kernen and andrew ross sorkin. let's set today's agenda. key driver is earnings. we'll hear from morgan stanley, verizon, travellers, southwest air and quest diagnostics and some of the names we'll hear from. technology takes over after the bell. google, microsoft and advanced micro. and weekly jobless claims hitting the tape at 1:30 a.m. first time earnings will rise. we got that surprise drop last week. continuing claims are forecasted to decline by 14,000. on the economic calendar later we have existing home sales, philly fed survey and leading indicators so it's plenty to keep us busy. regulators are focusing in on four big european banks. they are reporting regulators suspect barclays traders were just the ring leaders of a circle that included agricole,

hsbc. can libor be reformed or is it damaged it should be scrapped. let's go over to andrew. >> we got some earnings this morning. ibm posting better than expected second quarter earnings. that was after the close. revenues fell short, but the company is raising its full year guidance despite weak tech spending. american express earnings also beat the street. revenues at the credit card company falling short of estimates as spending growth moderated. i don't know if that happened in my household. the chinese government set toby liquid private equity assets of gm's under funded pension plans. "financial times" saying china is willing to pay between $1.5 billion and $2 billion. >> ibm surged on that raising guidance and that did allay some

fears about technology. a few other stocks to watch. united technologies is in final discussions to sell its rocket dime business to aerospace propulsion systems maker gen corp. it may come next week or later this week. e-bay's woe, that would wove been something to behold. you got to keep the camera on him at all times. chair started to move back. >> the chair started to move backwards. >> the chair started to move back. >> you just got the edge. >> got the edge of the chair. >> i've done that too. you try to quietly get in your chair. >> you're not doing anything right now? when he's sitting down why can't you -- >> he was putting his coat down for him. >> stupid coat all the time. taking it off.

e-bay earnings. >> wardrobe changes. >> that would have made the reel, blood pressuree reel, blop emopers and boners. >> e-bay said more consumers shopped on its online marketplaces and used pay pal. guidance falls just shy of analyst. qualcomm cut its earnings forecast for the current quarter blaming weaker than expected demand. the stock yesterday was sharply higher after the lead progress vieder of chips for cell phones and said sales would improve for a strong last quarter. shares of yahoo! falling in after hours, kfc and taco bell posting worst than expected earnings. to do, whenever you think yum i think chicken in china.

higher costs in china cutting in to margins in yum's top brands. striker missed wall street estimates. it was hurt by a weaker euro that dampened its sales overseas. we're not done yet. we also have novartis, topped analyst expectations. tight cost controls and stronger sales of new drugs will help it from a stronger dollar. you get stuff from mark grant. >> do i. >> did you see those things. you wrote your column on him, remember, andrew. but something -- >> spanish bonds that went off. they sold about as much as they expected, about 2.8 billion. it was a high yield. about 5%. >> spanish budget minister says there's no money left for public

services. >> yeah. the auction today didn't help. they are having to pay about 5%. >> massive protests occur in spain and budget cuts are on the agenda. spain is out of money. today's auctions will do very little to them. if you can't pay for -- there's things that need to happen every day. >> if you can pay for them. >> that's what we worry about. we worried about that with greece. >> we spoke with our guest yesterday a little bit about europe and what was happening. my panel focused on that, in delivering alpha conference. they are very divided views about whether they can pull this off or not and everybody seems to think the euro will still exist in five wears but you can see a lot of chaos between now and then. >> if i remember, i don't want to say he was bullish. >> he was. >> much more suggestive we would get through this. >> thinks he'll come out and

we'll be fine. they are not so convinced it's going to be smooth sailing and that enough has been done. the question becomes why hasn't the ecb stepped in and start printing money. >> throughout the whole day yesterday, henry kravis and others thought -- >> doesn't mean they will fall out of it. >> thought that the idea was that it would stay intact and eurozone would stay intact. >> even greece? >> i didn't get the sense that people were thinking the whole thing would disintegrate. >> greece is not the whole thing nine didn't get a sense -- there was a sense -- >> asked my panel. they think it will be here in five years. you could see a lot of chaos between now and the next five years. >> what do these countries, what do their individual economies, what do they look like if they stay in the euro. clearly the economies are so different and the structural,

you know, impediments in those other countries they don't deserve the same interest rapts as germany or currency. germany doesn't deserve their weak currency. it's all messed up. unless they get fiscal coordination it won't work. you don't know how get fiscal coordination. germans are not like greek and even italians. i love italy but i don't want to start a business there. you got to live at home. eat pasta. >> daniel day-lewis become a cobbler somewhere in italy. >> all the italian cobblers are in china. i kid you not. who do you play golf with. you play golf with shumaker. >> guy who makes shoes. big guy. >> kenneth cole. >> kenneth cole.

we had a whole conversation about how all of the great italian shoe cobblers have now notified china because that's where they are making the shoes. >> what stays on the golf course, what happens there stays there. people know kenneth and i are out together. he's a big democrat. i'm bipartisan. i saw a show, i'm not kidding. it was on adult swim, totally inappropriate. my kids are watching it. they showed ann coulter and al sharpton had appeared or al sharpton character appeared -- they were screaming at each other and they got done and in the green room and they were high fiving and ann coulter al that was awesome. he goes you're my girl. they are hugging. they put on a big show. the minute they leave they are like yeah, that was great. let's go have some cocktails and are out and you wonder about that whether it's all --

>> could be the case. >> let's get a check on the markets this morning because so far we've seen some green arrows coming after some big gains. dow was up by 103 points yesterday. if you put that together the back-to-back days for the dow the best we've seen in a month. the market was only up by 65 or 70 points the day before. the dow industrials, s&p 500 and nasdaq are back in positive territory for the month of july at this point. the s&p 500 is nearing a 2 1/2 month high. again this morning we're looking at green arrows. get some of those numbers that we're watching so closely today including jobless claims that are less in 2 1/2 hours. ten year note this morning is yielding at this point at least -- there was energy. 10 year note is yielding 1.5%. 1.511 puerto rico. bernanke's comments have been

something the markets have been paying attention. jobless claims are a key. we flipped through energy. that was my fault. energy actually crude oil was topping $90. last night for the first time since may 30th. it's up another 1% to $90.80. $is standing at this point down across the board. your is euro is at 1.2309 and gold prices is at 1.582.7. >> we spent the day delivering alpha a conference put on by cnbc and institutional investors. the brightest minds investing in government gathering in new york. among them two former treasury secretary, robert reuben and hank paulson in conversation with our own steve liesman. leaping over the fiscal cliff is

playing with fire. a warning for lawmakers if they wait to resolve the issue. >> i would say first of all, that with 100% certainty if we don't act, and we wait long enough there will be a crisis. and in terms much what it looks like if we ever got to that point which i'm not predicting we will it will be very messy. we've dealt with financial crises in this country but take a look what a real fiscal crisis would mean. you don't have to sell the thing all at once and they won't solve it all at once. it will be messy. if you lay out a flaramework an give certainty there will be progress we'll be okay. >> bob, is your take it will take a crisis? >> most people think that the probability is relatively high. i agree with something that hank said. i don't think most people -- virtually nobody has

internalized how severe a crisis could be. its more substantial as a crisis than the financial crisis itself, was both terrible as a crisis and created tremendous hardship. in the financial crisis you can respond with stimulus or monetary policy. if you have a fiscal crisis you can't use the same tools to respond and i think that both the crisis would be harner and the recovery period would be far more difficult. we'll have more of steve's exclusive interview later in the broadcast. coming up john hardwood joins with us a look at the flury of campaign ads running in the battleground states. doesn't he have this new poll. >> times/cnbc poll. >> british open is under way. it's a historic course that features all of these hot

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welcome back to "squawk" this morning. u.s. equity futures, nice green arrows, 67 points up. we might open up if things keep

this way. let's talk headlines this morning. in california, san bernardino city council declaring a fiscal emergency. the decision allows the california community to file for bankruptcy protection without having to first hold talks with its creditors. san bernardino could become the third city in california to seek protection from its creditors since late june. as we've been mentioning all morning we spent yesterday delivering alpha. i caught up with henry kravis. we discussed reforming the tax code and carried interest. >> we need to change our tax code. we need to change the tax system. we have to have a system that is very much focused on pro growth and pro jobs. if we do that, then everything should be up for grabs. that includes carried interest. that includes any other type of taxes and everything should be open and have a discussion. you can't pull out and i don't think you should pull out just private equity and so to my way

of thinking, you really have to look at the overall. the biggest beneficiary of carried interest is not private equity or hedge funds it's the real estate industry. do you want, do you think today is the time to start, you know, raising taxes in the real estate industry? i don't. but that's not my point. my point is let's change the tax code and let's make it pro growth and pro jobs. >> that's henry kravis talking about carried interest. i was trying to push him specifically on the carried interest issue. we were talking in the context of tax reform broadly but to say if we couldn't get tax reform broadly how wonderful about carried interest. so many private equity people feel this way they would be willing to give up carried interest so long as carried interest was eliminated across the board in every industry whether it be oil, gas, real estate, venture capital. the idea being singled out. he didn't say it specifically but that is the implication.

they don't want to give it up but willing to give it up so long as it's not focused singularly on them. >> good point. lots of parts. this is what partisan accounting. >> that's what it's about. >> it's across the board. private equity probably hedge fund probably a small part of the total universe of carried interest. >> that's absolutely true except that the numbers on their own may be some larger ones. >> again, the idea of overall reform is certainly something that a lot of people are willing to give up what they did if it goes into bigger reform. alex wallace is standing by, joining us from the weather channel. how are you doing? >> good morning. track being storms this moaning right around the great lakes. you can see the cluster that's in place, chicago you've been dealing with that all morning long. it's moving off to the east.

