ch their dreams. go to legalzoom.com today and make your business dream a reality. at legalzoom.com we put the law on your side. good morning. senator ted kennedy has die.

he lost a year-long battle with brain cancer. senator died last night at his home n at the age of 77. >> the work goes on. the cause endures, the hope still lives and the dream shall never die. >> good morning and welcome to squawk here on cnbc. he's been called the liberal lion in the senate. senator kennedy was a champion of health care reform, a well known voice on civil rights, wa and an outspoken supporter of the american working class and the poor. ann thompson is outside the kennedy compound this morning. ann, good morning to you. >> reporter: good morning, carl. this is where senator kennedy passed away late last night at the family's compound here in hyannis port. the scene of so many highs and lows of this political dynasty throughout 50 years of american history.

this kennedy family said this morning, we have lost the irreplaceable center of on our lives. excuse me. that's my blackberry going off. we understand at the time of his death, he was surrounded by his immediate family, his wife, children, congressman patrick kennedy of rhode island and his daughter, cara, along with his two-step children, carolin and kuran. the extended family began to come to the compound last evening. he was diagnosed with a malignant brain tumor in may 2008. a few weeks after that diagnosis, he had surgery at duke university to remove part of that tumor and then he underweunder went chemotherapy and radiation. he lived for 15 months with that diagnosis, which was far more than many expected.

and in talking to his friends here at hyannis port, they say his battle against cancer at the end of his life they found extraordinarily -- he kept living. he would be seen here in hyannis port out on the mya, he was seen sailing at recently as two weeks ago. he continued to work from his home here in hyannis port and deal with the business in the senate. as you know, health care has been the issue of his life and it was of a great concern. as of this time, carl, we do not know, we have not heard of any funeral arrangements. we expect those details will be released later today or tomorrow. >> ann, we have seen the statements from various politicians around the country, around the world, really, come out and offer their sympathies to the family and friends of the senator. how do you see the day unfolding today? do we think we're going to hear from the president himself?

>> yes. we're getting indications that the president may give a statement later today. as you know, he's over in martha's vineyard, which is just five miles off the coast of cape cod. all weeks long, there have been speculation that perhaps the president would come and visit the senator. clearly, that did not happen. we understand that the president was awoken about 2:00 this morning with the news and that he called mrs. ken by about 2:20 this morning to offer his condolences. in a statement that was issued early this morning, president barack obama called senator edward kennedy the greatest senator of our time. as you know, it was senator kennedy's endorsement and caroline kennedy's endorsement early in the primary that made a huge difference for the obama campaign. >> ann, we appreciate your time on a busy morning, obviously, ann thompson of cnbc in hyannis port bringing us the news. john harwood is our chief

washington correspondent and joins us in d.c. today. john, people are going to immediately turn, at least in the business world, to try and answer questions about what this means for the liberal agenda, business policy going forward. do you see any effects in the short to medium term? >> i doubt it, carl. you know, ted kennedy is, as that statement from barack obama said, the foremost legislator of this time. his career had incredible impact for decades. his family had an even greater impact for an even longer period of time. he's one of 60 votes in the senate. there are many like-minded senators. there are strong committee chairs trying to move health legislation and i think democrats will try to use the emotie emotional bounce and umph from this moment and the grief people are feeling to try to propel this initiative forward. but i don't see a very, very large impact in the short-term

or the medium term. democrats are going to end up with another senator from massachusetts, whenever that special election takes place, and i suspect that barack obama's agenda is in about the same place as it was 24 hours ago. as you look back at his career, it's going to be viewed in some avenues through a political spectrum, what he did to american politics, the member of such a storied american political family. what would you say are the biggest accomplishments, legacies that he left behind from a business sense? minimum wage, disability, equality and that sort of thing in the workplace? >> well, a few things, to talk about the span of the impact of the kennedy family, remember that joe kennedy, his father, was the first head of securities and exchange commission under president roosevelt. we're talking way back. ted kennedy in the senate h advanced the liberal jaentd that affects health policy, social

policy and that affects business on the minimum wage. that's something that he tirelessly championed. he didn't always get it. there were long gaps in which ted kennedy was not able to compel the congress and whatever administration had to be he in its power opinion but on workplace issues, on family medical leave, a whole range of issues -- >> no child left behind. no chiend left bhield. he was under a liberal era and a conservative era. the civil rights act that forced american businesses to operate in public to open their establishments to people of both races. this is a guy who was a consummate legislator. one of the things that makes his different from his brother, john, is he was much more comfortable and robert kennedy,

as well, he was much more comfortable in the senate and came to see that as his home over time in a way that his the brothers did not. >> people are talking a lot about his ability, his willingness to make not just friends with people from across the aisle, but very personal friends. orren hatch has called him a treasurered friends. . is that simply a way of legislating that is in the past? when we look at the voracity of the debate over health care, are those personal relationships still possible in the senate right now? >> well, they are and they come with serving for a long period of time. orren hatch has been in the senate for decades, as well. and that means he and ted kennedy have lived and worked together for at least 30 years. i will say, carl, that sometimes there's certain myths that develop about particular relationships people have. democrats have told me that, for example, the kennedy-hatch

relationship hasn't been quite as close as some people have described it. but look, the guy had friendships across the aisle. he was a friend with bob dole, as well, and worked with bob dole on civil rights legislation and voting rights and tax and health legislation, as well. this is a guy, remember, who with nancy cassabaum, a republican from kansas, worked to make health care insurance more affordable than it was before. he worked to create the children's health insurance program when the large health designs, the large national health policy was frustrated under president clinton, he dropped back and looked for more incremental reforms. so you had health affordability, the children's health insurance program and a whole range of issues. i didn't get everything he want ed he tried to get immigration reform. that didn't happen. that still hepts a bit of the unfinished agenda for barack obama and for ted kennedy.

>> one last question, john. you mentioned that you think democrats may use the emotional power of his passing in the area of health care form debate. do you see that impacting the issue? >> no, i don't. members will make a decision about what they think is right and what they think is best for their constituents. i don't expect a large shift. the democrats have a liberal caucus in the senate already. and i think those people who share ted kennedy's beliefs are going to keep pushing on. they will get a little boost, i think, from the feeling that let's try to do this for ted, but i don't expect that in any fundamental way to change the nation. again, senator at the time conditiondy dead of brain cancer this morning at the age of 77. let's head over to mandy.

>> u.s. equity futures at this stage are suggesting that it's going to be a flat trading day. the asian markets did manage to stage a rebound. we've got lots of economic stuff coming up for you today, carl. weekly mortgage applications at 7:00 eastern, july durable goodx at 8:30 and new home sales at 10:00. polled forecasters expect total durable goods forecasters to rise by %. ex defense is expected to fall by 0.7% and ex transportation is seen rising by 1. %. overall sales, 390,000 and rising by 1.6%. nymex crude oil overnight, $72.50. we've got the api yesterday, which was quite bearish for prices. as for the overseas markets now, i'm not going to steal the

thunder. we have louisa bojesen in london. >> hey, mandy! good seeing you stateside. let me give you a bit of an update. we have been around the flat levels since the get-go. with you we've fallen back a bit. they pulled 7,000 companies on a monthly basis. it rose to 90.5, which means we're rising from the figure we had in july showing us that business conditions have improved in the economy. there's a notion of cautiousness here as we head towards the end of the year very quickly before we know it and investors are thinking we could be looking at some of this exuberance wearing off again. we are down approximately 45% on this particular endecks since 2008. in terms of a what's moving here, we've got to worst performing sectors shoelg showing you what's led our market down a little bit.

we've seen gas lower, a ch hilean.core mine. they continue to see prices to the upside. an outperformer in the form of heineken, this being the world's third largest brewer, based in the netherlands, up by 7.3% or so, better than anticipated rise in their first half operating profits and a large part of that is up to cost savings, but they're giving us more of an optimistic tone of volumes, as well. over to you, maura, in singapore. >> we had ach better day in asia, louisa. we had the u.s. setting a positive tone for asian trade today. on top of that, a strong session high in -- the nikkei rose 1.4% despite export data showing disappointing numbers in july. we are now at a ten-month high

in decades, in other words, the highest level since 2009. moving over to shanghai, although we had a fall at the open, the momentum there turned positive and spurred that market to close nearly 2% high perpendicular as for hong kong, it was pretty flat today and in australia, we saw broad-based gains helping the index to rally. sino gold, the canadian based el dorado gold saying it's buying the aussie producer in a deal worth about $2.2 billion. not huge when you look at what we're facing in the sector, that was the asian trading day. carl, back to you. ask maura, thank you for that opinion our guest host this morning, what a treat for us, kevin ferry joins us from the pits in chicago. great to have you.

good morning. >> good morning. >> all the political news aside this morning, there are some things going on that are interesting. china got another bit of a pop. we get what the journal called this ben bump yesterday of 30 points. but you make the point this morning that we're beginning to see some signs that news that might otherwise have smashed a rally maybe a few weeks ago aren't giving us the same response today. >> right. we'll keep an eye on this as the news comes out here in the states. what you saw yesterday was decent news economically. definitely moving up the ladder on the scale, but the market is a little more neutral. same thing last night in europe. ifo was better than expected. the market waffled and went down as i was watching it early this morning. so i think those type of things you start to watch, that's not the leadership. the leadership is still -- the asian markets and having another good session this morning. but certainly, the cars behind the engine are starting to falter a little bit. >> so we're really getting to

the show-me stage, aren't we? >> you bet. >> stocks are being turbo charged by temporary and reversible factors and america inc has managed to beat expectations on the whole because of cost cutting, laying off and now we've got to the stage we've got to the real nitty-gritty, right? >> right. you have to get down to something that they can sink their teeth into and the political agenda is going to stay hot. so, you know, the dollar, the budget deficit, the things that people are talking about now, the point that i would make today is whatever is going to happen hasn't happened yet. and so these are the big stories to get out of this. >> like what? what could happen that is potentially worrying for the market? >> well, i think so far structural moving the dollar down has been viewed as bullish. when it starts to be combined about big talk with budget deficits, there's that magic time in the market where it's no longer a good thing. and no one can call that. only the market weighs in on that. and i think that the other

thing, if you go back to the first bush administration, that's to show my age, the bond market demanded that he rescind his tax pledge and, pun, it killed him politically, but the fact is, the markets were demanding it. the dollar and the bond market were falling every day. >> do we need to break from the weak dollar legacy? is it actually doing less harm than good? in other words, i guess it's good for exports, not good for the other sector. >> well, i think that's one level that breaks the camel's back. and i think you have to be more alert to that. there's no magic number in which your counter parties will no longer let you play this game. >> okay. let's get out to our market task force joining thus morning. we've got kevin keran, nick clause and robert brusca of fact and opinion economics. gentlemen, thank you very much for joining us. kevin fwhb two, let me get to

you first of all. it looks as if it's going to be a fairly flat start to the trait trading day. what do you think will drive markets today? >> sure. i think we're going to see a little bit of data in terms of home sales and durable goods. that is -- you know, this morning will be the data point that drives markets. but beyond that, what we've seen is an improvement. i agree with what kevin has been talking about, an improvement overall in the market. so we're now getting to the point where there is a bit of a -- there is a bit of a concern about the forward-looking earnings projection. and when we do the math over the next two or three years, we have a tough time getting to where the analyst consensus is. so i think we are at the show-me stage and we're going to have to true up in the markets what the expectation for a very sharp recovery looks like in an environment where there's more debt, baby boomers are exiting their peak spending years and there's been no meaningful change in interest rates to the man on the street in terms of driving incremental demand for money and credit.

