reflects the risk of losses that the banks face from volatile capital market activities. but the financial firms are criticizing this move as backward looking. morgan stanley had its long term rating downgraded by two notches. it stock rose in the after hours. not the case for most of the stocks. we'll have much more from paul miller in just a moment. leaders of germany, france, italy and spain are gathering in rome today. they are looking to find common ground on restoring confidence in the eurozone. today's meeting comes ahead of a full eu summit next week. we'll head to europe for a live report. u.s. stocks are coming off their second worse beating the year. among the pressure points yesterday some less than rosy economic reports, more trouble in europe and ominous warning from goldman sachs. the firm recommending a short position in the s&p with the down side target of 1285. guess what? that would be a 5% drop from

current levels and that was enough to spook plenty of investors yesterday. >> if you are just waking up this morning there are already a number of important global market stats that you need to know about. german business sentiment falling for a second straight month to its lowest levels in over two years. latest sign that the eurozone debt crisis starting to hit europe's largest economy. imf chief christine lagarde promising to send a mission to greece by monday. the announcement comes as she acknowledges the stress the euro currency is suffering. lagarde calling for more relaxed monetary easing and bonds backed by all countries. a conversation we've talked about a lot. next week, bank of england risk watchdog is expected to allow lenders to free up billions of pounds from their cash buffers. the watchdog deputy is requiring hefty buffers stops the economy from getting the bull benefit of

boe quantitative easing program. corporate news, samsung is investigating reports that one of its flagship galaxy s 3 smart phones exploded in a user's car in ireland. they launched the phone in europe in may. a dublin base consumer posted comments and photos on a website saying his galaxy phone exploded while mounted on his car dashboard. he didn't specifically blame the phone. >> what else do you blame? was it the heat? >> i would never say -- i would never say ireland -- >> i know where you're going. >> there's been other reports of other samsung phones exploding. >> a lawsuit against goldman sachs that accuses the firms of concealing conflicts of interest and several ceo transactions and that's the short fallout which caused goldman stock price to

disclose. they said it failed to disclose to clients. johnson & johnson -- regulators have declined to approve a new use for its blood clot preventer. i don't trust words that start with x. >> big piece of paper. >> look at this. >> thank you. >> why were you so focused on the script today? >> you know -- >> it's in the teleprompter. >> i get a little anxious not knowing what's about to be on the teleprompter. better to know than not to know. >> you see some name -- >> like xaltro. >> this is my script. >> that's perfect for you.

>> thank you. the show is not that scripted but sometimes the headlines are scripted we get them on a piece of paper. today we didn't. >> johnson & johnson is looking to use the drug to reduce risk of heart attack and strokes in patients. still hot outside but we're going to get to that. we'll get to how hot it is. very hot. did you notice how hot it was? >> supposed to cool off tomorrow. >> this was last night. ♪ >> we tweeted how hot is it. i have a lot of -- it's so hot that they are going to install a fan in the debt ceiling. >> good one. >> clever. >> economist one. >> he would like that. it's so hot that lindsay lohan has resorted to drinking water. >> i like that. >> it's so hot that bloomberg drove to new jersey for a big

gulp. >> i like that one a lot. >> it's so hot that -- it's so hot that i saw a dog chasing a cat and they are both walking. >> boo. that one is lame. >> i think it's funny. they were chasing each other, the dog is barely moving. four it's so hot -- >> hit me. >> i saw a squirrel pouring gatorade on his nuts. this is why you are priceless. come on. give me something. come back. think, think, think. come on. anything. a laugh. anything. tasty. >> it cools him off. what flavor? >> it's so hot jeeves need a limo ride. we'll get something from our

twitterers. you know who we were missing on that jeff. >> do you do the hash symbol it's so hot so make sure you see them. is that how it comes up. >> i don't know how we ask for it. but there's a guy who stole our name or something at "squawk box" or something and he wrote in to complain that he's getting bombarded. >> good. he should. >> he's mad with the hot jokes. >> what about the other. >> i haven't seen his -- >> has the other -- >> i have some that i can't use. >> out loud? >> yes. >> you'll send people to your twitter feeds. >> i'll tell you guys as soon as we go to kelly. >> first let's get a check on the markets. yesterday was the second worst beating for the dow all year. day ended up with the dow down by 250 points. it was just a bad mood all day

around. dow, s&p 500 or nasdaq had in three weeks. and after yesterday's losses, the major averages have lost the entire gains they made for the week. we'll see what happens today. we're indicated slightly higher at this point. oil prices continue to drop through the day. in fact by the end of the day energy sectors were down by 3%. take a look. there's a seven handle on crude oil this morning. 78.67. up about 47 cents. big drops throughout the entire session. take a look at the ten year note. the yield at this point is 1.633%. where it's been hovering. dollar today is looking strong engineer against the yen and euro. euro is at 1.2543 and yen at 80.22. gold prices dropping to $1600 dropped another $30.

they are down 1570.60 an ounce. >> who is the anchor this morning? >> you be the anchor. >> this isn't me. >> time for the global markets report. kelly evans is standing by in london. it's so hot that the sun -- >> the most exciting, interesting part of your morning. >> is it hot over there. it's so hot the sun is looking for shade. it's so hot -- >> that's better than your dog and cat joke. >> the dog and cat one is the best one. >> farmers are feeding chickens crushed ice to keep them from laying hard boiled eggs. >> how about -- >> heard that one earlier and i was like --

>> i saw some kids -- >> let me give the global market report so we can move on. >> i saw some kids stealing hub caps with pot holders. you going to keep kelly? i'm so loud that it won't work. but go ahead. >> all stolen from a website. i just found them. there's a website. >> now you can participate. >> it's so hot jokes. it's a website called it's so hot. >> speaking of shot let's go to kelly. >> okay. yeah. red behind me. that's what i assume you're referring to. decliners out pacing. down half percent. basically searching for direction. let's take a closer look. after that week trading session, we started off with a negative tone across asia. nikkei is down .3%. hang seng was down 1.4%.

things didn't pick up as we started to open across europe. a couple of headlines out this morning here in germany something the efo sentiment, business confidence came in weaker than expected. a two year low. not a disaster especially given some of the results we've had in other surveys but still not something to improve sentiment necessarily. the german market down .7%. ftse 100 in the uk down .8% this morning. they are off their loss of the trading session. one to focus on today is italy. here we've seen the yield 5.8%, now a little bit down or the yields, there should be a little bit higher. in any case we're moving hire. 10 year yield we're moving higher. and the problem for european policymakers certainly is going to be if attention charts to shift from spain to italy as well we know there aren't

sufficient funds to bail out both of those countries it will require more comprehensive solution the likes of which we are not likely to get in the short term. spain's ten year is 6.606%. france is better, 2.6%. ten year gear mand bund hangs in already at 1.54%. the story this week has been commodities oil in particular. as becky was saying there are two different prices we watch over here. brent being one of them and that's up a percent today to over $90, back over that $90 mark. now we've seen nymex turn and move to the upside. still at 78.70 is much lower. gold is lower by 2.3% as well. copper is down. as you guys can see there's still this sense heading in to the weekend and a lot of these european meetings that investors aren't quite sure which trades they want to put on.

>> you go ahead. >> kelly, we were talking about the hot stuff. jimmy fallon put one out. it's so hot that statue of liberty has pit stains. >> you want me to? >> it's so hot, it's so hot that lance armstrong was tested positive for snapple. kind of funny. >> that's a good one. >> one time ask charlie one thing and i thought there was going to be and then he saw him later and almost tried to assault him and now we know. i think you protest a little bit -- >> one here that can't be read out loud. i almost read it out loud. >> if you can go find this site so hot jokes just google. >> joe changed his mind on

global warming. >> one here on twitter. >> not that hot. >> so hot al gore stopped looking ridiculous for a minute. >> for a minute. a good one. okay. >> if you've got some so hots shoot us some so hots by e-mail @squawkcnbc. >> morgan stanley, jpmorgan, goldman sachs, citi group and bank of america and paul miller follows the sector. good morning to you paul. do you have a it's so hot before we get started. >> no i don't. >> a downgrade joke it's so hot that -- i don't know. >> there's only one good one and that was the fan in the debt ceiling. we'll get steve liesman out

here. >> of the big surprises here, everybody's eyes were on morgan stanley because they were worried about a three notch downgrade. ultimately it was a two notch downgrade. of all the downgrades is one more important than another. >> the market was focused on morgan stanley. that stock has been very weak pinpoint will recover because of the two notch downgrade. jpmorgan had a two or three notch downgrade. this is looking in the rear view mirror. i'm glad it's out of the way. its behind us now. we can move forward. the real issue with the banks is not the downgrade but the ten year. that's what's going to impact these banks going forward. how do they make money when that yield curve so flat. >> credit suisse, three notch downgrade. what do you make of that? >> we continue to follow the international banks. i believe it's probably already in the markets. i don't think what moody's did

will surprise anybody today. >> we're writing off this whole thing. for morgan stanley it's a big deal. on goldman, j.p., citi, boa, any surprise? what does it mean in terms of loan loss reserve? >> well, again, you're talking about these banks are very well capitalized. so even additional collateralization will not impact these business models. like i said this was already expected in the market. it's behind us now we can move forward. >> should we ever care what moody's says about anything? >> the thing about the rating agencies especially moody's i believe, they are rear view mirror. the market is well goff that. the market is looking six months ahead and these guys are looking six months ahead. the rating agencies never caught anybody off guard. a couple of years ago when they had these private label securities that caught a lot of people by surprise.