parts of lower michigan, northern sections of indiana, fort wane getting clobbered with heavy rain. lining up with a cold front boundary stretching from the midwest back towards the east coast. south of that the southeast dealing with an upper level of low pressure. keeping things unsettled there. once again during the afternoon showers and storms developing there. we could see a few storms across parts of the rockies as well. so those storms that we fine here in the east, some of those could pack a punch. we're talking about the ohio valley dealing with risk for damaging winds, hail. good thing with these storms moving through bringing in heat relief. been brutal the last couple of days. mid-90s in the d.c. area. pittsburgh around 86 degrees. friday the front sinks further south and bring in cooler area. new york city low 70s by the time we head into friday. where is the heat going? it's pretty much going to be where it's been right here in

the middle of the country. staying here. look at the triple digits. wichita up to 108 degrees. just unreal numbers that we'll have to contend with. plus staying dry so the drought situation is just going to continue to worsen. friday into our saturday more of the 100s from joplin remember missouri into north texas as well. this heat it's not going anywhere any time soon. >> alex, thanks. from weather to politic, john harwood joins us from washington with a look at some of the ads running in battleground states. also i guess you'll comment on the latest "new york times" poll. i'll tell you one thing, john, i look at this real clear politics average, different polls and they give you a number and it's been less than a two point difference for the two candidates. it's a close race. who knows what will happen. we don't know who the vice president pick is yet from mitt romney. the right direction wrong track

average and that's been pretty consistent in about 30, it's 31 today. that's a tough -- that's a head wind. if people just feel bad about the prospects for their future in the country and you add in 8.2%, i junt wouldn't be too complacent. they better keep hitting hard. sooner or later talk about tax returns and the talk about private equity, we're going to get tired about talking about that i think and we'll be back to actually talking about people that can't get jobs. >> reporter: you're right. there's been all this hand wringing about the way the obama campaign has gone after romney and romney's difficulty in responding and all that. what the romney campaign has said and what is true is that the poll numbers just haven't moved that much. we had a race that essentially since mitt romney emerged from republican primaries and consolidated the conservative support has been essentially

static. the "new york times"/cbs poll shows him up a point when you include leaders in that poll for the first time during that period. all of this is margin of error stuff. when i've been tracking this over the last few weeks it's about a 47-44 race. two points sometimes less, sometimes more. usually right in that range which means that either candidate could yuan and part of the reason is the way that these advertisements have been flooding a very small number of states with a lot of money behind them. $21 million have been spent just in this last week on ads in ten states and they are all the ones that the candidates go to. colorado, virginia, florida, pennsylvania, ohio, those are the -- that's the universe where these ads are running. i want to play a few clips of those to give people a flavor why in fact it is a draw. there are three ads which we have pulled from the republican

side. let's start with the one that's called tried. you'll notice one smart guy at the beginning of that ad and it gives a flavor of the republican exploitation of the job situation. >> this jobless rate just went up again. but after a record 40 straight months of unemployment over 8%, president obama insists -- >> the private-sector is doing fine. >> 23 million americans can't find full time jobs. 30% have been out of work for over a year. and under obama nearly 800,000 more women are under employed. >> okay, guys that's one of them. let's go the one from crossroads gps called tried. because that voice at the beginning of not the smart person that i was referring to. >> we know. we got it. >> we figured out who it is. >> we got it? >> we don't have it. >> you're losing it. >> did you get like a check for that? >> you know, i've been getting

questions all over, from friends all over the country who have been seeing that ad, people who live in those swing states when did you sign up for romney and how much money are you getting for appearing in that ad. >> are you just delivering the friday employment numbers? is that what it was? >> it was on your show. they took three seconds it. you know, i'm writing a piece for the "times". it should post today and run in the paper tomorrow about the experience ever campaigns using people on television who are not associated with their campaigns to try to give more credibility their messages. let's play a little bit of the obama advertisements. in both case you got the campaigns them self, romney and obama but you have the super p.a.c.s on the republican side, restore our future and crossroads gps on the democratic side priorities usa. they are running one ad, the priorities usa called brief case which both of these ads attempt to raise some questions and

doubt in the viewer's mind about whether mitt romney has been doing something shady. let's play brief case. >> barack obama and i approve this message. >> tax haven, offshore accounts, carried interest. mitt romney has used every trick in the book. romney admits he's paid less than 15% in taxes on 43 million in income. makes you wonder if he pays any taxes. >> makes you wonder. this is the point in the ad that's trying to raise questions and increase the pressure on romney. my point is that in both cases you got these pretty powerful messages, the republican message look around you, the economy stinks, who is the guy in washington, he's responsible and the democrats are countering by saying who is this guy who wants my job. what's with all this cayman islands account and swiss bank accounts. strong messages.

>> i even saw on a competing network, general news network someone was talking about romney -- >> you can say the name? >> cnn, erin burnett did a look at whether -- >> who is that? >> at the end it was almost i guess she got her chops here she made it fair at the end and added in his tax rate and the amount that he gave to charity. and the years that we know. it was like 31% because 17% went directly to charity. millions and millions of dollars. these ads, john, if you do something wrong i could understand it but if it's all twin law then tell congress to change the tax law which i want to do. we want to do tax reform but nobody is talking about tax reform because we're talking about this. if you don't like -- you should take it -- we got to go. >> when we come back hot is the

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♪ good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. making headlines nokia posted a quarterly loss in line with what analysts look for. they warn of a challenging quarter ahead. check out shares of ibm company posting better than expected second quarter earnings. revenue was a little bit light. the company raised its full year earnings guidance despite weak tech spending and worries and

angst about technology. for ibm not bad. of course that stock has come down a little bit from well above 200. above 190. >> sentiment helping the markets this morning. the futures are indicated higher today. dow futures up about 66 points. s&p futures up by 5.25 points. by the way yesterday with those big market gains the dow up over 100 points biggest back-to-back gains we've seen in quite a while in over a month for the dow. and when you look at it at this point the s&p 500 the dow and nasdaq are in positive territory for the year. so that's a big monumental accomplishment given where we've seen trading over the last several weeks. oil prices are higher. they closed yesterday above $90 for the first time. they went above $90 in the after markets trading for the first time in over a month and a half. you see another up 1.92.

ten year today. yield is up to 1.05%. jobless claim numbers come out at 8:00 eastern. dollar is weaker. right now it's down against the euro, down against the yen and swiss franc. euro is trading at 1.2304. >> vacation. it's coming back up. >> no. >> joe may be here next week. he's telling us he's not going to go if it's not at 1.20. >> there's been problems. we're going. >> you're in. >> just depends on what we're having over there. >> gold prices are up by $12 or at least they were the last time i checked. just about 15.84. >> you skimping on dessert? >> i got to. someone wrote in today that baklava goes right to your

paunch. >> what? >> not that you need to worry. it does. >> because of the butter. >> the fat? >> i looked. i detected a change in the last couple of days. >> i feel like i did too. i had suddenly yesterday, you know what? is this disgusting. >> i realized the whole trojan horse nature of ariana send it here. it was a "huffington post" conspiracy to make me fat. turn me into fat cat. i could solve greece's problems. export baklava. >> everybody thinks it's a greek food and it was a turkish food. >> oh, man. >> that could renew -- they don't like each other anyway. >> good segue. we have like a food segment. the price much corn continuing

to climb amid tough summer weather. we have a senior analyst at tdn. let's talk about the ripple effect. let's talk about the dominos. what do you see happening this summer as a result of the corn price. >> well right now we're looking at probably tightest, you know, supply and demand situation in the u.s. when it comes to corn and you can throw in beans. and so as this price continues to rise it touches corn. corn be found just about anything on the grocery shelves. as we move through this summer and fall and early within we'll see all of those products because of how tight the corn supply s-all of those products could start to climb in price as well. >> and, put a target. where do you see corn prices going? >> well, what's interesting just

this morning we've seen the market go to a new high. we have the september contract trading over $8. we got the more active december closing in on $8. we haven't seen this area before. now, you know, what happens in this sort of situation we get these short supply spikes, they usually don't last very long because demand starts to slow down. in the case of corn if we look at the major categories of demand they can blow up because there won't be any supplies to ship if this weather situation stays as it has for quite some time, forecasters not calling for any change at this point. this crop will keep getting smaller. price, people are talking about $9, $10, throw anything out there at this point because we've moved to a new area and only when demand completely shuts down does this come tumbling back down. >> it's too late to replant what you got is what you got and it will sling.

i was reading somewhere some speculation about because ethanol takes up something like 27%, makes up 27% of corn demand, are there going to be renewed questions about ethanol subsidies if you're dealing with severe shortage like this? >> it's not really the ethanol sub subsidies. they are talking about this mandate we need x percent of ethanol. the market is taking care of that itself through price and slow down in demand for gasoline in general. we've already seen ethanol demand for corn actually ratcheted down year to year from the 2011 year market to 2012-2013. monowe continue to see thth to take care ever itself. is it possibility of setting aside the mandate.

from what we're hearing it's not really in the works at this point. could it happen, absolutely because, again -- >> that would be the epa that would set that? >> yeah. that would have to be something done between the usda and the epa. and, again, we're not hearing of that actually in the works at this point, but all cards are still on the tabling given how tight this situation could get. no if that happens, what would happen to corn prices? >> well, regardless of what happens to the ethanol market, i think this blow up of demand that we're most likely to see -- this won't end well, corn will come tumbling back down at some point. we'll talk about the tightest supply situation. if there's no demand prices cannot stay at the levels they are at. let's get into next spring say late winter early next spring we could be looking at a market coming down $4, $5. >> in terms of the crop, in terms of when it can be receded and how quickly you can seed

that new crop again, what's the quickest sort of time frame that can happen in? >> well, as far as the u.s. goes, we won't see the next crop reseeded into next year. how many acres are growing seed corn have been damaged. where is the seed corn going to come from to replant these acres. we need more acres to rebuild crops. we'll have a south american crop coming in late february early march. brazil uses a lot of its crop. some will have to go into the export market. some will work into the export market offsetting some losses from the u.s.. >> we're seeing all of this in food prices but of course maybe mr. bloomberg is helping us by all that -- if you can buy more than a 16 ounce big gulp all that corn syrup. thank you for joining us this morning. appreciate it very much. >> thank you.

>> if you have comments or questions about anything you see here on "squawk," e-mail us at squawkbox@cnbc.com. >> tomorrow on "squawk box" earnings from general electric and xerox. plus the ceo of uber. it's generating a lot of buzz from some high-profile users. don't miss "squawk box" starting tomorrow at 6:00 a.m. eastern. 

welcome back, everybody.

u.s. equity futures at this hour are improving. dow futures up by 75 points. again this comes after some big gains yesterday. if they close higher three days in a row and a different trend than the last couple of weeks. a number of earns hitting the tape. take a quick look at a few of them. quest diagnostics reporting revenue. >> now the matters. scott, what did we decide on you could man? -- cow man. scott joins us from the cme. >> we're idiots. >> every time he comes on it takes a couple of minutes to assimilate to that jacket. i was reading something in the

"new york times" or the "usa today," did you see this, scott, that horse meat is full of protein and has very low-fat? >> oh, no. no. >> wonderful, beautiful animals that we love so much. that's like eating one of my dogs. that makes me feel like a cannibal eating a horse. >> we had a rule on our farm you can't eat anything you name. >> that's a good idea. unless you are really fond of chickens but then there's a rob. we had a guy talking about corn, scott. he said it trickles down into everything. i guess that's true. what your laughing at? >> our good friend willie geist wrote me a note what's the dude wearing on your show right now? he doesn't have volume. >> knowing willie geist do you have a place where he can buy that jacket. he may want that. anyway, don't give us your secret. what about it? what about my corn question. does it go into everything?

