agenda. as joe mentioned the fomc gathering in washington for the start of a two-day meeting. fed officials signaled concerns about weakening job growth and consumer spending. economists are watching to see if the central bank moves toward announcing another round of quantitative easing. a lot of people think that this is not what's going to happen this time around, we'll see. could happen. we'll hear from them tomorrow with their decision. also, a number of other key economic events today. at 8:30 eastern time we have personal income and spending and the employment cost index, and then a little later in the morning we have the s&p shiller index, the chicago pmi numbers and consumer confidence. speaking the economy, president obama is warnings of headwinds during the next few months. speaking at a campaign fund-raiser yesterday, he said europe's debt crisis poses a big challenge. the president predicts that the euro zone and its currency will remain intact. andrea maz more on the buzz. >> lawyers for apple and samsung

begin opening statements today in the patent trim. the jury was selected yesterday and includes an insurance agent, an unemployed video game enthusiast and a project manager for at&t giant. they're accusing each other as patent violations. the trial is expected to last at least four weeks. in the meantime, we have other apple news this morning. apple is gears up to unveil a new product at a major event on september 12th. analysts speculate the company will introduce the fifth iteration of the iphone. it will have a thinner, larger screen and a smaller dock connector. it's official over at yahoo!. ross levinsohn is leaving the big. he lost out on the ceo job to marisa meyer. mr. kernan, welcome back. >> thanks. good to be here.

i saw what happened with facebook. you have to explain a lot to me. didn't something happen on thursday? >> yeah, that's the ecb meeting. >> they're moving closer, but they say they're not. >> there was a story out today maybe it takes five weeks to get there. last week he made comments that made people think he's really here. he's really going to back this stuff up. now he has to show us the money and do that. he may have some time to do it. >> bare you talking to people over there? >> i did but they were speaking foreign languages. i listened and i was picking up a few things. i picked up a few things. facebook upgraded to market perform to underperform, but the price target taking it down to 23 from 25. the upside is slightly less uncertain at this point and much less expensive. you wonder -- we did talk about

that. anything that gets -- that comes out of the box near $100 billion, it's just hard. it's hard work, and where are we now? >> what's the market with the company now? 45 billion? >> i thought it was 65. >> there's people even where it is right now that say it's, you know, a $30 billion company when it's all said and done, but who knows. who knows what it's valued at. shares of cirrus logic jumping after the bill. they may mixed signal integrated chips and circuits. they beat the street in the current revenue and tops consensus. accretive health is sejs selgtsing with minnesota over a hospital debt collection practice probe. they'll pay 2.5 million without admitting any wrongdoing. a different story for dendreon. the biotech company is going to close one of its three manufacturing plants and cut more than 600 full-time and

contractor jobs. it aims to reduce annual costs by 150 million a year. if you cut back, obviously the demand is not as strong as you hope for products. humana missed the mark and they cut the forecast for the year. they were hit by costs associated with surging membership and it's individual medicare advantage program. shares of hard drifk driver sfagate. they're looking to get small arrivals to boost it. the thing that i need to get off my chest is trying to watch any tv but frying to watch the olympics in paris. all we could get was the bbc, so watching the bbc coverage, it makes you realize -- i mean, i saw bob costas. i walked up to the set. i was french kissing -- not quite, but bob costas' image. this is not like that. this is --

>> i hear you. you don't realize how good things are here until you go away. >> and jim bell and the way we're covering it. that was immediately something that i wanted to watch. the other thing -- i don't want to -- i don't want to say anything about the bri ts. it's a beautiful city. they do the same homer type conch where they cover the home team. >> the beautiful vinettes and profiles. >> think don't quite have the home team that we have, and that doesn't stop them from doing the homer coverage. so we'd be over there, and we'd watch a half hour personal intrastory of a swimmer, for example. i know her whole family, where they grew up, when she started and how she was training to do this. we'd be watch and hope for it in the butterfly, and she'd finish eighth. then they'd interview her afterwards. it's just -- over here if we do personal interest stories, you

usually get a bronze at least. you're at least looking at a bronze. but it doesn't stop them from covering it the same way we do, but then they don't have -- >> do you think this goes on, by the way, around the world? >> i guess it probably does. we're really good at it here, and the packages that nbc puts togeth together. it does help to have athletes that finish and end up -- >> i wonder what it's like to watch in poland. >> that's a bad one. >> i was not trying to make a polish joke. >> they finally won. a cycler. i know her third cousins. she finally won. >> she got the bronze, right? >> no, silver. she got a silver, and it was like the biggest thing that's ever happened. it's nice. it did break the ice, and it was only the second day. they will win a lot of medals. >> the team that hosts generally does win a greater take of the medals other years because they spend more money to get the

athletes through. >> i saw a couple of women in crew last night that will kick total butt. they were amazing, but i'm glad to be home to watch nbc's coverage. >> you don't understand how great it is until you go away and try something else. we're glad you're here, too. >> are we going over there now? >> you'll see right now that the futures -- yesterday we broke our winning streak. we had two big days of gains buts losing streak yesterday was down two points. this morning they're back up another 37 points. dow is still above 13,000. that's a key. this is the last trading day of the month, so we see how the month shapes up. it looks like we will have gains for the month. if you look at oil prices right now, you will see that oil prices are up by about 43 cents. we don't have natural gas here, but last night it closed at a seven-month high up about 69% from the april low. so there has been a slow and steady increase in natural gas

price. the low prices there had been -- would have been putting so much pressure on a lot of different people who had been investing in natural gas and hoping it would pay off. let's look at the ten-year note. you see at least right now that the yield is 1.51%. joe, while you were gone, at one point before we heard from dragge last week we traded below 1.4%. you were looking at 1.39 tick on that, and that was really starting to stun people. as soon as drogge spoke, it popped back up. >> still in the refinancing mode. i keep missing the bottom here. >> sfan apain and italy, those comments took their yields down sharply. >> yeah. as soon as he spoke, there are moves. >> we were in a conversation with mario, and what was weird being in three different cities in italy, i didn't see one person concerned about anything in terms of -- >> that's what bob pasani said

recently there. >> it's for policymakers and government officials and strafl bankers, i guess. we were in tourist areas, obviously, but things were cranking over there. >> bob said that in rome. >> rome was amazing. >> it wasn't just americans out in shops and stores but a lot of italians, too. >> you couldn't tell. i wasn't in spain. at 25% unemployment, i think you could pick up more than -- everybody is living at home. that i didn't -- that i didn't see. >> you did get the advantage of foreign exxhooivechange moves. >> getting ripped off. >> when you go to money changers, the currency exchange place, coming back, when i went over i paid $1.38 to get a crummy euro. you know what i got when i came back? 1.08. they sell for 1:.30. i want to go on business. >> in your credit card i think it will go with more of the -- >> it will be better.

>> things are expensive in europe. make no mistake about if. if it was just dollars, it would be expensive. >> i want to up atm machines and delis. $1.50 for everything. >> did barney frank use my name in vain last week? >> yes, he was on maria. he compared her to you. i don't think he was meaning it in a positive way. >> and that she was trying to encite -- >> she was pushing back on i am pretty forcefully, and he said, who you are you? joe? >> hold on a second. i remember he through his ifb off and ripped his mike off with mark haines and stormed off. i remember altercations with erin burnett where it looked like fisticuffs. bill o'reilly, a kid doing the interview. barney frank picked me to say that someone was giving him a hard time? am i did not -- >> consider that a proud moment.