>> i want does affect their cost. >> affects their borrowing costs. >> but i believe all these banks were well prepared for these downgrades. well telegraphed into the market. not going change anybody's opinions. >> that's a different question because, you know, do you think that the way moody's handled this, this idea that they did telegraph, the last cloud over morgan stanley over some other banks. james morgan went on a campaign around the country to really talk to investors, to talk to their counter parties during this period and they were sfrus tratd and upset about really the process as much as -- i assume they are happy about the result today but the process really did cast a cloud over the company for the mast couple of months. >> a lot was supposed to come out a month ago and they postponed with the jaime dimon issue. i don't know why it takes so long for stuff to get out there and the market just doesn't sit

around and wait for these type of thing. >> i just wonder -- not put them out of the business but just forget about it and why for the past three months everybody cared as much as they did and why counter parties -- they have to post and whether they should. >> if they did go to three notch downgrade morgan stanley that would have had a much more impact on collateralization and how much more capital they had to put up. >> if you don't care what moody's has to say about the price of tea in china, why -- i understand why the ratings are going to go up. but people listen to those ratings makes no sense. >> it makes no sense whatsoever. rear view mirror type stuff. >> you have a new system? what should we be doing? >> there's the dodd-frank bill. a government rating agency type thing. that hasn't gone anywhere either. i think that the rating agencies

will have less as it goes forward. >> paul miller, thanks for joining us and wake up early this morning. >> coming up the story behind a small bank and two advocacy groups planning a lawsuit against a new consumer financial protection bureau but first got to do something here -- >> i got a good one. >> it's so hot i saw two trees fighting over a dog. >> that's a good one. >> trees are whistling for dogs. it's so hot and i'm going to get this guy, it's so hot joe is taking his toupee off during commercial breaks. listen, the miami heat, got to be something. it's so hot lebron james -- >> went back to cleveland just to cool down. >> got to be one. called the heat, miami heat

winning the nba championship last night. lebron had a triple-double, 26 points, 11 rebounds, 13 assists to secure his first nba championship. he was really happy. now on the cover of all the newspapers. speaking of the heat, just how hot is it outside? some really lame ones are coming in. i don't think we'll use those. but there's a bunch of oldies. we need some new ones like bloomberg looking, coming over here for a big gulp was a good one. i heard one you won't like. >> i don't know if i can do it. >> tell me. >> joe got a slurpee and then went to 7/eleven. >> go to @squawkcnbc. we'll read responses all morning long. ♪

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welcome back to "squawk box". the so hot jokes continue. u.s. equity futures at this hour, they are hot as well. we got green arrows across the board. dow looks like it will open up 50 points higher. s&p 500 will open up a little over four points. nintendo upgrading its 3ds hand-held. support a screen twice as big as the previous model.

dow jones ending the print edition. this is a sad story. company saying it will focus on the digital verse. you can get it on the ipad. in print it's gone. that was an institution unto itself. >> oh, boy. now we're going to the weather. now to today's national weather forecast. alex wallace is at the weather channel. i hate to put you on-the-spot. you probably don't know any hot jokes. i'll give you this. it's so hot larry ellison is going to buy antarctica. he bought lanai. he bought one island now he's buying an entire continent. do you know any hot jokes, alex? >> not bad. not bad. it's so hot hell is inviting.

>> that's not bad. satan went to hell. sun is looking for shade. it's cooling off a little bit, right? we got to strike while the iron is hot with these jokes. >> you know what, hot no doubt about it for one more day but we'll get a chance to cool off. all thanks to this cold front that's moving its way into the northeast. with it we'll find some showers as well as some storms and wet weather with the next front coming in forges of the northwest and we continue to deal with that moisture streaming in to florida. i mentioned again that cool down coming in to the northeast with this front by the afternoon, we'll be watching for stronger storms to sneak on in. it's a bad side. cold front comes in brings us some storms but also brings us a bit of a cool down. here's the threat for severe weather. risk in the middle of the country and back here from mid-atlantic and into sections of southern new england. damaging winds and hail those would be the main threats as

that cold front moves it's way on through. the best side of this is the stifling heat and i want has been brutal. i feel sorry for your guys in the mid-atlantic and northeast. we do get a chance to cool down. here's your saturday 85 degrees there in new york city much better than those 90s. boston in the 70s and by the time we head into the second half of the weekend mid-70s from buffalo back over towards the boston area nearing 80 degrees. again shaving off some of these degrees and bringing in much drier air and it will feel better for your guys as well. >> alex, going to go elsewhere here before -- i think the break is a good time to tell these. on our way to break. all right. small texas bank and two conservative advocacy groups are filing a lawsuit against the new consumer financial protection bureau. they will challenge what they call the agency's unlimited regulator power. unclear how much of a threat the lawsuit is to the agency created by the dodd-frank financial

reform. plaintiffs argue parts of the law are unconstitutional because congress does not -- this is not a funny story, congress does not have direct control over the cfpb's budget. the president and the courts lack serious oversight of the agency. >> i can't read this. >> i read a squirrel -- >> trust me i'll read this one later. >> how about it's so hot that -- what was it dick cheney is water boarding himself. >> that's good. >> that's all right? i'm trying to be bipartisan. i did the other one. now i did this one. >> what did jimmy fallon say? >> there was an obama joke? >> jimmy fallon said -- >> in our office jimmy fallon decided we could go from casual friday to naked friday. >> when we come back from break -- maybe not.

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♪ ♪ so hot you burned your sweater. we got to get paris hiltoning worked in here at some point. >> "squawk box," that's hot. >> there you go. thank you, paris. >> that wasn't really her. >> that was her. let me see it again.

>> "squawk box," that's hot. >> that's good. no paris hilton jokes. >> i did see one. >> don't do it. we did a lindsay lohan. >> it was so hot she put her underwear back on. >> joe kernen, becky quick and andrew ross sorkin. we've been reading your comments on twitter all morning so we start with this headline, double outage, rocking the micro-blogging platform yesterday. users worldwide reporting significant down time and slow service across the website and mobile applications of the micro-blogging platform. twitter is blaming disruption on a cascading bug in one of its infrastructure components. hackers are claiming involvement. you're stepping out. you stuck your neck out a little on that one. it's all right. >> i don't want to tell you that was like my own. >> you came up with that? >> just a random thought but

should not have come out of my mouth. >> talk about google shareholders apology. google shareholders approving an unconventional stock split that will ensure the company's co-founders remain in control. the approval was a foregone conclusion because they control 64% of the voting power. in an odd twist, larry page sat out of google's shareholders meeting. it was unspecified condition affecting his voice. it will sideline him from speaking engagements. we'll continue to run the company. >> it's a weird story. >> it is but the heat will do that to you. >> maybe. we don't know what it was. we wish him well. hope he gets his voice back. >> i think he would know it was several weeks. government is accusing apple

rushing an antitrust lawsuit. the company wants evidence gathering finished by year's end. government is asking for until march to finish gathering facts. apple is arguing the litigation creates marketplace uncertainties. there's a hearing in the case that is set for today. in the meantime let's get a check on the markets. yesterday it was a very big red day, 250 points the dow was down by the end of the day. this morning it looks like those dow future are indicated up by four points. s&p 500 futures up by .4%. yesterday's losses was the second day loss that the market suffered this year and wiped occupant all of the gains we had seen to this point in the week. oil prices if you haven't seen it already, 78.74, trading up about 54 cents. 78.74 means a lot of things for the consumer in terms of what you'll be paying at the gas pump. this is something that could be one bright spot in the economy

as we get down the road. also the ten year note at this point still yielding around 1.6%. the dollar is a little bit stronger against the yen and the euro. euro or i'm sorry turned down. 1.2557 is where the euro trading, dollar/yen is at 1.30 and gold prices are well gloe 1630, at 15 at 1569. >> it's so hot solyndra may earn a roft. >> fed officials are free to speak. fed downgrading its economic forecast and extending the operation twist. how do you do? we got yesterday, bill in the dow, the stock market. there's been a lot of people

saying look if qe3 is inevitable why wait. why wait until it becomes so clear you need to do it. do they need just not shock anybody by doing it too soon. why didn't it happen this week? >> i think, joe, in part because it is a committee decision. i think, i don't think i know you had charlie's evans our president of the chicago fed on recently, and, you know, he is of an opinion that we shouldn't wait with dual mandate where we are looking at the forecast of the outlook for core inflation running well below 2% over the next 2 1/2 years as well as unemployment rates that remain, you know, very high that we should be a bit more aggressive with regard to policy. >> there's a couple of nuances here too. i guess you could also say we already are worried about the arrows that really left in the quiver, in the pushing on a

string argument and there's a lot out there just not finding its way into useful means but then the other side is if something really hits the fan in europe you at least want to have this in reserve to make it took like you're trying to teal with that but all these things are -- these are angles that sort of, you know, prevent us from doing the right thing now, maybe. if it's the right thing. >> very good point. you're raising a lot of good arguments that are on all the sides and that's why we have a committee of 19 members that come together to discuss these very different viewpoints. i'm pleased to say we now have a full committee with the two new nominees coming into the board. >> do you think that -- could you take the political side too and say that there's been so much criticism maybe from republicans or maybe from others that, you know, the fed has just been too involved already and they heard that a little bit

about down the road we're going have to -- we're going have trouble draining the system, we'll have inflation problems. do you think they listen to that and are hesitant because they are political? >> well, we certainly listen. we read and listen to a lot of economic information. we read the papers. we listen to comments. >> you can't help it. >> i've been at the fed for 30 years. we're making decisions and discussing the economy and its impact and clearly we think about how some of the political situations might be bearing on the economy when you think about the fiscal cliff coming up at the end the year. or early next year and how that might be impacting business decisions even now. >> do you agree with the full mandate or with the devil man date because with that are dual mandate. with that, it seems like a no brainer. is that correct? should we have a mandate? >> i don't think they are ins t

inconsistent. it would suggest if 3% is a target that if you're running below it and you want to average 2% there's no reason why you should, you know, cry that your hair is on fire as charlie mentioned in a speech in the past that this is something we should be all so worried about. i think we definitely want to make sure inflation doesn't get out of hand. ultimately the fed owns inflation but at the same time with unemployment rates that are well above 8%, the very fact that, you know, we're seeing oil prices come down and i think the weakness that we're seeing not just in the united states but around the world now, whether it's europe or asia is contributing to that lowering of oil prices which will be helpful to consumers and businesses as

you had mentioned earlier but at the same time you got to question why is it coming down. it's not coming down because of great additional amount of supplies coming on to the market it's because of weakening of demand. >> we went back and forth when oil ran up during the first couple of qes about whether that was why and if you were looking for more evidence in the absence it and it comes right now that just gives you more -- now can't say for sure but that certainly makes it looks like what the fed does is a factor in commodity prices, right? >> well, we talked about this a little over a year ago and when the arab spring was sending prices up quite significantly. it did close our session, joe, by pointing out that -- remember the demand curve does slope down. there are issues in terms of quantity that get consumed as prices go up and there's reasons why it's not in their best

interests for them to go as high as they went. when you think about the risk premium for some of the issues out in the middle east and, again, with the fact that we haven't seen a great amount more of supply coming on, i think largely what we're seeing is the fact that europe is in the a recession, china's growth is slowing, and we're growing here in the united states at just a 2% rate on a year-over-year basis which is all in all just okay not anything that would you know suggest we should be seeing a great increase in oil prices. >> bill strauss out of the chicago fed. thanks. thank you. that was good. >> thanks, joe. >> if you have any comments or questions about anything you see here on squawk, your so hot jokes, e-mail us @squawkcnbc.