so we are -- we think that the composite picture is better certainly than it was six months ago. we are more bullish. but we are -- we're very interested in seeing what comes next. >> bob, do you agree? and what did it mean for market performance? >> i don't agree at all, no. mortgage rates are near historic lows. i don't know what you want on the mortgage rate -- >> no, no, in 1991, you had mortgage rates coming down 11% or.%. so the change was really felt in the economy. you got a big reaction from that change. but here, with the 5% to 6% rate, that's not more meaningful than -- >> well, you take the risk of home prices falling out of the equation, you have very affordable homes, you can help to jump start the housing market. we've had the easy gains in the stock market. it's very interesting that we

have had this more than 20% run on most indices from stocks lows. of course, there's still more than 20% from their highs, but there's been a nice recovery and basically, nobody has been on board. you continue to have pessimism in the markets about it. it's true, we're in a position where it's going to be more difficult for corporate earnings, but i think the economic recovery is kicking on stream. i believe in two months, at least, we're going to be seeing positive job growth. i think we're going to have strong growth over the next four quarters or so. i think it's going to surprise people. >> for what -- where? where in particular, bob, do you expect to see jobs growth? >> well, you get it everywhere. that's what happens. what happens in a recession is that it's a storm, it's bad, everybody hunkers down and they batten down the hatches too much. if you take a look at the job loss profile, it's a v-shaped profile already. the rate of increase in terms of cutting job losses is going up at a very rapid pace. so you can see there's a v-shaped recovery forming.

this is what happened after you've had severe job losses. the pace of loss is severe and if it slows sharply, it turns into job gains. a time of people don't want to talk about this. if you look back historically, when you have a severe recession, you have a strong recovery. that's what happens. i don't understand why people are so pessimistic and don't want to get on board for the for that. >> kevin, you've been bearish for a while. you say you're more bullish now than you were when the market was lower even despite your concerns. define your level of bullishness at this point. >> yeah. we have a range of equity exposure. and from the minimal amount of exposure, which is where we were in 2008 -- >> which was what? >> well, we had 95% cash in 2008. we began adding equity exposure in march. we are now -- we are now, i would say, halfway invested. so we're responding to some of the positive things we're seeing that bob is talking about, in credit markets and the economy. and there is a lot of evidence

that suggests that recovery is entrained. but we are not dismissive of things that make this different. >> but you're like the personification of what bob is saying, right? there are people seeing the train leave and they're like, wait for me sglshths. >> no, not necessarily. if what bob is saying is correct and we have a textbook recovery, that it's something that takes roots, it goes on for many years, if that is the case, there's going to get -- >> it's hard to image we'll have a fex book recovery when we've had a nontextbook crisis, don't you think? >> well, that's one thing we've been keying on, we've been keying in on credit markets and the expansion of role of debt and inflation that can occur when an economy becomes overindebted when creditors and borrowers together decide they don't want to take on more debt.

there are inflationary implications to that which you can see now. you have debt falling for the first time in 70 years. you have prices falling in the country for the first time since world war ii. and you have incomes in aggregate falling for the first time. all of those things -- excuse me, all of this things when coupled with the things i discussed earlier, the aging of the baby boomers, the fact that interest rate policy is not as effective as it was in the past because the change has not been as dramatic, all of those things when you put them together make for a different scenario this time. which is why -- bob -- >> i agree with bob we're getting better, but -- >> look, when you make 6 million to 7 million people unemployment employed, aggregate debt goes down, income goes down. >> no, it doesn't. >> what i'm pointing out is that you have to put these people back to work. their incomes go up, then they'll be able to spend and take on more debt.

this has been a recession. the fed has underpinned the financial sector. '8, '82, we had a financial problem. we were able to get a good recovery. you put these people back to work, income will go up, people can take on debt again and the economy will look better. i'm not saying all the problems are better, but that's what's going on to be on the table. >> i guess the question is how much of that is already priced in. >> when we come back, we'll take a look at our friends at the weather channel. what you need to know this morning. later on this morning, the most recent official to leave the central bank and now randy kroszner is taking on a new task and that is "squawk box" guest cohost. that's at the top of the next hour. butkus here? i hired him to speak. a lot of fortune 500 companies use him. but-- i'm your only employee. we're gonna start using fedex to ship globally-- that means billions of potential customers.

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welcome back. time for your business traveler's forecast. scott williams is back with us this morning. good morning, scott. >> good morning there, mandy, and good morning, everybody. as we focus in on your current airport delays around the northeast, fairly quiet conditions right now around boston's logan, newark's laguardia and jfk and philadelphia, we will watch for a frontal boundary draped across the front lakes back into the midwest. that will set the stage for scattered showers and storms along and out ahead of this frontal boundary. so if you are traveling into the motor city, expect some delays

also around chicago's o'hare due to thunderstorm activity and in kansas city. >> thanks for that. when we come back this morning, more on the legacy of senator ted kennedy, dead this morning at the age of 77. on capitol hill, the flags are flying at half-staff.

good morning. senator ted kennedy has died, part of a storied american political dynasty, he lost a

year-long battle with brain cancer. the senate stall ward died at his home in hyanni is i port last night at the age of 77. >> the work goes on. the cause endures, the hope still lives and the dream shall never die. >> good morning. he's been called the liberal lion of the u.s. senate, spending nearly a half a century in the halls of the senate. the war in an outspoken supporter of the american working class and the poor. our bertha coombs looks back on a political icon and his legacy. >> ted kennedy called universal health care the cause of his life, the cause he championed. >> i believe it is essential that we provide a medical program -- >> reporter: for over four decades in the senate, the reason he defied his doctors after brain surgery, to address

last summer's democratic convention. >> and guarantee that every american will have decent quality health care as a fundamental right and not a privilege. >> his rhetoric was impassioned, but those who worked with the liberal lion of the senate say he was at heart a pragmatist. >> a lot of people got hung up on the liberal philosophy and i don't think they understood how practical he was. >> gordon binder, the former amgenceo worked with kennedy on fda issues in the 90s, a time when kennedy coresponsered major helthd bills with republicans, establishing the children's health insurance program in the wake of the failed clinton health plan. >> without his involvement, i'm not sure that we would have had a drug benefit at this point. >> the former chef of merck says kennedy would provide key support for medicare part d by being open to the industry's free market approach even though he would question parts of the 2003 bill. >> he recognized the fact that we did have the larger public

interest at the center of what we were doing, that that was very common ground with him. >> kennedy called working across the aisle the hallmark of his career. gordon binder calls it his gift. >> he always told the truth. he always kept his word and that's not that common in washington, unfortunately, for people trying to get legislation passed. >> senator kennedy was an early supporter of then presidential candidate barack obama. this morning, the president released a statement saying i valued his wide counsel in the senate where, regardless of the swirl of events, he always had time for a new colleague. i cherished his confidence and support for the presidency and even as he waged a valiant struggle with a mortal illness, i've profited as president from his encouragement and wisdom. an important chapter in our history has come to an end.

nora joins us this morning. thanks for joining us. >> good morning. >> people in business probably have an image of kennedy as someone who they knocked heads with. agendawise, they didn't agree on a whole lot. i wonder if given that piece of tape they just watched, they'll have to reconsider himself this morning. >> certainly politically speaking, his history will be known, not only a member of the camelot legacy, the youngest of nine children of joe and rose kennedy, but as probably the greatest legislator in the united states senate, serving nearly half a century. there's only two other senators who served longer than ted kennedy and that's strom thurman and bobby byrd who still serves in the united states senate. this is a man who has sponsored over 2,500 pieces of legislation, hundreds of those

passed into law and they're names of laelgz that we all know. the american with disabilities act, s-chip which provides health insurance for millions of poor children. cob cobra. everybody knows cobra. if you change jobs or lose your job, you can get health insurance through cobra. title 9. certainly the cervical rights act is something that senator kennedy was involved in. but i think part of his legacy, and while he has had a difficult life and career, the personal impact that he had, i don't know of anyone else in this town who has a democrat who had so many republican friends. senator orren hatch, of course, one of his best republican friends in the senate coresponsered a lot of these pieces of legislation. even senator john mccain, of course, remember, had coresponsered an immigration reform bill with senator ted kennedy and mccain was pillaring for that during the last campaign.

and that's why these close relationships that senator kennedy had with republicans, he was able to call on those relationships in order to get pieces of legislation done. that's why we heard from two republican senators this weekend, senator john mccain, senator orren hatch saying that because teddy kennedy had not been involved as much as he must have been had he been well in this health care debate, that much was not getting done, perhaps. and i think that's significant and difficult for president obama since this health care reform is his first major piece of legislation, carl. >> i wonder if you think that changes now. we've been trying to answer the question whether or not democrats can use the emotional power behind his passing as reset their debate, fuel their arguments on health care. do you see anything changing. >> i think some people will suggest that this will cause a number of senators to rereflect

about senator kennedy's life and legacy and about whether they can get together and get things done. however, there is not that pack room feeling that senator kennedy was famous for, even orren hatch, so i'm not so sure that there will be the good will after kennedy's passing that will mean that what the president wants will get passed. one other important thing, not only was he able to work across the aisle, but he was certainly able to work across the chambers in congress, not just in the senate, but in the house and i think as some people have talked about, those liberal democrats in the house who are demanding the so-called public option and who will take nothing less than the public option, that it was someone like senator kennedy who could walk across to the house of represents and say, listen, everybody, let's take a little less than what you want.

