trying to say good-bye to tom who has been with us. we covered a lot of ground. we got to california's economy and did a little health care with the senator. art, overall, are you feeling good about the way policies come together on the state level in california and with this health care deal? >> well, you're talking about state and national? >> yes. >> on the state level, we have a need to reform our governance. so i think that this deal is good. it was necessary. it had to happen. we can't pay ious for the rest of our lives. but it was not sufficient for any kind of long-term improvement. we have to have a comprehensive approach. >> right. on health care. >> on the health care bill, we really aren't sure what the health care bill is going to be at this point, carl. you were asking for a few details and it was quite clear that those aren't forthcoming yet.

this health care bill keeping shrinking. what was originally proposed, it was expansive, it was transform asi a tr ational. people are becoming aware of the market. the deficit is much bigger than it was said to be in march. every single out year has a similar change. >> so markets have imposed some discipline on government. >> absolutely. and i think -- but i think, in addition, responsibly, the people in d.c. have said, wow, we can't have a federal deficit that's structural and long term that is bigger as a percentage of gdp than our growth rate. otherwise, the national debt just balloons. >> always good stuff, tom. good to see you. >> great to see you. a lot of fun. >> make sure you join us tomorrow or our health care summit. "squawk on the street" is coming up next. this is cnbc.com news now.

>> they sold 2 1/2% in june. more than economists had expected. that was the biggest decline in five months. yahoo! and microsoft have struck their research deal, ten-year deal that combines their services with yahoo! providing the sales force. mortgage applications fell rast week because of a drop in financing activity. mortgage bankers association said that the first drop in four years. that's cnbc.com news now. i'm courtney reagan. live from the financial capital of the universe, this is "squawk on the street." good morning, everybody. i'm mark haines. stock is going to be under pressure at the open following a disappointing durable goods number. and a slide in china overnight. a big one. 5%. that's the shanghai index. >> i think it's dropped since november when everybody was

worried it would spread. >> it's a volatile market though. >> it is. the world's second biggest now. europe is definitely doing a little bit better. big story here, microsoft and yahoo! striking a long-awanted deal. microsoft will power yahoo!'s search. that means bing, as it's called, is going to go to a whole lot more people. yahoo! is going to run sales for both firms. complicated but important story. david faber will have all the details coming your way. >> the brain understands all. >> the brain does. >> checking those futures for you. down 5.90. fair value needed point, 62. about 40 points on the open on the dow. >> let's get to our market reporters. 5% drop mark referred to. biggest percentage drop since november. people were worried about profits. i believe that market is trading around 35 times profit. maybe people got a little -- so

we'll see exactly what happens there. that is a big story. we'll keep a close eye on that. in europe, why is it higher? a couple of key, major, i believe, chemical companies coming out. and a little bit more optimistic than people thought. in particular, saying we're back to demand levels in 2008 in a merging market. let's talk about the durable good orders. steve has those at hq. >> erin, you know, this is a negative number. it fell 2 1/2%. it was more than expectations. but some economists think that the market might be overlooking some good news inside the report. let me show you what good news might be along with the bad news. down 2 1/2%. 0.5%. as well as may was revised lower from 1.8 down to 1.2. up 1.1%. let's look at the durable details. by the way, durable goods are things that last more than three years. machinery up. good communication down. civilian aircraft though dragged down the whole index.

down 38.5%. very volatile. we know boeing is under a bit of pressure but maybe not this much pressure. inside this number. new orders for things considered capital goods up 1.4%. second monthly increase in a row. that's some of the good news in it right now. let's look at the overall. you can see here, what you find is a bottoming process right there. down around, what is it, 20, 25% year on year. and then let's look at the business investment orders. you see that we've had those two months that are on the positive side, call it three out of the last five. we're up after huge decines. so maybe the business investment cycle is coming to an end. new york fed president dudley speaking in new york saying the economic contraction appears to be waning. he sees the growth going up $2.5 trillion after they purchase the asset-backed securities out there. he says strongly, we will not under any circumstance control who is in control of monetary

policy. we will never engage in a program to facilitate unsustainable fiscal policy. down to mark haines. >> steve, aren't aircraft orders also very sensitive to just the timing of orders, right? >> it's very volatile. just the timing where it comes through. there's also a difference, by the way, between boeing books the orders and when the government ends up counting it. what i have to go now and check to see what boeing reported versus what the government counted this month. >> thank you, steve liesman. our senior economics report. let's find out how it plays out in the free market. reporters are standing by in all the nooks and crannies, just like melted butter. we begin with bob pisani here at the big board. >> like melted butter? steve got it right, we're stocks, futures turned weaker on the disappointed durable goods number. did you see what happened in china? the shanghai composite dropped 5% today. at one point it was down 8%.

all the commodity stock, stronger strong, hit here yesterday. they got hit really bad in china overnight hire in the big ipo which was successful, china state construction which came out, biggest ipo of the year, was up almost 70% on the day. despite that, the index was down rather notably. so all the big commodity stocks here are on the downside. of course, the still stocks haven't helped because u.s. steel came out with rather poor earnings and cautious commentary. they said they wouldn't see a global recovery in the steel business until 2011, despite the fact that china has a big stimulus program. elsewhere, let's talk about sprint down about 6%. second quarter loss. a little worse than expected here. continuing to lose wireless customers during the quarter. tradertalk.cnbc.com. rebecca jarvis? >> we're looking lower this morning premarket. the nasdaq 100 premarket is down half a percent prior to the open. keep in mind here, there are a

number of china adrs that trade here. tech companies are multinational, they do business with china and they get some of that revenue income from china. that's important to consider. obviously also important to consider today is the big deelg when yahoo! and microsoft. we knew it was coming or at least there was a lot of talk that it was coming at some point in time. but they'll be tied up. the two companies together in the search deal. yahoo! shares reacting negati negatively. microsoft somewhat positively. no fees from microsoft because there was some thought that perhaps microsoft would have to pay to play in the yahoo! environment. it's looking like that won't be the case. meanti meantime, google down half a percent. they're a big competitor in that internet search space. let's get over to sharon epperson on the oil. >> the dollar strength is impacting commodities across the board. really what happened in china, the climb in the chinese stock market down to its lowest level in eight months. that has weighed on oil prices

this morning. add to that, so we got a report last night from the industry trade show that u.s. crude inventories rose by over 4 million barrels. they had a rise. reuters was calling for a decline. we're going to get the data from the energy department at 10:30 a.m. eastern time. this market is once again focused on washington. the second day of hearing t from the cftc starts at 9:00 a.m., just started, and goldman sachs, jpmorgan testifying. they say one thing to look at is what they say about exemptions for club dealers and etfs. that could be key in their position on this debate. back to you. >> thank you. up next, bing, in this morning's faber report. david is on the microsoft/yahoo! call search for details. and joe has his mouthful this morning. a run down of results from time

warner/sprint, biotech two, could they be the catalyst. we'll find out when we come back. eseseseseseseseseseseseses

the street." i'm david faber listening in still on that microsoft/yahoo! conference call. they are discussing their search deal.

a long time in coming has been that yahoo!/microsoft search deal. well, microsoft potentially taking control of yahoo!'s search function. what can we tell you about it? well, a lot of things, of course. let's start off with take a look at how the stocks are going to open this morning. look at yahoo! it is down. i will get to why that may be the case in a minute. let's take a look at microsoft as well. of course, the impact on microsoft enormous company, not nearly as significant as it would be. but can we still have it or are we not going to? we're not capable of actually bringing up two in a row. all right. let's bring you the terms though. microsoft is going to pay tax, that is is traffic acquisition costs at an initial rate of 88% of search revenue generated on yahoo!'s owner operated sites for the first five years of the agreement. after that, carol bart said it was just but too complicated to explain on the conference call.