>> it's so hot i had to deploy to sunseter retractable awning. that's one of cnbc's most popular commercials. >> what a great awning it is. fantastic product. >> somebody else said it's so hot the entire markets decided to take a dip yesterday. >> that's a good business one. >> how about it's so hot mike taibbi took refuge at goldman sachs. >> a little bit obscure. >> little bit obscure. >> for me funny. >> for you. that's the problem. >> hey "squawk box," that's hot. ahh, the new fabrics, put it on my spark card. [ garth ] why settle for less? the spiked heels are working. wait! [ garth ] great businesses deserve the most rewards!

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michael gurka joins us from the cme. people who watched last night and they see the markets were down 250 points what would you tell people to do today. would you tell home to buy or hold on? >> i think on the short term focus if people are really narrow in their views any kind of bid you see in the market today you get shorter. the auspicious beginnings of the week showed us what the fed was planning to punt for was down the road things are not going change and you better be aware because things are expected at least in the markets and the ten year treasury always shows us best where that barometer is and for the same reasons i know at least at your desk for months you've always talked about where that yield could be at 1.5 or even lower and you're starting to see that inkling. in chicago what we're talking

about is crude oil. what we do a lot of times we take longer data charts and look at moving averages and other types of levels to look at the past and see if we can recount to those areas and one of the biggest notes today is the fact that if opec is really, you know, gauging supply and how much they are going to release that's one thing but when you have global demand diminishing and in particular this recessionary scenario out of europe that's really hard for markets to get a gauge on a longer term focus. what you'll see an advent of that is very choppy markets and then wild moves and that's exactly what we got which is why i personally think you'll start seeing at least as we go forward here a more premise to the down side and referencing those charts on a five year scenario where you take the '08 loss that 100 day average comes in around 74 or 78, just below 75 and that's something you want to gauge -- >> michael, the one thing if you're referencing the oil

charts every $10 that oil drops means another $30 billion that want goes back in consumer pockets. maybe that's the good news it will help the consumer and allow them to spend more money in other areas. >> yeah. that's true. the reason i think if you boil that down why it makes a difference when you have low interest rates like we're living in right now and not anyone that just refied, you're not paying down interest. it goes back in the market you'll see it in tech stocks. as a whole i think is s&p financials or banks in particular are looking creepy. that's one of the reasons why you see more people on the sidelines looking for bargains a lot longer than a lot sooner. >> you think the biggest factor driving things right now is europe and what they are able to pull together over the next week? >> you know it has to be because it's not just because the correlation with being a trading partner with the u.s. or the

commonality of monetary systems collaborating very well but at the same time it's kind of a precipice for asia at least for the u.s. and right now when the bridge doesn't look that good what happens sue start realizing in the mirror maybe we're about to catch that flu also or we had it already and didn't realize it. that's where bernanke did such a good job. sorry about saying it that way, joe. that's the fed's job right now is that they are trying to tell us they still have tools to implement but that gun doesn't have a lot of bullets and for that reason we have to ride this out. a low interest environment is slightly helpful. right now, at least, it's hard to see growth in the. i line and that's where it will always show first, retail sales, consumer demand and then oil prices. oil prices are a great way to gauge dehand. no way about it. >> michael thank you for joining us and have a great weekend. >> thank you. >> coming up you know what day it is.

it is friday! friday. ♪ friday. you know, we're not going to do it. friday. look at that. i say it and i want comes out there. here's another one. it's so hot, sorkin's helicopter is overheating. no. i'm not going read them. when we return we'll head to a visitor from pimco and check in also on the consumer with the ceo of garden restaurant, a table for three when box returns. 

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♪ ♪ well, whenever someone passes it's a sad day but when you lead a life like this, you don't, you know, we just want to celebrate it. ana schwartz died at 96, milton friedman's co-author, graduated from college at age 18, got a ph.d. went to the national bureau of economic research and stayed there basically forever. as recently as three and a half years i can remember reading in the "wall street journal" that piece and she was a milton

friedman co-author and i don't know whether you call it an accolade. he may have been an accolade of hers but one of her great quotes "firms than made wrong decisions should fail. you shouldn't rescue them and once that's established as a principle i think the market recognizes it makes sense. everything works much better when wrong decisions are punished and good decisions make you rich" and she said with a hint of understatement "that's not the way the world has been going in recent years." >> when did she say that? >> three and a half years ago. >> right after the bailout. >> you're going somewhere much more mundane, aren't you? >> much more. >> i'm embarrassed for you. >> to talk about this awful thing that's on -- it. >> there's a show called "the newsroom." by aaron sorkin. i saw the premiere with aaron, he was there. >> your brother? >> we're not related but he did tell me, people come up to me

all the time and said i didn't know you know so much about finance. you wrote a whole book about finance and then you write these plays and these movies? anyway it's a very good show. i thought it was funny. reminds me a little bit of this place and all of the different characters. >> you read -- >> there were some reviews that were critical. >> i saw something yesterday on a website. >> there were mixed reviews but give it a try. look, i'm in the news business so we would enjoy it. 10:00, hbo, i thought it was worth it. >> i look at him and i see flip-flap from "terms of endearment." >> don't you think "social netwo network"? >> jeff daniels. >> what have you got there, becky? >> i'm going to talk about a story from "usa today." we had a woman in yesterday who was talking about how she's not risk averse, she was a hedge

fund manager. there's a study out that says the gender gap is growing when it comes to financial literacy, that women have been much more affected by what happened in 2008. women in general are averse to losing money and they are considerably less likely at this point to be confident in their investments and that they're allocated appropriately between cash, bonds and stocks, 29% of women say they're confident versus 45% of men. it's bad news because women tend to live longer. if you're not more risky with your money you don't have enough to get you to the end of the day. >> so live longer. >> when we come back the top story its of the morning including moody's downgrading of big banks, we'll talk about what that means, we'll be right back.

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stocks shocked on global fear and loathing. get the late'sal sis on where the market's heading today with pimco's tony crzysi and douglas holzhagen. the risky business and its wide ranging impact for the world economy, inside the mind of jim nabler. taking the pulse of the consumer, what the current business climate means for american spending habits. darden restaurant ceo clarence otis has a reservation with us as the second hour of "squawk box" begins right now. ♪ summertime and the livin''s easy ♪ good morning and welcome to

"squawk box" on a very hot friday morning. i'm andrew ross sorkin along with joe kernen and becky quick. let's talk about some of the headline this is morning following the biggest losses for the stock market, we had a big loss yesterday. let's take a quick look at the futures. we've got the dow there looks on the way up, 58 points higher we'd have right now opening up if we did it. indexes lost nearly 2% apiece yesterday, poor economic news and an ominous call from goldman sachs putting investors on edge, all ten s&p sectors failed. goldman sachs recommending a short position in the s&p 500 with a target of 1285, that is the number to watch. banking stocks taking a big hit in yesterday's trading, they'll be the focus following an after the bell downgrade of 15 groebl banks by moody's. morgan stanley got a two-notch downgrade but it could see as much as a three-notch cut, that

helped the expectation they may pop today. bank of america faring slightly than some competitors. citigroup hit hardest and there's a lot to talk about there. becky, back to you. >> andrew, thank you very much. let's talk more about the markets and the economy right now. douglas served as white house chief economist and director of the congressional budget office. he's president of the american action forum now and joining us is tony crysenzi, bond management at pimco. it's so hot that what, we've been playing the game. >> the economy is so cold. >> tony, at this point the economy is so cold, it's so bad at this point -- >> as andrew said it's quite omnious -- ominous of course. >> hold on, i think it said in the teleprompter omnious as

opposed to ominous. i just read. >> we also distracted with you it's so hot scott thompson added air conditioning tech training to his remay. that was pretty good. >> i liked that. >> we got it's so hot that even barack obama could run a successful lemonade stand. it was, ooh, wow, that just came in, sorry. >> take it to the other extreme. when you look at the economy it seems like it's falling apart at this point. it really does seem like there's been some quick halt to all of this. >> it's never growing well at 2%. we know that historically it's grown at 3%. there are a number of positives and i'll mention them quick that offset by big neglectives making the economy weaker and weaker because there isn't enough monetary stimulus available. the factory sector had been

doing well, since 1945 amazing because of the strong yen and rising wages in china, which is pushing some activity back here along with energy competitiveness. car sales have been better, credit has been expanding and housing we think will add to gdp. those are the positives. you run out of the list quickly. three big negatives making things worse now are wealth destruction, still $4 trillion of wealth from lost home prices, a huge consumption. >> huge number. >> especially with the population aged. >> unless you realize the piggy bank the way that home equity loans were used in the '90s. >> it's beyond that, it's retirement. the population continues. >> think about how rich you feel. >> last year was the year the baby boomers began 65, 42 million people aged 65 and older, and wealth destruction is a big negative. second income wage growth

running at 1.7% year over year. typically they grow at 3 so if you look at the difference of the old normal 3% and the new normal 2 it's a big story. final is mortgage create availability, suppressing housing turnover so people don't go to lowe's and home depots to buy stuff and importantly it suppresses labor mobility. people can't go from nevada or georgia or florida where jobs are weak because there isn't enough housing that and the fiscal cliff in europe and you get back to here. the economy going from a 2% pace to 1.5 or so. >> doug, we look at some of the labor market numbers we've seen recently and that has a lot of people concerned, the weekly jobless claims are closer to 400,000 than 350,000. what is your read on what's happening and what would it take to bring us out of this downturn? >> we're suffering from a simple

problem, if you don't have good trend growth, 3%, 3.5 coming out of this kind of a recession, you're subject to the fact if you're growing at something like 1.5 or 2, when things get bad you can get knocked into negative territory. we've seen tsunamis and tony has a good list of the downside risks but the core problem is something goes wrong, that's nature of economics. you insulate growing more rapidly on average. we're not doing that. the fundamental big picture problem is that we have the wrong policy-making regime on both the monetary and the fiscal side. what we need are some deep, permanent reforms in tax and entitlement programs and exit from extraordinary monetary policy. >> you're throwing the fed under the bus, too? >> no, i think they've done a very good job on a day-to-day basis, no question about that. the fed said look, we're going to extend current policy.