>> like the wonder drug. something that we use in a lot of things you wouldn't think of. in the short term like your prefer guest said you could see 3% to 5% price rises. interesting fact is also while these products rally and corn wheat and beans it gets more and more expensive to feed those cattle and you're seeing cattle today being rushed to market because we can't feed them. cattle prices or beef have gotten cheaper and long term six months down the road we're forecasting a tightness. so that's had an opposite effect in the poultry and cattle and pig market. it's really affecting everything and doesn't look to be abating but we need some help from south america and obviously something people forget about the ag markets we plant this stuff every year. it's not like a fixed income product. we put stuff in the ground and hopefully get rid of the problem next year. >> so much to think about. because it cost sos much -- because it costs so much people bring things to market quick

sorry there's a little bit of a glut now so prices are lower now. >> for beef and hog markets, yes. also because it's so hot there's less people barbecuing outside. the meat market has been taking it on the chin. >> all right. you want to comment on s&ps or any other markets, interest rate futures, scott? >> some interesting things i see now. we got these ten year yields around 1.5% level. we dipped down to 1.44, 1.45. we can't continue at this pace of having these ten year rates so low and having stocks rally. something has got to give. we either need to see the ten year rise or stocks sell off. we're in this malaise as we gets stocks higher this bernanke qe question abaits. when stocks go lower we talk

about it a lot more. we kind of keep bracketing the stock market with this qe talk and we're not going anywhere. i don't think we'll go anywhere soon for the next say four to six weeks. if i have to bet i think ultimately we have a correction on stocks and keep those ten year yields around 4.5%. >> we ran out of time. we appreciate it. see you later. is he admitting to now watching the real "morning joe" or did he just happen to see on our monitor? >> i don't know. i imagine he saw on the monitor. >> he got a big new contract i think not too long ago. he may have disposable income. he may need to learn how to invest his money at this point. he could be watching to try, for us to deliver him some alpha. >> you know what we should do since he doesn't have the volume on. >> we should hold up high, willie. >> hi willie.

see if he sees that. >> it's hard to see. ? >> if you don't know who we're talking about don't check any other channels. maybe he found a real "morning joe". >> shares of auto nation trading at an all time high. today's earnings report send the company into over drive? we'll ask the ceo mike jackson. that's coming up next. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.

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welcome back, everybody. the nation's largest auto retailer autonation earning 66 cents, seven cents better than expected. the chairman mike jackson joins us from ft. lauderdale. how are you? >> i couldn't be better. while the u.s. economy may be wheezing like a clunker i'm happy to say we're racing along like one of joe's porsche 911s. the 66 cents is an all-time record for us, best quarter ever, a 35% improvement over the prior year driven by a strong increase in revenue of 17% and as you said, a seven-cent beat on estimate, and the drivers of that performance on the beat is in new vehicles. we significantly outperformed the market. the market was up 15% for our

units we were up 29%. in our customer care business, we were also up a solid 5%. so we've hit the trough for units in operations from the collapse of new vehicle sales in the past several years. so the headwinds are turning and now over the next few years we'll support that business, and our cost and expenses we had significant improvement in leverage, while we had a 17% increase in revenue, our employment only increased by 2%. so sg&a as a percent of gross profit dropped below 70%. >> in terms of new sales you have units up 29% versus up 15% for the rest of the industry. is that because you're focused in places like florida and california, is there a turn coming faster there? >> i would say the primary reason for that is that we have a heavy japanese waitineighting

of our sales is japanese sales. last year there was a tightening in supplies. we had the outperformance with the japanese with the supplies being restored. also the geographic footprint looks good for us. we now see the housing market in california and florida, arizona significantly improving so we've, turning against those headwinds, so like in california we were up 44%. >> wow. >> but we also in those markets, if we benchmarked just against our brands and our geographic footprint, we still had a significant gain in share within our markets, with our brands. so we're hitting on all 12 cylinders. >> mike, if you had to give us an idea of what the economy looks like, at least in the states where you're prominent, what could you tell us at this point? we've heard a lot of talk about how the economy is slowing down. your numbers certainly don't look like that. >> i think we're a bright spot

in an overall very difficult and painful economic environment. no question, the economy is struggling. the employment situation is extremely difficult, and there's a lot of pain out there, and let's face it, where there's a lot of uncertainty, what's going to happen around the election and around the fiscal cliff, so we still have difficult times to go through. but the fundamental drivers for automotive are very strong. there is a genuine dramatic replacement need, average age is up to 11 years. people either have to spend a lot of money fixing the car they have or use that money to make a downpayment on a new car, and then when they look at the new vehicle market we have great, new products and the financing in automotive is fully restored and better than ever, still all ration rational, no unsustainable behavior but we have great financing available. >> mike, we have ten seconds. >> finally, gasoline prices are

mitigated. >> ten seconds left but retail sales showed nowhere near these types of gains for automotives and steve liesman was here the other day wondering if that's because it's a timing issue. is that what you think that we'll see retail sales pick up next time around from auto sales that were just off on the timing calendar? >> that is total automotive sales including service and parts and the entire industry, and it's a sequential number, not a year over year number. so the numbers i'm giving you are year over year. >> okay, mike, thank you so much. congratulations on the earnings. >> on his wedding i thought you were going to say. >> and your wedding, that's great! >> thank you very much. >> and on autonation, being at a new high. can you say prenup. just kidding. congratulations, mike. >> congratulations, mike. >> thank you very much. >> he couldn't get off fast enough. coming up, quarterly reports from stanley and verizon.

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building businesses and leveraging yields. >> there are vast pools of liquidity in the economy and in the world that are desperate to commit capital but don't know how to do it. >> starwood capital chairman ceo shares the light on where the money is right now. meet one of julian robertson's original tiger cubs in a rare television interview. plus southwest reports its second quarter earnings. we'll break down the numbers and discuss the state of the nation with ceo gary kelly. ♪ i want to fly like an eagle to the sea ♪ ♪ fly like an eagle, let my

spirit carry me ♪ ♪ i want to fly like an eagle 'til i'm free ♪ >> good morning, everybody, welcome back to "squawk box" on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. the futures are up by about 75 points yesterday, american express and ibm beating with earnings reports, ibm $3.51 for the second quarter nine cents above expectations answer raised its full year outlook, american express $1.15 a share six cents above the estimate. nokia in loss with analysts estimates. it says the current quarter will be challenging because of product transitions. central bankers from around the world will hold talks in september to try to determine if the setting of the benchmark

libor rate can be reformed or if it should just be scrapped all together, this comes as the libor setting scandal which resulted in the dismissal of top management at barclays continues, and travelers number came in at $1.26, expectations for $1.pa but joe the revenue better than expected? >> $6.6 billion versus a $5.9 estimate. many times in the past with travelers it's better instead of trying to rush it on and get it first, better to get it right. we've heard from the company different times. there's, it's difficult enough to understand the property casualty business and you have so many different things in terms of catastrophic losses in the period. >> catastrophic losses were much lower in this period versus a year earlier. losses for the current quarter were $357 million aftertax

versus over $1 billion a year ago. >> i don't see a bid and an ask. i don't know if that's where it's trading, that might have been yesterday's numbers. >> the chairman and c, oh jay fishman should come on and tell us. he talks about how second quarter net income was helped by meaningful improvement in our underlying underwriting margins so they were able to charge more for the insurance they were writing and strong net investment income so market seem to have worked well, and he said earnings were also impacted by weather-related losses that while they were much lower in the prior year quarter were qushl considerably higher than expected based on historical experience. they said they're pleased with pricing trends across the business, key for catastrophic insurance as well. >> okay, good. >> that's earnings central for now. we should also mention southwest beating a 36 cents over 33 but we'll talk to ceo gary kelly in

a moment. in the meantime what we are calling a meeting of the minds, at our delivering alpha conference two former treasury secretaries came together to talk about the issues facing the nation. steve liesman was moderator. >> i wish we could have brought the whole thing. >> there was a storm. >> we're three fly fishermen inside and get affected by the storms. >> we did not realize that. >> that was the only thing you were thinking about. >> i'm not sure i realize it now but anyway, go on. i can't believe that it did -- >> it took us off the air. >> all delivering of alpha was briefly shut down. >> it was delivering omega. did you like that joke? >> no. >> it was a rare dual sitdown issuing a strong warning about the fiscal cliff, they say it should be avoided and saying it could be worse than the financial crisis, another rare

moment about this thing, ruben commented, i asked him about whether or not the fed pressing down treasury yields was enabling the government to spend which is a republican criticism listen. >> it's an interesting question whether qe2 was a constructive influence because it did help keep yields down, if it did, i'm not so sure it did that much or whether it simply extended a period and, a period in which the politician were not subject to as much pressure and a qe3 at least in my opinion would be unlikely to have much economic effect because rates are already so low and because they're not rates that are the problem or the deterrent to investment, whole powerful set of other factors was pushing a wet noodle. >> what are the main reasons you believe this economy has not popped and give a classic sort of post-recessionary expansion? >> first, the de-leveraging is still going on. you know, we had the bubble, it popped.

we had the great recession, it takes time. that's one reason. second, there clearly is uncertainty around the government's ability and willingness to act with a fiscal issue. thirdly, and this is something i focused on in quite a bit recently, i think there's, those are one of those is cyclic, the other is the government issue, there's a longer term secular decline, it's a structural issue in u.s. competitiveness, and i define competitiveness this way. can u.s. companies successfully compete with those around the world and the united states have a rising standard of living? to me that's what competitiveness is. if you're just cutting, that's not competitive patience. if i'm right, then the economy isn't going to get to where we want to just by waiting. it's going to take some policy actions to address the competitiveness issue. >> bob, i want to ask you to pick up on that, because when

hank talks about a competitive issue, the question becomes does america, do americans have to think about a lower standard of living? >> i think we need to meet three great challenges if we're going to realize that potential and i say this recognizing the transformation of the global economy. even in that context we could do very well but i think we have to have a sound fiscal regime, for all kinds of reasons, secondly, i think we must have greatly increased public investment in education, infrastructure and the like, and that's got to be included in creating a budget that gives us a sound fiscal regime and thirdly we need to have reform in areas like immigration, health care, education, and many other areas. >> and we're going to have more of this conversation throughout the day including what these guys think about europe as well as i asked him about the changes to the financial services industry and what's happened to their former company, goldman sachs. and did you guys notice both treasury secretaries and geithner they always say there's three things, and there's two things and there's four things.

