good morning. it's monday, and we have markets on the mind. the dow's up 47% from its march lows. and on track to turn in its best third quarter performance since 1939. working for the bulls or the bears. a busy week of economic data. building the friday's employment report. "squawk box" begins right now.

good monday morning. welcome to "squawk" here on cnbc, i'm carl quintanilla, becky is off today. our top story, the markets as joe said, three days left in september, stocks are trying to turn in their seventh consecutive monthly gain. this would be only the 16th time since 1928 that the s&p 500 was able to record that kind of streak. q-3 also comes to a close this week. the quarter to date, dow, s&p, nasdaq up about .25%. usually, joe, when we get seven months up, we usually get an eighth month, as well. and the likelihood of being up three months after that is about 80%, which would put us around 1,100 year-end. >> now, you just happen to see that somewhere? >> i read it somewhere this morning, yeah, as i was doing -- we do homework at our desks before -- >> what do you mean we?

>> you, me. >> we're somewhere on the wire -- >> actually, it's the stuff that one of our producers compiled. >> someone else. that's very good. and it's not surprising to see that the caution everywhere you look. it's still widespread reading, really a lot of trepidation. earnings are coming up, people say yeah, going to be better than last year. you know what they're saying, no top line growth. no top line growth, yeah, from the previous show. >> housing data last week wasn't great, right? durables, there was a note from some rbs analysts that said we'll remember last wednesday for a long time, meaning that was probably or may well be. >> it was interesting too, it was a day when there was some fundamental inflexion type points, as well. whether the fed was going to start -- >> the wash -- >> and then that op ed piece, as well. we'll see -- i still think the consensus is and i'm reading it

again today. there's nothing, where are jobs going to come from? where are consumers going to get money? >> there's no start-ups happening. >> nothing's ever going to happen again. they almost seem mired in what's happened for the past two years and, you know, so is it really different this time that we'll never have an economy in the united states again? we're so resilient. we've been doing it for 200 years. >> at it for a while. >> you may not know what it's enjoying to be, but it's probably going to be something that we do that generates economic activity. good news in germany. >> got that right. >> pro-business. >> merkel. >> did you see what they're thinking about doing over there? lowering taxes and cutting government spending. >> well, she's no longer having to work with the social democrats. which was awkward anyway. >> did you see the tax plan? they call it it could sit on a drink coaster. rates, maximum rate 35%, much

more simplified than before. spending less by the government, income tax cuts for everybody else. that's what they've -- that's what they think they need to do to compete in the global economy. >> so as germany goes this way, we're kind of going -- >> i've said this before, i don't want to be -- i'm already an old man. i don't want to be even older by the time we realize that capitalism -- we've got this movie playing everywhere. >> michael moore's. >> yeah, meanwhile, europe realizing -- the. >> did you see the movie over the weekend? >> did i see -- >> i wanted to ask to get that reaction. >> i saw a movie over the weekend, i'll give you three guesses. >> "meatballs." >> yeah, kind of grossed me out. big pieces of food everywhere, surfing in it, rolling in it, it wasn't sticky, but it could have been. >> the kids loved it. >> yeah, they did.

as far as economic data, slow start, no major releases today. but tomorrow, look for the s&p case shiller home price index and consumer confidence. wednesday the adp employment report, final read on second quarter gdp and weekly mortgage applications. on thursday, jobless claims, auto sales, personal income and spending, the ism manufacturing index, construction spending, and pending home sales. finally on friday, the day we wait for every month, the employment report. there were like steaks falling out of the sky, cheese burgers. >> the movie. >> back to the movie. all of this happening. and i realized that a lot of this stuff was probably more likely to happen in more realistic. >> than global warming? >> well, and a lot more accurate things in the meat ball movie than michael moore's movie. more holding to reality.

not so far out there that you just have to spend all disbelief to watch it. >> michael moore, "meatballs" -- >> much more realistic. it's a lot closer -- a little bit out there, you had to suspend a little disbelief, but not nearly what you would need to do to watch that ridiculous michael moore -- another in a series of his ridiculous michael moore stuff. in some corporate news this morning, abbott labs behind the drugs unit of belgium drugs maker solvay, $6.6 billion in cash. abbott hopes to boost the prescription drug business by adding a number of new medicines in the late stages of testing. abbott and solvay have been partners on two cholesterol treatments. did we figure out what solvay makes? which drugs? >> i'm going to look a little bit. it was a big acquisition, $7 billion. from what i can understand, carl, and this is something that maybe a lot of u.s. companies will do at this point. it's going to give them a bigger footprint in eastern europe and asia where solvay operates, which makes sense at this point.

nobody knows the way the health care's stuff going to end up here, but you certainly would want to look internationally if you were in that business, right? look at glaxosmithkline with brazil for a vaccine aimed at preventing pneumonia and men t meningit meningitis. guaranteed at one price now and a lower price in future years, most drugs are sold over much shorter periods and more uncertain pricing structure. innovative in the face of what the whole industry is facing. johnson & johnson more than $443 million in new shares of a dutch bio tech firm as part of a flu vaccine. also focusing on non-flu vaccines also the prevention of other infections as well as non-infectious diseases.

looks like we're going to trade down for the third straight day. we know in friday of last week was troublesome because of some of that economic data like housing and durable goods. so for the time being, we're about 15 points, above fair value on the dow. we'll see what happens, a rough day in asia, about a six-week low there. oil, below 66. did you see this? >> i did. >> and gasoline is down for the second for about two months now, down seven cents, past two weeks. >> so oil goes down, equities get weaker. makes no sense. well, it sort of does. >> in a way, it does. down 43 cents on crude. the ten-year notes, we'll keep a close eye on yields this week, 3322 is the last check on the tenure there. second on dollar, interesting comments over the weekend about whether or not the u.s. should be worried about losing the dollar as the world reserve currency. mixed picture here, 89.37 against the yen, about eight-month high for yen. and gold, i think, traded below

9.90 even though dollars, we're seeing a little bit of fund repatriation, down 10 cents on the december contract of gold. angela merkel winning another term as german chancellor. nudges the tower to the right. witnessed the worst parliamentary election result since world war ii. she's all over the front page of the journal smiling. >> three pictures on the journal. i know, it's almost like time lapse photography there. she's pleased. >> yes. we'll see what it means for germany and the eu. in the meantime let's go overseas and check in with adam a . here in europe, the markets flat. in germany, it's too flat, but towards the positive side and back off yesterday's elections results. germany has given angela merkel,

the chancellor, a clear cut reelection this time. she's going to be able to run the country in the next four years with a center right coalition so not a grand coalition anymore. not with the left and center left or green parties anymore. and that's very good news for german business since she promised she was going if she was running the country with a center right coalition she was going to cut taxes. we're going to hear more details about how she's going to do it later this week. it's also very good news for nuclear power plant operators. i'm talking about rwe and e.on, almost 3% up, and this is because the center right coalition wants to reinvest on nuclear power, nuclear energy in germany, something the green party and the center left were trying to avoid for the last four years. very good news for them. also news coming in europe from belgium, the chemical and pharmaceutical company. you mentioned this a couple minutes ago is confirming that they are selling their drug-making activities to the

u.s. rival abbott laboratories for 4.5 billion euros. solvay investors in belgium were not happy with this news today, the share's trading almost 2% down at the moment. of course, abbott laboratories is very interested in solvay's vaccine activities. now we are going to singapore with adam. >> thank you very much, carolina. japan led the markets down today as we saw, the eight-month highs versus the u.s. dollar. the finance minister's comments saying he didn't think the movements were normal, but they continued to watch what happens with the japanese yen versus the u.s. dollar. and rose to about 88 plus versus the u.s. dollar. particularly the autos and the consumer electronics. many of these companies have budgets between 90 and 95, and for every one yen movement

versus the u.s. dollar against them. of course, this is a negative for their overall operating profits. meanwhile, we also saw a bleak picture for the financial stocks on more prospects that, of course, financials will have to raise more money to boost their capital ratios on the g-20 have been in discussions about boosting these capital ratios. the securities, which is japan's largest brokerage last week said they're going to raise $5.6 billion, the stock was not traded last friday. draped down 7.5% and that led the entire sector down with it. moving on to south korea, the kospi ended the day down by .9%. it was currency a big problem in this market, as well. you continue to see weakness dollars across the board and all the global currencies. the one strengthened to 11-month highs and that really did affect the exporter stocks like the autos in particular. finally in the greater china region, the shanghai slumping to a three-week low that was down 2.7% there as did a lot of

concerns about huge amount of ipos coming to the market as well as that investors very cautious ahead of the golden week holidays which starts next week and see this market shut for an entire week. the banking stocks, property stots along with the resources, all lower as the commodity indexes lower last friday, base metals lower in london and continued to track lower dragging all of the resource plays with it. and the shipping stocks throughout the region, even though we have the index rising last friday in london resting a ten day slide, a lot of the shipping stocks were low, indeed. not a good way to start the trading week in asia. back to you, joe. >> okay, adam, thanks. heads up, seinfeld, is the auto guy ready? do you remember the bizzaro world? here's what we're looking now to europe. so that we can try to transform our socialistic tendencies here

as we look to europe for leadership for free market type arrangements. and here's the taxes. the current rates in germany, they go -- they rise gradually from 14% income tax to 45%. this is called beer coaster reform is what it's referred to. they're simplifying a tax code and lowering it, only three brackets now, 15%, 25%, and a maximum of 35% which is well below what we are. we're at 35%, going back to 39% or so, and if you add everything else in, probably well above 50%. >> marginal rates? >> yeah, i guess so. i guess that's the way it works. but as we look to europe, to see how free markets capitalism works. >> you must feel like you are in the looking glass, right? >> i'm in a bizzaro world where jerry and the weird people she

was dealing with -- they like to read, they didn't like to go to movies. all right. let's see how the u.s. markets are shaping up so far this morning. joining us today robert stein, senior economist at first trust advisers and harry, ceo and portfolio manager of ans a sit management firm that has his name. let me start with you, bob, i was looking at your notes and you say it. the way you see the economy would a lot of these people waiting for things to pull back because nothing is fundamental. you say we're in a v-shaped recovery and going to do 4% and you say the market is backed up by what's happening in the economy. >> that's right. when you look at inventories, look at a declining trade deficit, look at what is the beginning stages of a rebound in home building, remember, now, i haven't mentioned consumption yet. which will grow, but probably more slowly than the rest of the

economy. you can get 4% plus over the next year and a half rather easily. and that justifies a lot of the rally we've seen in the stock market over the past several months. >> that's what everybody's hanging their at on. it's the market obviously has got things wrong in terms of the economy. it's almost like a lot of these guys that are looking at the stock market. it doesn't have fundamentals. they're looking at coincidence economic indicators. this is either a w or an l, and if it's not, their whole argument is gone about not having any underpinnings of the markets, right, bob? >> that sounds right. frankly, i don't go in too much for the letter about what letter it's going to be. >> stick with v. that's what i'm basing all of this on that you say v. >> that's right. we think the early stage is definitely a v. you know, but we don't think is an immaculate recovery where we're never going to have a

recovery. with higher taxes and what will inevitably be tighter money, there may be problems for the economy down the road. but in the initial stages, year and a half two years out, this is going to be a pretty strong recovery. >> okay. harry, does that make sense? and i'd say you're saying about the prospects for the market, right? >> well, you know, we think that the sort of second tier cyclical junk companies have probably gone too far too fast. and some of the blue chip non-discretionary oriented companies, we think represent great value. on the long side, we're looking at some of these blue chip drug companies, you know, specifically we're looking at companies in the pain management space. you know, some of them trading at single digit pe multiples with clean balance sheets, great product portfolios, and this pain management space is growing at 20%. companies like cefolon, and then

on the short side, you know, like i said, we've seen sort of a junk rally. and we've seen stocks like buffalo wild wings trading at 25 times earnings, the stock's doubled. and i'm sure it's important to know that wing prices have -- are up almost 30% in the last year. stocks like amazon. great company, but trading at 40 times earnings with a $40 billion market cap. we think they're going to have a tough time growing quickly enough to justify that multiple. and then, you know, lots of second tier companies like lazy boy, lazy boy's up tenfold. bed, bath, and beyond, priceline, lots of second tier companies that have go too much too fast that we see as opportune times as the short side. >> how much is long and how much is short right now?

