brought to you live interest london, singapore, and around the world. this is "worldwide exchange." welcome to the program. investor can haonfidence in eur gets tested ahead of the ecp's second ltro and italy selling more than $6 billion worth of euro debt. and japan's finance minister considers bringing in a temporary budget amid worries of plans to double the 5% sales tax could delay the full budget. greece is in selective default. the s&p becomes the second to down grade the kcountry's ratin

after athens launches its debt swap with private investors. reports of lawsuits in the gulf oil spill case are narrowing their foe can cuss in talks with a deal possibly on the table today. welcome to today's program. with christine tan, i'm ross westgate. kayla tausche will join us later with the u.s. opening. greece is the first to be rated insolvent. lowered athens credit rate to go selective default. it follows collective action clauses in a bond exchange deal that will see private creditors take a 74% loss on debt. according to s&p the clauses makes the debt swap a distressed debt restructuring. they say the rating will be raised to ccc once the bond swap has been concluded. this comes on the heels of

lowering ratings that kept it at the lowest level above a default. elsewhere the finnish parliament debating the 1300 billion euro greek bailout. min ministers from both countries have been ramping up the pressure on that. the dutch finance minister voicing his skepticism over whether greece can follow through the promise. the bundstad agreeing yesterday. 230 actually voted in the measure. george mag enough is with us for the first hour of the program. george, a very good morning to you. they are going to decide on wednesday whether they put these collective action clauses in for credit event as well. what's your own view of greece?

no one i've spoken to actually thinks this bailout program is doable, so it's going to be possible for dwrooes to meet the needs and lower the debt to deficit target. >> yeah, i'm not surprised about that. in fact, the troika report that basically articulated the terms in the structure and risks of the -- well, the context of the 130 billion euro package that was finally agreed, we know it was contentious because it took so long to come to an agreement about it but the authors themselves don't think it's going to work. i think it's not a surprise really that my most private observers looked at the numbers and said it just doesn't pass muster really. >> where does that leave us, though? they keep getting dribs and drabs of money until somebody in germany says actually i'm not giving you anymore and then we're comfortable with the profit default. >> yeah, i think this is, to be

honest, like a little bit of a dance. i know it's much more serious than that. but it's a bit of a dance in terms of the politics until such time as i think either the greeks themselves actually can make a decision for themselves having had elections perhaps. >> yeah, april. >> that it's time to kind of cut loose and, remember, greece is making rapid progress towards actually eliminating its primary deficit. so by 2013 latest, you know, they'll be borrowing money purely for the purpose of paying off their creditors and that's often historically been a powerful turning point at which time the debtor essentially says this just ain't worth the candle and we're out of here. but similarly on the other side the creditors, the germans, dutch, austrians, finns, dutch and so on, i think maybe they're just not ready yet to actually cast greece loose and believe

that they have to go through certain motions in terms of their own solidarity not for greece. it's just a question of time, isn't it, i think probably later this year. >> george -- >> yeah? >> christine here. when you say cut greece loose, can you please clarify. do you mean them leaving the eurozone? >> i think that's quite likely. at the very least it is -- it would be a formal default, a kind of can't pay/won't pay moment. and i think that a lot of this would depend really on a unilateral decision which i think greeks will themselves make at the appropriate time. and, you know, they obviously will have to weigh the cost of staying in the eurozone which is becoming increasingly well known and the cost they don't know of leaving. at least if they leave, they'll be in control of their own destiny. here this isn't about a balance

sheet exercise and a spread sheet. this is about feelings of national self-determination and sovereignty which are very precious to greeks as well as to other people. >> george, when you say of course i agree with you they're in charge of their own destiny, but if they do leave the eurozone, what industry, what growth mechanism can they count on to pull the economy, the greek economy, back into recovery? what do they have? >> well, it's very tough because clearly they have tourism and they have shipping and probably not the very much in cutting edge global manufacturing. so it is going to be hard, and i don't think anybody is under any illusion that greece is going to be able to claw its way back to some kind of industrial industrial us which it didn't have before. but the devaluation of costs and

prices and the adjustment to living standards will be if facilitated, i suspect, through having an external devaluation. i mean, i'm not saying it's an easy ride and it certainly will exacerbate the economic situation in the short run, but, as we know from argentina and many other countries that have been there including russia and others, there is a way out of debt and there is a way back including back to foreign private financing. big, big decisions, i think, for the next greek government to take. i suspect that's the way it's going to go in the end. >> all right, george, we'll leave it there for now. you'll continue to stay on with us as our guest host. george magnus. let's take a look at the bourses, mostly higher ahead of the liquid. a little bit of optimism coming

into the market today. the nikkei 225 is up 0.92%. triggered negative sentiment but investor fought back after they felt maybe some of the stocks were oversold. the topic clawing back. shanghai composite up, marginal gains. the banks led the way higher on a report that china has softened its line on local government financing allowing banks to issue loans to government projects more than 60% complete. so that seems to be a softening when it comes to local government debt and dealing with local government issues. the hang seng is up 1.7%. the property counters really led the way higher. the kosmalss kospi higher. a sign there was less competition from the japanese rival elpida. the australian market lower. new zealand up marginal gains

and the sensex 1.6%. ross, how does the heat map show today? >> we are weighted to the upside right now. a little bit more than 6-4 advancers outpaced decliners more than 2-1. a number of flashes we have worth pointing out. parliamentary panel set up to approve eu aid in germany. they said that is unconstitutional so not allowed. we are hearing the ecb is going to not accept greek debt anymore as collateral. head of the ltro tomorrow, so the ecb is deciding it doesn't want any more greek debt even though it has senior status compared to everybody else on the greek debt. the ftse 100 up a tenth of a percent yesterday, down a third today, down a third. the ftse mib up half a percent.

0 our focus will be on italy today. they're auctions a reopened five-year and a new ten year. doing well in the grain market. currently yielding 5.35%. there will be a big discount going on compared to that price. we've been trading in the gray market about 5.7% on the it ten year. last time the auction was well over 6% for that ten year. so just show you the trade, the five year around 4% on the cash market. the two year trading at 2.5%. pretty good demand not only because of the ltro but we have a huge 27 billion euro redemption coming up this week as well. a lot will be funneled into much smaller 6 billion issuance. euro/dollar a little bit firmer. 1.3434 is where we stand at the moment. and not far away from the highs we hit earlier in the week. the yen has clawed back some of the losses it had.

we moved eye way from the three-month high that we hit on monday. dollar/yen 80.61. lower than the 81.62, nine-month high, sterling against the dollar around the 1.58 mark. we'll take a pause. still to come, markets bracing for that all-important ltro but are banks relying too much on cheap money and how will they wean themselves off once the crisis is over?

ecb governing member novotny said it's not necessary this time to pour more money into the temporary and permanent rescue facili facility. the bond yields discussed the upcoming ltro saying markets should not expect cheap long-term loans to become the norm at the ecb. so are ltros the correct medicine? we have been asking those who should be in the know. >> little change the picture but i am convinced in the banks.

