good morning, good morning, equities are quietly rallying, all in a day's worse.

today we get clues on the u.s. employment picture and the overall economic growth. as for the markets this hour, europe starting the day in the black and u.s. equities are looking mixed as "squawk box" begins right now. >> good thursday morning. welcome to "squawk box" here on cnbc. i'm carl quintanilla along with mandy drury~ becky quick and joe kernen are out this morning. jim paulson and richard bernstein will be with us today. when we say we will probably like you to come in at 6:00 a.m., b it's probably like, excuse me? but it's great to have you guys with us today. we've got jobless claim at 8:30,

economists looking for claims to drop by about 1,000 to 565. also at 8:30, revised second quarter gdp to negative 1.5 from the first reading of negative 1%. also, natural gas inventories, a treasury auction at seven-year notes. the equifdiv voted 4 to 1 t ease tremendous restrictions from 10% from a prior proposal. meantime, this morning, the fdic's coffers are depleted. today, the fdic will disclose how much is left in its insurance fund and offer an update on the number of its

banks on list of troubled institutions. only one before has the agency been forced to borrow money if it is treasury. it later repaid the funds with interest. >> in corporate headlines today, nissan motor and chrysler canceling their agreements to produce vehicles for each other. the agreement had called for chrysler to produce a pickup truck forney san while nissan provided chrysler with a small vehicle for south america. >> apple is getting ready to sell the iphone in china. the gadgets aren't officially available there, though they can be bought from vendors in shopping malls. china is the world's largest mobile market by subscribers and, of course, still growing. elsewhere in the space, microsovts is cutting the price of its xbox 360 by $100.

that puts the estimated retail price in the u.s. at $300. last week, sony reduced its price of the play station3 by $100, as well. >> obviously, there's not a ton happening if you look at the headlines we're leading with, but who would have thought, jim, you get 400 straight points on the dow at a time where volume is thin and a lot of people are on vacation, right? >> yes. >> spreesing? >> yeah, i think it is. i'd like to see more volume show up here. it seems like we've had this whole rally off the lows in march, more about people that quit selling. i think we're going to hit a time when the buyer res going to come in and that could be the next leg of this thing. but that makes it suspect yet, a little risky. if it's really a real rally or not, but i think it is. >> am i rights in think that the

police car fund was a bit of a gold to you? >> yings. and everyone, when they look at how extended the market is based on that low. we nationalize dollars the banks and when we came out and said, we're not going to do that, it went back to where it was. it was at 900, i think, the s&p on february 9. it fell down to 675. what i'm saying is if we didn't do that, it's been down in ten months. we're not overextended. we've got a long ways to go. >> rich? >> i would agree with that. i think we're at the point now in the cycle where we have to worry about not recovery. i think we've recovered. the question is the expansion, the strength of the expansion, the length of the expansion and i think those are the questions

that people now have to start looking at. and i think that the outlook is reasonably good. i'm not sure in the short-term we could argue about what's going on in china and a lot of things like that. but i think always we look out over the next year, year and a half, earnings are probably going to be pretty strong. we're going to see a normal, cyclical rebound in earnings and that's probably going to be 2010, 2011. >> so does that assume, one, when government stimulus is removed, there is demand by a consumer, by a real consumer science. >> that is xbtly what i was saying before. what's going to be the amount, the strength of the expansion. if we take the patient off life support spt support itself, but that's the big question. >> and a lot of people are saying that the stimulus hasn't kicked in yet. >> that's absolutely right. there is a huge, huge thing coming down the python right now and we haven't seen the beginning of that. it's impossible for most owe of

these departments to spend their budgets in a short period of time. >> but i do think consumers aren't pricing budgets on them not coming back. the consumer is not spending money yet and their savings rates. we're evaluating them when we're still losing 250,000 jobs a month. let's grow for a couple of quarters, have positive job ñ creation, and i guess we'll be surprised how the old u.s. spendiness of the u.s. consumer comes back. >> there's a lot of people that said the market has gone too far. china is an immense credit bubble that's going on right now and i don't agree at all with the notion that china is leading the world. >> therefore, how much do u.s. stocks care? >> yeah. i would actually rather invest

in the u.s. right now than invest in china, to be perfectly frank. >> but we're not up 100%. >> no, we're not. and we're not as high beta as they are. i think we have numbers coming out in employment. so there's some things to worry about. but i think longer term, we're going to be reasonably healthy. >> but right in here, jim, we've had guys in this week saying this is a hold your nose and buy kind of market. even if you don't truly believe, it's hard to get left behind. >> i think we're really early in this economic recovery, maybe a month past the bottom of the recession, which tells me we're really early in this stock market recovery. and i think our perceptions are being colored by how far we pull up the bottom, but if we didn't do that, i think we would just be getting going. i think we've got not only the policy stimulus yet to come, lagged, but also comfort confidence yet to build, which is start to go happen, but we

have a long ways to go with that, both business and consumer confidence. and things like we're burning a hole in our pocket. which will add. and a little bit with rich i disagree. i think there's a fundamental shift from what's going on in the emerging shift as a whole. i think that's going be huge water shift shed. >> i don't hear you guys saying anything bin flagz. >> i think it's way too early to worry about inflation. >> i think that inflation, if you look back over the post war period, after recessions falls for 12 to 24 months, i think it's going to -- again, core cpi probably going under 1% next year. wage inflation goes under 2%. and 3% plus real gdp growth, i

think we've got a chance for a sweet spot here for a period of time. >> there's two things. one, if inflation pops up, it will kill the consumer. so i don't think we should be investing for inflation because it will be temporary. number two, if you look at short-term interest rates, they will lead the if he fed. they will tell you when inflation builds up. >> do you think, for example, with oil prices, it might be a equity cancering cycle where they get to a stage and it will come back down? >> shelf correcting. i would say if oil prices reall went up -- i think it's a little inconsistent right now to be and bullish on commodities. >> i kind of agree with that wsh except i think it would now. if oil goes to 100 bucks right now, we're still losing jobs. but next year when we're creating 50,000, 100,000 jobs,

oil can climb. the first part of this decade, we had a commodity controlled explosion. so we can have a commodity run without inflation from a broader perspective. >> our tolerance for oil has risen a little bit. >> it has. it has. but i think that we probably will be surprised that we can hand $80, $90 oil if we're creating jobs. >> is it being crated by demand or speculation? >> i think that's a question we have yet to delve into. i can it was speculation that caused it to go from $50 to $150. that's not fundamental. i kind of applaud it because i want there to be fairness in these markets and have prices reflect fundamentals, not have somebody that has undue influence. >> let's check in on what's going on in the markets this morning. let's take a look at the futures. the last time they chekdz, they

were looking pretty flat, actually. so it looks as if we could have a marginally positive start to the trading day for the dow. as for oil, we were just wagging about that. $71.17. the ten-year bond is currently yeeling. 3.442% at this stage. and the dollar, the japanese yen got a massive boost in overnight trade on further china jitters. it looks as if they might be trying to reign things in a little bit and that caused a drop in the shanghai composite index. as for gold, $946. .as for the overseas markets, let's get straight out to christine tan, my good colleague from singapore, and in lobbed, louisa bojesen has the latest out of europe, as well. hi, louisa. >> hey, man day!

flat is the name of the game here in europe. we are around that flat line on all our main markets this morning. we have best performing sectors being head higher. for the utility story, it's down to suez, a french power company. and to the downside, just to give you the full picture, you've got autos and food and beverage leading lower. diageo, the worl eeps largest spirits group down after they cut their profit forecast for the year. let's head out to singapore now. christine. >> asian markets full thursday on concerns the recovery may be running out of steam. we saw risk aversion in asia. let's send the exporters lower. sentiment was cautious ahead of the national elections coming up this sunday. now, the other focus here continues to be up in shanghai, which fell 0.7%.

a property developer announced plan easy to raise z 1.6 billion. the chinese yesterday said they would support moves. and the hang seng lost 1%. shares of sino gold mining surge launched a $1.8 billion bid for the company. that's it from asia. mandy, carl, back to you. >> thank you so much for that, christine and louisa. let's get to our task force. joining us is lakshman achman and david salaby. thank you all so much for joining us today. at this stage, the dow is at its highest point since november last year.

nasdaq, s&p highest point since october last year. but it seems there's a bit of fatigue and light volumes. what do you make of this? >> that's probably a sign just in the last week that the good news is not materially driving the market. the median tock and the s&p 500 are up. most companies are trading about 30% below their two-week high. when you combine that with the fact that free cash flow for the average company is flat to higher than year ago levels, that tells me that the market can still fight forward and find higher ground. >> what do you think, lakshman, do you agree? >> well, from a business cycle perspective, we have a recovery. so if you have an actual

business cycle recovery, then you probably have a cyclical bull market, even though i think a lot of people hesitate to call this, whatever, 50% rise anything like a bull market. and i think the big concern out there is that we might run into something like we saw following the last recovery, where certainly the economy recovered, it didn't go back into session. however, the stock market calm do you know down. the growth rate cycle, kind of the first derivative for the idea, that turned down in 2002 and 2003. so we need to take a look at our long leading indicators. the objective of those indicators is no. the stock market is a short leading indicator of the economic cycle.

>> so the jobless claims would be pretty good to watch, right? >> well, those are short. initial jobless claims is a short leading indicator. gdp is a lagging indicator. you know, it will be revised and it's going to be probably a mildly negative number. but the key thing is that q3 probably will be positive. so that will be consistent with the recession ending this summer, which is a forecast we made on the leading indicators last april. and so that kind of is how we're looking at this whole cyclical move in stocks. >> lashlman, do you have any long indicators or short indicators on the consumer seconder that leads you to some conclusion just on that sector of the. ? >> yes. employment is related to that and also these long-leading indicators are relateded to that. long leading caders of the economy has turned up. now, a lot of what's going on

with the consumer ultimately is going depend on what's going on with the jobs market. and there, i would expect surprises on jobs performance for nonmanufacturing jobs. so it's really bad news if you're in the manufacturing sector, because ultimately, the recovery is not going to cure the problems in employment there. but it's good news for the nation because 91% of us don't work in manufacturing. >> but mandy, i just quickly add that i think the best indicator is that the yield spread between baa long maturity corporates and the fundamental funds rate is well over 6 percentage points. that's still one of the highest yield curves spreads that we've seen in the last 30 years. that bodes well for the market, it bodes well for the consumer, even though we had this incredible run in stocks either from the march lows or last november lows. that i think is audible one of

it is big indicators. >> ben, are you investing for a w or are you investing fore -- >> we've seen this huge run in more speculative stock that's led the way from march through mid-june. now it's becoming more of an even fight. not even, but closer between higher quality, higher cash flow companies now performing on par with the lower quality stocks, $2 stock that rally to $5. that's what we're trying to do in portfolios. >> david, how much do you think the market is being held up by the longer these in the market? there are people who aren't completely convinced about the recovery, but it's because it's been so short this market. >> not much, truly. i think still the fair amount of cash on the sidelines, when you talk anecdotally to retail

investors, they're waiting for that pullback to then -- the next leg to weight into stocks. i think that's what can still get the market a bit higher, even though we've had this incredible run for what will be the second straight quarter of double digit rurnts. >> lakshman, david, thank you. >> thank you. >> when we come back, could hank greenberg be the answer to aig's problems after all? some think so.  carol, when you replaced casual friday with nordic tuesday, was it really for fun, or to save money on heat? why? don't you think nordic tuesday is fun? oh no, it's fun... you know, if you are trying to cut costs, fedex can help. we've got express options, fast ground and freight service--

you can save money and keep the heat on. great idea. that is a great idea. well, if nordic tuesday wasn't so much fun. (announcer) we understand. you need to save money. fedex

good thursday morning to you. time for your business traveler's forecast. scott williams is with us from the weather channel. >> good morning, everybody. as we focus in first on the latest with trorm danny, currently it has sustained winds at 10 miles an hour. starting to pick up more in intensity from the last advisory, so it is strengthening a bit. a deep burst of convection movement towards the northwest at about 10 miles an hour.