i think that was the right call in that the markets are expecting more aggressive policy. i don't think that was merited but they did also set the stage for a qe3, they marked down their forecast, they said we will move if circumstances warrant and i'm afraid the markets will price in an expectation at the next meeting there will be a qe3, that's not warranted unless there's a serious downside shock and that puts us in a position where if you step back, that might be the right thing to do day-to-day to play contingencies but they're in a position four years out of using extraordinary monetary policy measures. something's wrong when you're in that position. >> is there a way that the fed can say we're not going to act if there is a downturn? doug, maybe we're splitting hairs looking at what they said, but if there is a serious downturn -- >> isn't that the nature of the fed, watching you split hairs? >> in europe you can understand the desire to feel like there's still something you can do. >> the sense of activism has helped the markets and hence the

economy. >> i agree with that, i think the fed has an important role to play against financial shocks, but there's not much you can do to push growth at this point. >> all right, tony, when you look at it, i mean obviously he's right, we're going to be looking at everything the fed says and what they do down the line. they did extend operation twist, what the market was anticipating with the thought we'd get more. do you think we're closer to qe3 or did this push it back on your radar screen? >> we think they are closer. the fed has been weighing the benefits, costs and risks as mohamm mohammed elaryan points to, the misallocation of capital. the fed has three objectives in its current policy, with sun is to flatten the forward curve, push out the data, and secondly to lower interest rate volatility, bringing down the

term premium and bonds, the amount of yield that people want to demand for uncertainties about fed policy and third push investors out the risk spectrum so they buy riskier assets, boosting wealth and consumption but there's only so much that will do. we need investment in research and development, education, infrastructure and reducing uncertainty, et cetera, so people put their money to work and we get a better economy in the long run. >> let me get back to doug. we'll lose him in a minute. we look at what's happening today with the eurozone countries meeting, some of them today and next week all of them. what is the upside and the downside? >> it's hard to see a strong upside risk and that's a trouble aspect of the current situation. there's downside risk. what we've seen in europe on a regular basis is a tendency to not really resolve problems to kick the can down the road, to sort of temperize and my fear is that we will see that again and that would send a bad signal to

markets and that's something i think people are on alert for. >> doug, i want to thank you very much for joining us today. we'll be on the lookout as well and tony will be with us through the rest of the program. monster beverages are going to become the newest member of the s&p 500 next week. it's going to replace sara lee, changing its name to hillshire brands that, stock will move to the s&p mid cap 400. microsoft is said to be looking into making its own smartphone according to a veteran analyst of nomura. he left goldman sachs a year ago. microsoft won't deny, and the company unveiled its windows phone 8 software and own brand of tablet computer that might be leading to the speculation. a bankruptcy court ruling on labor contracts in american airlines has been delayed to next week. the delay comes at the request

of both sides as they try to come to an agreement. up next one of the largest restaurant chains out with quarterly numbers, what it will tell us about the mood of the consumer when darden's ceo clarence otis joins us next. comments? questions? send them to @squawkcnbc on twitter, follow the show and look for updates from andrew, becky, joe and the squawk staff. "squawk box" on cnbc, and on twitter. wanted to provide better employee benefits while balancing the company's bottom line, their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ...forbusiness.com. [ yawning sound ] all in one account. keep watch on the markets. or use our exclusive tools to help find ideas. it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office,

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welcome back to "squawk" on a friday morning. we have green arrows after what was a very bad day yesterday. the dow looking like it will open up 48 points higher, and the s&p 500 opening up a little over 4 points higher. darden restaurants the results just crossing and we'll have clarence on in a second, i'm just trying to make sure -- >> red lobster? >> red lobster and i see the dividend has been increased 16% to 50 cents a share, gets to a 50% increase in fourth quarter net and it looks like $1.15 was right in line with expectations. the sales number was $2.07 billion and that's very close to the $2.11 billion that the street was looking for at this

point, and as i said the other news that we want to talk about is that dividend increase, 16% dividend increase. going to open 100 to 110 new, net new restaurants in fiscal year 2013, and it believes that the business environment in 2013 will be similar to 2012, which it called slow and uneven, a slow and uneven recovery in the industry. here now to discuss the results and talk business conditions is clarence otis, ceo of darden restaurants. clarence, it's always great to see you. in the past, you've always stressed that you don't do the big discounting or specials that a lot of the restaurants do. sometimes that helps. sometimes it hurts. was there anything in the current quarter relating to that

or any reason that maybe revenue is just slightly below? i saw that the stock was indicated a little lower. that doesn't mean anything. it's liquid at this point. would you call the quarter a good quarter? >> i would say it was a good quarter on many months. we do do promotions and our promotions tend to have price points. many of the times that's a discounted price point, sometimes it's premium price point, and we did run a premium promotion at red lobster this quarter, it's their conventional lobster fest, we run that with the lenten season. that did not do as well as we'd hoped, given the environment that we're in. >> that's interesting. >> tell me how that works. it's a special kind of promotion but for an expensive item, so in the current environment where maybe people are watching, pennies are a little closer, it didn't do as well as you thought and that's one of the reasons

that people might look and think that these -- would an analyst look at these and say wow, these results are not up to what i was expecting? >> i think for sure on the same restaurant sales level a little below where people expect it, but i think as we step back and look at a longer period of time, we look at the past year, we had sales results that really looked a lot like the prior year so 6, 6.5% this past year, same thing as the year before, same restaurant sales or comparable sales were up 1.8% for the year. they were 1.5% the prior year, so the environment continues to be about the same. it's bumping along at a level that's not as robust as any of us would like, and when we look at the consumer, what we see is a cautious consumer, and sometimes more cautious than others. i think the level of cautiousness really has less to do with the fundamentals, which

are not strong, but certainly not as weak as they were three years ago. i think a lot of it has to do with consumers' hopes and fears. >> on a comp. store basis, clarence, what did you do? >> for the year, so 12 months -- >> no, for this quarter. >> for this quarter we were down about 2% -- 1.9. >> what were analysts looking for an increase in same-store sales? >> i think they were looking for something that looked more like flat. >> was red lobster the biggest problem, clarence, because it's down 5.8% in march. i look at the same restaurant traffic for red lobster and down 9.6% in march, down 6.9% in april, down 7.8% in may. are you concerned there's a red lobster specific problem here? >> no, because red lobster ended -- this is a year that they had same restaurant sales growth of 4.5%. >> okay. >> so as we look back over a longer period of time we feel pretty good. we think it was

promotion-specific for the quarter. >> clarence, there's a couple of big positives on the macro basis that should be helping you. for one food prices have fallen, we've seen corn and cattle and very importantly for restaurants generally speaking is the decline in oil, every $10 drop in the price of oil is a $30 billion drop to the consumer, that's a near $100 billion benefit maybe in the pipeline so what extent do you think these will help you and the industry generally? >> i think they make a big difference. we look at food costs i talked about the top line for each of the past two years being similar. the bottom line was quite different and so the year we just ended eps growth of 5% on that same top line, the prior year, eps growth of 19%, that had to do with food costs, so significant food costs, inflation, this past year, a different story the year before that. we would expect to benefit from the direction of food costs this year going forward. on the gasoline price side, i

think it certainly helps the fundamentals but again i do think consumer sentiment plays a bigger part at this point, and i think people are more fearful than hopeful. i think they fear that what's going on in europe could trigger a repeat of the financial crisis or something that looks like that here in the states, and i also think they're fearful that we won't get our budgetary issues dealt with at the end of the year, and that could trigger a recession and another round of job layoffs. >> clarence, is there anything to be said about which restaurants are doing better than others? anything just in terms of the price point and what's going on in the food world these days? >> no, i don't think so, because in fact red lobster and longhorn are our higher ticket restaurant chains in the mass market and those had a better year than olive garden. we're working at olive garden to improve results there. >> that's an operational issue for you?

>> yeah, i think it is and consumer also see the results of that work really beginning next week with olive garden's next promotion. >> what do you think the problem is then that you're trying to fix? >> i think a lot of it is olive garden for a decade now has really led the industry when we look at value and affordability, that gap has narrowed, and we intend to reestablish that industry leadership there. >> hey, clarence, what are these new restaurants, mainly what are you going to open, across the board, all of your different names, the new openings? >> yeah, there's a contribution from all of them. longhorn steakhouse, which has about 400 restaurants, still does not have a significant presence in the west, and so longhorn is at the top of the list of new restaurants, but also a decent number of olive gardens, and then our specialty restaurant group, that's our group that has the highest tickets, and has a more resilient customer, has done much better and we're opening a

number of those as well. >> do you worry about the way that, i don't know, we're not allowed to drink big sodas back here, we get a lot of criticism for the size of portions at some restaurant chains. >> they list the calories on some of them. >> yes. are we going down a slippery slope, clarence? i want butter on my lobster, i'm sorry. i'm not using -- you know? >> joe, i think it's all about consumer choice. >> thank you. >> i think consumers don't appreciate the aggressive intervention. there will be political pushback there i believe. at the same time i think consumers will continue to move in a direction of looking for healthier things, looking for smaller portions and we're working on both those fronts. >> clarence darden thank you -- clarence otis, thank you, ceo of garden restaurant. we appreciate it. when we come back we'll talk about the true state of the global economy. steve liesman tells us where economic uncertainty is

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welcome back to "squawk box," everyone. in the headline this is morning, moody's downgrading 15 global banks on concerns about their long-term prospects but morgan stanley shares are among those getting a boost. the company's debt was grou downgraded by two notches instead of three notches so they took that as a win. germany's business sentiment is at a two-year low. and you literally won't be hearing from google ceo larry page any time soon. page had to sit out of the

company's annual meeting thursday after an unspecified condition caused him to lose his voice. he's canceled several upcoming speaking engagements. how has the global outlook for global growth slowed? how much has it slowed in the past two months? steve liesman has been spanning the globe and joins us with the results, but mr. liesman i also understand you have a too hot joke for us. >> andrew, i thought you were the last guy who was going to put me on the hot seat for that. >> because yours, you have to have one and you have to try to be funny but it has to be really bad. >> so here we go, quickly, it's so hot that ben bernanke raised interest rates to try to cool things off. >> oh. man. >> it's not funny! >> not like you joe i didn't go online and look up "it's so hot" jokes. >> i didn't go online, people are sending it in. >> i know, it's so hot that this tie was blue when i put it on this morning. >> there you go.