>> in the circumstances in which the banking system had funding problems, i think it was appropriate to provide this liquidity. however, the sevcentral bank fo the ecb and also for other major banks have to be prepared to absorb the excess liquidity at a certain point in time. when the economy picks up. >> it's going to be determined by how many people come to borrow, certainly we saw pretty significant borrowing in the first. a lot of debate on whether it's going to be a big one or not. the twas between mario draghi and ackerman over whether it was important or not -- whether you would be a man or not if you took this money or not from the ecb. i think it's important that there not be a stigma associated with lenders of last resort

lending. that's the whole point of having these and so if the markets need it, they should take advantage. 0 okay. george, look, the ltro has been good in the sense it staved off a systemic collapse in financial system and banks will, you know, view this as the last chance to get a bunch of cheap money so it should be good demand but then how do we stop the ecb being the only central counter party is this. >> yeah, and i think that's part of the problem which is you can't. and you can't stop it really if you don't really simultaneously have some kind of structure in europe in the banking sector to reorganize and rejig the funding base of the european banks so what's happened obviously is late last year we saw, again, the freezing up of interbank

funding. we were threatened with the banking crisis. mario draghi said at his first press conference, the most urgent problem he had to address, we have the ltro, the first one in september and the announcement for the one that's coming now, and this problem has been relieved but you have vertical lines basically from european buying up to the ecb but no horizontal line of funding that have been re-established. so i don't really see how you cannot institutionalize the l it tro. so this is the second one and obviously i understand the issue of lender of last resort. you do it in terms of emergency. there will be another emergency, and i'm pretty sure there will be a third one. >> you think there will be a third one? >> yes, i think there will. >> when? at some point in the future? >> i think it's hard to say exactly how long before the effects of this kind of wear off. as we've seen with the special lending facility here in the united kingdom and the credit

guarantee scheme and other examples which central banks have used to reliquefy banks, the effects actually are very powerful in the short run but sooner or later if you don't change the underlying structure of how banks manage their assets and liabilities and their funding in particular, you just run into the same problem. >> christine? >> hey, george, the basic concept behind the ltros is to give lending a boost and maybe that will filter down and give a real kick to the economy. in your opinion, is that likely to occur? >> not so. i mean, when the ltros first came in, we were trying to digest the effects after december. soon after that we had the fourth quarter bank lending survey from the european central bank which basically indicated what everybody feared which was this kind of crunch and freeze in the willingness of banks to lend to households and nonfinancial companies. now, since then we've had

january money supply and bank lending data which indicate that the situation stabilized in january at levels which were as bad as they were in december although not worse. and i think this is the one area, although the ltros have been successful in averting this funding crunch in european banks and we all breathe add huge sigh of relief, the objective which is to kick start lending by european banks to households and companies, not a chance, to be honest. i mean, there may be in germany and only in germany perhaps some exceptions where companies, you know, are doing pretty well and we know that the economic numbers in germany are okay and there isn't any bank lending shortage or krunch in that country but i think -- i was going to say that's unique but

it's pretty rare. i think for the eurozone as a whole, we're going to see -- we're not going to see any revival of created bank lending. >> so, george, in your opinion, what can policymakers, what can regulators do to kick start lending to households and companies? if the banks aren't doing it, what's the incentive that needs to be given to banks to start that process going? >> well, you know, we've had this discussion, you know, what seems like an eternity in the context of other countries as well particularly the u.s. and the uk and others going through this enormous deleveraging. and for you're peeuropeans the is worse because banks are behind in recapitalization. they're behind in changing their funding sources and making them more stable and less reliant on wholesale sources and in general there are too many banks trying to do the same thing.

so the way to try to stabilize the financial system and tray to get it kind of to reboot, as it were, obviously -- i'm not saying that nothing is being done but, "a," it takes time. "b," you have to rely, i think, on growth in the end. you are not going to basically create -- to stabilize and create a slowly improving financial second is tore unless you can have dproet and that's obviously what's missing in europe and soesedly it's what they're going to talk about this week. >> yeah, it was interesting monti signed that letter and the germans and the french were the ones who didn't. talk i talking about italy, it is said to test the market with an auction of long-term debt, setting up 6.2 billion euros in a five year and fresh ten-year sale. they expect the yield to drop to around 5.7%. it was over 6% paid at a similar auction last month following the ltro yields on shorter term italian debt have dropped significantly. longer maturities have only fall ep marginally.

peter is head of european rate strategy at rbc capital markets, joins us now. peter, i suppose massive redemption, the ltro and the fact, as we say, yields on the ten year haven't fallen that well but should be contributing factors to a successful sale, should they? >> one of the things that's noteworthy for the last, i would say about a week or so, is that in contrast to previous episodes we had that quite strong difference between what's going on in the german bund and whenever the bund was rising and others were dropping but that isn't the case anymore. yesterday we had a relatively strong session for the bund but today the btp contract printed a new high going into the auction so it really looks like the tide is lifting here. >> yeah. this one is also going to get quite a heavy spread concession to the current ten year as well. is that -- is this going to look sort of valuable proposition? is this going to be of value? >> well, i mean, look, at the end of the day, what happens is

that you have some kind of concession either way these days in the primary market, the entire market drops off, albeit you have some concessions on the curve. so in that perspective it's more on the curve which at the end of the day i think for the italians is a very good thing and investors will find value in the new issue as well. >> george magnus. where do you think the italians are in it terms of total funding for this year with the conclusion of this auction and are there pressure points that we still have to look for in terms of the mechanics of sovereign funding during the course of this year? >> one of the things that is quite interesting that you raised that question because if you look at particularly the difference between italy and spain, so the spanish have been really rushing into every aucti auction, even scheduled fresh auctions that weren't on the timetable beforeis hand so compared to previous years in

terms of their actual funding, the italians have been, if anything, even a bit slower than the previous years so when you say might there be pressure points, this might certainly be the case. as i said earlier at the end of the day it all boils down to growth and where we're going from here. we can certainly picture the expectations for growth are getting better where we are at the moment and that might well aid the funding prospects are for the sovereigns as well. >> speaking of spain, they raised over a third of their -- about a third of their economy for the year already. they are now also pushing back on their deficit target so is the market going to actually look at spain now and italy and think maybe italy is a better value than spanish debt? >> it's actually not a new phenomenon. what we've been seeing most recently, let me take a step back. when we look at the last ltro, what happened back then we had an enormous skrout performance of spanish relative to italian

bonds and that has turned on its head so i think one of the things that is currently under way people are looking at the market and saying, well actually italy is not that bad after all. >> all right. we'll see what happens a little bit later. for now, peter, thank you, peter schaffrik. christine? japan may need a temporary budget as early as mid-march for the upcoming fiscal year. the parliament may not pass the original budget on time as the ruling party and the opposition are still at odds over a controversial plan to double the sales tax. this would be japan's first temporary budget in 14 years. and still in japan an unexpected show of strength in the japanese economy, retail sales rose for the second straight month in january up 1.9% from a year ago. the growth was driven by auto sales which jumped more than 24% from a year earlier. and stellar earnings for asia's largest property develop

er by market value, net profit from july to december jumped 13% from a year ago to $1.5 billion including gains on investment properties. as hk's net profit hit $2.7 billion, the company has also report add dividend of 95 hong kong cents per share for the period. well, the mobile world congress is still under way in barcelona. our very own gadget geek karen tso has been checking out the la latest innovations. >> reporter: this is what the future might look like. just arrived home, can't find my keys in my handbag, probably lost them altogether, i actually don't need a key. one simple swim on this device unlocks the front door. shall we go inside? here is where it gets interesting. a little chilly in here, can i say. it might be time to crank up the heat. let's turn the fireplace on and, no, i don't need any logs or wood.

