joe and andrew will both be balk on monday, but we have a full table today. great to see everybody. >> great on have you back. >> great to be back. let's start out with the stock market. we've been watching what's happening and stocks are actually on a three day losing streak. the dow down by 1.4% and the s&p is off 0.8%. you have to go all the way back to december 16th of last year to see this. of course probably not surprising given the major gainses that we've seen. if you're still looking for the year to date, the dow and s&p, s&p up by 10.8 respect, dow up 7% just since january 1st. the nasdaq is up slightly for the week, as well. nasdaq indicating higher. dow about 23 and s&p 500 by just over 2 1/2. housing as you probably know, it's been the big economic theme of this week and today is no

exception. we'll get february new home sales at 10:00 eastern time. earlier this week, the national association of real stortorreal. >> and ben bernanke will make opening comments at a washington fed conference on central banking in the financial cry as at 1:45. meantime james bullard is arguing the fed should be worried about overcommitting to aen ultra easing monday tar policy. i think they already did this. he said it could be detrimental down the line. he suggests the current policy is a good time to take stock of whether it is at a turning point. william dud sley is endrsin indg a global push and oversight should be coordinated among international regulator this is an attempt to make financial markets safer.

he argues derivative clearing houses must be bulletproof to avoid another financial crisis. i think the issue of turning point is kind of interesting when you think about where the market is right now. we don't have a catalyst to move higher. >> we're looking at the first declines after nine quarters of gains. granted this won't be a surprise to people, but it's not clear we'll get lot of positive headlines out of it. >> the other thing we're facing is this question about global growth which we sort of know was out there and i guess it was last week we traded up on the idea that china wasn't slowing as much as we thought and how we're trading down on the idea that china is slowing less than we thought. >> does china come in with another reserve cut today, that's the big question.

>> how much does it affect the u.s. growth story and we've been talking for a long time about the issue of which of the data points tells the real story about u.s. growth. we've had strong jobs and strong hours worked that says growth could be 3% or 4%, but when you look he demand side of the economy, it's been in the 1% or 2% range and that's why we're seeing the 3 day losing streak. >> even with jobless claims yesterday a little better than expected. >> best number in four years. if it weren't for everything else going on -- >> but nobody believes it. we had dave rosenburg on who made a compelling case it for weather. he says 80 of the 27,027,000 jo was all weather related. 80,000, not 80. >> the only they think you may need is evidence belief or headline that says the u.s. can

decouple itself from china and europe. all it takes is one little thing to convince investors that if the day continues to come in pretty good, that even though china and europe has issues, if you believe the u.s. economy is continuing to improve -- >> that's what people are already saying. you almost need a situation where you have consumption driving so much of the economy. what you'ved that actually since the recession and in this recovery is that something like two-thirds of the increase in gdp has been export led. so we're starting to 15see the rotation. >> you don't see the same sort of situation where people can brother row o broth borrow out of their homes. >> can we get a reality check on china? i don't think chinese growth is ever really powered the world economy. >> no, no, no ch. we've had -- >> chinese gdp has not powered the world economy.

china produces stuff that other people buy and internal domestic consumption is not that big a deal. china is a barometer of developed nations growth. >> china has been the backdrop. we've had several guests who have said we're looking at u.s. growth and saying that's the story, but that's because we're assuming the chinese growth is a given. >> what is its role in the country in the chinese consumer is not a big deal. i'm saying right now, weak chinese growth is not something that will ultimately cause the global economic outlook to change very much. >> let's put weak in quotes, as well. we had stephen roach was on

yesterday. he said that all these concerns about china's growth are overrated. john rutledge was on and he said exactly the same thing. . that everybody getting all excited about, oh, my god, there's only 7.5% or 8 respect growth in china, don't worry about china. china is better than you think. these are the guys who have their boots on the ground. >> it's a fair point. i just think at a point when industrialized nations are largely deleveraging, they have debt problem, their demographics are changing, it's the chinas of the world that have been powering things forward. let's move on. bank of america rolling out a pilot program that will offer rentals as a foreclosure

alternative. the customer will be able to lease their home for up to three years at or below the rental market rate. the mortgage to lease program will only be available to fewer than 1 thurks b of a customers, they'll be selected by the bank in test har kets in arizona, nevada and this morning. an invitation only program. >> it's odd, though. you get rid of your mortgage debt, you walk away, it's not like walking away and having that drag after you, but you're leasing your home at below market rates. >> we're talking about being landlords. it's a completely different type of business. >> i can understand that hers starting with just 1,000 people. i'd be skeptical on both sides of the equation. a good time to be trying new stuff. i n't t knock them for that. >> let's talk about jm morgan quietly paying a $384 million arbitration award to american century investment.

jp in m lost in arbitration over alleged breaches related to the bank's purchase of a retirement plan services business and arbitration panel found jpmorgan's asset management unit promoted its own funds at the expense of american century funds violating a contractual agreement. facebook reportedly requiring hundreds of patents from ibm. they're trying to bolster its intake length all property portfolio in the wake of a lawsuit piled by yahoo!. yahoo! sued facebook earlier this month and claims facebook infringe order ten patents including several that cover online advertising technology. let's get a check on the markets. puts are indicated higher. will comes even though both the dow and s&p are on track for hair biggest weekly losses of the year. you can see where things have been headed. we're indicated slightly meer. let's take a look at the ten year. 2.264% is the yield on the ten

year. dollar mixed. up against the yen. euro trading a little stronger. and gold prices touched on a ten week low yesterday. right now up about $7.70. >> hanki hanging around a benchmark level there. you know all this stuff what the technical guys were saying. what the chartists were talking about. >> i don't know what you're talking about. >> i don't know what the number was, but yesterday it was at a ten week low. >> and everybody was saying if it breached that, it was going down to 1500. what -- >> i'm looking at the op-ed in the "wall street journal"

because it play mrs. to what becky was talking about with yields and what does the prudent investor do. it makes the argument of bonds versus stocks. so i was reading that as you were having that conversation. >> bob pisani had a note out that talked about how bond investors could get jittery because right now when they start seeing, that could make people look more kindly at equities instead instead of the bonds. >> that's pretty much what's offed here. bonds are usually the safest are anything but safe today. the yield on the ten year is a sure loser, this gentleman saying equities are attractively priced and the place to be. so just an interesting debate. >> i would point out that was the sanl thime thing said last . everybody was saying 1.5 to 4.3. that bet seems to be off.

>> people lived through the period in the '80s when you had double digit inflation, when your mortgage was 17%, 18%. you can understand why they look at 2% and go this is crazy. but i just think as we've seen before, you can't necessarily just say because it's so low that will is the time, it this is the moment when they won't go any lower. >> we can hope for growth being better. >> right. >> i think at the end of the day, the fed cannot is an if ste way of the general correction the bond market want it is to go relative to the growth or the inflation outlook. i think it can trim 20, 30 basis points off where we would otherwise be, but what we've seen is that in the face of qe-2, if the market thinks that growth is heading high, then rates will head higher about and

what the ultimate effect of qe is difficult to measure, but generally people think it's taking maybe 20, 0 bas30 basis points. >> what is the level at which bond yields have to go before people start to get concerned? >> i don't know what that answer is. i tried to pin bernanke down about, didn't have much luck. if we're talking about 3.5% growth and the fed is looking at a 3% ten year, i don't think it's so concerned. it's the idea of higher rates and weak economic growth and if it's an inflation story, then i think the fed will be concerned. >> and it's been lower and lower. so when they first started doing qe, remember we were talking about ten year in the 4s and then 2. it's like as this progresses, they've continued to react to lower and will her rates. >> don't you think the fed is more concerned about mortgage bonds? the last i looked, mortgage rates, they're low, but relative

to the -- the spread is still high. still expensive relative to the risk free rate. >> and if you think it's bad in the u.s., in europe, it's even worse. >> here they would say it's the regulators fault for saying don't make loans that you can't back up. >> there is a bizarre push me/pull me through. dr. doolittle had the pull me pull me. what we've seen and heard both in the government portfolio and will bank portfolio is the mortgages they're writing now are better than the mortgages they used to write. >> you would hope. because the bar is pretty low. >> right. >> let's get the global markets report in how. beccy meehan is standing by in london. beccy, good morning. why don't you tell us what's happening there. >> so far it's been a week of declines but looked like that

may turn around. all the markets were trading higher. but after about an hour or so of trading, that all turned around again for no particular reason. markets appear to be spooked by the negative data we've had out this week. we had the chinese pmi figures that spooked the market, and european pmi figures that were a little scary for the invest are to us. looking at the moves, the ftse holding up pretty well. it's flat right now. ftse mib is trading lower by 0.4%. each of those indexes looking pretty positive, but now the downward trend so far.

but put it into con tiks. since october last year over what we have seen markets rally very significantly, but today just really trying to shrug off the caution that we've seen. a quick look at the bond markets, ten year bund at 1.9. back to you. we've been watching the republican presidential debates here. the hopefuls are campaigning in louisiana ahead of the weekend primary there and some are calling for candidates to drop out. ron paul, though, has other ideas. the congressman on kudlow last night. >> we need more debate. we don't need people closing this out and saying we got our candidate right now and he's just sort of a modified democrat and therefore we have to quit this this debating business. i think that's terrible that other people tell individuals to drop out. i think we should have a debate. >> john harwood is our chief

washington correspondent. and we're getting towards the end of march. you and joe have this long running guess as to when we might actually see the actual nominee. what do you think at this point? >> i think we see him right now. the only question is when the other candidates all recognize that and in effect formally line up behind mitt romney. we know right now that mitt romney will be the republican nominee when rick santorum was not able to break through in illinois after failing in ohio and michigan. it's pretty clear that he just doesn't have the umpf behind his small campaign that has been underfunded compared to mitt romney. just doesn't have must have to enough to do the damage he needs to stop mitt romney from getting the nomination or to get it himself. but candidates have goals they want to accomplish. you invest a whole lot of your ego and your blood sweat and tears in these campaigns. so the decision to get out of the race and say i'm done is very difficult to make.