where will tropical storm danny go? it looks like it will make two close approaches to the u.s. the first will be as we move into early start morning around the outer banks of north carolina, making it a minimal category one storm. and then as we move into saturday afternoon and evening and the first part of sunday, maybe around around montague, back up towards the nova skoech ya area. may be hurricane danny by the upcoming weekend. so it does, unfortunately, look like another lousy weekend for the eastern seaboard. meanwhile, among the lower 48, watching showers and storms back down through the midwest, also around dallas. currently looking at our airport delays, we don't have any certainly good news right now around the northeast if you are flying out and about. as we look at your national highlights here, around new york city, upper 70s for your high

temperature. scattered showers and storms as we move into atlanta and unsettled around the midwest. now back to you. >> scott, thank you for that. aig's new ceo has a message for hank greenberg. we need your help. he contacted hank greenberg first as a sounding board. he says, happy to help. hopes to be able to reach an agreement to settle a string of outstanding lawsuits between the company and himself. he says he wants to keep a core group of diversified entities and predicts in a year people will say aig is performing well. he's also said he thinks he can repay the government much of what they owe him. >> remember how the stock shot up like 20% on that news? anyway, robert mccann is in talks to settle the lawsuit he

has this week with bank of america. he argues the agreements are no longer valid. >> solar panel prices are plunging. prices have dropped 40% during the past 13 months due in part to increased production of a panel element. two alternative energy companies want to buy a ford factory near detroit. no word on the fetching price, but the ap says the company's entire project is supposed to be did $725 million. maybe somebody can use it, right? plus, this court and jury's top stories are coming up. ww

welcome back to squawk for a thursday here on cnbc. i'm becky quick along with mandy drury. joe and becky are out today. our guest hosts, rich bernstein and jim paulsen, chief investment strategist at wells capital management. mandy is doing not just this show, but "the call" at 11:00 and "street signs" at 2:00. >> it's trial by fire. if i can survive today, i can

survive anything. >> if you missed mandy this morning or need to see more, you can get a lot more this afternoon. busy economic calendar today. jobless claims in about two h r hours. also at 8:30, we'll get preliminary 2qgdp. also natural guess inventories, dell earnings are out tonight, as well. so there's a lot going on. futures, meantime, on a week where i think the afternoon move, guys, has been pretty thin. but a couple single digit moves. but overall, the trend has been good. futures today look positive. weak action in china. the government there talking about reigning in some of the redundant capacity, worried about misallocation. every comment out of china toms

with a chuckle. >> it does. >> i think -- i mean, i may be alone, but i just -- i find that the hoopla about china funny because -- >> that was your comment at the top, as well. >> but they have capacity and their solution was to build more capacity on top of that. that's why i'm not a big inflationist. now they're talking about some of the redundant -- >> are they adopting a clunkers program there? >> yeah, clunkers. >> there's oil, by the way, back to $71. then there's the ten-year, where the yield has been steadily for much of the week at 2.44. dollar below, whack below 94

yen. a lot of chatter in japan about whether the opposition party will trounce the government in place. and we're watching pound euro, as well. gold is up 80 cents to $946.60. to the futures pits in chicago, dave bahoric is standing by at the cme. dave, what do you think? let's jump on that china comment. you guys like watching it, right? >> oh, sure. we'll watch anything that moved. >> and you're not just talking markets, either. >> no, that's right. we will watch anything that moves. but all of that that you've described describes to me a market that acted yesterday, the dow back and forth that steady on the day level over 60 times. there's the end of summer, you see the markets start to go die verge from earnings so economic

fundamentals, don't know that that is sitting well with the market right now. it's thin. there's labor day holiday coming up. that's a good sign for the market. >> yeah. oil was denied like shaq coming down against the board, right? just coming down on a player. it wasn't going anywhere beyond $75. >> it certainly didn't look that way this time. but when it gets exciting out there, there's nothing that's going to hold it back. >> so how about today, will this revision mean anything at all? people are so obsessed with 3q, i wonder if you think this 2q could have any effect.

>> we had a nice conversation after the session up there yesterday and talking to a few commercial real estate people in town, that's where a lot of concern is. and these packages are coming due and banks are going to have to deal with some of the stuff out there and i'm certain they don't want to own these things. but there really is not a line to revacate these buildings that are out here and that is a big concern. more so than anything that i see out there. as we try to put back together this banking sector, which seems to be doing okay. >> jim, how is that possible? you talk about job creation and optimism that we're going to start creating jobs next year. where is that going to come from when the structural environment is so different this time? >> well, i think we made this

thing worse than it was by how we decided early on that it was a depression. i think when this is all over, the tag line that i'm going to remember from this crisis is it was the depression that wasn't. because we sold ourselves on that. one of the reasons we're recovering fast now, carl, is because i don't know if it was fundamentally as bad as we thought it was. i'm not saying this isn't bad. >> how about talking so much about the depression? >> it does. but i think one of the reasons we're recovering faster was because i'm not sure fundamentally it was all that bad. all the banks weren't, indeed, on the -- >> so is that how it goes? >> no. we have a serious recession with fundamental issues. but i think we made it worse than that. >> minus 5% gdp. >> but part of my point is, we might have fallen 2% back to back, rich, with normal

fundamental problems we have. bad recession. but we fell 6% back to back. and i think that the additional 4% might be because we froze everyone with the fears. >> and might i point out, is it possible to point out we might have fallen to that if it weren't for all that massive stimulus? >> i'm just wondering if all this is because we're processing information at such a high rate, that the logistics that you put together, that information is what yields the decision. if you're running at high speed, a speed that you're not used to, do you overdecide and overjudge and overevaluate and make overassessments to lead you into the kind of scenario that you're speaking of? again, i go back to the macro processor. people are looking for pullback.

i can't use any definitions until the part from a technical standpoint. i was reading streetwise. that did not does not apply. >> the bulls want to pull back to get in a better valuation and the bears want to be vindicated. >> i think the bears and bulls that point in time are at such extreme points than i've ever seen before, i can surmise a dynamite bull argument with stimulus and everything else and i can surmise a dynamite bear argument. here we sit, vacillating in that area which is a pivot. >> it's not than just emotions, i think. and leverage is a double-edged

toward. i'm not so sure -- leverage, it may be emotions. but i think what exacerbated this cycle much more was -- and you could say, too, jim -- >> well, i hope the emotion plays because this market sure moves on confidence numbers. >> yeah. someone would argue, well, who cares if it's fear or fundamentals. >> it was equally destructive. in that, i agree with rich. but even, look, why are we recovering now or what's going to produce a fird quarter gdp number? it's going to be the reversal of the fear trades business put on. they thought they had to survive depression. so there's going to reverse that but change the production in the

new few uses.. >> me, too. >> one day at the same time. >> what about other things that are different? a deficit picture that obviously gets a lot more talk now. big piece in the journal today about how obama can no longer pass the buck on the economy, has to start talking about a believable balance plan. ta is not about fear. >> no. >> it's very hard to be on the down side of a credit bubble and all we're doing is shifting the credit from the private secretary either to the public sector. i'm in the afraid to say that. a lot of people have said that. balance sheet of our nation, whether it be the private or public sector, we have to change the balance sheet of our entire economy. that will ultimate hi be slow

and painful. he think it will be administration will be willing to deal with us or just try and pass it on. >> let me just say, too, carl, why do we have these big public deficit problems? part of it is because we blew a hole in our economy. i agree with that. but you know another reason why they did? because there was such acceptance that we were headed to the great depression when obama started in jarnl. he passed an obama 787 that i don't know if we need right now. most of it will hit next year. we just blew another $1 trillion that we didn't need to because it was fear. >> althoughlily, which you said is is he important for the democrats. >> are there any economies that are in danger of showing bubblish behavior? this is obviously part of the problem we're seeing in china, in places like australia, there's almost been an

overstimulation. we're starting to see bubble necessary real estate, housing. >> i would argue that's more likely to happen outside the united states more than inside the united states. what you need for a bubble is easy access to credit and lots of liquidity. i don't think that's going to happen here. >> not even next year? >> it will be hard to get that bublging up. >> with you thing i will say is the consumer has shown signs of life here. basically, if you give them a price discount, they're not just dead. if you geoff them a deal, what happens? you foreclose louse prices and drop house -- they surge. so i don't know if the consumer is doa or they're justice holding back. >> i agree. surge is thousand in the housing

markets. you have to spend money to go back to school. but you take gasoline out of here, you'll see about 500 million. it's a cincinnatiive situation. the consumer has been kicked around and the nest egg has a crack in it. not dead. but surging? not this early. >> interesting, though, that starbucks has raised prices. anheuser, inbev has raised prices. >> when i was with speedway, we had our own distribution system out of indianapolis. the highest margin product out of the convenience store wa was kochee. >> coffee? we'll pay anything. >> later on in the show, we've be talking retail, shopping malls and that will give us a good -- >> dave, we'll talk to you later. >> thanks. take care.

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g#k today. welcome back. interest in lay away programs picking up around the country. the detroit news says that online searches for the third layway have doubled in the past 12 months. recent newspaper articles have focused on anecdotal evidence of a surge in lay away interest until the likes of k-mart, burlington coat factory. it's been a long time since we talked about lay away.