it doesn't adjust that much but it does go down a bit in terms of the initial percentage of search revenue. there is no up front payment with this deal. that may be one reason why yahoo! stock is down. back about a year ago after the talks for the $33 a share bid for microsoft fell apart, remember, they were pushing a deal where they pay a billion dollars for access to search and 85% of revenues for three years. but there's no billion dollar payment here. perhaps some disappointment on the part of investors. and they are hopeful they can get this deal done by early 2010. there's going to be an anti-trust renew here, no doubt. but in quoting, i believe it was mr. balmer who said, google got 78% of search worldwide. are they really going to put up a fuss? it's hard to imagine that would be the case. let's move on to what yahoo! was saying about value for its own

shareholders here that will accrue from a result of this deal. they're saying annual operating income will go up by $500 million. capital expenditures will decline by $200 million. and operating cash flow will increase by $275 million a year. that is once this thing is fully operational. don't expect to see that right away, of course, but over time, those are the numbers that yahoo! is working with. and here's something i haven't really seen from a -- quote, from a ceo using the word boatload. but carol bart does. she says this agreement comes with boatloads of value. how much value that is? i don't know. are they big boats, are they small boats, are they yachts, are they tankers? here's what else they had to say about a lack of an upfront dee and why that is not important. >> what was really important to yahoo! is that we had a deal that flowed successfully through our p and o. having a big cash payment up front doesn't really help us

from an operating standpoint. we really wanted what was most important to us was a significant cap rate. >> so they got it at 88%. and, of course, in some ways this would seem to be, given these companies are not going to be tied at the hip if this deal gets approved, a potential way for microsoft to ult nately take full control. what does it have to say about the upside of the deal that would cost him around $200 million or so in expenses for a little while? here's what he said. >> upside should really come is we're able to improve the relevance of our search product by having a bigger -- because ads are part of being relevant and we have a chance to do a better job of relevanced. and then as we improve the modernization on both the yahoo! sites and the microsoft sites, there's good opportunity for upside for us in that. >> as we end, look at a five-year, of course, yahoo! it was only about a year and a half ago they turned down $33 in cash

and there was some stock in there, too, from microsoft. that would have been some nice value. a long time until they see that again. erin, back to you. >> thank you, mr. faber. as mark thomas, faber delivers. faber is not the only one though who is busy this morning. >> yep. >> here they are. techs and macks? >> they've been poring through the earnings report. and they've got all the details for us. >> becky. >> who is tex and who is mex? >> i can't go into that. >> stole somebody's position. >> it rhymes with quick. let me think. >> careful. >> anyway. >> all right. >> becky, i have to live with this. i know you used to. >> you know -- >> what? what did i say? >> we all live with people. you've got a good quick name for me. >> quickie, i call it. i've gotten mail from people who say -- get your mind out of the

gutter, quick. anyway, we've got all the media and telecom stocks this morning. quick it off with time warner. $27. i don't know where i've been but i didn't know time warner was trading up at $27. we had a guy on, larry harry this morning saying this is a premiere name, almost like a proct procter & gamble or coke. second quarter earnings came in ahead of expectations. the media company reported eight cents a head of expectations. revenue came in slightly below, but stocks are going to trade higher it looks like today. despite beating the street on the bottom line, time warner was negatively impacted by falling revenue. not as movie studios or that type of stuff, but i'm talking magazine units. still saddled with print to some extent. >> this is a content company at this point. they don't forget they spun off the cable city visions, cable network system. that's why the numbers when you compare them year over year a little lower. time warner cable actually beating the street'sest mights

on both the top line and the bottom line. and they added more internet, more phone and more digital video subscribers as time warner cable as well. time warner cable lost 57,000 basic video subscribers, impacted by phone and satellite companies. and time warner cable generating over a billion dollars of free cash flow in the first half of the year. the ceo said this enabled them to reduce the debt it incurred from separation from time warner. >> we had sprint nextel, the third man out, you think at&t and verizon at times, but they're still around. reporting a larger than expected loss. 13 cents versus estimates of a 2 cent loss. mobile phone service provider reporting revenue in line with expectations. the company suffered from high turnover rates in recent years. the rate of post paid turnover was 2.05%. >> iac interactive reporting earnings per share below expectations. revenue coming in ahead of the

street's expectations though. iac split up last august into more than 35 different internet companies. the conglomerate has been suffering during the weak advertising environment but you could say that just about every one of the companies that depend on advertising revenue. >> we used to call it yakky and barry got mad and yelled, it worked because we have not ca called it iaci. they like me more than me. back to you. >> thank you. >> thank you, joe. >> you're welcome. up next, the word on the street, the buzz beyond the bing. >> and later, on "power lunch" the buzz from behind the bar. mark, bernie madoff, the lawyer who spoke to the ponzi king, the first interview, 4 1/2 hour long interview and he got him to say some things. he's going to be on "power lunch" to say what bernie said. that's coming up.

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we are down here live on the floor of the new york stock exchange with tom mccann. futures are down 720. that's largely tom's fault. as you can see. so we're going to open down maybe 40, 50 points on the dow at the open. try to be here on the floor. the hardest working man on the floor of the exchange, warren meyers. good morning. >> good morning, mark. good to see you.

>> so, you know, since market is pretty resilient. >> you took the word right out of my mouth. i mean, anything they're throwing at it these days seem to bounce off. the trend has been up. no matter if it's economic data or no matter if it's pour earnings, no matter what, it bounces off of that and continues that upward trend. >> so, you know,right now you've got to ask yourself, do i feel lucky. i don't know why. you have to ask yourself. gee, i don't want to fight it. at the same time, we have come far. >> absolutely. you've got to assume there's been some little sell-off here or leveling out and more common sense take over. the question is, if you thought that way two weeks ago you would have been burned. >> right. >> you know, i think that pressure is now held back a little bit think that might happen. that downward pressure you expect to come in may be a little tempered right now. >> what part of the market looks like it's good for? >> tech has been good. i think the biotechs have been

pretty strong. you know, here's a kind of a contraryian one. if you think the economy is starting to get better and you saw haelth prices firming yesterday, maybe the hold bui homebuilders. i said a week ago you wouldn't want to touch them, maybe you want to dip your toe? >> that's a bold call. thank you, warren. appreciate it. >> my pleasure if. let's get back up to erin. >> thank you. joining us from minneapolis, phil dow, managing director at rbc. phil, it's going to be an interesting day, but i'm just looking at one company that looks like it's going to open up 3% already in premarket. campbell's soup on an upgrade. expectations we're going to see this low sodium tomato selling. it sort of makes you chuckle, i know. the question is, are these the only kinds of companies, basic consumer goods, at this point that can keep going up, or not? >> you could have a pretty broad based rally. you see things from reassurance and other packaged food

companies doing better. health care companies doing better. my guess is the trend continues to be up. don't forget, erin, one of the preconditions for a continuing rally was some kind of sign that we would see a bottom in real estate and a number of experts feel that we may be seeing that sign now with a bottom and possibly real estate prices ahead. my guess is it's time to maybe think about an investor rather than defensive trader. >> you say that obviously fully well aware up 45% from the low. you don't think we've come too far too fast? >> we've come a long way. if you look back to september 15th of last year we're even with that. my guess is there's 15%, 20% before you go from where you look now and worry about valuation. and there's tremendous opportunities in the blue chip area and taking advantage of high dividend growth. >> rodea said that demand in emerging companies is back to 2008 levels this morning and customer deep socking, you're up in north america, is completed.