ron paul is a different case because ron paul wants to advance libertarian politics. he wants to enhance the influence of the string of republican inch that he represents. santorum and gingrich, somewhat more complicate in terms of their calculation. an i would expect them to go on for some period of time. gingrich says he's going all the way to the convention. that could happen. but miss capacity to draw votes and win delegates is shrinking every today and i think the same thing is preparing to happen to rick santorum unless there is some huge turn about within conservatives. >> you said unless there is some huge turn about. isn't that something that the candidates themselves would kind of hope and hinge on so? >> sure. rick santorum much more than mitt romney has claim on the heart of the republican party and the heart of conservatism.

he is more con seven difference than romney and he's -- when you look at the exit polls, among the most conservative republicans, rick santorum is winning them. he's been hoping and making the argument that once other candidates fell by the wayside, all of the misgivings on the right about mitt romney would accrue to his benefit and all of that vote would drift over to him. some of it did and he's been doing pretty well. much better than i ever expected, but not enough to beat mitt romney where he has to beat him. he can't lose closely contested stateses and go on to the mom nation th nomination that way. rick santorum could win louisiana. not enough deep south states to get to the nomination. we then go to maryland and wisconsin. which are the kind of places where we should expect based on the history of this campaign that mitt romney would win. then you go up to the northeast and, yes, pennsylvania is rick

santorum's home state and he'll be strong in pennsylvania, but you have new york and connecticut and after that, you have new jersey. all states where mitt romney can be expected to rack up delegates. >> but we've known for a while that it was probably not going to happen in the math for any of the other candidates to actually get the number that they needed. is there a chance that they can keep mitt romney from getting 19144 he needs? >> yes. i doubt they can, but it's possible. i was talking yesterday to mike steel owing te and his view was santorum stays at it aggressively, that when we get to june 5th and california has voted, that's the last big primary, that mitt romney might be a few delegates short of 1144. and if that's the case, then you see haggling going on and maybe the romney campaign which has been close it ron paul makes the same sort of deal with ron paul and ron paul's delegates come

over that could put him over the top. we'll see exactly what happens when we get to early june. but my expectation still is that there is a way that when start tipping the and i believe in this race, things fall off the table and i think the other candidates and their capacity to attract support and blunt romney will start falling off the table. >> didn't romney do better with the heart of the conservative party in illinois, and how big a problem is this for the general election. >> is it something that he can solve with a presidential nomination or one that he doesn't really have to solve? >> i think we have heard from the dialogue since illinois and i think jeb bush's endorsement was significant and other major figures are likely to follow that. but romney has problems at both

ends in a general election. he does have to increase enthusiasm among the most conservative republicans. yes, did he did better in illin but there is still a lot of mistrust in illinois and the fact that he implemented a health care plan similar to obama's in massachusetts, but he also has to move to the middle and attract support from independents. his numbers among independents have been falling during this process as he's been fighting on the right. and you saw those poorly chosen words by his advise erz the other day saying it's like an even a sketch, we'll reset and shake up the screen and paint a new picture. he's making the argument that he was severally ta lseverally tal entire campaign, but that goes to the perception of mitt romney as somebody if you look at his history, there's a basis for that, that he's somebody who has run one way when he ran for the senate in '94, another way when

he ran for governor in but 2002d still a third and fourth way in 2008 and 2012, and he has to figure out how to lock into a mess an and persona that will strike people in the middle and people on the right as genuine appealing. >> john, thank you very much. great to see you. >> you bet. coming up, your weekend weather forecast plus why the sec has its sights on high flee defense city trading pirmfirms. louisville upset michigan say the last night, 57-44. louisville will now play florida on saturday. gators eliminated number three seed marquette 68-58. that will be an interesting battle. and here is the other game, syracuse escaping with a 64-63 win over wisconsin. next up for syracuse is ohio state. it won the battle of the buckeye

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the sec is looking at whether high frequency trading firms have used their close links to computerized stock exchanges to get an unfair

advantage. the wall street journal says regulators are focusing on computer aided platforms of exchanges. the sec will examine whether firms came le firms collude competition. and scott williams joins us from the weather channel. >> we're still talking about record warmth across the nation. it was 86 degrees yesterday in detroit. we had 78 degrees in new york city. today i expect slightly cooler temperatures in new york city with highs topping out around 73 degrees. currently at laguardia, we're looking at clear skies. winds are calm. but take a look at the cooling trend for the upcoming weekend. of course yesterday's actual high, 78 degrees. we'll find clouds and showers for showers aaturday and sunday. we're tracking a frontal

boundary. it will bring slightly cooler air. 73 today new york city, 82 in washington, d.c. but take a look at your saturday. socked in with the cloud cover, eventually those showers will arrive late in the day on saturday, so i think we'll salvage at least the first part of your saturday. then second half saturday wet, sunday wet, looking at clouds and showers across parts of the northeast and new england. for that air travel today, of course atlanta we'll track scattered showers and storms toward chicago, as well. we've been tracking that sub born system that continues to pinwheel over parts of the midwest and also toward the great lakes. guys, have a great weekend. back to you. when we come back, euro stress. a crisis neither gone nor forgotten. greece, ireland, portugal, we'll identify the hot spots that you can't afford to stop watching. first the angry birds are launching in to space. a giant angry bird was attached to the side of the space needle in seattle to try to promote launch of the next tchapter of

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welcome back to "squawk box." joe and andrew will be back on monday. a lot going on. in our headlines came, today is the two year anniversary since president obama signed the health care reform into law. supreme court will be taking up challenges to it next week. in an op-ed, mitt romney writes the proposed i proposed could not be more different from

barack obama's. no new taxes, no tax discriminal face and no new bureaucracies. but they increase consumer choice, lower head care cost, decrease government spending and give states responsibility for dealing with the uninsured. whatever the supreme court decides about the constitutionality of obama care, we all right know it is bad policy and wrong for america. of course the key part of mitt romney's plan was making sure that people actually had to buy health care insurance. the requirement it make people buy health insurance, is it constitutional. >> there is a mass receiive edi going new the legal i of it. and there is a front page story talking about public opinion which is divided.

and one thing that's gone wrong for the democrat, they thought once people saw this entitlement, held begin they woo like it. >> but nobody has it. >> some people do. >> the younger people still on their parents' health plans, believe me that's pretty popular. but broadly speaking, this idea of an individual mandate just poll well with people. >> the requirement that you could be required to buy health insurance is not going to be a popular one, but also the only way the -- ifhe rest of it stay don't know how you play for everything going on. >> on day two, they consider whether the mandate is constitutional. day three, they say if it's not, can it still go forward. and that's a question not just from the legal questions, but if you look at insurers, if there is no individual mandate on only the sickest people are using care, there is no way the system

either is tenable or just anything to bring costs down. >> the idea that you could be 26 and still ob yobe on your paren health care. >> can be helpful. >> but if you're 18 and be an adult and be required to go overseas or fight, or if you can get a vote at that point, i don't understand why you are not at that point responsible maybe once you get out of college if you're not responsible for picking up your own bills. i've had people who said my daughter has medical issues and would never qualify for it, but one of the changes is that you can no longer keep people from getting insurance because of pre-existing conditions. >> and that's the reason for the mandate. if you don't do that, how do you pay for it.

>> if they're not working or what not, they just go without and most are healthy enough and lucky enough that it doesn't matter. but for those who do -- >> both parties agree with the aim of the law, which is to ensure the uninsured and keep people who are sick from being proceed hi prohibited from getting insurance. bush had something like this. >> part of the reason for this goes pack back to the u.s. emplt system, it was discouraging entrepreneurs, people moving from one job to another, that if you had a system that took the health component out, that it would improve that functionality. i think we've come a long way from that argument. >> larry lindsay will join us to talk more about this.

private employers is always concern. isn't it cheap foer to just dum their plans. >> and they're shifting more and more of the costs on to the employees. benefits have been going up at like two to one pace. >> companies don't want this deal. they've not classically -- >> to me it looks like the way that you dismantle everything that the labor movement has been working for since 1940s. everything that the labor movement fought for will be unhinged. >> we have to wrap up this conversation to go to the euro crisis. let's get perspective on the overall markets from gem chlt

jema. you think the european crisis is very much over and we're good to go now. >> not quite. i think the correction that we've seen in european equity markets is healthy because growth and reform is stumbling. so just this week, we've seen the longest losing streak in european equities since november. markets have rallied by over 8% this year so far even though ltro hasn't solved the structure all problems and italy is struggling with hair labor markets. and recently we've heard manufacturing slinging even in germany and france. and overall, it's set to contract by 0.1% this year. so to get a view from somebody closer to your shore, git per

said that oo geithner said europe is on a tough long road on recovery. >> 0.1 in american speak would be a good thing. but aren't we talking about concerns that the contraction is steeper than 0.1? >> also the concern is over the longer term as opposed to just going out further than one year. portugal isin-investigativ inve positive, but longer term, there's still concern. four month t-bills were actually able to be auctioned at the lowest rate since 2010, but the ten year rates are still highly elevated. so the concern is as the slump deepen, it will be even harder to reduce the deficit and it actually portugal might need

additional rescue funds. >> let's talk about italy where the ten year yield is now over 5. how big a challenge is that, is that something you think would prompt more ecb action? >> italy needs to boost confidence to lessen their debt burden. so we've seen growth has actually been below the euro average over the last decade. unemployment about 9%. but if we look at the youth unemployment, it's about 30%. so he investors will remain concerned and yields will be slightly more elevated. >> where are you putting the money that you're now managing? >> the money is becoming very selective. so within europe, there are still opportunities, but it's about finding confidence that actually service external

markets. so generating revenues from emerging markets elsewhere. something a little bit more protected. or on the defensive side, dividend yields are providing attractive up side returns abor. >> where is the best opportunity? >> i think you look at themes. for example infrastructure is still an interesting play longer term. and again, just being very selective when you look within the region. >> thanks very much for joining us. scott. comments, questions about might go you see this morning on squawk, e-mail us at squawk@cnbc.com. coming up, we'll talk march madness, but first a programming note. jim skinner, retiring mcdonald's c chlt o. .