take 8 on% and maybe 70% and come back later and get what you want, but let's get something done on this bill. it's not clear there's another voice within the democratic party that can do the same sort of arm twisting in order to get a piece of legislation accomplished. but he called health care reform the cause of his life. i think that's going to be one of the huge factors as we expect to hear from president obama this morning as he talks about senator kennedy's legacy and talks about the importance of health care reform and what kennedy had said about health care. >> nora, i appreciate your insight, nora, joining us from washington, d.c. this morning. >> my pleasure. >> let's get over to mandy with some more of the markets. >> why don't we check in on the futures boards. futures have slightly slipped

below fair value at this stage. if i had to pick a phrase, i'd say it would be a flat to downside bias that we've seen at the start of trade today. we got that mixed lead from offshore. as for oil, we saw a big dip down to the 72s yesterday. nymex crude currently sitting at $72.18. as for the ten-year bond, let's slip over the boards and tell you what's going on there. currently yielding a 3.444%. as for the dollar, well, we'll take a look at what the euro/dollar is doing. 1.43 on 5. slightly upside there. dollar/yen is sitting at 94.07, slightly on the back foot. usually when the yen gains, of course, it seems to be at a risk aversion in the air. and why don't we take a look at the gold board while we're at it. if i can just take a look at how it's doing, especially if the dollar is gaining, we should see weakness in gold today. gold is up by 3 bucks 7 0 a troy

ounce. >> pandy, we are joined, as you know, this morning, by kevin ferry. i want to take a trip to his stomping grounds, though. ira is holding down the fort there. ira, we were talking with kevin in the last half hour about some of the warning signs, i guess you could say, not just things like baltic dry falling, but earlieran ifo not getting a huge round of applause this morning. does that resinate with you today? >> no, you know, carl, listen, we know the economic data is going to be tepid, at best, going forward. until we really resolve some of these greater issues. and that starts with unemployment, not just unemployment in the u.s., but european unemployment has been rising and rising and rising. but i think we have to step back. one who publicly thought there was no chance of bernanke being reappointed --

>> is that true? you did not see it happening? >> no. i through it out on cnbc. i thought janet ideal yellen would be the compromised candidate. but i didn't see it happening because this is a very openly -- i'm not going to -- but a real politic playing group who -- we saw it with general motors, you know, they liked to punish and they liked to reward friends. and i wasn't sure where -- i didn't think that they saw bernanke as a potential friend going forward that they would be more difficult to control them. and with saying that, i applaud the obama group because i think that they made the best decision for the country because i think bernanke is going to be a tough sale going forward. he publicly stated that he didn't want to be the federal reserve chairman to oversee the second great depression, but that going forward means he also doesn't want to be -- i would logically imply that he doesn't want to be the fed chairman to

oversee the next great inflationary -- >> right. >> so is he going to be as easy to control? i think yesterday we saw this -- i think they had to give not for the equity markets, but this was a tribute to the quote/unquote bond vigilantes. because i think they were afraid of the ramifications to the bond market, especially with the chinese being vociferous about their views going forward here. so i think they took the high road and i applaud the obama administration for making a good choice here. >> yra, you have a good reputation in the bond markets down there. i was wondering, it's been a long and wild trip, really, to nowhere so far. we're back to where we were in september and october of last year versus many different currencies versus the dollar. what's your feeling going forward now? if something is heating up with the dollar, our thoughts is we haven't seen it yet. >> you know, kevin, that's a good point. i thought that the dollar would rally -- short-term rally here off the bernanke appointment.

as i look to see, money is fashist and it hates uncertainty. now we've removed some uncertainty. i do believe that they have a soft dollar policy. i think you hear it from larry summers. i think some of christine romer's speeches have the very nuance as we talk about a lower dollar. they would like to rebuild the industrial base of this country which is departed for further shores. and in order to do that, you must get a weaker dollar to re-establish weaker competitiveness. but i think they want a slow creep. they don't want this running away from them. in picking bernanke, i think that gives them some established credibility. if you're going to have a creeping lower dollar, at least

have somebody in charge who has been at the forefront. >> now, i don't think everybody agrees that their thoughts of bernanke were all truistic. what else could they have done others say, right? >> the bond vigilantes -- that's why i liked janet yellen because i think she's more balanced and has respect of the market. a few years ago when it needed to be hawkish, he was talking more hawkish, but she was quick to see that this economy was turning down faster than others thought and i thought that gave her a lot of credibility. >> these facilities that he built, though, yra, are taking longer to tear down, and most of it extended. so i think keeping the same guy that built them -- >> you would say the design has been graceful on some of those

tools? >> yeah, definitely. i had to catch up with the learning curve to see what they were attempting to do. >> i guess things deteriorate from here and everything goes belly up. at least obama can say, he was -- >> i don't think that's the outcome they're looking for. >> you're so mrlly crude. >> i'm just being real, keeping it radio el. >> that's very machevalian. but you know, we saw the talf extended. i've been a bernanke fan. i think he's done a good job bad hands. i laughed. when i read this, i thought, how do they get this so wrong? as a trader, you want to say, what did i miss here? so you go back and look at it. you look at bernanke, and i think going forward, he's going to be a much better chairman. once he got slapped with the aig, i was laughing saying, if you don't want to torture

yourself, every time selling of aig comes up in congressional territory, he has a pained look on his face. it's hard to watch it. he's pained by it. >> i loved the journal this morning, obama talked about why he kept him, because he's so calm, cool and selected. but this was yesterday when he was in martha's vineyard. this is testifying during the peak of the crisis. he looks exactly the same. i mean, he has some sort of supernatural -- >> i would have expect z to see some lines there. >> don't play poker with him. >> exactly, poker face. yra, thanks for your time. >> my pleasure. thanks. >> if you have any kents questions or comments about the show, e-mail us, squawk@cnbc.com. still ahead this morning, lots more to come. a man who knows the investment world very well, pimco's ceo, mohamed el-erian, an original "squawk box" -- i'm going to say it with the proper accent.

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would i be. if you're just waking up this morning, an american political good morning, alice. >> good morning and somber morning. i know you've been covering all of your hours on "squawk box."

however, for all waking up the liberal line of massachusetts ted kennedy died early at his home in hyannis port. he was diagnosed with a malignant brain tumor. he attended a vip luncheon at the capital and campaigned for barack obama. he returned to the senate february 9th for a crucial test vote on the economic stimulus package. a mainly force in national politics for almost 50 years edward kennedy today remembered by all as a passionate lawmaker who made a difference. he was 77 years old. back with more on "squawk box."

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futures relatively steady, a little below fair value. we did see some positive action in asia but europe has had some troubles getting out of the red this morning. when we come back a busy wednesday on "squawk." let's pop in on our boardroom and see what we find. andy, a reputation for speaking his mind today.

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to prepare for any attack. an political icon senator ted kennedy passes away at the age of 77 losing his battle with brain cancer, spending nearly a half century in the halls of congress, senator kennedy was a champion of health care reform, a well-known voice on civil rights and outspoken supporter of the american working class and the poor. >> work begins anew.

the hope rises again and the dream lives on. >> good morning, welcome back to "squawk box" on cnbc. i'm carl quintanilla. the liberal lion of the senate, now remembering ted kennedy. flag flying half-staff to honor his memory. john harwood here to talk more about his legacy politically and from a business standpoint. john, i guess for those waking up, bring us up to speed on the facts of the last 12 hours or so and what it means for the business world in the next few days and weeks. >> well, ted kennedy, of course, has served in the senate since his brother's administration since president in the 1960s. he's had an incredible stamp on a long range of legislation affecting american business, minimum wage, americans with disabilities act. he was instrumental in the

creation of osha, which many businesses came to hate over the decades. he helped to reform health care in a small way when big ways didn't work, improving the portability of health insurance. the kennedy castle balm bill, working with orrin hatch to create children's health insurance under clinton administration after hillary care collapsed in the early 1990s. he even during the 2008 campaign had a major influence on presidential politics, even though that was an ambition for himself that was thwarted. he settled into the senate. his endorsement of barack obama helped to tilt that primary campaign away from hillary clinton, help make obama president. he, of course, spoke at the democratic convention even though he'd already been diagnosed at that point with brain cancer and people knew it was a grave situation. he returned for barack obama's inauguration in januaryh a seizure during the inaugural

lunch at the capital, which, again, underscored the gravity of his situation. we've all been speculating over the last several months whether he would return to cast votes for health care, which he called the cause of his life. that, of course, did not happen. over the last few weeks, washington has been full of rumors about exactly what his situation was. a democratic leader in the senate told me a few weeks ago do not expect him to come back to cast any more votes. don't think he can travel. he can barely speak at this point. everyone has been watching but only the family knew what was doing on. the president during his vacation, carl, at martha's vineyard had been rum organization considering a visit. the fact it didn't happen, in fact, the white house knew how difficult that situation was. it simply wasn't possible. the news broke overnight when the kennedy family announced he had passed away. now there's a mourning period in washington that's going to go on for sometime because of the imprint that this man left on

american life, on the democratic party and on the causes that he believed in. >> what's interesting, john, was this health care debate by necessity will have to now operate in that period of mourning to some degree and people will wonder whether or not that changes the dynamic at least on the health care front. norah o'donnell in our last half hour made the point there really aren't too many senators, if any, who are able -- who had the standing and experience to walk into a room where a group of senators disagreed and basically small them around and say this is how we have to bridge this gap. two questions. do you think his participation would have made a difference in the health care debate so far and will the memory of his passing make a difference as congress reconvenes? >> that's very difficult to say. it's something i've been asking senators about for the last several weeks. i have to tell you that orrin hatch is somebody who has been described as a great friend of kennedy and they worked together for a great period of time. he said it would be different if ted kennedy were here.

i've asked mitch mcconnell nat republican leader, would health care be on a more bipartisan track if kennedy was here. i've also asked democratic leaders the same question, in both cases they say not really. ted kennedy was a liberal. he was a man of the left. he was -- he did have an instinct for the deal. when he couldn't get the biggest ambitions he wanted, he could reduce his sights and get something less. fundamentally the contours of this i don't think would be all that different if he were here. and i think the democrats will get a marginal boost from this but only marginal. >> that's for the insight. we'll talk to you more. john harwood in washington. mark continue to trade around the world, got decent action in asia. it's been mixed. mandy here with a look at the futures now. >> reporter: it has been mixed. we did get a rebound in asia and a pop in the shanghai.

let's look at the futures in the states. futures actually moved below fair values. could be slightly weaker start to trading day out here in the states. let's bring out the board and show you what's happening with crude oil, which you might remember after the bearish data, dropped two bucks a barrel. currently a little firmer, little the operative word, $2.19. as for the dollar, mixed, sitting around the 94 mark, dollar yen, sitting there unchanged a year ago slightly on the back but has just moved below the 143 mark. let's quickly take a look at top business stories as well. toyota will cut production as it tries to match current sales levels. world's largest automaker says total cuts could reach 700,000 vehicles or 7% of current production. elsewhere, u.s. investigators are looking into how 42 southwest airlines jets wound up with unauthorized parts.