>> what is lay away? >> you put down a deposit and pay for it when you pick it up. >> you pay installments. >> i like the sound of that. >> speaking of retail, guess beat the street by 20 cents. i'm wearing guess shoes today. there you go. i'm helping that stock up 5%. >> very nice. i'm not wearing any northrop grumman. they're also up 1.27%. it's time to check on the headlines outside the world of business. let's get out to alex witt. >> good morning to you, mandy. family members will attend a private mass for senator ted kennedy at the hyannis compound today. a member will carry his body through boston where thousands

will be able to pay their respects. president obama will deliver the eulo eulogy. the family will be buried at the family plot at arlington national cemetery. after putting down speculation for days, russian officials now say a ship off the coast of sweden may be carrying possibly with weapons or nuclear materials. 11 sailor res being detailed in nos cow. susan seran did i a n is negotiating with oliver stone. josh brolin reportedly negotiating, too. >> greed, greed works. >> oh, yeah, of course. >> greed is good. there's been some photos of l lebuff carrying david faber's book.

>> really? >> yes. >> i just remember michael with the suspenders and hair slicked back, kind of looking hot. >> see you later, alex. >> bye. >> when we come back, joe and becky may be enjoying vacation, but we'll talk to some of our guest hosts. later on, we will check in with the ceo of toys r us and the man who runs mall owner tall ban centers, dana telsey will join us, as well.

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welcome back. we're in the chairs with richard and mandy, one thing we haven't touched on. we thought it was going to be a quite weeks not only with the markets but the president on vacation. turns out it wasn't that way with bernanke and certainly with senator kennedy. how do you think the picture will change once congress comes back? the piece in "the journal ", david russell's piece, says on the long run deficit obama needs a believable plan and he needs to quinz americans that america isn't becoming the largest subprime borrower. would you talk about fiscal restraint in the months to cob? >> i think it will be. i think the administration will play it up. we don't want to go off the deep end. remember, the treasury isn't exactly selling off. the treasury bond isn't selling

off. we're at 344, 340. it isn't like the world is just selling treasuries like crazy and we've become a junk country. if that were happening i think these arguments would be a lot more convincible. >> there is demand and isn't demand? >> i'm worried about this but i'm hopeful a few things will happen. one is, growth will return to the world in this economy. that's going to help the situation immensely if we get growth back. secondly, parts of this deficit will come back rapidly. t.a.r.p. repayments. we're youed to deficits you can't just turn in again. >> we got the one plate holder -- >> and then i'm hopeful the parade of programs that were so powerful six months ago because we were in a crisis and we do whatever the president wanted is starting to slow down. now people go, wait a minute. i think that will also help the situation. >> that's not good for what "the

journal" thinks will be called the edward m. kennedy health care for all act. does that now stand a chance? >> it's still -- i think last time i was on the show with you i said i don't understand what's going on. i still don't completely understand what's going on. things in washington are changing so dramatically with respect to the health care plan. i think not having senator kennedy will move it more towards the senator but we'll have some kind of plan. the democrats are still in control. >> yesterday some people were saying -- were taking a sent mental view that maybe the passing of senator kennedy might gavelenize the democrats to in his spirit push something through. do you think that's too you' ultruistic? >> i think that will make a difference. coming up, top stories complete with much more insight from our guest host, rich

bernstein and rich paulson. and the name of a takeover game. what a new ruling might mean for private equity firm looking to snap up small banks. bank united president will join us live, john kanas. (announcer) illness doesn't care where you live... ...or if you're already sick... ...or if you lose your job. your health insurance shouldn't either. so let's fix health care. if everyone's covered, we can make health care as affordable as possible. and the words "pre-existing condition" become a thing of the past... we're america's health insurance companies. supporting bipartisan reform that congress can build on. why is dick butkus here? i hired him to speak.

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snoochlt raging bulls raging bulls, lurking bears. your investment on the line. markets wrap up the summer. ♪ it's the most wonderful time of the year ♪

the american consumer goes back to school. from the mall to the toy store, find out if anyone is spending money out there. how's it feel? >> another chapter in the allen stanford saga. the alleged fraudster heading to a courtroom where someone could be spilling the beans. "squawk box" begins right now. good thursday morning. welcome back to "squawk" on cnbc. i'm carl quintanilla along with amanda drury. our guest host, rich bernstein, former merrill strategist, now cnbc contributor. and jim paulson, wells capital management chief strategist. a lot to talk about with these guys. a couple hours left to do it on a pretty interesting market day ahead. first to mandy with some headlines. >> hi there. let's check in on some top

stories. the fdic may need financial help itself. the agency will reveal today just how much is left in it's insurance fund which is running low because there have been so many bank collapses this year. now, if the fdic fund runs out of money it may have to borrow from the treasurepy. something that's only happened once. elsewhere, microoff the is cutting the price of its high-end xbox 360. the new price at 300 bucks. sony recently cut $100 on the playstation 3 video game. luxury home builder toll brothers is expecting a smaller than loss than previouslily expected. cancellation have also dropped. accused fraudster allen stanford will make his first public appearance since his arrest in late june.

our scott cohn is in houston waiting for today's hearing. what do we expect to hear? >> reporter: well, it should be a very interesting day, carl. the potential for high drama today in the courtroom of the judge and indications are the judge kind of likes it that way. the last time we saw allen stanford in public was the end of june when he was brought to this courthouse to argue that he should be released on bail. he argued unsuccessfully and has been in custody ever since, complaining of oppressive conditions, but to no avail. he is still in custody. we'll see how he's been holding up the last couple of months. there's the potential that at the same time he could come face to face with one of his chief accusers, james davis, the former chief financial officer, who is to be in court today. davis will plead guilty to three criminal count in a plea bargain. allen stanford has been look up to this day and looking forward to it when we interviewed him

back in april. he was ready to point the finger right back at james davis. >> the audit reported to him. the insurance and risk side reported to him. and the reporting of the banks numbers and all of that, he was responsible for. and he liased with the external auditors. >> reporter: davis' attorney has said that his client is sorry for his actions and is cooperating fully with authorities. one thing they're working on right now is trying to get -- secure the extradition of leroy king, who's been indicted in this case. and investors want to know what davis knows about the web of banks that served as conduits for funds that went into the stanford financial group and the alleged ponzi scheme. one of those banks, trustmark national bank is based in jim davis' home state of mississippi. the bank has denied any wrongdoing. >> it's been reported -- is his

criminal attorney still dick and he's trying to get out because he hasn't been paid? >> reporter: that's the issue today. his attorney of record is dick degaren want out because he hasn't been paid. the other attorney wants to have guarantee he's been paid and that has to be hashed out. that's on the agenda. also kind of the backdrop is all of this drama. >> we think we'll get a look at him as he enters perhaps the building, or maybe not? >> reporter: yeah. oh, no, we'll see him. >> come back to you later on for that. meantime let's take a look at the market. dow, seven-winning streak. futures are a little negative this morning. asia had another selloff overnight. global stocks having trouble getting out of the red for the second morning in the row. busy morning ahead, though.

gdp, revised jobless claims, dell earnings, seven-year auction note. earning coming down after having been denied. 70.93, down some 50 cent on the october contract. ten-year note, still below 3446. yen doing pretty well as risk leaves the market, back below 94 against the dollar. gold was relatively flat. hasn't done a whole lot in the past few sessions, up to 986.70. richard bernstein, form elmer ril lynch strategist and also a cnbc contributor. that's a long title. jim paulson, wells capital management chief and investment strategist. gentlemen, do to have you with us. we were sitting in the chairs and something popped into my head. it occurred to me, when i was here a couple months ago, one of

the biggest and hottest topics was, weight going to happen to the credit rating of the united states now that we have such a ballooning budget deficit? the u.s. dollar, according to some people, believe it's on shaky grounds. are these all completely out of the water now or are these issues you still think about? >> i'm not sure that sovereign credit rating is that big of a concern. you mention the dollar. i think the dollar is a big concern. as we were talking during the break, i'm not a big fan of mr. bernanke and his reappointment. i wean a big fan of mr. greenspan's either. part of the reason is what their policies did to the dollar. i think it's easy to solve economic problems by deflating your currency. as americans one thing we should be very, very concerned about going forward is what is going to be the standing of our currency. because ultimately our standard

of living is tied to the value of our currency. and i think that's very important going forward. >> just take a little different path. i don't know if a weak dollar is all that bad. i won't want a runaway dollar. but a weak dollar is -- part of the reason is trade deficits have been improving the last few years. if we didn't have that this thing would have been a whole lot worse. i think what's going to happen with currencies is the developed world currencies are going to peg together. not officially but unofficially. the g-7 currencies are going to lock. >> how? >> the reason -- implicitly they're just going to do it because they're on the same boat. they have lackodemic graphics, they undersaved, overspent. so they're just going to lead towards a locking. but what they're all going to do is they're all going to devalue against the emerging world that can afford to have currency

strength and should have because they're woefully undervalued. >> which would you backspin against the emerging american currencies? >> i like them as a package. i think they'll all be forced higher over the next several years. i think that's a good thing. it's a move toward free cap capitalism. we're taking dirty pegs that were artificially forcing them away. that's a healthy development in the world and it's going to mean that more of the world demand will come back to the g-7. >> assuming they're willing to remove their peg. >> i think slowly this will, in part to play, in part because they'll need it to chop down overheatedness, which china was doing prior to the crisis and things of that nature. >> i hope you're right. >> one of the things -- >> you keep saying that. >> i hope you're right. >> i think the other side is, i'm not so sure they'll be willing to remove the pegs. i think as we look out owe the next several years we have to look out for protectionism because of that. >> i agree with that. that's a risk.

>> that's something people don't talk enough about. >> something we always talk about in asia sha is the need to keep inflationary pressures down is to let some asian and emerging market currencies aappreciate. there's such a legacy, they're so used to using their currencies to keep their exports so competitive, unfairly, fairly, that's obviously up for debate. but they're still locked into that mindset. >> they have little incentive to go the other way. a lot of this is more political than economic. if you're a politician, whether in the united states, china, hong kong, regardless of where you are, if you want to be liked by your constituents you're not going to put them out of work. >> gentlemen, on equities you've been pretty consistent saying to people, guys, you're scaring yourselves half to death and equities were overreflecting the fear. now that we're at the highest level, and put together seven straight and in this thin environment things are looking pretty good, is the street now too bullish, even for you?

>> we're going to get a correction at some point, carl. there's no doubt of that. but i also think where we are now compared to where we're going to probably go over the next couple years is a long ways from up. it might pull back 5%, 10%. along the way, i'm sure it will. i think there's sill a lot of upside. >> bull s&p 500 at year end? >> i think we may get there. i think it's possible. what we've done so far is taken depression off the table. that's all we've really done. now what's left is we're going to have acceptance of recovery, which is starting to happen. but as soon as that happens there's still acceptance of a sustainable recovery, which is not yet happened. and then there will be acceptance of a better than expected sustainable recovery. and those last couple, three legs could still mean a lot of upside for this market. >> so you still think we'll end the year higher than the years we're at now? >> that's my guess. >> rich?