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it's sweet 16 time.

darren rovell joins us onset. now i can't wait for pitino versus donovan, the can't waifo donovan. >> that was a great game. i can't believe michigan state, the way they laid the egg there. >> the defense was ridiculous. >> unbelievable. i was looking at tom izzo's contract, head coach of michigan state. factors in inflation. >> consumer price index? >> yes, cpi. >> and they should. >> then shouldn't we all factor? then come on. >> that's true. louisville makes the most money. because of title 9, you have to report things to the government. $27 million in basketball that,

would be the most in the country. that's how much they made last year. >> and pitino's salary -- >> i'm still going back to the cpi. isn't the point of a contract to give you more money every year anyway? you have to worry about the government index for inflation? >> maybe he's a big gold bug, too. >> oh, tom craen, $2.2 million salary, he'll make $125,000 bone fuss he gets into the final four. >> cpi makes no sense. makes no sense at all. your contract should reflect your gangs in productivity, your gains in efficiency, the experience. cpi is like a ryder you give to -- >> they all do because they have performance bonuses on top of it. >> that's like pennies. what is he talking about? >> what's interesting is there are some great -- like purdue. the athletic director believes that incentives, we should all be incentivized.

matt painter, the coach at perdue, if they have more than 11,000 fans in attendance, he gets $50 per head over that. if they have more than 12,000 fans, $75 and 80. he made $183,000 in attendance bonuses last year. >> wow. >> at least he's getting -- the compensation is tied to performance. whereas when it comes to the cpi -- >> so we could pay somebody $25 to attend and get $25 on the back side of that, right? >> wouldn't be a college basketball coach, right? >> you'd be a math professor earning 1/10 of what he makes. >> when we come back in the 8:00 hour, i want to talk about russel athletic. >> do we have a second to talk about nike? >> nike's interesting. up 1% after hours. it seemed like people weren't pay ago tension to the large inventory number, the problems a

little bit with inventory in china and europe. the north america -- north american revenue was tremendous, up 17%. >> why is that? taking market share? >> although there is cost pressure, as there is everywhere, nike said we're going to raise the average cost of a shoe up $5, $15. you have a problem with it? consumer said no. >> they're paying more in china, though. >> they have something called fly knit, their new technology. it the upper of the sole in one piece. what does that mean? labor is reduced by half. once they move this fly knit, picture of the top of the shoe knitted in one piece, okay, where now you're doing it in four or five pieces. if this fly knit technology goes throughout all of nike, the labor cost gets chopped. >> it's not about comfort, it's about cutting out all the people making them. >> i'm reading that book "born

to run." >> oh, chris mcdougal, that's one of the greatest books. >> these people running 100 miles barefoot or in sandals -- >> nike has not gone to -- they have done nike free. >> reading about 100 miles beats running a hundred miles. >> you mentioned the fact they're raising prices. but margins are down for the fifth consecutive quarter on a year over year basis. >> there is some concern. but they're excited about the nfl deal. >> it's coming up april 3rds they're going to announce it and they're going to come out with these jerseys and people are waiting for them. coming up, russel athletic, warren buffett, berkshire

hathaway brand, they bought it for $6 million a couple years ago. not doing too well. >> darren rovell, excellent report. >> coming up, he was the co-president of morgue and stan but today steve crawford is wearing a new title. he'll join us on set next. >> next week on "squawk box," we're getting the gang back together. ♪ hold on for one more day >> joe, andrew and becky are back with a huge lineup of guests. florida governor rick scott, donald trump and a lot more. don't miss "squawk box" next week.

the urge to merge. our guest host guides you through the muddy investing waters. >> and top m&a ace is signing in. >> and why what's happening in the ocean state could be a model for balancing the nation's budget. >> and energy companies pressuring the white house to open more areas for exploration. we'll get a primer at 7:30 a.m. eastern. the second hour of "squawk box" starts right now. ♪ everybody's working for the weekend ♪ good morning. welcome to "squawk box." here are your morning headlines.

bank of america rolling out a mortgage-to-lease pilot program. participants facing foreclosure will transfer their title to the bank, the bank will forgive the debt and they can then lease their home for three years at or below market rate. >> civil unrest, weather and technical glitches disrupted oil output. >> earlier this week the national association of realtors reported the winter months were the strongest for sales of previously ond homes in five years. take a look at u.s. equity futures on this friday on wall street. modest open to the up side is what it looks like we would have at the current time as we continue to watch the market after yesterday's selloff. >> thank you very much. our guest host this morning advised on several of the most prominent mergers over the last decades, including cisco's

recent announced acquisition of nds, a $5 million acquisition. steve crawford is former co-president of morgan stanley. it's great to you have on set today. >> my pleasure, becky. you look at jobless claims and they're at the lowest levels in four years. but people have an awful lot of concerns about what's to come, especially with china and europe. >> well, jobless claims, steve and i will probably get into it here, but they didn't react the way they typically do with respect to the decline in gdp, when the crisis was happening and they're not reacting the same way on the way out. you have to be a little cautious about how you interpret that individual sign. even though it's 80 degrees out, it's been a long time since i've heard about green chutes. we've had fits and start for some period of time. i think the problem we have is

people are confusing a 50-to-70 year debt cycle with the normal business psych. >> what do you mean? >> we're working through a 50 to 70-year cycle of debt. it's not what you're going to have in the five to seven to year business fluctuation. it going to take a much greater amount of time. there's still need for substantial balance sheet repair, consumers, government or the financial sector. and all of the efforts that we've done, $7 trillion of fiscal and monetary stimulus, all of those defer the balance sheet repair that needs to happen. if you look at it around the world quickly, the emerging markets have slowed, the export models are under pressure. >> there have been all kinds of theories about why we're seeing this, one has been the weather. this idea that employers were

reluctant to hire -- they were getting rid of people very quickly going in and they were reluctant to come back and hire until they absolutely had to. what do you think the real reason is that we're seeing jobless claims that are so low at this point relative to what -- >> i think i read the romer piece and i'm aware of that school of thinking that, you know, the just in time process has arrived more than just the supply chain for goods and equipment, it's also on the labor side. when we ran into a difficult period in the economy they cut back relatively quickly and they don't have the capacity not to going forward. >> i want to pick up on what you said. so far you haven't said anything i did i agree with, i don't know why you think -- >> we'll see. we've got two hours together. >> we see how it goes. you're saying the fiscal and monetary stimulus deferred the

adjustment. are you suggest it should not have deferred the adjustment? what's your overall take on what should be done now relative to those two policy tools? >> it's easy to throw stones, you know. when i was on last time, the biggest problem we have is a lack of demand. there are two schools of thought on how to encourage that demand. one is government led, the other is get the government out of way and let the private sector lead. and there are good reasons for both philosophies. i think -- so i'm not going to condemn a lot of the efforts that have happened to date. but i think you just have to recognize that irrespective of where we are, it not going to be a linear progression and it going to take much longer to try and recover from where we've been. if you look at it, when you talk about deferring balance sheet repair, yes, the consumer health

has got i don't know a little better on the debt side but that's all been made up for by additional government debt. in terms of deleveraging the overall economy, we haven't made much progress. >> we haven't. but ray dalio has called this the beautiful deleveraging. why? because of doing the ugly version, which we saw in the great depression and we're seeing in europe, where they try to go the austerity route, what we've done is had the stimulus come in and allow for consumer leveraging to occur without doing broader damage to the economy. now, i'm curious if you agree or would agree with his view that what's been done has been to do this the most smooth way without harming growth or it sounds like you're implying that in fact you would prefer for there to have been a different course. >> i don't know that there's a "we've" and one of the problems is the world's interconnectedness. europe as we talked about a while ago is still probably in

the weakest position and i'd say their austerity is a pretty big part of the program and that can clearly flow back to the u.s. i think you have to look at different regions to see how they respond to it. i want to go back to where i started. i don't think there are any easy answers. >> do you think the u.s. has done a better job? >> goldman sachs is out with a paper this morning talking about the paper that's getting a bit of buzz by summers and brad delong that talks about the idea that the stimulus or the paying -- the efforts by the government sort of pay for themselves in keeping gdp from falling. this a liberal point of view but it's getting some buzz. this whole discussion right now is throughout in the research community and being talked about among economists and the right thing to have done. i think you're right, there's no easy answers. >> the only way it works is if that government supply/demand encourages the private sector to

take over. ultimately when you look at the percent of government spending, what it implies for future tax rates for all of us, something's got to give. the much healthier thing would be if private demand came back and replaced government demand. i just don't have the same sense that that's going to come as quickly as others do. >> i want to ask you about your view on where the markets are right now relative to the conversation we're having. i looked at an interview yesterday that did you on this network some two and a half years ago and i want to read you a quote that you said then and how striking it is to right now. you've got a huge ek ternl debts, we have large and expanding deficits, declining demographics, highest monetary expansion we have ever seen yet we still enjoy incredibly low interest rates. find me historical precedent. it's not a stable circumstance. when you look at the rebound in the market, i don't know what you do with these factors. i could play that today and it would still be relevant, wouldn't it? >> yes. >> so as much as things change,

the more they stay the same. >> and everywhere i go the conversation is please just help me find a way to preserve purchasing power. forget, you know, 15% returns. i would just like to save and preserve principal. how can i do that. >> i've met with my financial planner. i need 5%. i've reduced my ambitions. if i save x and i make 5%, can i send my -- i can get my kid through college without them taking loans out but i got to take a big chunk out by the way. >> i'm sure we'll come to this later but one of my favorite things is look at the investment rate assumptions and pension plans. >> 8% or better. 12k3w4r7, 8%. pressu treasury is 2 -- >> can you do it in a few years. maybe last year and this year if you're just watching what

happened with the indices. you can't do it over a 10, 20, 30-year period. >> if we have this low-rate environment happen for another couple of years, all these securities that the pensions have are going to roll off. and all their long duration investments will then be at 2% or 3%. what's the good news? well, rates go up dramatically and the reinvestment looks better and then they took huge losses -- >> it's not like they have a choice, they. endowments and charities need that 5% hurdle rate to pay out and then make 3% on inflation. so 8% is not something that they're not changing because they're obstinate or stubborn. it's by design with the charities. >> for some degree federal payouts, if they lower the return assumptions, they'd have

to put in more right now. that's the struggle. >> there's nothing you can do today but something that could have been dealt with seven, eight years ago. >> we have somebody from rhode island coming up which did a massive -- is in the process of doing a massive reform to its pension plan. >> and interestingly, they've done unbelievable work but how funded are they after all that pain? >> i think they went from being unfunded by $7 billion to being unfunded by 3 billion. >> percent and wise they went from 48 to 60. they're 60% funded. most people think 80% is kind of the critical stage. >> we're going to have a chance to talk about that and more with our guest host. up next, though. let's make a deal. marshall sonenshine is next.