that to me was one of the most significant statements i had heard in a while. obviously chemicals are required for pretty much everything. what do you take away from that? >> well, i hadn't seen that report but i understand things may be topping out somewhat in the fundamentals and in the merging markets. by my guess is that's a short-term trend. long-term, globe aally develop. and china, india, brazil. my guess is it's part of a longer-term constructed mosaic. >> appreciate you taking the time. >> take care, erin. all right. final count down to the opening bell coming right up. don't go away. futures still pointing to a modestly lower open. maybe 40, 50 points. >> would you try that low sodium tomato? >> no.

fair, straight-forward pricing. that's what td ameritrade stands for. think about it. why pay investing fees you shouldn't have to? or account fees that aren't clear? like inactivity fees? or maintenance fees? it's not right. and you know it. and the thing is, the other investment firms know it. but they do it anyway. and that's just not fair or straight-forward. td ameritrade. independence is the spirit that drives america's most successful investors. you are watching cnbc's "squawk on the street." and we are live from the financial capital of the globe. the opening bell is going to ring in -- where's my clock --

one minute. welcome back. time for the countdown. erin wants to talk about -- >> it's one of the stocks. we talk about the chemicals. it's up 6% today. look at the global auto situation. >> i didn't know they still made cars. >> salt shakers, bikes, and cars. they are. the second biggest car maker in europe. i know a lot of people are surprised. volkswagen would be number one. they had a loss but they did generate cash, which is something many automakers have not been able to do. but it's not just pujo, nissan remained the full cast. nissan is the third largest car maker in japan. i don't know if the city is a glimmer of hope to automobiles. >> looking good. >> exactly. >> again, there was sprint nextel which disappointed. consumer confidence is down. but that was largely plain.

>> hard to tell. >> you can look that the thing from a lot of different angles. here at the big board, tortoise capital advisers. celebrating the ipo of the tortoise power and energy fund. >> a couple of years ago you would never name a fund tortoise. but now the tortoise is better than the hare. >> and at the nasdaq, vp security services. the danish center for electronic issuing registration and settlement of security trading. >> i'm just looking up differences between ter portoisd turtle and.

>> as everyone points out if you take out the transport, the numbers were actually pretty good. that's a very volatile part of that series here. we're open to the downside. and pressure is from the commodities. and commodity stocks. saw what happened in china? the shanghai was down 5%. close, it was down 8% at one point. remember the dollar has been strong the last two days? there's been a lot of rumors floating around that maybe the chinese will step in and limit trading somehow. shanghai is up 100% since the bottom in november. it's been straight up for months. so there's a lot of that fuelling the around, a lot of profits floating around. here's the big commodity stock. rio tinto, see the crowd here? some are still not open. rtp is not open. china had the biggest ipo of the year. china state construction, they did that big swimming pool for the beijing olympics. they just debuted today. stock was up 70%. on monday, it did well. so the ipos are doing great.

china is getting a little stretched at this point. a little bit disappointing in terms of the earnings on the steel market. unlikely to have a recovery in the steel market before 2011, despite the fact that china is pumping out stimulus like crazy. same thing with u.s. steel, they had cautious commentary. that stock just opened down. elsewhere, a little bit on the quiet side. we got earnings but not a lot of dramatic fireworks outside the commodity stock. sprint is down a little bit here. reported a second quarter loss here. a little worse than expected. that stock open down. tradertalk.cnbc.com. rebecca, the dow is down 40 points here two minutes after the open. >> we are seeing some pressure on the tech names, on the nasdaq related companies. the nasdaq here at the open, basically where things started premarket. down 0.4 of a percent. a lot of tech companies that

trade here are multinational. they get some of their profits from asian countries. you want to look at the big deal of the day. yahoo!/microsoft, a tie-up over their search project. there is a conference call taking place right now. yahoo! interesting to note on the call said we will not knock you off your feet with any changes to the guidance in 2010, as far as revenue or earnings are concerned. some of the analysts are estimating operating income, the benefit there could be about 500 million, also about a 200 million save on the cap x side of the business. yahoo! is going to go out and do the sales force. microsoft is going to give its internet assets over to essentially a revenue-sharing deal. you see yahoo! to the downside. 6. 7%. microsoft getting the benefit, 1.6%. google meantime, obviously competition here, folks, it is down a percent this morning. pharmaceutical is unchanged. mike huckman, pharma reporter at cnbc is following this.

bayer collaborates with them so there may be benefit from onyx. we'll hear from onyx and get their report coming up in early august. right now we'll hear from sharon epperson with more on the oil trade. >> if the energy department report shows that it grew by as much as the american petroleum institute said, we're going to see a weak month. we're already down over 2% here for the september contract. those spreads continue to widen. we are looking for perhaps another rise in crude supplies when that report comes out at 10:30 a.m. eastern time. i'll have that for you live with trader reaction. we're also looking at nymex food prices at a severe discount. once again, to brent crude prices. that discount continues to grow. and also, the international energy agency saying today they believe oil prices may have bottomed between 50 and $60 a barrel. in washington, goldman sachs on the at hot seat. they think that swap exemption

still exists. gle gensler, the chairman, saying it may still change. bona fide hedgers and does not include goldman sachs. >> thank you, sharon. of course, we have supply. today the two-year, hey, we moved 42 billion if isn't that all that matters at this point. and the bid to cover if it wasn't for last month, spectacular bid to cover would have looked better. $39 billion is on tap. and we have a fed buy back today. kind of the longer maturities. 2019 out to 2026. goods, transportation wasn't bad. a slight take back on last month in the form of revision. of course, you're looking at the equity markets and as they give away some of their positive signs in terms of the pricing, we see that that's going to help treasuries which are already lower in yield. and listen, all my friends in chicago are calling me up saying, did you see the chinese stock market? you heard about it, closed down

5%. at one time down 7%. yes, it's had good performance. that's what this is all about. maybe there's going to be a little takeback and that could be a lingering positive. even in the face of supply for the treasury markets. now let's go to the nyse, mark and erin. >> rick santelli, markets lower be still holding on in face of the durable numbers. big slide in shanghai's market. joining us now, chairman and cie of cash investment. and chief investment strategist. christopher, i'll start with you. resilient market, worth getting into at this level? >> well, i mean, this market has been moving based on two things, cash and career risk. and those are very, very powerful forces that are probably going to take us a little bit higher before we go lower from here. >> definitely going lower at some point. >> at some point. well, i think we're going to get a short-term rally and a correction of there 45% move that we've had that is very

natural, very normal, is going to take hold probably in the fall. people just need to be prepared for that. >> bummer. how about you? >> well, mark, i think the haines bottom, we should say, but i believe that when you look at where we are today, the markets have already incorporated 2009 earnings. revenues are the focus. things like the dollar should be watched. so i think there is asia, as much as a 10% or 15% pullback. i think we're -- they call it turf flooding right here. >> and then where do we -- obviously both ends say we could have a pullback. christopher, where do we go from there? then the real question, is this economy going to do more than stabilize? we need more than that for the market to go back up. >> absolutely. revenue growth does not come without economic truly recovery. stabilization is helpful and market priced in stabilization. we're going to have to see

growth in the future. it's very dependent on how the stimulus packages take hold in the second half of 2009, the early part of 20 10. but the big health care reform, we're going to have to pay for it. we've got all of this debt. it's likely we're going to see a very slow growth or a jobless recovery as a lot of talked about. it's going to make it difficult for this market to make major head winds. we see a trading range for a while. >> what about the merging markets? russia is up 24% over the past couple weeks. we have a surge of, what, doubling in the chinese market before today's brief pullback. >> 89%. >> 89%. should you just get out of merging markets after this run? even if you believe out of longer term, take what you've got and get out right now? >> i think that that makes some sense, to take some of your profits here. and let's explain why. when those markets went up, essentially the bet that people made was that the world economies were coming back, maybe quicker in asia, and

therefore have revenue growth. now, when they start to revalg yat revenue and re-evaluating revenue for the emerging markets. it's consistent. we've seen earnings. now the focus is how far and how fast will revenue go up. i think there's room for them to pull back and that is consistent with the overall market. >> subohe, what's your view of the economy here? what kind of economic background are you expecting? >> the kind of economic background that i expect is i go back a year, so i remember when the fed used to say that 2 1/2% to 3% growth for the u.s. is good growth. then you had deregulation, et cetera. so i think to get back to the good growth scenario, probably that's 2011 time frame. so we're going to get better growth, but to say we are normal expansion, earnings is good, it's going to take time. >> 2011. chris, what about you, do you think it's that far out?