>> do your report. do your report. >> let's talk about worldwide weakness because what's happened is the outlook for not just the united states but the whole globe has slowed in the past two months. what i did here, i could have done it in a complicated way, i did it the easy way. i looked at jpmorgan, bruce cashman, looked at the change for how the outlook of the street has changed for global growth. let's start off with the easy one, the united states. what you see here we've settled down to this 2% range right here, which is a half a point and we didn't have much to give up here. that's one of the better stories out here, 2.1% growth. if we do 2 in the united states this year, that would be pretty good but here's where we're getting some of the problems. we go to our next spot and look at emerging markets in latin america, only 3.3% growth, emerging markets have been the source of much of the growth in the world for the past several years and took a half point off of that, 3.3%.

moving on now and we look at china and japan, it's a very interesting story here, two completely different economies and let's talk about japan, which is one of the places in the world that economists think will grow this year, up a half a point to 2.5%, but this is a very big story. 7.7% growth in china, down a half. that understates it. in 2007 this was double-digit growth, almost double this number, 14%. now, why china? why latin america? why are those down? very different reasons from everyplace else, those are policy induced slowdowns from last year and now we get to in this case, folks, last is least. your area, not a big change but still a negative number and you look at the problem for the ecb and monetary policy. look at two of the bigger economies, look at their results and the outlook here. minus 2.2% growth in italy, that's down a half a point, germany actually, bruce, raised that up a percentage point, 0.3.

how do you run an economy with a single central bank with these disparate growth outlooks? that's part of the big problem. the uk is not looking good, last being least here looking at europe by the way has been in recession since december, down 0.6, a big change in the outlook, that's why there's been a change in the rhetoric coming from the monetary policy committee in england. we'll look at the overall situation and what we see here is the globe is expected to grow just 2%. folks, 4% would be a sort of moderate number for the globe with developed countries, a weak 1.1 and emerging that number can be quite a bit larger, 4.5%. that's what we're looking at here, different reasons, europe market tightening, euro bank de-leveraging, loss of u.s. momentum. so let's get more from our guest host. >> excellent, i should also say

steve just breaking on the wires is jeff lacquer's comments. he was the dissenter. we should go through some of the headlines. you want to do it or i can do it. >> whatever. >> there it's on the screen. u.s. outlook is clearly weakened but imped imtsz to growth appear beyond the capacity to offset. u.s. inflation close to 2%, fed's goal, substantial and persistent fall might call for stimulus and further stimulus won't help growth without inflation risk, economic growth outlook weakened recently, inflation currently close to fed's goal. >> he put out a statement. is that weird? he's been a dissenting vote this whole time. >> it was weird but funny the way they said they'd be put out a statement. >> funny to you. >> right. it was almost like saying we expect jeff lacker to keep dissenting so this is the new

policy. >> it's the supreme court they put out their statement. >> when they do the dissent they have a special section for the dissenter and they put up the minutes they have a longer dissent and he wants to explain himself. jeff is one of the brighter economists on the committee who has a different view about inflation risks and the dynamic from the chairman and sop of the other doves on the committee. it's a philosophical look for the way the economy wins. >> it's akin to a democrat calling for tax cuts or republicans going for tax increases. lacker is a hawk, someone who is typically worried about inflation a big deal and here he sounds really different. >> he says -- dpsh. >> he's still retaining some of that. >> he thinks the risks are greater to inflation than to -- >> of course he's going to say it. he's moderated his tone a little bit here. >> bernanke adopted some of lacker's commentary. it's interesting. bernanke was talking about cost and benefits and there is an

interesting subtext which we didn't get out of the press conference, which is what are the costs and the benefits to what's happening. i'm skeptical, tony. >> he's not talking about qe3. he's talking about twist boosting inflation. he's worried about another omnious sign. >> inflation to make it more difficult to achieve the longer goals. >> that's always the case. >> if jeff lacker didn't exist you'd have to invent him, you need someone like that on the board. the ecb is basically run by a guy like jeff lacker whereas he's in the minority. >> the fed was created with diversity, boards of directors in the 12 regional directs and correctly. >> tony, let's talk about the world, what's interesting among other thing is the world is not going down for a syncronous

reason. it's not a single reason. >> there are similar reasons that it's a very broad reason the debt overhang say good reason and could you say that's a reason, also policy uncertainty exists as well but they're tied together. what we're seeing is the citizenry say no to austerity. there's austerity fatigue on the one hand for those being put under it such as in greece, et cetera, and there's bailout fatigue on the other by the likes of germany so we're having a difference of opinion in terms of how to go about things going forward. so this debt overhang is a massive pressure against the economy in terms of it moving forward. >> there's no easy answer. >> no. you can't erase debt overnight. >> the answer is austerity, and you can sit and the same guy say the answer is more government spending. >> sometimes it's more certainty. uncertainties cause people to disengage, it's a risk that people cannot measure. uncertainty, for example, in the united states right now relates

to the fiscal cliff, a business owner might say i'm worried about a tax increase. an individual might say that, too, or a doctor saying i'm worried about reimbursements in january because of the sequestration related cuts that occur in reimbursements. people are pulling that date forward worried about what might happen so if you could reduce uncertainty alone it could be a better economic situation. >> so get a plan and go with it is your per skrepgs prescriptio. >> how will they get to a fiscal union and a banking union and political union? they haven't given us the road map, probably because of the reluctance with germany. >> you can't come to a fiscal solution because of politics? >> politics are in the way because people are in the way. in italy, for example, there's something called article 18, it's a 40-year-old labor statute that says you can't let a worker go unless you show concrete wanton negligence and if you can't you have to hire them back or give them 15 months severance pay, one reason why they don't

hire there and when berlusconi tried to change it in 2003, 12 million people went on strike against change, people are against this sort of change because they want, there's a certain feeling of entitlement, we've been building up the entitlement systems for decades and trying to rein them back in over a short amount of time. >> steve, thank you for the report. thank you for your comments. we'll continue that conversation. when we come lack in the next hour we head back to the windy city for day two of the morning star conference. we'll get stock picks from the nation's best fund managers. "squawk" will be right back.

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let nothing stand in your way. devry university, proud to support the education of our u.s. olympic team. 15 of the largest global banks downgraded by moody's, here with his take is jim nadler, president and chief operating officer of crowell ratings agency. we heard representative of what we're talking about is maybe the most significant news was that morgan stanley was only downgraded two notches because they were expected to be downgraded three and they lobbied moody's and only got two. that shows you we knew so much about this before anything came

out. we even knew what to expect and we were surprised when it was only a two-notch downxwrgrade. what's new? what can we take away? >> i think unfortunately this is another example of the rating agencies, the incumbent rating agencies being a lagging indicator. i know that's been said over and over again but rating agencies are to be relevant, rating agencies really need to equalize this imbalance between the asymmetry between information, issuers have information, investors want information. if you provide, if you would have provided these downgrades in 2007, 2010, probably would have been helpful. today, all the information is out there. so you risk becoming irrelevant by always being a lagging indicator. so i think that this -- >> except the whole system is built around this ridiculous system. >> the other someone no good either. it's all about fee structure and how you do it, and both of them,

both ways have their shortfalls. >> they all have conflicts. it boils down to having grownups in charge and grownups who can -- >> you have to pay the good grownups. you can't have lousy, incompetent people doing it. >> absolutely. >> so you have to pay them. >> i wouldn't say people at moody's are incompetent. >> no, but they get paid. i'm talking about the independent ones. >> i see what you mean, yeah. no, i think -- i agree. i think you have this problem both in investor paid services as well as in short paid services. it really boils down to being able to ameliorate those conflicts and do the business that you're charged with doing and that is providing information to investors in a timely way so that you address their issue and their issue is they need more information. that's become more complicated. the world is, we live in a global world, we have the internet, we have cable news going on all the time, investors are, get enormous amounts of

information. >> are the ratings in this case, did they go far enough? i ask it only in the context that there is always a worry. i wonder how much you think about this of the self-fulfilling prophecy, meaning the second do you the downgrade, you know you'll raise their borrowing costs and therefore that's going to create the next cycle. >> that always is a concern and if you look back on what the new stories were when moody's announced on february 15th that they were about to downgrade, what were people talking about? were people talking about i'm worried about the credit of these banks, no, they started talking about swap counterparty risks and all of the technical issues that go along with the complex financial institutions, not the credit, and so i think that is a risk that you do become a self-fulfilling prophecy. >> how do you calculate that when you change your rating? >> i think that you have to keep investors in line. investors have to be your first thought, your last thought, and

while you do have to be mindful of the impact that they have, i think the more important aspect is to make sure that you are thinking about investors, and what investors need to know to make the decisions, investment decisions. >> you mentioned investors and pimco certainly is an investor, and when we think of rating agencies, we really don't think much of them. we'd rather have our own ratings, and we think it's important for investors to do their own homework and you can see how badly investors have gotten burned. it's really important to do your own homework. i don't know the numbers and that's why people rely upon managers often and we have a pimco near 50 credit analysts. x amount of hours for every stock you own and that's the bottom line, one of the underlying messages. >> my understanding was that morgan stanley went around two firms like yours who were

counter parties and tried to restructure parties, ahead of the moody's downgrade because they didn't know what was going to get, they were trying to avoid that and you guys were sold on their argument before ever hearing from moody's. >> i can't speak to that. i don't know much about it but party risk is something pimco and other money managers have to think about and if the rating gets put down to levels that are unacceptable for clients, that's what we think is good for clients, we will reduce counter party exposures to those that are downgraded. >> do you tell clients that you have all aaa or aa or whatever? do you use that as a metric? >> it's very strict and probably the strictest counterparty risk guidelines that exist on the planet, and so we're awfully careful about that sort of thing. >> got to go again. thank you, jim, and thank you for saying that you chuckled at my, when a dog, i saw a dog

chasing a cat because it was so hot. >> i didn't like it. >> i like the classics. >> it was early. >> the tree is chasing the dog. >> tree chasing a dog? >> see you don't have dogs. if the dog is walking, chasing a cat and they're both walking, that is hot. that's funny. see, he's laughing again. >> i know. >> thank you. >> i think it's a giggle. >> there are timeless jokes. i went to a restaurant and asked the maitre d 'if i could get a table next to a waiter. a socialist -- better not tell that one. >> never mind. >> the lemonade stand. you're hanging your hat on that one so to speak. when we come back, everything from simpson bowles to jamie dimon to the presidential election, there's

nothing former senator judd gregg can't tackle. he joins us at the top of the hour. plus we are taking your tweets as well, send us you're so hot, send us your it's so hot jokes, use the hash tag it's so hot. we'll be right back. one that continually monitors and corrects for wheel slip. we imagined a vehicle that can increase emergency braking power when you need it most. and we imagined it looking like nothing else on the road today. then...we built it. the 2012 glk. see your authorized mercedes-benz dealer for exceptional offers through mercedes-benz financial services. ♪ [ female announcer ] you're the boss of your life.