>> we're more than 40% net short. so we're about as short as we get. and, you know, we're bearish. and the opportunity on the short side. for every one long idea that the model generates, we're seeing 10 or 20 short ideas. er ir respectable, the opportunity really exists on the short side. we also think the treasury market is rallied too much and volatility has compressed too much and we're buying the tbt. we see that as an opportunity on the short side. >> the other thing we keep hearing is that as long as we have a lot of this recovery is being sort of stimulated by washington that that's not real and that the government can't really -- it's not going to be a long lasting solid economic, i guess, base. does that make sense? how do you get to 4% when most

of it's government? >> well, because most of it isn't, actually. we think inventories are going to add a little more than a percentage point to growth over the next year, same with trade. that's 2 percentage points. government usually adds about a third of a point to growth quarter after quarter. we say it'll be maybe half a point to growth. now we're at 2.5%. between that and home building you're up close to 3% economic growth. and you haven't even touched consumption yet. and with the scrappage rate on autos about 13 1/2 million annual pace and auto sales, forgetting about cash for clunkers around 9 1/2 to 10 million annual pace, we have a lot of growth in auto sales that are baked in the cake unless we're going to be driving around really old cars a few years from now. and we doubt that's going to happen. >> when does instead of looking at the goff stimulus as a positive, when does all of this come back to haunt us?

bob, that could happen down the road too, can't it? >> a big tax hike in 2011. the administration, you know, if you read the tea leaves, not disclaiming any middle class tax cut, paul volcker has a review due sometime next year. there is a possibility of the administration trying to impose some sort of value-added tax on the u.s. kind of like the europeans already have. and that would be a major problem. when we start to actually have to pay for all the extra government spending we've done over the past few years, that's going to hurt. >> well, you know, the europeans are leading the way now. and free market capitalism. so we need to pay attention as we -- >> are you going to move? >> i'm looking at different a place. thanks, bob. thank you, harry. >> thanks for having me. >> i think you'd look good in frankfort or berlin. >> i'd hate to say it, it would have to be paris.

you know what? that might do it. >> something like that. >> yeah. that might work. but i don't know. it might be 10% or 11% unemployment over there. sometimes things don't work. they do, everybody's happy, though. you're in olive -- got olive fields. >> something like that. when we come back, a look at what to watch in washington this week. busy week there with the fed chairman speaking on thursday. as we go to break, though, let's look at last week's winners and losers.

welcome back. time now for our business travelers forecast. scott williams of the weather channel is here. good morning, scott. >> good morning, joe, and good morning, everybody. i hope you had a great weekend. and as we focus in on your business travel forecast for today, weather woes as you move around the great lakes. watching a potent storm system right now wrapping around, the moisture around green bay, wisconsin, back down through milwaukee. so if you're traveling there, watch out for the rain. also the wind around chicago, the motor city, scattered showers and storms, pittsburgh, severe thunderstorm warning in

effect until 6:45 local time this morning. so not only where we dealing with the rainfall, but the windy conditions as we go hour by hour. so if you are doing traveling by car around the twin cities and in and around chicago, indianapolis, you'll want to hold on to that steering wheel tight because we'll continue to see the gusty winds as we go throughout the day today. gusts at times up to 30 even 40 miles an hour. with the storm system continuing to wrap up towards the east. even into your tuesday, some windy conditions for the great lakes area. now, as far as your monday's travelers forecast, we will see the rain, the windy conditions around the great lakes. eventually that activity will move into the interior sections of the northeast throughout the day today. so delays possible around chicago, wind will be a problem in chicago, cleveland, scattered showers and storms, windy conditions, as well, picking up for new york city, the nation's capital, as well, but a great day for traveling in and around the charlotte area, also into dallas. carl? >> scott, thanks for that.

scott williams over at the weather channel. the president back today. john harwood is back home after a busy whirlwind week. john, this week's going to be pretty busy too whether it's the iran talks on thursday, health care, this afghan-pakistan issue is bubbling up. what are going to be the big issues of the week? >> well, i think iran's going to be the central focus, carl. you've got those talks on october 1st. and the administration is going to demand that iran open up its facilities for inspection by the end of the year. and we'll see whether iran is in a mood to cooperate in any way. and if not, then president obama is going to take on the burden of trying to lead the world, including russia and china, both of which have resisted tough sanctions in the past and see if they can do something about this program. we've been talking about this in the united states for a long

time, haven't gotten too far with iran. some people think it's inevitable that they're going to get one. he's got all that on his plate right now. >> over the weekend, i'm sure you saw the journal had that special section on how a military attack against iran would work, what it would look like. on the other hand, people like senator corker are saying the table couldn't be set better if you were going to have talks with iran this week. a little more leverage now. >> absolutely. a ton of leverage for the president. that's an opportunity for him but also a lot of pressure. this is somebody who campaigned, carl, as you recall, as somebody who was going to use diplomacy and talk to our adversarieadver. now he's got favorable conditions to talk to them. what's he going to get out of it? and if he doesn't get what he wants from iran? will he get what he wants from our allies? it's not an easy problem. >> how about health care? senator reid may apparently ask

him to referee whatever disputes in the party. is the president willing to get his fingerprints on it? >> yeah. i talked to a senior white house official over the weekend who was joking with me. saying negotiating with iran, negotiating with members of congress. which way would we rather go? it's going to be a slog. they had 500 amendments in the senate finance committee, but there's still tough issues they're dealing with. the white house remains optimistic they're going to get a bill, which is resembling their principles enough to get through the senate and through conference with the house of representatives. they've got work to do. i think they remain on track to get it by the end of the year. >> would you agree with some of the comments made by schumer and alike that conference is going to be easier for the democrats than the current battlefield right now? >> yes. >> does the house come in -- why is that? >> well, initially you've got to get something to move. and there are a lot of forces in washington to kill legislation.

it's much, much easier to kill something than to pass it. if you can get something through the floor and then get it to conference, then you've got a small number of people in the room, make deals and try to project those deals and rally your base and your party. because this is going to come almost entirely from democrats to support it. it's harder to stop the train when it's that far down the track and you've got more kind of cohesive control over the process. over the weekend, an op ed in the "times" argued that the president is in the view of this one writer, the tortoise who has been able to play it cool during the summer, ride out some of the anger that's happened at tea parties and town halls and now that we see some poll numbers stabilizing some momentum on health care, looking tough on foreign policy that he may end up -- as he said at the g-20, looking like the cool jock at the high school cacafeteria. >> well, i think there's

something to that. what i take issue is that it's the tortoise kind of pace. people forget and maybe it's because i'm so old i've been covering washington so long. the legislative process is slow. we're nine months into obama's presidency and he has a chance by the end of the year to pass comprehensive national health care reform something that hasn't been done in 70 years. when bill clinton was at this point in his presidency, he laid out his plan, died over a period of about six months, didn't get to the floor of either chamber of commerce. i think he's going a little bit faster than some of the critics give him credit for. and as to whether he's going to along look like the cool high school jock, let's figure out whether he's going to get as i suspect he will health care and then let's see what shape the economy is in next year, what the unemployment rate is as democrats prepare to go to the polls. democrats will decide whether he's the cool guy in high school or whether he's the guy to run

away from next november. >> finally, should he, will he go to copen hagen to pitch for the olympics? >> i'm not sure he's going to. i've got to think with all of the things he's dealing with, there would be risks associated with going over for purposes of luring the olympics, but he's got a strong feeling for his hometown. >> all right, john. talk to you later. >> you got it. is it a merger monday? >> it is a merger monday that involves xerox, affiliated computer services which is $47 stock acs with a $4.3 billion market cap. they're going to pay $63.11 a transaction. that's that nice premium, what is that 16 points on $47, which is 33% or so? yeah, about 33% premium.

it's in cash and stock and it values affiliated at $6.4 billion in cash and stock. looks like $18.60 a share in either cash or stock. don't you love how it cuts off there. it is cash and stock. i don't know how much of that is actually in cash and how much sh in stock. we need a press release. but it is a cash and stock deal. valued on this monday at over $6 billion. not bad for xerox. remember, we had animal casings on not too long ago and we tried to figure out what the future held for xerox. and remember, i was confused on how you take -- xerox is almost a generic name for when you copy something. but in addition to world -- what did kodak do? >> i wouldn't put the companies in the same -- >> oh, yeah, it's very uncertain

to figure out how xerox is a $7 billion market cap at this point. it was one of the nifty fifty back in the '50s. copying machine company would've made ten years ago. >> xerox would comment they've moved on. >> but not with a lot. i don't think not with a lot of huburus. the world with the internet world and with google and microsoft and everything else, it's a totally different world with distributed computing than it was years ago. i don't understand the new xerox, what is that office hub? have you seen the ads on tv for office hub? yeah, i don't know. anyway, there's what affiliated looks like. that's going to be a big winner. new ceo at xerox. >> that's right. first transition of a woman's

ceo to another woman ceo. interesting. we'll keep an eye on acs. in the meantime, kraft, reportedly poised to launch a hostiled by for cadbury, that would value the business at about $17.6 billion. the paper says britain's takeover panel is preparing to give kraft a deadline by which it must put a firm offer or walk away for six months. in a separate interview, ceo says cadbury's ceo had failed to do the math quite accurately after he claimed cadbury's own growth strategy would deliver better returns than kraft's cash and stock offer. how do you think that's going to come to a head? >> if faber were here -- but he's not today. he's not going to be in today. it's a holiday. but he would be all over this. at least i can tell you now, carl, it makes sense.