>> i'm the one that got him more than anybody else? he's had his public life with fannie and dprfreddie and the things he's said in the past about fannie and freddie. to co-author dodd-frank to say it's more c-span than cable, he's a had a pretty cable-worthy -- >> he likes it. let's not forget how much -- you could see how much he enjoyed that interview. >> i'm happy for him now. now i feel like i'm almost a worthy -- i felt pretty good whether i saw the tweets. >> i bet he would come in, too. i bet he would. let's take a look at the dollar. you saw the euro was trading at 122.93. gold prices right now, the dollar is down against the euro. it's up against the yen, and gold prices are up about $6,

1,$629.90 an ounce. >> it's time for the global markets report. results from ubs and deutsche banc this morning. kelly evans standinging by in london with a little more about that. we have to it hear p a little olympic coverage right now while we have you. >> there's plenty more olympics coverage throughout the rest of the day as well. i was laughing hearing joe talk about the bbc's coverage. i was distressed to hear he actually went to money changers in the airport, because everyone knows, joe, you go to the atm and spend the money that way and you get the better exchange rates. let's me remind you of athat kind of session we have in the u.s. today following the ninth straight negative monday, kind of an unprecedented streak it. it's dpoun about 1.16% and it's sat at levels all morning. what's extraordinary is we haven't seen more of a reaction it to these comments out from china just in the last hour, 90

minutes or so. so pretty stringent comments from when and who. apparently the meeting of communist leaders discussing how weak china's economy is and more need for fiscal and monetary policy support in the second half of the year. the kinds of things that are indicative of more stimulus coming into the market, and if we don't see more of a reaction through the uniform forces here because people are reminded that china is slowing more quickly than they expected. ibex is up and ftse is up. the ftse 100 is still in the red this morning down .14%. that may have something to do with some of the stocks weighing on that index. for one, barclays, we can look at how that's trading. down 1.2%, and closer to 3% this morning after reuters reported they raided barclays offices in

milan in relation to ui-libor fixing. there's a few more banks we're keeping an eye on. ubs is down 4.5%. that's weighed on the market. especially investment banking, they were weaker than expected, way down by the investment banking division and had a big write-off on face bob. bbva is up 0.6%. deutsche banc down.75%. deutsch is disappointing on the earnings front and bp down as it took a charnlg related to the u.s. oil spill to alaska suspensions and other issues specifically within the company. that helps to explain the ftse is a laggard this morning. quick look at the bond wall before i hand it back to you

guys. a little mixed tone. we have some buying in italy bringing the yield down to about just over 6%, although it was a little bit lower earlier in morning. spain was selling off, and that pushed the yield back up to 6.63% just about. france and germany benefitting here. we see bond prices rise. these yields are sinking a little bit. it's very clear markets are looking for a sense of direction into the u.s. trading session and probably they're waiting on the fed and waiting on the ecb thursday before they put on any major positions. >> great. when was your first trip over there, kelly? you'd been there before we sent you over there, right? >> i had been once, and it was actually in college when i was studying abroad. i was in spain, but i took a trip to london. >> you've been to paris in your whole life? >> never. >> never been there? all right. you sounded like a real world traveler. i didn't use -- i would use an atm to get cash, but when you

come back, how do you trade your euros in through the atm. >> you have to be strategic about it and go into it knowing how much cash you have and how much you can spend and it's easier because everyone fayes plastic. >> nine days and two kids. i was going -- i went to the atm twice a day. >> you got to be strategic about that, too. you get hit with $5 withdrawal fees. >> i take out as much as i can. when you're done. >> that's the only way to get it. >> when you are done, you have a couple hundred euros left no matter what and get $1.08. >> that's why they have the shops at the airport. >> $1.08 for a euro. >> save them so the kids can take them in in case it goes away. >> joe, vild given you a better exchange rate. we could have done -- i would have given you like 1.10, 1.15.

>> 1.08 bid and 1.38 bid. they're there. >> you're getting ripped on off. >> i used dollars when i got there. you can use dollars anywhere. that's the great thing. anybody. you use dollars and they're perfectly happy in tips. that's to cool. there's no other currency where you go anywhere in the world and try to give them a drag ma and see if they take it. >> in india i was using dollars there. >> in other head lines the u.s. postal service is preparing for a first-ever default on billions in payments due to the treasury. $5.5 billion is do you tomorrow and another $6.2 billion is due in september. because it's short in cash they won't make the payments. in the short term post offices will stay open and employees will get paid, but the mail agency is preoccupied with staving up bankruptcy. it's weird it's the u.s. post office and not making payments. >> we had someone last week that

laid it for us who said that essentially they're in a lot less trouble than you would think, if you could get rid of payments, which noblt is required to pay forward like that. he said they're losing like. >> it's a good column today about what they need to do on the payment side in terms of getting rid of prefunding requirements and other issues as well. let's get you caught you on other news. manchester united is offering share between $16 and $20 each. that values the club at $3.3 billion. that's at the top range. i don't know if anybody here is a take other a soccer ipo p if you're in the u.s. soccer is not so popular here but not a bad business. >> the value is 3$3.3 billion. >> coming up today -- >> that's more than the yankees, by the way. that's a big number. >> now joe's in favorite of it.

>> i like that. coming up is today's national weather forecast. it was very great weather there it. it was hot here? >> it was it hot and rained. >> it was fine. >> it was just right over there. it's weird. there's all this heat that, global warming. the rest of the world has not. the midwest is still dealing with record drought conditions. first, on this day in history we're going to do something on this. milton friedman was born. the economist would have been 100 today, and i wouldn't say he's not necessarily rolling over in his grave with our current economic situation, but he may at least be twitching at little at this point. we'll be back. i have evidence that proves my dad's a space alien. he speaks a weird language... [ gargling ] drinks green stuff. he says he's from albuquerque. i'm not buying it. i mean, just look at him. and one more thing -- he has a spaceship. [ whirring ] the evidence doesn't lie.

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welcome back. u.s. equity futures. the fiscal cliff is still coming

and there's a lot of arguing in d.c. between the parties. we've got 98 days left before the most acrimonious campaign season probably in history with the most money being spent. it's so ugly. it's still above 13,000. >> do you see your friend adam from morgan stanley out today saying there's no upside unless romney wins? that he sees no upside in the stock market? >> i think that -- were you not here last time he guest hosted. >> it was a big headline from cnbc.com on the cover of drujdg this morning. >> i was surprised how outspoken he was at as strategist on the political backdrop. a couple of companies reporting earnings and 6 cents ahead of estimates. tyco reporting earnings of 1.01.

revenue matched con sensensusco. let's get to the weather forecast. ail leshle alex, what do you have for us? >> more heat to deal with. that's been the story over the last month, and it's the story over the next month. it's summertime. no doubt about it. it's supposed to be hot, but it's ridiculous for some areas. here's the situation right now. into and across parts of the west and there's storms into the interior and that monsoon moisture kicking in. heat in the middle of the country throughout the plains and a little stormy across seconds of the south. in fact, we see some of the storms at this time, particularly here into alabama. look at the cluster of storms, heavy, heavy rain in and around the birmingham area in morning. we dealt with flash flooding issues and water rescues in the downtown area because of some of the heavy rain and it continues to impact us here. not a good situation here for us in birmingham this morning. this is an area throughout the southeast that's in a watch for a risk of strong storms.

the red area is damaging windzs and hail and long with heavy rain and lightning in the areas. not everyone seeing it but the chance exists in the spots. we will focus in for tuesday. on the heat we continue to deal with it in the middle the country. stormy in the southeast, the pattern this week. hot here in the middle. more of those 100s to deal with with a big ridge of high pressure. we have the advisories in place. excessive heat warnings and we talk heat index values, what it will feel like, up around 115 as we head through the afternoon. oklahoma city, expect your high today extreme at 109. guys, back to you. >> thanks, alex. appreciate that. we're wouching 6:30 on the east coast and the "squawk" green room is filling up. you never know what you'll find. economists and pundits among the mix this morning. david greenelaw and dick are chatting about the fed, europe and the global economy and much, much more. we'll join the conversation after the break.