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♪ snlt ♪ welcome back, everybody. in our headlines on this friday morning, exxon mobil has put 78 gas stations on the block. this is part of a wider effort to try to get out of businesses like this in europe. the paper quotes an exxon executive saying there could be an agreement on the sale of the french service stations within weeks. >> first quarter of 2012 showing

softness in the m&a market but there's a noticeably stronger pipeline for companies positioning with a global recovery. marshall sonenshine, welcome to the program. it's good to have you in the house. >> it's nice to be here. >> give me a state of the m&a as you see it. >> you said it well moments ago. the numbers are very soft and it's not a surprise. i'd say for the year to date it's too early to call anything dealing with the first 75 days of the year. for the year to date, m&a globally is off 30%. we'rend half a trillion dollars. last year or total markets was 2 2.6 trillion. you want to see quarter by

quarter well above a quarter trillion. what i think all of us who practice in this trade are seeing is a very robust pipeline building because companies are positioning themselves for global competitiveness in anticipation of a better recovery. >> given what we're seeing globally, how does that all factor in? you have worries about what's happening in europe, over in asia and our slow growth going forward. >> m&a doesn't have the luxury of tight trading day by day and hour by hour the way stock traders do. companies have to think longer term than that. what i see looking around the globe are very, very substantial companies with huge cash war chests like, for example, seamans has $12 million on their balance sheet. seamans is out buying companies every month. we just sold them one. they're the biggest manufacturers of hearing aids. we sold them the last remaining

independent chain of audiology stores. green mountain coffee. we just brought them the biggest coffee roaster in europe. they're trying to get access that single-serve market. why consumers fall for the single-serve market is surprising to me. it's so expensive. >> it's good coffee. >> private equity is a trickle at the moment in terms of new deals. this is about corporate strategies positioning. you didn't see one deal mentioned in the wall street journal -- >> i don't get it. why isn't there more m&a when you have companies with so much cash on hand? >> i think, number one, we're in a moment of real uncertainty. so you have people taking longer to make decisions and you have buyers and sellers taking longer to agree on terms. number two, folks with cash have choices. this is not a hot market so why rush? >> if you have to get financing,

that's an issue, isn't it? >> i'm talking about corporate buyers that have cash or a bankle. that part of the m&a market has really, really slowed down. i was in london for the euro money high yield conference, they're doing the same thing here as we did here. bonds are replacing bank loans. people are replacing more expensive debt for less expensive debt simply to stay in business. >> how much premium is not in the stock market because the m&a is not there? >> it's fair question and interesting question. it's a very theoretical question. our stock market is up over 25% since october, every month has been several percentage points rise. >> if there was $1.4 trillion m&a seeking more companies at 20% onnershwnership premium, th would be x more -- >> absolutely but you could argue markets and 'tis pay change.

i think what we're seeing is a little bit different -- >> the small cap story has already been massaged on this. >> i think this market is so bullish, a little ahead of the m&a markets. m&a and equity markets should be correlated. how did the equity market move this far forward -- i think we have a smaller high quality m&a market globally. i think it's a good thing. it's about companies repositions for global strategic chang. >> have u.s. companies missed the boat? if you look at the share of u.s. in the global m&a market this year relative to a year ago it's down by like half or something. >> the u.s. share is down considerably. interestingly europe is down much less than the u.s. or asia. i don't know if we've missed the market or missed our opportunities. i think that the u.s. economy right now has demonstrated enormous reserve and reservoir of strength and back bone. i was in london last week. i think there is a great respect for u.s. management, u.s. companies and the u.s. markets.

so we are taking our time a little bit right now. i think that's okay. >> europe meanwhile, european financial institutions are down less than those of the u.s. in terms -- >> the m&a has softened less but there's a reason for that. there's a lot of defensive consolidation going on within european sectors and there's a bit of a fire sale in europe. governments are privatizing assets, everything is for sale in greece. the financial times noted asian banks are looking for acquisitions in europe. >> marshall, talk for a second about the restructuring sector. that's typically been a cyclical business. we view it more as a secular opportunity given the deleveraging. i've hired a pretty good team. >> i promised i wouldn't say this but i'm going to say this. we love the restructuring business. it sounds like you're a merchant of death or something.

the two businesses are synergistic. m&a is strong when restructuring is weak, vice versa. we had a run, we did the philadelphia newspapers, we can this audiology deal, which was a chapter 11 case, which fetched a very, very high price in bankruptcy. i think the calendar is restructuring slowly and i think the story line when you try to comb through the wreckage, i think the story line is about corporations positioning for strategic change and it's more a corporate m&a market. some restructurings end up with no buyer. where there's a buyer, it's often a corporate buyer. >> is there a way when we listen to what you say about m&a you get in front of that, be a part of that? it seems this is more at a macro level. >> when you say "this is more at a macro level" -- >> the trends at m&a and how

individual retailers can profit from it. >> it's tough for retail -- m&a is a whole sale game, large companies, large private equities firms and the light. where retailers benefit is in the impolicity when they anticipate equity change. >> they're a little more focused on yields these days. >> you can get 2% yield on leveraged stocks. that's a lot of money compared to treasuries. >> marshall, thanks so much. i was the one who was supposed to thank you. >> you were on cue for that. >> i was. >> thank you for saying that. >> still to come this morning, why millionaires might be worried about the irs this year. and congressman paul ryan's 2013 budget suggesting greater pension contributions for federal workers. so could the idea work on a

state level as well? we're going to talk pension reform with rhode island's treasure. we'll be right back. ♪ four walls and a roof is a structure. what's inside is a home. home protector plus, from liberty mutual insurance, where the costs to both repair your house and replace what's inside are covered.

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. welcome back to "squawk box." making headline, the irs is ad thing more multi-millionaires, reviewing 30% of returns with those with an adjusted income of $10 million in 2011. they audited 18% in the prior year. thank you. if you have any comments or questions about anything you see here today, you can e-mail us at squawk@cnbc.com. up next, we'll talk pension reform with the treasure of rhode island.

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it is 7:30 on the east coast. among the stories that we are following on this friday morning, darden restaurants is reporting fiscal third quarter profit of $1.25 a share, 1 cent better than the street was expecting. the parents of red lobster and olive garden chains crediting underlying business strength but also citing favorable weather. it apparently makes people go out to eat a little more often. and we're keeping an eye on shares of 6 zenga this morning. >> this is a really interesting

story. rhode island braenging the mold this past november, overhauling its retirement plan with a plan that will serve citizens $4 million over the coming decades. joining us is gina raimondo. we say gina rai. absolutely. you have a lot of friends now in public unions now? >> absolutely. >> tell us what you've accomplished. you've brought down the unfunded liability amount. how have you done that? >> well, we brought it down by almost 50%. when i took office a year ago, we had among the highest unfunded liability per capita. we had a pension crisis. we reformed the system. we increased the retirement age, we moved folks into a combination defined benefit, defined contribution and suspended the cost of living adjustments for retirees.

you joke, do i have a lot of friends in the union, this was for them. >> why was it for them? >> because this ensures they have a pension. this ensures they have retirement security. now if you work a career for the state of rhode island or if you're a teacher, you will have retirement security. a year ago i couldn't say that. >> do they recognize that, too? >> i think so. i think some of them do. change is hard. this was tough. nobody liked my message i don't think. frankly i didn't. i waish i didn't have to do it but we had to do it. >> it's an intergenerational message. it's pensions for people on a longevity basis. if you're older, this is probably not good for you. >> i want to get one thing out of the way here, which i didn't quite get. if i'm an existing retiree and i had something that i retired on based on what i thought the state of rhode island was going to give me, did you change that? >> yes. what we did if you're an existing retiree, you're not

going to get a raise for -- until the system is well funded. so what we said is everyone has to give a little. we said, listen, if we're going to get this fixed in a way which is fair to everyone, everybody has to pitch in. the good news is if you're a retiree, you're not going backwards. if you make $1,000 a month now, you'll still see $1,000 a month going forward. and when the system is healthy again, you'll start to get your raises. >> what if i'm 60 and about to retire? >> if you retire -- you'll be affected very little except for those raises in retirement. same thing. and how can this then become a model for the rest of the country? what is it relearned from rhode island that other states can now incorporate? >> i'd like to think other folks can follow the process we did. this was about math, not politics. this was we have a problem, it in everyone's interest to fix it, don't demonize, don't point