18.60 in cash and the rest of the $63 in stock. so it would be .439 xerox, plus each acs share and at this point a market, a little bit below the $8.97 close. u.s. financial regulators reportreport edly working on short-term borrowing rules. the ft says officials dc wake up, worried capital loan may not be enough to prevent a run on a bank that needs the overnight market for funding. regulators are thinking about proposals to prevent banks from becoming overly dependent on short-term borrowings. the firms may need to operate under new ratios measuring the dependence on short-term funding and their susceptibility to market shocks. japan's finance minister denying ever approving a strong yen. he warns the currency moves are becoming one-sided in favor of a yen rise and backing away from

earlier comments suggesting that intervention was unlikely. the growing belief the government would not intervene the halt the strengthening is one reason japan's currency is at eight-month highs. eight handle. >> and i read -- what i read over the weekend is japan's ready to fall off a cliff. >> did you see that? >> yeah. >> the highways are overgrown with weeds. everybody's going to be -- all the population's going to shrink by 20% because the baby boom ended much earlier. >> 77 -- >> 77 people that need -- for every 100 people working there'll be 77 people you'll be taking care of. >> up from like 30 now. >> up from 30 right now. the long-term demographic implications, they said in the article whether this all comes to pass is open to. hyperbole on what's going to happen in japan.

>> that would not be good. anyway, coming up, this morning's top stories, plus a trip to the futures pit in chicago. you're watching "squawk box." they've served for decades as a golden, tasty sidekick...

to the all-american meal. french fries, and our national passion for them, are legendary. classic. iconic. but times change and people want better foods. so cargill helped a restaurant chain create... a zero trans fat cooking oil for their french fries... using select canola plants... and innovative processing techniques... while preserving their famous taste. because no one wants to give up a classic. this is how cargill works with customers. ♪

there is the indicated opening for affiliated computer. a deal this morning, xerox buying that company for $6.4 billion in cash and stock. xerox ceo is going to join us live in the next hour. carl, acs is a leader in bpo. business process outsourcing. it handles jobs that its clients would rather hand off. commercial enterprises, government agencies focusing o

on things like communications, health care, acs handles functions such as the administration of health care processing claims. finance and accounting human resources, payment processing, sales marketing, and customer care call centers. all of this, it's a computer services company and this is xerox. and i still think that asking what the heck do you do with xerox in this digital day in age, where are you going? and this is like an answer that she's giving us. and xerox, the market check is not bad. it's $18.60 is cash in the $63 offer deal, and the rest of the stock. you know, you would expect xerox maybe to be weak, always sell the acquiring company's stock. down from 897. >> that does remine me, meredith whitney was here and talking about it in the context of

banks. but did say we would see transformational deals, companies trying to take a hard left turn and do something different. >> you can't sit there and make copy machines. >> although we do -- >> we do, but it's getting more and more paperless, right? you don't want to be there ten years from now -- look how it colates. you're going to have to move on. digital world. >> looks like that's what they're doing. in the meantime, to the futures pit. george standing by. good morning to you, george. >> how are you? >> good. a little m&a action here, jobs number on friday, but people are beginning to argue, the data last week, the op ed on friday, this chatter about reverse repos, mortgage securities programs slowing down that last wednesday maybe it was a reason to start taking money off. >> i think so, yeah. i think it's going to be an interesting week. today will be quiet with the holiday, then we get to month

and quarter end and the unemployment numbers on friday. i feel we've had a pretty aggressive move up. we've gotten to the first level on the topside. allbeit more aggressively than anyone anticipated. i think also 11,026 to 1,150, and the retracement of the large move down. i think you could argue higher prices, but i think the most likely course is we go lower. these non-pharm numbers on friday. it's been steadily improving since then, the range of expectations for friday is down 135 down 235, i think the market might be getting a little ahead of itself. seen some improvement in the initial claims and continuing claims. but 170 to me with the run we've had seems to be a little optimistic and i'm afraid you might get a little of that priced in. >> do you think that -- so you're saying that 170, even a 130 would be still be too bloody

of a number for the market to appreciate? >> no, i think a down 130 is a great number, i find it hard to believe we get a number like that. these economists coming up with these numbers are a lot smarter than me. it was around 4.63 in june, down 216 in august now we're looking for down 170. to me, the economy overall just doesn't have a feeling like those numbers make sense. >> yeah. >> i don't feel sort of anecd e anecdotally. >> the highest ratio we've seen since collecting that kind of data. is the quarter end buying, is that already over? or is there more to come in the next couple of days? >> i think we could see a little bit more. i don't think we'll see a lot of selling until we get past quarter end and month end. but i think the bulk of the quarter end buying is done. >> yeah. if you're looking for someone to

prettity up the numbers in the next 48 hours or 72 hours, you might have missed your chance. >> i think that's right. we could see -- i think the equity market could stagnate for the bulk of the week for that reason until we get non-pharms up. despite the pessimism on japan, looks pretty good down here at 89.40. >> he was summarizing. >> yeah. summarizing. >> the dollar has been focus. and today's a mixed day where you have the dollar lower and the dollar higher amongst other currencies. i think you haven't seen the big washout type run yet and i think you could see that over the next couple of weeks. >> go read that piece, though, george if you haven't. just talking about, if you thought about it, wouldn't you have thought that sony and panasonic would lead the world in smart hand held devices? and they're not. a lot of weird -- the article brought up a lot of stuff that

opened my eyes that just some of the things that long-term that might be working in japan -- it's been 19 years, george. since we thought japan was going to be the leading economy and just leave us in the dust. >> everybody was learning japanese. >> the clean, perfect assembly lines. but you look now and innovation has been stifled and they don't let any immigrants in. can't get in there to bring any new talent. no babies being born. >> import almost everything. >> import everything. supposed to be an export economy. that's only 15% of their economy is export. basing everything on that. >> joe, even more concerning is that statistic where you mentioned 100 workers paying for 77. >> right. unbelievable, i know. >> it's going to be interesting. george, thanks. quick break now. still ahead, the ceo of xerox on a merger monday. so stay with us.

national car rental knows i'm picky. so, at national, i go right past the counter... and you get to choose any car in the aisle. choose any car? you cannot be serious! okay. seriously, you choose. go national. go like a pro.

still ahead, the ceo of xerox on her company's acquisition of acs announced a couple

♪ >> all right. we're in the chairs. there's two kinds of people in the world, dog people, cat people. you're a dog person. >> boxers and briefs. >> we part ways there. >> you're one of those weird -- you're not sure what you have. >> you wear boxers. >> you're half and half. that's because you're a journalist. i don't know where i am. i'm over here. but if you woke up this morning and you're a "new york times" person versus "wall street journal," the world is a completely different place. here is "the wall street

journal," mandate for change in germany. three pictures here. then you open it up fdp poised to make a comeback, center left party faces a loss. tax cuts and labor overhaul on the agenda. go back to the editorial page. germany goes for growth right here. all right. that's the journal. seems like a big story. >> it is a big story. >> open up "the new york times." many investors avoiding risks. u.s. seeking tougher sanctions against iran. new cheney taking center stage for gop. nannies get holiday. maybe -- computer guys. wait a minute. here it is. sort of. chancellor of germany claims win maybe in the election kind of right here a couple of -- >> maybe the editorial page says something on -- >> merkel. >> moving away from socialism.

>> fdic. >> might have gone to press -- >> paul krugman on the earth outlook, an economist. he did want to know all the about climate change. nobody listening to him. nothing here about -- >> your point is that the "times." >> you woke up and you wouldn't know there was an election in germany. they don't really want people to know they are moving away from -- right? >> this is the vast left wing conspiracy at the "new york times," trying to bury -- >> i'm talking about two different ways. not just in the op-ed pages you see a difference in a world outlook. >> i'm surprised at how little they played it. >> are you? >> if it had been a different turnout. >> i would have cried. >> coming up on "squawk," guest host senator judd gregg, xerox. don't go away

.

your market training session has begun. guest host senator judd gregg ranking member of the senate budget committee regulatory reform, state of if anythings and what washington is doing or should be doing to aid in the recovery and why washington matters more than ever to wall street. >> ducking and moving is the name of the game in germany. chancellor angela merkel winning another four-year term and looking over europe's largest economy. we take a look at reactions

around the globe at the results. >> health care powwow. in the right corner hailing from the garden state representative scott garrett. and in the left corner from the old line state named as one of the rookies of the year by politico donna edwards. shake hands and come out fighting for capitalism that is as the second hour of "squawk box" begins right now. >> what are we waiting for? good morning, welcome back to "squawk box" on cnbc. i'm joe kernen along with carl quintanilla. becky quick is out feeling a little under the weather. in her chair we have the budget committee ranking member, a rebel and icon, senator judd

gregg. >> let me say right up front, i do not replace becky. >> you're a nominal replacement. >> i'm missing a lot of talent. >> we have a lot to talk about, first a check on the markets which are feeling a little bit of an upward momentum. >> which is surprising. asia did not have a good night overnight. >> germany did. >> china down 2%, europe has been mixed. we are going to try to mend things as we get m and a action. joseph has talked about that so far. oil down, 66. we have seen it come off, lost 8% last week, another 30%. ten-year note yielding 33 and change. pretty good day for the dollar, mixed, beginning to see funds repatriated. the yen, dollar up.

xerox inquiring affiliated services, $6.4 million cash stock deal to perform xerox into a management enterprise. just a couple of minutes, we'll talk to ursula burns, ceo about that. angela merkel winning another term as german chancellor. it nudges europe's biggest party to the right. the worst parliamentary election results. b of a suspending its kurn commitment to a.c.o.r.n. housing, affiliate of a.c.o.r.n., the stanly hit grassroots group, a.c.o.r.n. has worked with b of a and other banks on foreclosure prevention. what a disaster. >> i just don't see how a 26-year-old, like a pump, can bring down the entire organization with all these ties, senator. >> the organization had a

history of mismanagement and potentially fraud and was basically using his position in these communities to force industries, banks especially, to support them to the cra program. if you're going to be honest at all, what brought down one of the core elements that caused this huge housing problem, it was the cra, community reinvestment program, which forced banks to lend to people who couldn't afford to pay them back and took the debt and laid it off on fannie and freddie. >> that was a small percentage. >> no. that's a very large percentage. it was very much a mind-set which created the mind-set that said we were supposed to lend to people. everybody should have a right to a house, even if they can't afford a mortgage on the house. >> special host senator gregg, republican senator of hamp, ranking member of the senate budget committee new member.