>> i'm a little more conservative. i agree to the basic tenor of what jim justed. one thing people don't talk about is valuations. the market's up 14, 15, 16%. someone said the median stock is up 60%. private equity firms are starting to bring their companies public again, or they want to. i don't know if they're actually doing it but they want to. these guys aren't stupid. they clearly feel they're getting some value for the equities they hold. and i think as an existing investor you have to watch that and you have to say, these guys are not doing it for my benefit. they want returns for their clients. >> inside esh selling, too. >> insider selling as well, correct. >> we'll continue the conversation in a moment. rich and jim are staying with us throughout the program. >> meantime, any comment or questions, we would love to hear from you. as always our address is squawk@cnbc.com. when we come back, changing the name of the takeover game. rich was just talking about private equity. what a new fdic ruling my mean

for pe firms looking to snap up games. this man runs bank united, john kanas. time now for today's aflac trivia question. according to national surveys, what is the number one food ordered at restaurants in america? 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! it's the protection you need to stay ahead of the game... exactly! aflac. we've got you under our wing. aflac, aflac, aflac... aflac, aflac, aflac

now the answer to today's aflac trivia question. according to national surveys, what is the number one food ordered at restaurants in america? the answer, french fries. president obama's pay czar ken feinberg is expected to approve the pay package of ai gchl's ceo next we're. he's expected to receive $10 million. even . mer he was reached out to hank greenberg for advice. greenberg says he has the best chance to succeed in rebuilding aig. aig shares were up yesterday by

15%. new fdic rules broadening the pool to make it easier, some say, for private equity firms to make deals. john kanas' private equity firm bought bank united, former ceo of norfolk. >> good to see you. >> some would say, it could be worse. you don't see it that way? >> it's good news for large strategic banks, obvious competitors in this business. it requires private equity to hold roughly double the amount of capital that their competitors will have to hold in the same situation. it singles them out as a category. and it's not going to make it any easier. it's certainly not going to access more capital from the sector for what we think is an ongoing problem and going to continue on. >> is it enough to sq uchl elch om deals? >> i don't think so.

i think they'll continue to look at this sector but it will be refrequented in the price. the fdic in order to see higher capital level will see lower prices coming from that sector. >> the reasoning, i'm sure they would argue, is how can we trust these guys? you'll come in, flip it, move away. you employees aren't disciplined. we're going to impose discipline on you. >> there's no evidence of that in the banking industry. out of 81 bank failures only two have been successfully acquired by private equity groups. ours and one other. it's difficult to make that argument. also, we feed to remember there's only 1800 publicly held banks in the united states. most are held privately today. and there aren't these kind of restrictions of private owners across banks across the country, 6,000 banks or so not under this regulation. time will tell. i think this will have a somewhat chilling effect on our participation.

>> would you have done the bank united deal under these terms? >> probably we would have bid another number. it's not for me to say whether we would have won. >> anything you're looking at now? >> we're looking at a number of different situations that seem to be coming up in the pipeline, but this will affect pricing. >> how's -- tell us about the environment right now at united. >> at bank united, obviously, we put out public numbers recently. we're doing very well. the market is behaving about the way we expected it to. unfortunately, we're not seeing any evidence of a recovery in the real estate market in the -- in southern florida market. but bank united is doing very well. mostly as a result of our partnership with the fdic and that working out really well. as we know, we're only required to hold 8% capital against that deal. so this is -- we're already at 25% increase into what we would have had to hold. >> if you had to put a number on it, how many more banks do you think are going to fail during

this current crisis cycle and how long do you fling it will take to flush them out? >> i said i think we'll lose 1,000 banks over the period of this cycle. >> the period, how long? >> the period, two years. >> two years? >> we've already lost 81 this year. the numbers are climbing every day. many institutions nobody's ever heard of. they're smaller companies, spread around the country. some are private. it augers poorly for small business managers because very large banks tend to lend money to very large companies and small banks tend to lend money to mom and pop operations. >> so it exacerbates the problem? >> for small business borrowers. >> this is the most important issue of the morning. -i mb numbers. the '89 cycle, 18 to 19 3, 15% of the banks and thrift of the united states went away. >> that's right. >> so far in this cycle it's been under 2.5%.

so there's a lot to come. just to match the '89 to '93 cycle. this is probably a lot worse than -- >> it is. we have a short memory about that. there were over 1,000 banks that failed at that time. and we were -- >> but that was over almost a decade. you're talking 24 months. >> no, it wasn't really that long. it was over a period of three years. >> yeah, it was. >> also between '84 and '94 we lost probably 100 banks a year during the '80s. >> yes. >> in some sense you said it it's going to hurt small business. we've always lot a lot of banks and it hurt small business so far. why will this hurt so much more? >> because i think this one -- because the trend seems to be that, you know, government money has propped up the very large institutions as a result of the stimulus package and the way it was designed. there's velgt life line available for the small institutions that are suffering under these circumstances.

especially -- i know you've talked about commercial real estate, but lots of the commercial real estate problem resides in the regional banks and in the small community banks across america because the larger banks haven't participated in that market and haven't fueled the growth in that sector in the past. >> so are there enough buyers for these banks or do we have to sell them all to spain? spain buy 1,000? >> that's very interesting, carl, because this new regulation, which applies to domestic private equity investors, so this flies in the face of what we just saw the fdic award a bid recently that will, by their own admission, result in a substantial loss to the fdic fund, which is already substantially weakened. and it went to a nondomestic foreign bank buyer. we are seeing more people step up and lobbing bids into this situation. the bank united deal and indymac

deal. we're seeing more players, mostly as a result of, attracted to the sector. i'm not so sure that will continue now that the rules have been ratcheted up. >> really? are nondomestic buyers affected by these rules? >> i mean out of the private equity. >> oh. >> are you dealing with any shortage of bidders from overseas? >> i think we'll see more bidders from overseas as a result of -- as a result of the problems we face and where we seem to be going, particularly centered around commercial real estate. they've been obviously very aggressive in the last couple of transactions and i think we'll see more of it. >> yesterday we talked with occ about this, ahead of vote. we asked him how fdic will put more bullets in their revolver. clearly assessments are going to rise. what'sing that go to do to bank earnings? >> it's going to have a significant negative effect on bank earnings, weaker some

smaller institutions that are struggling right now. it's certainly going to add to the problem. >> by some say 25%, somewhere in that neighborhood? >> i think that's conservative. >> if deals don't go down and it does get worse, do you think you'll get a better deal? a better deal at a later date? >> we're still going over the minutes of yesterday's meeting. there are some interesting provisions in it. i think in six months they agree to come back and take a look at the standards all over again. so people will be focused on what happens over the next six months. we will see, i believe, some more deals coming through in the fdic pipeline in the next six months so we'll get to see what the effect of this will be. >> great. >> as rich said, it's not just worth watching, it's very important. >> incredibly important, especially as john pointed out for small businesses. i personally think from an investor point of view, i think that's where the scarcity of capital is in small business america. and that's where some very high

returns are going to be in small business lending. >> thank you very much for joining us. >> nice to see you. coming up we'll check in on futures as we begin a countdown to the opening bell. school children across the country are on their way back to the classroom. so it's the perfect time for us to go shopping on the real story of the health of american consumer. our guests are ceo of toys "r" us, and highly regarded retail analyst dana telsey. first as we head out to break check out oil prices this morning. they've dropped below the 71 buck mark at 70.99 and losing.

got a bunch of numbers on the way. revise the gdp and jobless claims. earnings from dell tonight. for the time being, futuresenably are in a tight range. got any comments or questions, drop us a note, squawk@cnbc.com. when we come back we'll get this morning's top stories, head to the futures pit and penny i, maybe a yen or you're row for your thoughts.

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welcome back to "squawk." let's get a look at market right now. futures, a little bit off fair value. some selling in china this

morning. europe's been largely mildly in the red. some of our top stories, chrysler and nissan have an agreement to build vehicles for each other. those deals were made last year before crisler's emergence from bankruptcy. nissan agreed to make compact cars for chrysler in south america, a need fiat is fulfilling. that checked baggage fee. customers will still get one bag for free on transatlantic flights but you've got pay 50 bucks for a second bag. tivo is suing at&t and verizon alleged infringement of their patent for dvr technology. tivo is in similar litigation with satellite provider dish. verizon says it's waiting to review the lawsuit. let's get to the trading block. joining us is larry levin at the cme and boris of jft forex and

jim paulson and richard bernstein of richard bernstein capital management. larry, let me get to you, first of all. what are you expecting? it looks like, according to the future, could be sort of a soggy start to the trading day. what do you think might give us more clear direction? >> i think a breakout in a technical situation would do it for me. 1021 and the s&p futures today. i haven't been below there lately. a big move from 1000 to 10.35. now i'm hoping to see some kind of -- not more congestion because we were congested between 1025 and 1035. i would like to see the pullback are looking for. >> what would be the catalyst to push it down to that level? >> jobless claims today. but really, to be honest, the data has not helped me at all, not helped most of the professional traders. it's not something you can trust and not something you can rely on. >> boris, what are you watching? >> i'm watching the consumer.

i think the -- basically the story is the risk trade is definitely stalled all across the world. if you look at the currencies, the euro looks like a double top, the pound a top and aussie looks to be distributing. basically the story right now is that the recovery trade has its first act with the recovery of the industrials. it needs a second act with a rove of the consumer. jobless claims, yes. tomorrow, personal income spending very important. ultimately if the consumer cannot come back, that's where the fizzles. >> for the risk trade you reckon all the good news is factored in. what if thing are better than expected? >> they would have to be better than expected on the consumer front, not on the corporate front. that's my key takeaway. all the corporate data, which is good, is being ignored by the markets because it's baked into the equation. they need to see good pick up in consumer data like german retail sales tomorrow, personal income spending, like the stuff coming up right now in back to school sales.

i'll be face natured edfascina your guests will tell us. >> earlier, boris, what do you make of the volume or lack thereof? does any of this price action meaningful without it? when will it show up? >> first of all, i'm a very proud member of junior traders club. clearly, we're in the doldrums of summer. we're very, very quiet. and we probably will not come back until after u.s. labor day. and that i think is when the second theme, the consumer will either take hold or completely fizzle out. we're pretty much distributing in quiet ranges. i don't see that changing for the time. >> larry, can i just ask you on that season front, once labor day is gone, do you think the psychological impact like the bad memories of september last year and the scary month of october as well, do you think those will be in people's minds? >> i think, unfortunately,

mandy, people have short memories. no, they won't be. they'll continue, especially people from the buy side. people will continue to buy stocks with the little money they have. to add to bother ris' economy, there are a lot of people on vacation and a lot of investor with a lot less money. that's a big part of the reason you're seeing people with lower money. less people are participating in the markets all the time. >> i couldn't agree. it's the same side on the fx side, smaller volumes not just because people are away but because there's so much less participation. >> what's going to get that money on the sidelines engaged? >> like boris said, the consumer, able to spend. the consumer can only spend when he has a job. there's a lot less of those out there, too. until that changes and i don't know if it will change any time soon. one of your last guests said something interesting, another 2,000 banks that could close in the next two years. how could the markets stay up with-f with have that? >> i think he said 1,000.