>> i do think it's that far out. we have to be careful that we may end up with a lost decade similar to what we had last decade, similar to what jab pan experienced in their market. there's just so many headwinds facing normalized growth, not to mention obviously the tremendous amount of debt that we've got to repay, you know, it's very likely that we're going to see deflation for a little bit of time and then we're going to say very, very substantial inflation. but most likely we're in a stagflation environment. probably at least the next two or three years. that's going to make it very difficult for companies to really grow top line as well as obviously the bottom line as well. a lot of margin pressure. >> the last few times we've talked you liked oil services. still like them? >> we liktd thed them a lot. they moved tremendously. you know, it's within of those things that i can see them continuing to move higher as long as we holds the gains. the concern for me there is natural gas prices. if they come in and the numbers in inventories that we've seen, we could see a sharp pullback.

they need to make sure they have a stop in place to protect those gains. >> final word to you then, what's your best idea now? >> my best idea is i think the quality companies, strong balance sheets, leadership companies, have not really work in this market, gone up on other things. i think there is room for these quality companies to do well across sectors. the other thing i would watch is you always think about what could come out of left field. i would watch the government closely. we need to see a table for a better dollar to the revenue to come back and the quality companies to come back. >> thank you very much. always good to have both of you. coming up on "power lunch," the first interview with domestic diva martha stewart right here on cnbc beginning at noon eastern. i always call her the domiean of domesticity. coming up, caribbean and jones apparel.

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welcome back to "squawk on the street." i'm mary thompson with your realtime flash. take a look at stocks on the move today, including royal caribbean cruises, down 8 1/2% after reporting second straight quarterly loss. this time at 16 kreptscents a s. lowering third quarter and full-year outlook. jones apparel higher. reporting stronger than expected earnings thanks to cost cutting and strong performance in wholesale jeans business. massey energy is higher, up over 6%. the coal company reported second quarter profits at 24 cents a share evens a skoal prices decline and cost increased. revenues topped expectation. lawson fapharmaceuticals, four cents ahead of estimates, stock is lower.

generic drug maker raising the full-year outlook. life technologies, wenter on the nasdaq, maker of tools and equipment used in stem cell research reported better than expected profits at 79 cents a share. stock is up over 6%. let's go over to my colleague david faber who has more on time warner today. david? >> thank you, mary, that's right. time warner out with earnings. you heard joe and becky discussing it. we heard from viacom yesterday. the overall media sector as many investors may have noticed has been doing quite well. time warner, $27 stock. it wasn't long ago it was a lot less than that. it did have a reverse split in there some time ago. let's go through the numbers. eps 45 cents, down 4%. net income, $519 million. down 34%. revenue down 9% at $6.8 billion. oh, all right. trailing me a little bit in the control room, but what else is

new. there it is. you can see the numbers. let's move on to the company itself. you talk about time warner. you think about aol, don't you? that's going to be spun off. you may think about the magazine titles, of course. "sports illustrated," "people," "entertainment weekly." really, what this company is is a cable network and a movie studio. that is what time warner is. very similar, in fact, to what nbc universal is, aside from, of course, the nbc network. publishing is less than 7% of total earnings at this point. and aol, as i said, going to be spun off in the not too distant future. there you get a sense of what's going on at the company itself. within network, cnn, tnt, you know them all, advertising revenue for the quarter was down 3%. a bit better than a number of the other -- well, for example, by comparison, what we saw from viacom yesterday. not a bad number there. the free cash flow number at

time warner also a decent number for the company. but there is a lot of weakness that continues to persist since the third quarter. they haven't had the conference call at this point, so perhaps we'll have more detail on exactly where things stand. they did give us their outlook for the year and more or less sustain it. look for that press release. it's in my pile somewhere. reaffirms their '09 full-year business outlook at flat to adjusted eps at $1.98 in 2008. we also heard from time warner cable this morning. no relation any longer at all except the name to the old time warner. remember, yet another of the company spinoffs. it is, as i said, time warner itself, film enter tanlt and cable networks. time warner cable, call completed. they continue to see weakness. people continue to cut the cord in certain areas. we've seen that as well, of course, with the phone companies, but there's

continuing an increase in competition from verizon with its offering and continued weakness to a certain extent. that being said, a lot of free cash flow generation at time warner cable. it's a good thing because they've got a lot of debt to pay off because of that big dividend that they paid time warner. i wonder, it does have a lot of cash on hand. we'll see what they end up doing with it. erin, back to you. >> thank you, david. next, biotech is in our sector spotlight for this hour. index up 60% since the bottom. it could hold the key for a turn there run-up. mark, by the way, we will tell everybody later difference between a tortoise and a terripin and turtle. next hour, we're rotating the old spotlight over to steel. down today, but the showing of surge of nearly 100% since the you know who bottom. >> why are you so humble? >> what can it say about the

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boat on the rally that began the march, there might still be time to jump in the market and make a profit. our next guest says biotech is expected to go higher after the profit season and could be your chance to play a little bit of catch-up. our expert is here, mike huckman. good to have you with us. we appreciate it. doug sandler, you know, 45% since the haines bottom. over the past two weeks, the u.s. markets are up, i think, give or take 11%, 12%. it does go to show you just because it's up doesn't mean it won't keep going up. but do you think you can really play catch-up with biotech? >> biotech has been a lagger, although it's up, everything is up. look at the market, a lot of places. fuel is uncomfortable to chase. particularly technology which i think year to date we're up somewhere around 30% to 40%. biotech has been a real lagger.

the interesting thing is in my opinion, i think biotech and technology tend to be pretty interchangeable, meaning in the end, you know, both of them tend to print the similar returns when tech's hot, biotech tends to be hot. you have this period of time here where the alligator jaws essentially have opened up, meaning technology has had a good run. biotech has lagged. i think that creates a catalyst for catch-up. i think there's good explanation around why that catalyst is starting to ignite right now. >> mike huckman, what would be a catalyst for biotech? and i guess if there's a way to, you know, put it simply, does the health care legislation in any way impact these companies. >> not so much. although you could argue that the sector and investors have been kind of breathing a sigh of relief over the ones perceived threat of generic forms of biotech drugs. it looks like the companies are going to get much longer patent protection than had been feared. it's really not about earnings being a catalyst in biotech

because the fact of the matter is, is that the overwhelming majority of biotech companies, erin, don't make money. they're too busy toiling away still, trying to develop drugs that will make money and that will help people. we talk a lot about amgen and the others and bio jenidec that have them on the market but most of them don't. they don't have any drugs that they're selling. they're working on them. >> doug, i love the way you put this in our notes. biotech has a binomial payoff framework. could you go over that a little and the implications to the typical investor? >> i think the implications are probably why people shy away from the sector. biotech tends to be a blowup, meaning you strike out and lose your money, or you get a home run. unfortunately the blow ups comes nine out of ten times and the blow up is one out of ten.