the boeing 777 jets contained hinge fittings that weren't approved but don't pose an immediate safety issue. just in from the mortgage bankers association, rose 7.5 led by refinancing activity. that came even as the average 30 year mortgage rate increased. back to you, carl. >> mandy, thanks. see you back on set. guest host, randy kroszner, professor of economics at university of chicago's school of business. and barry. the chicago mafia joining us on set. great to see you, randy, welcome. we didn't plan this to have you here today with what bernanke diesterday but makes sense the first question your reaction to the news. >> incredibly good news. chairman bernanke has just done

a spectacular job of going through the incredibly tumultuous time we had. fortunate for someone to act boldly and respond to challenges that we really haven't seen in decades. >> now the question will be the characteristics of his second term. journal this morning, the op-ed page says sooner or later he'll have to say no to the political class, something he's never done, signs in china, edge of the dollar, asset bubbles. can he be as creative, efficient on the way out as he seems to be on the way in. >> yes. i think he definitely can be. he understands exactly how we got into the different programs. we structured the programs so a lot of them would naturally run off. he's very aware of the challenges of trying to get out. so i think he's the right person to face challenges as we got in and really the right person to

face challenges as we got out. >> you've been saying you've got a number of audiences here who are waiting to see this happen, one of them being the bond market. >> right. it's a real benefit to have randy here today because i think what could you say to the public, viewer, let alone the trader like me, doesn't really matter what i think, what is the fed going to attempt to do. not necessarily details of how, we'll do that but what's the objective here. that is the really important, simplistically as you might say. >> objective reestablish stability of the financial markets and economy overall, get on a sustainable growth path without reigniting inflation. and i think we're starting on the path there. we have seen no signs of inflation in the u.s. or abroad, really. and we're starting to see signs of stability and growth coming back. our current rate is probably remaining pretty elevated for a while. then taking liquidity back. what people haven't really

focused on is more than a trillion dollars of liquidity that was provided last year has actually run off. almost all of the short-term programs have come down quite a bit from where they were before. >> with all due respect, you make it sound so simple. this is how we do it. this is the nice end result we're going to get. we all know it's extraordinarily difficult. >> of course. >> bernanke, the depression, he knows a big double dip in the '30s because they got the exit strategy wrong, timing wrong, measures wrong, there's a risk that could happen this time, too. >> it's important. as you know, i had editorial op-ed in the "new york times" a couple weeks ago on exactly this issue, making sure we don't have immature exit from the stimulus. that's what the fed did in the 1930s. they were so concerned about the potential for inflation they ignored putting a crunch on the economy too early. the chairman is very aware.

so far we don't see signs of inflation. the chairman is reiterate -- >> do you think err on waiting too long. >> he doesn't want to err on either side. he wants to get it right and a strong commitment to do that. >> when do you think that might be. >> that's a difficult question. it's all going to be about forecast. it's not going to be about the data that has just come out or what's looking in the past. trying to make policy, the windshield rather than the rearview mirror. based on forecasts of recovery, forecasts of unemployment and forecasts of price pressures. right now we don't really see any of those price pressures, that's why the chairman and other members -- >> some might take issue of that. no signs of inflation. certainly if you trade oil, there are some signs of commodity inflation. >> there may be particular commodities but if you look at the broader commodity complex, it's down from where it was at a year and a half ago.

certainly there can be particulars that affect one market or another market but inflation is something overall -- >> the growth a year, year and a half ago. >> even as growth is falling off, remember oil prices were going up and up and up and roughly double where they are now. >> a little inside baseball, but i would say quickly lib or coming down 37, new lows. that's been the real success story of what the fed has done. now the new normal tarting to look a lot like the old normal. so how do you get out of these programs and still keep the system running at a little bit better rate. >> sure. no. it's important to remember there's a lot of monetary accommodation and government guarantees that have to come off. this is not a fed issue but a broader regulatory issue, not just u.s. but other countries. the way we structured a lot of the programs was to make sure as risk started coming down, people would not turn to the fed but

private markets for borrowing. that's what happened to commercial paper program and other programs. that's why when cramped up by a trillion and a half dollars, a trillion of that additional liquidity has come back down. of course some longer term asset purchases and those would be more of a challenge to manage. but for the short-term ones we've come down basically two-thirds of what we had gone up. >> can you think, are there any examples of policy implemented over the last year and a half where you disagreed, where you would have done something differently as governor? >> no. i think we had very, very good dialogues amongst the senior people at the fed. the chairman is someone who is very good on building consensus, making sure to get input from people. and so -- >> what would you say is the biggest -- if you had to pick one of the 11 programs, what would you say is the star? >> well, gosh.

it changed over time, because i think the commercial paper program at the time was incredibly important making sure the money markets could revive. now, of course, that program is not very important. but i think at the time it may have been the most important. >> a lot more with randy, kevin throughout the show. in the meantime, still have stuff coming up. >> we do have stuff coming up. also to solicit some comments or questions from the viewers if you've got any for us. do e-mail us as squawk@cnbc.com. our conversation with kevin ferry and randy kroszner. we'll welcome another voice, famed forecaster when "squawk box" comes right back. hey, it's great to see you're back after that accident. well...i couldn't have gotten by without aflac! is that different from health insurance? well yeah... ...aflac pays you cash to help with the bills that health insurance doesn't cover. really? well, if you're hurt and can't work, who's going to help pay for gas? ..the mortgage, all kinds of expenses? aflaccafcccc!

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there's the skyline, sun is rising over the city. uncertainty over ben bernanke's reappointment has been resolved, not end of strategy measures put in place to deal with the financial crisis. joining us, chief economist at bear stearns. thanks for joining the conversation. >> hi. >> we've been sitting here

drinking coffee and chewing the fed over, how he should do his job. what tips would you give ben with the job ahead of him. >> my view is that core inflation has not been a good cater of the impetus of monetary policy, so they should be thinking about a different way to get ahead of the inflation risk. one is the value of the dollar. if it's weakening, that means you're more generous with liquidity than the market needs. >> will it continue to weaken in your view? >> it's going to depend on chairman bernanke and president obama. if they are neglectful of the dollar, i think it will continue the weakening trend because that's self-fulfilling. as the dollar weakens, money moves out of the united states to australia, to asia to brazil. that makes the u.s. fundamentals worse. it's a reinforcing dynamic on

the weak side. the open question is whether the fed intends to stop that or just replay the whole -- >> is it in their interest to keep the dollar? >> huge issue is jobs in the u.s. we can't create jobs if the money goes out of the country the way it has been. oil, one daily barometer, oil is $73 a barrel. it doesn't make any sense, except in the context that you expect the dollar to keep collapsing. that's why people keep going into etf funds thinking they are going to make their fortune on oil. the feds should have an opinion on that and try to stop that. >> david, you said you don't like core cpi. i think that's a very excellent point. as randy said and mark darda at mk mulch was the first person years ago to say this, the fed is targeting a forecast. if you're not going to use core cpi, the fed would probably say

they are not, what would you steer by? what would your compass be? >> we had a recent example. in 2004 the dollar was weakening, gold was going up, oil going up, all those signals, market-based signals were telling feds to get off the measured -- remember, the fed at that time did measured height, which was a giant mistake. everyone kind of agrees on that now. at the time the indicators were correctly showing it yet the fed kept looking at the core pce deflator. which when it first came out before revisions was showing moderation. so every statement they would say inflation is moderate, we're continuing a measured rate hike policy. giant mistake every six weeks from the fed. what's going to be any different this time. core pce deflator is a lagging indicator. the fed can't use that, yet that seems to be the law of the land right now. >> randy, when you hear this kind of talk, do you think,

silly economy. >> there they go again. >> new york city it's exactly right. you have to look forward. you can't look backward. you try to look for indicators you have that have the most predictive power. core cpi does have some predictive power for overall inflation numbers. but as you said, there can be particular areas that there are more stresses, more particular movements. so i think it's important to look more broadly than just at any one indicator but look for pressures in different areas, whether labor market, commodities, growth in other areas. >> would you argue when it comes time to deal with this it's going to be a hit with the bank? we've heard gradualism will not work this time. >> i think it's very important to make sure to have the right policies that are appropriate for the way the economy is evolving. i'm not 100% sure how the economy will evolve so i don't

want to say definitely how it will work. we wan to move fairly boldly when we see there's stability in the economy, recovery. >> carl, the u.s. is sitting alone, pretty much alone in the world in using core inflation and not looking at the currency. if you're in england, if you' ae in asia, why are we getting bad results in u.s. interest rates. they go from 1%, 6% down to 0%. that should be evident there's something wrong with the technique the fed is using. i think it would be more stable, and it's what other countries use more, to say over the long run we want our currency to be relatively stable. it's not a peg. it's not a control -- >> they would need the cooperation of the powers that be around the world for that wouldn't they? >> no. the u.s. can have its currency stable against goods. it's a step towards price

stability in the u.s., which is the fed's mandate. >> i don't have the answer. here is the way -- this is what i think about every day. okay? our rates and the globe's rates, certainly in the industrialized world and china. the short end and long end are relatively the same. yet the currency transactions are extremely volatile and highly opinionated. if you were teaching in a school, you would say these currencies should be stable but they are not. there is something amiss here. >> very fickle, too. risk aversion, not really fundamental. >> absolutely. why show much interest rate parity cause so much foreign exchange disparity. >> the idea of a free floating exchange rate ignores it's inherently momentum-based. as the dollar gets weaker, pushes money out of the u.s. and u.s. fundamentals get worse. the fed hasn't really addressed that. they say exchange rate should

match fundamentals yet exchange controls and influences fundamentals. i think they have got to breakaway from the core inflation monitoring system and look more at currency stability as a long run value. for businesses in the u.s., we're going to provide 30 years from now euro is not going to  cost you $4 to buy a euro or $2,000 to buy an ounce of gold. >> i wish we had more time. we're not letting you off the hook. we're coming back around. >> we're letting david off the hook. he's too nice. david, thank you so much for joining us today. >> when we come back, the real story on the u.s. budget deficit, why it matters to you. would the bears will take that and use that to their advantage for the weeks to come. jim nestle will be our guest. always a good time with jim. we've been talking about oil relatively steady. we'll await inventory numbers.