i can just do it from one simple tablet and it's more than just that. i can control the tv. i can turn that on. i can also dim the lighting in here. i don't need to physically go around and turn off each individual light, and then i can turn the radio on as well. can i say it's been really, really a long day and it's time for much needed beauty sleep, so i think it might be time to close the blinds. good night.

this is "worldwide exchange." the headlines from around the globe, investors in europe get tested ahead of the second l it tro with italy selling debt. japan's finance minister considers bringing in a temporary budget for the first time in 14 years amid worries the plan of the 5% sales tax could delay the full budget. greece in selective default. the s&p becomes the second to down grade its ratings after its debt swap with private investors. and the latest smartphone at the mobile world congress in barcelona. we speak to the ceo first on

cnbc next. meanwhile, germany's largest drug makt short of timts in the first quarter because of weak sales of the chemicals division. patricia has more details. >> reporter: well, ross, numbers are below expectations with but they're back in profit for the fourth quarter so that is the good news about that particular drug maker in germany trading down 0.7%. 2012 outlook rather cautious on sales on the profit side as well. however, the flag is up for 2013 where things should look p positively better in terms of core earnings and sales as well. i think the pharmaceutical business is the one the company will focus on going forward. the pipeline there, also the four drugs, remember, they just got the fast track awarded for

ebitda and key sales going forward so the pharmaceutical part of the business will continue to be in focus. we'll have the ceo on cnbc laser on on "closing bell." join that show and the ceo mr. dekkers about the issues in 2012 that he may be worried about. if you take a look at the share price and its development of late, up about 13%. it had a nice rally. we are only up about 1.3%. analyst comments so far, they didn't think it was too bad what we heard in terms of 2012 so all in all, christine, the verdict is still out. we'll have to see what the ceo has to say later on on "closing bell." looking forward to it. we are watching, of course, elpida filing for gentlemjapan'

largest manufacturing bankruptcy since world war ii, of course, with more than $5.5 billion in debt. the chip maker is set to be delisted from the tokyo stock exchange. its demise may well spell the end of an era in japan as the last big computer memory chip maker. what does it mean for other asian semiconductors? let's ask those questions to the tech head. as elpida undergoes rehabilitation, can the company make a comeback? >> well, we'll see what will happen. basically like a receivership, the supervisor will have the aspect of the company and the supervisor of the daily operation. so, yeah, the final call will be made maybe this year but we'll still need to keep eyes on elpida. however, for sure, elpida is a

chip maker and they need to have a big chunk of money every day and in and out, it happens every day. so if that happens with the supervisor, they should have like a problem with their daily operations, so in conclusion, having a hard time for sure and then it's highly likely for them to lose their competitiveness going forward. >> what are the chances of a white knight coming in? what are the chances of someone coming in, stepping into it and buying up elpida? >> yeah, that's because elpida maintains its -- and they are running right now and they are

running. so as far as i know elpida is quite competitive and i think, i think toshiba and micro technology were global boundary or some new japanese semiconductor chip makers might be interested in a hiroshima plant. >> today we had the south korean chip makers rally today because they seem to be the ones benefiting from the demise of elpida. will they be the winners out of this whole saga? >> partly i would say korean dram makers will gain. still, a lower price line now and they are expecting like a better pricing trend going forward. so i would say it's possible

they won over elpida. that's what i believe. >> okay. we will continue to watch elpida. thank you very much for your time today and your insight. regional tech head. ross? >> good stuff. here european stocks just over an hour and a half into the trading day two to one outpacing decliners to claw back the slim losses we had yesterday. the dax up around 0.2%. right now up 0.6% on the ftse one. the cac up a third. the ftse mib up 0.4%. we're waiting to see how much money is thrown down in the ltro. today the yields are low in italy. 5.3%. they're low in spain, just under 5%. and in france as well slightly higher in germany. very low levels of 1.83%. the key focus on this italian debt auction just over 6 billion euros they're looking at on a reopen five year and a fresh ten

year. you can see the cash market is 4% ran 5.43%. we're looking at quite a big -- quite a big discount. 5.7% is where we're trading about but we have the ltro. we have a big redemption this week. that should be supportive for the eye titalian debt. as far as the euro dollar is confirmed, trading. they are trying to claw back. right now euro/yen, we hit that four-month high on monday. dollar/yen 80.73. a full dollar below the nin nine-month low that we hit for yen. how do we fare in asia? >> ahead of the second ltro from the ecb, so this is how the picture is in asia. the nikkei 225 is up.

a lot of people selling on the elpida bankruptcy news, hey, maybe we're selling it too much and then back in this particular market. the topix is up. the chip makers rally because of elpida's news. they are saying maybe this is a good time to build the market share. they are pushing the market higher. to the down side a little bit. the new zealand 50 is up. sensex 1.7%. the hang seng is up 1.7% simply because of earnings, corporate earnings, profits coming up pretty much as expected. strong numbers from the property count e counters. the property counters will rally ahead of those earnings. and i want to end on china, the banks were rallying today because there was some news suggesting china may be relaxing its rules when it comes to local government financing. of course as beijing continues to ease its lending to make sure

that things are all right. more government projects may be in line to get much-needed fund ing to finish infrastructure improvements. i understand there are more than 60% complete. tracey has more on this particular story. tracey? that's right, christine. the shanghai composite edged up about 0.2%,ly. ed fundamentally about by shares. shares rises after the report regulators had given the green light for banks it to issue new loans to fund unfinished infrastructure projects. the move essentially helps leave a debt pressure, a lot of these cash strapped local governments are facing. the newspaper also said banks may continue to extend new loans for projects that are already 60% complete and this is a very big shift in policy since the banking watchdog had previously ordered banks to limit all new loans to local authorities except those aimed at affordable

housing. and beijing's stimulus package in 2009 cost local governments to amass a tremendous amount of debt, about $1.7 trillion, as a matter of fact. as more of these loans mature at the end of this year, many economists in china are increasingly concerned about defaultri risks and their potential ability to destabilize china's economy. back to you, christine. >> let's get some thoughts now from george. george, the banks are rallying ahead of the news. i would have thought that if the government was to say to a bank, please continue to lend to a local government who is already facing financial difficulties to xloet a certain project, that ought to be a negative. please explain why banks are moving higher today. >> to be honest with you, i'm not sure whether i can immediately make the connection. there may be other things behind this like the perception. maybe that official policy is easing up a little bit, which is