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it's so hot that the animal orchestra stopped playing. that was the producer. that wasn't yours in? he's yelling at me. it was a twitter, but i got it from you. all right. stocks to watch, darden restaurants. >> in that case it was great. >> it was pretty good. $1.15 a share, and a -- that was in line and a 16% dividend increase to 50 cents a share. clarence otis was on and he did tell us that sales growth was not as robust as people may have been anticipating, he did mention a promotion at red lobster that didn't do as well as they had hoped. as a result, same-store sales were down 1.9%. they fell in the quarter, and most people were looking for

flat so that's a reason that it is going to be down today. you can see that's this morning's trading down $1.39. electronic arts was downgraded at citigroup from neutral to buy saying several of its previous hopes citi's hopes for the company had not panned out. continuing traction on the social mobile front, you say so hot -- >> mark zuckerberg -- >> you don't want to use that, took office leave. >> it's so hot, i saw mayor bloomberg drinking a 32 ounce big cup -- >> no, i did -- >> ooh! >> it was so hot mayor bloomberg drove to new jersey to get a big gulp. that was one of the first ones we did. i did that last night we think. this started on "the kudlow report" last night. microsoft is considering making its own smartphone according to a veteran wall street analyst rick shirlan of

kn nomura. you would think he knows about microsoft. he followed it for so long, rick sherlund of nomura. and medtronnic raised its quarterly dividend. joining us next judd gregg, we'll talk about simpson bowles and judd gregg's efforts behind that. "squawk" will be right back. ttd#: 1-800-345-2550

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it's not too late to avoid the fiscal cliff. former senator judd gregg thinks a bipartisan deal is still possible and pushing for simpson bowles 2.0. gassing up for a summer road trip? it might cost you less than you think. we'll ask john kingston and john ik ikenberger how low gas prices could go. and "squawk" begins brings you the best of thes best. morningstar's top domestic fund managers telling us how to

position your portfolio for the second half of the year. ♪ you're the best around ♪ nothing's gonna ever keep you down ♪ ♪ you're the best around ♪ nothing's gonna ever keep you down ♪ ♪ you're the best around welcome back to "squawk box" here on cnbc, first in business worldwide, i'm joe kernen along with becky quick and andrew ross sorkin. our guest is tony crescenzi of pimco. sorkin's fair value a range of 37 points, not bad after what happened yesterday, moody's downgrading 15 of the world's biggest banks by one to three notches. moody's says the decision reflects the risk of losses the banks face from volatile capital market activities but the financial firms are criticizing the move as backward looking. we just had a discussion about that. morgan stanley had a long-term debt rating lowered by just two

notches and that was one level less than people were expecting, so its stock rose along with some others after-hours and the big banks so far this morning as you can see all showing gains that reflect what happened after hours and jeffrey lacker is warning the extension of operation twist won't boost the economy without increasing the risk of higher inflation. operation twist of course the feds program to sell the short term securities and buy the long-term ones to try to get lower long-term rates. however, lacker said a drop in inflation might warrant future fed action, so hearing from both sides with one guy, lacker was the only voting fed member that voted against the extension of operation twist. >> while you are on the fed subject it is so hot the fed is considering quantitate dave freezing. >> quantitative freezing? i like that. >> not bad, right? that didn't come from liesman, did it?

>> no. >> that was an obvious one. >> it was great. >> he could have given them the pitch and knocked it out of the park but didn't. it was the bernanke -- he said it was so hot -- >> i thought it was good. >> liesman said that it's so hot bernanke is going to raise interest rates. i mean that's -- anyway. >> we're going to talk global headline this is morning, leaders of germany, france, italy and spain are gathering in rome today where it also may be hot. looking to find common ground on restoring confidence in the eurozone, comes ahead of a full eu summit next week and christine lagarde is promising to send a mission to greece monday as she acknowledges the stress the euro currency is suffering. european equities at this hour, let's look at the board if we could, you could see red arrows across the board there, except for -- we can't take too much

from that. our next guest on set is former republican senator and governor from new hampshire judd gregg. he is currently an adviser for goldman sachs international, and senator, you are an incredibly well respected man who commands attention -- dm >> did i write this for you? >> no, honestly if there's somebody who can get people together and get the debt talks reignited people say you are that person. what is happening with simpson bowles and where do we stand? >> we've had a couple of runs, we had simpson-bowles and the super committee, both failed for different reasons but i see congress especially the senate coming back to the issue of how to do this and simpson-bowles is the natural vehicle to do it, it's the only vehicle that exists where you had a bipartisan coalition, including some of the most fiscally conservative members of the senate and some of the most progressive joining together on a package which reduced the deficit by $4 trillion, and what

we're proposing myself erskine bowles and call it erskine bowles 2.0, and we had a meeting last week, myself and erskine bowles, with about 40 senators showed up to talk about the opportunity, and there was great energy in the room and we're looking at trying to be a resource help move things along. i was impressed people took time to listen. >> senators from both parties? >> both parties across the political spectrum, some of the most progressive and conservative but what was impressive at one point we literally had about 40 senators listening, talking, exchanging ideas. that shows me there's great energy and when you think about the structure the president's campaign for re-election, romney's competing against, so they're not going to be able to reach agreement. the house has problems reaching

agreement because everybody is so partisan and come from districts. the senate is where the action is. if we get governance it has to occur in the senate. it's not going to occur before the election. >> it's not going to occur before the election? from it can't. our system doesn't allow big things to happen prior to the election but they have to do something big because we're headed into the mother of all lame ducks here in december with all of these things coming together so they have to either do something or set up a procedure to do something. what we're suggesting is this is an opportunity, you've got sitting here a proposal which is sort of a menu of items which there is agreement on to some degree and it's bipartisan. let's start there. >> senator, would it be communicated that something is being planned for after the election, so the public won't change its behavior? it's pulling the fiscal cliff forward, people worried about tax increases, spending cuts and reimbursement changes. they're changing the behavior now. unless it's communicated well

that there will be something and it could change things because the fact people are pulling it forward are worried about whether there will be an agreement could change the election outcome which could change the construct of any agreement that occurs beforehand. what do you think? >> unlikely. actions are occurring right now. contracting law they have to send out notices they have to curtail, people who are investing in dividend paying stocks have to be thinking that the rate may go to 42% so you're right. i see that more as a forcing mechanism to get action than something that's going to cause action to occur earlier. >> interesting. >> when you talk to any business leaders, we've had a number of ceos who have come on and said they are 100% behind simpson-bowles, we've been in rooms they say this is the best way to do it, the business roundtable could get behind it, you'd have a huge amount of support. when you get into the details of what you have to give on that's where the support disintegrates and where you worry about

lobbyists coming in and trying to change things. >> you're right, becky. in a general statement you can agree to it, when you get the specifics you get problems. that's where simpson-bowles is a viable vehicle because it reached agreement on two critical areas, social security and tax reform. the one area agreement was not reached because the president didn't want the commission to go into it was major health care reform on medicare and medicaid which has to be done. we'll update it to do some medicare and some medicaid so basically, that means we will have done the detail work so to say, and hopefully people can coalesce around adjustments to it but it gives them a memo where there has been bipartisan support. the three most fiscally conservative members of the commission voted for it as a couple of progressives, dick durban. >> unbelievable. >> profile in courage and kent conr

conrad. >> kent not as much. judd last night, lani davis and michael steal, i was doing "kudlow" they came in and had this purple, red and blue, get it, purple. >> versus a pink shirt. >> versus a pink shirt, but what strikes me with you is people leave office are bipartisan and nice and talking this election, i'm watching. this is going to be as ugly as anything we've ever -- we are so far from anything conciliatory on either side that there's no way this is going to happen before november. i'm sorry, it's just not. >> it isn't going to happen before november. what you hope is that the elections do not stratify the positions or poison the well where nothing can happen after november. my point and most people look at this objectively, something's going to happen. >> it was so hot -- no, that

won't work, but -- >> is there a joke there? >> no, i didn't come up with one. i just saw one that says it's so hot that andrew is actually cool. >> i saw the same for you, joe! >> it came with my name on it but i changed it. i'm allowed to change it if it comes in. i know you are but what am i? i know you are but what am i? >> it's so hot jamie dix monday went back to the house financial services hearing to cool off. >> that's pretty good. >> not bad. >> you got nothing. >> you've used up all of mine. >> you're from new hampshire, it's code up there. >> it's so hot republicans look cool, i don't know. >> on simpson-bowles if there was an up or down vote in the public tomorrow or next month, what do you think the result would be? >> actually i think one of the viable things aboutsives simpson-bowles, you mention it, people say why didn't do you it? >> when you read you can see

both sides. >> because you cannot get fiscal responsibility unless you make tough decisions. >> people freeze up and stop. >> people are willing to accept a package which they believe is fair that makes very difficult decisions, if they believe it's fair. >> the definition of fair is bipartisan. >> there are democrats that won't do simpson-bowles because it doesn't raise marginal rates. lani davis said i'm for raising taxes. i said you just said you were f forsives simpson-bowles. i don't think you can get democrats to agree not to lowering marginal rates. there's no way. >> the essence of tax reform is eliminate reductions and exceptions and bring the rates down so the people have investment return. >> they want it back to clinton and eisenhower and all these other -- >> you can maintain the same progressivity of the sense of

where the revenues come from. people invest for the purposes of economic return as versus avoiding taxes. >> he loering the overall rate if you got rid of deductions without raising marginal rate on rich people? >> effectively you'll create a higher effective tax rate. >> senator, the great thing about simpson-bowles the last time it went through was the idea of the super committee, the idea you weren't going to be able to change anything afterwards. is there a way to get back to that setup? take it or leave it, you're not allowed to cherry pick and therefore stroit destroy the en >> i don't have any authority anymore. my belief is you set up a structure, a procedure where exactly that happens. you reach an agreement on basically what the package is, and then you take it to the floor to both floors without being amended and being able to be passed through a majority vote. >> up or down. >> that's the only way to get this done. that was the originally conrad-gregg which was a bipartisan exercise. >> senator it's easy to see what

has to be done and easy to see why it's not getting done. we spend $3.6 trillion, roughly the u.s. budget spending, about $700 billion is defense, $600 billion is non-defense, diskrigsary spending. you can't cut a lot from defense, 50 billion maybe a year. >> no, you're not going to make your savings on the discretionary side. you have to freeze discretionaries. >> and the discretionary sides it's clearly if we have a $1.5 trillion deficit we can only cut $100 billion, it has to come from the entitlement area, $1 trillion is spent on health care, $700 billion on social security, those are the stoiky political issues. there's no question the election cycle is affecting it because of the geruntocracy coming into that. people are worried and faremongers are selling people to worry about changes to medicare that are necessary to get the programs on track so we can get our fiscal house in order. how do we get over the election cycle and the sense we can't

change entitlements built up every year since 1966 when medicare was first built? >> you're hitting the essence of the problem. the problem is health care and the cost of health care for the fact that we have a generation retiring here that's going to double the number of retirees. geruntocracy is that a pimco turn? >> look around corners out there. >> the client gave me the word and i used it as a chapter in my book. >> i'm going to steal it, very good word. yes, you can do it. you don't have to do it in a way that is draconian either. we're not talking five years from now, we're talking 10, 15, 20 years from now. you don't have to affect economic recovery. >> the aarp doesn't help. you watch their -- >> they've not been very constructive, and grover norquist hasn't been constructive. you have to ignore the shouters in the corners.

