tomorrow morning. we're in the chairs, talking pout stories in the paper that caught our attention. we talk all the team about how there are culture clashes, when you try to put two different operations together. i never heard of a culture clash that might have happened after the company that acquired liam operations. apparently the japanese brokerage firm kicked off a training session for new hires. it separated the men from the women. there were some complaints that cain after the women complained that -- here is how to serve

tea, choose their wardrobe according to the season. didn't go over too well with some of these harvard educated lehman employees. >> tread lightly. >> culture class is a very different thing. i know how i felt the one day when the guy came in and said, hey, will you get me coffee? it didn't go over well. >> give us a clue. >> i know where you're trying to push this. >> hair growing out of his -- >> no one is going to know who he is, that he has hair growing out of his ears. we'll let you know when lm -- >> talking about yourself. >> i was going to talk about this guggenheim frankie lloyd wright all the way down in this building. >> just storage but looks gorgeous. >> i guess apparently the drawings are so sophisticated

that an architect would go in and really enjoy it. if we went in, it might not have the same affect because they are drawings. but i'm not going to talk about that. i'm going to talk about beer, which is a little more important. miller coors is testing a draft beer box for the refrigerator. 1.5 gallon home draft. in light of some of these beers, bud light is down 5 1/2%, heinekens is down 15%. new home draft system placed upright in the refrigerator. they will keep the beer fresh for pout 30 days. it's about 15% higher than an 18 pack of the same beer. i love the way these guys talk. we're really trying here to meet that occasion when you just get back from work and you want to

reward yourself, rather than the party occasion. >> heineken. >> they have the mini keg which is very cool. >> it is but you're supposed to drink it all in one sitting, if you're alone. but you can also buy the optional beer tender countertop chilling system. you put it in and it stays there until you get home. i've seen one of these. my brother had one. it's very good. >> president meeting with gates and crowley for a beer. there's odds what beer. budweiser ten to one. yaengling, pennsylvania, the swing state. >> we should get a poll going on. >> i think they settled on sam adams because they are both from boston. >> that's a good idea. >> real quick. ucla has their new slang

dictionary out for the 20th year. do you know some of these words? to blaze, to schmo marijuana. bromance, man crush. to roll mad deep, go out with a number of people. spit some gay mat means to flirt with them. spit a fair amount of game. booty call. chillax. >> booty call i saw that on entourage. >> muffin top, women who wear -- >> jeans so tight the top pops out. >> i'm familiar with that look. i'm not talking about my wife. i'm talking personally. >> a very close female friend who resembles a sibling is a sister from another mister. >> we have a bromance.

>> do they have a bro. >> if they do, there's a picture of you in the bro next to it. >> part of the implant thing i was referring to earlier. >> coming up more of this morning's top stories. plus he's a new york city native. he calls california now. hedge funt hunt, in "squawk" land ready to dish on everything from the future of the economy businesses more efficiently,

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searching for a deal, microsoft and yahoo! search

forego a deal. closing california's budget gap. okay, mom. >> the governor signing a plan to slash spending. his right-hand man on the state's economy joins us to talk about the crisis in california and the road to economic recovery around the nation. >> plus today's guest host runs one of the nation's largest hedge funds, thomas dire chimes in on health care, earnings and where this market is headed as the second hour of "squawk" begins right now. >> good wednesday morning. welcome back to "squawk box" on cnbc. i'm carl quintanilla with joe kernen and becky quick. some of the stories we're following, a microsoft search deal could be announced as early

as today. yahoo! reportedly will not be paid in advance by microsoft rather they will share revenues from search ads. they will use search and ad technology and yahoo!'s sales force. post ag better than expected q 2 profit, the world's largest software maker will maintain for the year. the ceo will join us. weekly mortgage aps down 6.3 mostly due to a drop in reify activity. 90 minutes later we'll get to june durable goods. >> you can't tell a difference. you can get away with it and no one knows. there is no website. >> they have a lot more traffic thanks to you. weekly crude oil inventories. this afternoon beige book or tan book depending on how you grew

up calling it. >> people are waiting to hear. we're not going anywhere. i don't know where they expect us to go there. we're not going anywhere. gerbals are just pets. >> a loss of 13 cents wider than a loss of two cents although revenue was in line fell 10% to $8.1 billion, estimate was 8.11. cap about $13 billion. if you think of a duopoly you think versus and at&t at this point. sprint nextel, thought that was great commercials. the kid in the locker, they let him out and he says thanks. if a fireman ran the world or roadies, who is the rain, they are great. then you've got the guy walking around central park. >> black and white.

>> yes, they are. he uses words like "cool." i don't know. it's still a $4.50 dollar stock. i don't know what expectations were for some of this, 48 million wireless customers but declined by about 257,000 total wireless customers. so that's headed down. they talk about churn rates and other things. are you looking at sprints? >> i'm looking at moody's. i figured since you're going with sprints. >> moody, diluted earnings per share 43 cents for the quarter, estimate 40 cents, revenue down 8% to $450.7 million. talking about the full year revenue growth, trying to get to that headline and expect it to be in the low single digit% rate. >> guest host is one of the nation's largest hedge fund managers, co-managing partner of

capital management. i wasn't here last time you were, good to meet you. >> good to see you. >> we were all watching in kind of shock and awe what happened -- what's going on in california. it's hard for us to get our arms around it because you have a budget deficit that wide and you immediately think you're going to need more revenues, raise taxes. taxes have already been raised and companies have already left, which is part of the problem, which leads you with unfortunately sacred cow cutting spending on people who need some spending, right? >> well, i look at california and people describe california as being in crisis. i distinguish between the economy of california and the governance of california. the tax base and spending limits we have a dysfunctional situation. but the economy of california continues, from my point of view, to be very expansionary, forward-looking.

it's very successful. if you look at the companies that have done well in the recent past. you look at google, intel, apple, they are doing new things. when i travel around the state and talk to young people, people trying to start businesses, the entrepreneurial spirit in california is intact. we have a government problem that is significant and needs to be dealt with. >> is it a myth governance problem is keeping certain businesses out of california? >> i think there's no doubt that people from outside the state and people inside the state worry about whether we're going to be well governed. the fact of the matter is over the last 25 years, people focus on the marginal income tax rate in california. the overall government take in california, the state government's share of the gdp has gone down by 15% over the last 25 years. the government is not taking a higher percentage of what californians make. what's happening is they are taking a higher percentage of

what the most affluent californians earn in their income, whereas the other taxes have come down substantially. >> you saw baron, things are awful here, this isn't going to fibs it, be glad you're not here. >> relying on cyclicality. >> it's income tax, 144,000 people pay 50% of the income tax. >> 30th almost in terms of collections. >> it really isn't that. i think what is needed in california is a comprehensive look at the way our governance works. what we've done in the past is we've done single propositions to try and solve the problem. no one has ever looked comprehensively, said we need to revamp this system and decide how revenues and expenditures work so we provide great services and taxes are reasonable. >> i find it so much worse than

other states. it's bigger so you can see. >> talking about deficit or governance. >> why is california at such a disadvantage? >> i think what's happened is two things. one structurally we have a system where we've had, you know, 512 initiatives past since the constitution was passed in 1879. they add up to each other and we've really designed a three-hump camel. that's one point. the second point is we have a really volatile tax system based on the highest earners, then we have spending that is designed for, you know, the best years we can have. so the years when everybody has high capital gains and people are making a lot of money, that's what our spending is geared for. then if we have a bad year like 2008, 2009, it's like oh, my goodness what the heck are we going to do now. we have to look comprehensively and chan the way we're set up.