something that investors have been very disappointed about actually so far. the straight answer it to your question is of course it's not good. if lenders are being instructed to continue to extend or make additional loans to borrowers who either have cash flow problems or aren't generating enough money to basically pay off or service their loans. in china, as you know, it's completely different and banks are not basically intermediaries of credit and making judgments about good credit over bad credit. they're agents of official government policy. the situation, the system works different in china. so, yeah, i suppose my sense is if the bank shares are breathing a bit of a sigh of relief at the

moment it's because it comes as a backdrop against which bank lending growth has slowed down very quickly. the gap between off balance sheets and shadow bank lending and on balance sheet, numbers have pretty much been eradica eradicated. so there's certainly a squeeze going on which is reflected in high rates in china and almost chinese water torture. the measures are being kind of eased. i don't expect to see the authorities moving very quickly to be honest. >> nonperforming loans or rising nonperforming loans. we have local government debt rising as well. are we hooking at a scenario where china is building up to a banking crisis? years down the road is it not

taken care of? >> not as we have experienced it here in western countries. in fact, i think the -- one of the most overhyped kind of stories or scared stories i would say about china is, 0 oh, my gosh, they're going into a banking crisis because of bad loans to local governments and so on. china doesn't really have is to worry about a banking crisis in the sense that we understand. not to say that the banks could not suffer losses or that they're nonperforming loans are bigger than actually recorded. there's not much transparency, as you know, over the kind of chinese bank data. in the end it doesn't really matter because china ultimately has over $3 trillion in reserves in the foreign exchange reserve. and they can tap that to recapitalize the banks. the china banking regulatory commission is already taking a number of steps to try to kind

of insulate the banks from the risk of a major loan crisis. that's not really where the problem is in china over the next two or three years. i'm not saying it's easily manageable about but it's been done before and i think they can do it again. >> okay. point taken. thank you very much, george, for your thoughts there. let's hop over to japan. stocks there shrugging up. elpida rose touching a high. for more on what's happening in the market action there, let's go back to tokyo and bring in makiko utsuda. >> reporter: hi, christine. blue chip exporters rose as the yen had dwans but bucking the trend was tokyo electric power which fell over 4%. news of elpida's struggles despite financial support from the government prompted some investors to let go of the utility's stock. the operator of the power plant is currently propped up with government aid and they will start paying compensation next

month to residents who voluntarily evacuated their homes due to the nuclear accident. a total of about 1.5 million people. meanwhile, the scandal at aij asset and management firm which has allegedly lost most of the $2.5 billion it was managing is affecting about 880,000 people. according to the government, these people were enrolled in or receiving payments from corporate pension funds which were clients of aij. the firm appeared to have investments for nearly ten years while tooting high returns. japan's financial services agency is seeking to limit corporate pension funds exposure to risky investments and that's all from the knee day business report. back to you. >> makiko utsuda, thank you very much for that from the nikkei. ross? well, we'll take a short break. greed is good or is it? financial markets will never be as good. we'll just revisit that. plenty more as well to come. 

it's the second day of the world mobile congress in barcelona. gadget fans have been treated to

new hand sets, getting a glimpse into the future in the form of technically connected homes and cars. karen was showing us earlier how you could use your device to control everything. so what else is going on? what else have you been impressed with? >> reporter: well, ross, this is day two of the conference so we're getting a sense what's emerging as a major trend and in the past a lot of mobile phone makers concentrated on getting one of their best smart phones they can manufacture to the market. now phones on the market right from the top end of the spect m spectrum, the absolute killer phones right down to entry level phones and everything in between. we're hearing about where the try takes these devices' capabilities and it seems the focus will be connecting up these devices to basically everything in the home so you can operate from a smartphone or from a tablet, you can unlock the door, turn the lights on, turn the fireplace on, control

the it temperature, also open and shut the blinds. so it's about integrating homes, also integrating cars. so we're looking at a more connected world. that seems to be where the future is going and what we're hearing a lot about here. in terms of the smart phones, in the past some of the phones have been clunky and it can take a couple of seconds to move from one application to the next whether it's making a phone call. i think smart phones are becoming much, much faster and that's something that is standing out here at the conference. but let's talk more about the trends in emerging markets and joining me now is the group ceo. nice to have you here with me today. >> thank you. >> you are one of the biggest mobile phone players in russia and you have a presence in telecom. tell us about your focus and getting smart phones. >> first of all, we think the smartphone is the enabler right now for growing data traffic in

our network and enable all the services related to our people and our customers in the emer emerging markets. it's a combination of bringing down the prices on the smartphone to build enough capacity and grow the next stage of development for the industry. >> reporter: which comes to the point there is this bredth of phones now at the end of the spectrum we're seeing out there. how important is this to encourage younger users to use smart phones? >> the young people of the world today, the new generation of consuming data on the internet and we see that from downloading video in gaming and in joining the different social networks. the smartphone is the enabler, as i said and right now in pakistan it's one of our key markets in asia you can buy for $75. we hope that price point is

going to drop to $50 and that will drive more and more penetration. >> you make the point that for many of these customers the mobile internet is actually their first experience for the internet which is very different to a developed market. >> indeed it is. so a lot of these countries, what we've seen in the western world we have had technology transitions to fuji, mobile announced. a lot will go directly without infrastructure, go directly into mobile gold band and really leapfrogging what the western world has been through the last 20 years. >> reporter: i know you came to highlight the issue of speed and how this is important that customers are happy with the speeds they're getting and that this encourages more usage. how do you manage this process in the market you are operating? >> first of all i think for 100 years this industry has been selling applications. right the now we're selling access to the internet. it is a huge trend and a change

for the industry. and speeds in the access of the internet is going to be the next killer application and for that reason i think the operator to a large extent will start pricing quality and speeds and as part of that volume to a larger extent than we've seen in the past. >> the industry has been focusing on just how we meet the increased connectivity demand and some of the comments that have come out about $800 billion in investment required in infrastructure the next four years. are we worrying needlessly about where this investment spending is going to come from? >> i think this is a challenge for the industry. it's a challenge for the country. it's a challenge for the world today because we would like to see investments coming into the different market, but we need to see a business climate and a predictable future in order to attract and invest money there. so this is really now a joint wok, i think, between making the

governments understand that investments will come. making other companies like the goog ls and the facebooks and others understand they are also using these highways to access our customers and then as part of that deal we need to find a way to partner with them and make sure that the whole new chain is well functioning and the benefit is allowing people to access the internet. >> reporter: the group ceo. ross, we'll be talking more about emerging markets and the implications for a lot of consumers using mobile phones, where they're at, in particular this turkey. coming up next on the program is the ceo. we're looking forward to that discussion as well. back to you. >> thanks, karen. fascinating stuff there. george, talking about china and the eurozone as well, just a word about the u.s. before we hand over and bring in our colleagues in the united states.