that's the way these guys think and it was a fascinating thing to watch how they've sort of parsed out the problems out there and how to attack them. they do have some solutions -- >> they're thinking. >> it's clear thinking. they do have solutions but i don't know that they have solutions to get beyond the political problems that are out there. >> i want to know what they have to say about europe. are you coming back here to more of that? >> i don't know, i think jobless claims at :30 and other shoes. >> maybe we can slip it in. i'm interested in that. you go the to tell us what it was. >> i will. >> thanks, steve. he built his business from the ground up, now manages a $20 billion in asset, employs more than 30,000 people directly in affiliated businesses our next guest barry sternlick, founder and chairman and ceo of starwood capital group, brought us some of the most chichi brands where

the velvet rope at the bar has to be really thick. doesn't it? >> really thick. >> let's start with some comments i saw you make, the one about commercial real estate because we always heard the other shoe was going to drop but i don't remember it dropping that hard but it's bad right now in your view, commercial real estate. >> no, not at all. commercial real estate is pretty good. >> how bad is commercial real estate, it's bad. >> how old is that comment in. >> i don't know. that's -- >> let's talk about the world, step back for a second. commercial real estate is a yield vehicle. it produces yield and the ten-year is 1.5 and the five-year less than 60 basis points so the property markets are being supported by two things, fear, because it's a stable income stream and the lack of yield in the world and people are looking for an alternative to buying high yield bonds or treasuries, they have enough, the chinese have enough treasuries so they're buying properties. you see a huge institutional interest in the property markets

and it's healthy. there's less demand growth. there's not a lot of job creation. there's not a lot of absorption of office space but you saw the housing numbers yesterday, there are sectors of the economy doing pretty well, housing and multifamily in particular, rents are rising across the country as people don't buy houses. >> did you just do this? >> a year and a half ago. >> a contractor developed a 200-room hotel and 160-unit condominium complex across the east river, when did that happen? >> three weeks ago. >> so it's not two years ago then. >> it's a good thing we're building in the four -- >> i'm saying so the notes could be two years. did you change your opinions, markets are stuffed, banks don't have a hit yet. >> i think we were talking about europe. >> really? >> that's complete ply out of context. >> if interest rates rise the banks will take a hit. >> basically the u.s. and europe but a lot of people extended their loans in the real estate

markets on libor and libor is zero and even if you were a bad underwriter you can cover 1% as a cost of debt but you can't refinance at 1%. the markets in the u.s. are relatively solid and healthy at the moment, across almost all the asset classes. there's not a lot of new construction. you can still by replacement costs, there are inadvertent holders of real estate. europe is a different story. the u.s. again, there's not so much new construction, there's not a lot of demand creation and there's not a lot of new growth. you heard the banks are going to cut more jobs, using the office space and when you get to europe there can be tremendous demand reconstruction. >> i didn't want to hit with you politics right away but now i'm worried about this, did you or did you not say obama is a fabulous speaker but you into ed to listen to what he says closely. >> i probably said that. >> what did you mean by listen

to, what is he saying you need to listen closely to? did you build your business or did the government build your business? >> i did, my team built the business. >> did you use the internet and al gore and therefore the government helped you? >> i was ceo of starwood hotels for ten years, we started with three people and when i left 120,000 people in 80 countries. starwood hotels is building five hotels in the area of new york city. i was thinking about what obama says and it's about leadership, all about leadership. when you're a ceo of a company, i was urging my people to do better do great things and then i realized after ten years they didn't understand that everybody was about their relative experience. if you were a double tree guy excellence was by double tree standards. westin, by westin standards. we needed to define excellence and i had to show them how to define excellence which was benchmarking against best of

class. the u.s. needs to define excellence. we know what we need to do, fix our education system and we spend more and get worse results. our health care system, nobody's upset about having 28 million people on the insurance payrolls that didn't have insurance before but we spend more than other countries and get worse results. obama the leader, the ceo, should be benchmarking health care costs against countries that have better results for half the cost because our health care costs of 17% of gdp, a huge tax on the u.s. economy. >> it's going to be 22%. >> this bill will make it grow faster because we did not do anything on the cost side. we all admire, i think obama's been, is a wonderful person. i think he means well but i don't think he understands business. he doesn't understand how to create jobs in the economy. my brother is a doctor. he doesn't know how to do business well. he's a brilliant man. obama is a brilliant organizer. you need a ceo to cut costs,

rationalize the infrastructure of the country and i would personally be willing to pay higher taxes once i knew they streamlined the defense department. nothing can have a $1.5 trillion budget and not have room to be adjusted. >> health care is number one, defense is number two and if you look at our defense budget it is 50% higher than the next 15 countries. >> look at what is happening in the world, anybody coming after us in the scale russia was? we had the smallest of the three majors, marriott, starwood and hilton and we rifle shot our scarce resources into places we get return on capital and the u.s. cannot afford to do what we used to do. we have to be realistic. this is common sense. i was in new york city last night, i stayed in the city to come out here. you can't get a hotel room but also can't get a visa to get into the country. >> you got a hotel room. >> i got one at my nice hotel rooms, they were nice to me and stuck me in a closet. you can't get a visa.

people want to come here. we're losing market share in travel and travel say great business because the average american who doesn't have the skill set he probably needs to work at yahoo! and google he can work in a hotel. we can hire these people. the good news for the economy is either president is going to benefit from the jobs recovery of the housing market and they'll both take credit for it but it's happening regardless of who the politicians are. >> the housing market, you're seeing it. >> we own a home builder in california and it's real. >> are you a single family guy, too? everybody wants single family. everybody, why? >> because the world of interest rates where they are, the downside is modest, the upside is unknown. >> it's hard to manage them i guess. >> it's impossible to manage. you're talking about buying single family homes and foreclosures and things, you'll get better than treasury returns, what you will make ultimately will depend on how much confidence people have in the housing market which again goes to leadership and then again how long your holding

period is. the overall returns are not obvious. >> did jay fishman say anything to you? >> he said that's perfect, we got it. >> he's watching. >> he is watching. >> travelers' ceo said the weather losses are greater than expected so the number's below what wall street is looking for. are you looking at morgan stanley? >> looks like 28 cents a share, although there's a weird typo in the stop of ttop of the press r. 28 cents versus the 43. does that match up in the control room? >> continuing ops was 28 cents but that doesn't seem to jive with the 43-cent number, right? >> it says, but it's earnings per share calculation for the prior second quarter included a negative -- >> that's the prior second quarter. you don't need to look at that. 28, we just got to see whether

it's from continuing ops. did they sell anything? what were they doing with their brokers? >> they had the deal -- >> i've got a 29 cents a share for another one for, that's including discontinued operations. >> the shares are down 3%, so maybe it is, you know, it wouldn't be -- >> below on some measure. >> maybe it's $1.28 and maybe it is, you know, below the 43 cent estimate. 7.7 billion in revenue was above the 7.6 that we're looking at here. compensation expense, 3.6 billion. >> on morgan there's always two numbers. >> for compensation? >> because there's the broad number which includes the brokers and then the investment banking number which is, historically has sometimes been

separated out. when you include everybody the overall number looks lower. >> right, because of the numbers. >> we'll continue to keep an eye on it. it's been trading lower as we first get the numbers and we'll have more with our conversation with barry sternlicht in a moment. >> shoot us an e-mail or follow us on twitter, @squawkcnbc is the handle. the ceo of southwest will join to us discuss industry trends and the state of business when we return.

we're back this morning. southwest airlines reporting just about 15 minutes ago an adjusted 36 cents a share, they're beating analyst expectations this morning. the company completed its purchase of airtran and despite a fragile economy gave an upbeat outlook for the remainder of the year. garry kelly is southwest airlines chairman, president and ceo. >> good morning. >> you did beat, we have another gentleman here, barry sternlicht, in the travel business sort of. just give us a gauge broadly speaking for a moment in terms of how you're thinking about the consumer in the travel business. >> well, the second quarter results i think pretty much speak for themselves and it was

an all-time quarterly record for us, and fuel prices were pretty flat year over year and demand was very strong, record revenues, unit revenues up 6% which was a better pace of growth than what we had in the first quarter although it was good as well at just over about 4.6%. the outlook for the third quarter is pretty strong. it doesn't appear to me that we'll strengthen our growth rate from what we saw in the second quarter but we had strong business travel in the second quarter and the fourth of july timing is always a little strange for us when it's in the middle of the week so we didn't really have a super strong fourth but july is a peak month and we're having a good july and hopefully we'll have a strong third quarter. >> is it coming from business or individuals? i mean, you're obviously a

discount airline but still a lot of businesses using it. >> well, we're the largest domestic carrier, though, so we combined with airtran carry over 25% of customers in america, so our business mix is roughly 35%, which really puts us probably in the lead for carrying the most business travelers. in the summertime clearly there's a lot of demand for leisure travel. that demand is holding up very nicely. we're watching the economy and fuel prices very carefully and especially once school starts up again in mid-august, we're always mindful of that, but again the bookings right now look solid and i'm expecting we'll have another good quarter here in the third quarter. >> gary, it's barry sternlicht. are any regions of the country better than others, are you seeing pockets of strength that are better than the rest of the country in. >> i don't see any remarkable differences.

you go back to the recession and clearly we saw weakness out west and california and florida, as a couple of examples, and all of those have rebounded very nicely. really across the board, we saw real strong performances and especially in our large cities like baltimore, chicago, texas looks good, california looks pretty good, so las vegas looks good, so really across the country we had real strong performance. >> gary, let's talk about consolidation in the industry. obviously american air in bankruptcy, big questions about whether they're going to merge with u.s. air. your company's name has been floated out there, still in the mix, almost finished now i imagine integrating airtran. what do you think is going to happen? >> well, we've got a lot of work to do at southwest, so it's nothing that we've commented on with respect to any interest we might have. we're very busy with integrating airtran and that will take

several more years. we're really pushing our new frequent flyer program and spending a lot of time with that, bringing in new aircraft type so we're very, very busy. in any event we're expecting that our competitors will simply grow stronger, and just listening to your earlier conversation, we need to be sure that we bring competitive advantages to the marketplace so that we can win customers every single day, so we're preparing ourselves for a stronger american airlines no matter what form they may take. >> gary kelly, thank you for joining us this morning. appreciate it very much. >> thank you. >> you bet. >> we want to talk more about morgan stanley, looking at the numbers, just some clarifications on this. the xdva the number the company gives is 16 cents, comparing with the consensus of analysts looking for 24 cents on xdva. it's a miss no matter which number you look at. it's 16 versus the 24. >> slack trading environment,

trading slump, trading weakness. that's the analysis. >> how much action do you think there might be from facebook in their numbers? >> that's interesting. i don't know. i don't know how that comes out. >> it wasn't the highlight film of the quarter. >> revenue down to $976 million from $1.2 billion, asset management fee revenues of 1.9, a slight increase over 1.8. there are a lot of numbers. >> if they took a facebook number hit they'd be -- >> there's no volume and no volatility and no interest. >> you said it, there's no business, no business right now. >> and investment banking -- >> they don't get paid for etf trading the way they do for stock trading, the way the market is shifting, it's hard for the retail business. the retail brokers used to have other products to sell. >> it's funny, james gorman spent the past couple of months trying to beat back the ratings agencies, people worried about the business, he sort of won the battle but --

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♪ ♪ now the answer to today's aflac trivia question. what was the first rap album to hit number one on the billboard top list? the answer? "licensed to ill," by the beastie boyz. >> aflac! >> welcome back to "squawk box" this morning. in the headlines that we're about an hour away from the latest on jobless claims. economists think first time claims for unemployment benefits rose to 165,000, compared to