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futures a little steam. a decent morning in asia. still a lot of to come, durables, five-year home auction, new sales.

top headlines this morning plus what's a few billion dollars among friends, u.s. lowering deficit forecast at least in the near term. what do the numbers really mean for the dollar, future of the economy. we will talk to omb director jim nussle who has been through this a couple of times when "squawk" continues.

to prepare for any attack. an news this morning the death of senator ted kennedy, a political icon, member of the senate since 1962. he lost his battle with brain cancer last night at 77. you're looking at a live shot of capitol hill this morning, flags flying at half-staff as you see here as much as the massachusetts state capital building in boston. senator kennedy was an early supporter of then presidential candidate barack obama. the president did release a statement. he said i value his wife counsel in the senate where regardless of events he had time for a new colleague. i cherished his momentous support for the presidency. i profited from his encouragement and wisdom. an important chapter in our history has come to an end. our country has lost a great leader, who picked up the torch of his fallen brothers and became the greatest united

states senator of our time. we think the president is going to make a statement on camera. we don't know if that's live or on paper but expecting something in the neighborhood of 8:30. >> indeed. let's look at what the markets are doing today. according to the futures, looks like a slightly weaker start to the trading day earlier this morning. they were flat, moved below fair value. we had a pretty negative start to the trading day in europe as well. standing by, peter cook, performance trust advisors, this morning randy kroszner, kevin ferry. peter, let me get to you first of all. looks like it might be a slightly down today at least at the start of trade. what do you reckon is the high, a bit of a pause because there's a run of late or is there something else to it. >> it could be a pause. we have had a great run as you say. the opening futures haven't been to indicative of what's been going on later in the day primarily because we've been

going up. whether the futures have been down or up prior to the start of the day. i think what's going on here is the housing market, which is what i'm very focused on, the reason is because it's the largest asset class we have here in the united states, it represents about 60 to 70% of the assets of the financial system here. so when we look at the bank stocks that have been going up so much over the last rally, we have to wonder why would that be. one of the reason is that prices have bottomed, it appears. there's indexes showing three years straight downs, prices bottoming and possibly stabilizing or going higher. that's important. one part of the logic that seems logical but isn't housing market can't improve until the labor market improves. that sounds factual but it's the other way around. typically housing markets rallies in the bottom of a recession send higher then we tend to see labor market improvement. i think that's what's going on

in the markets. >> do you think possibly there may be a hangover from deficit projections from yesterday. quite possible deficit reaction blowout yesterday but overshadowed by the bernanke bump? >> true enough. i don't think i can point to the budget as the reason the futures are down. they haven't been particularly reliable during this bull run where we tended to start low and go higher toward the end of the day. most bullish thing the market can do is close near the highs of the day. >> how about the durable goods orders. inventories have been torn down very harshly. i think some of the growth we're going to get has to come from replenishment. is the market going to be focusing on the number from durable goods also today? >> yes. that's very interesting. most people assume whatever recovery we're going to get is an l or u or w or something like that. if you look at the ism data, you see the v shaped recovery no one says is possible.

i would expect to see continued improvement in the durable goods data as inventories as you say are reb they were drawn down for two reasons, one sales dropped off a cliff, second banks wouldn't finance them. cross border trades interrupted by financial problems. i would expect to continue to see a rise in the manufacturing sector associated. we're already seeing that, no longer a series. v shape has occurred when it comes to ism. >> quickly, how would you trade today's markets? >> look, in the short run anything can happen. we're quite overbought. markets are looking a little tired. even bank index, lead hasn't done well, open higher or gone lower. that's what you see right before you see a rollover. the important point to say, i still look at downside s&p, 950 to 960 and upside near 1200. we're in a market where pullbacks are to be bought rather than rallies to be

shorted. >> thanks. the white house says u.s. economy is in worse shape than they first thought. office of management and budget says the deficit will climb to $9 trillion over the next decade. $2 trillion more than they estimated. also economy is expected to shrink by 2.8% this year before rebounding next year. they revised numbers on unemployment peaking. jim nussle, chairman of the nussle group, strategic consulting firm. good to see you again. >> good morning. >> some people writing in. just made this point, numbers come out, mid session review, bond markets yawns, yield below three five, equity market continues. what's the big deal? >> there's no question the economy -- people understood this was happening. for the white house to say they didn't understand the economy was this bad, they were claiming the greatest depression in all human kind. i don't know how much worse they could think it was.

most of this is baked into the market. i think there are flee factors they are not taking into consideration that are important. number one, health care is not going to be paid for. there isn't a bill in congress that's offset and fully paid for in there. >> they will say you've got to spend money to save money, jim. >> that's not what the president said in the state of the union and his budget, he said he would not accept a health bill that wasn't aid for. second he put tax increases into this budget and democrats in congress, let alone the republicans, are saying we're not going to increase taxes during a recession. third he assumes that congress at some point in time is going to turn off the faucet and stop spending. well, i've been in congress, i've watched washington, many of us have. congress doesn't just naturally turn off the faucet of spending. those are three big things baked into these assumptions i don't think will happen. >> the u.s. can't afford to overhaul the health care system? >> i'm not saying that. what the president said if we're going to reform health care it needs to be fully offset.

so far congress is not demonstrating any ability let alone to reform it but do it in an offsetting dollar for dollar way. that's what's baked into deficit projections. they are probably in the long-term probably lower than really where it's going to end up, particularly if this health care debate continues to move the way the congress is hoping that it moves? >> so when do you think bond vigilantes fares, bonds use that card. they have held it back so far. when is the straw that breaks the camel's back. >> you're starting to see it, as you referred to before, some are starting to wake up to it. some refusing to acknowledge it. warren buffett with his op-ed recently signaling there's a real concern about this uncharted fiscal waters that we're in right now. this is just three weeks ago

when i was on your program as a guest host we interviewed him and he wasn't concerned. so just within the last two or three weeks seeing some of these numbers, see some of these projections and seeing what the health care debate is doing, i think people are starting to wake up to that. i would be concerned about that in the near term. >> we're here with kevin ferry who works markets in chicago and former fed governor randy kroszner. >> i was just going to say, if everyone can agree on both sides of the aisle this is not a good thing, how come we can't get anything done about it? what does it take to initiate something more responsible, to put this in a perspective. no economy anywhere in the world has been able to -- and i'm more concerned about current than budget deficits, they are come insi -- coinciding, has agreed with the percentages we're going to get.

what's it going to take to get people to stand up when everyone involved in the process knows it's unsustainable? >> my answer would be in the politicians are listening to their constituents at home right now telling them they don't want a government takeover, that they do want health care reform but not a public option, if they listen to that and come back to washington in september and they work together and are willing to start with some of those basic principles that the market forces can have a controlling impact on health care reform. the individuals has been the missing link. not the link that has to be continuously removed, not the missing link, people will probably see a different atmosphere. that doesn't appear to be yet at least what they are saying as they are talking about coming back to washington in september. >> randy, some wish that the chairman speech at jackson hole would be a little tougher, they would try to talk some sense at least on the fiscal part.

>> it's incredibly important to have a good fiscal responsibility going forward because it makes the fed job much more difficult. if there's a lot of fiscal stimulus coming out and the economy starts to come back in 2010, is that sustainable economic recovery or short-term stimulus. the exit strategy much more difficult. >> seems to be an awful lot of you did it, no, you did it. who inherited what. where do you think most of the blame should lie with the deficit? >> blaming people is not the right thing to do. >> the administration is saying we inherited this mess. >> there's certainly a lot of spending now and a lot of spending commitments going forward. look at the budget projections. they are quite astonishing. said this is not a sustainable path in the long run, something has to change. >> waited for a mid session

review, finally came out on a day where the fed chairman was nominated, was that intentional? >> no question. >> first they planned it with bernanke. of course it was not a surprise. it was a very intentional. this is terrible news. this the reason why the president continues to say to all the people around him, they inherited this, they inherited this. they want to get that point across. what they inherited was a will chaening. they made the challenge worse, i would argue, putting policies in place, overspending in particular. some policies proposing with regard to health care may make it worse. that's the concern we should have today not so much about who is to blame. that's a washington game that will continue no matter what. >> the forecast from ten years ago were wrong. >> yeah. >> do you have any faith this ten-year forecast is going to be any closer to the mark? >> no. i'm not convinced that's what you should focus on. what you should focus on is

trend lines. trend lines now particularly given variables out there, such as health care, taxes, overspending, the variable sends that trend line higher, not lower in my estimation and that's a concern. >> good to see you, jim. >> good to see. >> when we promoed people said when is nussle going to be on. good to see you. >> coming up, critical hearing today. the outcome could change the game when it comes to private equity firms bailing out failed banks. controller of the currency who was also a board member will be joining us next. first let's check out the dollar. the dollar/yen, 94. year ago it was above 143 very early this morning. a little lower 1.4264. um bill-- why is dick butkus here? i hired him to speak.

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the dow is up six straight if you can believe that, the highest level since november. we'll see if that comes to an end. futures are lower despite positive trading in asia. as it was appointed out in the last few minutes, futures haven't always been, at least

lately, a great barometer of how the market will end the day. >> absolutely right. quite a lot of hours before we end the trading day. nci meets to discuss rules for investing in failed banks. 81 u.s. banks shutting their doors, private equity firms see plenty of opportunity if rules are relaxed. joining us john dugan, director of the fdic. if i'm not wrong sometime after the interview you're going to vote whether to relax rules on whether or not private investment account. can i be cheeky and ask how you vote? >> you can but i'm not going to answer of the meeting is this afternoon. i have to look at the final details to see if i can support the rule. >> what's your general feeling so far? >> the issue here is the more

private equity bidders coin and bid for failed banks the less the taxpayer may be on the hook and less the fdic fund has to pay. that's a good thing. on the other hand we want to make sure these buyers bring the same kind of commitment to these new -- buying these failed banks as traditional banks would be when they buy them. we're trying to strike the balance correctly with rules that make sure they are committed but also make sure that they bid on these things. i think the proposed rule went too far was too stringent and would defer them bidding. we'll see if the balance is right. i hope it will be and i hope i can support it. >> famed invest per here on cnbc said he would never invest again unless the rules are down.