you have an election this year, one this which we've had tax cuts. >> i think we don't want to be too chirlish in a whirlwind of good economic news. the american economy seems to be performing, almost developing a little bit of self-sustaining private growth. i think a little bit is the operative phrase because some of the reasons for the upturn in private spending and lending have been due to one-offs and a lot of the tax legislation, there are about 42 tax provisions that will expire this year, the new president of the new congress will make decisions about it all over again after the presidential election. so some of this is built on quite fragile shifting sands of deleveraging obviously going on anyway. the housing market is in serious

shape. the 90% still have a lot of problems to deal with so that's kind of for this year, longer term i'm more optimistic actually. america's energy issues and revolutionary changes in the way that we manufacture things in which american technology is in the forefront will be for the good but that's for another day really. >> george, thanks so much. you mentioned the 99% which has been the slogan of the proposal. got cleared out last night out of support. and at the same time we'll bring in kayla tausche from the united states. kayla, i hear the u.s. authorities are just going out with a big campaign to remind everybody in case you didn't know that insider trading actually is against the law. >> they brought in a very familiar face. the movie "wall street" michael douglas played the famous bad guy trader gordan gecko who is

back now to say that movie was fiction and that insider trading is bad. take a listen. i guess we don't have that video with us. economic adviser to president obama will join us as our guest host for the next hour. so if you have any questions, send your e-mail to worldwide@cnbc.com or on twitter.

welcome to the show. the headlines from around the globe this morning, $6.5 billion, the price morgan stanley says it will have to pay if moody's follows through on warnings to down grade the bank. >> investor confidence in europe gets tested ahead of the second ltro. auction results from italy. they're selling more than 6 billion euros worth of debt. greece in selective default. the s&p becomes the second agency to down grade their ratings after athens launches its debt swap with private investors. hand set makers unveiled their latest smart phones, of course, at the mobile world

congress in barcelona. we'll speak to the ceo of turkk cell up next. welcome to the second half of "worldwide exchange." if you're just joining us from the united states, a very good morning to you. economic sentiment up to 94.4 in february. slightly stronger than expected. industrial climate minus 5.8 versus revised in january. it has improved. consumer sentiment 20.3. slightly better in january. inflation expectations 26.4. fairly steady. the business climate has risen to minus 0.18 from the january but that's not as good as exp t expected. so business and consumers in the eurozone a little less down beat about their prospects in february than they were in january.

stocks have been firmer and euro dollar as well. how is that feeding into futures, kayla? well, the futures are doing fairly well, ross, this morning, hovering around a level of about 47 points into the positive territory for the dow if it were to open right now. s&p would be up just about six points and the nasdaq would be up a little bit better than ten points today. we've seen some steady gains throughout the week after sort of trading interday dip and end ed mostly into positive territory. >> and greece, of course, now officially the first to be rated insolvent. standard & poors has lowered to selective default. it was widely expected and follows the introduction of clauses in a bond exchange deal that sees private creditors taking that loss on their greek holdings of greek debt.

accord i according to s&p it was the addition of the collective action klaus that makes it a distressed debt restructuring. it follows a similar move from fitch. so what does he think of the eurozone crisis? robert shapiro, co-founder and under secretary of commerce under president clinton and president obama as well. good to see you. thank you very much, indeed. >> a pleasure to be here, are ross. >> we are also in this where the authority will decide on wednesday whether to review greek debt and decide whether a credit event has occurred or not. how important is that if we trigger cds? >> oh, well, it's potentially very large. the fact is we don't know how big an event it is because we don't know how many credit default swaps there are out there. there's no one who keeps track of them. officials in the u.s. government how many credit default swaps our institutions holding not

only against greek debt but european banks which are in danger in this whole crisis and they said, well, we know how much sovereign debt our banks are holding but we have no idea how many credit default swaps there are or who holds them. that is, are they being held by systemic institutions? and it is the absence of that knowledge that has the drive to make this not an official credit event. >> and at the same time, of course, the internal troika report suggests the terms are unsustainable. greece can't really make it. we have politicians, not angela merkel but other german politicians and finnish and dutch suggesting, look, we can now survive the bigger greece default. are you that comfortable? >> i'm very uncomfortable.

greece has never been the issue. the eurozone has yet to put in place a set of terms or arrangements that will ensure global investors they will be there to ensure what happened to greece does not happen to italy. then we are staring at a really p potentially very, very serious banking meltdown across much of europe. >> this is kayla in the u.s. banks are preparing for several scenarios, one in which there is an orderly default of greece, if standard & poor's is right. if there's a dis0 orderly default, one is if they allow greece to exit the eurozone and which do you think would be the most devastating across the pond here?

>> well, again, the serious implications come from any set of events which global investors interpret to mean that europe will not stand behind the sovereign debt of italy or spain or ireland oregon po portugal. the real issue is italy. spain would follow closely. so -- and i think a disorderly default in greece has the largest community of communicating that particular set of negative news. the eurozone continues to resist the most fundamental principle of a monetary union. the basic principle is that the full facing credit of the whole must stand behind the full facing credit of each part. that's why we have never had a default of a u.s. state in the

united states. the united states is the first modern monetary union. and it was established on that principle. that is the first bank of the united states assumed all the debts. the revolutionary war debts and the debts from the confederation of every state. and it was a hard deal to make and they made the deal. and from that point forward it was clear that the full faith and credit of the united states stood behind the full faith and credit of every state. >> it's pretty clear things like the euro bond and the idea of suggesting the end, the very end of the process and companies have to competitively devalue themselves in union before we can get there. are they -- can we do it that way around? >> if we're very lucky. the fact is that's playing a game of chicken with global investors. the bet here is that global investors will be patient and say, well, eventually they're

going to get there. that's why a disorder hadly default in greece is quite dangerous because it can communicate that the eurozone is not going to get there soon enough and then, you know, you have people starting to exit italy and then you have a stampede out of italian debt. then you have losses which even with the new loan program of european sevcentral bank which essentially a bailout of the banks before the crisis. usually we have it after the crisis. what they're doing is a bailout before the crisis. >> christine is this. >> robert, we had an earlier guest who says policy is makers are simply kicking the can down the road, just going through the motions before they decide to cut greece loose. you don't even think that's a possibility at this stage?