355,000 and 10:00 a.m. june existing home sales, the fed survey and economists expect improvements in home sales and the philly fed and increase in the lending index. >> verizon earnings out as well. right in line with expectations. >> revenue 28.6 and the estimate 28.55, see i can do this. >> ceo lowell mcadams says the company remains on track to meet financial objectives and produce solid double-digit earnings growth for the end of the year. >> you have to look at fios ads and churn and the stock is down. >> is this an outlook issue? >> talk about cash flow first of all, free cash flow is one thing people look at, 7.87 for the first half. >> ebitda, all that. >> wireless services grew 7.3%. >> 140,000 new fios internet connections it says, 134 net new

adds. >> good for bad? >> i don't know, you need to be an analyst to know. >> they have 5.1 million internet fios and 4.5 million fios tv customers, accounts for 65% of all consumer wire line revenue, interesting, up 2.5 p2 for the quarter. >> wireless churn, 4.8% and there are people that know whether these things are good or bad but at this point it's tough to say. looks like the stock will be down a little bit on the open. it is a 4.3% yielder, that's all i know about it, but people have pointed out if something really bad were to happen on a $45 stock that 4.3% yield does not protect you if the stock -- i don't see why people just don't buy all of these, pfizer and verizon and at&t and ge. >> merck. >> instead of a ten-year, any of

the yielders, and they are, but it works until the stock market goes down 10% and then you're down. >> until they raise the taxes on dividend income. >> you have really gone off the edge there, haven't you? >> i'm overwhelmed. >> you are, aren't you? your brain is like -- do you have a devil and angel? are they arguing right now? shut, shut up! no, i have to say it. be quiet. >> if we pile on $1 trillion of debt a year you won't have a social agenda. you cannot have an income statement without a good balance sheet and the world will wait for us. if we have a viable ten-year plan the world will say i understand how you're going to turn around this. there are so many good things in this country and the economy but they've lost all common sense at the moment in washington on both parties i'd say actually, right? >> with your strong social responsibility and the thing that you feel, has your faith in

capitalism or the way we do things, does that waiver? it can co-exist in. >> it hasn't eroded an ounce. i think people misunderstand capitalism. capitalism needs to be regulated. >> you don't need crony capitalism. >> it needs borders like a child. you give your kid borders and try to keep them from going off the road. this economy with what wall street was doing lost its edge, and the sec, the housing administration, the banks, people lost the edge. capitalism works. the pursuit of building businesses and creating jobs and ingenuity and innovation works. it's the best system but we let the guardrails go. >> what happened in europe? i'm told that yesterday you were pretty negative as you were delivering some alpha. >> so i saw yesterday that i've been going to europe for a long time, we have an office in london and office in paris and we've invested all over pan europe, and i thought for a long time that europe had to work, and that's been the general conclusion that the euro would

survive, they'd muddle through it and i'm beginning to think that is really impossible. i was recentry with a ceo of a major bank over there, and he's a german bank and he said look, we just want everyone to play fair, want the greeks to retire when we retire, want the greeks and spanish to work as many hours as we work and the pension reforms the same. if they do that, we'll be there for them and support them but we're not going to do this if we don't agree on the rules of engagement. my dad is european and these people were at war 55, 60 years ago. they've historically not loved each other. this is a small chapter of togetherness in a long history of being apart and in a way i think they shot a lot of ammo to save greece. they should have let greece probably go, with all the devastation it would have dawned on the rest of the southern european economies that they better organize themselves if they want to survive. the euro is a great idea. it was about ending a war and bringing these people together but in fact, i think you could wind up seeing it go the other

way. i don't know how politicians do this in this economy, how they hold this thing together long-term. >> so you think the thing falls apart? >> i'm beginning to think that is the most likely outcome and that's a 360 for me, because the -- >> 180. >> sorry. the chinese want it to work, the russians want it to work. >> is that a 12-month or 18-month. >> it's a four, five-year outlook kind of thing. >> the whole thing or some of it stays together? >> you can see the dividing line. i think france, germany and the northern country stay together. i don't know. i'm hopeful. the mess in spain is gigantic. we were talking about the real estate markets. those banks are like our banks but they're fundamentally worse. they're bigger, they have no deposit base so they rely on the wholesale lending base to boom. here with t.a.r.p. our banks can borrow at zero or lend and buy anything and earn the spread and

recapitalize over time. there they're borrowing at 3%, 4%, 5%, whatever they're implying their cost of funds are and they're not able to recapitalize over time. it's not getting better over time. >> my question was let's say we fix a few of the things that are happening near term here. what does the spanish and italian and greek, what do their economies look like in four or five years versus the northern economies of germany and france? will they be any better at that point if they'll have the same currency and same interest rates, will they ever have the balance sheet and fiscal -- they're never going to be able to be part of that. >> if you look at the u.s. and the trajectory on, we're headed towards that, where entitlements are drowning the productive workers of today and it's not sustainable. you look in the world there are two places that are doing really well right now, and they're models for the global economy, one is a miraculous turnaround, which is ireland, it is actually coming back. the other one is the state of

texas. now what do they have in common, low taxes, ingenuity, people moving there, jobs being created in ireland, innovation and investment in those economies, and they're working, right? >> even germany during reunification had to put in all these really hard reforms to the euro model, the entitlement state model and germany is where, supposedly east germany is cranking over their factories and new facilities and infrastructu infrastructure. >> they see the rewards from the work. >> you mean earned success? >> and they're working and they are enjoying their success as a nation, earning what 6%, 5.5% unemployment, but germany's winning at the expense of other people, they set the rates wrong. just like they did to eastern europe when they merged in, they set the rate wrong and put eastern europe on its back. >> let's take another quick look at verizon, numbers came in at 64 cents in line, i've been able to find consensus numbers for some of the other metrics we

look at. retail post paid the churn was only 0.84%, the lowest in four years, better than expected at 0.9% but if you look at the fios internet additions it was only 14,000 versus 180,000 that the street was looking for. >> really? >> fios tv only 120,000 versus 169,000 that the street was looking for and that could explain some of the weakness. >> how would you know this? look at street account to have all of this. >> dig through those things. the fios numbers are incredibly important because the network spent so much, the company spent so much on the network drawing in new customers is key. >> you'll have a guest on in a second going to talk about mobile data and stuff and that's a big part of their business, their internet and it will be interesting to hear the comments on that. >> you are still a fios person. >> i am, and have been for a long time. >> the internet -- >> a true comcast man. >> i can't get it. >> i feel sorry for you. >> where is that new jersey? >> northern new jersey in braden

county they're not there. if you have any comments or questions about anything you see here on "squawk" -- >> you and your schools, i need xfinity. >> e-mail us at squawk@cnbc.com and follow us on twitte twitter @squawkcnbc is our handle. we'll preview tonight's earnings and tell you what you need to know ahead of the numbers. "squawk" will be back in two minutes. of grey duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. that bringing you better technology helps make you a better investor. with our revolutionary e-trade 360 dashboard you see exactly where your money is and what it's doing live. our e-trade pro platform offers powerful functionality

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welcome back, everybody. is he an original tiger cub for julian robertson. he ventured out on his own and started a $6 billion hedge fund heavily invested in tech investments the fund is up 20% year-to-date. joining us is felipe lefont, founder for cotou management. thank you for joining us. >> thanks for being here. >> you're not only a tiger cub you're barry's tennis partner, is this correct? >> among other things. larry tells me he wants to do it on the tennis court not successfully. >> you tell us what you want to do when it comes to technology

investing. you have big belief in some of the big names out there. you think tech is going to continue to do very well. why is that? there are a lot of people worried with some of the pc slowdowns and with intel. >> yes, i think the slowdown and turmoil has to do with the shift away from the pc toward the smartphone and tablets. one, the stocks are really cheap and to barry's point or joe saying earlier this morning, why don't you own more stocks when bonds yield so little there's a lot of that going on in tech where you can buy great tech names for ten times earnings or less but the secular trends in tech is also the second part that makes those stocks different and interesting and why they might be able to do well even in a tough macro environment, if people buy a lot more smartphones and tablets that might happen even in a difficult economy. >> you like apple, aczom, google, some of your business. >> some of them, yes. i can talk about apple quickly, that's an incredible name and

some of the best stocks are the most obvious. it's run a lot and a large company but say there's 2 billion cell phones, apple is selling 150 million smartphones they could easily triple or quadruple that number. >> you see pretty good earnings out in the future. >> we think earnings can get to maybe $200 per share in five years out, the stock could trade for the cash level or one or two times earnings plus cash. the valuation -- >> what kind of stock price does that imploo i? >> a trillion-dollar company it will be? >> 500 to 600. >> i'm feeling pressure, iphone pressure, people laugh at me with my blackberry and i figure i'm not alone in terms of feeling it. >> me, too, we're waiting for iphone 5. >> is that what we're doing? >> everybody gets used to that keyboard. do it on vacation when you just have a couple weeks off. there you go in europe. >> couple of weeks? >> a week, a few days? >> i'm going there tomorrow in fact.

are you from paris? >> i am. >> i need to talk to you before you leave. >> do we do that now? >> no, no, no, no. in a minute, when we go to break. finish with this. so there's never been a trillion-dollar company. you're telling me apple will be a trillion-dollar market account. >> maybe that's the opportunity that everybody looks at the stock and says wait, it can't get to a trillion but what if it gets to a trillion or trillion and a half and when they buy shares back you can counter the size of your market cap by buying shares back so our hope is that the company will buy a lot of stock back without the market gap expanding. >> like ibm is doing. >> exactly. >> jim chanos was delivering alpha ed why and one of his big ideas was to short hp. >> yes. >> he says that this is a company with effectively no future. he was very down on the company. >> talk about value tech, that leads you into that value tech concept. >> well, i mean the question is is hp the next eastman kodak,

the company that has the technology that five years out is no longer relevant and you look at pcs and printers their two main, but if you have the tablet why do you need the clunky pc and why do you need to print? the businesses have secular headwinds and in technology i know for himself i'm 0 for 5 in restructurings over ten years so i think value investing is very difficult in technology. >> what do you think, chanos is right? >> i think he's most of the time right, yes. >> what about one of the great names of the summer, facebook? >> facebook is a bit controversial. i think it's a great company, but if you look at it, facebook was built at a time where only, when smartphones were not around. it's a company that is sort of a pc-based company is the whole big screen, all the advertising around the big screen and now all the social networking, it's a casual encounter, and so cell phone is much better for that, and i think the instagram

acquisition facebook did is smart and also a sign of weakness. i don't think it's going to be so easy for facebook. >> philippe, the other tech companies could have a strategy like ibm but i don't see it listed in your top holdings. >> it's not. basically in tech you have the s curve and growth market and after a while the market tapers. what ibm has done, it said listen we don't have that much growth but a 3% division yield and 10% buyback. every year you count on a 13% return. when the bonds are yielding one that's good. contrast that with google with maturing businesses that is making a lot of acquisition and seeking the next growth market, investors are a little bit more worried about google's strategy than ibm's and that's why you're looking at the stock performance where ibm's doubled in five years and google is down 30% over the last five years. >> we have to go. can i get you ten seconds on yahoo! with marissa mayer taking over? >> unbelievably cool from the

board and all of the new elements of the board have really paid off. time will tell if she can turn the business around. >> philippe thank you. >> thank you. coming up, much more from barry sternlicht and wrap up all the earnings news in the last hour. tomorrow on "squawk box" earnings from general electric and xerox, plus the ceo of uber, the smartphone app that lets you order and pay for private car service while you're on the go. it's generating a lot of buzz from some high profile users. don't miss "squawk box," starting tomorrow at 6:00 a.m. eastern. ♪ i'm making my money do more. ♪ i'm consolidating my assets. i'm not paying hidden fees or high commissions. i'm making the most of my money. and seven-dollar trades are just the start. i'm with scottrade. i'm with scottrade. i'm with scottrade. and i'm loving every minute of it. [ rodger riney ] at scottrade, we give you commission-free etfs,

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coming up he was one of the traders who led the push by goldman into subprime mortgage bonds. now josh birnbaum will tell us about how to play the housing game in an exclusive interview. stick around. we'll be right back. up next on "squawk box" don't start your day without knowing the names that will make you money. joe has your list of stocks to watch, right after the break. i bought the car because of its efficiency. i bought the car because i could eliminate gas from my budget.