>> i think i'm a member, too. >> you probably are. i am, too, probably. >> you are a charter member. >> my wife wanted me to wear pink and i said i can't do that because they'll think i've come to the dark side and become touchy feely. you're wearing pink and i could have worn it. >> i wear right to left to the closet, and i try toy find a tie. >> hindsight. >> quickly did you sign governor norquit's pledge? >> no. >> thank you very much. >> i presume they did, and i presume i said no. >> you don't remember? >> i actually don't but i know i didn't sign it. >> we'll come up with a grover norquist joke after the break. paris hilton and grover norquist? >> that's not her. >> that is not her, but we've got --

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welcome back to "squawk" on this hot friday. send us the it's too hot jokes. where are the frontiers in today's markets and joining us to help us with the answer, mark

usco, ceo and chief investor of fund-to-funds, morgan creek capital management and thank you for being here. >> thanks for having me. >> the pension issue, talk about europe, to me the pension issue long-term is the issue. >> long-term, yeah. >> today, what is the rate, meaning what kind of return can a pension fund even try to expect? we'll just throw 8% out the window, but what is the realistic number? >> i call it the 0-2-5 conund m conundrum. cash pays zero, bonds a couple percent and equities depending on who you talk to over the next decade about make 3%, 4%, 5%. mix that up any way you want you don't get to 8%. you can take 100% bonds and stocks and get to eight, almost, it would be seven, so i think it will be tough. you have to look at alternative

investments, alternative strategies, things like private investments, private equity, private real estate, private energy, private debt, a lot of pensions funds have gone that way but a lot of them are still in the traditional portfolio. i met a pension manager pouring money into fixed income. why are you putting so much money in bonds? he says i need to make 7.5%, but you're going to make 2 i said. the yield on bonds is the return for the next ten years, you buy a ten-year bond yielding two, you yield two. >> you had to explain that? >> it was tough. >> so many people are throwing money into private equity because they think that's where the opportunity is and so many other alternatives. >> yes. >> the historical rate of return in private equity, it is almost impossible to believe that that rate will hold over the next ten years. don't you imagine that comes down, too? >> no. here's why. there's four ways you can make money. you can stay risk free, a shirt

with china i bought no risk, no return. the chinese symbol says "this jerk bought this shirt." take credit risk, buy a bond, 2% risk free for that, take equity risk and buy 5% on top of that, that's 7% real in terms of equities and take liquidity risk at 5% more that takes you to 16 long-term, 4% long-term and cash, 6% long-term in bonds, 11% long-term in equities, 16% long-term in private. then you can use leverage and enhance the returns or subtract depending on if you're good at it. in the current environment if cash is zero, bonds at two, equities at best four or five, the nice thing is the illiquidity thing expanded. the fund-raising is down, there are few people willing to lock their money up so we think that illiquidity premium is double its long-term average. >> people made more than two or three years ago bonds were 3%

and 4% and they made 3% and 4% because rates continue to go down. you can buy a ten-year, 7% a year and sell it and go on to something. >> you have to reinvest. >> but then you go somewhere else and then it goes, are you going to your stocks or your private. >> the tailwind, the 30-year has helped bond interests for a long time. >> you're not stuck with 1.5% for ten years. >> if you market times you could do it. most people buy a bond and hold it. >> the ones that made 7.5 were in 3% paper and made 7.5 because of the appreciation on the way. >> treasury stripped last year you made 30%. >> yes. >> so how are you set up right now? >> so we are very overweight long short equity today. everybody wants to call about the death of hedge funds and we think the opposite. you had a three-year period, march of '09 to march of '12, long equity beat the heck out of

hedge funds. we think today going koord and coach k has a great line, great players, focus on the next play, not the last play. going forward we think long and short equity will do very well. we run a fund called the global long short equity fund, it's a pooled vehicle, funds of the best hedge fund managers on the planet and that is up with equities down, global equities down, overweight private, we're double weight private. private equity, private real estate, private energy, private debt. i don't mean big cap buyouts, i mean growth capital in china, buying noddle restaurants, buying land to grow soybeans. we work a fund down in florida called trivest, they buy little tiny businesses. i don't know if you've seen those pieces of luggage with the victoria knox symbol, the swiss army knife. they got the symbol and make lots of money doing that.

they're not a big ugly debt that makes lots of things to do well. >> with returns lower you have to think about the changes in payouts for endowments and intergenerational equity issues. >> i think one of the things that gets people tripped up a little bit is this difference between income or yield and total return is if you think about payout as just yield then people say oh i have to change up and lower my return expectations where the yields are low. if you think about spending and total return you don't really care as an investor if it's yield or capital gain so i think an endowment or foundation it still spend 4.5% to 5%. they have to have allocations in hedge strategies and frift strategies, and real assets with all of the money that's being created, huge returns in real assets. >> mark, thank you for your perspective this morning. >> thank you. >> i'm still a little anxious,

don't know what to do. >> you got nothing on the hot stuff. >> nothing on the hot stuff. it's so hot it's -- >> nothing, i got nothing. >> it's so hot that i'm thinking of making my winter home in alaska. >> summer home in alaska. >> coming up gas prices falling, will it be enough to boost consumer spending? presenting androgel 1.62%. is is and with androgel 1.62%, you can save on your monthly prescription. [ male announcer ] dosing and application sites between these products differ. women and children should avoid contact with application sites. discontinue androgel and call your doctor

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coming up, coming up, planning a road trip this summer might cost you a little less than you think. gas prices likely headed lower as oil continues to drop. we're going to ask john kingston and john eckenberger how low gas prices will go next. did i just screw that up? >> i was going to -- >> don't do that to me. and morning star's manager and top fund manager for 2011 will tell you how to position your portfolio for the second half of the year, it is getting hot in here. one that continually monitors and corrects for wheel slip. we imagined a vehicle that can increase emergency braking power when you need it most. and we imagined it looking like nothing else on the road today. then...we built it. the 2012 glk. see your authorized mercedes-benz dealer

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headline this is morning, headline this is morning, apple asking a federal judge to move an eastman kodak lawsuit against it to a new court, the change could derail kodak's plans to put a large patent sale through the process. the irs planning a comprehensive review of the whistleblower program. and a pew center poll finds, this is interesting, more than half of all u.s. readers don't know they can worry ebooks from their local library. >> i didn't know that.

>> kindles and nooks are becoming apparently almost as common as books themselves. >> that's crazy, you can borrow it. >> not good for us writers. but good for reading and getting more people to get engaged. >> do you have to go in to borrow from the library and go back to return it or do it online? >> you can do it online. you can do it online, don't have to go. >> you don't have to show up at the library. >> consumers, have you felt relief at the pump as oil prices dip below $78 a barrel? joining us is john -- andrew? it. >> eikenberger. >> vice president of government relations for the national association of convenience stores where you can buy a slurpee. joining us is john kingston, global director of news at platts. you watch these things happen.

almost every year it kind of is annoying, john, isn't it, and i'm talking to ikeberger first, that going into memorial day we always see prices going up in anticipation of summer driving season and during the summer driving season it goes back down and happens seems like every year and it makes us wonder if it's all fair, john ikeberger. >> a lot of it is due to the summer grade gasoline has to be cleaner than winter grade. >> i always forget that. don't you? so there's a reason for it, right? >> there is a reason for it. it comes down to supply and demand, we see a slight decrease in supply when demand kicks up, a little more costly product we have to sell to keep the environment clean and once that transition passes through the market seems to stabilize. >> i think it was over a month ago i saw in "usa today" that and how often is the front page of a national newspaper going to be right about a prediction and

they said gasoline prices are going to head lower into the summer and it's weird, because lo and behold -- >> it always happens in the summer. >> lo and behold it absolutely did happen again, that might not have happened i think if the fed announced qe3 and oil prices went the other way or if something happened in iran or there are so many externalalities that could have affected it. >> both of you can answer this question, doesn't it have a lot to do with the changed energy landscape in the united states, we're getting closer to energy independence and think about the imports of oil in the united states, it's gone from 13 million barrels a day closer to 9 and u.s. production of oil and oil products gone from 8 million barrels a day two years ago and had been on a 30-year decline to 10.5 million barrels now. this doesn't account for the story of natural gas and north dakota the second biggest oil producer in the united states next to texas, taking out of place -- >> is that a question? >> what do you think about this? are we headed toward energy

independence? will policymakers get in the way or are capital market forces -- >> they're both johns, too. >> i think the question really would be on oil the u.s. is probably not going to get u.s. dependent, the u.s. could very well get north american dependent where a combination of canadian and u.s. and mexico supplies, they could have a good election soon and that will be equal to the amount of consumers. the u.s. will not be in a position where it won't import oil. look at the map presidents' a big country, and you're not going to move oil around the place because it's red, white and blue oil. in some locations you're better off importing it and exporting it from somewhere else. what matters is your net figure, what are your net imports and that has come down considerably. total imports have not come down as much because the u.s. has a great refining industry, really high quality, brings in a lot of crude that turns into products

and sends somewhere else. that's been politically a little bit volatile and some people have been raising a stink about that. the reality is that that's going to continue, that's how we have a robust refining sector. i think the u.s. could be north american dependent or north american independent i guess the term you'd use but we're still going to import some crude somewhere. >> we'll settle for that, assuming canada will talk to us. >> i think they probably will. >> really? it's not like we've been very nice to them recently, is it, john? >> right, but i do think you're going to see certainly if governor romney wins we will see the keystone excel approved quickly and if the president is reelected i think he will probably approve keystone relatively earlier. >> when it doesn't matter he might. have they started sending things west up there? they've already started some things, haven't they? >> there's been a westward line for some time. >> they were going to increase it. >> slated to increase and the northern gateway pipeline working along.