>> even better. >> not trying to put on rose-colored glasses with that comment. >> jobless claims will be very important. we've had three consecutive weeks of up escalating jobless claims. that's an ominous sign. if we start getting closer to the 6,000 level that will be negative for the market. need to see job situation stabilize. the first step to a recovery is a stop losing jobs before we even begin starting manufacturing job. that's critical for us to go forward on the macro side. >> what about valuations? how are valuations looking to you right now from an earnings perspective, from a pe perspective? putting aside what's going on in the economic side for a second, are valuations getting a little stretched, larry? >> you know, i'll give companies a lot of credit. they've cut expenses like crazy. they've had no choice laying off lots of people which is i a big part of the problem, has helped companies to look better, do better. it's only so good until people start spending. people can't spend right now. and i think valuations and

companies in general are just going to have a hard time until the consumer can start spending, until he has a job he can't do that. >> what do you think? >> valuations relegated but they always are at the bottom of recessions. we have the cyclical stock price where you want to buy cyclical stock when they're high. i think we got that in spading with the overall market particularly because of the writeoffs. i think earnings will be surprising for the reasons larry brought up. i think there's tremendous profit leverage in this system. this is going to be more of an earnings-driven market rally than it is a valuation -- >> every cycle has a boom coming out of the bottom where you lay off workers, cut back expenses. the cycle begins to turn. operating leverage is huge. that may be where we're going towards in terms of corporate profits. >> revenue's been missing so far. you're saying you expect revenue to come through? >> my point being, if the economy turns and the translation down to the bottom line at this point in the cycle is usually very, very big.

i hate to harp on politics once more, but the issue we have to watch very carefully is the -- we have to remember, we're starting the psych well corporate profits at a huge percent of national income, an abnormal level of the national income. if we see huge surges in profit without the perception employment is improving they're start taxing corporate profit. i think we have to watch that carefully. >> larry, boris, thank you very much for joining us today. jim and rich will be with us for the rest of the show. when we with come back we'll go on a shopping spree. we'll hit the mall with jim talban, and dana telsey, wouldn't want to miss it. . she'll join us to talk about whether or not the consumer will -- or may return in the fall.

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there's a lot riding on this back to school shopping season. we're trying to grade the scene at the malls around the country this morning with bill taldman centers and retail analyst dana sellty, who's been on a ten-city tour checking out some latest trends. good to see you both. dana, what are you seeing and how do you think august is shaping up? >> i think as we're getting closer to back to school, getting closer to labor day, you certainly are beginning to see a little more traffic. you're seeing the stores, very price targeted. the prices are right. i think august, it's a little better than july so far. >> a little better. year over year? >> year over year you'll see the declines, a little less negative. you should be able to see same store sales s it going to be down low single digits, flattish? i think it's a little less negative. >> relative to the expect takings we had going into the season, right? >> exactly. we're seeing better sales in some of the department stores and off-pricers than we are in

seeing in some specialty stores? >> does that fit with what you're seeing? >> i think the specialty stores are a little uneven. i think for the first time we're starting to see some recovery in women's ready to wear. i think that the juniors continue to be somewhat challenged, moderate junior players are doing better, forever 21s, aeropo is slle. we have different mixes of different things going on. there isn't one real trend to get behind. when you have that, some of the really aggressive guys can get behind a trend like that and really push their sales. just a lot of different thing going on. we're sort of feeling like the '80s with the boyfriend jacket and the boyfriend jeans and -- >> the shoulder pads. >> yeah, the shoulder pads. you saw that in women's daely. it was amazing. >> they'll be crimping their hair after not too long. overall, it sounds like you're

saying it's not all discount-driven. people are being motivated by things other than a cheap price? >> price is still very important. it's price, quality, value. they want the fit, they want it to look like the quality is good and they want it at the right price. so price is still important but it's starting to be not the only thing driving behave. all the stores are saying they need some promotion in order to get people in the stores. but their inventories are a lot leaner, their cost structure is much, much lower. they've not only cut overhead, cut expenses across the board. and so their profitability is far higher on a lower level of sales. >> can i ask what kind of trend you're seeing with regards to retailer bankruptcies or vacancies right now? is it getting better or stabilizing? >> clearly the level of -- bankruptcy is not as big of a issue as we all anticipated but part of the reason is so many people restructured outside of bankruptcy because of the lack of d.i.p. financing.

all the lenders and landlords got together and in effect found a way to restructure outside of the system. having said that, clearly, you know, people are still not doing well but things have stabilized. i think dana is absolutely correct. things are starting to improve. and it's always about the margin, people's expectations are they're down 10 and it's only down seven and they bought merchandise to be at that level and margins will be better. they cut the their cost structure they'll be far more profitable. the minute you start to see increase -- in the fourth quarter we go against weak numbers last year. on a relative basis everything's going to look a lot better. even if on an absolute basis the run rate may not have improved as previous years? >> favorable comparison. >> dana, from a stock perspective, history would suggest if we are seeing improvement we should move down the quality spectrum and buy the yungy stocks, junky retailers if things are improving. do you agree with that going

forward in the cycle? >> i think we're seeing turnaround start to do better. saks had terrific improvement in their growth margins. jcpenney is talking about improving momentum. today we'll get j. crew after the close. if anyone -- like bill had talked about, right on trend, they've been right on trend. >> margin was the first word, not traffic, right? that was the dynamic for the most recent quarter, is that going to be the story again next can quarter, margins were fat but few people showed up? >> it certainly seems we're seeing margin recovery before sales recovery. retailers ordered their inventory very lean, not only for back to school but for holiday also. that's how we'll also see online sales showing perhaps better growth -- >> are you willing to make a call yet on christmas? >> i think overall for christmas, the trends from back to school, it's getting a little bit better. i don't think you'll have a terrific christmas.

they're bought for a profitable christmas. >> you go along with that? >> oh, totally. very consistent. to one's willing to take the risk to say that they see there's been this massive turn. everybody believes they're somewhat of an improvement but no one's going to -- no one's going to put themselves at risk by buying merchandise at that kind of a level. everyone's bought 20 down, 25 down. remember, they're getting cheaper prices on all the merchandise because there's so much less pressure. shipping is so much less. because there's so much clogging in the system they can ship sea instead of air. you can see these decreases in cost which means they're so much more profitable. why should they take the risk of fwig a level that would create the kind of sales increases that we'd all like to see eventually. >> could they even finance inventory if they wanted to in. >> oh, yeah. look, you read all the annual report, all the quarterlies. these guys are starting to print money from the standpoint of cash flow creation. as they decrease inventories, stretching payables, et cetera,

et cetera. the working capital is pouring into their cougheffers. people are starting to wake up and say -- you start to buy back stock. to one's willing to start to do that yet. but yet you're seeing a real recovery in terms of the health and balance sheets across these retailers. >> since we've got you in the seats, we've been talking about the health of commercial property and whether or not that might actually be the next shoe to drop in the economy. what's your take on that? of course, i would imagine you'd have a pretty on the ground feeling on it? >> i think it's a complicated subject, obviously. there's clearly a lot of debt that needs to be refinanced. we all talk about the 300 to $400 billion that's out there. clearly some government programs have helped. there's still this large problem that has not really yet been addressed. and there just isn't that much liquidity. i think you'll start to see a substantial increase in defaults.

you know, i think a lot of it may been baked in the system already, but it's going to take us, i think, three or four years to work through this overhang, if you wish, of all this financing that was done over the last two or three years. until we work our way through that, you're not going to see true stability on pricing in commercial real estate. now, there are always going to be exceptions. class "a" regional malls are so rare. that's a great property, queens center, and i think it's a real scarcity value to that kind of property. if the gm building came up for sale, it would bring a very good price. in general, i don't think you're going to see -- you're not going to see a real increase in pricing until we resolve this liquidity problem. can i know the government's focused on but we don't seem to have a resolution on. >> jim, does this give you doubts about recovery on the

real estate side or consumer side? >> well, i think commercial real estate, you know more about it than me, but my understanding is, when i look back, that's always a laggard. last thing to peak, last thing to bottom. i don't know if that's that uncommon as what you see in past cycles. it may be worse magnitude but still the same pattern. the same economy recovers anyway. is that what happened in the early '90s. >> when you're in the middle of the storm, all you can focus on is the rain all around you. so it's easy to look back in retro pekt, and i'm sure we'll see how it wasn't really as bad and all teahese seeds. for the motor. if you need to refinance commercial property, if it's cash flow positive, kicking the can down the road, doing three-year extensions as a way of delaying the pain. a lot of these properties are under water and -- if a guy bought a property for $100 and

today it's worth $65, he probably financed it at 80%, 85% loan to value. for the most part everybody else did. and, therefore, you're looking at a situation where if he want to refinance now, you can only get a $50 loan on that property. so what happens -- why does the lender -- why does the borrower, rather, show up and pay down the loan when he's under water to begin with? so really the right thing in that case, if you're cash flow positive, let's just extend the loan, let's assume the market's going to improve, let's hope the financing environment improves. maybe everything will be all right three years from now, or better than it is today. >> yeah. all right and better than today. good to see you, bill, thanks for coming in. dana, you've been to so many cities. have fun in san francisco and denver. >> thank you. >> go to see cherry creek. >> yes, cherry creek mall. >> i'll be there tuesday. >> call me after. >> i will. in our next half hour the ceo of toys "r" us will tell us

about a new trade-in program for tots. you take used, you name it, strollers and trade them in for a discount on strollers. we're still ahead with stocks to watch. the names you need to know before the opening bell rings. call it j. crew and the first lady effect. how michelle obama's retailer of choice is cashing in on the obsession with the first family. carol, when you replaced casual friday with nordic tuesday, was it really for fun, or to save money on heat? why? don't you think nordic tuesday is fun? oh no, it's fun... you know, if you are trying to cut costs, fedex can help. we've got express options, fast ground and freight service-- you can save money and keep the heat on. great idea. that is a great idea. well, if nordic tuesday wasn't so much fun. (announcer) we understand.