passing off the risk, juicing their profits because they didn't know they were going to get paid on that. that's on one hand. p rcht on the other. you wouldn't say the cra is as culpable as -- would you say it's similar? >> i would say it's a symptom of the disease. you have to throw another thing in here, fed keeping rates so long that money became so easy to get you could lend it out. >> i can think of a lot of other things to throw into it. but in the contribution to the crisis and what we're -- the situation we're in now, cra versus corporate greed. >> toss-up. >> bigger? >> really? >> cra set the tempo, set the personality of the lending process which said you should lend to people who can't afford to pay you back. the congress essentially said you have to go out and lend to people who can't pay you back. then it took freddie and fannie,

we're not going to apply serious accounting rules, we're going to let you securitize stuff that can't be paid back on and we the government will put an implicit guarantee on that. then we sold it across the world. when that started to go down the world said aren't you going to live up to your guarantee? >> okay. blame a little bit of the left on that on the right you had president bush with his society, social security, housing should be owned. everybody should own a house. >> compassionate conservative. >> it did not work, that is what you're telling me? >> it's just the same old tired partisan fights when you're looking for a cause -- >> it's not a tired partisan fight. the issue is what is the proper role of the government in controlling the market. if you want to look at the next systemic risk to this country, it's the congress of the united states and the fact we're running up all this debt that we're not doing to be able to repay. if we're going to repay it,

we're going to have to devalue the dollar. pretty soon the dollar will be weaker than the nationals pitching staff. it's simply not going to work. so you've got to have a responsible government. you've got to have a government that doesn't say go out and do things counter-intuitive to a market working effectively. you've got to go out and have a government that lives within its ability to pay back debt. it can carry debt. obviously it can carry significant debt but can't carry debt that grossly exceeds -- >> elect bid constituents that want them there to make these kinds of decisions. >> populism works. we've had a strong strain of populism in the country that said you can get something for nothing and promise everything to everybody. >> margaret thatcher used to say socialism works until you run out of other people's money to

spend. we're going to pretty soon. a trillion dollar deficit, taking debt up to 80% of gdp. those are numbers that aren't sustainable. >> don't you see some of these poll numbers asking voters what are their chief concerns, the debt is almost close to or at the top. >> until you ask them what program would they cut and you suggest the program which they are benefiting from and they say, no, don't cut that one. >> you don't see the reversal. >> just the opposite. if you look at everything congress has done in the last eight months and granted the prior administration, president bush's administration. the drug benefit was $8electrical liability. it should have been paid for. i voted against it but there were only a few of us. i think like ten of us. as a practical matter in the last eight months all we've seen is a massive expansion of spending, a moochblt of government to the left aggressively. the president made it clear he felt prosperity was created.

that was the philosophy. we have a parliamentary they have super majorities in the house and senate. they can do pretty much whatever they want. as a result the government is growing very fast and the deficit is going up rather quickly. the short-term understandably because the financial situation but when you're running trillion dollar deficits on average for the next ten years that's not a function of government that's a function to the size we can't afford. if you don't step back from that and start to curtail the rate of growth, you'll find yourself in a situation where you're compounding debt at such a rate you'll have to inflate the economy or dramatically increase taxes. either one reduces productivity. >> that's interesting, for years. >> too much economics? >> no. >> i'm trying to do this for years. >> i think that might be. i think for year the country,

ideological ideas have gone in a different direction, abortion, gun rights, now a big nature of how we want our government. >> we want through this before in the early reagan years. this is the debate we have. reaganomics, remember that. >> you have to talk to me. >> i remember it. >> basically we went through this debate. for a while responsibility won. in fact, if you're going to credit bill clinton with anything as president, you should credit him with the fact he came in as a president who said we are going to be responsible on deficits and then got a republican congress that forred him to be responsible. >> was reagan responsible on deficits. >> he tried to be. he tried to be. especially in the early part of his firm. remember the stockman cuts. we were responsible on social security. had that compromise that involved tip o'neill and bob

dole and greenspan, but we haven't been responsible for a while and it's getting worse. that's the problem. it's getting worse. there's no one right now discipline the spending side. we're going from 20% of gdp as national spending, which is what it's been since world war ii on average up to 26% of gdp if we follow the budget presented to us by this administration. that's not tolerable because you can't catch your tail. basically you can't catch up with that type of spending even with masses increase of taxes. not just on the rich, on everybody. >> we were talking off camera. >> it's going to inflate the economy. >> you think that by 2010 you're going to see the constituency realize some of that or does the cycle take longer. the republican a while, a while before the pendulum swung back. look how long it took in europe. >> here is the problem, i think people are starting to -- auto that's great. you've got cap and trade

spending a trillion dollars. you've got health care bill which is going to be $1.5 trillion. ten years numbers of the budget i receive, $10 trillion a year. people are sitting back and they have gone through the this hard recession. they are saying i've got to sit back, make ends meet, why won't the government do the same thing. the problem is this. all government moves left. it always moves left. it doesn't go back, it moves up. how quickly does it move left? once in place, you put in place a massive expansion in health care you're going to end up with it staying in place forever. you put in place massive cap and trade it's going to stay in place forever. kaunt back down from those positions. that's the problem. even if the american public decides in 2010 to make a change. i don't know if they will. i hope they will. bring in a congress more

responsible on the spending side. so much will be put in place by then it will be hard to recapture the fiscal high ground. >> they will put the public plan back in. >> sure sounds like it. >> put it in -- as a trigger. >> in with a lot of little bushes so you won't recognize it as a public plan. then in a couple years the bushes will be cut down. >> all right. we'll talk a lot more about that. >> your sensitive about that. >> we used to have ski races against each other. we had an agreement in new hampshire i'd won, wisconsin he'd win. very fair, balanced. >> comments or questions about any of that, we'd love to hear from you as joe said. our address, squawk@cnbc.com. when we come back, head across the pond and get reaction to the

re-election of angela merkel. >> how did that happen? i read "the new york times" and i didn't see a story there. later on xerox acquiring affiliated service. ursula burns, ceo of xerox will join us and tell us what that is all about. >> time now for today's aflac trivia question. what essential piece of office equipment did johann vaaler in vent in 1900? the answer when cnbc "squawk box" continues. 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? aflacc 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 --

control of the largest economy in europe, the outcome of the election and market reaction, joined by reporter in berlin. good morning, sylvia. >> good morning. >> yes. tell us. >> well, i was wondering whether there was a question coming. german elections, everybody thought these elections were

going to be really dull and everything is going to remain the same, nothing is ever changing in germany. we did get some surprises. angela merkel did get her changing coalition. she does not have to sit anymore in the uneasy coalition with social democrats. she got her green candidate, as it were. she got the liberals into the vote for the new coalition and there's the hope in there at least for the business community they can come up with some of the measures reforms that might be a bit more business friendly. at least that's the general theory. the general theory being the liberals are going to push more liberally for tax cuts, push more vigorously on tax pedaling, social security reforms, minimum wages, for example, which are very unwanted parts of the business community. but that might be a false hope. it's not that easy, joe. politics are not quite that simple. we might have conservatives, so-called conservatives in power. we've had for a number of years with the social democrats but

many cynics already arguing whatever you call conservative in germany, angela is more a social democratic chancellor head ag nominally conservative party because the politics of the conservatives, of the german conservatives are a lot more socially minded than anything you might on your side of the pond or the uk or many other european countries as a matter of fact. then it's going to be the crunch point now. the coalition with the liberals might not fit an awful lot easier than the coalition with the social democrats and whether we're going to see anything like a move further to the center right or further to the right in terms of business friendly politics is very questionable. the other part of the equation is, of course, angela merkel might have been celebrating a victory but she's not really one of the victim -- victors, because both have lost ground. this erosion of big parties to the center, that is something that germany has been followed for sometime.

we get more and more of the smaller parties from the fringes actually gaining power and gaining more votes. that's something that many political analysts are now saying germany will move sometime down the road further to the left maybe in the next election. >> too many parties over there. that's too complicated. let me just ask you one other thing. >> to say the least. >> we go to the beer coaster tax plan. >> called the pirates. >> 15, 25, 35. you do have a 19% vat. so you're still up there, still heavily taxed even if you simplify and go to a top rate of 35. >> yes, absolutely. and many political observers are saying whatever we're going to get in the way of tax reforms or tax cuts is more or less -- some tax cuts down the line to appease the liberals. let's face it, we have the same

financial restraint of anybody else in the wake of this financial crisis, budget deficits are exploding, a debt service that's exploding. so the financial leeway, the room to maneuver is going to be very small on anything that looks like tax reform or tax breaks to anybody so. somewhere down the line we're going to have tax cuts on one side but probably tax increases on the other side. so it's going to be even stephen and not a real relief. if you take it out of somebody's pocket, going to put it in somebody else's pocket it's going to hurt somewhere. >> okay, sylvia, thank you. we've got a lot more insight. i guess it's a victory but a lot of qualifications. let's get a check of traders this morning. a lot of people were talking last wednesday, matt, if that was the beginning of the pullback everyone is waiting for. do you think it was? >> it's a little hard to tell. there's things a little different. snap putting in double talk, saw

the volume picking up a bit on the downside. this could be the real deal. the level we're watching, watching 1036 on the s&p followed by 1025. so we start to get a break under 1036, see the volume pick up. this could be the real deal this time. a lot of concerns resurfacing, a lot of government programs winding down, in particular firstime home buyers, seeing jitters coming back to consumer spending. this week the data we're going to be hit with is going to be very telling. >> then we have reporting season coming up too, matt. i'm already starting to characterize, top line weak, bottom line okay because of comps from last year. will it be a net positive or negative when we final get right to the middle. >> i think if it's more of the same it's going to be negative unless we see top line numbers improve.

companies can only do cost-cutting, some may come in because the bar is set low. without top line improvement, i think this time around it's going to be a negative. people are going to look at this like the market got ahead of itself. >> what are you hearing about friday, that number. we're going to lose 1502.00, something like that. >> about 175, an uptick to 9.8. if it comes in in line, i think it's going to be a non-event. i think this week's ifn numbers will be under much closer scrutiny after the last week's durable goods number. that's the number i'm going to be watching. >> it is october. there's a lot of things that happen in october. every -- the 19th is a bad number, 16th is a bad number, 31st is halloween. i mean, will it be one of those octobers we dread or probably not happen this year? >> i think we're definitely going to see a pick up in the volatility. i don't think it's necessarily going to be something we dread. i think it's going to be a

little more bumpy this month. we're a much more solid footing at this point. expect the downside to be fairly limited. >> okay. all right, matt. thank you. you love halloween. >> i do. this is my first halloween with kids, so that will be fun, too of. although they are a little young to trick or treat. >> they are a little young but you can go out for them and dress up. >> check the candy. >> lovely wife's birthday, which is not fair. we always have to do things for the kids. we can't really celebrate. it's something i have to deal with. >> your cross to bear. >> my cross to bear. xerox acquiring affiliated services. we'll sfoe lawyers burns. health care, debate ideas, try to figure out how to overhaul health care system. as we head to break, take a look at health care plays and their performance on friday.

we're very near, probably are at the top of any business network worldwide, we're probably close to or first, i would think. wouldn't you? i do. to ensure our forces are safer and stronger. to take the world we share to tomorrow and beyond. announcer: around the globe, the people of boeing are working together-- to make a difference. that's why we're here.

in poland, cargill borrowed the idea... for something quite different. small polish farms had difficulty getting... affordable feed for their smaller herds of animals. so cargill created a way to bring the feed... directly to them... on musical delivery trucks, selling a few bags per visit. ( dog barks, horse neighs ) keeping the small farmers competitive,

and their animals happier. this is how cargill works with customers.