that's one problem. the second problem is this. people in california have lost confidence in their government doing a good job in terms of spending the money well. so we really need to have a political leadership that recommits people to the idea that we're in it together and if they have taxes will be spent well and carefully guarded. >> do you california as an early cater of what the federal government might look like in ten years? >> i don't think the federal government has anything like the dysfunctional system that we have in california. however, the cultural question about the breakdown from citizenry and government, whether they trust the government to be good stewards of tax revenues. >> yes. >> whether they trust the government to effectively run programs to make their lives better, that is something that calls for political leadership nationally as well. >> you think this the moment of

clarity for the state? are we going to be here in six months again trig to rewrite the social contract? >> i hope not. i think everybody in california realizes we have a governance crisis that needs to be addressed and needs to be addressed comprehensively. there are a couple of things. right now i think there are a lot of californians that think we need a constitutional convention, the first one in 140 years. the reason they need that is they feel like, look, doing it piecemeal with this initiative process doesn't make sense. there's no one fix for this. we need to get to a point where we have a comprehensive solution the people buy into and recommit themselves to the idea government is going to raise revenues and have social programs that work, education for the 21st century. >> is schwarzenegger a hero here or just a story trying to keep two ends of the rope together. >> we have top economic adviser coming up, who is a friend of mine.

there's no way i'm going to say anything but positive things about governor schwarzenegger. no, he's working hard. he's stuck in a system. >> i think they should tax all that pot. good bud, man, southern california. isn't it, carl? >> gotten a lot stronger over the last 20 years. >> you like the way i asked you. >> that will not solve our budget problems? >> solve part of it, right? it's our highest rated special we've ever done. i watched it and i thought i was watching like the twilight zone. i didn't know this was happening out there. it's the biggest cash crop in the united states. >> it's by far the biggest crop in california. >> and the united states. >> in terms of dollars. >> because it cost more. >> that wasn't your documentary. >> i watched it. that's how i know so much. >> i'm like carson, doc, hey,

guys -- >> it's not the magic bullet.ñ we're not going to tax pot and balance the budget and everything is cool. >> how about prostitution. >> there we go. >> a special on that. porn, a special on that. >> getting off to -- >> i'm going to stay quiet. >> it's like your not even back. >> more from thomas through the program. >> you have to talk, your name is there. >> if you have any comments or questions, you want to weigh in on issues joe is raising. i'm not in favor of it. he's the one asking about this. if you want to weigh in, e-mail us at squawk@cnbc.com. we've been watching futures. they have been under a little pressure. right now really only talking dow futures down under 25 points below fair value. yesterday the markets ended mixed, dow ended down but came back from a triple digit loss

earlier in the day. we'll see where things head throughout this morning. don't forget you've got durable goods coming up, other data toe. coming up vice president and ceo of world management firm doll will join us. later, california in crisis. special adviser to arnold schwarzenegger on the governor's new plan to slash spending. we're going to be talking about that. plus what the federal government needs to do to stay the course of recovery. dñ time now nor today's aflac trivia question.ha what do the three stars on tennessee's state flag represent? the answer when "squawk box" continues. well if you're hurt and can't work it pays you cash... yeah to help with everyday bills like gas, the mortgage... ...and groceries. it's like insurance for daily living.

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now the answer to today's aflac trivia question. what do the three stars on tennessee's state flag represent? the answer, the three major land forms within the state, mountains in the east, highlands in the central portion, and lowlands in the west. all right. welcome back, everybody. earnings is starting to wind down a little bit. investors starting to focus on next week's big jobs report. key retail data coming out as well. the broader market was down slightly, you couldn't help but notice citigroup if you're watching financials. city, the company's shares of

more than 10% the banks conversion to preferred the common stock continues. the company saying it will deliver almost 6 million shares of new stocks on thursday. let's focus more on the markets now. joining us with his outlook bob doll, vice president and chairman of global ceo of equities. morning. >> morning, becky. >> i was reading your notes. you pointed out the big run we've seen in the markets in the last months, talk about how they are up 50%. i started thinking about all the things you've been doing over the last six months or longer. what do you think your best play has been? >> owning the health care stock. they were left in the dust because they were too defensive quote, unquote, because the health care reform was going to come and strike them all dead and those stocks have come roaring back as you know. we still think they are reasonably valued.

we think we probably will get health care legislation. as you've been reporting not what the sector feared a few days ago. >> what is something that would change your mind? what would you hear out of washington that would make you think these are stocks more risky than expected. >> for starters up relative to the market in recent weeks. we have been trimming but maintaining overweight. i guess if we saw coalition coming back to something more onerous than what the expectation is now, a much watered down bill, one not as publicly oriented, all of these things would cause us to want to reverse that direction. >> bob, i know technology has been a big area for you as well. do you own a lot of shares of microsoft? >> microsoft is not one of the big ones for us. we've been concerned about what they are going to do with their cash and more importantly how they are going to get their earnings going again. when we look at technology

sector, microsoft never comes up high enough to do more cheaper than any others but the fundamentals haven't developed. >> we hear about this microsoft yahoo! tiup saying it could happen as early as today, does that make you think there's another revenue source or not nearly enough to convince you. >> it is good news they accomplished that. obviously been rumored for sometime so i'm not sure it's not in the stock, if you will. i think that's part of what they need to do, among other things to rejuvenate their growth and get back onto a higher growth track. >> what's your position in tech, ibm, cisco, hp. >> i like all of them to varying degrees, ibm the most favorite of all of them. we still think it's not revalued for how it changed its business. five years ago this company was largely a hardware company. today much more recurring revenue, software services. the latter deserves a higher multiple and the multiple hasn't

changed a lot. we saw an earnings report from ibm just fine thank you. >> what about the other two stocks you just mentioned? >> we would own them as well. we think they are both gaining market share. hewlett had a couple of bumps during the recession, they are in more cyclical businesses but the stock is pretty cheap. we think well managed company as well. >> there's an article on john last week, was it the times? >> john chamber. >> he said call me john, whenever he's on. >> but glowing on how he manages through times like this. >> he's been on the set and we've been ready to buy sometimes. he's an amazing salesman. tells the story well. >> great color com boss with their routers. you can get any colors you want and nice ones. fuchsia. >> we're making it through earnings season. we've gotten through the bulk of what you've heard. after you digest that, what's your takeaway from the earnings

season with the guidance given for the quarter? >> largely positive, becky. plenty for bulls and bears. the bulls are going to say, hey, look, earnings are better than expected by a wide margin and the guidance has been a bunch better and more of it than we saw three months ago. the bears will turn around and say, yeah, but the comparisons are still negative. it's all about cost-cutting not revenue growth. i tend to think the former story makes sense. we will get some revenue growth as we emerge from this recession hopefully enough given the operating margins for these companies to show reasonable earnings growth. >> i know you pick stocks don't make calls on the broad economy. do you believe front page of "times," usa today talks about housing hitting bottom. what's your view? >> our view is bottoming process. we've said for sometime second half of this year, which i guess the calendar tells us we're there we start seeing poems in

housing. i think like the favorite letter of alphabet you, the bottom of the u in housing will be long. the end is the first part of repairing all that's gone wrong surrounding housing. much less pad news is at least the way we could say it. >> bob, it's great to talk to you. thanks for coming on with you. talk to you soon. >> coming back-check on futures ahead of this morning's durable goods data. get reaction and numbers from the economic outlook from someone who does look at the broad economy as well. mohammed ld erian. he's got some things to say about whether this the end of the recession. 8:40 a.m. eastern time.