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these stocks are going to get some attention, including them toll brothers, a loss of 293 ex-items, a little less than expected. the street was looking for a loss of 3.03. chose not to provide earning guidance. said they'll deliver anywhere from 475 to 725 homes in the fourth quarter at around half a million a home, 550 to 575,000. jim, new homes were pretty good overall yesterday. could have been worse. it's only 15% of the market. does that give you hope about stabilization in housing? >> yeah. i think the day is getting better. not only on activity levels, which feed directly into gdp, but also in pricing, which is maybe the better news because that's going to stop a lot of things people worry about as far

as foreclosures and, you know, additional things. i think it is getting better. >> people worry about the high end of the price spectrum. >> i think the very high has got to suffer here. the only thing we have to take with a grain of salt we don't want people thinking when housing prices were increasing they're going back to where we were and you shouldn't be saving as an individual because your house is going to appreciate so much that your personal balance sheet will be fine and we don't have to save. i think we're going to go back to very, very gradual home price appreciation over the long term where the goal should be building equity in your house, not speculating on the value of your home going up. and i think a lot of the reports have kind of made it as though we're going back to where we were in terms of, you know, the market's back for stocks, now the market's back for house prices. don't expect that. we don't want that to come back. >> we'll get back to our dynamic duo if a moment's time. the market moving off moussings

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"squawk box" is the home of breaking economic news. we are counting down to weekly jobless claims. find out how many americans are lining up for first-time benefits. >> no child want to play with a charlie in the box. >> how about turning in those old gas-guzzling toys for cash? >> the choo choo with square wheels on your caboose. >> the ceo of toys "r" us tells "squawk box" about the cash for kiddy clunkers program. >> 60, 70,000. >> actually, this is a j. crew ensemble. >> really? wow. >> the american consumer is wild about the first lady. but has j. crew turned the so-called obama bump into profits? "squawk box" begins right now.

welcome back to "squawk" here on cnbc, first in business worldwide. i'm carl quintanilla along with amanda drury. our guest host, rich bernstein, former merrill chief strategist and ceo of bernstein capital, a cnbc contributor. and jim paulson, wells capital management, chief investment tegist. we've had a good couple of hours. talked about everything under the sun. we've been in a better narrow range but a lot of numbers to come, jobless claims, the first revision to the second quarter gdp number. half an hour away, we'll see if that will push the markets one way or another. whether jobless claims break one way or another. it will be interesting to see what comes first, a four or six. let's get to mandy with headlines. the fdic may need a bailout of its own. exact figures will be released today but the fdic's insurance

fund is run loeg and some say the agency may need to borrow funds for the first time since the savings and loan crisis of the early '90s, because of the unusually large number of bank bailouts. the airline industry is showing signs of recovery but that recovery will be volatile and weak. airlines carried 11% less cargo and 2.9% fewer people in july than it had a year earlier. both numbers represent improvement over june levels. and proof that, on the leading edge isn't always profitable. asa, the world's third biggest computer maker said third quarter fell 20%. a big part is a leading seller of so-called netbooks, more portable computer growing in popularity. carl? >> mandy, big story this morning, accused fraudster allen stanford will make his first public appearance today since his arrest in late june. scott cohn is in houston waiting

for today's hearing. scott, what we think will be a brief appearance by stanford himself? >> reporter: that's right, carl. there's a little bit of curiosity factor here because it's been about two months since anyone's seen allen stanford in public. this was one of the last times, june 26th, when he was in court trying to argue to be released on bail. he had been in custody since his indictment on june 18th. no luck there. he's been held in a facility 40 miles north of houston, eight to ten prisoners per cell. he's complained of oppressive jail conditions. a far cry from the life of luxury he led. he'll be in court today to try to sort out the question of who will represent him. that's thorny because all of his assets are frozen and you he has no money to pay for an attorney. at the same time in the same courtroom, he could come face to face with one of his chief accusers, james davis, former chief financial officer, a confidante of sir allen stanford, who is going to plead guilty this morning to three criminal counts and admit his

role in the scheme in a plea bargain. when we spoke with allen stanford four months ago, back in april, he was already getting ready for this day and pointing the finger right back at james davis. >> the committee reported to him. the insurance and risk side reported to him. and the reporting of the banks' numbers and all of that, he was responsible for. and he liased with external auditors. >> reporter: davis' attorney has said everything in the whole stanford financial web all revolved around sir allen tan ford. the fed needs more than james davis to make that case. davis is tainted, he's been with stanford as cfo for some 20-years and as of today will be a convicted felon. >> we'll be looking for that appearance later on today. scott cohn in houston. let's get back to our guest hosts. richard bernstein and jim

paulsen. good to have you on the show. less than an hour to go. your break is coming up. we were having a little chitchat and we were talking about how, rich, you believe lower quality investments are outperforming higher quality investments. what's going on with that? >> i've been a fan of high quality investments. people familiar with my work at merrill knows i talked about high quality investments. if the economy is turning, remember, the market's priced on the margin here. it's not absolutes. it's on the margin. if the economy is going to turn, lower quality investments shouldout perforshould outperform. china. >> why do you call it low quality? >> it's an emerging market, still credit-driven, still very low quality investment although people will write in and say that's wrong.3q but -- >> but you mean speculative financials, fannie mae -- >> small cap companies, look at

the financials, look -- virtually any industry you want to look at, lower quality investments are outperforming, even in the fixed income market. so that's a -- actually a quite healthy sign as to what's going on here. i would argue very normal whereas people are saying, gee, low quality junk is outperforming. that's no good. that's kind of normal. in 1991 when we had a big financial scare and a big rebound, low quality stocks were worth 90-plus percent in 1991. so far this year they're up 95%. this is quite normal. >> do you agree? >> i agree totally it's very normal at the bottom end. i think the issue's going to be, what happens going forward over the next few years. let's say this is a recovery. there's two outcomes. you go back to the '90s you had the junk rally and then it went to quality. >> absolutely. >> went up the cap scale, went to steady earners. you look at the recovery in this decade, the earlier 2003 to 2007, it went off the bottom

with junk and it really kept there throughout the entire recovery. >> kept going. >> led by emerging markets throughout, led by materials and cyclicals throughout, small caps never had a correction. i wonder which way that's going to go. right now i lean more towards, we're going to come back to some of the same leadership we had in the 2000s rally as opposed to the steady eddies. >> what's driven that is the profit cycle. you'll find lower quality assets will outperform. what's unusual is the profit cycle peaked and fell over and fell over and lower quality stocks still outperformed. that's what made it so dramatically unusual. right now we're still on the upturn improo do you hear client wanting to get more defensive or aggressive going into the fall? >> definitely people are coming out of the really panic areas of money markets, but when we see more than anything is they're stepping out into short-term munis. >> ultrashort munis.

>> yes. not a big step out into big risk. that's why it's still ahead of us. >> we show people are not risk averse like six months ago but not risk-takers. you feel, what i think is going on when they take risk they're taking risks in overvalued assets. >> you're saying they're not excessive but you're saying they are too risk in. >> i think when they're willing to take risks. i'm qualifying. when they're willing to take ricks i think they're going to inappropriate investments. >> swing for the fences. >> exactly. i'm not as big a bull on commodities as jim is but i think people are willing to go into commodity funds and look at that or goals but unwilling to look at fundamental turn-around stories. >> you think how much people -- right after the crash there was a lot more bears than there was before the crash. and, really, within 30 days after the crash, what you want to do is get bullish again because it's been led out by cyclical leadership. you think how many assets are sitting in cash and treasury bonds and dollar assets and large cap steady stocks that

just continue to underperform here. >> we always talk about cash on the sidelines. what is the historical relationship between cash and equity -- i mean -- >> it depends on the measure of cash you use. there are some measures that constantly increase. if you look at -- i believe, money market funds or things like that, they're always increasing through time because the economy's expanding through time. it's just a function of the overall economy and transaction accounts in the economy. mutual fund cash and things like that, they do change. when i was at merrill we did study on these. i'm not sure they're quite as predictive as people think. i think they tend to be more reactive. >> that argument there's cash on the sidelines is probably overused? >> some is corporate cash sitting on the sidelines that may go into actual financing of inventory. i mean, it may go into the real economy as opposed to the financial economy. i personally would argue, that's very healthy if it did go into the real economy but a lot of people would disagree. >> one cash risk i looked at if

you take the flow of fund statement from the fed and take private liquidity holdings, whatever the is source, all company, all household and look at that as a ratio of gdp that got up to a post-war high or close to the early 190s, start of my career, and i think it made my career for the first 20 years because the slow release of that as it came down relative to gdp for 20 years is what created this bubble. it was an i.v. drip with slow-release tylenol. now that ratio is up to a new post-war high as of 72% of gdp. i'm mouth-watering here? >> what's going to make your next 20 years of your career? >> i think that will help. doesn't have to go into stocks directly. if it goes into the economy, that also would help. >> one thing that confuses me, you e-mailed us charts overlaying recent stock action with '28 -- remind me of what year. shows us there would be potentially more upside to come. others overlay it at '36, '37,

1938 where this is one heck of a head fake. how is that possible? how can those charts be manipulated like that? you know what i'm talking about. >> i personally wouldn't use the word manipulated. i think it's easy to find pattern where if you're looking for patterns. i think the question is ultimately what are the fundamentals like. i still think, although people will write in about this and say i'm nut, i still think the appropriate period is '89 to '91, '92, '93. the difference being this is more leverage on top of that period but i think there's lots of similarities, including the asia story. which in '9, '90 was japan, now it's china. there are tons of similarities. >> i think it's more like '82. i'm not saying it will be the start of a new 20-year bull but i'm saying for the next couple of years you had such a fear-based crisis in '82 that produced a recovery, i think

that's more the model we're involved with, at least for the next couple of years. >> we'll get back to you in a second. when we come back, trade-in for tots like cash for clunkers but this time for kids. the ceo of toys "r" us will tell us about a new program. how much it can potentially spur buying. and what it takes to qualify when we come back. and how will today's economic impact the winning streak on wall street. we got jobless claims and revised gdp in about 19 minutes' time.