you want to lay down a number of bets and you hope your wibers offset your losers. that's the beauty of etfs, in my opinion. i mean, this is one space where we as, you know, managers of 30 or 40 stock portfolios, will never buy an individual biotech company. in fact, i think people who fool themselves buying a big diversified biotech thinking they're getting diversification, in an amgen, i think that's wrong. biotech etf gets you that exposure. >> but doug, that said, there have been several grand slams in just the last week alone in biotech. the sector has been on a roll. you know, human genome sciences has been up, just got off the lupus drug data. unexpected breast cancer data. so this sector right now for whatever reason, as you say, it is a gamble, it is risky, but right now it's on a roll. >> well, mike, i think life sciences this morning is another example.

you mentioned that stock being up 6%. i mean, here's the deal, the people that buy biotech go for earnings momentum. earnings are better. they look for momentum in price. the breakouts that we're seeing on the relative strength and absolute price, we had the 5200-day cross last week. we're seeing improving volume. i think the radar screens are going to start to blip a lot with investors looking at biotech saying what's going don in this sector i need to get invested. >> erin, it's about ba data and deal. >> thank you so much. coming up, the -- don't mean to be debbie downers, but -- >> in the midst of summer rally, we have been getting mixed earnings in job data.

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says he expects a competitor to raise anti-trust with yahoo!. he was referring to google although he didn't mention it by name. new york fed president says the economy will grow in the second half of the year but the recovery will be much slower than usual. and a judge is rejected a request by ubs to postpone the tax evasion trial set for monday. ubs's discussions toward a settlement is continuing. that's cnbc.com news now. i'm courtney reagan. live from the financial capital of the world, this is  "squawk on the street." i'm mark haines. here's what the markets are doing. dow down 25. nasdaq down 11 and change. s&p down four and change. all of them, you know, around half of 1%.

erin? >> mark, bob pisani and i are looking at the headline that just crossed. gbu, small diameter. what an unusual headline. >> that was good how you read that. >> revenue growth, that's probably one place where it's still happening. >> defense department area. china, big topic today if you know what's happening today? commodities all got hit. take a look the shanghai index. 1700 in november of last year. guess what, yesterday it hit 3400. today it dropped 5%. down -- look at that straight up there it's not just the fact that they got killed in china like they got killed here yesterday. it's still big now again that maybe the chinese authorities will going to go do something. there are all sorts of ways they can mess around with you over there. the chinese stamp on stock transactio transactions. you raise the stamp tax. >> remember when we did that,

what did that spark, the boston tea party. >> there are all situations at play with it. nobody has actually said anything. things are floating around and rumors. in the meantime, the commodity stocks are down because it was good reason for them to be down. he was very sour. even though china's steel is great, doing business in china, doing great. overall recovery in china and steel, manufacturing, not until 2011, huh? that was disappointing. u.s. steel also had cautious commentary. no surprise. all the steel stocks are v moving down. and, of course, as the dollar is strong today. we got other commodity stocks. tushl suspects. the exploration of production companies. >> that's something you've been watching broadly for at least six weeks now. very specifically. >> that's right. >> in terms of the run and pullback. you were looking at the baromet barometer. >> very certain stocks that are

baromete barometers. you use them because you want viewers to be familiar with them. not how many obscure stocks can you pull up. i watch 1400 stocks but people don't care about most of those. >> mr. pisani, thank you. let's get to the nasdaq. what's the tech impact that you're seeing? >> erin, there is really a tech impact to talk about here. first off, a lot of the major multinational tech companies are getting some of their earning, some of their revenues overseas. there's also the impact on all the chinese adrs that trade here. what's fascinate to note is not only the shanghai composite, go up basically double this year. a number of the stock names have doubled on the year. they are pulling back along with the overall market today. the adrs, people know bidu here. it's down 1.7% today. on the year it's up 169%. it's not alone. there's a handful of other names. cn insure is among those names.

c-tri c-trip where we are seeing a doubling of the numbers. let's send it up to mr. haines who has more on commodities. >> who i believe is going to send it over the sharon epperson who is at the nymex. latest moves in energy. sharon? >> well, of course, it is all about the dollar and what has happened to equities to china and the weakness we're seeing here in the u.s. that is weighing on oil prices  here. we're near the lowest levels of the session as we get ready to get the data from the energy department about oil supply for the past week. we're also in the second day of hearing over position limits some saying that is sending a bit of a shutter through the energy markets as well. but the data we're waiting for from the energy department could be key here in where oil prices go in the trading day. we're looking for a decline in crude supplies, according to reuters survey. but keep in mind, it shows an increase of about 4 million

barrels. gasoline supplies and distillate fuel supplies are supposed to be higher. that data comes out at 10:30 a.m. eastern time. i will have that live with reaction. >> boy, it feels different when you say hq and i'm having a good time here. thanks to all involved. listen, let's start out with the one-year look at the dollar index. listen, i've been as bearish as anyone. lots of traders have been bearish. you also have to be realistic to where this thing is holding. we seem to constantly bounce off very major historic support levels, right around 78.3 cent. stabilizing again. if you believe the dollar has a life here, going to the bottom end of the range, it has huge implications. oil, that's an important dynamic. one month chartered ten-year note range. we only briefly touched 4% about a month ago. and it hasn't ever gone ever anywhere close to it on a closing basis. the other issue you want to

point out in ten minutes, we're going have one of two buybacks, maturities, 2019 to 2026. many traders think they're going to buy 3 billion today. back to mark. >> thank you, rick santelli. a good run so far this summer. since may, s&p up 12%. 44% since the bottom. we hate to be -- >> the haines bottom. >> we hate to be debbie downers around here, but, where a grim jobs picture, second month in a row, a durable goods number weaker than expected. thinking maybe the summer rally may be a little too good to be true? let's get to experts and ask them for their opinions. joining us now is brian, chief u.s. financial economist with ihs global insight. and james sweeney, global

strategist with credit suisse. james, credit suisse just came out with a report that made the case for a continuable market. expand on that, tell us why. >> yeah, sure, i think this isn't just the u.s. equity bull market. this is a very broad recovery in global risk assets that we're seeing across the board. this is a risk appetite recovery we're seeing it very strongly in the merging markets. we're seeing it in credit spreads dploeblly and we're seeing it in commodities. i think the basis of this recovery is a reversion back to something more normal from those very dream times in march when we were concerned with depression. and also just a recovery, a simple economic growth recovery, which is unlikely to get us back to levels of economic activity that we're used to. so, you know, we're not headed back to, you know, the good old days of 2005 any time soon. but this is still about the growth data getting a heck of a lot better in the near term. and i think that we've had a lot

of that. i think we'll have a fair bit more of that in the coming weeks and months. i think that should be supported for a continued rally in risky assets. >> brian, you're view. >> well, our view right now is that if you look at the state of the economy, yes, there are indications now. we've had several consecutive months where indicators have been positive. so there is more confidence tha the economy is moving to a  trough fairly soon. we think that's going to date around august. and the recovery will commence around september. however, the recovery is not going to be particularly strong and it may actually have some  setbacks. if you look at the state of the consumer confidence that actually dropped in july, and there are still some serious problems in the labor markets which may, in fact, get worse before they get better.