if the rules don't get loosened up you'll see private equity investors say forts it. >> that's the issue. the original risk as proposed ran that risk significantly. i think the new rule, it's appropriate to have rules for private investors because they are different. they can't be so strict they don't come to the table. it's getting that balance right this is all about. we're working hard to get to that place. >> john, great to see you. >> hi, randy. >> as you know, last year the fed put up rules, policy statement to clarify rules for private equity. were there any particular challenges or problems with the rules that had been put out last year this need to be fixed? >> no, i don't think that's the issue. i think actually those were quite positive. what the fed did made it so more private equity bidders come to the table not just for failed banks but for healthy banks. i think that's all the temperature good, rich source of private capital, new capital

coming into the system. the issue with failed banks, as these new private equity bidders come in with greater interest, do they get different rules applied on top of what the federal reserve already does of that's one of my concerns. we do worry we do have a regime that addresses a number of things at the federal reserve. i do worry about redundancies and duplication. we do have to make sure we have the balance right as they did for failed banks. >> john, what's the fdic, $13 billion? >> that's what their reserve balance is after they project for losses over time. that's right. >> how low can that get without the general public to the degree they are watching this starting to freak out? >> i think congress did a wise thing, they requested fdic, which the board members onsupported, they expanded the

line of credit. >> with treasury. >> to call on in case we need to dip below a zero fund balance. that's always there. we hope not to get there. there are special assessments levied on the industry to keep the fund balance up. over time we may have to dip below zero at some point. if we do that line of treasury makes sure that the fund is always capitalized and there for deposit. >> having the dollar there is one thing, i'm talking more the psychological impact on people who will begin to wonder if not fear about the security of their deposit. >> i don't think that's clear. i think in fact during the late 1980s and '90s, the fund dipped below zero and no one paid attention toyota. the fact is as long as the guarantee is good that 100% of your insured deposits are dollar good by the federal government, however they get the money, i think that's the most important thing. sure it's better not to dip below zero but i think we don't know really what would happen if we get there again. >> isn't it dangerous to keep

raising the amount of insurance they cover these -- the hurricane ivan is pretty consistent that raising deposit insurance causes banks to be more risky, if you will. so isn't raising these limits, shouldn't they cap that or stop it out and then get private equity therein? >> i think deposit insurance, congress sets those, as you know. the limit is at $250,000 right now. for transaction accounts, that is checking accounts and the like, there is an unlimited guarantee for those institutions that choose to opt into that system. that has been incredibly important during this financial crisis so that people have the confidence to keep their deposits in banks. i've been very supportive of deposit insurance at the current kompbl limits. one of the issues today will be whether to extend that transaction account or checking account deposit insurance limit. i think that's a good thing personally. >> john, thank you so much for

your thoughts today. >> happy to be here. >> still ahead, two political parties, two congressmen, more than a few stories that mean a lot to your money. we'll talk health care, economy, senator kennedy and more when we continue on "squawk."

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some stocks to watch. take a look at williams-sonoma,

retailers coming out with earnings, $0.05, reuters looking for a $0.09. lesson to this, kevin, down 15.3, a little learn expected, street looking for 17.5 on the negative side. guide comps down 8 to 13 guiding full year comps down 12 to 15. a lot of retailers, we had staples on yesterday, cfo, who has a hard time finding something positive to say about the consumer in the market. >> it's tough. this is a good company. across middle america, a lot of different -- i think this is the real deal here. you can talk about recovery, but you've got to pull in the driveway and feel like there's a recovery before you are going to see it in the numbers. these companies doing a good job of letting people know. you've heard don cass an i talk about this for a while. there is a widening gap between

the stock market and economy. it used to be one for one. it's not anymore. you've got to deal with it. when people say the stock market is up, what they are really hearing is things are better. and you have to broaden view out a little bit. the people running these companies know it's just -- it just ain't so. >> you hopeful for the consumer, randy? >> that's the big question going forward. that's the key thing whether we have v-shaped recovery or l-shaped. the savings rate yoob to be zero, now we're up 6%. will it stay there. do consumers want to save more because they are uncertain or are they happy with where they are? if they are happy where where they are, things stabilize, strong economic growth fairly rapidly. but consumers hold the purse strings pretty tightly as they might recently do given what's happened over the last couple of years, that's going to be more of a challenge.

>> americans should shop. >> shop responsibly and not on plastic. >> not all bad. good news, branding and whatnot used to be called generic. >> private label. >> private label branding, those things are picking up the slack. you might not see it where you think you'll see it. >> coming up after the short break, senator ted kennedy carried the torch for health care reform and the battle has never been more fierce. next hour congressmen from both sides of the aisle debating america's health care crisis and the budget. police mohammed el-erian, runs the largest bond fund in an equity market too hot for its own good. all coming up on cnbc. fidelity, traders learn from the pros. say you want to backtest an entire portfolio of stocks. market experts show you how through fidelity's extensive trading knowledge center.

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political icon senator ted kennedy passes away at the age of 77 losing his battle with brain cancer, spending nearly a half century in the halls of congress. the senator was a champion of health care reform, a well-known voice on civil rights and outspoken supporter of the

american working class and the poor. >> the work goes on. the cause endures. the hope still lives, and the dream shall never die. >> good morning and welcome back to "squawk box" here on cnn. i'm carl quintanilla. he's been called the liberal line of the senate. now the country is remembering senator ted kennedy. we're expecting a live statement from the president on the death of senator kennedy. about a half hour's time, mandy, we've been spending the morning talking about his legacy not just politically but what it's done for and some would argue against the business world. we'll talk more about his passing even as the markets continue to trade. we've got a lot of other issues on the table. >> we certainly do have a lot of issues. let's get you set up for the trading day. let's bring up the board for the future. they were looking slack, fell below fair value, a bit of a pause from the winning streak. oil prices did see a big drop

after bearish crude data, saw prices jump in crude stock. we did a more than $2 drop below the ten-month high we hit in yesterday's session. at this stage sitting below $72 dropping further by 22 spents to 71.81. as for the dollar, check in on that stronger against the dollars, euro dollar $1.43. unchanged against japanese currency. also now check in on some of the top business stories. toyota will cut production as it tries to match capacity to current sales levels. the world's largest automakers says total cuts could reach 700,000 vehicles or 7% of current production. u.s. investigators are looking into how 42 southwest airlines jets wound up with unauthorized parts installed. that's according to the "wall street journal" of the paper says boeing 737 jets had hinge

fittings not approved for use but don't pose an immediate safety issue. mortgages rose due to refinance activity. they say that came as average 30-year mortgage increased nine points to 5.4%. let's get more with our guest host. gentlemen, thanks very much for staying with us. we've had quite a lot of economic data coming out recently yesterday, better than expected consumer sentiments, talking about what consumers are doing. the biggest question is whether or not that increase is actually going to translate into an increase in spending. >> i'm wary of using that sentiment cater saying too much about what consumers are going to do. it tends to be very, very volatile, not have a lot of predictive power in it. i think it's useful. i think it's more telling about the past rather than telling us about the future. >> what do you think actually pushed forward, a temporary

programs like cash for clunkers, tax rebates, buying homes. all these things are great while they last but after that what happens? >> sure. some things like stock market moving up make people more comfortable. that's more telling about what's going to happen in the past than the future. we walk into this building every day. immediately we hear there are no signs of inflation, right? home prices are moderating. confidence improving, rally continues. someone walks in prime mortgage going to be a problem, commercial real estate a problem, inflation will come. do you think the rifbs right now relative to the signs of stabilization that we're seeing, which is the heavier? >> i think we've got to get economic stabilization together. we're still in a fragile situation. i think we're seeing lots of signs of recovery and could get a strong recovery. but fortunately i don't think we're seeing broad signs of

inflation. there are particular markets like the oil market moving up. >> is growth for the third quarter being overstated or understated do you think? >> i think we're going to have positive economic growth but unemployment elevated. the earlier question about spending, it will be a high unemployment and persistent unemployment. it's going to be difficult to get the consumer really -- >> what's your number for q3? where does joblessness peak? >> you have a view. >> jobless peak sometime next year probably getting close to double digits, maybe even breaking double digits temporarily. we're still losing jobs. a few excited we weren't losing them at the same pace as before. we're still losing jobs, which is not a good thing for spending. likely to see growth in the second half of this year and through next year. as you can see, fairly robust

for next year. broadly in line with cpo of the white house and fmc have put out. >> the big thing i would add what you were saying about mortgage aps up, corporate ceos, issuance high in the doldrums, people with stock market up are starting to apply even at the higher rate. that tells me one thing, they don't think the low interest rate environment is here to stay so they are acting upon it. in fact, as people move away from that, whether it's confidence or stock market or whatever, you push in the marginal borrower because they want to borrow instead of wait. like cash for clunkers, a lot of it is time oriented as opposed to economic cycle oriented. >> this is a very important point. in some sense what happens with these things like cash for clunkers, everyone bought cars recently. that means over the next few

months they will buy fewer cars because so many people bought now that would have bought later. a lot of programs manipulating things over short periods of time. >> are you arguing for cash for clunkers or against it? >> i think it has certainly been helpful for the auto industry, and i think broadly to try to get some of the polluting cars off the street makes sense. we'll have to see in the long run whether it had a good cost benefit ratio. ultimately people are going to buy so many cars. it's better to have them buy a few more now than two years. >> instead of robbing peter to pay paul. >> that's a very important point. when you think of fiscal stimulus. it's not a free lunch out there. someone is going to have to pay eventually. we're talking about large deficits coming. it can be helpful to prevent complete calamity to provide a little more support for demand now but it ain't free. >> a little bit different. the congress, the fed says, rates are going to be down here

for a while. corporations and borrowers don't believe them. >> maybe it takes the pressure off the feds to have to raise the rate if the market is already adjusting in other areas? >> that's a good point, the market is adjusting but pushes back against the adjustment. that's the whole ball of wax right now. sometime soon those two theories are doing to have to bump up against each other. >> it's all an expectations game, what people perceive is going to happen, what the fed perceives is going to happen. that makes it a very, very interesting ball game and one that's very difficult to predict. >> brings us to one of the criticisms of the chairman. yesterday people were issuing their own opinions here, on the web. one of them is that he is more interested in financial asset inflation than he should be. even without realizing inflation, financial asset inflation resulting in capital. displays wall street, one crude way to put it.

any part of that fair? >> that's quite unfair. obviously if financial wealth going up, that affects confidence and consumption, going down affects confidence and consumption. you can't ignore that it would be irresponsible to do so. the models at the fed, look at the consequences for consumers. obviously there's been consequences beyond traditional ones in terms of confidence. if he didn't look at that, i think that would be irresponsible. i don't think there's an excess of hope. >> i don't think they will kick it out completely as far as assets, inflation, they will put it in the mix. most market participants had it in the mix anyway. it doesn't matter. you can lean against this tide all you want. oil is high, we have a recession. it's still a great predictor. now people have a different tack about oil. don't watch the shape of the yield curve, price of oil, those are the real long-term good

indicators about what's going on in the world. >> everyone has a different view. where do you think fundamentally oil should be? >> we don't have enough of it to dictate the price, so i'm just glad we traded it off. that's the real anomaly of that. at least wets to weigh in on the conversation. the idea of limiting people or speculators in that conversation i think is a huge mistake. so i think you have to take that into consideration. i think you should see across all commodities, oil at the top, is that the base of this turnaround is going to be markedly higher than the base of commodity levels of prior troughs. this was a major trough. the prices of things are not going down to where they were before. so something higher than what we see but not 40, 20, forget about it. >> i can't imagine you think oil is trading rationally now with global demand falling.