here's a story, comes out of a bit of history. interest in layaways programs is picking up. online searches for the word "layaway" have doubled in the last 12 months. recent newspaper articles have focused on anecdotal evidence in layaway at stores like kmart and

burlington coat factory. exbox has reduced the cost by $100, put it at $300. sony sliced the price of its ps3 to $300. cash for clunkers is over but now there's cash for car seats. starting tomorrow toys "r" us is inviting customers to exchange their used baby gear for savings on new products. joining us this morning to talk about that and some thoughts about the american consumer, chairman and ceo of toys "r" us, jer jer jerry storch goinz us. >> good morning. >> how was this thought up? >> we've seen many products, which may not be appropriate for reuse, have been showing up at garage sales, swap meets, yard sales, they're, resold on the internet in various ways. and yet the studies show that over 70% of recalled products

never leave the stream of commerce. assuming these products may have been recalled. additionally they may have been stored in improper conditions which is especially serious for wood products like cribs. there's been substantial improvement in these products and new government standard that have gone into effect this year for chemicals in the products as well as structural integrity. so we've been increasingly concerned that in this economy consumers may have been tempted to hand down or resell product for money and products that require a much greater deal of scrutiny. this was designed to clear commerce by offering the consumers an incentive. >> do you see it as a public service or can it potentially boost sales as well? >> well, we're really focused on safety. if you've followed our company you know safety is paramount with us. we know that it's the right thing to do. of course, it's good for business over the long term to focus on safety. it is extraordinarily difficult

and cumbersome to take all these products in and make sure they're properly disposed of. as we talk to safety advocates and say, what's the next thing we can do at toys "r" us and babies "r" us they highlighted this. we knew in this economy we had to offer consumers a value to get them to act. that's why we provided the discount. as you metaphored before, much similar to what was done with the cash for clunkers program. >> in order to dispose of all these items, is it going to cost you money or make you money in new sales? >> you know, i'm not really sure weights going to happen at the end of the day. we know it's going to take a lot of work and effort. we have been planning this for many, many months. we started planning this long before cash for clunkers but it doesn't matter. we're glad cash for clunkers was a success. it's a very difficult logistics challenge. we're thrilled about this, excited about this. you can bring in as many products as you have, day care centers can bring in all of

their products. the covered categories are cribs, car seats, strollers, travel systems, bassinets, playyards. these are the big ticket items when you have a baby. it's a great way of saving money on them as well as getting used products off the market. >> sure. definitely clearing out the garage as well. begins tomorrow and goes until september 20th. just to push the point carl was making here, jerry, do you have any projections on perhaps how many people you'll get coming to your store as a result of this program? >> we hope it's a lot. we really don't know. we're expecting big crowds starting tomorrow. people are been calling the stores asking about the program. we've been getting calls from schools, day care centers and others, saying can i bring if everything i have? everything you bring in you get a discount on a new product. we think it's going to be huge. we don't know until the weekend. >> i do believe -- from an ipo point of view, it's been in the market, been talked about a lot. can you give us any update, are

there any plans thereof? >> no, i can. we're excited about the performance. we've come off three straight years of net earnings increases, pleased about our performance this year to date. we're looking forward to christmas. we know, we've proven it, we've seen it, in good times and bad, the last thing parents cut back on is the christmas present for their child. we're excited about the future. >> looking forward to christmas -- we all look forward to christmas. christmas is great. realistically, how do you see traffic shaping up, sales shaping, to the degree you can tell us? private you have a good excuse in keeping things behind your back. >> well, you can look at our result the last three christmases. that's spanned the gamut from a good years three years to a so-so economy to two years ago and poor year last year. we had same store increases in those last three decembers. we look forward to christmas and we offer affordable fun.

we don't sell cars, we sell toy cars. we don't sell vacations we sell wii sport resort where you can play games on the video game. our products do well in good times and bad. we're excited. >> are you cutting prices? are you going to cut prices? raise prices going into the season? >> well, value is very important to consumers so we continue to look for ways to increase what we offer. this program we're talking about today, you know, the trade-in program has a huge value element. these are some of the best products you'll get these products at when you bring in the used product and get that discount. >> i have some numbers here. sorry, carl, can i ask about same store sales? i have some numbers here that say your sales declined 5.4% and 3.5% over the last two quarters respectively. when do you think you'll start to reverse those declines, start seeing growth in same store sales? >> our sales were up in december last year, which is super bowl of retailing. i say how you do in december is what really matters. we were one of the best performing retailers last december.

we beat almost everyone last december. no one's saving tricks back for january. we did well in the most important time of the year for us. we're a very seasonal business. you feed to focus on the fourth quarter. business this year has been like we forecasted. we delivered results better than the prior year. what we've -- the only possible sort of hint of surprise has been the weak start of the year in video games. but that product is fairly low margin, empty calories. mean while, a lot of optimism for video games in the second part of the year. significant price cuts in the hardware and great titles coming out in the video game area. video games have been holding down the same store sales in the first half of the year but we don't expect that to continue that way. >> we have an employment number coming out in ten minutes, you'll talk about the company but maybe the industry as a whole. what's the operating leverage right now in the industry to the sensitivity to employment? i mean, if employment starts improving, at this point in the cycle will that translate directly to the bottom line? >> most retailers operate on a model where as sales increase

they add employees very rapidly. you want that service level to be sustained. if sales pick up you'll see employment pick up if retail rapidly. keep an eye we're going into the seasonal hiring peak. we increase over two times our employment between a period like the quarter we just went through and the fourth quarter of the year. there will be a lot of hiring in retail this year. if sales pick up will will be more hiring in retail and it happens very fast. >> you'll have no problem getting people to send in their resumes in this job market. thanks for the insight. if the ip ochl happens we expect to you come back right here on "squawk." >> come in tomorrow and bring in your used products. we'll be excited to take them off the market for you. >> thanks, jerry. jerry storch. still to come, breaking economic news. economic market will be front and center with jobless claims at 8:30 eastern time, about eight minutes' time from now. and later, going preppy for profits. jane well tells us about j. crew and how the retailer is the right fit for the first lady.

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you are looking at a live picture of houston. doesn't look too interesting on the face of it but today is the

day accused swindler allen stanford has a hearing, another appeals court hearing to talk with whether or not he's going to -- what kind of charges he'll oouve eventually face. he was denied to get out of jail earlier in the week. so many issues surrounding himself as well. his criminal attorney has asked to be withdrawn from the case because, among other reasons, he has yet to be paid. a judge will hear some arguments on that motion as well. we went through this a few months ago in which they had a bus load of would-be accused convicts. they all left, went into the courtroom and he stood, he stayed in the car until the very end, at which point he actual finally walked into the building and gave a wave to the cameras. a reporter said, how are you feeling? and he said, great. we'll see if we can get a repeat of that today. our scott cohn is in houston and will bring us more on this as the developments come about. for the time being, i don't know

how long we want to sit here and look at this live shot waiting for him to come out of the bus. we'll take a -- we'll take a break and see if anything happens. i'm sure as soon as we go to break he will exit the vehicle. when we come back, will the winning streak be upset by the next batch of economic data? we're minutes away from the jobless claims and revision to gdp. futures have been in a relatively tight range. up close to the session highs this morning. jobless claims are on the way, as we mentioned, gdp, dell earnings tonight. jim, you were talking earlier about whether or not we would see a four handle or six handle on jobless claims? if you had to pick, what would it be? >> i think we're heading toward the four but fear jumping back up to the six. >> rich? >> well f we head back towards the six, definitively back towards the six, i think we'll get the correction people have been looking for. >> right away. >> it will be very, very soon. >> let's take a guess.

if jobless claims spike to six, would that be a 200-point day? >> could be. >> really? >> i think so easily. because employment is so critical to the lon ggevity to this cycle. we've had several guests talking about retailing and that sort of thing. we had cash for clunkers, if employment starts heading in the wrong direction, that would be a very bad -- we have -- >> i agree with that entirely. a four-handle would do the same thing the other way. >> on the opposite side? >> oh, yeah. >> what do you think we're going up to for unemployment? >> i think we're going to go close to 10%. that's about it. >> how long? >> i don't know. i think it will come off -- it might stick there for 12 months and then -- >> the key thing is, though, the unemployment rate itself is a lagging indicator. so the markets really won't pay attention to that. that will get headlines, a big political issue but markets will pay more attention to jobless claims, length of the work week which are leading indicators for

unemployment. it's only a question of, what does that unemployment rate do relative to policy in washington, things like that and how does that affect companies. >> the bears will argue, jim, that corporate profits may look better and these companies are spring-loaded to leverage their lower operating kos and get earnings in quarters to come. it's going to undermine the consumer. all comes at the expense of someone, and right now it's the consumer. >> i don't agree with that necessarily. i see where it could be looked at, particularly politically as rich point out but i think profits ultimately is the key to coming out of this. that's what creates jobs and ultimately income for the consumer. >> we'll continue that conversation in a couple minute. in the meantime, eight seconds away from breaking economic news, job ms claims. we'll get revision to gd. . jim is at the cme. what do we have? >> going to get 570 in the jobless claims, not enough to give us any clarity, right? unfortunately, it's not the six, it's not the four we were

looking for so just back -- this number's important because remember last woke it was the one that didn't follow the script. it's the one that broke trend and came in disappointing. a lot of people were looking at today. unfortunately, not that big of a deal. continuous claims 6133, better than expected. i think the market should like that a little bit. kind of ignoring it. gdp down one, a little better. kind of a mixed bag a little bit but nothing huge. what we're going to look at today, the big thing is remember tuesday the dollar had a key reverse sal day against the aussie dollar, euro and canada. the weak dollar has been fueling this move up. unless those currencies can get up from that and recover from that blow, we'll be okay. the curious thing is there haven't been very big moves in the euro/dollar, so maybe we're seeing the dollar stabilize and the rally top off. maybe this is enough to give us a correction. i think the fact we rallied 60% in five months is enough to give us a correction. >> any response either from

equities or bonds to these recent numbers? >> equities are exactly where they were. ten-year right now is -- >> way to sell it, jim. >> ten-year right for you a little lower. maybe because the number didn't come in good like the other numbers have been coming in good the last week. came in luke warm. probably seeing a little higher rate than ten-year but nothing now. >> it's a good point we're making here about the stabilization recently of the dollar. actually -- >> i think we do -- we may have breaking news here on boeing. for that we will go to phil lebeau joining us from chicago. >> reporter: hi, carl. not surprise here. we knew it would be a matter of weeks before we would get some updates from boeing regarding the 787. the company has announced a new schedule for the 787, including first flight by the end of this year. and delivery of the first 787 dreamliner by the fourth quarter of 2010. that's the new update from boeing on the 787. the company also announcing a charge for the third quarter. we're going through the

announcement right for you. we have not come across -- here we go. estimated noncash charge of $2.5 billion pretax against third quarter results. boeing announced a new schedule for the 77 dreamliner, first flight by the end of this year, first delivery to occur in the fourth quarter of 2010. carl, that's the latest. back to you. >> there had been some fears they pit indefinitely delay this. is that fair to say? this is better -- >> reporter: i think that was overblown in terms of indefinitely delaying it. most people i talked to within the industry, working with boeing or close to the broj, they fe they felt eventually this flight would be making its first flight. so this is one of those pieces of new that's going to get a little bump. delivery by the end of fourth quarter next year, that's more important than first fright. deliveries is what it's all

about. they book revenue based on delivery. 221 a share. more importantly, they have now said, we're delivering this plane by the fourth quarter of next year. >> what about the customers, people receiving this plastic fantastics? how many people have canceled because of the delay and gone over to competitor airbus? >> reporter: i like the term plastics fan plastics fantastics. >> not quite fantastic, right? >> reporter: that's part of the problem when you come up with a new design. they've had a few cancellations, very few. there are close to 800 in orders. something that is really materially not impacting the bottom line at this point. now, listen, if they were to delay this again, then you might see perhaps more cancellations. but the airline, they need this aircraft. they need more fuel-efficiency. we're at the end of a cycle for older aircraft. that's why we have not even the cancellations you might expect. >> just to look at the glass

half full scenario, maybe the delays have been a bit of a windfall for airlines because, obviously, they didn't really need the extra xat over the course of the last 12 months while it's been quite difficult for the aviation industry as a whole. >> reporter: if you look at the order schedule, the early orders are primarily from your overseas airlines, your international airlines, which are holding up just a little bit better than the domestic airlines. so you can make that argument. listen, you don't want to bring these aircraft in because we have too much capacity. but when you talk about a business where fuel really is the determining factor about whether or not you're going to make money or lose money, you want the fuel efficient aircraft as quickly as possible. >> yeah. the move on the bid/ask is not insignificant, especially given it's a dow component. we'll keep an eye on it. thanks for the update. phil lebeau in chicago. let's get reaction on the economic numbers. rick santelli on set, rim paulsen, jim bernstein.