fingers, communicate, educate. something really special happened in rhode island. up know, we started to talk about the pension, most people say why do i care, i don't get a pension. and then there was that special moment where the average rhode islander said this is about the future. this is about making a choice to move rhode island forward. no bankrupting pensions, no bankrupting cities and town, shore up the system and invest in the future of our state. every state can do that. >> we were just speaking with a guest earlier to the extent to which the pension is now funded. how much progress has all of this made? >> a tremendous amount. we cut the unfunded liability in half. the amount of money from the state's budget into the pension has stabilized. it's never again going to spike to unaffordable levels, it's not going to run out of money. a year ago i would drop my daughter off at school and look at her 35-year-old teacher or mid 30s teacher and it was tough. i couldn't look in her eye and say you'll have a pension in 30

years. i knew she was paying into a system and her money was going out the door for retirees. now we can say to her you're going to get your secure retirement and we're going to have money in the budget to fund this school. >> do you want the fed to raise rates so your rate of return goes up for your pension fund? >> that's a tricky question. you know, here what's i'd say about that. i'm trying to hit 57.5% rate a f return and it's very difficult to do that. >> why 7.5? is that what it takes to make that work? >> yeah. we moved to 50% defined contribution and 50% defined benefit. so when you have defined contribution, i don't care so much about hitting that rate because it's a risk shift, you know. it takes the investment -- >> that doesn't solve the problem for the retirees and make sure their money is going to be there. it does for the state but it

doesn't necessarily solve those retirees' problems. it means it on their shoulders. >> not retirees because they have their defined benefits. for the new folks, the younger folks. >> it's generational. >> they'll still have defined benefit but they'll have defined contribution on top of. to my mind it's fair. they're taking some of the risk. >> i understand the fairness. but the message we are sending to people probably coming from the federal government is no we're longer going to be responsible for taking care of you, you're responsible for take care of yourself. >> no, half and half. >> we won't be responsible for taking care of you to the same point. >> i would say that's right, yes. >> can you address the difference of what you did and then there's the locally administered plans, which are different, which seem to be more difficult to get through in rhode island. what's the difference between those two things? >> the major difference is that the state system is set out in a law so there was no contract. we didn't have to break a

contract to make these changes. we had to change a law. the municipal system, say providence, those benefits are set out and collectively bargained for contracts. in order to change them, you got to get folks back to the table and bargain for a new set of benefits. >> which is unlikely, isn't it? >> it's choice. it's a choice. you have to make the choice. we made the choice to change at the state level and we need to make the choice to do it at a municipal level. >> i think what you did particularly on the education side is extraordinary. but i also think when you also look at what you've accomplished and how much more work there still is to do, right, with the 7.5% reinvestment rate, which is going to be a real big challenge and in 20 years i think you get to 80% funded. >> exactly. >> even with all the hard work that was done, there's still a lot more to do and you're one of the more progressive states that kind of talks about the log jam

behind that. >> what are you doing to get to 7.5? how are you investing your money to get to 7.5? >> you're looking for my secret, all our investment secrets? >> that's kind of what we do here. >> private equity -- >> absolutely. we have 15% -- when i took office, we changed, we have 15% allocation to hedge funds and i'm really focused on the down side. i'm willing to give up a little on the up side to protect the down side. >> bravo. >> 2009 rhode island was down 20%, fiscal year '09. i can't have that happen again. so we got to hedge the down side. >> that's exactly what steve said earlier. people are paying up to hold on to -- what else have you done differently? >> more in alternatives. so i think we have an excellent private equity lineup. we're being thoughtful about real estate. we think there's opportunities in real estate, it's a good time to be putting money to work there. and then just i don't know if there is a secret beyond watching fees. i think fees are more important

than ever. >> what have you done to equity fixed allocations? >> we have not changed that. we're looking that the now the biggest risk i believe in our portfolio now is inflation and interest rates. it's the silent risk and we're starting to figure out how do we hedge that risk. >> very quickly before you go, the financial crisis, that was something that created more pressure on the fund or was it something that in a way gave you an tonight to try and fix and change the equation going forward? >> you know, it's a great question. i think -- people say to me how did you get done, how did it happen? i don't think we had a choice. we really didn't have a choice. the collapse of '08 was very challenging. i just said we were down 20%. when i took office our rate of return was 8 1/4 and i led the charge to reduce it to 7 1/2 and so that also revealed the true magnitude of the problem and i just put it to the people. i put it to the people of rhode

island and said what do you want to do? do you want to put 30%, 40% of your state revenue into a pension or do you want to fix that and then have money to invest in the future? and we chose the future. >> are you an elected official? >> i am. i am. >> i'm just curious, it's a liberal leaning state. >> yes. >> the difficulty in making those kind of choices being an elected official are what? how do you make that -- how do you get to that point when so many others would probably be unwilling to do so? >> you have to decide you care more about doing the right thing than getting reelected. that's a personal choice. after i did the analysis and ran the numbers and looked a it, this was so clearly the right thing to do. now fortunately when we educated the public, they agreed. up kn one thing that's so important here, when this bill was passed, it was passed with overwhelming majorities in the house of the house and senate.

kudos to our house and senate government, they got it done. so rhode island rallied around this. i put it out there and people said go get that done. >> you think you're looked at as hero or a villain from the national party? >> depends who you talk to. >> fair enough. >> that's the second time you dropped the ball. >> how many strikes to you get on the show? >> you get plenty because i've taken enough of them. >> it's your read. >> there's more u.s. oil exploration result in lower prices at the pump? and then a programming note, retiring mcdonald's ceo jim skinner will join our colleagues at 10:00 eastern. so stay tuned for that. >> next week we're getting the gang back together. ♪ hold on for one more day. joe, andrew and becky are back

with a huge lineup of guests, florida governor rick scott, donald trump, jack welch and a lot more. don't miss "squawk box" next week starting at 6:00 a.m. eastern. ♪ [ camera shutters clicking ] ♪ ♪ ♪ [ male announcer ] announcing southwest airlines

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let's check the futures now on this friday on wall street. they've weakened a bit. high meat and gasoline prices have curbed consumers' appetite for pork. analysts say this has caused the meat to pile up in warehouses last night. teen retailer hot topic said it's sold out some of its merchandise for "the hunger games." the film opens in theaters today. >> nevada regulators have okayed a jimmy buffett casino license.

he has a presence in sin city since 2003 through his margaritaville event. >> big oil and the obama administration sparring over high fuel prices and drilling. joining us to give us the hits, runs and errors is john kingston. john, good morning to you. >> good morning. >> tell us where things stand right now. we know that prices have been up there. we've seen prices creeping up at the pump. where do you have expect that we're going to be let's say in another month to two months? >> another month to two month, things are starting to look very tight. it's been interesting reading a lot of analysis, it tended to shift weight from the idea to it's all iran to, well, we've got a lot of tightness out of cuts ought of sudan and yes,

ma'am -- yemen and syria. i question whether they're able to getting enough ships to get the oil out. my new theory is there are multiple mark riches out there, the way he helped the ayatollah, that there may be shadowy middle men that may help the iranians get their oil out to market like mark rich was able to help the ayatollah. why know given the restrictions on shipping how they can move the oil. >> what does that mean for the global oil market long term? >> the eu has been taking 400 to 450,000 barrels a day of iranian oil. the question is can the iranians find new buyers for that?

if they can't, the amount of oil they can't find new buyers for essentially amounts to a production cut in a market that's already suffering from those cuts i mentioned earlier. so that is a reduction in output and this is why if in fact the iranians have found some sort of third party channels to get the oil out, this helps the market because it does allow the oil to flow. >> john, it kelly. >> hi, kelly. >> i'm wondering if can you comment on president obama yesterday and word there might be more action on a pipeline here in the u.s. to alleviate supply gluts. what will it mean for the price of gas? >> i've seen some of the retail swings and wholesale swings that have been really volatile and i think a lot of this has been caused by this glut of crude and it's starting to affect gasoline well tiff to each other. to the average american, it's just nothing but higher.

but if you look at the regional differences, they're really striking and i do think that some of the mid continent glut has kept thing as little lower in the rockies and in chicago than they would have been otherwise. if you reverse -- if you reverse sea way and you get the keystone xl southern portion up and running in a relatively short period of time, i think this does smooth that out and some of that glut in the mid continent will work to pressure gasoline prices down a little bit. but it doesn't change the overall world supply, demand balance. it does tend to smooth things over. >> we have a debate coming up at 8:30 in which we're going to talk about this issue of has the obama administration kept oil -- federal lands from the oil companies? obama administration says they put 50 million acres out there unused, 7,000 drilling permits unused. oil industry says we can't get to the places we want to get at. what's the reality? >> the reality is it's a mixed

picture, it usually is. i will say there was a lease sale in december, first one since the one for the western gulf of mexico and that was pretty successful. there was a bid from conoco phillips for over $100 million. the fact is the five-year plan the obama administration did draw up to succeed the one that expires this year does keep a lot of things out of limits that they had originally thought at the end of the bush administration would probably be in. i would say this to the oil industry, you can't go to any oil sector meeting, oil industry meeting and hear them not complain about a lack of engineers, pet trollem engineers and lack of geologists, et cetera. if all this land was open, i wonder if they'd have the resources to drill. the other is the lack of access to the atlanta coast, north carolina, until the bush moratorium came out.

the expectation that is all gas. you don't know obviously but that is all natural gas. i wonder how many companies are going to want to drill off the coast of virginia and north carolina to put oil in the market at 2 and a quarter mcf. not many. >> it's a lot and he packs it all in there. >> futures have been weakening a little. >> they've seen a lot of pressure coming out of europe. >> coming up, it's the second anniversary of obamacare. we'll look at the health care law and the hurdles it faces with larry lindsey. we'll come right back. introducing gold choice. the freedom you can only get from hertz to keep the car you reserved or simply choose another. and it's free. ya know, for whoever you are that day. it's just another way you'll be traveling at the speed of hertz.