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any comments or questions this morning, we'd love to hear from you as always. our address, squawk@cnbc.com. when we come back, california's special adviser for jobs and economic growth david crane is

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good morning, everybody and welcome back to swaukz. we're going to look at the markets. futures have been a little below fair value, talking down right now, 35 points below fair value. see what happens as the morning goes on. meantime key earnings reports have been coming across the wire. time-warner was the very first one out, 6:00 a.m. on the do the. time-warner earning 35 cents a share when you strip out items. that was two cents better than expectations. we saw a larger than expected loss for sprint nextel. the telecom company losing 13 cents a share for the second quarter. analysts looking for a loss of two cents. there are some other metrics people watch in this one including the number of new

subscribers they have. they talked about a if you records they had. ratings agencies, moody's 30 cents a share, three cents above expectations. moody's raising the outlook as they saw the credit market stabilizing. they saw a better than expected demand for credit rating. that's why the company came in with better numbers for the year. carl. >> thanks very much. meantime coping with california's economic crisis. we're joined by david crane, special adviser to governor schwarzenegger in an exclusive another with our guest thomas steyer. good to see you. i don't know if you heard our conversation about california. give usa sense to how long lasting this solution that we're seeing right now come together will be. >> well, tom's comments earlier were right on. this sort of crisis had to

happen in california. it was inevitable we had this dysfunctional tax system and dysfunctional budgeting system. long-term this solution will only come from a resolution of those two systems of the budget settlement the government and legislator went through this week gets us through this year but doesn't solve the long-term problem which will only be solved by tax revel, budget reform that he's been going after for five and a half years and reform. >> is there the political will to do that? >> i think so. we have 17 months left in our term. the governor, better than anybody i know, knows that there's a time for things. so he's tried since the day he took office to reform california's budget system for the reasons that tom mentioned where you've got this incentive in california for legislators to spend every dollar of revenue rather than save them and make

promises long-term without filling them. he's tried three times going to voters and legislature, he said no. you need a crisis. i found in government, you need a crisis for things to get done. we have that crisis now. california voters recognize this problem exists and i think that the political will is now there for the next 17 months. >> if they don't recognize it now they are going when their municipalities start telling them we can't provide x and y for you because the money isn't coming in at the state level. some of the local stories we don't talk about on a national level are terrifying. >> in the bay area, declared bankruptcy. 70% of their budget goes to compensation for past employees as well as current employees. so you're going to see that with a lot of municipalities all around the country, not just in california. >> david, i was saying earlier we had to take a comprehensive look at the whole system, it was dysfunctional partially because

of the way it was built up. do you think the right forum for that is the governor and legislature or do you think we need to have a constitutional convention where citizens get together, look at the entire package, and decide what needs to be changed? >> i think you should bifurcate that. the tax reform, which we will announce radical tax reform i believe in september. the governor today will announce a special session in that regard. they can all take place at the legislative level. the relationship between state and local governments and the initiative process that you mentioned earlier, that has to be happened, i think in some sort of constitutional convention. the constitutional convention in california. this is a state of 38 million people. putting together 400 people in a constitutional convention, it is a risky process. how do you go about picking those 400 people. the devil is in that detail. >> i'm looking at your notes.

i'm shocked. you're telling me 38 million people but a huge amount of taxation comes from how many people? >> 144,000. >> out of 38 million. >> fifty percent of all the personal income tax, responsible for 50% of federal funds. >> spielberg and movie types? >> well beyond that. we tax capital gains and well beyond that in california. anybody whose income -- really basically, our budget system, tax system is calibrated with wall street. >> california. we think about new york. you're talking about california. do you see -- is it a bad idea to kill the goose that laid the golden egg or should these be the people we soak. should we soak the rich? we've got to soak somebody. >> no, i don't think we should soak the rich. it's detrimental to economic growth. it hurts people well below the

rich. you're going to see tax reform that the governor is going to announce, if we can pull all this together, which i mentioned earlier in a crisis is when you pull these things together, you're going to see something quite radical, a radical reform of the personal income tax. a very radical reform of corporate income tax. >> if we look at this of the microcosm of the federal government, can't you talk about congress how to pay for health care, that it's probably not a great idea to do it with the top one percent. >> i have enough trouble understanding about the way things work in california to give advice to -- >> killing the goose is not such a great idea and we can all learn from it. >> yeah, definitely. >> david, can i ask you one more question, which is one of the things i observe in california, which you can read in any poll, in what low esteem the governing system in california -- not so much the governor but certainly the legislature and officials are held by citizens shows some polling also in anecdotal evidence of walking around the

state and talking to your friends, how is that going to change? it seems to me for the system to be reworked, not just the process question, it's a relationship between the citizenry and their government. people have to believe their government is responsible and careful with their money and going to provide needed services in an effective way. how is that going to change? >> i think we have to show, prove to them that positive change can happen at the governmental level. as i said earlier, change can't happen in government as opposed to business, change cannot happen unless there's a crisis. >> let me ask you this. if you're looking at a crisis and trying to use that as a way to change the system, the way it's built up, seems like an incredibly difficult time to explain to people the wealthiest 144,000 people in the state need bigger tax cuts. seems like that's easier to do when everybody is feeling more wealthy. >> i think it won't be presented that way. it will be much more of a comprehensive reform, including reforms to other taxes which

have a big impact on the people of california. the corporate income tax and the way the sales tax works in california. i think if it's all done as part of a big package, a comprehensive package it can be presented in a successful way. >> i wonder if you think the way -- i hate to stereotype people who live in california but i'll do it anyway. >> all 38 million of us. given the political leaningings of the state, do you think a soak the rich proposal would fly better there than perhaps in other state where there are high income earners. >> it has worked that way every since proposition 13 where we capped the property tax and became more dependent, who is the group, the rich? >> they don't mind in florida or new york. >> let me say this. the issue with what joe is talking about, 144,000 people and their income taxes from my point of view, regardless of what's fair -- and i think people felt this was  fair. i don't think people have necessarily changed the idea

this is not fair, i think the point is it's volatile. these are not incomes you get if you work as a teacher or work in a big company where you have a set income. these incomes move around a lot. that's one of the big proens we've had this big revenue shortfall is because the rates haven't changed, the incomes changed. >> as a high-income earner in that state, tom, isn't there a point in which you and others would say that's enough. we're happy to carry the lion's share of the load but this is ridiculous. >> i'm one of the anomalies feeling if you're making that much money, that's a high-class problem. the problem is, as i said earlier, california has reduced tax burden as a percent of gdp by 15% of the fact is there have been a lot of tax cuts in other places. >> i guess you guys focus a lot on the tax system in california and you're going to see reform

there. you need to focus on something affecting california and all the states in a very big way, which are these growing, unfunded pension liabilities. they are going to dwarf everything else, squaez out all discretionary funding. tax is a big issue and i think the voters and citizens are going to understand a change there. what they are not understanding and people aren't seeing right now because of the accounting is what's happening to all the programs they are caring about because of paying off past pension problems. >> what happens? how do you solve that? >> wouldn't the market help there as well. >> look, the promises are contractual. it's worse than social security and medicare in one big way, they are not contractual. congress can change those and will change those. these are contractual. we owe them unconditionally. >> retirees, too. >> they can go broke. the state can't go broke. we have the power to tax. local jurisdictions can go broke.