>> well, i do think it's a possibility. it's a -- i think that they are still looking for a way to not cut greece loose. after all, cutting greece loose raises a whole series of serious questions to which we don't have the answers. and politicianses and bankers never like to see circumstances arise where they don't know what to do and they don't nope what the answers are. >> the unknown unknowns. >> yes. and in this case we know at least two of them though they are still unknown and that is -- >> that would be a known unknown. >> and they are vetted up, ross. there's how do we deal with all the contracts in greece and between greek institutions and european institutions that are denominated in euros. what do we do about the enormous losses on all those contracts which have nothing to do with

sovereign debt because they were denominated in euros and now a new drachma and who knows what it will be worth. and that's large losses. that may trigger credit default swaps and, of course, the second is what i've been trying to emphasize so far. and that is what message does this send about the eurozone's commitment to the stability of the italian sovereign debt market which is so large that it implicates the solvency of the entire european banking system. >> robert, you'll be with us for the next hour. we'll have plenty more questions. and still to come, hand set makers are unveiling their latest high-tech smart phones at the mobile world congress in barcelona. one woman, one powerful savings tool, one chance to hunt down the right insurance

at the right price. the "name your price" tool, only from progressive. ready, aim, save! grrr! ooh, i forgot my phone! the "name your price" tool. now available on your phone. get a free quote today.

italian bond auction sells 2.5 billion. this is the five year, the amount we were looking for. the yield set at 4.19%. this new benchmark ten year, september is 2022 btp is, again, exactly the amount targeted. the yield on that, 5.5% which is

something of a result trading below 6.7% in the grain market and the previous auction is over 6%. and they sold the maximum target 6.25 billion. the yields looked pretty good. euro/dollar, probably should rally slightly. the bid to cover on the ten y r year, 1.4. it was 1.42 end of the january sale. so not a huge bid to cover but people will be more pleased by the fact that the yield is lower than we might have thought on th that. so -- and the bid it to cover on the five year 1.4. that's slightly higher than the 1.3 end of january. so in other words pretty successful auction, kayla, and particularly the yield. they saw the amount they wanted in the yield on the ten year 5.5 probably better than we would have thought from the grain market pricing. >> yeah, and you it did see that

euro/dollar heading stronger at 1.34. and the u.s. markets are in the green as well this morning about four hours to go before trading actually opens. the dow would be nearly 48 points into the dwren. the s&p would be up better than six points and the nasdaq up nearly 11 points this morning hovering right at a level of being up just about half of a percent into positive territory. how are the rest of the european markets doing this morning? >> let's just take a shot of the wall, what's going on with the markets. you can see we were trading earlier on by around about -- well, advance ers outpaced decliners 2-1. ftse 100 is up 0.2%. the cac and ftse mib up .4. basically wiping out yesterday's losses. let's show you where we stand now. the eitalian auction is up with the curve. the yields, well, they have dropped on the cash market, 5.63% when we looked we were

trading around the 5.45%. so that has given a boost, those auction results to italian debt, five-year trading 4.02% this morning. you can see the premium that we had in the market, 5.5%. there was a bit of a premium. also benefited, of course, big redemption, just a $10 billion redemption tomorrow in italy and ltro money. a lot of attempts to put money in it and better value in spain where yields would fall further. euro/dollar trying to tick higher in the aftermath. has been higher on the session anyway. yen, of course, has tried to claw back losses from the last few weeks. today euro slightly higher against the yen. 109.95 was the high we hit yesterday. dollar/yen pretty steady.

remember the nine-month high. christine, what comes in az kra? markets mostly higher. ahead of l it tro, from the ecb tomorrow so that's keeping the markets here. the in kay 225 is up. the elpida bankruptcy tryiigger a lot of people to stop selling but people realizing maybe we oversold and started buying back into this particular market. the topix is up. the shanghai composite is up marginally. we had the banks slightly higher on a report that, you know what, they are -- the government is trying to relax local government financing by allowing banks to lend to government projects at least 60% complete so that seems to be refueling the bank shares there. the hang seng is up ahead of key earnings. which released results after the bell. pretty strong numbers. the kospi 0.6% higher. chip makers rallying on elpida saying maybe we can claw back the market share, so that seems to be the story here in south korea. the kospi 0.1% lower.

new zealand, marginal gains and the sensex 1.6% higher. that's it for me. i'll be back tomorrow with the news making headlines here in asia. the mobile world congress under way. japan has been treated to new hand sets from the likes of sony and nokia and getting a glimpse into the future in terms of technically connected homes. karen is getting all gadget happy. >> reporter: i'm glad you said that and not i. some of the big headlines here. htc came up with a faster processing, better cameras, more pixels. also came out with some new devices. the fastest smartphone ever built. this is a sense where the industry is going. samsung's devices were about

beaming photos and videos on a wall like a projector. sony with more entertainment style device for the home. we saw the best smartphone camera ever from the likes of nokia. you can see the advances we're talking about. also in the tablet space as well as samsung came out with a new s-pen and this is a stronger impression on an ipad a paint brush or a pencil so this development and the next direction for the smartphone and tablet space. let's talk more from the network and industry perspective. joining me now to talk about the turkish market is the ceo of turkk cell, mr. ciliv. let's look at what the market looks like. you had the mobile communications market growing by 9% in 2011. so just under double digits. but then if you look at the hang seng market growth 92%. why the discrepancy? >> turkey has made a lot of

progress in telecommunications in the last five years. according to survey in the world economic forum in mobile network coverage turkey ranks thumb one in the world. in mobile internet speed according to ericsson turkcell is one of the fastest in the world. in fiber internet we are offering up to 1,000 mega bits to the homes in turkey. this advancement this telecommunication is making turkey very advanced in their economy and is helping their economy grow faster and i am sure we contributed a lot to the growth of the turkish economy. >> some of the increases were on the back of an introduction of an android turk-style branded smartpho smartphone. why did this help demand? >> because of the internet momentum in turkey just like around the world. around the world 1.2 billion internet users will increase to

5 billion by 2016. so just like there was a revolution in mobile phones, now there is a revolution in mobile internet. as a result smart phones and tablets with 3g broad band growth capabilities, those are selling like hotcakes. >> reporter: what's also emerging from this industry is what these devices are enabling us to do. you spent a little bit of work at looking at financial services. you worked in developed markets as well as the likes of microsoft. the advantage you're making, you have some first locally and globally advances in the area. how are they unique? >> the world is becoming more flat and mobile internet is is the equalizer. now we are seeing a lot of innovation coming from emerging countries n. turkey we are leaders in mobile payments, mobile finance. we have an arrangement two years ago we started working in turkey we have more than 2.5 million

users or customers using mobile payments to make their payments. when they are crossing the bridge they can make payments with smart phones and they get on the bus they can make payments with their phone as well. so phones are turning into mobile wallets. >> we've been hearing a bit about that conference so is thank you for spelling out what's happening in turkey. from turkcell, the ceo, mr. ciliv. >> thanks for that. just a reminder, a pretty successful italian auction in the last ten minutes. the yield on the ten year the lowest since august last year and on the five year the lowest since may 2011. so that will be a result. this all comes as standard & poor's downgraded greece. what can athens learn from argentina's spectacular experience of bankruptcies? we'll look at that when we come back. but why energy? we've got over 100 years worth.

is it safe to get it? but what, so we should go broke with imports? look, i'm just saying. well, energy creates jobs. [announcer:] at conocophillips, we're helping power america's economy with cleaner, affordable natural gas. more jobs, less emissions. a good answer for everyone. we gotta be careful. it's cleaner. it's affordable. look, if it's safe, i'm there. [announcer:] conocophillips.

the debt reduction plan for greece is continuing. what lessons can we learn from argentina which had the biggest sovereign debt in history. they said the kcountry treated creditors horrifically in the last years. robert shapiro is with us.