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>> in our headline today, bats global makes its debut today. they priced their ipo at $16 a share last night. the wall street journal is reporting that the s.e.c. is looking whether high frequency firms have gained an unfair advantage over other investors. they will examine whether firms collude to limit competition or eliminate markets. before we go to our break, we want to thank kelly evans for joining us all week long. it been great having you here and i'm glad to see you here

today. >> i'm glad you're back. >> i hope we see you back on the set again, too. >> off to d.c. >> are you tired of the alarm going off at -- >> yes, i'm going right to bet actually. i don't know how do you it all the time. >> stick with us, squawk has a lot to come this morning. larry lindsey will join us to talk about the health care economy. plus, the politics of oil. everything from drilling permit to the keystone pipeline. we have a debate on energy policy you can't afford to miss. >> monday on "squawk box," making it in america. guest ho harry wilson and ron bloom will join to us talk about manufacturing growth in the united states. plus inside the culture at apple. we'll talk to steve jobs' biographer walter isaacson. it all start monday at 6:00al eastern. tdd# 1-800-345-2550 i'm constantly working my screens.

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george w. bush. >> the obama administration going head to head with energy companies over drilling permits and pipelines. we'll get both sides of the energy debate. >> and the madness continues. >> alley-oop! >> the last of the sweet 16 games tip off tonight. we'll break down the cinderellas and upsets that could bust your bracket. the third hour of "squawk box" begins right now. ♪ ♪ welcome back. first in business world wide i'm becky quick along with steve liesman and scott wapner. our guest host on this friday morning is steve crawford, former co-president of morgan stanley. we've been taking a look at the futures this morning. those futures have just turned negative. we've been watching them throughout the course of the day.

the dow looked like it was going to open up by about 25 points or so. we'll see where things continue. the s&p 500 and dow have had their biggest losing streaks for the course of the year. >> darden restaurants recording fiscal profit for the 1.25 per share. they credit underlying business strength as well as favorable weather. housing has been the big economic theme of the week. today is no exception. february new home sales will be released at 10:00 eastern time. earlier this week the national association of realtors reported the winter months were the strongest sales of previously owned homes in five years. >> today is the two-year anniversary since president obama son and the health care reform into law the supreme court will be taking it up on challenges next week. in an op-ed in "usa today," mitt

romney writes the reforms i propose for the country could not be more different from barack obama's. they entail no new taxes, no massive diversion of funds away from medicare, no tax discrimination and no new bureaucracies. they increase consumer choice, lower health care costs, decrease government spending and give states responsibility for dealing with the uninsured. wha whatever the supreme court decide, we already now it's bad policy for america. >> but it was right for massachusetts, though. >> well, that's where he has a very fine line to -- >> that's what drives people crazy about the political process, is it not. >> yes. but he has said that he actually agrees with one part of that and that is the mandate. because of the mandate in massachusetts, he says it was necessary and they went ahead with it. that's very interesting because that's what the supreme court is going to be weighing in on and

whether or not that's constitutional. >> isn't he also saying the mandate should be at the state level, not at the federal level? >> yes. >> i think that's the difference he's making. >> as scott will point out, they probably a very fine line. >> the mandate. then you talk about the intergenerational conflict. the people retiring now are going to get l social security and their medicare and medicaid. this is another example. make the young and there are increasingly fewer of them, paying for all of the benefits, basically subsidize the benefits for the rest of the people. it's a huge issue, the intergenerational issue. >> i agree. why don't we bring another voice in to talk a little more about the choices on health care law. >> segue, whoop, whoop. >> joining us is larry lindsey, president and ceo of the lindsey group, former economic adviser to president george w. bush. you have some real thoughts about this health care issue and the law. what's your biggest problem with the health care plan the way it's been put out? >> well, the biggest problem i

think is that the law is not coherent. you have to remember that when the bill was passed, it was written in harry reid's office at 3:00 in the morning just before the senate broke for christmas. they had to shepherd everyone in the room. this was the same law that was part of the louisiana purchase and the cornhusker kickback. everyone when they testified or gave their speeches on the floor the next day was saving i know this isn't a perfect law but i want to move the process forward, it's going to come back, we're going to go to conference and fix these problems. problem is, it never went back to conference. this bill that was incoherently written at 2 in the morning is now the law of the land. as a result, when it comes into force it's going to cause lots and lots of unintended

consequences. the biggest one is going to be -- >> i'm sorry, larry. >> no, please, please. >> go ahead, finish your point first. >> the biggest one in my mind looking at that time as an economist is the incentives it gives american business to stop covering their own employees and have the employees go on the federal plan. basically the deal is this -- if the company agrees to pay a $2,000 fine, then the employee can be put on the public system instead of on the private health care system. that private health care system runs about $6,500 per employee. here's the deal. i'm paying $6,500 now. i can pay $2,000 to the federal government, i'm $4,500 better off, split it 50/50 with the employee and the lose certificate federal government. multi-pli that by 140 million

employees and some fraction there of, it gets to be pretty bad. mckenzie did a study last fall and surveyed employers who are providing employees health care benefits. 30% of those who were providing benefits said that they would scale back or eliminate those benefits as a result of this law. when they asked, well, how much have you studied the law, those who had studied the law the most, 50% of them were going to put their employees on a public system. so this is a disaster waiting to happen both for the federal budget and for the way we pay for health care in america. >> that's been a concern i had since i first heard about some of these things. i don't understand why is hasn't been factored in. some of the public numbers is only like 5% or 6% of employers would actually put people on to the public rolls? >> that's the actual scoring of the bill. if you're scoring the bill at 5% and actually 30% switch, that's

a quarter of all the workers in the country. a quarter of 140 million works are is 35 million workers where we're going to have to be paying $4,500 more per worker? that's real money. that's like $140 billion a year, something like that, just in extra budgetary costs. >> it's extra budgetary costs and probably also the biggest rollback of everything the labor unions have been working for since the 1940s, right? >> yeah. the losers in this really are going to be american families and american workers who now have health care coverage. remember the promise was if you like your health care coverage, can you keep it. well, no, that's turning out not to be the case. as we get more and more mandates coming back from secretary sebelius, some of which are unpopular, the recent one having to do with the religious issue, more employers are going to dump their employees back on the public system. i think it's going to be bad for the country. >> let me steer your attention

to the political discussion. romney has this op-ed this morning where he says i'd repeal it. how much credibility does he have if he ultimately is the nominee to make that argument given his prior stance in massachusetts and is the fire power lessened at all by that to going against president obama in an upcoming election? >> well, you know, i'm a policy wonk and not a political guy. >> you must have an opinion on that. >> what i think the best result here would be would be for the supreme court to take us out of our misery. i mean, what the supreme court does best is stop overreach by the government. you know, we're a very diverse country. the way we stick together and with all of our diversity is we make sure the majority, you know, doesn't run rough shod over sizable minorities. right now you've got 26 states

suing on this issue. you've got every major religious group suving -- suing on this issue. this is the best example i can think of in my lifetime of the government running rough shod. >> let me pin you down before we move to another question. do you think romney has a credibility problem? you are a republican. do you think he has a credibility problem on this issue? >> i think he's going to have to articulate much better the issue of it's okay for a state to do it but it's not okay for the federal government to do it. you know, that's part of federalism. that's one of the key constitutional principles that allows diversity and allows experimentation in the country. i think he's got to articulate that fact better in order to establish his credibility. >> beyond the constitutional issue, which i'm not minimizing, but you as an economist, do you understand the rationale behind

the mandate and economically do you support that concept? >> well, the mandate is necessary in order for the insurance market to work if your idea is you're not going to have these employee pools, just the way we now do it. if people get the idea, the rationale is if people get to pick and choose whether or not they go on health care, what they're going to do is they're going to, you know, buy health care the month before or maybe as soon as they get sick. that's why in fact insurance companies have been picked on on the preexisting conditions issue but that's what the deal is. if i could buy auto insurance only after i have an accident, the auto insurance market would break down. and in fact that's the rationale. >> and the young with self-insure. >> the young are self-insuring

now. now, that said the real question is going to be here and i hate to get wonky about it but it's a key constitutional issue, is whether or not the federal government can make us buy something that the private market provides. that's really never been done before. and if that happens, i mean, let's just -- i live in washington answered suppose i should be -- see my house price goes up if this happens, but if the federal government can make each and every one of us buy something that -- from a private company, the big growth industry is going to be lobbying. everyone can come to town and get congress to buy my product, force them. secretary sebelius can force to us buy the product that a private company offers. that's going to completely change the underlying dynamic by which this country works. and i think this is a huge, huge

overreach. the reason for federalism, the reason that a state can do it is if the state makes a serious mistake and tries to do it, folks leave the state. you get to move. in the country you don't get to move and that's why we established a federal system 225 years ago. >> health care a big part of where we're headed but there's a lot of talk about the crisis in capitalism. i'd be interested in your perspective on, one, you can reject the premise. two, the more republican point of view is we've got to get the government to stop being so gluttonous with resources. there's a democratic point of view we need to crank up demand for stimulus and the fourth is we need to rebuild foundation. where do you come out on that specter and what what do you think is important to make work?