>> what would solve that? what if the market was 14,000, would that help? >> no. they have been under accruing these liabilities so long it's going to take decades to pay off these obligations. the portions of general funds they are going to take is just going to grow to record heights. >> it was hurt by the selloff down to 6,000. >> that was almost a manifestation of a bigger problem. we've been assuming high investment yields for decades. assuming they could earn -- not as if tom steyer is running pension funds. they have high yields in perpetuity for decades to the end of this century. not going to happen. falloff is a manifestation. the only way to resolve it is the pension system. >> tom is here. you mentioned that. >> he's a patriot. i think he's going to be willing to do it. >> that puts a lot of weight on

your shoulder, the entire pension system of california is going to be on your -- >> we're counting on you. >> and all the other services are dependent on the pension being paid off. are you ready? >> i'm absolutely ready. >> please come back. you're really at the eye of the storm. appreciate your insight. >> nice to be here. >> when i say business management software solutions? what immediately comes to mind? sap the world's fourth largest software developer out with earnings. we'll go to deutsche land and talk with the ceo. then -- >> i have done nothing wrong. i'll make my case to the ethics committee and i'm confident there will ab good outcome. >> floor conrad defending himself against the friends of angela's mortgage from country wide. we'll ask him about that and his key role in getting a bipartisan health care bill through the senate. be right back. 

all right. microsoft and yahoo! in a press release are changing the search landscape, announcing an agreement that will improve the web search experience for users

and advertisers and deliver sustained innovation to the industry. in simple terms microsoft will now power yahoo! search while yahoo! will become the exclusive worldwide relationship sales force for both companies premiu search advertiser. carol says this agreement comes with boat loads of value for yahoo! or users in the industry, and i believe it establishes the foundation for a new era of internet innovation and development. do you see any terms and a half terms of the agreement. it's a ten-year deal. microsoft is going to acquire an exclusive ten-year license to yahoo!'s core search technology. microsoft will have the ability to integrate yahoo!'s semple technology into the existing platform. >> bing. >> exclusive al go rhythm for yahoo! sites. dig down deeper. microsoft going to compensate yahoo! through a revenue sharing agreement on the traffic generated on yahoo!'s network owned and operated and the

affiliate side. traffic acquisition cost of yahoo! initial rate 88%. i think that's for the first five years of the agreement. yahoo! will continue to syndicate its existing searchability and partnership. looking to see this. changed after the first five years, but they expect that yahoo! says based on the current levels of revenue and current operating expenses the agreement will provide a benefit to annual gaap operating income of $500 million. capital expend tour savings of $200 million. yahoo! also estimates the agreement will provide benefit to annual operating cash flow of $275 million. >> yahoo! is trading, indicated lower, down 1630 to 1640. >> this is widely expected. >> for anyone who has imminent fatigue or whatever it's called, we'll see what happens.

this cures the fatigue for people who thought maybe -- >> weary. >> tired of hearing this would happen, it finally happened. >> they are calling it micro -- hoo. >> bing. >> have you got licensure? you don't have any. right, right, right. sap, this is good. we can ask sap competitor microsoft raising full year guidance, second quarter beat market expectations. results from the software company boosting the european technology sector. software giant ceo leo apotheker is with us first on cnbc in the united states there may be a delay. mr. apotheker, it's good to see you. you're calling it like you're seeing it. things are getting better in technology and i guess that would be globally. >> yes, good morning.

we indeed got results a few hours ago in europe. as you said very well we've increased our margin of performance and our margin guidance. i'm actually encouraged by this quarter because i can see for the last six months of the year our sales in software have been in euros. we have also had a pretty strong performance when it comes to product revenues. all together our market share has been kept very solid as well. on top of that we added 7,000 customers i'm very happy about that as to your imminent question, what i tried to say early on today is i believe together with many other very smart people such as imf, we see a bottoming out of the recession and that there are early signs of an indication of -- i still

believe 2009 will be a tough year but hopefully 2010 things will start to improve. >> would you say you are -- we can view this as a leading cater for the economy and the confidence corporate managers are feeling right now or will this bring confidence. are you ahead of the curve or is it a reflex of what's happened? >> i guess i'm on the curve. i really don't know if i'm ahead of the curve or not. what i'm trying to indicate when i look at sequential numbers, 22 compared to two one, we had good numbers, good historically speaking. we saw good coming out of asia-pacific, a leading region when it comes to the upturn of the economy. so we're a little bit of a leading indicatoindicator.

hopefully we are. we're still bottoming out on the recession side. a fragile situation, we shouldn't be overall optimistic but i hope in 2010 things will start to improve. >> right before we came to you one of your competitors announced its long awaited deal with yahoo!. i'm talking about microsoft. any comments on this? maybe they will take their eye off of your business and be all about internet and search now. how do you view this? >> you should ask microsoft that question. you know we're good partners with microsoft. i hope that deal works out well for them. i hope it works out well for yahoo!. i have no other comments to make on that. >> okay. that's fair enough. we've seen some stabilization. is it going to be like an l? could it surprise people and could things -- in this next quarter, could things get better more quickly than you're forecasting, sir? >> you know, it's very, very

very tough to make a prediction on that. if i look at our own business, our pipeline is strengthening, so that's very good news. but at the same time, less predictable than we were in the past. i think we're in an inbalance situation. we'll see what happens in the next few weeks and months. hopefully we'll turn the corner. >> as things improve are you feeling more inquisitive, will this give you confidence to continue acquisitions? >> well, you know we are in a situation where we significantly increased free cash flow as well, so that's good. we have plus 40% increase in our cash flow, so feel from that perspective managing the company very well. we have taken out half a billion euros out of the business. gives us additional flexibility. if we do something we will always be looking at the strategic value and not the price. the core strategy, assuming the

same, we want to grow organically first, compliment that through acquisitions if necessary. >> very good. we appreciate your time today. mr. apotheker, the ceo of sap. >> thank you for having me. >> coming from waldorf. >> w walldorf. >> not like the salad. >> we're going to roll mad deep. >> nice. >> i'm not going to blaze, i can't speak for carl. >> i think you might places. >> can't blaze. >> definitely put on a bro. >> thanks. next hour of "squawk box." health care bill bigger and more confusing. a key player in trying to get

the bill passed, senator conrad he'll be there. pimco's mohammed el-erian, the economy back home. he'll talk about the mets winning streak. what did they win, one? >> they won for in a row. >> chillax and stick with "squawk box." >> before you make a trade you need your daily dose of stocks need your daily dose of stocks to watch. we break down movers and shakers right after the break. we're shg for car insurance, and our friends said we should start here. good friends -- we compare our progressive direct rates, apples to apples, against other top companies, to help you get the best price. how do you do that? with a touch of this button. can i try that? [ chuckles ] wow! good luck getting your remote back. it's all right -- i love this channel. shopping less and saving more. now, that's progressive. call or click today.