they have this plan to teach the rest of the world from its own experience. these guys are excluded from the market. if greece does decide -- if they get newly elected politicians who want to turn around to the imf and say that's it, we're out, what should they bear in mind was the ar jen tgentinian experience? >> the argentinians went to the g-20 last weekend and said we have the model for greece. what is this model? the model is you don't negotiate with any of your creditors. you wait several years and then you give them a take it or leave it offer. when half of your foreign kr creditors say we're not taking that, you repudiate that debt. those creditors go to court because their contracts have been violated. the courts hold against you and then you're barred from international capital markets. argentina can't go in -- can't borrow anywhere but in

argentina. they have to get all the money at home so first privatize the pension funds. they put on new export tariffs and then they expanded bank reserves so the banks could bip the bonds. the result is the highest inflation rate in the world. foreign direct investment is falling. this is the world's worst model of what you do. >> it is a g-20 country. >> i frankly think the g-20 needs to re-evaluate that because it's not simply the way they handled their creditors. they stiff the paris club, that is government to government loans, they keep on saying they're going to pay them but they're eight years in arrears on that. there is something called the financial action task force which is the international entity that sets rules to try to control tariffs, financing, and money laundering. the financial action test board says that argentina was in violation of 47 of 49 rules.

this is a g-20 country. they are serial violators of every international norm. and i think -- >> robert, this is kayla. i have a question because, you know, you say they stiff arm the paris club, all these regulators, the imf including, not allowing them to police it. anecdotally if you read some of the accounts of how greece was operating up until what led it to this point, that's something that's happened in greece as far as understating some of these financials. who polices this and why is it allowed to continue? >> well, it's allowed to continue because it's a complicated world and because when governments say the imf can't go in or they lie to the imf, the imf doesn't have a police force. i'm an adviser to the imf and they do the best they can. >> they are still getting money from the world bank.

>> they are which helps bail them out. in fact, the united states government in the past year has said -- announced a new policy that says the united states will vote against any loan to argentina from any multilateral institution including the world bank and the interamerican development bank until argentina begins to behave like a responsible member of the international community. frankly i'm in britain in order to talk to officials of the bri british government and the press to say why is it that britain is voting for loans for a country that is not only preparing to confront them in the balkans but in addition is this serial violator or outlaw of all international norms? the world has got to take a stand just like the eurozone has

to take a stand about the fiscal of those within the european union. >> i'm afraid we have to leave it there for now at least. we have you for the hour. very interesting discussion. we'll, of course, continue. but coming up on the show, if at first you don't succeed, try, try again. the dow makes another push to close above 13,000 but comes up short. our next guest says he's bullish on stocks and wonders why individual investors aren't taking part in the latest bull market up next.

welcome to the show. the headlines moving the markets this morning, $6.5 billion, the price morgan stanley says it will have to pay if moody's follows through to down grade the bank. >> investor confidence ahead of the second ltro. italy with ten-year money. its latest bond auction. and a primary test in michigan for mitt romney.

nice to have you here on "worldwide exchange" with us on this tuesday morning here in the u.s. let's take a look at where u.s. markets would open if we were trading right now coming off slightly from the morning's highs, the s&p 500 would be up about five points. the dow would be up nearly 40 points. the nasdaq would be up just shy of nine points here in the u.s. well, the third time was not the charm for the dow as it tried and failed again to close above 13,000 rallying from an early 100-point drop to trade as high as 13,027 before falling back. joining us now is jordan kimmel, market strategist at method investment and advisory, and still with us our guest host robert shapiro. former undersecretary of commerce under president clinton and economic adviser to president obama. robert has a lot of titles

there. i want to start with jordan. you are talking about how investors are not participating in this bull market. we've seen 30% run-up since the 2009 lows. the fear is that the retail investor has been on the sidelines. why is that? >> it's a fact and this is a tremendous market but you can't blame the individual investor who went through a decade of torture starting from en-on-and ending with bernie madoff and so much went through it and really the trust in business, the trust in market kind of went away and so people are saying just give me a 0% return in the money market and don't steal my money from me which is sad because most businesses are good, they're honest, and there are some exceptional companies. the fact that the valuation is great, this is a super bull market, and we have to figure out a way to get individual investors back in. >> there have been a few inflex points for money market funds. in july more than $20 billion

responsible for outflows of money market funds. and just hast week we saw money finally net coming back into the equity market. do you think that's sustainable? >> it's more than sustainable. this is what happens to bull markets. money goes where it's treated best. money will flow. it takes a couple years, believe it or not, for the individual investor to realize we've actually exited a bear market environment and if you want to make money, you have to figure out how to find the companies that you can trust and, again, i use a methodology to isolate companies. this is the super bowl market. >> let's hand it off to robert shapiro. >> i think you have two different dynamics going here. one pushing the market up and the other holding it back.

what's pushing is up is finally the debt service burden on consumers has returned to normal. what's thush unusual is the financial crises destroy assets. in this case it destroyed part of the primary asset of 80% of the country and that was the value they had in their homes. continues to go down. as people get poorer, they spend less. american households have been deleveraging. they've been trying to reduce their debt before they go back to consume. that was really achieved by last october and november. and we began to see a big increase in consumer borrowing, the most positive sign for a strong recovery we've had yet. at the same time hanging out there are two very large potential negatives. one is the potential of a financial meltdown in europe,

which i think is the largest and then, more immediate we are now seeing rising oil prices and the possibility that we could have a sustained period of $130, $140 per barrel of oil that will cut consumpti consumption, slow the economy. you have these two forces that are competing with each other, one to drive the market up and the other to keep it from moving up. >> robert, you have something interesting at work here which is in the u.s. you are paying 9% on your credit card bill and the market was relatively flat. do you put the money in the market and make nothing or pay down your debt? it would seem obvious. >> you have to go for a more global basis and here we are on worldwide. you have to remember the u.s. citizen represents 5% of the world, right, and we're seeing a global buildout taking place on

every continent. there's more consumption going on. do you tap out the american consumer which i believe is inaccurate but represents, again, 5% of the global population and when you look at oil and it's a concern for everybody, look at how much a daily budget goes to consumption of oil and gas. it's much, much smaller than health care or anything else. the distractions in the hashgt that keep people from focusing on the big picture, of the global build yum and how cheap equities are at this level. that's why you're going to see a continued bull market happening, it is positive. there's no new low showing up. you have to pick your head up out of the sand and say let's get invested. >> i like that view. we'll continue the conversation. up next, as the ecb gets set to launch another round of long long-term low-interest loans we examine how you can best hedge the outcome positive or negleate

of the ltro up next.

all eyes are here on europe. global investors on that three-year ltro from the ecb. the last one was the game

changer. >> this move by the ecb was a smart move and it was perfectly inside the mandate of the ecb. secondly, i believe that banks -- each bank found a different balancing act between increasing its liquidity and going into different factors. >> i think it's been very important that the ecb has taken action for the last three or four years and that has to reinforce confidence and restore stability in the european banking system. partly why we have a bigger in europe.