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take a look at, if you're wincing, it would be good if you hated this. >> you want me to wince? >> i want to you wince at the animals playing the horns. >> you know -- >> you kind of like it. >> i do like it.

>> i'm not -- i'm not going to channel carl on this. i enjoy this. >> you like it. i like it that you like it. >> is that better? if i didn't like it you'd probably -- >> i'm not sure -- i kind of think he really did like it, although he would -- he really didn't? >> no, he really didn't. he really doesn't i should say. >> who could i play to bother you, justin bieber? no, you like the bieb. >> i like the bieb, kelly whatever, who is -- >> i think he's wincing at neil young, not at the animals. >> look at a few of these earnings, united health care $1.27, eight cents above estimates aen raised full year forecast. nokia as we've been talking about, posted a second quarter loss in line with estimates but the second quarter is going to be challenging or next quarter will be challenging due to product transitions. ibm beat estimates aen raised guidance, moving sharply higher this morning, american express the dow component earned $1.15

for the second quarter, six cents above estimates, aen then finally, oh amex's bottom line being helped by extremely low qui delinquently. >> when we return an exclusive interview with josh birnbaum former goldman employee of the 2007 subprime controversy, now he's running his own hedge fund. we'll get his take on running the housing market, after this. . ...and listening to your instinct duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations, where our dedicated support teams help you know more

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he helped goldman sachs build a multibillion-dollar short position against the subprime market, and then he left to start his own hedge fund. josh birnbaum of tilden park capital management will join us in a rare, exclusive intervup. we'll talk home prices with the man who cofounded the ca case-schiller index. and the weekly jobless claims due at 8:30 eastern. the third hour of "squawk box" starts right now. ♪ i was born in a crossfire hurricane ♪ ♪ and i howled at the driving

rain ♪ welcome back to "squawk box" in cnbc, first in business worldwide, i'm joe kernen along with becky quick and andrew ross sorkin, our guest is barry sternlicht -- [ whistling ] chairman of starwood capital group. >> if i say joining us is barry sternlicht, so wait to do the you'll get it. u.s. equity futures, it's good to look human especially when we think of you almost as superhuman in a lot of ways. >> yeah. let's move on. >> equity futures after a positive day, seven out of nine bad ones? >> seven out of nine bad ones. >> yesterday was good, today looks good. lot of companies with numbers today. >> you bet. let's talk about a few of the major companies that came out with quarterly results this morning, morgan stanley is called lower, the company's earnings and revenue missing expectations, we talked about that a little earlier. xdva it was 16 versus the 24

that the street was looking for. travelers results also missing the mark, the company says weather related losses were greater than expected during the quarter, lesser than you had seen a year earlier. the one thing the ceo did say they're able to get good premium prices on the insurance they are writing. verizon earnings and revenue matching consensus. if you look at the bid/ask it's just below where that stock closed friday partially because of subscriber additions in verizon and fios and internet television coming in lower than expected. weekly jobless claims will be hitting the tape 8:30 eastern time. economists expect first time filings to rise, we got the surprise number last time number of 50,000. claims are expected to decline by 14,000 and on the economic calendar later this morning we have existing home sales, the

philly fed survey and leading indicators, coming at 10:00. he is now it says infamous. >> we'll go with famous. >> he's a famous goldman trader who made a big bet against the u.s. subprime mortgage market in 2007 hoping to bring in $4 million for the bank and $10 million for for himself. josh birnbaum cio of tilden park capital. we remember watching there were six of you i think, weren't there? >> four at a time or four on my panel and a couple other panels. >> and the guy leading it was senator levin as i recall. >> yes. >> and a lot of your answers were, you spoke your mind and maybe they weren't any longer or needed to be a lot of times and if the question was stupid you gave it an answer it deserved i think. >> was that the day levin was using four-letter words?

>> did he use the shihtzu word? he has a dog. number one your job if you're at goldman if you look at a situation and looks like you need to off-load risk it was incumbent upon to you do it. what did it cause to you say we are too long in subprime for any mortgage product? >> one of the premises we were looking at basically what has now been proven to be a false premise, home prices on a national basis would never go down the last time that happened was the great depression so even though you might have had certain areas that might have gone up and down in a given year, nationally home prices had never gone down since the depression, so we were looking at the overvaluation in housing and saying that may not be the case going forward, so that was the first part of it. the next part of it was saying

that there are areas of the financial areas that are going to be exposed to this, specifically the mortgage market. specifically mortgages not guaranteed by government, and we saw that many of these mortgages to the extent home prices wept down a little bit were very exposed, and then the third thing was just looking at how interconnected is the financial community to all of these non-government guaranteed mortgages globally and to the extent you started to see some weakness in these assets, you could actually have a self-fulfilling prophecy that would lead to a lot of weakness. i didn't predict that things would get as bad as they did, but certainly we saw things getting a lot worse than they were, when we started to put on these trades in late '06 and throughout 2007. >> as you were putting them on, and you knew at that time that there were still plenty of banks that were in the market for long product, and they wanted it. did it ever occur to you that it looked like it was a conflict of

interest in order to make that bet at the same time that they were satisfying clients on the other end that still wanted yield? >> they were still smaller in the mortgage space when it came to the origination of mortgages and also when it came to the origination of ceos. you had much bigger players like merrill lynch and citigroup and ubs that were engaging what i would call hail mary underwriting especially in 2007 when in my view the writing was essentially on the wall that you shouldn't be creating these things anymore, and you had what i would view as fairly poorly managed groups with senior management at many of these banks that didn't really understand the risks that were being taken, and you almost had renegade traders out there who, heads they win, tails we all lost. >> we should talk about using the same metrics that led you to make all that money, what you

think of the markets today, because i think it's very relevant for how investors make money, cnbc viewers. what do you think of the housing market today? >> i think there was a story in the "wall street journal" talking about how the housing market has basically turned and at the beginning of the year, there was a lot of debate whether or not we had bottomed in housing. i think at this point, it's fairly consensus that we've bottomed and the question is, what's going to happen next? are we going to meander along trading sideways or continue with some of the momentum we're seeing in some of the markets. some of the markets are ripping. >> what's a great market? where are you betting your money right now? >> from an investor standpoint, some of the markets that look pretty good won't surprise you, markets like phoenix, some of the west coast technology cities, like seattle, san francisco, san jose, those are attractive markets. >> but has that train already left the station? >> no. >> has that opportunity already passed? >> i don't think so. barry could tell you there's been a lot of competition from

investors coming into markets trying to buy low dollar priced homes and rent them out, that's been a very popular private equity strategy, but i think when you look at valuations from a long-term perspective, there's some very powerful demographics that we're about to experience. as long as interest rates can stay at these types of levels, there's some very powerful trends that i think will take hold. what's challenging for people right now is to reconcile the fact that we've got all this shadow inventory sitting out there so prices are ripping in some of these markets, las vegas has gone from something like 23,000 homes on the market about a year ago to less than 5,000 homes, so it's really dramatic. phoenix is down something like 40%, so investor markets are seeing a lot of demand, but people sit there and say, well, i know there's a lot of shadow inventory, there's homeowners upside down who can't sell their homes because of the foreclosure backlogs keeping homes off the market. we've analyzed that and we thought about what is the effect

of all the shadow inventory relative to the strong demographics of the echo boomers coming into the market. >> you do see this? sorry, josh, walgreens up $5 on that news, express scripts is also up, walgreens is up. the terms were not disclosed in the new pharmacy network agreement but it's a multiyear agreement that's been announced with walgreens. sorry, john. >> there had been a big question mark, cloud over what was going to happen. >> josh, you said one thing, that you think there's a lot of good things that could happen if interest rates stay at these levels. what happens if interest rates are to pick up let's say above 2%, above 3%, then what happens? >> yeah, i think you don't see that happen unless some of the things that are constraining our economy get loosened up. >> what about if we hit the fiscal cliff and at some point

the bond market says forget it, get your house in order? >> i think that's always a possibility, but the fed still is, it's not out of tools. we've got a meeting on the first, and i don't expect that we're going to get another announcement of qe at this meeting, but we're likely to get very decent probability we're going to get some other things potentially an extension of the language or some movement on the interest on excess reserves. >> i think a fiscal cliff is what calls us, we have to go out five years with zero interest rates because we'd be in recession. >> we'd take the economy down, that's the opposite impact, unless the foreign buyers of our debts are going strong. >> they may never want to buy it. >> they're really on the hook. they're really there and they'll have massive losses in their current holdings if they don't continue to play the game. one of the ways josh, i know josh pretty well, i think one of the ways for investors to play this, europe, we've mentioned that philippe was up about 20% in his fund europe with 17 the other day.