so vn though here we're on track to move two recoveries, we can't count on consumer spending for several more quarters. and it is quite possible that we could have a setback in one of these quarters. >> james, what happened though, we had two-thirds of this economy is relying on consumers. jobless numbers are going up. everyone likes to say the unemployment situation lags about our economy. logically thinking about this particular slowdown, it's hard to really see that. if people are still losing jobs, how can the economy not be getting worse? >> i think they're going to be losing jobs at a slower and slower pace. i think we're already seeing the labor mark lag to recovery but the labor market i think is going to get better in the next six months or so. we've seen recently initial claims on prints a little bit better. i'm hopeful that non-pharm payrolls will be better. and i think the unemployment rate will peak out a little bit north of 10%. around the beginning of next year. and then start to come down again. but the high frequency numbers,

there's a leegd number, thing like industrial production, the forward looking stuff is improving pretty substantially right now. i mean, we have an estimate for global production where the three-month growth of industrial production into september is going to be the highest it's been in decades. i think that's the kind of growth we're getting right now and that's the kind of growth that's likely to drive labor market recovery pretty quickly. not necessarily to positive growth but a much lower pace of contraction. i think the market is going to take that well. >> how do we get to the issue though of access capacity? we have so much excess capacity, not only in our economy but in the economies around the world to make things. it's hard to see how we can have growth again if we can't get enough demand to utilize what  we've got. >> that's right. there still is generally a picture of very weak demand,  especially in north america and europe and japan, which are the

primary industrialized countrie still at the moment in  recession. so there is significant excess capacity both in terms of factory utilization and the labor markets. at this point it, you know, certainly at least for the next 6 to 12 months there's going to be mainly increases in hours worked as the the recovery pick up. and, in fact, there have been a lot of furlough employees that  will be brought back to work. so in terms of new hiring we're a long way of rehiring. that's going to be a damper for the overall situation in the labor market. the other situation that's playing out is the policy  concerns, about where federal policy is going in terms of health care costs and that kind of thing which is going to  restrain employers from hiring  until the clouds start clearing

in terms of what the  implications are. so that, all those factors poin to an extremely decision in terms of the labor markets and that's the problem. >> brian and james, thank you very much. we got to go. up next, the e-team back in the earnings central lab preparing more analysis on royal caribbean. >> there's nothing more exciting than industrial gas eggs. i'm not joking around. then, part three of julia boorstin's social climbing series. visit networking on the network. and later, signing the sector spt light on steel. a second quarter loss and more of the same expected next year. u.s. steel is calling back, mark, 800 workers. announcer: some people buy a car based on the deal they get. - others buy the car of their dreams. - ( beeps ) during the lexus golden opportunity sales event, you can do both.

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becky has traded up from joe. >> it was sound check. >> sound check, right. >> i'm sorry you guys did the dancing. >> you steal all the best sound bites from our show and run them on your show. >> and we did it without shame. >> we never do that. >> we feel reckless abandon. >> erin, we're going to get you some of the industrial gas necessary a moment, but we're going to start things off are royal caribbean, some of the other stocks under pressure this morning. royal caribbean down 7% after

coming in with earnings that were about three cents below what the street was expecting. it is the second largest cruise ship operator, comes in right behind carnival. lower to full-year outlook. and get this, guys. the h1n1 virus, royal caribbean says it is pet to lower earnings by 27 cents this year because of swine flu. >>est sinterest. >> it slowed down bookings in a big way. >> do i get to tuck talk about the industrial gas because i asked for that? getting hit hard today. earnings per share, three cents below expectations. the company, which you may know, produces and distributes natural gasses, nitrogen. weak demand for those gasses weigh owed the two key results. they said they key some pockets of sequential improvement. where, though?

air shah a asia and south america. the cost-cutting, the ruthless cost cutting -- >> as we've seen with so many companies, getting to the numbers on the bottom line by really chopping things on the cost cutting. also, coming in estimates, beat expectations by a long shot. the company coming in with earnings per share 30 cents better than the street was expecting. even though they beat the street on the bottom line, second quarter profits fell by 89% because of lower exploration and production profit. amid what we've seen with the slumping oil, oil prices under pressure once again today. >> then on the health care front, wellpoint did beat the street, the company who had eps of $1.50, seven cents ahead. revenues ahead of consent susz as well. 7.6% drop in the income hurt by lower enrollment and investment losses. lowerered the 2009 revenue forecast by $600 million to $60 billion. although the sector has done well because the policy that is

shaping up in washington is not nearly as bad for business, quote un, unquote, as we think -- we feared it might have been. >> we had bob on this morning as he said that was his big pick probably over the last five or six months, the stock has been on a tear because those insurers hasn't suffered as a lot of people expected. >> guys? >> thank you very much for the update on industrial gasses. coming up, social climbing, part three. julia explores business networking on the network. >> plus, bing, david sits down with the internet analysts at jefferies to talk about the microsoft/yahoo! bing. welcome to the now network. population: 49 million.

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in business there's nothing more important than relationships. but for now say buy to face to face networking and 4e8 low to media. julia boorstin explains. >> hi, erin. business meetings, networking, conferences, even hiring

committees, they're all crucial to business. but now who needs to meet in person? virtual business networks have replaced all of that handshaking. in this economy, there's more pressure than ever to leverage relationships for efficiency and profits. 43 million member business network linked in enables every possible connection. >> i have folks who can help you do their job to help them do their job. >> reporter: they linked mergers and acquisitions, finds the perfect hire, and allows users to poll the network with a question. >> linkedin focuses on how do we pem heem inform productive and how do we help them be a more competitive business, individual professional. >> reporter: the 6-year-old company has been operating profitably since 2007. brought innen estimated one hup $348 in 2008 revenue from subscription service and in a corporate recruiting service.

while linkedin is all about professional presentation, some companies take a more creative approach in virtual world's second life. >> they see it as a really powerful tool for training, for conferences, and for collaborations. >> reporter: and a way to cut costs. northr northrop grummond uses it as a teaching tool. other companies use second link for conferences. >> the users replicate the kinds of environments you might find in a trade show. >> reporter: ibm invested $80,000 in a virtual convention center, saving $350,000 on travel and productivity costs on its first conference alone. >> what you soon discover is that you can actually include more people than you would have included before. >> reporter: ibm runs a research group on social software, a lotus allows them to share blogs and contacts. >> preparing presentations,

working on a spreadsheet, yorking york i working on your e-mail. >> reporter: while ibm integr e integrates social into the soft wor, start-up allows anyone or a company to build a custom network, faux free they can post ads on the site. they post 27 million registered users from a site for saturn car owners to one for national musicians looking to return relationships into profit. >> whether it's a small company or a small business, they're both able to benefit from the power of being able to create and organize a social network. >> last round of financing, linkedin is $1 billion and is considering a ipo. go to cnbc and linkedin are parties to a content sharing agreement. coming up in the next social networking segment tomorrow, we'll be examining the business of twitter, seeing if they can

transition all of that buzz into some profit. now over to david faber at cnbc headquarters. >> thank you, julia. let's talk more now about today's deal between giant microsoft and search -- well, let's call it just portal yahoo!. joining us with the insights, internet analyst with jefferies. the stock down 9 1/2%. yahoo! had been up, of course, anticipation of this announ announceme announcement. the lack of an up front payment from microsoft perhaps a disappointing some investors. is that -- is that a framework for looking at this deal and are you disappointed? >> yeah, we're somewhat disappointed. so on the one hand, yes, there is a fact that there is no up front payment, there is a fact that there are no guarantees. there's only a guarantee on the rtf side or price inside but there are no annual guarantees similar to what we saw on the prior -- in the prior offer. so on that, question, i think we are somewhat disappointed.