>> xerox acquiring affiliated service. joining us discuss the acquisition and what it means for her company ursula burns, ceo of xerox. thank you very much for coming on. >> you're welcome. you're welcome back welcome. >> did you see ann when she was on a couple of weeks ago. i was wondering if you saw that interview. >> i did not. >> that's okay. you're running a company. you have things to do. at the time, i tried to figure out what xerox's strategy for the future would be. these are things you probably think about all the time. when she was on, she said we've got things we're thinking about. was this deal in the works? were you eyeing a big move like this? i don't even know what you call it, vpo business processing? >> we were eyeing a deal like this. it's in our strategic framework. it's called document and

business process management, by the way. it's the world largest dwerified business outsourcing firm and xerox is the largest world management firm. putting two together, we call this business documents management. we clearly were thinking about it when ann was on a couple of weeks or months ago. >> you would have to be. an answer to the world going digital and paperless. will you be selling copiers in ten years? >> you said a couple of magic words. paperless is one of them. we don't see the world going paperless. from what i understand, you're a guy that uses a lot of paper. in the last couple of weengs in the wor -- weeks in m and a. if the world is going paperless, m and a would be out of business. we're focused on core document

management in the offices, front office and back office. acs is focused on business process outsourcing, the connection of these two companies is called for by our clients. they have been telling us over time as we engage with them more and more, either asc with xerox, we could bring these infrastructures together and help them become more efficient in their business processes. that's what we're doing in the combination of these two companies. >> talk to us about synergies or potential synergies that evolve, equipment xerox makes and services it provides. >> it's a great question. very seamless. this is a complimentary deal. acs doesn't provide equipment per se. they actually manage processes. xerox is a developer of technology. obviously it's a great brand. it covers the globe well. acs's business is primarily in

north america. what we see happening here is combining these two companies strength to strength. we'll use xerox presence around the world, brand strength, our ability to cover customers and our amazing document management technologies to help acs extend its reach around the world. acs will help xerox corporation literally become the world leader in. vpo sense, dwerified vpo market, $6 billion market it has, our small but powerful cpo business will be joined together to create the largest vpo business, our business in general will go to be about $10 billion in services, $22 billion overall. it's a transformational business and market for us. synergies from revenue growth as i talked about, global coverage, but also cost, 300 to $400 million of cost by year three growing as we go past year three. synergies in revenue and cost. >> i was wondering, who does

this give you a competitive advantage over? whose market share do you end up taking in your opinion if you put these two companies together as effectively as you think you can? >> it's interesting because the vpo market is extremely fragmented. most vpo providers focus on one vertical area. this is -- acs is dwerified, focuses in health care, health care and transportation, employee, on boarding, financial services. xerox reaches all of those clients and more. adding these two together, as i said, we'll be able to extend ourselves even further, xerox and acs even further. >> who is the leader in health care? i was wondering with everything happening in washington if that was part of the equation. i guess your competitors or acs,

computer sciences center. >> i think all of these companies focus on certain verticals. in health care the world leader in health care processing is probably acs. the largest position in medicaid processing. they provide services to all of the health care providers and insurance companies in north america. so the largest health automation firm in the world. you mentioned some competitors. acs -- csc for sure. you have to think of acs as a diversified server. >> they have been on a list of candidates for a long time. i'm looking at 61, 63 is the highest the stock has ever been. i was wondering why they decide now on a sell to xerox but that

basically tops -- maybe 64 a couple of years ago. bull and bear price, management stock. >> absolute price for shareholders and acs's shareholders. we did look, of course, when do you a deal like this, lou at many different companies before you decide on the ones you want to go for. acs is a world-class company here. they actually lead in business process outsourcing. their diversification and opportunities for positive synergies in this combination made the deal compelling for xerox and quite frankly compelling important acs as well. >> should they be considering xerox is more inquisitive or will you have your hands full. >> we have been acquiring, strategically growing our business in a very measured way. we acquired two vertical vpo

firms. we've been acquiring in distribution for our technology business. this deal is the largest deal that we've ever done. so i think you could say for a little while we'll be settled in bringing acs on board and getting all the synergies positive, revenue synergies and kostitsyn gis we need to to make this successful. >> accretive when ursula? >> accretive cash basis year one, total accretive on gaap basis by third year. very positive financials. >> i looked at a market check on xerox. you're probably happy at 859, 865, that's not bad from 890, six bucks. 823 to 840. is that all right? >> yeah. i always like higher better than lower, but i think -- tell me 9.50 that would be better than 8.50. but quite honestly, we know that a deal like this actually takes

time for digestion. we've done a lot of work. we're very, very good -- xerox is very good at acquiring companies. we do it in a systematic and measured way. we look deeply into the values of the company, the value they can create for shareholders and how they combine together. we're extremely comfortable with this. as the market gets more comfortable we're sure we'll see stock appreciation. >> i have an idea for you. bring back jay peterman to talk about how putting these two companies together. >> john o'hurley. >> ling pim back to talk about synergies involved. that's an idea. anyway, can you do what you want, you're running the show, ursula, at this point. appreciate you coming on on cnbc. thank you. >> thank you very much. >> see you later. >> come back after the break, tools of the trade, oil, gold, currencies, a lot of interesting things happen as cow back for the weekend and get set for trading. "squawk" is back in two minutes. you're watching "squawk box" on cnbc, first in business worldwide. you've worked all your life.

as the decades have past, the promise of medicare has always been there. and aarp has fought to guarantee none of the benefits you earned were ever taken away. today we're continuing that fight by protecting your freedom to choose the doctors and treatments you need. and to have your tax dollars go towards your care-- not insurance company subsidies. you've done your work. and we'll keep doing ours. learn more at aarp.org.

welcome back to "squawk."

goldman sachs plans to recruit up to 200 people for its asset management business. the financial times says hiring began three months ago and goldman plans to expand organically instead of through acquisitions. kraft reportedly laumpl ag hostile bid for cadbury. they would value the british confekzary business. prepared to give kraft a deadline to put a firm offer on the table for cadbury or walk away for six months. in a separate interview published. cadbury ceo failed to do in her words, the math quite accurately after he claimed cadbury's own growth strategy would deliver better returns that kraft's cash and stock offer. >> remember him? >> he got in hot water for suggesting -- >> that's right. i saw that. then he backtracked on

everything. so we don't know where we stand. go get them. i want to see that. >> ramifications for buffet as well, a big shareholder of kraft. >> he might get him. otherwise, good night. let's get to monday morning trade. trading block looking at oil, dollar futures. john brady at cme, hanover on oil and schlossberg on the dollar. good morning to all of you. john, a lot to digest, fed speak, johns numbers, now introduce geopolitical concerns into the market. was last wednesday the top at least for a while? >> i don't think so, carl. i think the whole story of the september october timeframe inequities being a bit of a volatile time is not a well kept secret. a lot of protection, a lot of premium, long volatility trades put on by account managers looking to protect profits. there is sort of a thesis out

there circulating if we just range trade for the next couple of weeks, third or fourth week of october, some of those long volatility, long put premium trades will have to be sold, which would only help energize equity markets to higher levels. earnings as you know, there's been a full focus on top line revenue growth of the secret there may be the other way. that is profit margin expansion. a lot of capital investment has been shelved. inventories have been paired back. the marginal worker has been laid off. profit margins in a corporation expanding. the story in stocks looks pretty good, even if it's a range trade for three weeks. >> the earnings story could be an echo of q2. >> right. we're a little concerned about concentrating on top line revenue growth because the macrostory isn't there given what the employment situation is. however, there's profit market expansion. as the economy stabilizes, may start to turn a little bit, q3,

q4, q1, stocks may have further upside. that's not to say stock evaluations are not going to get ahead of economic growth. that's another question. >> love to do that. >> yeah. but stocks may have a little upside here especially given the long volatility, premium trades in place. >> peter, below 66 on crude. gas down another seven cents. can you explain just -- we'll get to iran in a second. is all this fair capacity and lack of apparent growth in demand is that finally taking its toll on crude? >> yes. but we've been allowed to focus on fundamentals because the dollars rallied and because stocks have kind of slowed. but the curious thing is, oil has been following equities. equities should take a cue from oil. piece of good news here, gasoline prices down 44 cents in the last four weeks. that actually returns $190

million to consumers. that's not bad money. the lower these prices go. if we stay $0.07 lower, that means we'll get back $200 million to consumer's pockets. that helps in a time like this. >> if talks in iran don't go well, we start to refer to the straits again is there enough spare capacity unlike last summer we won't have the supply care we did 12 months ago? >> we do have enough supply capacity right now. if it's going to happen, this is probably the best time for it to happen. but we really are running out of time. and iran is dragging its feet. it wants to delay the negotiations as long as possible. israel has basically said we have a hard deadline i believe of sometime in the second quarter. so it could be even as early as january that israel loses patience. then if they do attack iran, the

straits of hormel has the most oil. you will get a spike. we do have enough oil but it would because a spike and sloexs. >> on oil, what's happening in the third quarter, is money coming back home? you saw some comments from bob zell eck, the u.s. has legitimate reason to fear dollar's loss of reserve. >> what's happening now we have dollar carry trade coming on. that's what's hurting the dollar long-term. basically when you look at currencies, the only thing that happens in the end is interest rates. worried it will stay stationary longer than everybody thinks. one of the key things everybody is looking at, post-war recessions, the fed never raised rates until unemployment rate peaked. that's why it's going to be very, very interesting to see. if the numbers start to come in closer to zeroish that's going to give a big boost to the dollar, the market will price

potential tightening, much sooner than before. right now assumption u.s. rates stayed zero, dollar looking for the market. in the very, very near term, however, i think if equities do come back, we have a little correction this week. the dollar continues to strengthen on profit taking alone. 144 on the euro. long-term trend for the dollar, it's being sold on a carry trade and will stay until we get a better picture on interest rates. >> sort of death by 1,000 cuts. >> exactly. guys, good to see y'all. see what happens. take care. after a break, healthy debate over health care. senator gregg is here, congressman garrett, congresswoman donna edwards on the issue of affordability and universal health care. as we go to break, here is a look at the most widely held stocks, where they finish last week. a lot more "squawk" continues in a minute. we're first in business worldwide.

looks like we're in for a bumpy ride. go ahead, ignore me.