>> i love you're saying my returns because i don't think i'm allowed to say them. they said them for philippe so i'll say them and you don't have to confirm anything but you do a lot of that through the mortgage market, the residential mortgage-backed securities market and i think it's interesting for investors to understand the dynamics of why that's a safer way to play the market than buying the single family home, because there are certain assumptions embedded into your pricing of these bonds and if the market gets better, you should pick up this theme. let me explain how that works for the viewers maybe. >> the mortgage bond market has really overshot, so before the crisis, the mortgage bond market was overvalued and because many investors feel bitten from what happened in the crisis, you don't have the same kind of demand that you had before, and the market's essentially overshot and quite cheap. one of the ways we like to look at it is we look at the pool of remaining borrowers that back many of these securities and the first thing we say is, many of

the worst borrowers already defaulted. what you're left with a very different collateral pool than what we had going into the crisis. people who made money from the big short were essentially focused on the borrowers who have already left the pool and now you have an opportunity to go long, a much higher quality set of borrowers. more than even when you look at the lowest quality collateral like subprime, more than half of those borrowers are paying their mortgage and yet when you look at these bonds you can liquidate 80%, 85% of the pool at almost no recovery. you think about when the homes were sold, recoveries can be quite low depending upon the types of loans they are, but we assume a low recovery, 20, 25 cents on the dollar. there's plenty of room for upside relative to that, even with these types of assumptions we're getting double-digit yields on many of these bonds. >> the way the street is evolving, i mean with wall street not really competing with private capital anymore as basel

three conditions come in and this is not, some of the stuff is toxic waste, right, it doesn't fit under the cap regs, it's an interesting play for private capital, would you agree with that? >> regulation has been a net positive for private investors coming into this market, because the banks have really had to deleverage and sell a lot of the paper. >> josh, we have to go but what does that say about goldman sachs, former employer? i don't know what you're allowed to say, what you can or cannot say about goldman, future of the bank? >> goldman sachs is always going to be a premiere bank. >> even with everything that's happened? >> it's got a lot of pr challenges, but you know, it's still some of the best people out there. >> have they lost the client, the pr, that's the question. if you can't satisfy your clients, then you got a problem. i think you should play yourself in the movie. you've got the -- right? >> i call him "twilight." >> yes, look at you. >> i think that's a compliment.

>> it's robert patterson of the mortgage market. >> must be something wrong. i'll figure that out. we want him to come back. you're not even short, right? >> i'm average. >> thank you to josh birnbaum. coming up, avoiding the fiscal cliff, congressman chris van holland ranking member of the budget committee will join us next. in the next half hour he put the case in case-schiller home price index, chip case will join us later on in the show. & phels the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. that's a good thing, but it doesn't cover everything. only about 80% of your part b medical expenses. the rest is up to you. so consider an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company.

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if you don't want to do the tax savings where are you going to find the trillion-dollar in savings? do you think it would be better to come out of national security, out of defense or out of education or out of medicare benefits? would that be better for economic growth? no, and the growth impact of those changes is very modest. >> that was treasury secretary tim geithner on the sticking points to a fiscal agreement yesterday at cnbc's delivering alpha conference. the clock is ticking for politicians to come one a budget solution to avoid that fiscal cliff. automatic spending cuts and tax increases kick in at the end of the year. joining us is talk more about it

is congressman chris van holland, ranking member of the house budget committee. congressman, i know there are things that have come to a standstill, but can you tell us what's happening behind the scenes just in terms of trying to reach a real agreement? >> well, good morning, yes. everyone i think recognizes that the sequester at the end of the year would be bad for the economy. these are across the board cuts that automatically take place, it's a stupid way to deal with the budget so we need to come up with a replacement for that. the difference has been democrats are proposed dealing with that in the same balanced way the different bipart son groups have been like simps simpson-bowl simpson-bowles. we can do additional cuts but get revenue closing tax loopholes and other measures. republicans have refused to do that. with respect to the tax cuts that expire at the end of the year, the president has said the congress can deal with that right now, move forward with

extending tax relief to 98% of the american people, in fact as you know it's 100% since even people with higher incomes and million dollars get tax relief on the first 250,000. we can do that now, let's move forward with the portion we agree on and if you do those two things you would avoid the fiscal cliff but ultimately we're going to have to get to this issue of a balanced approach that's been proposed by the bipartisan commissions. >> right, probably most of the proposals i've heard that have been pushed by one party or another are not going to happen at this point. lot of people talk about the idea of extending the current situation for something like three or four months, hoping that you can get to the broader base and do something like a simpson-bowles type of agreement. is that what you think is the most likely scenario? >> well, if we can't get it done now and again that's the preference of many of us, you'd have to do something at the end of the year to create some kind of structure in which this could be dealt with, but in the near

term, at the end of the year, you'd have to find some way to replace the sequester for some period of time. the house democrats made a proposal to prevent the sequester from taking place for both the ten-year period and also a very specific plan for one year. again, the difference was we took a balanced approach, we got rid of a lot of the farm subsidies, but we also got rid of some of the subsidies for the oil and gas industries and concluded some revenue components. there are some republicans on the senate who are making some signs that they may be willing to consider some of that stuff but until we hear something definitive from our house republican colleagues, it's going to be very difficult. >> we had heard the idea and this was something that larry kudlow threw out to secretary geithner yesterday, this idea that if you wait for taxes to rise at the beginning of the year, you could then turn around and vote something to lower taxes so that you could say you weren't raising taxes. what do you think about that idea? >> well, that's a true

statement, but again, i want to make it clear that we prefer to act right now, immediately. that's why the president took the initiative in calling on the congress to extend the tax relief for 98% of the american people immediately. >> that is a non-starter, and everybody in washington knows that. >> but let's understand why. >> it's a non-starter because they did not want to go back and shake up where you're going to do, what they would like to see as tax reform across the board. >> it's the same old tired plan. they said no every time. it's more posturing congressman. you know that. why try to sell us to us? >> i'll tell you why, when you're doing something that's right on the policy it's not posturing. >> but people disagree with what's right on the policy. the other side, you knew they're going to say they're right. >> then we're going to have to take it to the election, aren't we and after the election as the question suggested, all the tax cuts expire, so it is true and accurate that starting january 1st, the president's proposal will indisputably be a tax cut

for the overwhelming majority of the american people. that will be a statement of fact, as it is now, but people don't want to come to grips with that reality now. >> congress set this up this way. i mean they basically set this election on a referendum on taxes in the united states. >> that's an interesting question, congressman. do you see this election as a referendum, because there's been a lot of other noise talked about. as far as you're concerned, whoever wins this election wins the right to come back and say our side is right and we have an absolute mandate? >> well, there's no doubt that whoever wins the election will say exactly that. my view of elections is that there's no doubt that the winner will have to put forward their initiatives and their proposals, but the reality is at the end of the day we're going to have to compromise to get something done. >> hold on, you just said that's going to be a referendum or not a referendum. that's the question, and once the election happens, does that mean we're going to have no more movement than we've had before?

>> no, the election will be a debate over the best way forward for this country, and people will put together different ideas as the president's doing, as mitt romney is doing. after that, we'll have to find a way to move forward. i guess i ask my republican colleagues sometimes if the president wins re-election, does that mean you're automatically going to support all the president's policies? their answer to me is no. because at the end of the day, regardless of how this all turns out, you're going to have to find a way to come to some common ground and agreement, and that's why the bipartisan frameworks, the bipartisan groups have provided a framework for how we go forward. >> congressman, thank you very much. we appreciate your time today. >> thank you. coming up, we're going to talk about the recovery in the housing sector with chip chase, co-founder of the case shiller home price index, when we return opinion i don't spend money on gasoline.

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. welcome back to "squawk box," everybody. shares of walgreens are jumping this morning, a long running dispute between the drugstore chain and pharmacy benefits manager express spripts have been resolved. the two struck a mule tie year pact. walgreens stopped serving express scripts customers when the two couldn't agree on the contract, it was up about $5.

>> and cvs is indicated $46.10 to $46.30 so cvs getting the short end of that stick. coming up, minutes away from the closely watched weekly jobless claims numbers and liesman is back, as we head to break with the moon cussers tonight is the night. >> tonight's the night. >> what are we listening to? >> take a listen. no, take a look at u.s. equity futures ahead of the jobs data.

inial jobless claims, let's get to rick. rick? >> jobless claims moved up to 386,000 from an upwardly revised 350 to then add what 34,000 on top of that. i'll tell you what, i wouldn't be dpreepressed about this. we all want jobless claims to go down, all want everybody to have jobs but last week had a lot of seasonalities associated with it, and i think that really kind of hurt some of the credibility of many numbers, but the seasonal adjustments were for a time that is different than today. plant closings only the auto side were one of the reasons last week, so this is probably getting more in line where it

ought to be. last week was probably the outlier. if you look at continuing claims, they basically had a lateral move after you factored in a slight upward revision, originally last week 3.3 million and moved up to a little over 3.31 and that's pretty much where it stands on the latest view. of course, we have philly fed existing home sales, misleading -- excuse me, leading indicators, that always was the name we called it on the floor. i think philly fed will be fascinating because it went highly negative on us and manufacturing although a smaller part of the economy is always a good litmus test, existing home sales, you know, yesterday's diana olick put it, new home sales are a small portion of the housing market but we had a good starts number and it included single family and some of these other data points like national association of home builders index jumping to 35. so we could quibble about the fact we're coming off of really low levels but stabilization is a good thing in housing.

back to you. >> all right, rick, stick around. let's get more on the numbers. steve liesman is here on the set. >> i wish i could give you more, becky, but i can't figure out what they're saying the statistical quirk was. was it last week the decline or this week the jump up. i'm still reading here, labor department officials said they were experiencing volatility related to the auto layoffs that usually happen at this time of year. but they're not laying people off. so that should i think create a lower number -- >> a higher number, would it be over 400? >> in other words, well remember the seasonal adjustments expected, and looking at a seasonally adjusted number. go back and see if i can find the nonseasonally adjusted number. i'll make a guess and tell you i don't think the jobless claims numbers are good. i don't think the jobs numbers are good. >> me neither. they're not good numbers. >> i don't think wefr' going to look at this data and say things

are otherwise good if not for the seasonal stuff. we did have the july 4th week in there as well so that's going to be a factor, and i'm not hearing anything, maybe barry is, that employers are at a point now where they're confident enough about the future. >> everyone's sitting on cash and nobody knows what the rules of engagement or investing are. companies aren't hiring and the whole world is slowing down from china to brazil to india to europe's situation and now here, so you're seeing it in these numbers. these are not good numbers. >> what explains the last several days of stock market rally? the qe issue? >> there's no place to put money and equities are not expensive. >> seven out of nine down days. >> the last couple of days we rallied and erased july's losses. am i correct? we erased that. there are a couple economic factors that you could begin to -- if house something turning around, we're doing 760 now.

i looked back, the bottom in 1991 which barry remembers was the worst housing we could remember back then was 960, okay? so we're 200,000 at an annual rate below the worst level of 91. >> maybe it's the nyt poll that has romney up now. >> the market's rallies on that maybe. >> is it hard to get hurt jumping out of a basement window, not that much downside? >> apple is trading ten times earnings. you're relatively safe, how much downside do you have to upside? you'll get out of the cyclical names and go into stuff that you think will grow and going to dividend stocks and the reads are doing really well, they have a dividend, people understand them. they're not disintermediateiated by the chinese. the reads are like 3.5 which looks ridiculous except the ten-year is one and a half.