having said that, this is a transaction that, again, will allow yahoo! to save a fair amount of costs on the cap x, less $200 million a year, and if you look at their guidance for cash or ebita they're talking about annual improvement of 15%. but yahoo! is getting the shorter end of the stick on this one. >> why do you think that? >> again, yahoo! has been in the search business for the last ten years. they spend a fair amount of money, bing has been out for a couple of months. what they seem to be doing is giving up on their search platform early, at least on the commercial side. and adopting bing. so there is going to be a some integration issues. there are going to be a number of risks to have yahoo! in the

search business and obviously they have to deal with them. >> in your opinion, at least, not enough compensation for taking on that risk? >> yes. >> carol bartz said in the conference call in answer to why there wasn't enough front payment or in her opinion why it wasn't great importance, ultimately having a big upfront cash payment wasn't important. what they wanted was a significant tax break so they could therefore have revenue and refer knew that supported an expense line that allowed them to invest in the business. she also talked about a boatload of values. do you sign on to her way of thinking? >> well, i see where she's going with that. the problem is having a tax rate is great and, yes, 88% is a very rich, very healthy tax rate going back to yahoo!. the issue is that there are no guarantees to allow people like us on wall street or on the investment community to look at theories of cash flows and try

to derive in that present value. so in certainty around that is really what's causing a fair amount of trepidation here. >> and what about the ultimate idea here, of course, a year and a half ago microsoft wanted to buy this company for $33 and change and stock. as you alluded to and i did, there was a potential search deal with a million dollars up front guaranteed payment. but what about the idea here that ultimately this tie-up cements a relationship between these two companies that will result in microsoft buying yahoo!? >> well, certainly not reflected in today's price. i think people are going to wait and see on that one. clearly microsoft research, you know, is a must have. everybody is looking at google as the company to compete with. i think this will prove over time and help microsoft achieve that. there was a lack of a display search deal between the two partners. and i thought that would have

been kind of an area that would have helped cement this relationship you're talking a. the relationship they announced today is for search only. before they go all in to, you know, marriage, if you will, we would have to see more work on the display side. >> on the display side. youssef, thank you for joining us here. analysts with jefferies. erin, back to you. >> thanks. >> i'm forking ahead. steel on the sector spotlight. a closer look at that. and we've got potentially buys and people brought back to work? you're watching "squawk on the street." not long ago, this man had limited mobility.

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or with your insurance company. we can even help with financing. if there's a way, we'll find it! so don't wait any longer, call the scooter store today. you saw the headline cross right before the break. crude inventories rose by 5.1 million bafrls in the past week. that's why we look at the oirl prices in a free-fall. falling now almost $3, just alove $64 a barrel. we found out that gasoline supplies declined by 2.1 million barrels in the past week. distillate fuel supplies were up in the past week. and refining utilization declined 1.3 %. 84.6% capacity. so those numbers are the reason

why we have oil prices down right now about $2.75, $64.48 right now is the trade. and tom reilly, veteran trader here on the floor, is joining me now on the floor. tom, what do you think of the numbers? they haven't changed on the board here. >> i guess people really not surprised. we got numbers from the api last night. this confirmed that. that's why we tested a little bit lower. first support number was $64.40. if we breakthrough that, $61 even. >> this underscores the weak demand picture out there. consumer confidence data was not that great yesterday. we're going to get the gdp data on friday. what does this tell you about demand? >> demantd d is clearly down. last summer it peaked around july 4th. this year gasoline if you could make it through half the summer with billing coming in, it's going to be weaker in the fall. >> let's talk a little bit about what's happening in washington, because a lot of traders on the

floor are focused on the harings, aekd day of hearings today. jpmorgan saying that they believe in position limits for opc and exchange based trade but they are concerned about exemptions. why is that such a big sticking point here in these hearings? >> well, i mean, i know for the bigger guys to have those exemptions, some people think that's unfair, unfair advantage to them. down here on the floor we really don't see it like that. that's for washington to decide. you know, the smaller trade irs look more at the minutiae. these guys that have the limits to think about imposing, it could affect the volume that we see. but until washington sorts out what's going to happen, we're going to have to wait and see. >> and that wait and see could moo keep pressure on prices. >> i don't think it's going to have a downward pressure, i don't think so. >> we're looking at prices right now, erin and mark, at $64.58 right now, down $2.65. again, a build in crude

inventories of 5.1 million barrels. back to you. let's look at the market, and its internals. not doing too badly. down half a percent on the dow. a little more than that on the nasdaq and s&p. so internally more losers than winners, right? but not that bad. 17-10 on the big board toward the losing side. on the nasdaq, well, almost 2-1. >> yeah. let's shine a spotlight on that sector for a moment because we had the debbie downer segment. let's do something different. steel if you look at the index, you will see a huge surge, 50% for the year. overall market is only 8% for the year. so you can see the big surge. since the march low, otherwise known as hb. we have senior steel and analysts here. robert, i want to start with you. you're looking at u.s. steel for

some of the first time the industry is bottoming. i thought your story was pretty incredible. the industry wide capacity utilization, which everyone points to as a sign of a weakness for the economy, was 45%. it's gone up though. >> it has gone up generally for more steel makers. for u.s. steel, though, it's still fairly low, 32.4%, which is a historically low. >> okay. so where is a sign of hope in th that? is there one? >> there is a sign of hope generally because it is still rising. what is happening is they are seeing the inventories for steel over weigh and there's no other reason but for steel makers to start up again and start selling. and so the steel companies are looking at that as a positive sign, that the real demand isn't there. there is at least some reason to start the steel mills back up and bring some workers back on. that's always good for the economy. >> they have done that at u.s. steel, right? they brought back 800 workers? >> right, at grant city outside of st. louis they brought back

workers. the workers themselves were outrageously surprised that given the economy they were called back. these guys are worried though that a couple months ago they might not have the job again because steel isn't sure that it's going to last. the signs are there. >> there's a question mark right now as to whether the world stopped and we're recovering a little bit or whether we're actually for real recovering. right? that's the question mark? >> that is the question mark. their earnings are out this morning and they're seeing some signs of recovery, stronger in brazil and india and such. but the u.s. and western europe, there's still a question mark. but the signs are hopeful. >> and what is a normal capacity utilization, just so we have a sense? and forget u.s. steel for a moment. at industry, was eight $45, up to $52. what would be a normal economy? >> i would say a profitable one is 60% to 65%. last year, up towards of 85%,

90%. u.s. steel mill in slovakia was 100%. they need 60% or 65% to get a goods strong profit. >> that's interesting you have to go back to where they were at the bubble to be profitable, which i guess is a sign of hope in and of itself. robert, thank you so much. >> sure. >> mark? let's turn to mark with his insight on the rally, whether it will continue. more stocks he likes right now. good morning, mark. thanks very much for being with us. >> mark, thanks for having me. >> first of all, big picture question. >> sure. >> is there enough business for u.s. steel makers to prosper while china has this huge steel industry? >> well, i got to tell you, mark, domestic steel industry has been producing way below the real demand level now for almost a year. and what this has done is really cleaned out the supply chain. what we're going to see over the next six months, maybe nine months, is a recovery of production back to real demand. i don't think the economy is showing much signs of recovery,

but the steel supply chain is in excellent shape. and these companies are in great a. great position to benefit once the economy does begin to pick up. >> we can compete with china? >> yes, actually steel companies in the u.s. are lower-cost producers than chinese producers based on raw material and logistics advantages. >> how does steel prosper if the auto industry is not healthy? >> well, i would say the auto industry in the u.s. has clearly gone through a fairly major destocking process as well. and so in the near term, actually the resumption of automotive production is actually going to be one of the bright spots for the steel industry, if you can believe that. but, you know, beyond that, looking at 2010 and 2011, look for some recover roy in the automotive arena, certainly not where we have been, 16 and 17 million vehicles. at 12 to 13 million, i think the steel industry could do well serving the auto sector. >> i'm looking at a list of stocks here.