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♪ that's life and death, good morning. welcome back to "squawkbox." i was talking about my cough switch. i could be talking and go like that, and it cuts out, right? >> you can't hear? we don't have those. >> we're wireless. >> whether you're on wireless, you're working without the net. >> that's like going across niagara falls -- >> did you see that other guy, it wasn't niagara falls where he fell. >> i need it. >> i'm joe kernan along with becky quick and andrew ross sore kin. both working without nets. the start of a two-day fed meeting. other stories making headlines this morning. back-to-school shopping season is here. i hope my kids aren't watching. that's a real sore subject that how quickly the summer has gone. the survey from deloitte finding

nearly 9 in 10 plan to spend the same or more on clothing and supplies this year, and we need some velocity of money in the economy. they're bringing charges against visa europe. regulators say that the company's cross border credit card fees harm competition between banks and lead to higher consumer prices. eu commission argues that the consumer credit card fees in europe breach antitrust rules. i saw an international piece in "the new york times" about right at the border of italy and austria. guys in italy are in the same town basically in banks with three times the sinterest rates because of guys across the street in austria because the crazy eu rules. now to the fed and economy. joining us now is dick hoey and

dick is here. i'll start with you. a lot of team talk about this 15 we had last week and the gdp wasn't as bad as by ten basis points, it could have been 1-4. from your vantage point, are we in a position where people don't worry about being unemployed. we're heading down in the worry, or was this a brief pull-back? >> i think it's most likely a brief pull-back, but i think that the fiscal cliff is having a drag effect this year. if you're a business -- >> what about a consumer? >> a consumer -- >> is that still housing? is it worrying about your jobs? >> i think you've got kind of a stable pattern in consumer spending, so when the gasoline prices drop, people don't really

raise their spending much. they're pretty cautious. so i think we're kind of stable in the consumer -- we're not going to break down, but we're not about to accelerate either. we're in a low level expansion. nobody's got any excitement. the fear level isn't too high because of the fed easy policy. so you're kind of stuck in sub-par growth. >> you're going down the road that the weakness is from the corporate sector because it's concerned about the fiscal cliff and other uncertainties. >> that's part of it. part of it is the consumer, and it reflects the fact that we've had a growth rate in this recovery. it's about half as fast as in prior recoveries. therefore, the labor markets are weaker. so you're not getting the confidence build. >> up at 8.2%. >> you don't get the strength from new jobs, so people aren't

necessarily panicked to lose their job but they're not confident enough to borrow a lot and spend a lot. we're expansionary at a sub-par race. we're not going into a recession but not a boom either. >> i think the nis cal cliff is affecting business decision-making on the basis of our own surveys and affecting the consumer. just last friday the consumer confidence report, buried within that survey is a question they've asked since 1978. bhaets your opinion about the government's economic policies? a fair job, good job or poor job? we hit a low point to '78. we hit a low point last august in response to the survey in the middle of the debt ceiling thing. we've been edging prior month by month. people have a short memory and forget what happened last summer. just in july it turned back d n down. it's on a path of going lower now as the concerns about the fiscal cliff ratchet up and the

media focuses more on it. >> i can't believe in fly-over states across the country that normal consumers are sitting there -- >> we have fly-over states. >> i'm glad we do. that's where i'm from. i can't believe they're sitting here saying, wow, my tax rate is going up however many percent and they can you tell back. they don't know that. >> the potential employers are thinking that way. >> that's different than consumers. >> that's different than consumers knowing about the fiscal cliff unless it's from the media talking about the fiscal cliff, not that we shouldn't be. >> that's the concern, we had a temporary soft patch in the economy last summer. a lot was related to what's going on in washington at that time. it will be worst in it time around. >> i think that fears that they won't do the right thing in washdz hawashington are totally

rational. we have a banana republic fiscal policies. the fiscal cliff. >> it's the right thing. both parties have die metrically opposed opinions about what the right thing is. >> they don't center to manage it the way they've been managing it. you don't have to have the fear of a debt ceiling default. you don't center to not pass a budget in the senate for three years. why these senators should be paid their salaries, if they can't get their basic job done under the budget, is beyond me. they should beoing the job. i think that the fed has only so much more it can do, because it's not that interest rates are too high. it's that there's a lack of confidence in washington, d.c. getting us away from this fiscal cliff soon enough to avoid damage. >> are we in a new normal? you were alive for the carter years, and you saw what happened in the '80s and '90s. i think we were -- at least my

outlook -- i never that you had i could buy a house and the misery index was 24%. we came back bigger and better than ever. is that the thing of the past now, or could it happen again? >> it could happen again. we have two big near-term challenges, europe and the fiscal cliff. things are happening in energy markets that are exciting and could give it a sustained boost. >> natural gas was fascinating. the nuclear is. >> a lot of our problems are solvable. we came very close last summer, by all media accounts we came close to the two sides coming together, and maybe that will happen again. it will be a lot worse before we get there. >> could you see interest rates like that again down the road where you talk about 18%, 19%, 20%? >> any first mortgage was a 30-year mortgage 16.5%. we're not going back there. >> we'll never go back there? >> no. i don't think so. one of the reasons we got there was people didn't realize how badly out of control the

monetary policy could become. >> they didn't realize if? >> we shut down the economy. >> that was pre-volcker. >> volcker did it. >> he got us into the quagmire that caused him to go to 212. >> we're ep reaping the benefits of his actions today. >> g. william miller came in as an industrialist and in the wall streent journal the next day someone was quoted saying, just what america needed as a chairman of the federal reserve. a good tool and dye manufacturer. >> this is before my time. >> you missed with inflation t buttons and price controls. we had wage-price controls. we had a moon landing that we now know was face. according to whoopi goldberg, there were ripples in the tlag they put on the moon, which mean it's it was on the studio somewhere.