>> i was trained at harvard. that said i think there's an issue with the quality of the spending and not just the quantity. literally if we paid people to dig holes and fill them again with work, that work technically still u la tiff, at least in the short run but on the other hand it would be a pure waste of money. the country would be poorer because of the borrowing we would have had to do to digle hose to fill them wouldn't have done anything to pay off the bonds. we need to focus on the rate of return we get on government spending. we need to start doing rigorous cost benefit analysis on the regulatory judgments that the government makes. you know, that's the way a business would operate. you know, whether they do it in a formal way or not, that's the way a household operates. we should expect the same from the federal government. >> larry, i can't get off this idea of the conflict between the

constitutionality of the mandate and the economics. mandate. can we solve the problem that is solved by a national mandate by creating a mandate at the state level? does that resolve the economics? >> i'm not sure what the problem is that you're mentioning. i think the concern if i read the proponents of the bill's concern is that folks who are uninsurednd up going to the emergency room and getting cross subsidized, if that's the receipt word, by others who use that. that's the rationale that the baul administration uses. the problem is how big is that issue? the obama administration estimated that it's $42 billion a year. he didn't explain how they got the estimate. if you use the same kind of analysis they use on medicaid, the number isn't $42 billion a year, it's $12 billion a year.

that's in a country where we're spending, what, roughly $2.3 trillion on health care. so we're rearranging a 2 plus trillion dollar industry in order to take care of a problem that may be one half of one percent of the total industry. that can't be a smart way of proceeding. >> larry, i want to thank you very much for coming on this us. i think this is an issue we're going to have a lot more questions on. very quickly before you go, if the supreme court knocks down that individual mandate but allows the rest of the plan to go forward, the rest of the law to go forward, is that the worst of both worlds? >> we're already in a pretty bad world and that would make it somewhat worse. the key here is the word servability.

congress passes in each law a line that says this law is servable, this law is not servable. what servability means is if one part of the law is declared unconstitutional, does that invalidate the whole law. they did not make this law servable. so therefore if they strike down the individual mandate, either the supreme court has the strike down the whole law or scratch their head and say maybe congress intended to make it servable. i think that would be a stretch. it would be for are us ordinary mortals. i don't think if it would be for the supreme court. courts don't like to make assumptions about what another branch of government had in its mind when it passed the bill. the law contains no servability clause. if the bill is struck down, i think the whole bill has to go.

>> larry, thank you very much. come back and and we'll talk more wonky. >> i can't wait. >> um nep next, we'll get a chen the markets as we head to the end of this trading week. ♪ hold on >> the future of business. >> what you're seeing now is a seismic change starting to take place in health care away from what i would call episodes of illness and fee for service care and driving more toward this idea of pay for performance, outcome driven, accountable care. in the future what you're going to see is that physicians and insurance companies are going to be more aligned where the rewards are going to take place when the patient actually improves and gets better. insurance hopefully will become more portable. they're going to be able to say with that patient for a longer period of time and reap those rewards and that investment they put into that patient much earlier.

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welcome back. a couple of secondary stock offerings are in the news this

morning. zynga is selling share in secondary offering. and michael kors prices 25 million shares at a secondary offering at $47 a share. joining me is jimmy. good morning to you on this friday. how do you view the markets here? given all these concerns that are still in the market about china's growth and what's happening over in europe, how could you mesh that with what we think about here in the unction and where we're going? >> well, what's funny to me is the stock market is clearly due for a correction and the long end of of the bond market is due for a correction as well. that's beginning to happen. i'm not saying there's not a

real life story in europe in china but the story in europe has been there for quite a while. i am short the aussie dollar because i think things are slowing down in china. >> the reason being because it's a commodity based currency and there's concern about consumption in china. >> exactly. concern about the consumption in china and it's a neighborhood trade as well. they're a key trader with china because are where they're located. >> what about rates? how long can these rising rates co-exist with the stock market? >> well, what's interesting to me is that when fisher comes out and talks about hawkish rhetoric, that's not a story. but when the feds buller comes out and talks about fees, it makes me think the feds might really at this point in time have no intention of doing qe3. that could change. i think higher rates are coming.

i think the lower rates is a move from the bigger move and evidence the lower volumes on the move back down in rates. i think the curve is going to steepen and rates are going higher. >> what does that mean for the dollar? there's been a lot of conversation about what rates have been doing versus what the dollar has been doing. >> but there's been a little bit of decoupling there. >> that's what i mean. >> but i think this -- we could be in the context of a stronger dollar, even though people are selling bonds because we're at a point now where we represent the good investment strategy of the world, not before where the stock market was rallying because the dollar was weak based on liquidity trade. the stock can rally and dollar can rally. >> jimmy, thanks. have a good weekend. >> when we come back, we have more top stories. and still ahead, energy policy politics. oil drillers pressing the obama

administration for more drilling permits. we'll hear both sides of this debate at 8:30 eastern time. by the way, are your brackets completely busted? we'll break down the rest of the ncaa tournament and look at some of the sponsorships behind the teams with darren rovell. ere si. my dad and grandfather spent their whole careers here. [ charlie ] we're the heartbeat of this place, the people on the line. we take pride in what we do. when that refrigerator ships out the door, it's us that work out here. [ michael ] we're on the forefront of revitalizing manufacturing. we're proving that it can be done here, and it can be done well. [ ilona ] i came to ge after the plant i was working at closed after 33 years. ge's giving me the chance to start back over. [ cindy ] there's construction workers everywhere. so what does that mean? it means work. it means work for more people. [ brian ] there's a bright future here, and there's a chance to get on the ground floor of something big, something that will bring us back. not only this company, but this country. ♪

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welcome back, everybody. in our headlines this morning, today is the deadline to nominate candidates to run the world bank. the united states facing an unprecedented challenge. washington has yet to announce its candidate. south africa is set to confirm the candidacy of the finance menster and brazil wants to nominate the former finance menster ocampo. robert zoellick will be stepping down in june. the white house short list includes u.s. ambassador susan rice, senator john kerry, robert summers. >> the obama administration says there's plenty of land available for oil drillers. but energy companies want more. a showdown coming up next. and coming up on squawk on the street, outgoing mcdonald's ceo jim skinner.

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welcome back. let's take a look at some stocks on the move. home builder kb homes under pressure after it reported a

wider fiscal third quarter loss. however revenues were up 29% from a year earlier and home deliveries up 21%. and we're watching nike earning $1.20 per share for its third quarter, 3 cents ahead of estimates. thou nike's profit margins were pressured by higher costs. >> joining us is dan we iss. the obama administration there's 50 million acres and 7,000 person mitts. dan, is that enough for the oil

industry right now? should they put more on offer? >> steve, first, thanks for having me. that's exactly right. in fact, the department of interior figured out that 70% of the oil that's available in the gulf of mexico that has leases on it isn't being either explored or drilled. the reality is that big oil wants more area before they've even produced from the areas that they already have. let's focus on exploring and producing oil from the leases they already hold before we open up new fragile places for drilling. >> when i'm looking at what 50 million square acres is, it's equivalent to the state of georgia or wisconsin. please explain why that's not enough. >> i think there's a if at any time al misunderstanding about what is an idle lease and what is is an active lease. you can have 100 leases and out

of those maybe 50 good leads, of those 25 solid prospect, drill on 11 and on one comes through for you. an active lease is something you're actually producing on. it doesn't mean you're not doing survey work, that you're not scoping it out, you're not doing geophysical exercises on it and kp examining that lease to see if it's worth going after. it doesn't come with map quest that says, hey, drill here. it's perfectly reasonable you would have all these leases and on a share of them under active production. you have to do the tests and do the seismic. it's a misuse of active and inactive that a company gets a lease to sit on it. that would be stupid and irresponsible. they get the lease to develop a

resource. if they have to pay the government rent, too. this is a misuse of the information and it used as an excuse for not opening up new areas to development. >> in fact, we producing more oil domestically than we have in eight years. in fact, oil production from federal lands and federal waters is higher now than it was during the last three years of the bush administration according to the department of energy. but none of those things are going to reduce the price of gasoline. the associated press just did an analysis of 35 years of data and found that there's no correlation, none, between the amount of oil we're producing and gas loon prices. now, producing more domestically has all kinds of economic benefits but it won't reduce the price of gasoline. to do that we've got to have other alternatives to oil as our only transportation fuel like electric vehicles, public

transportation and cars that go much farther on a gallon of gas. >> i want to give you a chance to respond, rayola, and also bring in this idea. i understand you're saying the issue between active and inactive leases. but what about the 7,000 unused drilling permits which apparently is something like a record high, in addition to the 4,000, 5,000 the interior department has been approving every year. >> because there will be technological and economic issues surrounding that and you wouldn't able to go for them or they'll be under lawsuits. nobody gets a lease or permit without wanting to go through with that development. that's what we're trying to do here. it's a mistake to say that supply doesn't matter. supply always matters. we are the third largest producer in the world. what we bring to the market absolutely does affect the price. the world price as well as the domestic price and we're saying as an industry we can do so much

more than we have been doing if we had policy that allowed to us explore and develop here at home. most americans wants to do this and we need a government to back us up in trying to get this production online. >> you know, rayola, that sounds nice. too bad it's not true. one in three leases in the gulf according to the department of interior do not have exploration and development plans -- >> you're not listening to what i'm saying -- >> may i finish please? the price of oil is set on the world market controlled by the opec cartel. the soshted press evaluated 35 years of data and found zero correlation between domestic production and gasoline prices. we're producing more oil and the pry is high. j in because the price is set on the world market that we can't affect. >> this is a silly thing to say. we produce over 10%, 11% of the

world's oil. of course what we bring to the market affects the price. it is a world price. and your argument just doesn't add up. it really doesn't. supply and demand matters. it always matters. >> then why is our supply up and our demand down and oil prices are at a record -- >> you're acting as if we're an isolated market. we're not. >> a world market. just the point i was making. >> let's bring in steve crawford. >> god knows i'm not going to get in between that argument but just assuming that's right with respect we don't set prices in the u.s., you have to imagine it's a dramatic benefit that more of our oil production is coming domestically. >> absolutely. >> absolutely. >> from a trade and global perspective, that's an unqualified good, right? >> absolutely. and i want to make another -- >> hold on, one at a time, guys. rayola, why don't you try to give a short answer and dan will get a short answer. >> i wanted to make a point that

production is down in the gulf of mexico, down on federal lands, leasing is down. >> that is not true. >> it is true. it's down 260,000 barrels a day in the gulf of mexico according to the march eia report, i'm not make these numbers up and we're off $5 billion in revenue we could have had if not for policy. it matters to have the jobs, have the revenue and the energy security. >> see missed a very important table in the summary which shows we're producing 3.7 quadrillion btus of oil, which is more than in the last three years of the bush administration. it's down slightly are from 2010 but we'll have more rigs in the gulf of mexico by the end of this year than before the bp oil disaster and they'll meet better safety standards. i think that's a win-win.