your thought? >> i think from the initial jobless claim side, down 10,000 is down 10,000. it's not bad. we didn't bee line towards 600. on the other hand, i think the gdp, it's all about inventory so we have to monitor for next quarter. down think there's any new info today, at least based on the numbers. is the new carry trade dollar-based? that was such an interesting story in the journal. i'm not sure if that's going to be good for reserve currency and i'm not sure a country of growing savers is going to have a difference in the outcome how it turn out should they use a lot of dollars to dabble in dollar-dough nominated xodties. it's almost a better fit. >> your thoughts? >> on numbers for today, it just means we have to come back next week. >> yeah. >> i just think it was -- it's a nothing number. doesn't tell us anything one way or the other other than we're not improving at the rate we're improving for nor are we dough

tear ra-- deteriorating. we're still in limbo. i think the fed can come up with the right policies and we can look like argentinargentina. i hope they don't see do that. >> you don't see a scenario where good economic data starts translating as gains for the dollar because people will start pricing am higher dib. >> you have this equity scenario that plays out where it's on a drift upward where there's huge corrections. i think it is possible. i would like to see those days again. unlike our esteemed guest i really believe inherit in all the fed's decisions and treasury's decisions they like a weaker drar. el erian has pointed it out. it's just a process that get there and i think americans should never think a weaker dollar is good for them under any flight path.

>> you work for export companies, right? >> i have no problem with that but i think the average americans are better off with a stable, solid, upward moving dollar. just one man's opinion. >> just like having a politician say that to their constituents, right? >> do politicians ever say anything? come on. >> that claim number, that weekly claim number is starting to hold a little significance in that i would expect it to come down more. i just mean the speed by which it's coming down has stalled. one of the things that people are looking at to figure out whether we've got a "v" or a "u" is how fast claims are almost down t down. the fact corporate junk yields have stopped improving gives me a little pause about how "v" this is. >> i think it will give others that as well. >> a little significance today. >> yeah. >> what letter of the alphabet catch are you? >> i'm still on the "v have the have the side. i'm saying from that side that

number was a little disappointing. now it's been a few weeks in a row where this thing has stalled out. i'd like to see that scream down and get a four-handle on it. that would make me feel better about things. >> it's clear the pace of improvement is slowing. that's critical because we s saw -- you know, jobless claims to me are a critical leading indicator right for you. we saw them improve. we saw some improvement in housing. we saw a lot of improvement in many areas, some in retail, we discussed this morning. if this starts leveling out, it's very hard to argue that we're going to see this continued improvement in other employment-related industries. household cash flow does not continue to improve, it's going to be very hard to get the economy -- the recovery to move into an expansion. >> i don't mean to leave you you out of the conversation. any thoughts about what anybody at the table has said? >> no question about it. the weak dollar has been so important over the last five months to get us back from the brink we're in. rick, i usually agree with you on most things.

if the markets would have handled the problem -- >> what are you talk abouting exactly? the fact that equity pries are going higher without a -- >> the weak dollar is selling that? you think the average american is better off because of that? don't buy it, jim. >> confidence is going up. that's because we are replating. i don't like the way we are reflatting but we needed to do something. everyone would have hated the resolution they would have come to. this seems like a better way. >> bloomberg wrote a story a week ago saying is deflation the demon? it's only the demon if you're a large government and you have a boat load of debt. my parents were on a little deflation. let's see their savings get worth a few bucks. >> if consumer confidence -- or confidence of the population as i whole is where it was back in march, we would have been toast essentially. we were on the brink -- >> who would have been toast? >> the country --

>> equity market? bankers? do you think the investor is better than toast? i'm not buying it. >> when we go to 10% savings rate and everybody is licking their wounds in the fetal position in the corner, no good was coming of that. we needed people to spend some. i agree we shouldn't have a negative savings rate as a year ago -- >> i want americans to save boat loads and i wonder what the fed thinks about that. >> the market will take care of itself. >> jim, i love you, buddy. >> the letter of the alphabet is a "t," time-out. >> it was just getting good. >> thank you for joining us. you can see jim on "options action" every friday night at it's new time, which is 8:30 p.m. eastern. it's been a wild 12 minute. waiting for stanford to come out of the bus in houston. still waiting. jobless claims down 10,000. boeing scheduling the first

flight of -- what did you call it? >> the plastics fantastic. we'll get -- >> will that make you safe if you're riding in it? riding in plastic in the sky? >> that's what i call my corvette. >> one of ten. >> not. >> we'll talk more markets with the traders edge. first, jane wells on j. crew. jane? >> from flying in plastic to using plastic, why so many analysts suddenly like this retail company and its shares are up nearly 160% this year. we'll talk about it after the break. one hint, m.o. i'll talk about it before allen stanford gets out of the bus.

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take a look at this bid/ask of boeing on a day where you don't expect markets to do a whole lot, we'll get action out of this dow component saying its long-delayed 787 will be ready for the first flight by year end and first delivery in the fourth quarter of 2010. booking a third quarter charge related to the program. but it's already been delayed several times. we may be getting finally some answers on just when people will begin flying in that plane. it's good news for boeing this morning. meantime, j. crew is set to roll out quarterly results after the bell. jane wells will tell us about the first lady of j. crew. i think we may know who that is,

jane. >> it's not me. >> no. >> this is one of the few positive retailstories, carl, out there. then j. crew has fans in very important places. still the street is expecting a sharp drop in profit compared to a year ago for the retailer despite an expected rise in sales. j. crew has gotten several upgrades from analyst who is believe it has a strong product offering. dana telsey says it's stealing business from other stores. >> we think j. crew is taking business from a host of apparel retailers and department stores by getting it right, their ability to capture a wider audience has occurred. whether it's been banana republic or some of the department stores, they've been a share gainer. >> as for the back to school season, telsey says j. crew is more of a back to work story than a back to school story. another analyst says that in particular cords are selling well and velvet blazers. stores appear satisfied with their inventory levels. however, we were at the mall this week for about an hour and

we did not see, during that hour, a single j. crew shopping bag around. but then again, we didn't see many shopping bag the at all at the mall. j. crew has a secret weapon. see this sweater? i bought it a year ago. i wore it. no one cared. then she wore it. michelle obama put j. crew on the map wearing clothing she's bought there on "the tonight show." that's my sweater. hi it first. she also wore it on an overseas trip. the kids wore j. crew to inauguration. this is priceless free advertising but has the obama bump passed? do their fashion choices influence shoppers ready to spend now? >> no, actual lil, i didn't know they shopped there. >> my mom shops there. i don't shop there. >> i don't necessarily follow what people do. >> all right. well, maybe you get a different response from women in their, i don't know, women's in their 30s. not all analysts have been raising expectation.

s&p changed from buy to hold. shares have nearly tripled this year. tripled for a retailer this year. mandy? >> and all i can say is you have impeculiarible taste. presidential style taste. >> first, me first. she followed pe. >> yes, we will take note of that. thanks for that, jane wells. next on "squawk box," keeping the streak alive. seven days and counting for the dow. can the blue chip keep it up? we have the traders edge with art cashin. first let's check in on the dollar. let's take a look at what it's up to. dollar index at 78.05 and do the downside by 0.1%. there's no one exactly like you. raymond james financial advisors understand that. and they have the freedom to offer unbiased financial advice

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time for the trader's edge on this thursday. the bulls are going to be going for eight in a row today, at least as by measure bid the dow. bowing is not going to hurt them. art cashin joins us this morning. art, you make your point in your notes today that you, along with a few select others, correctly called the march rally. and now a lot of those guys are getting negative and you, too, are beginning to sell some stock. >> yeah.

well, first let bepoint out they did it because they were smart, i did it because i was lucky, okay? even a blind squirrel finds an acorn once in a while. i'm taking a little risk off the table. i sold some stock yesterday. and probably if they hang around here, i may liquidate some more. a lot of the elliott wave followers are concerned about finishing this leg and then having a rather severe leg down. and september is truly one of the toughest months of the calendar, so i think it's a little prudent to pull your horns in somewhat. >> data hasn't been all together bad this week, durable, new homes, jobless claims this morning. why other than the fact that we are at these levels, is it time to sell? >> well, valuations are always important. i mean, the fair value for the s&p based on current estimates is probably around 850, 880,

somewhere around there. some of the data when you drill down into it, isn't what it seems. i'm surprised the market took the initial claims data so benignly, i thought they would have been hoping for even better news than that. and i think the employment situation is hanging tough. and even though i know unemployment is a lagging indicator, with the severe leg offset we've had recently, we find that people looking not -- okay, i still got my job but the guy down the block lost his and two guys over there lost theirs, and that's beginning to rain down further on the housing market. >> what are you selling? >> well, i have my portfolio, and i'm not an analyst so i don't want to give advice, but i'm in the financials and i've been lightening up in the financials. >> you talk about we pay a lot of attention to china. rich chuckled a little bit as we talked about their comments this morning. you point out the speech from

the aei had looked at some of who they're giving or selling to, actually giving washing machines to right now. >> that was a funny part. they count as sales shipments rather than actual sales. and to do that, according to the aei piece, they sent several thousand washing machines to villages and homes that have neither water -- running water nor electricity. and they didn't even pay for them. they give them to them basically for free. but they were included as sales. so i think you want to be a little careful with some of the data coming out of china. >> we think numbers out of gdp are wrong. >> that's right. >> art, you with us tomorrow? >> i hope to. >> okay. ice cube marination is not far away. >> no. we'll have to introduce that thought to mandy. >> i'm on board. thanks, art. coming up, final strategy with our guest host and the headlines. "squawk box" is coming right

back.

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richard bernstein and ceo of bernstein capital management and jim paulson, chief investment strategist. gentlemen, we've only got two minutes left of this three-hour show. we've chewed a lot of fat. we've only got a couple minutes. leave us with your final thoughts. what message do you want to part with the viewers. >> i'll go first. i think there's clearly risks since the market comes quickly. i think variables you want to watch, you want to watch the three-month t-bill rate. it's starting to go down again. down below 15 basis points. that tells you there's not a lot of credit in the economy. it's a critical part of the whole story. that may lead us to the correction. i think longer term, 2010, 2011 profits are probably going to be much stronger than people think. >> that could be -- there could be an edge to that sword, right? in terms of corporate profits. >> yes. we want to see employment rise along with