>> wasn't it buzz that did that? >> david, you're 6'5", aren't you? >> he's a tall man. >> if you disagree with him, you can squish him? >> the accurate forecast does not depend on boxing skills. just a general rule here. >> paul volcker is 6'8". >> he could squash you. >> thank you. >> if you have any comments or questions about anything you see on "squawk," e-mail us or better yet tweet us, @squawkcnbc is our handle. we want to ask what the traders want to hear from the fed and ecb this week. a little later our news maker this morning, the nation's largest food producer will join us. cargill's ceo talks about the historic drought, rising prices and the impact on your dinner

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welcome back, everybody. about half of india is without power today. the northern and eastern power grids have failed, and this collapse of the grid comes just a day after the northern grid failed and left eight states there without power for much of the day yesterday. again, you can't stress this enough. try and imagine half of the nation, in their case about 670 million people, that's more than twice as many people who live in the united states, all of those people without power today. obviously, some massive, massive problems with that power grid, and some big attention on what's going to happen from here.

let's get back to the markets and take a look at what's happening. kevin ferry joins us from chicago this morning. kevin, we have big things going on this week, both the fed and the ecb meeting. what are you waiting to hear? >> and the ble. good morning. so i think that, you know, what we're looking is there's -- since the ecb acted earlier in july, there's been a massive improvement in the financial conditions indices we look at, and you see those results already in the equity market. right now we get to the point where the market has to deal with being out in front. you have this transparency from these central banks. this is what people want. so the market is out in front of them. now we're into the point where they have to get down to business, and you're seeing people pull back a little bit again, becky, as the meeting goes on. the fed's not going to do anything and push it off until september, all those type of things will probably put a pause in the market and actually the

potential is people -- the market pulls back from the big advance it's made. >> all the big advances kicked off the last phase of it when we married from drogge last week. the buzz this morning is that these things could take a while to work out. maybe another five weeks before it works through the pike. does the market have enough patience to kind of wait these things out? >> no, it's not real good at waiting them out. i'm not a big fan of transz pare transparency to begin with. if you do something in the fed, tell us what it would look like. go into the details, even if the start date is somewhere in the future. these improvements in financial conditions, especially in the corporate bond market, are substantial and they're going to lead to better financing for these corporations three years, five years, ten years out.

so the near term is the hiccup. the immediate coupmedium term it better. >> corporations, you see the bids they've been getting. what was it yesterday? >> incredible. >> he tweeted something about this. doug did. there was a huge hit you saw companies like ibm and john so and johnson that lined up. >> unilever and texas instrumen instruments. they come in at 45 basis points for three years, 85 basis points for five years. this is substantial and being done at record pace here for the summertime, and those type of things that go on -- i always watch ibm as a benchmark for this at 187 on the ten-year. these are the things we want to watch going forward if the sfw rate cycle turns. again, these are things that are happening that we think of the driver of equity prices going up in july. we talked about 1347 last week on the show. it got above there. we expected good things to

happen, and that's what we saw, and now they have to deliver and it gets us into the end of the month and into the big dat tachlt the pmis come out and show some improvement. this is the kind of chop we're going into now. >> kevin, thank you very much. joe is supposed to be back here. joe is coming back. he's a little distracted. has a lot of things going on this morning. >> no. we went to this incredible -- >> i know what you're talking about. >> i was over with andrew. there's a huge exhibit, and i never heard of him. he's unbelievable. >> it's pretty cool. >> turn your screen. let me see. >> i may have to buy one. >> i brought a book. >> we may have to put dough together and buy one for joe. >> i'm so cultured now. anyone who says i'm not, am i right or am i right, huh? >> now that you follow sat teen.

>> i saw 30 recommenoirs and i stuck in a room with him. danny is coming in. quick break now. let's check in on the "squawk" green room. it's buzzing, among the faces, jim grant the well-known newsletter writer is today's host. first, though, we invite congressman david swi gert to join us on set to talk about key tax stroets in washington this week. stay tuned. tdd#: 1-800-345-2550 when i'm trading, i'm so into it,

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congress is set this week to extend the bush era tax cuts. joining us is david schweikert, republican from arizona. >> good morning. >> you have a proposal on the table, the democrats also have a proposal on the table. they are not the same proposal. how do we get from here to

there? >> that's how the process works, we'll pass something out i believe the next day or so, put our chips on the table. >> and explain your chips. your chips are pretty much across the board extensions. >> right now, provide some visibility, do an extension, we'll see what votes come out of the senate and do they put together a proposal and are they able to pass it out. there's this magic thing calls a conference committee where the idea is you get together and work out what differences you have. we keep passing things in the house, we keep waiting for the senate to step up and get the votes and get something out of it. >> the dems want to extend the tax cuts value except for those making over $250,000. >> i hear that but we don't know if they have the votes even in their own body. >> so there's a handicap. explain how the numbers work out. >> the mechanics, i hear many of the democratic leaders in the senate saying they want to pass the same tax exemptions instead

of income tax, if you're over 250 you go back to previous tax rates. okay i don't like that -- >> you'll accept it? >> no. >> not at all? >> let's see them get that out so we can have a conference committee so we can battle through it. >> what's the battle look like? how does the battle end? >> you don't know until you see what they're able to pass. we know what we can pass through the house, we will pass an extension. okay, and thenally get these phone calls that say "david, you should be compromising." compromising with ourselves? let's have the other body finally pass something. >> how long of an extension is this? >> i think it's a year. >> a year. >> so different question. what is the chance that we solve all of this before the last day of december? >> that's a brilliant question. look, there's more things moving right now than i think the american public has anything their heads around what you consider not to be on the

election. we don't have a budget so we actually have to do a continuing resolution. we have a debt ceiling coming up. many of us want to do things like let's grab the budget, let's do at least a six-month continued resolution, none of these two months or, you know, so it doesn't come up during a lame duck session. >> you know the senate. what is the chance, just play the odds with me that something like that happens, september, october, november, before we get into a complete and utter panic. >> you're asking the $10,000, what is it, $64,000 question. >> in this case i think it's like a trillion-dollar question. >> multiple trillion-dollar question. it's only the world economy, the national committee. at some point the senate needs to stop pointing fingers and actually do something. i love the house comes up, passes a budget, passes a budget and does its work and the senate says it's not good enough. okay, where's yours? tell us what we're working with.

>> if the numbers don't ultimately add up and it looks like you would need 250 to get an extension, meaning that the dems would win on that side of the argument, would you ultimately compromise? >> it's not, you see, the problem is it's not a fine line like that, because there's other things within the package that may also be in play. i am someone -- >> that seems to be the threshold for everybody, am i wrong? >> no, no, i think that's the talking point threshold, the one that's being used because it pulls well in politics. there's a lot of other parts moving within the tax code. if part of your fixation like mines is, how do i get economic expansion, how do i get job growth, there's a lot of other parts in the tax code which really has more impact you want to focus on. >> there's a lot of details and the devil is always in the details and we need to know what the details are before we have an honest conversation. >> brilliant way to phrase it. >> you get back to the issue of

how do we kickstart this? >> my fear is that we're talking about the fiscal cliff on the tax policy, but understand all the other things that are moving with that. we don't have a budget. okay, we're going to do another continuing resolution. will we step up and do a continuing resolution out six months so it's into a new administration and isn't in play in a lame duck session? how about the debt ceiling? is there going to be a dance like we had last year with sequestration, before you can get the votes with the debt ceiling we need to convince the markets and countries around the world we are doing something to bend the debt curve. >> congressman we have to leave it there. we wish you a compromise in washington and we'll be watching closely and cross our fingers. we'll find out what has this newsletter writer worried after this. cexpression of power -- control. ♪