but in this turbulent market, you're going to need help... protecting some of your assets for retirement. an axa equitable annuity could give you... guaranteed income for life. i'd call them, but what do i know? i'm just the 800-pound gorilla in the room. don't worry. i'm here. want guaranteed income for life? axa equitable is redefining what you expect from annuities. ooh, peanuts. health care reform battle rages on in the house this week. joining us with more on that, congressman sky garrett ranking member of the capital market subcommittee. and donna edwards, democrat from the state of maryland. good to have you both on the

program. we were just talking congressman garrett during the break with joe about where the anger went, summer anger over health care and outrage. now op-ed pieces in the times saying numbers are stabilizing. obama's handling of health care is double that of the gop's. is the gop giving in? >> the anger is still out there. i was out there with the people, still the number one issue. the letters, phone calls, that's still the number one issue people are writing about and they are complaining about it. they do not want obama's health care plan. >> why do democrats feel more certain? why they are more comfortable now? >> i don't know they are. when i talk to members on the floor they are just as concerned about what they are hearing in their district. i know they are going to go forward wit. it's the wrong thing to do. my constituents from east coast to west coast i talk to they are opposed to it. they do not want the government getting in between them and their doctor, in between them

and the hospital. they want the choices they have had in the past. they do not want this plan. if the administration pushes forward wit, they will be pushing against what america wants. >> congresswoman, do you feel better or worse? >> i feel absolutely better. i think people have had a chance to digest what we're trying to accomplish on health care reform. i think they heard from the president and settled down. i'm actually both optimistic about moving forward and what we're about to achieve. also, i think folks really do understand the deep linkage between what we do with our health care system and the need to reform it and our global competitiveness. and we're ready to move forward. i'm excited about where we are right now. >> it's an interesting situation they have in the house because they are unwilling to bring their bill to the floor for a vote until the senate acts. the senate is unwilling to absent because the finance committee won't release the language ort score. so it's a hide the ball exercise. i think we're hiding the ball because this is a $1.5 trillion add-on to the size of the

government. i guess i would ask the congresswoman, how do you pay for $1.5 trillion in new spending in health care, add these brand-new entitlements, where are you going to get the money? what are you going to do to raise $1.5 trillion and cut spending on medicare. >> the fact is what we've proven is we're putting together a plan actually where we're going to make sure it's revenue neutral. the president made that commitment. the congress made that commitment. i know we have in the house. we have our own work to do in the house of representatives to move a bill forward. it is not, frankly, dependent on what or when the senate moves. i think we're coming to terms with that. we'll have a bill neutral, ensure we have competitiveness and americans have choice. >> scott, doesn't like like donna wanted to answer that question. where is the house going to get $1.5 trillion? that's a huge amount of money, raises the government spending from 20 to 24% of gdp.

where do we get the money? >> we're not. that's why i snikered when she said this is going to be revenue neutral. it's not going to. it's going to add to the debt. i know in the previous segment you were talking about that. we can't live with sustainable growth as far as the economy and budget is concerned. this is going to add toyota. the other aspect when the congresswoman says the american public has digested this. i don't know how you can say digested anything when we don't have in the house the actual copy of the one they are voting on. how can anybody digest anything. >> the gop in a place now, fine, we're giving up. you'll pay the price in 2010. >> no. we're doing everything in districts and washington to say this plan is the wrong plan and to say we have a proposal. when the president walked down an aisle when he gave his speech, i handed him a document of 24 ideas because he said he

wanted to work with us. he said i want to work with you. we've been calling the white house and saying, when can we meet with you? he's never returned our phone calls. >> interesting, congresswoman. the "times" poll when asked if obama is trying to work with gop. when asked if the gop is trying to work with obama, 30%. >> you know what, i think it's because the american people realize that the president has tried over and over again to reach of a cross the aisle and i applaud him for that. the gop doesn't -- not only do the republicans not have a plan for real but what they have put out, in fact, actually would increase cost for americans and wouldn't lower the cost of insurance. so we're looking at a plan, as the president has outlined the framework of which we have, and well, nin fact, have a bill. have a chance to read it. i read the draft bill. i don't know what the other members of congress did or the republican side did. but the american people understand we have to have a competitive system, we have to lower cost. we have to provide a public

option that actually encourages competitiveness. i think we're ready to move forward. >> you know, the ends don't meet. you can't add $1.5 trillion in sbilgment spending and programs and pay for it with waste and fraud. the ends don't meet. there are programs out there, proposals out there, co-sponsored a bipartisan one in the senate. >> what strategy? >> sort of been shelved to the side while the finance committee went forward with the baucus proposal. hope fully it will come back. >> thanks for your time. we continue to watch as games get played here. we'll see how it progresses later this week, joe. >> thank you. >> yes. >> good coming up strategy session. fund manager, controls $200 billion in assets. jim mccoggin of principle global investors joins us in a couple minutes. fithe same tools the pros use,

so you can be a disciplined trader. by selecting from eight advanced triggers, your order gets executed, even when you're busy. and with trailing stops to help you lock in profits and minimize risk, you can be confident in your strategy, no matter which way the market moves. find out why more and more active traders

are turning to fidelity for a smarter way to trade online. trade like a pro. trade with fidelity. at the end of the day in sitka, alaska, everyone awaits the return of the fishing boats. ♪ their safe arrival is highly anticipated, ♪ as is something else. a shipment of natural sea salt from cargill, essential for preserving the catch. we deliver the salt on precise schedules... and ship it efficiently all along the alaskan coast; saving the fishermen money, and their catch. this is how cargill works with customers.

what does a fund manager do in this environment? we tap into his strategy. >> joe, joe, he's our man. if he can't do it, carl can. >> tech stocks to watch. ♪ >> find out which names are ready to give the sector a charge. and fixing america's health

care crisis, former omb director jim nestle sounds off on the cost of putting a deal together as "squawk box" begins right now. ♪ give us any chance we'll take it ♪ ♪ any rule we'll break it we're going to make our dreams come true ♪ ♪ doing it our way nothing is going to turn us back now ♪ >> that is a song i don't need in my mind first thing in the morning. welcome back to "squawk box" on cnbc, first in business worldwide. i'm joe kernen. >> were you a fan of that show? >> no, i wasn't. i'm joe kernen along with carl quintanilla. becky quick is feeling under the weather today. i think she loved that. >> that's late '70s. >> was that laverne and shirley. >> our guest host republican senator from new hampshire judd gregg, ranking member of the senate budget committee, newly appointed member of the banking committee. we're going to be talking with

him throughout the hour. we've got headlines first and i think carl will give them. >> ninety minutes earlier kpros announced it's acquiring affiliated computer. ursula burns talked to us about the deal a half hour ago? >> we actually are clearly focused on core document manage process in the office. front office and back office. acs is focused on business process outsourcing. the connection of these two companies is called for by our clients. they have been telling us over time as we engage with them more and more, either acs with xerox we have to bring these two infrastructures together and help them become significantly more efficient. that's what we're doing with the shares of these two companies. >> not quite up to the offer price, joe.

about a 30% premium we decided. >> yeah. mostly stock. so i think 18, almost $19 in cash. we'll see it. 8.17. not unexpected. >> speaking of m and a buying drugs unit of belgium plasticmaker solvay. they hope to add medicines in late stages of testing. angela merkel winning another term as german chancellor, center right majority. it nudges the biggest economic power to the right. main left wing party witnessed its worst parliamentary election result since world war ii, which she's already talked about the fact she hopes to lower taxes, joe, although it's a little early to say exactly how and when. >> did you learn all that from

reading "the new york times"? >> i looked forward. you missouri what i learned most, listening to sylvia. sees over there. how many parties do they have? do we want more? we have enough here. >> we maid may end up with more. >> that would be a real disaster. >> there's like 12 parties. >> it was so confusing. >> it would be a total disaster in our system to have multiple parties. our system requires two parties. you get into multiple parties you can't govern at all. you see that, with for or five they can't govern efficiently and effectively. not that we do but we at least have a system that gives you the capacity with two pears and large umbrellas. it would do harm to our system if we had multiple parties. >> more gridlock, is that it? >> you don't have gridlock now. >> no you don't. >> you have super majorities in the house and senate. there's no gridlock now. what you have now is the

inability of the democratic party to govern because they can't get consensus over the fact they want to move left so fast. >> we'll be back. among market tests, economic data. no major releases today. check this out for the rest of the week. i don't feel like reading it all but i will. s&p case-shiller home in connection, consumer confidence on tuesday. wednesday, adp, final read on second quarter gdp, weekly mortgage. thursday auto sales income spending ism manufacturing. construction spending granddaddy of them all on friday, mother of all economic reports, i don't want to do gender, granddaddy, then mother, the day we wait for every month -- seems like it comes every month -- employment report. futures indicating a higher open. let's get to next guest, manages over $200 billion in assets for 12 of the 25 largest pension plans in the nation. principle of global investor ceo.

used to be at credit suisse, ceo of asset management there, also oppenheimer capital you were ceo. now principal global is part of principal financial, which is the big board pfg. $200 billion. obviously it's fiduciary money. it's not necessarily out the risk spectrum as a lot of mutual funds. how much is bonds, how much equity? >> of the money we manage, half is bonds, a little over a quarter is equities, a little under a quarter is real estate. so we're managing those three types of assets for pension funds. >> okay. and at this point, how would you characterize your clients and customers in terms of their -- had they want to move out. are they scared, pulling back or ready to stick their neck out? >> still hurting. if you look at the big institutional clients, top 25 plans, sovereign wealth funds

which were involved internationally, they are avoiding leverage, avoiding high volatility assets. there were fashions a year or two ago like short extension of loan on the equity funds. that's gone. they are using derivatives a lot less. the strategies they want are basically more liquid, transparent, kind of plain vanilla strategies, even moving into equities. the minority of these big funds who have done very well over the last 12 months averaging down inequities when equities were weak, you've got to hand it to them. that was brave, that was appropriate. the discipline rebalancing has so far paid off. the big plans, the overriding things, the velocity of money and motion is extremely slow. if you look at our other client base, 401(k) plans, private individuals, they are moving -- they were really in shock a year ago, moving into stable value money market funds. we're now seeing a move back to risk assets but slower than what

it was. i think what's going to happen with 401(k) participants, they will believe against in dwerification and move to life cycle funds. we're seeing that move already. the move away from stable value and money markets is actually happening already in 401(k)s. >> at this point, we've heard this new era characterized as a reset. you rebooted your entire computer. it's different from here on out. it ended last year now this a new normal to prevail for a while? >> some people say that. some people say americans are leveraged to spend, they will spend. i don't believe that i think the fats of the setback will be quite lasting. i think what we're going to see that will really affect the economy is a higher savings rate looking forward. i think people know they were overborrowed. they know that they didn't have enough money set aside for rainy days. when we look at our individual client base we're looking at a

high degree of caution, fear of unemployment and higher savings rate. i think that's the key to why the economic recovery is slower than the bulls really want. you'll find durable goods disappointed. the reason for that, people are saving more. that will mean the recovery is slower but more sustainable. >> bulls might be disappointed with the coincident economic indicators but not the action and equity market. >> the action in the equity market is pretty simple to explain in a way. it is that the inventory cycle has turned clearly. the business cycle is now positive, albeit it's not going to see 5, 6% growth like it would have been done after past recessions. you're going to see slow recovery because people are saving because consumers are bruised. they are not going to go spending like before. industry cycle is fine, a third off the top. not a bad environment for equity market investors. >> isn't there a point at which