>> basically you can not go to a championship fight, you know, get in the ring and certainly have one hand tied behind your back. we are not using fully the capacity, the institutional, rather awesome firepower we have in europe. >> i think recapitalization of the european banks is absolutely important because we want the feeling between the sovereign debt crisis and the funding issues. it's absolutely important. >> well, you were hearing from leaders all across europe. our next guest has a way they can hedge themselves before and after the ecb's ltro sales. jordan kimmel is with us as is robert shapiro. sebastien, talk about risk. obviously there are two different outcomes in the market of this new ltro. the market can either love it or

hate it. some people say the way to manage risk is to not have any at all. do you agree with that? >> investing is about managing risk and return and trading them off. and i think as investors we shouldn't just look to stay away from the markets as the way to manage risk. it's all about understanding what are the intended and unintended risk we have in our portfolios and if we intend to take risk in europe, in greece, then it's obviously fine if we do so but if we don't then we should figure out to hedge that and what our tools help you do is exactly figure out how much of that risk in your portfolio is coming from those unintended bets. >> if you are looking at a portfolio from a bird's eye view, how much exposure are you recommending is healthy there? >> the problem these days is that the world is so interconnected that it's hard to tell ahead of time what your exposure is if you are not using sophisticated tools so essentially the key to modern

portfolio management is to really figure out how much of your risk is coming interest those unintended wets and in order to do so you need the risk model that can actually help you tell exactly how much of that risk is coming from those unintended risks so that you can concentrate on the risks you intend to take and if those risks will pay off if you are still managing. so investment management these days more importantly than ever is what those unintended risks are. we have a chart here that talks about correlations and correlations has been the big story of 2011, and if you look at those correlations in that chart, what you are going 0 to see is after the last ltro correlations have come down significantly. >> correlations in what way? >> correlations is all about how the market or how the stocks are actually interconnected or related to each other. >> explain what we're looking at

here. this is a chart from sebastian's company that has tracked these so-called correlations, asset-to-asset correlations, so how am i reading this chart? >> you should think about this chart as contagion, right? so essential isly when something is happens in the market, there is contagion because people are trying to sort out how this is actually going to affect the stocks and all the assets in the market so immediately the reaction is everything moves in tandem. everything moves together. correlation becomes very, very high. and then while the market is trying to sort out which are the effects of this particular crisis, correlation should come down and what we see after the last ltro is the correlation has come down significantly in a hurry. essentially what has happened is that contagion has been going away. the assets are now behaving more normally and as a result of that, correlations are, you know, down to historical down

levels. >> right. sebastian, it's really interesting. the question i would have, number one, the work to hedge equity portfolio as well as bond portfolios and also i think a lot of the correlations completely disappear when risk and reward are different and when fear breaks out, correlation is to one point. >> correct. >> the issue is correlations go up and that means people cannot sort the different assets and cannot tell which will outperform. you can think of correlations as a measure of contagion. you can really think about the correlation as a measure of fear in the market so when correlations subside then that means you're going through the more normal market levels where companies behave and act as they should, right, because there's no contagion going on in the market. there's no, you know, investors

are not trying to sort out what the greek crisis is going to mean to companies. >> we've been talking about that all morning with robert shapiro. i want to throw it to robert because i'm sure this is piquing a lot of questions. >> there are two kinds of correlations. one is what the guests have been describing which arises out of a lack of knowledge. we don't know how one particular event is going to affect other events and so, in effect, we say it's going to affect it in much the same way that it has affected the original source of it and then there's a correlation in which there is an actual connection. so there is a correlation between risk and the sovereign debt market in europe and the value of the banks that hold those bonds and that's a different kind of correlation and one in which, in fact,

knowledge instead of reducing the correlation enhances the correlation. >> that makes sense, sebastian. i'm picking up on that. we had a number of u.s. investors come on and say, look, there is no impact with what happens with greece on our investments in the united states. the u.s. economy is doing well. they're concentrating on the u.s. investment so how might they be unwittingly connected to what happens in greece? >> well, that's the key. you hit the nail on the head. essentially what happens is the world is so interconnected these days, it really takes us a long time to sort out what the interconnections are in the world. so immediately what you can say is, look, what i'm going to do is i'm going to stay out of greece or you might say, well, greece is actual ly going to

affect the euro so i'm going to stay out of euro and then you say, well, what happens is actually europe may affect the u.s. what i'm going to do is c concentrate on local volatility stocks and so we had a low volatility rally last year. the trouble with figuring out what the correlations are is the world is so interconnected that it's hard to 0 tell just by looking at your portfolio what are the connections that will be affected by, for example, the crisis in greece and that's why you need the tools that are more sophisticated in order to understand what those hidden risks may be in your portfolio. >> sebastian, thank you for being with us this morning. the ceo of axiom. we still have jurordan kimmel wh us, co-founder, as well as various other titles. coming up, we'll take a look at the trading day ahead on wall street as january durable goods and consumer confidence data is due out next. carfirmation.

only hertz gives you a carfirmation. hey. this is challenger. i'll be waiting for you in stall 5. it confirms your reservation

and the location your car is in, the moment you land. it's just another way you'll be traveling at the speed of hertz. january durable goods are out at 8:30 a.m. eastern time. demand for big ticket items is forecast to drop 1.4%. we get the case-schiller home index. they are expected to fall 3.8%. fed governor testifies before the banking committee at 10:00 a.m. about the state of the u.s. housing market. fin finally at 7:15 p.m. cleveland fed president talks about the economy. auto zone reports results before the opening bell as does cablevision. after the close we hear from

dream works animation. and we want to get a final thought from our guests here in englewood cliffs before sending it back over to london. jordan kimmel, you are all about the consumer and the investor losing trust. what do you think they need to know about today in trading? >> here is the key. i think the thing is not to plan around the next 3% pullback but ask yourself are we in a bull market or not and clearly we are. we were just talking about risk before. not all are the same, and my focus on is blending my old stock selection process with some other factors like corporate governance to isolate the most trustworthy companies and i think that's what investors can get their teeth around and feel comfort and not worry about issues of the day but to really think longer term and there are some wonderful companies out there. i'm not bullish on every stock. you have to be selective but you have to be bullish here. >> a final thought from you

here, what is the biggest key thing that you are looking at over the next couple of months, the next three or four months? >> well, the -- i guess there are two things. within the u.s. economy, do consumers come back? do housing prices stabilize to allow consumers to come back. and the second thing is at what point will europe bite the bullet and say we have a monetary union, we have to stabilize -- we have to have a commitment to stabilize the value of italian debt. whether they do that through luring investors back or the more likely way which is expa expanding the power of the ecb so the ecb can do it just like the fed does it. >> we'll be wait fog ar long time. robert, thank you for joining us. for kayla and myself, good to see you today. "squawk box" is coming up next. we hope you have a profitable experience. [ male announcer ] how can power consumption in china,

impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u.s.? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 75% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing.

good morning. the what it if scenario. morgan stanley outlines the potential impact of a ratings down grade. a different outlook on oil. prices slipping this morning as investors now worry about high price that is could be hurting demand and, it's your money, your voe. key republican contest in michigan and air arp today. it's tuesday, february 28th and "squawk box" begins right now. ♪ i could change my life to better suit your mood ♪ good morning, everybody.