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the fed in focus. day one of a two-day fomc meeting. how are top economists and experts feeling about the state of the economy? we'll release the results of the latest cnbc fed survey. from the fed to the global markets, today's guest hosts is one of the most respected in the business, jim grant is our guest host. plus the donald is back, billionaire and real estate mogul donald trump joins us to talk politics and his bet on housing. the second hour of "squawk box" begins right now. >> good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with joer

can men and andrew ross sorkin. the future this is morning after modest losses yesterday, the dow was down by two points, this morning are indicated higher, dow futures indicated up by 16 points and s&p futures up about 2.5 points. italian prime minister mario monti says there is light at the end of the tunnel when it comes to the eurozone debt crisis but offered no clear prospect on when that action could take place. monti will be taking a trip to spain and france and hoping to accelerate the euro. we also have earnings from pfizer. >> pfizer reporting a 62-cent number versus expectations of 54 cents so that is a nice number, better than expected revenue by $15.1 billion versus estimates of $14.87, reaffirming or i don't know, it's affirming 2012

guidance, might be the first time but the wires say reaffirming. lip aor sales worldwide 1. 2 billion versus 2.59 billion. >> 31% operationally because of lipitor. >> which they've been trying to deal with for a while, fiscal year adjusted earnings 2.14 to 2.24 and the estimate is 2.21, bracketing as well. we'll move on. can i say one thing about your last story? >> about mario monti? >> billboards everywhere in rome of him leaning back in a beach chair drinking a tropical drink "send monti to the beach." >> he has surprisingly strong support but plummeted to less than 30% as things got stuff. >> i asked the cabbie. >> he was a bureaucrat when he came in and everybody said

that's exactly what we need, a technocrat. >> he looked very happy and comfortable, it was a funny shot of him smiling, drinking a drink, lounge chair on the beach. i said what does that say? "next election, send monti to the beach." >> he had better than 80% election ratings answers now it's dropped back down to 30%. >> a couple like the last guy back, with the pugs and dyed hair and 17-year-olds, berlusconi. >> he's got a strong bid to come back. >> they were going to bring him back, god bless him, 72. >> i love your association with the 72. with the 17 years old. >> 17 years old? you don't give him credit for that? divided by two, minus 7. >> that's horrible. i didn't say that. we have the fed and the ecb meeting and the bank of england, i shouldn't forget them, the

latest cnbc fed survey is out just in time. cnbc steve liesman has a look at those results. >> becky thanks very much. some interesting results here in the survey, a big change in the outlook. 78% of our market respondents now looking for quantitative easing from the fed, looking for qe3 in the next 12 months. back in june it was 59, go back to january, it was 48. you can see the percentage fell down to just a third. how much qe? how big will it be? that's come up as well. right now we're looking for, we were looking in june for $451 billion of quantitative easing. and now we're looking for more than a half a trillion dollars of quantitative easing from the federal reserve. i want to show you the time line on this. we've been doing this survey for three years. what does it mean, 78%? take a look back here on the eve of qe2, we were at 90%. now we're at 78%. take a look on the eve of qe2,

99%, that was the survey came out a couple days before and if you look back a month before at 93% so we're in the area where the market is pretty certain that the federal reserve is going to act, but the big question, though, is when, and here you can see interesting results. 56% are saying september, and only 26% say the fed will act this week. small number here, 10% believe that the fed will act in 2013. what kind of qe? only 2% say it's treasuries only. 74% are looking for a mix of treasuries and mortgage-backed securities and a fit say purchase mortgage-backed securities only. one more thing, what else might the federal reserve do? 51% say the fed will extend the low rate forecast, which is now late 2014 to late 2015. 31% expect the fed to link low rates to economic targets, and 24% say it will reduce the

interest rate on excess reserves to zero. we'll have more on the outlook for the economy, stocks and as well as europe in reports throughout the day. go to cnbc.com and see the whole report. >> steve, real quickly can i ask a question about that? you have 78% of economists saying they expect something to happen, the market is pricing this in at this point. david rubenstein our guest host yesterday say they get the most bang for their buck when the market has not priced it in, when you take them by surprise. is it too late to take the market by surprise? >> becky, i looked at october 2010. 92% were expecting qe but average of a little under 500 billion. ber nan konanke gave it 600 bil. i don't necessarily agree with david rubenstein. the market can price it in. it's not non-existent the way the market expects it.

>> thank you. you'll be back with us at 8:301234. >> sure. yes. there are places for opportunity in today's market, our guest host is offering bargains many might think are too risky, jim grant, founder and editor of "grant's interest rate observer" and joins us for the rest of the show. it's not always obvious there are things that can be done to profit from some of your trades. >> yes, it is, if you read them. >> if you read them closely. >> no, if you read them. >> a lot of people probably think that huge overhang of debt and spending beyond our means globally would make it hard for -- >> well, it is a world of sin and sorrow, and usually is, but among these troubles, there are opportunities, so what we try to do is to look for things that are unreasonably priced, most of the upside and the downside and today, despite any number of difficulties in the world, there

are all sorts of things we think are interesting, from trees to raw land to some equities, so always something to do as the value guys say. >> let's get to some of those in a moment. let's start with what we talk about day in and day out, europe and the situation here. what will finally be the outcome in europe? >> i think the way to think about the present moment in our monetary affairs is recall last night's synchronized diving. >> yes. >> what we have is a synchronized dive of the central banks this week. we think it's synchronized, anyway the direction is down and interest rates, so the fed, the ecb, the bank of england are engaged in a synchronized fashion in what we in the private sector call price fixing, what they want to do is manipulate and to fix and to me it's a terrificcally unhelpful way to approach our monetary

affairs. >> really? >> it's what we have and everyone is trying to game it. >> i saw a quick piece by el erian yesterday and he said it's not being synchronized, being done in sequential fashion, some of the central bank steps. >> well, here is what is not exactly synchronized. you look at not what the fed is going to do perhaps or -- what it has done in recent weeks is do much less. if you look at the rate of growth in the fed's own balance sheet, but the fed can give speeches and for real understanding, what it's about, check the balance sheet. the rate of growth over three months, six months and 12 months is to shrink, so the fed is actually shrinking its assets which is something very few people seem to be paying attention to. >> no, i would have been lost on that question if that was on a quiz. >> the european central bank's footings are up 50% year over year and bank of england has a

big expansion mode but the fed gradually by degree and quite out of the lime light has been shrinking its assets. >> how? >> the maturities fall off. >> they were twisting for a while. >> yeah, but that twisting is not meant to increase the size of the balance sheet. >> but not shrink it either. >> it has shrunk a little bit but that is another reason to expect some expansion. >> is the way that eventually the way ecb prints? most people want them to do that. is that the wrong move? what would your remedy be? >> my remedy for central banks is less. >> don't print. >> and to reestablish objective value in money. i mean, the way to think about i think our discome bomb blkocomd

arrangement, industrial standards of measurement have gone from 0.0001 of an inch, considered state of the yard many years ago to 0.00000001. we'll leave it to the ph.d.s and the federal reserve board. it seems there's a huge disconnect in modern life between objecbjective and narro precise measurements in our commercial and industrial lives and this improvization al exchange rate. >> it's an art. >> i don't know if they're directly correlated but i would say you don't want -- >> they do. >> you don't want an economist designing any bridges you're driving over or designing any