rising equity prices, household network rise past couple of months. >> yeah. >> some anecdotal evidence of hiring, especially manufacturing. where is the likelihood of a positive upward loop where rising net worth spurs consumers to spend once again. >> i think that's probably a year or two out a recovery from as bad as it's been over the last two years, the recovery is going to take time. the mending is going to take time. supposing you get 2 or 3% economic growth next year that doesn't dent unemployment. that stays at 10% if that happens. you've only got growth in line with productivity. what that means is the market sees a recovery but washington will feel like a recession. voters will feel like they are still in recession because there's still the fear of unemployment. i think if you look at it that way, it is quite a while until under the circumstances that real outward loop and a real boom. the fear would obviously be

around the whole issue of the fed, when will it start to tighten policy. i happen to think it shouldn't do so soon. i don't see any fear of inflation there. i think probably sometime next year they will have to tighten policy because there will be fears of asset bubbles. that's more likely to happen before inflation. but it's a while off, a long way off. >> do you see any issue with the ability to sell american debt? >> that's a really interesting he question. my suspicion is if the savings rate is higher, less need to sell debt to foreigners. that actually would be very, very positive both for funding the debt, which i know you don't want to happen because you don't want too much of a government deficit and neither do i, by the way. but i do think that would be much more positive than the ability to finance the debt. look at japan, higher government debt than we've got but never a problem funding it because

ofsation. >> no economic growth for 11 years. the corollary, how does the fed get the money out of the system? what's your defensive mechanisms for addressing them. >> the feds have been pretty adroit the way they have managed much of the crisis so far at least in terms of the monetary policy. i suspect some of these stories around in the last week or two about repos for the money market to drain liquidity, the sheer sign of the bank balance sheet is such that at some point they will need to be reined in. there are things in the money before it accelerates and the loss of inflation rate. >> i want to listen to someone with $200 billion. let me get this straight. tepid recovery. you're not saying this is great. consumers not coming back any time soon but the market was -- has been up 53%. because it's still down 31, you're not saying it's a huge house of cards ready to just

collapse. a lot of people, smart guys, look at this market and say this is insane based on the prospects for the economy and that it's gotten so out of hand coming back 53% there's no way it can be sustainable. it's still down 31%. it reflects a lot of new normal, not necessarily a house of cards. >> not necessarily. up 53% from a point that was incredibly depressed. it only stayed down there for about four weeks. the haass reorganizatilast reor, tangible equity rates got repaired, that led to a real fear cycle. >> a huge overshoot. >> this is what we do with the time -- >> what we know now where the world hasn't ended, the snapback may not be ahead of where it should be, correcting how far we went on the downside.

>> that's right. the last 100 points down on the s&p was probably pretty short-lived and probably pretty artificial. i don't think we're at a ridiculous level given what we know now. what you've got to fear is what might happen next is negative. i think the tail wind on equities remains fairly strong for the next two or three years. it isn't going to make people rich in the next few months. i do believe pretty well based -- give the business cycle, old-fashioned business 101. >> totally credible. >> exactly. >> don't argue. jim, thank you. come in again. >> thank you. will do. thank you, carl. >> we'll sneak in a quick break. a lot more with our guest host senator judd gregg after a short commercial. then, where will the czech leadership come. we had the rim news, that was ugly. what stocks will propel the sector higher. names you might want to watch

next week when it continues. >> you're watching "squawk box" on cnbc, first in business worldwide. say you want to backtest an entire portfolio of stocks. market experts show you how through fidelity's extensive trading knowledge center. and fidelity gives you free research from 15 independent firms, with accuracy scores... to help you decide which analysts to trust. find out why more and more active traders are turning to fidelity for a smarter way to trade online. trade like a pro. trade with fidelity. it doesn't cover everything. and what it doesn't cover can cost you some money. that's why you should consider... an aarp medicare supplement insurance plan... insured by united healthcare insurance company. it can help cover some of what medicare doesn't... so you could save up to thousands of dollars... in out-of-pocket expenses. call now for this free information kit... and medicare guide. if you're turning 65 or you're already on medicare, you should know about this card;

it's the only one of its kind... that carries the aarp name -- see if it's right for you. you choose your doctor. you choose your hospital. there are no networks and no referrals needed. help protect yourself from some of what medicare doesn't cover. save up to thousands of dollars... on potential out-of-pocket expenses... with an aarp medicare supplement insurance plan... insured by united healthcare insurance company. call now for your free information kit... and medicare guide and find out... how you could start saving.

the nasdaq is about 33% up

since the beginning of the year. our next guest is expecting a severe rebound in the tech sector, a few stocks that might lead the charge, portfolio manager of t. rowe price rated four stars by morningstar. david, your fund year-to-date is double what the nasdaq has done, right? >> right. we did a good job picking stocks during the year correction we saw late last year and early this year. >> what did you do that would result in those kind of returns? what was your strategy going into '09. >> in late 2008, we had a global team of resemple analysts. i think we all came together and thought we're basically shipping inventory under end consumption of goods. those are the announcements from component stocks. when we figured out there was the gap there that didn't make sense, we figured out this

wasn't armageddon. we looked to own the best names. as we saw the natural inventory correction i think your other guest discussed natural economic cycle, wen from missing earnings to beating earnings. that's the story of late 2008 and early 2009. >> so you got some names here. i'll put them into groups. let's do storage and chips. asml, micron, toshiba. what sort of things are you seeing in storage. >> to step back, one of the bigger forces in play in tech right now, tmp bubble in late '99, 2000, investors in technology, we think it's taken a long time for investors to lose that suspicion of investing in tech. this rebound that gone a long way to rejuvenate people's interest in tech. what we think is another really powerful force right now doing

on in technology and conductors as you mentioned, we think during the last year there's really been a limited capacity. i think that's the key when you think about pricing, you need to invest in capacity. demands, mp 3, demands for memory, yet lack of investment. for a company that makes equipment to make semiconductors, we've seen competitors drop away, nickon and cannon were intense competitors a year or two and have missed the cycle. especially for memory and nan flash where you've underinvested, demand is stabilizing. some of the machines you used to build semiconductors you just can't get them. that's a really interesting dynamic going on sort of under the surface. >> that is interesting. the other two names we've got, apple and palm, i wonder whether you think tech if it's

vulnerable anywhere is it vulnerable when facing a nervous consumer, deleveraging consumer? >> i think that was the case on apple coming into the year. expensive products, a weak consumer. i think people are missing the bigger picture in terms of what's doing on with mobile computing. apple is a company although it has a relatively big market cap has relatively low share in every segment it plays in. at the same time it's created an ecosystem across iphone, ipod touch, max, a unique ecosystem tied together by itunes. we've seen dramatic shifts in gaming, shifts from nintendo ds, ipod touch, apple is a company that in this mobile computing, people using mobile computers forever. that cycle is happening. we think apple is the big chap share gainer in that space. despite the fact it's had a good run and the cap, it's a large cap stock, we think, look, they are shipping # 1 or 12 million

computers a year, the best computer on the mark, best services computer structure with itunes, we feel very good about it. for palm, it's a different story. palm we think is really the first company that -- first outside of apple, you consider apple has changed the mobile computing market which i think they have. palm is a company built up by multiple very intelligent savvy investors and a very savvy management team with tech experience. they have billion this company, we think at an inflection point in a shift for mobile computing. palm is a smalt market cap company, 3.4, 3.5 in cap, shipping -- maybe next year they ship 8 million units, again, in a huge market that's growing. what we like about palm, they have embraced a lot of the technology architecture that apple that been in the forefront with. >> yes. >> we think that makes it very

interesting. >> going to be interesting to see if an apple chapter ends ever and which replaces it. david, out of time this morning, we hope they will come back. good insight. >> more stocks to watch plus an update on xerox and the big deal of the day. i got some background. summer, then the credit crisis came along, that was cut short, now gone. >> hands full with chrysler. >> that's for sure. gmac. former director of office of management and budget, jim nussle. "squawk box" coming right back. we're first in business. ng up t. it's time to do what lots of guys everywhere have already done-- go see your doctor, because those could be urinary symptoms due to bph, an enlarged prostate. and for many men, prescription flomax reduces their urinary symptoms due to bph in one week. one week. only your doctor can tell if you have bph, not a more serious condition like prostate cancer.

avoid driving or hazardous tasks for 12 hours after your first dose or increase in dose, as a sudden drop in blood pressure may occur, rarely resulting in fainting. if considering cataract surgery, tell your eye surgeon you've taken flomax. common side effects are runny nose, dizziness and decrease in semen. millions of men have been prescribed flomax. maybe it's time to see your doctor and ask if flomax is right for you. and call 877-4-flomax to see if you qualify for up to $40 off new or refill prescriptions. for many men, flomax can make a difference in one week.

to redefine air travel for a new generation. to ensure our forces are safer and stronger. to take the world we share to tomorrow and beyond. announcer: around the globe, the people of boeing are working together-- to make a difference. that's why we're here.

welcome back. find out what traders are watching, jobs numbers or something else waiting in the wings. we'll go to the chicago and find out what's what when "squawk" continues. i'm robert shapiro. over a million people

have discovered how easy it is to use legalzoom for important legal documents. so start your business, protect your family, launch your dreams. at legalzoom.com we put the law on your side. that's not all. >> we use the waste heat from the turbine generating electricity for the boilers for the steam in the manufacturing plant. hence the name, combined heat

and power. >> the project cuts net greenhouse gas emissions by 5% and nitrous oxide by 60%. sustained initiatives have helped the company cut operating costs by $60 million a year. >> obviously in reducing our cost of operation the savings are close to the bottom line. that's a good return for the shareholder. >> at frito-lay, winning environmentally and financially is in the bag. for more people, planet and profit, check out sustainability.cnbc.com. >> the people, planet and profit report is brought to you by sap.

happy monday, welcome back to "squawk" on cnbc. we're an hour away from the opening bell on wall street. our guest republican senator from new hampshire judd gregg ranking member of the budget committee newly appointed member of the banking committee. when did that happen? >> last week. >> congratulations. >> thank you. >> that's a big deal. >> i took it, i'm on three other committees, tie it because i'm interested in issues, the office

of t.a.r.p., working out, by the way. taxpayers made a lot of money. i wanted to be involved in reregulation effort, spring too far, another sarbanes oxley, pushing people too far with regulations shah shield our ability. our great strength as a nation, we create credit, give it to people entrepreneurs, let them take risk and make jobs and we don't want -- >> treasury not the fed should get all the regulatory power because the treasury can be watched over by congress, the executive branch. >> accountable. he's doing a great job at the real bank. can't agree with that. the real problem, one of the real problems, congress wants to get into the business of managing the fed's monetary policy. that is incredibly dangerous. if the congress starts to monitor the feds, how it deals with money supply, you're basically going to create a situation which is a disastrous.