despite this increase in production, our gasoline prices are near record because we don't set the price. the ultimate solution is to reduce dependence on oil as our sole transportation fuel. that's the solution. drill, baby, drill is a nice slogan but it's not an energy policy for the future. >> it absolutely is. we can do so much more. >> becky -- >> economics aside, whatever happens with this, part of it is also a security issue for the nation. you doesn't want to be sending more money to your enemies, people who you don't trust and don't like. >> absolutely. and under president obama, we're importing the least amount of oil in 15 years. just last year we produced 55% of our oil at home, which is the most since the clinton administration. that's a good thing. but it is not going to lower oil prices. it's set on the global market as royola said. we cannot affect that. >> rayola, i talked to a friend of mine in texas big in the oil

business and he said one problem out there is speculators buy a lot of federal leases and sit on them because there is an option value to these leases. is that a problem that keeps some of these lands from being developed? >> no, i don't think that's a problem. they're looking at supply and demand out there. they could be buying up those leases for investment purposes but they have a limited time span, a five, seven or ten-year lease. you also have to pay rent on this. you may be buying them up to develop them but it hardly matters who's buying them. there are certain rules and regulations around them and you're doing it for an investment. you're trying to get a return and you're trying to get that development happening. >> that's a good point. we do know -- >> i'm sorry. >> you got the first word, giving rayola the last word trying to be fair here. folks, i guess this is how we learn. we let them go at it and people walk away with what they get from it. >> well, they talked over each

other, even when they did agree. >> did i hear points i kind of stuck on to from both sides. we appreciate the debate. when we come more, we'll have more from our guest host steve crawford. and it is day it would have the ncaa sweet 16 matchups. one team playing tonight is sponsored by a berkshire hathaway subsidiary. we'll tell you what team and and delve into how the company is doing. >> next week we're getting the gang back together. ♪ hold on for one more day >> joe, andrew and becky are back with a huge lineup of guests, florida governor rick scott, donald trump, jack welch and a lot more. [ male announcer ] at scottrade, we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations,

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welcome back. four more games remain to narrow the men's ncaa basketball field to eight and the biggest long shot left is 13th seeded ohio, which will face north carolina tonight. ohio is actually sponsored by a berkshire hathaway subsidiary. our darren rovell is here with that story. >> warren buffett, berkshire hathaway bought russell an lettic in 2006 for $600 million. they sponsor five teams in the tournament and the only one left right now is ohio. let's take a look at the market share of u.s. -- the u.s.

apparel market share and show you where russell is right now. 3.5%. now, what happened after they bought it is the aspirational quality of i want to wear a workout shirt, not just any workout shirt. the kid doesn't want to be in the gym in a russell shirt, they want to be in an under armour and nike shirt. colt mccoy is their customizations -- the liesmans. see how we did customization. this was a brand like champion when i was a kid. in 1990 it was russell and champion. those were the two. you had to have a champion sweat shirt.

i went to the champion outlet in the berkshires and killed it there. russell and champion. >> are you saying berkshire blew it? is that the bottom line here? >> i think they bought it at a time before -- i mean, under armour was well developed in 2006 but i feel like when the aspirational quality hits a workout shirt, if there's a $15 difference between a russell shirt and nike -- >> my kid wants to wear under armour. >> you're talking about an entirely different price target. >> there is. i will say walmart does not sell a tremendous a athletic shoes. the reason is the walmart crowd actually gets to the nike price point because it one thing that they can't settle. it's how good your kid feels. and so they could --

>> oh, boy, do we pay for that. >> you're right. >> i thought it was lululema. >> people strive for the real nba stuff. >> who's buying the most amount of $100 shoes? it's not in the suburban communities. it's in urban communities that don't have the same amount of income but when it comes in their wallet -- >> they spend it. >> coming up, we'll look at stocks on the move. we'll be right back. get from hertz to keep the car you reserved or simply choose another. and it's free. ya know, for whoever you are that day. it's just another way you'll be traveling at the speed of hertz.

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. welcome back to "squawk box." the futures are relatively flat. dow up by 2.5 points. they've come down off their highest levels from earlier this morning. let's get down to the new york stock exchange. carl and melissa join us now. there's some stuff to talk about

this friday. we're looking at the biggest losing streak for the s&p and dow ifyear? what happens to window dressing as we close in on the end of the quarter? there is supposedly a chase that is going to be on for some of the top performing under invested sectors like financials. do we see that take place in the next week or so? >> right. meanwhile this week alone the worst week of the year or we're ontrack for that. we'll see to what degree that reverses later on today. hard to believe earnings season is only a couple weeks away. >> oh, goody. >> i know. where's joe? christmas in april. >> that's right. >> by the way, guys, you know, jim skinner announced his retirement from mcdonald's earlier in the week. hasn't done any television but today we'll have an exclusive interview with him from the company headquarters in oakbrook, illinois talking about his run as ceo, the stellar stock gains that he has been able to put together during his tenure, and whether don thompson can continue that run which "the journal" says today is going to be a tough haul. >> given the lack of international experience we

should note also we have the ceo of huntington bank shares on. we'll ask him about bank of america's foreclosure to rent option and what is going on in various parts of the country in terms of loan demands. >> that skinner interview is the one to watch. we've been waiting for that all week long. make sure everybody is watching for that and thank you. we'll see you in a few minutes. >> have a good weekend. >> you too. coming up final thoughts from our guest host steve crawford of center view partners. with a new view of the market, you could see an investment opportunity you didn't see before. fidelity's next generation ipad app lets you see what's trending around the world, as well as what over a million fidelity customers are trading throughout the day. and advanced charting lets you customize your views and set up your own comparisons. our ipad app can help refine your strategy

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welcome back. our guest host is here. i want to talk to you about the goldman sachs op-ed. as a former president of morgan stanley overall what are your thoughts about it and what do you think should be done and then give us your broad thoughts on the financials right now which have had a great run in terms of stock performance this year? >> right. they're a tough competitor. one of their disadvantages is their business is more complex

than most of the fortune 500. it's complex relative to the customer relationships during intermediary. they have to work for their share holders and have clients on both sides as well as the nature of their activities. you mix that with high compensation and it becomes a pretty combustible mix. they made a smart decision i think a while back, one that was unique to stay with sophisticated investors and institutions as their client base. and for me, it's a little hard to believe, particularly what we've been through post crisis that the institutions they're dealing with on a daily basis are confused about the conflicts. and, you know, the one thing i would say is shareholders need to be careful about what they wish for if they're thinking about management changes. a lot of times in similar circumstances where there's been a push to have change at the top, that hasn't necessarily worked out too well. >> yeah.

give me your broad thought on where the financials are right now as somebody who has obviously watched and worked in that space closely. >> yeah. well, you know, most of the financial side you look at the underlying business, revenues are under pressure for a whole bunch of reasons. the normalization of credit is largely played out so that's not going to be a huge benefit. capital requirements are up. the regulatory environment certainly is a challenge. then the things that have created growth in the past, we had a 30-year run of secular asset growth and acquisitions. those are probably a little troubled. the other side of it, however, unlike a lot of the market, and particularly before the most recent run, is the valuations on the secular were really low and so i understand the rally. there may be a little bit more to go. i don't think it'll be a linear progress out it and, in particular, there are some tie-ins with europe. one of the interesting things is if you look at the gross exposure of the major banks to

europe, it's about 600 billion. if you look at what they report on a net basis it's about 50 billion. the problem is in a crisis a lot of times net feels like gross. because people don't know what the strength of the counterparties are. >> what about progress from the crisis? are the assets on the books of u.s. banks marked appropriately now? >> i think the marks are much better and the reason you can kind of say that objectively and almost in a qualified basis is because the liquidity is much better. so the evidence they have for their prices and the judgments that are going into what's -- what the marks are -- >> let's explain that. if it's mismarked you can't sell it. that's really what you're saying. >> well, no. i'm saying if there is no liquidity, what's mark? >> right. >> you can do the best job as you want but if literally there is nowhere to buy it there's not two way markets, it's hard to have a mark to market concept. >> steve, when you look at what's been happening with the market does anything make you nervous or make you think that,

okay. this is a great place and we'll see more room to run here? >> i don't think there's anything that makes me think there's a tremendous movement to run. i think there are some good things going on in the housing market that make it an attractive source of investment. i think you have to start off with a good liquidity pool to make sure that you've got, you know, expenses set aside for a rainy day, that you've got the opportunity to invest because there will be ups and downs in valuation and when you -- the one lesson that people need to walk away from the crisis is the best source of diversification was incredibly safe load to ration assets. that is the only thing that wasn't correlated. i don't think we'll move linearly out of where we are. so as a result, you better have a very strong liquidity pool to make sure that you're balanced on the investment side. >> do you like the housing space where it is now? do the financials sort of play

into that? you've had warren buffet tell becky that he likes housing. bill ackman has said he likes housing. some other big names. trump, shiller has said it as well. >> it is one of the few markets, right, where it's down 40% from the peak. if you buy good properties, they're income producing. you know, household formations starting to pick up. there are a whole lot of things it has going for it. but again, you have to have the right liquidity before you venture into investments like that. and that's why i wouldn't say definitively for every person and every circumstance you need to be looking at housing. you need to have the foundations there first. >> steve, we want to thank you very much for joining us today. it's been a pleasure talking to you. >> my pleasure. >> good to see you. >> by the way, scott and steve, thank you guys for hanging out this week and spending so much time today, too. >> always a good place to be. >> great to have you guys here. >> thanks. >> that's it for us today. by the way, everyone, have a wonderful weekend and make sure jo