>> right. >> it's going from the 30s to 70s. does that make sense to you? even in the context of a financial asset as opposed to industrial commodity and a half it's very difficult to predict these things. i don't have a view of what the fundamental price of oil should be now. i think there are a lot of people in the market trying to make bets about supply and demand. as you know, if you look forward, a lot of constraints on supply that's not the investment going on in mexico and gulf region. so we can see there are a lot of supply constraints when the economy does finally turn around. >> excellent point. some people say skyrocket through the roof, people cut back capacity so much. >> haven't been doing investments. >> exactly. making investments, facilities idle, during the crisis. >> look at mexico. they have these incredible resources that have just been wasting away, not doing investments necessary. >> long-term thing about oil, people ask what the price is going to be but they are asking

in the wrong unit. they assume it's going to be a dollar. >> good point. >> as opposed to other things. >> we have to leave. randy and kevin back to you with more thoughts in a moment. >> meantime coming up, economic news coming, durable goods for the month of july. in about 19 minute at 8:30 a.m. eastern time. then senator ted kennedy remembered as a champion of health care reform. that's an issue that has divided congress. it has a lot of taxpayers lark out. we'll talk about that with congressman greg meeks, republican congressman judd hensarling. some eye popping budget figures. 

i'm looking forward to being a foot soldier in this undertaking. this time we will not fail. >> senator ted kennedy back in march at a health care summit. the senator was a champion of this issue on capitol hill. now health care reform, of course, as you know at this crossroads joining us with their perspective. congressman meeks and hensarling, members of the

budget committees and congressional oversight panel. gentlemen, good morning to you both. it's tough to hear that sound. he did see himself playing a role. some are asking this morning, is there a way his memory can play a role in the weeks to come? >> i think his memory definitely will. this is his life's mission. as he said, we will not fail. i think president obama said that last week, that we will pass a health care reform bill. and i would hope this would cause individuals, especially on the senate side, as well as the house, to sit down like never before to try to make sure we pass a bill in a bipartisan way and do it in short order so we can get it done before the end of the year. i think that would be a fitting tribute to senator ted kennedy. >> congressman hensarling, there is a lot of emotion surrounding it but politicians are pragmati pragmatists, right? we're coming out of a period

where town halls have been toxic. does he have a point, can that happen? >> at the end of the day, certainly people honor senator ted kennedy for all his work. he was very passionate. it's a democracy, the voice of the people have been heard quite loudly. the government get in between them and their doctor. they are concerned about the rationing of health care. i share with my friend i hope we can work on a bipartisan basis and fix those things that are wrong in the system. the uninsured, those who have pre-existing conditions, lawsuit abuse, driving up the cost of health care. there are problems that have to be solved. but to have fruit basket turnover over a system where 75 to 80% of americans enjoy and want to keep the health care they have, i don't believe that's in the cards if anybody is listening to the american people regardless of people's leadership, legacy and passion.

>> i don't see you saying if the senator had been part of this process the debate would look much different than it does right now. >> i don't really know the answer to that question. i hope that at the end of the day that people vote their conscious, vote their principles, vet what's going to help people get the health care they need when they need it at a price they can afford. for most american people that's not the canadian people, uk system where ultimately people are denied coverage, treatments too expensive, people too old. that's the path i see the legislation of the democrats going down. i don't think that's what the american people want. i don't think it's helpful. >> congressman meeks, i'm wondering, who do you think will pick up the mantle from senator kennedy. who in this health care debate might be as passionate and strong a voice. >> a number of individuals on the senate side. already been moving by the speaker on the house side. when lou at senator dodd, for

example, now chairman of the health committee, they understand the commitment and legacy which they have to look up to. one of the things i want to make sure that we get straight here, i wish people would really read the bill. i hear what my colleague is saying. if you read the bill, you understand this helps individuals with health care. many who don't have health care now. many who are working poor. but their employer can't afford to give them health care. incentives for small business toss make sure their employees are healthier. what we're looking to do is not to perhaps talk about fear mongering because people will not lose health insurance they currently have. if they have health insurance now and like that insurance carrier, nothing will change for them. so i hope, folks, stop playing to put fear in individuals with regard to what's going to take place. let's look at the bill and take it for the facts contained therein and i think we'll be moving in the right direction. >> that's exactly what's

happening. people all over america are reading this bichlt they are reading about the 53 new beaurocracies and commissions and programs to get between them and their doctors. they are reading as part of the bill in five years they can no longer buy private health insurance, 8% tax on small businesses which could cost us millions of jobs. they are reading the bill. that's why support -- >> that's not in the bill. that's why last night i had a health care town meeting where individuals came out strongly. if you go out across america and talk to them, very strongly we finally need, at the point where the camera of history is rolling, we have an opportunity to pass a meaningful health care reform and we will not let it fail this time. we're not going to allow politics to derail us. as the senator from south carolina had indicated, we want to make this president obama's waterloo. that's not talking about meaningful health care reform, that's talking about politics, utilizing an issue, changing the

fact, this outfit, disapproved, editorial board of the "washington post," "new york times," go from paper to paper, hospital administration when they have talked, a lot of the things put out there are myths. we're trying to bring forth the facts so the american people will see through the myths and to what the facts are in this matter. >> they may well -- congressman meeks they may well read the bill but may also read reports of the deficit which came out yesterday. i wonder if you think at these town halls part of the anger may not be so much about government beaurocracy or effectiveness of medicare but the fact we may have a $9 trillion deficit over the next decade of that's a whole other issue than health care. polls show deficits are a bigger concern than economic recovery at this point. >> yes. what we're looking to do for example we did pass in the house, a pay as you go bill. when you look at the health care reform bill, there's money

that's really set aside in the pay go bill, pay for half, talk about how we can pay for it going forward. individuals are now talking about a deficit and how it is so important. it's somewhat disingenuous in my estimation because that deficit was building up over a whole eight-year period. it didn't just happen overnight. what we have to do sometimes, short-term pain for long-term gain. the process is trying to correct some of the problems we've had over the last eight years which we have been been trying to do in the last eight months is going to take some time. maybe short-term pain but only for long-term gain. >> if i could hop in here to speak of something disengine with us, when republicans were in majority and deficits in the $3 million range, speaker pelosi said it was immoral to heap these debts and deficits on children. the house majority leader said it was fiscal child abuse to have a $300 billion deficit.

now that the democrats have increased it ten fold under their watch, we have the largest deficit in the history of the nation. three times the record. democrats are singing k. >> the ceo talked about going forward, the fiscal situation not sustainable. i want to put it in the broader context, how do we deal with the trajectory going forward. certainly in a difficult position now. let's not go with the blame game. let's deal going forward. how best to do that. white house and ceo have eye popping deficits going forward. >> first of all meaningful reform of entitlement spending. and republicans attempted to reform the social security program, which frankly is light lifting and not one democrat came to help.

the second thing we ought to do is not pass this huge socialization national takeover of our health care program which cbo itself says will not bend the cost curve, will cost a minimum of a trillion dollars and at least a quarter of a trillion dollars to the national debt. so what the democrats are doing is trying to make it worse. >> last word, congressman meeks, we've got to go. >> one of the things we have to get ahold of is the cost of health care. it continues to escalate. if we do nothing, the cost of health care will continue to rise. what we're doing here now is getting control of the cost of health care so the price will go down in the long run and it will bring the deficit down. >> thank you for that. we've got data on the way so we've got data on the way so thank you for your time, thank you for your time, ring the lexus golden opportunity sales event, you can do both. special lease offers now available on the 2009 is 250.

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we have some breaking news today as durable goods for july, rick santelli here. we have also have former governor randy kroszner. >> we're looking at 3.0 headline, 0.9 transport, a lot of attention to inventories because they have fallen six months in a row. the number is, waiting -- >> 4.9, that's really hot.

0.8, transport, tiny bit less than expected. hot number on the headline doing a number for equities. they have rallied alt bit in the 30 minutes before the number. futures up 2.5 point as you would expect. ten-year hit a little bit. it is off six ticks in the last 30 minutes. as you would expect, pay attention to inventories. as you said earlier, see if this is a largely inventory build. nepts off six months in a row before this. and you know what, equities are backing off a little bit. still look to be unchanged but a little higher on the day. >> what do you reckon, kevin, what's your instant reaction here? >> i'm going to say something terrible. extremely volatile series. looking for .8 extraneous in there. it's not a good number.

we'll see. the bond only going down 6.6 is a good performance, see how long that holds up. >> the right thing to be focusing on is transportation. so many things we're talking about, cash for clunkers, things from the airlines industry. so here to look at that number. it's solid, pask lip people expect it to be but not a wow. >> june minus 2.2 to 23 rick. >> that's what i was going to ask scott, any major revisions when you take out trends from last month. >> ex transports from july, july got a little bit in cash for clunkers. but in june, airline orders off almost 40%. so some of that is coming back. >> steve liesman, capital goods ex-aircraft. >> capital spending.

it's the one red part. >> scott, i'm in your camp. mr. kudlow has given me a lot of grief because he doesn't want to dig down on this one. inventory cycles worldwide are going to make trying to discern is there going to be -- the ability of the economic pump to spew some good economic activity beyond the priming, because building inventories, whether what china thinks in their stock buying and commodities or filling the shelves in this country, the real question is going to get the bump in gdp. a great editorial how that's going to happen. numbers reaching the bottom. ultimately are we going to buy what's on the shelves? are we going to buy the cars that are going to be in the lots. that's two, three colors down the road. that is the whole game in my opinion. >> we know that the bump that the first notice we get things are turning around is not going to be employment. we saw that in earnings cycle. missing on the top line beating on the bottom line, not hiring

people, laying people off. they are going to be loathe to turn that around in a hurry. build inventory and that is an indication that businesses expect things to get better but not committed to hiring people. this is where we're going to see the economy turn around as opposed to employment, i think. >> can we just see what dollar yen is doing, getting flashes it climbed to a high, japanese yen on the u.s. durable goods order. >> around 94.25 before the numbers. >> this drop scares me. any time chicago guys outnumber us, that's frightening. what's next? >> maybe we could work on pulling a few strings to get cubbies in the series. >> durable goods were higher my friend. >> don't do a joe on me now, come on. >> rick, say sausage pizza. >> all right, guys. we'll wrap it up.

>> rick and scott, thank you very much. auction action every friday night new time 8:30 p.m. eastern time. carl. >> nice job. still be okay that kid. right? our next guest defined ben bernanke's term as crisis management. ceo mohammed el-erian as she says. >> he's anglo sized it. >> talk about markets, feds and beyond that next on "squawk." as we go to break, take a look at futures. we've been swinging between a 40-point range here in the last, i don't know, 12 minutes. we'll see what happens later on today as those durable numbers, again, 4.9 joins july '07 with positive revisions in june. we'll be right back. it's quiet on the home front-- not a lot of activity. you read the news.