we've already got a congress which is as i said earlier, a systemic risk, is congress. the debt we're putting on the book, the last thing we want is folks looking over the fed saying you've got to do this much, that much. >> unbelievable. >> treasury, single party rule like we have right now, you'd have the president and congress and treasury secretary appointed, they would be involved with finances. >> you'd end up with a parliamentary situation and parmry situations the pendulum swings too far too fast. you've seen it in england a number of times. it was be very destabilizing to our economy and quality of life. >> it's incredible some of the things we're staring down these days. meantime a couple of quick top stories, xerox announced it's acquiring affiliated computer services, $6.4 billion in stock and cash. the deal will help transform xerox into a document and business management enterprise. ceo ursula burns spoke to us

first. will help xerox corporation literally become the world leader in vpo sense, diversified vpo market, $6 billion market acs had, our small but powerful vpo business will be joined together to create the largest diversified business. our business in general will go to $10 billion in services, $22 billion overall. transformational business. >> shares of affiliated computer, asked around 57 and change, xerox shares down a little bit from their 4:00 p.m. close on friday, above $8, 8.07. >> 2007, haggling with the chairman of acs to buy that company at 6:$62 a share. the credit crisis, no more haggling, now $63 based on

xerox's close yesterday, down a little today, stocks down at 57. but the nominal price for noe nominal 63, which was a dollar above what they were haggling for before the credit crisis. >> given what we've been through, they didn't expect to see that. >> that's why even though it was a 30% premium, 63 is basically as high as the symptom ever traded. perennial takeover someone is going to buy the company. we said that all along. bpo, business processing outsourcing, i think. >> i think that's right right. >> speaking of m and a, kraft reportedly poised for a hostile take over of cadbury. they would value the british confectionary business at $17 million. the takeover panel is preparing to give kraft a deadline by which it must put up a firm offer or walk away. not just for a while, for six months. see what happened with kraft and cadbury. finally the man who founded gap

with his wife 40 years ago has died. donald fisher, 81, died sunday after a battle with cancer. he began as a denim store in san francisco. he named it gap in reference to differences in generation. >> check out futures, a higher opening, somewhere now at 54. gotten better and better. you listen to a free market network long enough. it makes people feel better. maybe the guy from principal financial. >> jim. >> $200 billion. >> let's get to santelli, rick santelli, independent trader, jeff carter, both at the cme group in chicago this morning. you have a soul mate here in senator gregg, rick, worrying about there's just not enough money to go around at some point. >> well, i think i basically agree with that the papers are

pretty much talking about more ways we're going to spend an additional $35 to $40 billion in the home market trying to, of course, control prices, control the operative word by passing out money. once again i really fail to see the difference between replacing countrywide with an agency or branch or gsc type organization and that equation and think the outcome is going to be any better but of course he's in washington. i'm sure he knows the answer. >> i can't say it as flamboyantly as rick but he's absolutely right. the problem with putting this type of money into the system again without restructuring the system so people actually have to be able to pay the money back is going to get us back to where we started out with this problem. >> well, i wish $35 billion was something that would appear on my radar screen, rick, but at this point, i mean -- >> it's in the couch.

>> i think we made that beyond the payback. >> it's still real money. even under the theory, it's still real money. that would run the state of new hampshire for like ten years. >> it's going to trade hard today. october is coming. is that something to get nervous about? >> i don't think so. i think you've got data, treasury options. everyone is nervous about the g-20, i don't know why. they are just a bunch of wind bags, they haven't done anything towards health since '87. i think the market has a positive bid off merkel's victory in germany because germany looks like they will go to a lower tax environment and that's good for markets. >> it's not good for us. >> well, i mean it is good for us. >> not when we're headed the other way and we have to compete with them? >> yeah, but senator gregg and his cohorts in congress are going to pay attention, i think.

i don't think you can run a high-tech environment in the united states while the rest of the world is more competitive. >> senator gregg and his party have nothing to do with this. >> yeah, i know, but you're short a few votes but i agree with senator gregg. i wrote an article last week about the reregulation of wall street. you know, we don't need necessarily more regulations, but the correct regulation would be something that we probably need. >> congress always overreacts. it always overreacts and addresses last year's offense, stifls enpresent your ship. that's the political body, populist by nature. you have to be careful with reregulation. the only thing standing between us and socialism is barney frank. think about that for a minute. that's really sort of scary, isn't it? >> isn't he the sergeant at arms

of socialism? >> you know, though, what we're looking at, though, is we're going from an entrepreneurship model that senator greg talks about to crony capitalism model we don't want. >> chicago model. >> correct. it is the chicago model actually. it's tough to break into the market when you have crony capitalism. >> okay. rick and jim, what was it you wanted to say? >> i was just saying liesman is not here. i hope he's not watching. >> he isn't. >> this will be one of those shows. >> he would not be happy. >> wouldn't be happy with tim or any of the -- you know what i mean? i hope he's not. got my fingers crossed. >> take a look at futures. we've done pretty well considering asia had a really ugly morning. we're down about 2%. futures have been climbing steadily, off the lows. about 40 points higher than we started the morning. when we come back -- that's

right. our next guest, ran the office of management and budget under president bush, served in congress 16 years. now jim nussle is sounding off on the health care package, his deep concerns. do the nussle when "squawk box" continues. >> i get it. you're watching "squawk box" on cnbc, first in business worldwide.

as capitol hill cobbles various health care proposals, our next guest is not only worried about the cost but the way the legislation might be past. jim nussle chairman of the nussle group joins us from d.c. jim, nice to have you back. >> nice to be with you. >> you're worried about the reconciliation matter. you don't think people understand it completely. we keep talking about it. it's unclear to us to what degree there might be a fight over what is eligible for reconciliation and what isn't. >> senator gregg and i are probably one of seven people in the town that know much about reconciliation just because it's rarely used. only a few of us like senator gregg and i that have actually written one and passed one under the regular rules. what i think senator reed is doing is pretty interesting. he and his staff put together a procedure that is fascinating,

written a conceptual, fairy tale kind of bill, 223 pages. it's not really a bill. it's an outline of what a bill might look like. they are going to pass that. you talk about outrage about what happened in july with town meetings over an actual bill, wait until the american people find out that senators voted on basically an outline, not even a bill, not even something that was scored by the congressional budget office. i mean, it's one thing to disagree in substance but to not even have the substance there to discuss, to score or to even disagree about is a completely different concept. then to jam it through with this 50-vote nuclear option reconciliation process is just going to be an outrage prfr why is it eligible for reconciliation? >> well, we don't know if it's eligible. we're going to find that out. i think what they are doing, first of all they passed a budget where they put in instructions to the different committees where they said do out and save $1 billion, which

reconciliation was there to actually reduce the deficit over time much greater than just a billion dollars. but what they said was go out and save a billion dollars and your bill can qualify under reconciliation you send it back to the majority leader. he'll package it together through the budget committee and we'll pass it only having to use 50 votes if it qualifies. there's a lot of hurdles along the way that reconciliation or any bill that tries to go through this process would cross. senator gregg and his tiny staff at the senate budget committee are the ones basically standing in the gap right now of trying to do battle against this fairy tale of a bill. it's going to be fascinating to watch. >> senator. >> jim is right. it's incredible they are going to use reconciliation to pass a bill that will affect 16% of the economy and everybody's life. it's basically a non-debatable event on floor of the senate. they can let ten of the people

that might be queasy go and pass 50 people and vice president voting for it. as jim said, you know, they haven't even showed us the language of the bill or gotten the score. and in fact when an amendment was offered in committee that said we should at least have 72 hours to read the bill, they voted it down. they are trying to ram rod, railroad it through using whatever process. rec sill yag is tough to grab onto, because as jim knows the byrd rule may throw out large segments. it may look like swiss cheese before it gets to the senate. some of us will try to address the issue. make sure parts that shouldn't pass don't pass. as a practical matter they have got a supermajority and they can pass something pretty significant. >> jim, if we're so worried about reconciliation, why are we hearing attempts about bringing senator snowe into the fold. >> two things. they are not sure about senator byrd's health.

it's very sad but he may not be there to vote for one of a number of reasons. he was just hospitalized last week. second they may find a democrat senator who decides for one reason or another they can't go along with this nuclear option of just jamming it through. so they are looking first and foremost to cobble some kind of what they are going to call coalition or bipartisan coalition using senator snowe. i think senator snowe is a lot smarter than that. she is there for policy. she is not there for politics. she is there because she cares about health care. she cares about health care policy. i don't think she's going to go along with this nuclear option of just jamming it through. >> if they did go to reconciliation is there no way they can argue rules don't apply? >> they go through a byrd rule process, call it a byrd bath. they put the bill, if there is a

bill, in the byrd bath, wash out bad provisions that for one reason or another don't pass the various byrd rule test and that final version goes to the floor. it's like building a house. they can patch the foundation, walls, roof, furnish it later, put in plumbing, electricity, create basically the shell of the bill and jam it through under reconciliation which would be a huge tax increase and a huge unfunded mandate to the state, do that and then fill it later on in the process, maybe with a second or third or fourth bill. >> so senator, what are the options for the opposition or do you have any? >> one of the problems is without -- because they have 60 votes they could theoretically do what they wish. they can take control and say you can't increase government, force everybody into a health

care plan they don't like, pushed off their private plan into a public plan and have a successful effort. it isn't good to do this to the american people in the fasttrack. we're going to argue it's not fair or reasonable to take up this size of a bill in a fasttrack. it really should have amendments, saved for the light of day and debated rather than rushed through. we hope we'll get support in that area from the american people. >> it came to the bush tax cuts. is that because of the issue that you're debating so loudly? >> no, because the tax cuts were right. everyone knew what they were. they were probably the best advertised tax cuts in history. they were out there on the floor for people to see. the language was there. they could debate it. they could decide what's happening. >> it's not the reconciliation you have a problem with, it's the transparency of the bill itself? >> i think it's both, actually. first and foremost to not have any bill language, the key is to figure out a way to reduce the

deficit. that's the key to reconciliation on the spending side is figuring out ways to reduce the deficit. this bill does not reduce the deficit. it, in fact, there's no way to tell what it does because the scoring isn't possible until you have legislative language to actually score. but in the out years in particular, even if it does it in the first year or second year with the big tax increases, in the out years it's going to be very difficult to score without any possible language for the congressional budget office to even look at. >> the point here is the government grows dla mramatical. you're taking massive amounts of resources that is going to be noded and using them to grow the government dramatically. that is at the core of the problem here. >> jim, appreciate the intelligence on this. talk to you soon. >> good to be with you. >> all right. we'll have stocks to watch coming up next. kick off the new trading week. tomorrow, don't miss our live conversation with ace greenburg. "squawk box" will be right back.

you get 4.93 shares of xerox. xerox down, what is that, 10% now as a result you're not seeing the full value of the deal reflected. although it is valued at about $6 billion. puts the assumption at $2 billion in debt. cisco upgraded from overweight from equal weight at barclays. improving in europe and continued momentum in the united states. that's a new high, or close to it, at cisco. getting back there. all right. when we come back, a final roll call. don't go away.

guest host senator judd gregg, it's been great having you today, senator. we're going to have the final bill will have a public plan? >> yes. >> it will? >> some sort. >> it will be buried in all sorts of language, which says it isn't public but it will lead to a public plan in my opinion. the center of the doc