missiles that are going to be launched. >> correct, but they are still designing the figurative bridges and still building the allegorical rockets and we're dealing with the collapses and explosions. >> if bernanke followed your advice and did effectively sounds like nothing or withdraw, what would happen to the markets in. >> my advice to bernanke is implement my first reform for the federal reserve, when ron paul get elected president as you know i'm going to be his fed chairman. >> i'm aware he'd like you to be. >> we realize there are equal chances of those happening. >> are you planning on taking the job? you want the job? >> i didn't say that. but so my first order of business as fed chairman, if it happened this morning, implement this right away is to open the office of unintended consequences, that's my office would issue reports periodically about what the fed means to do

but what it is likely to achieve and they are utterly different things. so the fed, by implementing quantitative easing, a fancy way of creating currency that didn't exist before through a tap on a computer keyboard, quantitative easing is meant to revive animal spirits in the economy. what it often does is to inflate the wrong prices, make greenwich, connecticut, even richer, and set us back in the progress of adjusting from the last bout of bad monetary policy. >> but that office, it seems like you're way too narrow in your scope. >> you have to start somewhere. >> i know but it wouldn't just be for the fed. couldn't you open up a government office of unintended -- couldn't we get rid of -- >> you're building an empire. that's what's wrong with washington, d.c. >> what are the three rick perry wanted to close? education, epa -- how about we

close three and open the office of unintended consequences. >> okay, done. it's decided. >> it's certainly not confined to the fed. >> it's straight department of unintended consequences. >> which will cover all of government. we will have much more to come from jim grant. you've never designed a bridge. please don't -- >> no. i have bought one. >> he could do it. i would, too. still to come, day one of the fed meeting with the fiscal cliff looming we'll talk about the issues facing the markets. up next he advanced index funds that crushed the competition, one of the most important tools in the investment world, when we return, we'll talk a lot about it. ♪ let's get it started comments, questions, send them to @squawkcnbc on twitter. follow the show and look for updates from andrew, becky, joe and the "squawk" staff. 0-345-250 when i'm trading, i'm totally focused. tdd#: 1-800-345-2550

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welcome back. he's considered the father of fundamental indexing, rob arnott is the manager of pimco's all asset fund. rob, you say when we look at the future there are concerning issues we really need to deal with but the biggest one may be growth is going to be much smaller in the future than it has been to this point? >> yeah, one of the main sources

of the head wind relating to economic growth is simple demo graphy. we're growing older. the support ratios for the number of senior citizens is going to be growing. gdp growth has two engines, growth in productivity and growth of the labor force. the number of people, the simple number of people in the working age groups is going to be growing about 1% per year slower in the next 30 years than the last 60 years. there goes 1% of gdp growth and older worker, while they may be at peak productivity, as long as they're not manual labor, are, in fact, growing their productivity slower, so productivity growth also slows. i think we're looking at high likelihood of 1% gdp growth in the coming 10 to 20 years as in effect a new normal. >> that is a really tricky thing to get your head around if you're an investor. how do you play something like that? this is the new normal and not

the new normal that sticks around for a couple of years but something that is here for a long time to come. how do you invest like that? >> firstly, you can't invest money you haven't saved so people need to ramp up their savings rate, ignore government commentators who say they need to ramp up spending. no, we need to ramp up saving and investing. secondly, we need to ratchet down our return expectations. if stocks yield 2%, that's the dividend yield on the s&p 500, then what kind of return can you get from that? over the last century the average growth rate in earnings and dividends has been 4% so that gets you a 6% return. that's it, and that's the cap, because we're looking at slower gdp growth in the years ahead, which means really stocks are priced to give us 4% to 6%. people who are looking for the markets to do their savings for them are in for a rude awakening, because the markets aren't going to save money for

them. they have to save money themselves, set it aside for their future. >> rob, it's not just people who are assuming the market's going to do savings for them. it's also pension funds. >> you bet. >> in great numbers. we've talked an awful lot about that recently how a lot of pension funds assume 7% to 8% growth otherwise they'll not meet their obligations come 20 years from now. >> that's exactly right. if a public pension fund, let's say a state pension fund were to simply buy an immunized bond portfolio to match their liabilities they'd find they're 30% to 40% funded which means they're expecting the markets to make up that difference from 30% to 100. well, that's not going to happen. if we're looking at bond yields that are below the rate of inflation, negative real interest rates and if we're looking at stocks priced to give us 4% to 6%, a safer assumption

is something around 4, not 8 and that means that pensions all over the country, in fact, all over the world, are far more severely underfunded than they realize. >> so what does that mean for me, as an individual, sitting at home? i heard your message about stop spending so much. i heard your message about start saving more and investing more. where do i put that money, if i look at bonds particularly any government bond, you're not going to be getting anything worth writing home about. >> well, there's three ways to boost returns if mainstream stocks and bonds aren't priced to give us the returns we want. one is to look outside of mainstream, a whole spectrum, a pa in aplea of markets to choose from. we can avoid the 3-d hurricane, the internet deficit of debt and dmok fee which investing in emerging stocks and bonds. we can invest in commodities, we can invest in real estate and so

forth, and so using that broad spectrum is one of our tools. another is simply seeking out ways to add value. one of the things that i'm really proud of is that fundamental index has done so well for so many investors for the last seven years. >> rob, this is jim grant. good morning. >> hi, how are new. >> good, thank you. tell us about balance sheets as well as about income statements, the people, for example, at third avenue value fund are quite keen on the idea of resource conversion as a way forward in generating returns, namely restructuring balance sheets, the focus on asset values as opposed to growth in earnings per share, m&a and the like. demographic problems are not -- surely there are opportunities for well-financed companies doing creative things in those

departments of finance. >> absolutely. one of the things about fundamental index is that it weights a portfolio in accordance with the economic footprint of a company's business instead of weighting it in accordance with the company's popularity or its perceived growth prospects which may or may not unfold, or its perception as a safe haven. it weights companies according to quite simply how big they are and so for every $100 you invest in a conventional index, you're going to chase growth, you're going to chase popularity, you're going to chase safe havens and with the fundamental index you're going to be loading up on maximum possible sales, profits, book value, dividends in your portfolio instead of loading up on perceived opportunities for the future that may or may not come through. >> rob, we've been looking at 10 or 12 disappointing years in the stock market. is it not possible that by

projecting ten more we are looking backward rather than looking forward? >> you know, that's a common question. what we find is that there's long horizon meaner version, that is after a good decade, frequently the market delivers less in the next decade and vice versa. for instance, the 1990s, best decade in capital markets history was followed by the decade of the oughts or the nots, the worst decade in u.s. capital markets history. unfortunately, the peak of the tech bubble back in 2000 was at such lofty valuation multiples that a really bleak decade brought equities back down towards historic norms of valuation, not to a level that would be considered cheap. so i'm not suggesting that the market will disappoint as much as it did the last 12 years but we aren't looking at terribly rosy prospects.