all right. stocks to watch. the first two, this deal that happened between yahoo! and microsoft. how many times have we talked about this potentially happening, going all the way back to the most interesting thing when bomber offered $47 billion. at the time we said, wow, $47 billion for yahoo!. th they must not be confident about their abilities to search. >> they have been using yahoo! technology for this anyway. >> people rave about -- i haven't looked at the al go rhythmic figures to see the

advantage. >> over google. >> to see the relationship, to see what type of things. >> that's something you and i can do after the show. >> when we're writing a shot of wear code. >> there are some cool toys. >> do you know honestly, there are some advantages to certain things. >> there are some ways i think you can skip -- becky, can you help me out? >> no. >> very difficult, to get results quicker, a step or two before. >> google was amazing, put in two words on google and anything you're thinking about, there it is. hard to imagine you can improve it. i'm wondering -- >> people thought that the about yahoo! wen google came along. >> that is a big deal. no real monetary as they talk about percentages. it would be hard to put a dollar value on the deal but it happened. >> when we come back, senator kent conrad on the president's health care playboy and more. breaking economic news, durable

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good morning. summertime sizzle on "squawk box." one of the biggest hedge fund managers tom steyer. pimco boss mohammed el-erian. a well-known whistleblower accusing speculators of driving up the price of crude at the expense of ordinary consumers. senator conrad a democratic point man on health care firing back at critics accusing him of getting preferential mortgage treatment. >> i was never told they waived a point on my mortgage. >> breaking economic news. june durable goods on "squawk box" right now. >> welcome back to "squawk box" on cnbc, first in business

worldwide. i'm becky quick along with joe kernen and carl quintanilla. we've been watching futures and they have been under pressure. let's take a look where the dow is down. remember yesterday the markets were mixed, dow down, markets up. dow futures down by about 43 points below fair value. we'll keep an eye on what's happening. we've been listening to earnings report as they have been coming in. time-warner among the companies reporting, better than expected earnings. also other corporate news on our radar. after months of speculation, a yahoo! microsoft search deal is official. this is a ten-year agreement. it will combine the search services of the two companies with yahoo! providing the sales force and bing, microsoft search technology underlying the entire thing. >> one one? >> bing. >> you're not going to do it? >> bing. >> bing. >> i can't do it like you do it. >> we do have some more numbers, too. actual numbers. yahoo! season annual gaap operating income benefit of $500

million. annual operating cash flow benefit yahoo! of 275 million. see it closing in early 2010. i wonder whether with the teeth obama administration is putting into antitrust, supposedly putting into it. >> we heard this week some of those efforts are pushed back. >> this would seem to be one that you might look at, that if you're going to get -- really? >> no. >> i'd say no. with google's dominance you don't need to worry about. putting microsoft together, that's pretty substantial. >> one player out of a three-player game. leave one out. that's been google's argument. >> i wonder if they surprise us and actually look at it. >> the problem with software, many are natural monopolies in the sense everybody tends to go to one place. it gets better so people go. it gets better so people go. when you think about antitrust

policy is it really designed for that kind of business? >> microsoft has been through the ringer on that before. >> if we don't do it does neely do it? if he we don't do it here. >> natural monopoly and therefore it needs to be regulated but does it need to be prevented. >> you her ge honeywell was going to happen. >> believe me i remember that. we were watching is closely. one of the things where you can see them feeling -- >> you don't have to worry about antitrust here, they definitely have the teeth in their antitrust at this point. there's going to be i can tell you old favorites. >> there have been a lot of questions because eric schmitt has been closely aligned with the obama administration. >> they are probably fine. >> yahoo! microsoft holding a conference on the deal at 8:30 eastern time. we'll get more details then and

bring them. >> earnings central is more of a notion. >> state of mind. >> it's a state of mind. >> for example, time-warner, 45 cents, takeout items for the second quarter, two cents ahead, larger than expected loss sprint nextel telecom company lost 13 cents in the second quarter. analysts looking for a loss of .2. ratings agencies earned 0.42 cents a share. partly because of the problems they are having. >> moody's raised guidance because they said there has been more demand than expected. you have to take a look at these things. got to get credit ratings and go to the agencies to do it. >> i'm reading what one analyst says, the microsoft yahoo! deal, thomas wiesel, they think it

will drive innovation for microsoft, video mobile and online commerce which is where google is currently focused but they are saying the distraction of combining all this and reorganizing a global sales force is not a trivial matter for microsoft and yahoo! and it's a distraction that google is going to be able to exploit and take advantage of. that's one analyst's opinion. maybe yahoo! is down because you know it goes up in anticipation but it's down significant. it's down about a buck 20, 16. down from 1722. >> federal regulators are considering limits on energy trading to rein inspect laters. hold the second of three hearings. first on cnbc on the "squawk" news line, michael masters of masters capital management he's testified several times before congress on energy speculation, not surprisingly, michael, the journal had a tongue-in-cheek cynical view of this staff.

we had bart on yesterday and our guest host kept asking what has changed since the last findings to really go 180 degrees. we didn't really get a good answer. what do you make of this? >> joe, i think that clearly people have relooked at the data. i mean, there were a lot of problems with the datas last year. so too a certainly extent when you're asking wall street swap desk for a certain answer, they can provide that answer. so in my view the report last year was really politically oriented and driven. so i think when we step back and we look at the data with an objective eye, i think that the conclusion is much different. >> i saw some facts yesterday that the total invested at 150, then how much money, i guess investment money was there at 30, and how much is back in the

market now at 65, wherever we were. it almost correlates exactly with the prices. but there are others that say when prices are headed the wrong way we go after speculators. when they are headed the right way we don't go after the speculators. >> i think the real problem is the whole notion of investing in oil as, you know, looking at it as a capital market. oil is just an inventory. and all this stuff really started when large institutional investors started looking at oil as something to buy and hold, which is really a capital markets concept. the real idea here is if you want to invest in energy, buy energy companies. go and buy alternative energy, buy drilling partnerships. do whatever you need to do in that area but don't buy the inventory itself because the size of these flows creates distortions in the markets and leads to excessive volatility. >> but the exchanges argument is

that they need these markets to be more well capitalized. then it's much more difficult to manipulate the market. does that argument not hold water? >> nobody was complaining about liquidity ten years ago. the exchanges clearly benefit from more volume. the last thing they want is to tell anybody there can be less volume from a certain class of participant. the commodities market are different from any other market class. that is they are supposed to be by regulatory fiat dock natured by users and consumers of the commodities itself. >> let me ask a question. if we do more regulation will that be coordinated with the other commodity exchanges around the world or if we do more regulation and people are prevented from the kind of speculation you're worried about will they move overseas and do the exact trade someplace else.