but what's going to knock them down, right? rates where they are, the interest rates are telling you this is a very slow growth economy and we're doing this spending $1.5 trillion more than we're taking in, growing gdp 1.5% to 2% but with fuel from the federal government which cannot last. as that slows down i don't think the sequestering of half a trillion from defense is so bad. they'll just figure it out like companies do how to spend their money better. >> paulson thought the best thing for american defense is just fix the economy. that was his point. >> lowering government spending is not so bad. the tax increase is bad. >> is your worry you're going to miss the upside or the downside? >> i think your worry is, i think investors are faced across the board, in real estate also, how do i invest? are interest rates going to be 4% in three years? we know the fed is screwing around with the interest environment. every time they announce qe3, 17, 32, they've got to stay out,

because they're operating on the patient and telling the patient you should be jogging. he's sick. he's lying on the table and every time the doctor shows up, we all go oh my god, i don't know what' going to happen next. we don't know how to deploy capital. if i thought interest rates would stay here we'd be great. they haven't changed the banking regulations. >> you like 3.5 dividend on the read? you're comfortable? >> no i like the mlps, they're interesting, the oil and gas mlps. some of the reads are interesting, take mullify family, the sector doesn't have a lot of problems. the stocks aren't cheap but what else in the yield world is cheap? >> what about utilities right now, 3.5, 4%? >> steve, steve liesman? >> yeah, rick? >> not adjusted, nonseasonally adjusted outright claims were up 10,700 and continuing claims jumped 246,000 to 3.35 million. >> that's the prior week, rick,

be careful with that. >> right, right, well it's all staggered, yes. but it's the most recent read we have. >> right, agreed. >> nonseasonally adjusted. >> if the radios were supposed to shut down and they didn't shut down, it should actually improve the numbers if they didn't get layoffs because of the seasonals expected. >> no, because the system is putting in people that had claims that didn't have claims or excuse me, they're counting on the slowdown that didn't occur, so my guess is that the numbers are probably about right, right where they are this week considering the lags n my opinion. >> last week would have been -- i'm going to talk to, i'm going to call the claims guys when i get offs set. >> i heard the conspiracy theory. the president did things with welfare work requirements. do more people leave the workforce to lower the participation rate because of that which will allow the unemployment rate to come down,

rick? have you heard that conspiracy? >> well, i heard that. i hear a lot of things, and i can't tell you, you know, what's a conspiracy theory and what isn't but the math adds up on dynamics like that, and i do think that we have economic advisers to the whouls now that steve's well aware of that do understand that there is a downside to the entire process of keeping people out of work and subsidizing that process longer than you should and how the whole cycle kind of distorts things. >> we have to go. >> that's true, keeping claims -- >> all right. >> thank you guys. talk to you both again soon. khantal one agreeing to pony up penalties after the nation's consumer watch dog accused the company of misleading consumers to buy unnecessary add-on products 37 joining us is steve antoneikas, for the consumer financial protection bureau and steve, thank you for joining us. >> good morning, thank you.

>> this is the first enforcement action that the cfpb has taken. can you explain to us what happened here and why you think that this is something that had to be gone after first? >> sure, well it became apparent during one of our expectationless of capital one's credit business they were misleading with the add-on ancillary products activated or hold to when you sold to when you activate your credit card. we're talking about payment protection, a program which you can skip your minimum monthly payments for up to a year if you lose your job as well as credit monitoring. what was occurring and became apparent to our examiners during the course of the review of capital one was that these products were being sold in misleading fashions. for example, customers were told that they couldn't activate their card unless they bought these products. the cost of these products wasn't apparent. in one of the most egregious examples a product designed to ensure you don't have to make your payments if you lose your

job it was sold to people who were unemployed, and when they went to ask to see if they were eligible for the benefit they were told they had a preexisting condition, unemployed before they signed up for it and weren't eligible for the benefit. >> these are pretty blatant situations that you felt you had to address. how rampant do you think situations like this are in the financial services industry right now? >> well, relative to the deceptive practices in terms of how credit card add-ones are sold, we do not believe it's a situation that's unique to capital one. so we'll certainly be looking at it on an ongoing basis. we put a bulletin out, tried to put the industry on alert yesterday saying hey if you're going to engage in selling these types of products, here is the controls you have to have in place to ensure the consumers truly understand what the cost and benefits of these products are. >> steve we should read a statement capital one released yesterday, they say it was the third party vendors that were misleading customers, their statement is "capital one's third party vendors did not

always adhere to company sales scripts and sales policies for payment protection and credit monitoring products and the bank did not adequately monitor their activities." your point is the bank is responsible no 3459er w ematter doing it. >> that is correct. >> do you think this is rampant in other banks? >> i would say we don't believe what occurred yesterday with capital one relative to how they sold their, these credit card add-on products don't believe it's a practice necessarily unique to capitol one. i'm not going to say it's necessarily rampant but to the extent we get complaints or find during the course of our examinations we'lldeal with it accordi accordingly. >> are there other banks under investigation for this practice? >> i'm not going to talk about that. the most important thing that occurred yesterday in our view $140 million went rightfully back into the pockets of 2 million consumers. >> and in terms of other things that the new agency is on the lookout for, could you give us a few ideas? >> well, you know, really we've been trying to build up our

supervision and enforcement capability over the past year and a half, we're engaged at a number of banks and now non-bank entities, be them non-bank mortgage services and payday lenders, looking out with our focus on consumer protection and looking to see that consumers understand the transactions, that they're engaging in and being treated in a fair manner. >> steve, thank you for joining us today. appreciate your time. >> thank you. >> again, steve antoneakes with the cfpb. >> i wouldn't want to be around alec baldwin with his temper. i would tell steve to stay away from him. >> he used to go down to zuccotti park. >> mr. capital one. >> now they're having their own fight. >> coming up, the recovery in housing, we'll talk to unwf the men who lent his name to the widely watched case shiller home price index, chip case, is going to join us.

welcome back to "squawk box." the data suggests the u.s. housing market may be gaining a bit of traction. joining us is chip case, professor emeritus at wells college, co-founder of the widely followed s&p case-shiller home price index. thank you for joining us, chip. you saw mr. bernanke's remarks earlier this week, called the housing recovery "modest." is that an appropriate way to categorize where we are?

>> yeah, it is. it's modest in the sense that it's been a really rough ride. we started, we start every peak it seems at about 2.25 million home sales, i mean starts, and if you go back to the january of '06, it was 2.3 million. it fell to 400,000. that's a wipeout of an industry, and so it's back, the housing starts are back. it's turned from a head wind into a tailwind for the economy, almost overnight, and it looks like a pretty solid recovery. we still have the pipeline to worry about. >> is there any seasonality issue we should be worried about? >> part of the seasonality issue is that we did things in seasons when it made it look worse. for example the housing tax credit came in the spring, and it put in seasonality, it's hard to get back out, but i think it's not having a big effect right now. >> you just got back from china. i want to talk a little bit about that. your take on the housing market there?

>> well, they've got a lot of problems. first of all, their economy is slowing. their gdp numbers came down last week while i was there, and 7.6% growth is not a big number for them, so they've got a basically dmnd problem producing a lot of output, almost got conditions that are ripe for deflation. there was a "new york times" piece last week about potential deflation in china, but they've got a booming housing market, and they want to know a lot about that. they want to know what the interaction is. the thing about china is though they want to slow the housing market, they just say you can't invest in the housing market anymore, so they're lowering rates but they're preventing it from flowing, anything flowing in to residential construction. >> it's interesting, there's still a credit issue in the u.s. housing market, people can't basically get mortgages, and

what you're seeing, at least we investor in the single family housing market, we own a lot of residential lots and what we're seeing is the pickup in demand, there's a lot of investors in the housing market, and maybe that's just the first phase of it, that will support confidence for individuals to go out and buy homes, but there is a fundamental problem on the long-term health of the u.s. housing market that individuals need to get credit, and the banks are reluctant, you know, to relax lending laws and a lot of people want to see fannie mae and freddie get out of the market and leave these markets. what do you see happening on the credit side? how important do you think that is for the housing recovery? >> in this country, i think the biggest problem is what do you do about fannie and freddie still, and what about the fha? we're still ensuring most of the product that's being written, and when that gets to be priced at market, then individuals are going to have to bear that increased risk in the form of

higher risk premium, so rates are going to go up as much as 300 basis points, when all that stuff gets out privatized, and it's not all going to be privatized but an awful lot of it probably will. i think that's the biggest problem here. >> chip, we're going to leave it there. we appreciate your time this morning, and we'll keep an eye on those numbers. thanks so much. >> okay. when we come back, the street view of today's earnings reports. we'll head down to the new york stock exchange right after this. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.

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welcome back to squawk box. check out georgia gulf shares. they're jumping on news that the company is going to buy the commodity chemicals business of ppg industries. you remember what ppg was? pittsburgh plate glass. georgia gulf will pay 900 million in cash and assume a $95 million in debt. ppg shareholders will get about $1 billion in georgia gulf shares. let's get down to the new york stock exchange. jim cramer joins us now. which earnings report got you, jim? or was it walgreens?

what got you today? >> walgreens, back into that vicious fight with express grips. i think that matters. can we just talk about what you just mentioned, joe? ppg is an example of what is happening all through corporate america. they realize the commodity business is holding them back so they offload it to georgia gulf. they're both big winners. every time we get too caught up in spanish bonds or italian bonds or something euro, our american companies take action and shop to the up side. they do what's right. that's why this market is working. >> what do you ascribe the earab your of the july losses to? a couple good sessions. you don't think it's qe3 but it just deserves to go higher? >> i think it deserves it. we were sitting at -- at least these multiples are incredibly low. when union pacific says business is unbelievable away from coal, when bf corp comes on we'll be

speaking to these companies later and says don't worry about international, it is strong. then you look at the multiples, apple after qualcomm after skyworks you say wait a second. not only is there no place to go again quoting barry but also companies selling nine, ten, 11 times earnings and doing everything right, so is it right to be glum? well, it's right not to be so negative after what these companies are doing. >> you are an alpha deliverer daily. not one day a year. >> he's wearing a wire. >> i like delivering. i mean, these guys -- there is a guy that has better than expected subpoenas. amazing the number of subpoenas delivered right now. good second half. >> yeah. i didn't realize there would be so many of you in the audience. should have brought more subpoenas. >> thanks, jim. see you in a few minutes. >> okay.

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stock of the day. the stocks of the day. we'll show you four. walgreen and express striking a deal that settled their pharmacy spat. and shares of cvs and rite aid falling on the news. we're glad it happened today. it makes for interesting trading in those issues right there. i don't really understand exactly what was going on. thank god i don't have a lot of prescription drug needs at this point. i know that -- i think maybe 65 is the cut off. these are optional things that

you do, andrew. you'll see. let's get final thoughts from our guest host barry, you're heading out -- your life is exciting. we were talking about that off camera. you're going to asia and you are able to raise funds for starwood, right? >> yeah. >> then you get investors. >> i think real estate is a compelling asset class. >> for people around the world. >> you think macro and the world is a mess but you invest micro and in the housing market in zip codes and i just got back from rio and san paulo and i think the slowdown there is good for investors. it's taken some profit out of the market and reduced the pressure on costs but i am heading to korea and singapore and china i think people in the western world want china to stumble far more than i think china is actually stumbling. it's like we'd like to see them get into trouble. we'd feel better about our problems. china is really rich. they can really produce any gdp