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futures have given a brief gain in the wake of that durable number. 4.9, .8 ex transportation. kevin ferry talking about how good news, mildly good news hasn't been roundly applauded by markets. at least not for a period of time. >> it's been consistent since the morning session. i would say the only thing, this is what they used to call junior

trader week anyway. >> apology to all traders watching now. >> you have to mellow it out a little bit. it's not the best way to make broad judgments. it's probably one fluency the market is waffling back and forth. >> there has been a lot of news. in fact our next guest is a regular "squawk" rebel icon, we've never been able to decide which he is, newport beach mohammed el-erian, pimco ceo. mohammed, always good to see you. good morning. >> good morning, carl. >> a good piece talking about bernanke's to do list. he'll have a lot on his plate in the second term. >> no kidding. his first term was all about crisis management. his second term, in addition to his day job, has he to deal with at least four big issues. we as investors or traders,

since we're here this week, are going to look at this very closely. has he to figure out the how and when of exiting from all the unconventional policies. secondly he's going to have to defend the institutional integrity of the fed that's going to be a lot of political interest in reducing the powers of the fed. thirdly he's going to have to revamp the operational components of the fed to make sure they take into account asset prices. and finally he's going to be very involved in crisis prevention. has he a huge to do list for the second term. >> randy kroszner is with us. i'm sure he has thoughts on this. >> the first exit strategy, the fed hasn't got enough credit for the shrinkage that's occurred in the balance sheet. as you well know, a lot of short-term projects ballooned up

to $3 electrical, almost a third of that run off already because of the way it's struck structured. a lot has come back, even with purchase of longer-term assets. don't you think a fair amount has occurred. >> i think there are certain facilities that unwind, cpff is an example of that. there are others like the mortgage market where it will be very difficult for the fed to exit any time soon. and having a large non-commercial player in the market changes the dynamic of the market as you know. so i think all of us as investors are going to have to keep an eye on the role of the fed. i keep on saying it's one thing when referee is referee and player. in certain markets government a little have been referees and players so it makes a difference for investors. >> huge debate how we get the market off the prolonged sugar

high as you put it yourself, mohammed, back the u.s. bull market for equities won't last, on a long sugar high. problem is everybody eating candy. what's your prognosis in terms of when the candy is going to be taken away, what will happen, you know, what kind of impact it's going to have on the market. >> i use sugar high because i live it every once in a while with my daughter. there's certain things you know about sugar highs. you know what causes them. you know they last for a while and certain type of behavior. what you don't know is when does the child come off the sugar high. i think what we have in the market right now is a sugar high that's been driven by a couple of things. first, positive numbers, i completely agree with rick, what we're seeing is the impact of inventory cycle. not whether we're going to get a bump, we will. it's whether we got a hand-off, private components. there's a huge question mark on

that. second, tremendous amount of liquidity on the sideline. a lot of people miss the rally and entering late in the really. we know why we've gotten the sugar high. the question is can we sustain it. in order to sustain it, a continuous injection of sugar, good news -- >> that's not likely. we're talking about taking it away, not keeping it. >> next few days, consumption, personal income, later on retail sale numbers and employment numbers, those are critical data. it's going to determine how long we stay on the sugar high. >> mohammed, the other thing i liked in your piece, it's actually easy for the globe to work together when things are going bad universally. but maybe you could speak to the fact it's going to be more difficult as central banks have to go on divergent policies when

they have to look from a domestic instead of glbl. >> we've been talking a lot on the investment committee, how do we reconcile rhetoric coming out of signal banks is different. if you look at rhetoric at bank of england and what the bank did. they are concerned, continuously concerned and expanding unconventional policies. in the u.s. you get very different rhetoric going on. part of all this is that the level of international coordination that we had has started to be eroded. we have a g-20 meeting coming up in a month's time. we have -- this is a meeting of world leaders in pittsburgh. we have a prior meeting of ministers of finance of central bank and there's very little discussion, let alone excitement about this gathering. you need global coordination to make sure we continue to -- >> maybe because time and time again, a lot of these big

meetings, g-7 or g-20 or god knows how many countries are getting together, they don't actually come out with concrete stuff. >> but london was an important thing. london said g-20 is it. this is now what is at the center of the multi-lateral system. g-7 is outdated, doesn't include china, india, and other bodies are also not as effective. and to see this coming meeting is loud to lapse is an issue. i hope in the next few weeks we jump-start this process. >> i would use your term to the bank of england directly. if you're going to be a player and regulator, you don't win, then if you're the referee and the player and you can't win, then you've got a real problem on your hands. certainly i think our fed has done a better job to say we are going to get out of qe first and use other facilities to keep the system working the best we can.

>> mohammed a couple of quick crude market questions before we run out of time. back on july 28th, headlines ran that said, as you know, el-erian said stock rally won't continue with lack of revenue. el-erian selling into corporate bond equity rally. is that still happening? do you think markets have hit their high for the year? >> we position ourselves more cautiously. we think at these levels risk assets of pricing a lot of good news, not just about fiscal stimulus, not just about inventory bounce but also about the hand off to private demand, which is much more uncertain. we have taken the opportunity of the rallying to position ourselves more cautiously and higher quality assets around the world. if and when the selloff comes, which we expect will probably happen, then we'll be in a position to take advantage of better values. but i think right now, asset prices reflect a lot about this

third handoff into final demand which simply we're not picking up. >> you're not willing to say we are at or close to the highs? >> no. because i go back, carl, to the issue and you'll find with your twins of the sugar high. it is very difficult for me to predict when my daughter is going to come off the sugar high. i know she will come off the sugar high. it's difficult to know when. >> it's not pretty when they come off the sugar high. you will find out, carl. >> mohammed, you've written about a couple things regarding the fed, one the trust americans have in their institutions, when that begins to fail, that's dangerous. a quick comment on that. but also to what degree we talked about jackson hole and why some were left wanting in terms of bernanke's speech being tough on deficit spending. to what degree do they need to be a disciplinarian? >> i think the deficit issue has been, it's curious, not much attention to the numbers issued yesterday that shows up to 2019

the debt to gdp ratio in our country is going to go up. the deficit is going to be the main issue. if you remember i had this image that from september to a few months ago, the fed was behind the driving seat. the fed took the car out of the storm. now it's the turn of the fed to go to the passenger seat and fiscal agency to start driving the car. >> can't they be an annoying backseat driver and say you're driving too fast? >> absolutely. that's what they are there for. that's why integrity and independence of fed is important. absolutely have to be the annoying driver saying, hey, be careful, don't take us off too early. >> inextricably linked, the fate of the u.s. dollar. before i let you go, can i quickly get your thoughts on where it's going. >> i think the dollar is going to go weaker. i think it's part of the solution, part of the global rebalancing. the issue is not whether weak in

our mind, the issue does it do so in an orderly fashion, which is what everybody would want or does it do it in a disorderly fashion. i come back to international coordination. >> risk in your mind, how high would you put the risk. >> if we don't get better international coordination, the risk will be high. >> thank you very much. >> mohammed, good to see you. i'm sorry about the mets. santana, i think you should take a portion of pimco's profits, give it to the mets so they can run their back office better. that would be a good use of your philanthropic -- >> i thought with joe away i would get a pass. >> there's a line and we've crossed that line. maybe next year. >> it's devastating. i cry myself to sleep every night on the mets. >> not about the scores. we'll talk to you soon, mohammed. thanks. >> thank you. >> the blue chips on a winning streak. dow six in a row on positive

gains. we set up trading day ahead. "squawk box" coming right back. hope you do, too. finally, good news for people with type 2 diabetes or at risk for diabetes. introducing new nutrisystem d, the clinically tested program for losing weight and reducing blood sugar. hi i'm mike, and i lost 100 pounds on nutrisystem d when i was first diagnosed with diabetes, that first step was more like a giant leap. till i discovered nutrisystem d. in a clinical study people on nutrisystem d lost 16 times more weight and reduced their blood sugar 5 times more than those on a hospital-directed plan.

plus a1c was reduced .9%. choose from over 140 menu options, there is no counting carbs, calories or points. i lost 100 lbs. and lowered my blood sugar level. nutrisystem d changed my life. mike is one of many who have lost weight and controlled their diabetes with new nutrisystem d. backed by 35 years of research and low glycemic index science nutrisystem d works. satisfaction guaranteed or your money back! new! nutrisystem d. lose weight. live better. call or click today.

it's time for "trader's edge." joining us now is art cashin,

director of floor operations of ubs. today on the floor, you know, we just had the durable goods orders. at first glance, according to the headlines, it was better than expected. how do you reckon people are going to trade this? >> first, let me say it was a lot of fun being there yesterday. you people were very gracious. it went by a lot faster than i thought. i think the market is beginning again to show some signs of tiredness. mandy, i had said to joe kernen about 2 1/2, 3 years ago that i was focusing in on the 22nd, which was a saturday, the beginning of ramadan, to see if anything was going to pop up. so far we haven't had any events. but i do think the breakout rally from friday is showing some signs of windiness, we've had two days now where we've opened much better and weakened into the close. that sometimes happens before a correction.

>> people are starting to get a little tired. what do you think is going to give them that energy boost? what is going to be the catalyst, do you think, for the leg up or even the next leg down? >> well, i think the future data will be critical, initial claims tomorrow. this is all about jobs. and the initial claims have been kind of the naysayers to all the green shoot stories that people have been talking about. so if we get through today with a small change, i think tomorrow morning's initial claims will be critical. >> we have a lot of data coming out and risks this week, we're going to be getting gdp, we're going to be getting claims. that's going to tell us a lot about where things are going. >> i think that gdp could be a little bit of a surprise. it may look a touch worse than este. that's two critical things. you're absolutely right about more data. and geo politics is still heating up. >> thank you so much for that. please do come and join us once again.

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nlthsds with it wlter fr r. welcome back. we've had a pretty good morning. covered a lot of ground. one thing we haven't talked much about, randy, people think monetary policy is the one cogile the fed has. there might be a couple of nuance tools bernanke can use. >> sure. one of the powers the fed just got was the ability to pay interest on reserves. this seems kind of sleepy and not that important. but there's been so much focus on the potential of inflation on all these excess reserves in the system, the ability to pay interest on the reserves is going to help the fed a lot in managing this. normally what happens during a tightening cycle is the fed funds go up and the banks make more and more money lending money out. if interest on reserves is zero, that means the distance between the reserv