>> i think it will be coordinated. that's highly likely, the g-7 about a month back came back and said we really want to see a coordinated approach to global commodities market regulation and also derivatives market regulation. not only in commodities but derivatives overall, that's going to be the case. but there's another important point. that is institutions now, notably understand, that there is a credit component to someone on the other side of a trade. and if we have another credit crisis and you've got trades in another company not necessarily capitalized but regulatory arbitrage, who is going to be on the other side of that trade? who bails you out? that is a question that's new that we haven't seen before. >> all right, michael. thank you. appreciate it. >> okay. thank you. >> how many hedge fund guys take michael's -- >> i don't know. interesting perspective. >> you wonder did the investment

money get into it and force it to 150 or did they see the world is consuming this month -- we're consuming this much, there's only this much supply that attracted the money to that asset class? >> you know, we don't really do any of this stuff. we don't do commodity speculation at all. i'm strictly an amateur who maybe should get my big trap shut. my sense of what goes on in commodity speculation is that most of the strategies have to do with momentum. everybody extrapolates, if it goes 65 to 70 -- >> sometimes a trend starts because of fundamentals. >> my point is what these people are worried about is the idea of extreme volatility as a result of that. what you were describing, joe, is people lose ag lot of money. if they had a whole bunch of money in oil at 150 and not a whole bunch of money in oil at 60. >> the pension funds, endowment

saying, hey, this is a great market. you can't get the same return if you're in a hedge fund or one of these smaller allocations. >> meaning -- >> on the way up as oil prices were running up, can you hear the complaints? >> i sure can. >> what are they saying now? maybe they were saying that when oil was trading at 150. what are they saying now. >> we got left holding the bag. we're going to have more with tom steyer, again, the founder of faralon capital management, a fund-raiser and adviser to president obama. we've been talking a lot about politics and free markets. one of the things we've been mentioning do you believe in whole markets you said yes that's why you set up one california bank. we didn't know about this until we were talking off camera. we're hoping you can tell us more. >> one of the things that is absolutely true in terms of what

i believe, i believe the free market system works and i think it provides benefits for all people. it provides employment. it satisfies needs. that's what it's set up to do and that's what it does. one of the things necessary for growth, one of the things necessary for new business, one of the things necessary for existing business to expand is access to capital. and i have always thought pout capital as being like the water you need on a dry farm. i worked on a ranch and we had an irrigation system. when you opened up the water and let the water flow into the field, you'd wake up the next morning and believe it or not the field would be green. that's what i think about capital in a society. you absolutely need access to capital in order for businesses to grow and people to prosper. >> one california bank is funded through a foundation you and your wife sets up. it makes loans to businesses in need in california. >> what we did was we live in the bay area. we wanted to go to the most

economically challenged region in the bay area to prove a concept, access to capital would have economic advantages to people who were in tough areas. so we went to oakland, california. it's probably the most -- the toughest part of the bay area, a significant part. and we set up a bank to make loans that would have social impact but would also return the money so we could make more loans. we set it up so we couldn't personally get any advantage with this so it would work within that area. if we could prove that idea we could move it throughout the state to both tough rural areas which certainly exist and also to other urban areas that have economic challenges. what we're really trying to do is the opposite of what people worry about in terms of red lining. we're trying to raise deposits from a variety of places around the state and around the country and make the loans within the economically challenged parts of the state. what people worry about in red lining, take the deposits from the poor people who live in an

area and that the loans to the rich people because they think they will be paid back. >> interest-free? >> absolutely not. our point about this is we want to make money available to people. we really do believe in free enterprise. becky started asking do you believe in free enterprise. joe was giving me a hard time. >> the way it started was, it's a privilege to pay very high taxes when you make a lot of money. i said wouldn't it be better to do it yourself and use -- to a charity where 95 cents of the dollar goes to the people that need it instead of giving it to the government where 95 cents gets -- i don't want want to use the p word but whatever when it goes to the government. >> the way we've tried to do this is let the economic system work for us and work for people and let them have actually succeed, not give it away. let them succeed. >> so many well healed liberal

people don't seem to think that the government is an ineffective use of capital. i think you can do it much better through charity or through yourself than having it go to the government where you know it's going to be wasted. >> let me just address that for one second. obviously we believe in the free enterprise system but we also believe there's absolutely a necessary and important roll for the government in our society. there's certain things it absolutely has to do. there's coordination. the idea that we've got to get rid of government or it's only going to be fire, police, army. i really don't believe that. i do believe it has a necessary and important role. >> but -- >> but i also believe if what you really want is economic growth, people to be allowed to get ahead, then the free enterprise has got to be the driver. >> where money is more effective where it's treated better private or public sector. we know what happens in the public sector. we used to know. now there's some question. >> although now the government

is printing documents on both sides from the journal today. the savings, tens of dollars. still ahead breaking economic news, durable goods in a few minutes. we'll be listening on the conference call for this microsoft yahoo! search deal which is now official. first, he is a democratic point man on health care. ken conrad, though, warns his party, lacks the votes to pass through congress on its own. we'll talk to the senator from north dakota in just a moment.

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welcome back we're joined by senator ken conrad. talking about health care. senator, good to have you on the program. >> thank you. >> you're in the middle of this. very, very important and some say secretive finance committee where a lot of work we're toll is being done. can you give us any sense about the components that are coming together, whether or not there is an employer mandate, whether it's a public plan or co-op, whether you're thinking of taxing some of the high-end plans, what's in the works? >> we have a rule in this group that nothing is decided until everything is decided.

so the correct answer is no final decisions have been made. make we do is we go through options and we discuss them fully trying to reach a tentative agreement. and we've done that in many different areas. i think it's well-known that the mandate that will be required is a mandate on all of us as americans to have health insurance. in terms of a public option versus a cooperative plan, there has been no final resolution. but i think there's a good chance the cooperative plan will be adopted at least at the committee level. and the notion of a cooperative plan is its membership controlled, membership run, not government run, government controlled. >> the cooperative in the public plan are mutually exclusive. if you do one, you won't do the other. >> that's correct. >> do you think the white house will come out in support of

that? >> i can't speak for them. you'd have to ask them for their reaction. >> is the co-op plan being driven by democrats or republicans or would you say it's truly bipartisan? >> it's truly bipartisan. >> and then any expansion of medicare to cover the uninsured? >> well, an expansion of medicaid to cover the uninsured. that is i think in virtually all of the plans. but medicare, they are going to have to be savings out of medicare. you know, if you look at what is happening in this country, as you know so well, we're spending twice as much per person as any other country in the world. we're spending one in every six dollars in this economy on health care. and if we stay on the current trend line, we'll spend one in three dollars in this economy on health care. that would truly be a disaster not only for families and businesses, that would be a

disaster for the government itself. >> the way you envision out of committee would you say it's deficit neutral? >> absolutely. you know, as chairman of the budget committee, i've insisted throughout that for any plan to have my support, it will have to be paid for fully. and more than that, it will also have to bend the cost curve long-term in the right way. that is it will have to reduce burgeoning costs in health care. any plan that comes out of this discussion will have both of those features. deficit neutral and reducing the long-term cost. >> senator, i'm looking at this. you probably saw it in the journal. liberals fear losing public plan option. they quote joe nadler from new york. this is the house we're talking about. we're making it clear to the leadership we insist on a robust public option and our votes will not be there, if there is not a

public option. and i'm just wondering, is that -- do you take him at his word? would a co-op -- okay. that is a robust public option? >> again, i can't speak for him. i certainly take him at his word. i know congressman nadler, a man of credibility. but look, the strength of a cooperative plan is in the senate. i'm not an expert in what's happening in the house but in the senate, the cooperative plan is the only one with the prospect of getting 60 votes. that's just very clear. let me say with respect to a cooperative plan, the appeal to those that want public option is it will provide competition for for profit insurance coverage in health care. you know, the cooperative business model has a long history of success across many business lines, including land