there's no doubt about it that there is a race between construction of keystone excel and the expansions in canada from alberta out to the west coast. >> john eichberger, i can't resist, are you still selling 32-ounce sugary drinks, have you seen the light yet, stopped doing it in manhattan? >> no. >> have you seen the er in your ways, young men? >> the err in our ways. we offer our customers the products they want to purchase. >> whoa, whoa, whoa, whoa, who he, w a, whoa! >> consumers should be allowed to purchase what they desire to purchase. >> i beg to differ. >> you should go to the annual meeting of the national association of convenience stores which i have been to once and it is about the craziest meeting i've ever been to. >> is it really? >> crazy, everything you can buy at a convenience store is out there for free on display. >> spiked slurpees, people are

getting trashed on grape drinks with vodka, right? >> all non-alcoholic but i would strongly advise you to go. it's quite a meeting. >> i appreciate the pitch, john. we have about 1 million square foot of exhibit hall filled with stuff that intrigues answer entertains. >> do you import two-month-old weiners. >> not going there. >> did i do that before? >> thank you, come again. the quicki mart gougers. what? it's simpson. >> it is friday, isn't it? >> it's fry-day, and i'm going on vacation, too. gentlemen, thank you. mr. -- eichberger, and john kingston. we appreciate your time. >> did you tell them the slurpee joke? >> i'm not allowed to. i got in trouble. >> all right, when we come back we have two of morning star's top rated fund managers talk to

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welcome back, everybody. the best of the best portfolio managers are meeting in star for the morningstar investment conference. joining us is john carlson, fund manager at fidelity, also morningstar's fixed income manager of the year for 2011. james kieffer is port polio co-manager for artisan small cap, mid cap and value funds, named morningstar's domestic fund manager of the year for 2011. gentlemen, welcome to both of you. >> good morning. >> thank you. >> thanks, becky. >> james, why don't we talk a little bit about what you see in terms of value.

you've got an interesting prospect here. technology is your biggest holding. why do you look at technology and say these are value stocks at this point? that's counter intuitive. >> that's where the best bang for the buck is available right now. we manage money across all market caps and mega caps look the cheapest and on top of that, the tech sector looks cheap. it's amazing to us, with he own three of the four horsemen and i never thought i'd own any of them. i always thought i'd be a spectat spectator. they sold at such low valuations we own three of the four. >> not just the four horsemen you're looking at. what about shares of apple? a lot of people say whoa it's too hot because of how high it's gotten. where are you when it comes to apple? >> it sounds odd at first, with he buy out of favor situations that may be hard to recall. years ago apple fell out of favor when you had concerns about steve jobs' health and concerns about the ipad and other competition emerging. we picked it off at a nice discount t has done well and

we've decreased our position. it's rather unique in that you have a company that may be early in its success, talking about products or geographies and you're not being asked to pay a significant price for that in the market. >> john let's talk about the emerging markets, some of our guests recently said you had to look out, jack welch said when it comes to the bricks they're dropping like bricks. in emerging markets what is the outlook? >> i'm pretty constructive still. i think when you look at the emerging market debt as an asset class, you're getting paid to be involved with the growth globally. the yield on the index is about 5.5%, it's returned, you know, about 6% on average over the last three years. i think there's plenty of opportunity to diversify and yes jack is definitely right. some of the larger economies are naturally going to slow down as to say we're in all this together. >> john, this is tony crescenzi

of pimco. the concerns about china slowing down, our view is will continue to grow at 7, 7.5%. it shifts from export oriented to consumption oriented, signaled in a lot of ways recently the deregulation of interest rates which will help the consumer to earn a higher rate of return, otherwise after the interest rate cut and the bo xilai affair, he was in a municipality of 28 million residents his u.s.er means reformers are more likely to move into the politburo, and reformists coming in could mean or buoying up of the household sector and consumption relative to the export sector. what do you think in terms of the outlook for china not only in the near term but the medium to long-term? >> yeah, i think those are all great comments and questions, china is a big driver in the

global economy t has less direct impact on the emerging market debt, markets per se but i think the shift from an export oriented mod until china to a consumer-based economy is going to take place over a decade or two so i don't see it happening abrougupt abruptly. th i think it will have an impact on china's currency and trade policy. >> gentlemen, if you have to look at your one best idea, what would it be right now? james, why don't we start with you. >> this may sound less conventional but i'm going to say berkshire hath away it is our largest holding. we get this at a supremeup at a price buffett said he will step up and purchase the shares. here we've got a legendary stock picker sayingly buy the shares from you close to where we are right now and you've just got a tremendous collection of business there is, so i think it's a wonderful opportunity and i have a hard time understanding you would not own berkshire at

the price levels. >> john your best idea? >> venezuela, i think the credit's cheap in the 12% to 14% range and i think it's a credit and i think it's cheap and misunderstood. >> john would you ever buy into let's say greece, into spain, into some of these markets at this point again? >> definitely i would. waiting for the coast to be a little bit more clear. if you look back in 1998, long-term capital and russian default the three safe havens for me in the portfolio were, in fact, lebanese pounds, egyptian t bills and yes the greek drachma. >> so you are waiting for the situation to improve, is that waiting for gudeau at this point or you think there's light at the end of the tunnel? >> there will be light at the end of the tunnel but because

it's politically involved and we have 17 countries involved, you know, it's going to proceed slowly until it doesn't and then it will proceed fast and we'll be ready to catch that when it breaks but we're going to have to get resolution on greece, spain, italy, germany, and you know, i thought this would have been over in late 2010 so clearly we need to be patient. >> james, if you look at the environment, what's the biggest wrench that could get thrown into the wheel here? is it something that the fed does? is it the fiscal cliff? is it something that we don't foresee or something that maybe we do foresee with europe? >> i'd have to say all of the above. there's always going to be disruptive forces out there, but the reality is you need uncertainty to make money in the markets, and the question you need to ask is, are you being asked to pay a price that does not give you room to deal with those? our feeling is that you have room to deal with those sorts of contingencies. it may be disruptive as it goes across the path but the asking

prices are interesting and attractive for making money over a longer time frame. these things resolve themselves over the time. i don't want to push them aside and say they're nothing but it's the reality of what exists and you have to ask yourself how the prices are more forgiving with what's going on. >> thank you for your time, gentlemen, we appreciate both of you being here, john and james. >> thank you. >> thanks. >> i heard joe, before we go to break i heard you have -- >> it's so hot, cnbc is considering bringing back ron in sauna. >> wow! >> he and i actually have the same birthday. >> very good. >> can we throw in aaron byrne? no, let's not. nevermind, strike that, strike that from the record. strike that from the record. strike that. did you stick with the ron in sauna. >> on that note -- coming up,

the stock stories we're watching ahead of the open, we'll head down to the new york stock exchange where it is -- >> hot. >> -- hot but we'll talk about that in a minute. auto

welcome back to squawk. the new movie "brave" is expected to lead the box office dalles. expected toend railings $65 million. also debuts "abraham linking ram pine hunter" and "seeking a friend for the end of the world" from focus features. jim and david join us, if you do not have a hot joke for us, we probably have a bit of a problem. >> first of all "abraham lincoln" i'm going to pass on the lord racks knockoff -- >> that looks good, jim. i miss a good pixar.

when was the last one? >> "car 2" i think. >> yeah, that was bad. >> it was a stinker. >> abraham lincoln looks bizarre. >> he was a redistributionist. maybe that would come up in the movie. >> along with the vampires. no hot jokes? >> i thought your darden interview was fabulous this morning. once again this is a mainstream name. if they can't figure out the right promotions, i'm beginning to thing it isn't the promotions that's the problem. >> lobster is too expensive, i guess they were saying. >> the first half they had real inflation numbers, if you look at red lobster specifically, it was stunning, one month they were down almost 10%. >> this is one where i begin to worry maybe you don't want to do it anymore. maybe there's a secular trend against the $12 to $15 and in favor of a chipotle, which is a

$7 price point. conagra yesterday said they want to eat at home and eat leftovers. >> the same kind of move as, say, in olive garden? >> not as significant, but there was decline. >> maybe the seafood love is no longer inside us. >> that's their ad. you hit that one. so you guys probably weren't watching. the one we liked it's so hot that bloomberg drove over to new jersey for a big gulp. did you hear that one? >> i like that one. ist also good that chris christy shares the big gulp with others. >> he's your governor. jim, did you leave the garden state? >> i am so garden state. i have a beach house, and real house in the garden state. the garden state rocks.

>> all right, man. did you hear my joke -- it's so hot we're thinking about bringing back ron insauna? huh? huh? >> that's pretty good. >> i still think the winner since the business show was the fed is consideration quantitative freezing. >> or putting a fan in the debt ceiling. >> or it's so hot the markets took a dip yesterday. >> or that scott thompson now has air-kinning tech on his resume. >> we've got to continue these in our show. i like -- it's the only thing people are talking about is the heat, and we've got to join them. >> larry ellison is going to buy antarctica now. >> have a great weekend, guys. >> stay cool if you can. coming up final hot jokes --

no, we're going to get some final thoughts from tony cry sensesia. next week the supreme court is set to announce its decision on health reform. squawk has you covered with reaction from the top names in government and health care. eric cantor, the former ceo of aetna, the ceo of humana, and a lot more. you can't afford to miss "squawk box" all next week, starting at 6:00 a.m. eastern. looking for a better place to put your cash? here's one you may not have thought of -- fidelity.

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stock of the day is ryder, the company lowering its earnings projections, blaming worse than expected results on its fleet management solutions business. the truck leasing company says it expects weak demand to continue for the rest of the year. all right. our thanks to our guest host today. tony, about 25 seconds, parting shot? >> well, three years ago today i started working at pimco and realized more than ever how important it is to guard capital very intensely, very passionately, because things happen you wouldn't expect in normal times, so you've got to be more vigilant than ever. this means next week,or