you have a buy on all of them, ak steel, steel dynamics, u.s. steel, olympic and graft tech international. >> that's right. >> who are graft tech international? >> the world's leading producer of graphite electrodes. they are consumable in steel making. electrodes that go into the furnaces. they provide the electricity to melt the scrap. >> how much of u.s. steel production and all these companies and everything, how much of it is electric arc, how much of it is something else? >> it really depends on, you know, market-by-market basis. here in the u.s., electric arc furnace steel making is well over 60% of the total. in china, it's probably less than 10%. the important thing for eas steel making is that you've got to have a good supply of scrap. here in the u.s. we clearly have that. you know, their scrap is just in an emerging market in china at the moment. they're blaus using blast

furnace making over there. >> thanks very much, mark. appreciate it. >> again, he has buys on aks, steel dynamics, u.s. steel, olympic, and graph tech. coming up, should we be looking to china for the best way to keep america great, or while its economic model is seemingly succeeding better than ours, is it built on a foundation with a dark side? but first, ultimate fighting from near bankruptcy to the forefront. fighting scott wapner is going to take a look. more and more s are turning to fidelity for a smarter way to trade online. only fidelity lets you back-test your strategies against an entire portfolio of stocks. plus you'll get advanced, customizable trading platforms. and you get the kind of execution you'd expect from fidelity... ...with a dedicated specialist to talk about even your most complex trades.

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mixed martial arts for his documentary "ultimate fighting fistful of dollars." profiling how the ufc, top league in the sport, has gone from near bankruptcy to the biggest brand in brawling. and scott's here with a preview. your honor? >> mark, where there's blood and brutality it was once considered too hot to handle but those days are long gone. as sport of mixed martial arts has mixed the mainstream, marquee fighters are reaping the reward. he's shaping mind as a math teacher to knocking heads. rich "ace" franklin is getting ready for work. his job, to hit it hard. for 15 minutes of labor, this ultimate fighting champion will take home a six-figure salary, maybe a bonus. he may also add another star to his growing collection. we were in franklin's dressing room beforehand and saw a veteran fighter keyed up and

ready to get it on. >> anxious, yeah. get the night over with. >> nervous at all? >> oh, yeah. >> yeah? >> yeah, just -- this is eight or nine weeks, just all coming to fruition. >> reporter: and franklin's not the only one feeling the fight night anxiety. just steps away from the octagon, sits his wife beth. even after six years, she still finds it hard to watch her husband fight. hard to sit here and watch this close? >> it is hard. i wouldn't be at home though. i would rather be here. but it is hard. the moment he comes out, my heart starts beating faster. >> reporter: and rich franklin scored his biggest win in years at the fight we travelled to in germ by. he also earned a couple hundred grand. mark, that beats the $44,000 a year teaching gig. wouldn't you think? >> yeah, i think so. all right. thank you, scott. we look forward to this. that's scott's documentary

"ultimate fighting, fistful of dollars." >> and danger. >> tonight on cnbc at 10:00 p.m. and 1:00 a.m. eastern. up next, following china's economic league keep america great? and open us up or open us up to a world of pain? >> but first, oh, trish? >> hey, guys. good morning. we have a lot coming up for you on "the call." we want to talk about the microsoft/yahoo! partnership. just exactly what is going to be the effect, is it actually anti-competitive? david faber is going to be here to go true all the hrough all t with you. very interesting discussion there. also, we're going to debate with two leading congressmen executive compensation. big issue as of late. we have a democrat and a republican on hand for that. and we're going to have the latest from the time warner conference. and we're going to tell you about the buying opportunities in the media sector, what they

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in a speech he gave earlier this week, our boss, general electric's ceo jeff immelt called manufacturing, quote, a national imperative.

ask he went on to say this. we could do much better to observe the example of china. they've been growing fast, because they invest in technology, and they make things. is immelt's point valid or an unfair comparison? many critics say china's growth is due to unfair subsidies and a stimulus package that will work, for now, but not for the future, necessarily. here to weigh in, president of obeweise, and author of the coming china wars and a contributor for us here. good to have both of you with us. jim, start with you. jeff immelt has referred several times to the fact that america needs to make things again. but in this explicit link to following the example of china, that may be new for this speech. does he have a point? >> yeah, i think he has some points. for example, the need to innovate, to be on the cutting edge of technology. the need for training and for good infrastructure and low

bureaucracy, those are key points. i think those are vital to the success of any type of manufacturing or technology-oriented country. remember, we have been a technology-oriented country until only relatively recently that we have seen that edge flip. i definitely think we can get it back. we're not going to be the low-cost manufacturing center, but i definitely believe that we can continue to succeed in terms of technology and innovation front, if we're willing to make those key investments right now. >> peter navarro, do you think we should be making things here again? by the way, we are still the largest manufacturer. >> right. and look, immelt's epiphany brings us into this century. there was a time ten years ago when we thought we could do it with financial services and the like. the reason he is right is manufacturing jobs both pay more and have a higher multiflier effect, which means they create more jobs downstream. so long term economic growth really depends on manufacturing. now, the obama-china policy is the same as the bush policy,

which is that we take their money, they take our jobs. what china does well is not innovate technologically, what they do is transfer our technology to their factories, they steal it, and of course they do all of the other things you mentioned earlier, which is the currency manipulation, the heavy export subsidies, the counterfeiting and piracy. so, you know, that's not the model i want us to adopt. what we really need to do, and what the obama administration is not doing, basically, is crack down on china's mercantilism, get our manufacturing base going. and when obama runs again in 2012, if the people in michigan and ohio and illinois and pennsylvania vote for him, they're going to be out of their mind, because he broke their promise to him. >> but peter, it sounds like you're talking more about protectionism. and i'm not sure that protectionism is the answer. i think that the lowest cost manufacturing job, they're going to shift to the lowest cost area, be it vietnam or china. >> that's such bunk. protectionism is not when you

manipulate your currency, right? okay, a floating -- free trade does not work. free trade does not work, unless you have floating exchange rates. as soon as chinese -- china fixes its exchange rate, that's protectioniest. because it's a tax on our exports to them, and it's a subsidy to their exports to us. and all bets are off as soon as you do that. and the idea of protectionism when you all simply want free trade is silly. it's a silly comment. yes, sir. let me just ask what i think is the bottom line question. how do we compete in manufacturing when there are millions and millions of people around the world going to work for peanuts in factories? >> that's a great question, mark. and the way we do it is the way we have always done it, which is to invest capital investment, develop, innovate, the way we beat low-wage workers is with high productivity, so that the wage -- adjusted wage, really is lower than theirs. we can do that, mark. i think -- i believe in it american manufacturing, i believe in the american worker.

but we can't do it with two hands tied behind their back when china basically is cheating on every kind of front -- >> how do you get them to stop cheating? >> in terms of productivity, i'm on the same page. >> all sorts of ways. we could have a simple bill that would do it. >> let's let jim have the last word. >> sure. i think he is right in terms of being able to invest in productivity and training and education and focusing on engineering. i think immelt really called it when he said we really need to focus and invest in education and engineering to have higher productivity and better innovation. that's i think the key to any wealthy nation. >> gentlemen, thank you very much. appreciate it. >> good to see you all, bye-bye. >> up next, final check on the markets. don't go away. n sprint mobile broadband. 31 are streaming a sales conference from the road. eight are wearing bathrobes. two... less. - 154 people are tracking shipments on a train. - ( train whistles ) 33 are im'ing on a ferry. and 1300 are secretly checking email...

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