o'lakes, including in washington, 600,000 people with a cooperative structure doing well. >> diffuses socialized medicine, national takeover, diffuses that whole situation. so i'm preaching to the choir here. >> senator, i think there's a lot of confusion amongst the american people about what is exactly the health care bill is going to be about. when you explain it to them, do you explain it as a moral imperative to cover the uninsured or is it health care reform we're driving at here? >> you know, my own belief says some of both. there is an imperative to cover everyone. it's a moral imperative and beyond that it's also an economic imperative. the fact is people that don't have coverage are getting treatment. unfortunately they are getting treatment in the most expensive way, in the emergency room and

often too late in the illness cycle to be fully and effectively addressed. so concerns on the coverage side, that is important. it is also critically important that we deal with the cost explosion because we are increasingly becoming uncompetitive as a nation. our families can't afford ever burgeoning health care premium. the government itself -- let me stress this. the government itself cannot possibly afford to continue on this current course. medicare is going to go broke in eight years. we've got to face up to reality. >> senator, would you acknowledge or do you believe that a cooperative, successful though it may be, in terms of lowering cost, will not be as strong as a public plan where you have a government that doesn't have to worry about return on equities, has huge cost advantages simply because they are not in the private sector? >> you know, that is the

intention in all of this, isn't it? if you have a public option that creates its own problems and its own issues, because then you have something that is entirely run by the government. already the government is running half the health care in the country, at least paying for it. medicare, medicaid, veterans health and the rest. so the question is how far do you want to go down that continuum. if you're going to have additional competition but not be government run, pretty hard to see something other than a cooperative structure. and by the way, some of the best analysts in the country, some of the best actuaries have told us this cooperative would be good in a reformed market, insurance premiums and a market with 40 million new entrants. we're told this cooperative

model could achieve 12 million members in very short order and be the first largest insurance entity in the country. so the best actuaries in the country are telling us this could be very effective. >> senator, i'll save the best for last. you know it's something we've got to address, the question of the countrywide mortgages is not going away. i think you've had some comments lately. people and specifically this robert fineberg who worked as a loan officer at country wide insists both you and senator dodd were aware these loans were favorable because you were in the position you were in. is he wrong? >> it is absolutely false. absolutely false. remember, my initial loans from country wide, i didn't just get a bid from country wide, i got two other bids. one of the people i got a bid from has written the ethics committee and said he gave me an equivalent offer to the country wide offer. just a minute. i also went to lending tree.com.

they made me an offer that was equivalent to the offer i got from country wide. so number one, i had no reason to believe i was getting any special treatment with respect to the pricing of these loans. if you look at the interest rate i paid and compare them to what was happening in the market at the time, they are right at the market ranges. so mr. fineberg, who says he told me that i was getting preferential treatment told the wilmington newspaper one year ago that he did not tell me or my executive assistant that they were waiving one point. and in fact, he told the wilmington paper it was company policy not to tell. so he's changed his story. and i will say directly i have done nothing unethical. he never told me i was getting preferential treatment and i did not believe i was. >> do you -- why would a program

apparently entitled "friends of angelo" have terms that are the same as what you can get on a website? does that make sense at all? >> perhaps it does in the sense that in every business they have good customer programs. you know, in the airlines you've got frequent flyer programs. in almost every business relationship, businesses try to take their good customers and give them -- >> make them feel special. >> make them feel special. >> it makes sense. but certainly it's been a dogged topic for you, senator. >> worst experience of my professional life. but i want to say again i am eager to make my case before the senate ethics committee. and i am confident that at the end of the day when the full facts are known, it will be very clear, kent conrad has done nothing unethical financially. >> senator, we appreciate your

time. >> you bet. >> thanks for the guidance on health care of we'll keep a close eye. senator kent conrad, north dakota. >> we've got breaking economic news coming out. we're looking for june durable goods number. expectations for a drop of 0.5. keeping an eye on numbers coming out. people looking for a drop in the month of june because right now they are talking about down 2.5%, which is a much bigger drop than expected. we have rick santelli sitting with us on set. we're looking for a drop that month because of shutdowns with a particular factor. especially with the auto companies. a drop like this, what's your  reaction? >> obviously we have to do the boilerplate. this number is a volatile series. having said that, i think the litmus test is going to be high. the war will be high after the equity markets put in the last several months. could take the sting out. chinese market down 7% last

night, a lot of it left by industrial commodity names like steel. this is important to pay attention to. options. you can argue either way. some may be better for the option because it puts a certain sense of reality that might further the whole maybe i need to grab -- >> treasuries, not great. >> i rated it c plus. i felt a little guilty. i see in the journal they said tepid. my curve isn't so bad. >> by the way, great to have you on set with us. i missed that the last couple of days. >> did they give ayou a nicknam on fast money? >> they did. >> rabble rouser. >> lipton guy. >> that's a good one, not bad. >> liesman is kind of in angle wood, not over to the set. >> joe, let me get to the headlines. >> okay. all right.

go ahead. >> he's saying giving a speech in new york saying economic contraction appears to be waning, moderate growth likely in the second half of the year. he says the economy is going to be boosted by recovery in housing, autos, impact of stimulus as well as inventory swing or investment. growth in the fed balance sheet contracting recently is going to grow to $2.5 trillion as new fed programs to purchase securities ramps up. possibility of brief rapid growth in one quarter if you have a concentrated inventory swing. talk more about the pace of recovery will be considerably slower than usual because of declines in real disposable income, higher savings rate and lower consumer spending. all going to weigh on consumer spending. commercial real estate a significant drag on the economy over the next year. credit availability will be constrained for sometime. also saying inflation will be low due to high unemployment and low utilization rates. then gets into the issue of the fed getting out of these

programs they have. he's confident they can exit these programs smoothly. finally saying demand for fed programs diminished as markets improved but decline in the size of the fed balance sheet was not anticipated or targeted so far. fed's ability to pay interest on reserves, they got that last year, that will prevent inflation, keep from getting in the economy. i quote here, we will not under any circumstances lose control of monetary policy. let me throw it back to you. >> can you tell us if there's anything interesting or news worthy? >> economic outlook and the balance sheet $2.5 trillion. what's happening is an overall campaign, joe, by the fed to convince markets it can get out of these policies -- >> that's been the incentive for a while, the whole notion of how to pull back on this. that's amazing, right? they are really focused on convincing us they are going to be fine doing that do you believe them? >> i think they have a good

chance of doing it. they have been talking a lot about it. a lot of systems in place. the issue is when. do they pull the trigger in time to halt inflation. you know what, when i look back over the past 20, 25 years, the legislation, six percent or so, five percent at the top that's because it probably messed up in the only part of this decade by doing it quick enough. if that's the worst of it, seeing inflation in other countries, i don't think it's too bad. >> listen, they have the right intentions here. i think everything in life is simple. i look at them as parent. they don't believe in tough love. my daughter has prom coming up, increase in allowance. after the events over going back to old norm. never happens. i think that's a great analogy here. >> he was shaking his head. not a chance they can do it effectively. >> i would look at the long-term inflation chart.