>> rob, thank you for joining us today. we appreciate your time. >> thank you very much. >> we have much more to come from our guest host today, jim grant. check out the shares of pfizer revenues and earnings beating the street and we've also got some, we went and got street estimates for all the different product sales and how the company did and it's pretty good. lipitor above expectations, norvask above, lyrica above, celebrex. here's one below, viagra, 485 million versus 518. >> what do you think happened? >> i'm not sure. i am going to tell you that is a multiyear high we're looking at. >> you have not been to the drugstore recently. >> i was over in europe where love is natural. i didn't need -- it springs eternal when you're in a rom romantic place. >> therefore -- >> it always does. coming up, business and

politics -- >> not good business for pfizer. donald trump is our guest from the fiscal cliff to the run for the white house, find out what's on his mind at 7:30 this morning. time for today's aflac trivia question. what is the cheapest car of all-time? the answer when cnbc's "squawk box" continues. man, i'm glad aflac pays cash. aflac! ha! isn't major medical enough? huh! no! who's gonna help cover the holes in their plans? aflac! quack! like medical bills they don't pay for? aflac! or help pay the mortgage? quack! or child care? quack! aflaaac! and everyday expenses? huh?! blurlbrlblrlbr!!! [ thlurp! ] aflac! [ male announcer ] help your family stay afloat at aflac.com. plegh!

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now the answer to today's aflac trivia question. what is the cheapest car of all time? the answer? the 1922 red bug, cost between $125 to $150. >> aflac! welcome back to "squawk." we were guessing yugo on the set. we clearly missed that. pfizer reporting better than expected earnings and revenues, among the catalysts, lower costs. ubs reporting a surprise slump in profit, hit by big trading losses on facebook's stock market debut and drop in investment. ubs suffered a $356 million loss as a result of what it's now

calling nasdaq's "gross mishandling of the facebook offer." it plans to take action against the exchange. and finally the fomc gathering in washington for a start of a two-day meeting, fed officials cite weakening job growth and consumer spending. economists are watching to see if the fed announces another round of quantitative easing. >> they have jobs also and the election are sure to dominate headlines over the next few months. joining us on the "squawk" u.s. in line, donald trump, chairman of the trump organization. i just happen to see i've been out, donald, i looked at "drudge" this morning and the cnbc andrew was pointed it, strategists are saying the market's going up because it's starting to discount that romney is going to win but i don't know if you follow in-trade, donald, and if you look at some swing states, president obama still seems to be doing pretty well in important swing states and he's still at almost 58% on in-trade.

do awe describe anything to that notion that the stock market's doing better because it's discounting a romney win? >> no, i really don't but i think romney is doing very well and i think the polls are sort of indicating that. some polls he's leading and some polls he's slightly behind but no matter what happens it's going to be a close election, going to be tight but i really believe he's doing well. the economy is not doing well and that's bad for president obama. >> i read in the european press is even harder on mitt romney i think than our press here, and everything he said over there has been microanalyzed, his comments about the olympics, then he made some comments about, i don't know, palestinians. everything that he's saying is being parsed -- >> that got big play here, too. >> yes, but i read in one of the british, i think the ft, a guy said "not mitt to lead," and that we had the early call on a lot of things, even though the tabloids in great britain may

not have it right on everything, they have him being a crummy leader. is he making missteps or they're telling us he's making missteps? >> when obama went over to europe a year ago and he was with the queen, and he started making a speech in the middle of their anthem, and then he signed the wrong date by three years, nobody criticized him and frankly they thought isn't that wonderful, isn't that cute? if romney did it or somebody else did it, they would have made a big deal out of it. what he said about jerusalem you may not like it and a lot of people may not like it but the israelis love it, and i think he perhaps did something that would make him very popular in certain circles, so we'll see how it all plays out. certainly the press has not treated him nicely, but they never have. >> fred dansen, what he said, it wasn't really walked back that much. he's not fred back.

if dan senor is going to back him -- >> he looked like he was giving his blessing. >> he's not setting u.s. policy yet, he's only a candidate. you know he's not changing -- they walked it back and said he's not changing u.s. policy but it seems like -- >> one of his aides took it a step further. >> dan senor, our friend who has been on the show and dan probably set up some of the meetings in israel. we'll see what happens. it does seem to be taking a toll to some extent, donald, in likability polls. the president is 20% ahead, whether it's the dog on the roof or whether it's that gail collins has written about 70 times. >> she's kind of gotten off the dog on the roof lately. >> did you read maureen doud yesterd dowd before. why should we elect another

automaton when we've already got one. >> joe i think likability is interesting. the president is way down on likability from what he was, but he's down because of the negative ads he's put in and he's really put them in at record levels and i really think that likability is being switched over for competence and if you notice when it comes to competence, romney is far, far in the lead. so it will be very interesting to see what happens. it's going to be close, but many polls have romney ahead right now, so that's interesting. and it's early. >> it is. we've posed this question, i posed it to jim grant earlier. you remember the late '70s, donald, are we in a new normal where we're just going to muddle along for, you know -- i hope i live a long life but i'm starting to wonder whether i'll see the days of the '80s and '90s again. have we just as a planet lived beyond our means for too long to where we'll have decades of

coming to grips with that or can we get back to where we were? >> i listened to jim say basically trouble is opportunity and there's great opportunity out there. there's amazing opportunity to do things, and one of those opportunities is certain types of real estate, including houses. there are certain areas that it's too late. miami, certain parts of new york, there are places where the market is better than it's ever been. it's been amazing. miami is the greatest example of it. miami is through the roof, and you know, two years ago, you couldn't give away apartments and in miami, it's a little bit of an outside influence because south america, whether it's brazil or argentina, venezuela, they're all pouring into miami and miami is an amazing story. er th there are great opportunities in real estate and especially if you're somebody looking to buy a house and it's going to start to go up, and i always tell people, this is the time. i tell all of my employees, if you want a house, this is the time to buy a house, and go get it from a bank, because the banks will give you financing, if you buy it from a bank.

>> donald, how do we get those lists? >> you can get them from the banks and the banks hire people specifically to sell their houses. the banks are dying to sell their houses. they do not want them. they're being absolutely mugged by the people that run the houses, they hire security companies to go in and guard the houses, and the security guys are robbing the houses. the banks do not want these houses, and you can make unbelievable deals and i tell everybody that has a mind, go out now, buy a house. ideally buy it from a bank. if you don't buy it from a bank it's virtually impossible for these people to get financing so buy it from a bank. >> ron, what about raw land in places like the gulf coast? it seems to me there are a lot of b plus pieces of land that are selling at like d or f prices. >> right. >> do you see much opportunity there? >> i love what you said about raw land before. i think it's great. one of the best investors i know

is buying out as much raw land as he can in decent locations. you can't go bad location because that's too long, but in decent locations, and in some cases, almost "a" locations, jim, because the raw land is selling at pretty good prices right now, pretty good for the buyer. >> yes. >> i think buying raw land is great. >> you know, when the vp is going to be announced? it's coming up, got to be. >> you know who it's going to be. >> who is it going to be? >> portman. >> i thought it would be condi. >> another one people are thinking about is bob macdonald of virginia. >> great hair. >> rubio, he's got great hair, that's true, and rubio is a chris christie, i don't think he'd want it but chris is great. you have a lot of good choices. >> pawlenty still in the running, too? >> i think t. paw was there, too and the two ps, portman and

pawlenty. donald trump, think being not in a bad location, i think some of your locations, trump tower is probably good, fifth avenue normally works? >> 57th and fifth, that's about where we start. 57th and fifth, that's where we begin, and that's where trump tower is. i've always been a location person. i believe in -- look, i have seen so many really bad markets where you have something in a great location and you go through that bad market like it's nothing so it's very important. >> donald trump, thanks. >> have a good time, thank you. comments, questions about anything you see here on "squawk" including what the donald just said, shoot us an e-mail, squawk@cnbc.com, follow us on twitter @squawkcnbc the handle. still to come a mountain lion roars, apple's new operating system providing a big lift for mac users. we have detail s after the brea. [ male announcer ] every day, the world gets more complex.