i see one blip in there which happened in the end of 2000 beginning with volcker the fed has gotten it relatively right. i think they messed up a couple times, probably the accommodation in post '97 with long-term capital but they took that back relatively quickly. the history of an independent fed is they have contained inflation relatively well. >> that's a wild card, too, gentlemen. we're assuming it is independent. we can argue how much in its current form. the reason for change if not put back into the job, a number of issues there even considering who they replace him with and how the public feels about it now that they actually know who ben bernanke is. >> are you doing fast money tonight? >> yes. >> if you invited steve on fast money. >> are you doing anything tonight, steve? are you busy at 5:00 tonight. >> i'm doing almost anything else -- no. i've been invited on rick's show and i've accepted the invitation on fast money and i'm looking

forward to it. >> you've got a name already. you already got a name. >> rick's show. >> you have a name. professor. what? >> i'll come up with a new name. >> let me tell you this. all the talk how steve and i get along, maybe we don't look at the markets, economy, my most memorable time so far here obviously outside of talking to you was larry, myself, steve outside enjoying the scenery, we'll leave it at that but having some interesting discussion. >> that's when you know. >> there's fish and water. i know it's pretty but don't count me in. >> all right. what is your nickname? we'll keep asking. >> my badge is sur, for no other reason, acronyms, letters jumbled up, more errors, sur. >> we're going to use that on fast money. >> i guess i'm big sur. >> we were talking about big sur

earlier. in california, one of the greatest places. >> we'll see you back tomorrow. >> i want to chime in with one more thing. business investment in this durable goods report, up one percent. >> you like that metric. >> it feeds into gdp, closely watched, business investment, up 1.4 after rising. that has not fallen off even though durable numbers were not what was expected. >> what are the last numbers. >> i have it here, minus 14, minus 35, up 1.4. that's good with volatile numbers together on the positive side. >> from chicago to newport beach in california we're going to head west and check in with mohammed el-erian, get his reaction to durable numbers a and a lot more when we come back.

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the dow up 8%. one of the most powerful money managers does not think it will last. mohammed el-erian overseas

millions in investments. we know you've been traveling. great to see you this morning. >> thanks for having me on. >> not an equity guy, neither growth. every once in a while you know about asset classes, you're in a harvard endowment. certainly entitled to opinions about everything. what do you mean the market gone too far. >> investment guy you can't take a view on it without capital structure, especially when it's fluid. as investment guys we look atriallies, especially what that in july. under the circumstances a feeling equity market on sugar high. assumptions are being made. assumptions are being made or things like corporate profitability to continue to be driven by cost-cutting. that's not true. you need revenue growth. assumptions being made the stimulus is going to have a permanent affect. that's not true. look what happened, chinese equity market down 5% on talk

some of the stimulus may be withdrawn. finally an assumption being made that the stabilization of housing is sufficient to get this economy going again. it's not sufficient. it's necessary but not sufficient. our feeling is the july part of the rally is a bit of a sugar high. >> i think, what did warren buffett call it, viagra candy or something like that. >> you're handing it out, doesn't exactly get the boost you want. >> yes, exactly. >> mohammed, i love your necessary and sufficient phraseology you've idea in the past. makes it clear. so it's necessary. what else will make it sufficient despite stabilization in housing. revenue growth which means we need the consumer to feel better. >> we said it very well. we need final demand. we need the feeling deleveraging

in the private sector has run its course. people feel confident now to engage in consumption, investment. it's not happening yet at the national level or global level. you need this hand-off from temporary measures, inventory bounces, stimulus to longer term sustainable demand sources. we're not seeing it here. we just have to keep looking at employment, keep looking at wages. an investment outlook today that goes into detail. these are critical elements. not about the financial sector but about the economy in particular wages and employment. >> this is tom, nice to speak to you again. >> hey, tom. >> i agree but let me ask you this. if you think we need to end deleveraging in society to have growth, isn't that an awfully long time. can't we have growth as we do through the this process of

delevering in society. >> we can have muted growth, nominal gd pitcher in the 3% range. that's not enough to stabilize the system. we have a system that has grown accustom to 5, 6, gdp. it will be the new normal, all sorts of relationships nationally and internationally will be applying but we're not going to go back to where we've come from. there's still an assumption out there, thomas, you know in the marketplace, that somehow this was a very nasty cyclical fall and we're going to go back to where we've come frchlt that's not going to happen. >> when you see the underlying growth rate going forward during this period of delevering, what do you think the real steady growth rate is for the american economy for the next five years. >> we think the safe speed limit, if you like, for growth, non-inflationary, without financial bubbles is doing to come down from 3% to 2%.

and the way which you get back to that level is going to be slower than in the past. you're going to have a slower recovery and a recovery to a lower level. various parts of the economy, various markets are going have to price that in. a multi-year process and it's not going to happen overnight. >> mohammed, a simple question. newsweek has a big balloon on the cover that says the recession is over. is that right or wrong? if it's wrong, is it irresponsible for them to say that? >> ask what's in the balloon? the helium in the balloon is public debt. we've been able to replace private balance sheet with a public balance sheet and pumped up the economy and the economy is floating higher on public debt. there's a limit to how much you can do that. at some point you need to hand off back to the private sector. for that balloon to stay up in the air, you really need the private sector to kick in and you need the public sector to

start dealing with its debt issues. we're not seeing that yet, carl. >> all right. unfortunately we could talk some more, mohammed but we have to do it at a later date. we have to run. great to see you this morning. this guy from san francisco. you're from fashion island, here we are. anyway, nice to see you, mohammed. >> thank you. >> four in a row, those are wins for the mets? >> yeah, four in a roechlt the only thing that matters right now, joe, is we're ahead of cincinnati in terms of our win percentage. >> you mentioned that, another loss, nine out of ten. thank you. see you later, mohammed. >> they may work on opposite coasts of the country but connect right here on "squawk." from pimco's el-erian to new york stock exchange trading floor. they follow closely so we're head out there and check in right after this. more and mors are turning to fidelity

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welcome back. it's time for the trader's edge. joining us right now is art cash cashin, director of floor operations at ubs services. it was weaker than people were expecting. some metrics were not so bad. >> well, i give it one of rick's c plusses. i think it didn't live up to expectations.

you can make some excuses. but we're getting kind of mixed signals here. even the hoopla about the housing sales being better, when you measure them against foreclosures, they're actually at risk of slipping. so there's a lot of mixed data out there. i think that's why the market is closing, to try and reassess things here. >> the auction yesterday for the two-year note didn't do as well as some had been hoping. got another auction coming out again today with the five-year. do you think the durable goods numbers could actually spur more interest in the treasury? >> well, i think they might. the other thing you have to keep in mind at the risk of selling mike mackey, we had this u.s./china financial summit. it ended yesterday. could china have actually pulled some of their bid as a kind of shot across the bow saying, do you want to see what we can do? we can do this. >> that's an interesting point, too. the dollar bouncing off some of the weaker levels. what do you think things are going to go with the green back?

>> well, that's critical. it looks like it may have made a double bottom. traders are going to watch over the next couple of days. the green back is all important to this thing. inverse relationship with oil, commodities and the stock market. if the dollar makes a pronounced move up, we may see weakness in all of those free asset classes. >> art, other things that you're watching today? >> well, just generally, the internal dynamics. as you said, we're going to look at the auction, the fed book when that comes in. it's a working paper for the fomc meeting. see what kind of tone that sets. we're going to mark the market's internal dynamics. it's at a possible inflexion point between now and august 8th. >> i love that you keep doing that. you always give us a date and people have to watch cnbc every day prior to that date, art. it gets pushed out. >> i'm going to have to get on the payroll. >> keep doing that. it's unbelievable important things happening between now and august 8th. we should know everything by

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