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welcome back to "squawk box" everyone. the new apple operating system for mac users has roared on to the computer scene. apple releasing mountain lion and within days 3 million copies have been downloaded, the

fastest launch of an apple operation ever. ford may put its future generation of pickup trucks on a serious diet. the upcoming remake of the "f" series will reportedly shift away from steel to aluminum in an effort to ditch as much as 700 pounds off of the truck's weight, a lighter body would make the truck more fuel-efficient and help the "f" series meet the tough new mileage standards that began in 2016. you got to wonder if the guys who love their "f" series trucks will be on board with that. when we come back, eyes on europe, the fiscal cliff and a whacky bond bubble. so should bondholders do what, after this? we'll ask bond pro michael harkins after this. [ male announcer ] how do you trade? with scottrader streaming quotes, any way you want. fully customize it for your trading process -- from thought to trade, on every screen. and all in real time.

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making headlines, shares of coach down, lower than expected fourth quarter sales, results hurt by the deals that coach offered shoppers to lure them in to stores in north america in the outlet stores, also a dip in shipments to department stores. >> you see a lot of coach? you see a lot of leather in italy. >> i did. >> did you buy?

>> i was told long ago not to go with coach. it has to end in a vowel for a purse. >> oh. >> by the -- yeah. >> prada. >> yeah, except maybe -- >> louis vuitton? >> yes, that's an "n" or the other, jimmy choo, oh that ends in an "o." where are you on the purse thing for pilar, not your man bag, your purse. >> louis vuitton. >> a lot of knockoffs. >> i'm all for buying them but i don't like knockoffs, knockoffs are bad. time to put europe in focus, joining us is michael harkins, president of levy harkins. thank you for being with us this morning. let's talk about the bond market and what you're calling a big bond bubble. why? >> because interest rates are so low for so long, and they're so

very dangerous, the arithmetic of the bond market is unforgiving. if you buy a ten-year treasury today, this morning, you get 1.5%. okay, a year from now, if interest rates, by some miracle, good times break out, this is the united states, it's happened once or twice before, and good times break out, and interest rates go to 2.5%, that bond you purchased today will be down eight points. you'll have paid 102.25 and you'll get about 94 and change. >> listening to this gentleman on the set, you would have no sense -- i don't know, i don't want to misstate this, i'm not sure you would think good times. >> you're about to, andrew. >> i'm not sure good times are a-comin' and we've had a number of people on the set who said that. >> interest rates are not good times. this is not the apocalypse. this is kind of okay, life goes on, and yet we have interest rates pitched well below measured rates of inflation. >> that's because of what the

central banks are doing. >> it's also muscle memory, 31 years and counting. >> i've joked, nobody's published a balance sheet since 1992. we're running to the veracities from 20 years ago. the idea the germans can borrow money at ten years at 1.4% is astounding, all the more so, if you ever were in the german bond market back 20 years ago and they were paying us 9.5%, it was painful. >> tell us about your experience in the german bond market way back when. >> financially it was great, sociologically it was awful, the clients were dreadful. the clients despised having their money that far away. >> this is 1992. >> 1991, ten-year german bunds, 9.5% and three ways to win, the deutsche mark could go up, the bonds could appreciate or the stock market could explode. all three things happened. now there are no ways to win and

a german politician, sarah vagenkinect she's in "spiegle" claiming the germans should repudiate one-quarter of all their debt. that is by far the most popular german mg scene. >> the concern you have as an investor you watch what bill gross and others at pimco have been making the same argument and got their clocks cleaned on some of this stuff. >> you never get a bubble to go absolutely crazy until you can get a moment where people say yeah, but you said that last year and it didn't work. that's how you get the imperial grounds of the japanese palace to sell for the same price as all of the state of california. that's how nutty it got in 1988 and '89 in japan. now they're 1.5 and we're denying arithmetic. that's how you know we're in a

bubble. >> we expect the fed is going to say they'll keep the rates low until 2015. >> what is the most interesting sovereign piece of debt that you could buy right now? >> good heavens -- >> while you think, so the swiss has negative yields, out to ten years i believe, it was five years last week, i think it's out to ten. that is the most interesting, not the most credit worthy or viable but certainly the most, best story. >> going back to your point they're putting interest rates out for the next three years, they're going to tell us tomorrow afternoon what's going to happen in three years. you have people in your book to admit to incredible inpercipients. they didn't know who was in trouble, they were stunned over weekends to discover. >> like a little penicillin will

clear that up. >> they didn't know what was about to happen and now they're clairvoyant. >> they're going to play the music on us in a second. thank you for coming here. coming up the thrill of victory and agony of defeat. we'll check in with carl quintanilla next. [ male announcer ] drive a car filled with as much advanced technology as the world around it. with the available lexus enform app suite, you can use opentable to make restaurant reservations. during the golden opportunity sales event, get great values on some of our newest models. this is pursuit of perfection.

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from badminton to field hockey to swimming the olympics are in full swing. carl quintanilla joins from us london. carl, i wish i had a lot of time to talk to you. >> we're already complaining about it. >> i was over there, as you know, and i was watching the bbc coverage, and i got back and i said, i saw bob costas and you and others and i hugged the tv set to get some olympics coverage that was worth watching and it wasn't featuring people that finish in last place and the stories about that. >> during the opening and the whole tribute to the national health service i just wished you were on the next day, joe. >> i watched that. it was like they had to show us -- we see what you're doing with obama care over there. we love -- that's not what i hear from people over there. i don't get that. what was scaring the poor kids with the, i don't know, death was at their bedside. >> one of them was voldemort,

carl accused you of being on halloween. >> why did they have so many people dressed up as abe lincoln. wasn't he american? >> can i do this hit? am i going to do this hit? >> we're going to go along with you. >> i know, not too much time. the story's largely been about the shortfalls of ryan lochte and michael phelps but this morning it's all about missy franklin, 17 years old, 6'1", her first individual gold in the 100-meter backstroke, amazing story, great for the u.s. so far, guys, team usa swimming has 12 of the u.s.'s 17 medals and four of the five golds, so there's a lot of success in swimming even though it's not surrounding the medals, one silver and two bonds, tied for tenth overall. the u.s. won the count at every games since atlanta. tonight michael phelps his signature event the 200-meter fly. he has the chance tonight to be

the first male swimmer to win gold three times in the same event even though he seeded fourth. tonight also men's hoops and joe, women's beach volleyball although it's so cold and rainy that they had no bikinis on last night and have no bikinis last night. >> they had nothing on? >> nothing at all, if it's cold -- oh they're wearing more than a bikini. >> they'll wear more, yes. >> i saw some coverage there and i saw the silver medal live i think the first one that, when the brits with the cycling, i saw that win 46 more times, the silver medal while i was watching on the bbc. it's okay. you got to watch what you say. >> they are here and i'm sure you heard this, they're so frustrated by their own lack of medals they're trying so hard to hide it when they're come tating on air and they're a little snarky i think toward the u.s. -- toward anybody,

actually, that's not briton. here's "the sun" -- "wanted: gold medal" because they're so frustrated, even with the silvers. >> but we still get all the personal interest stories. i expect gold when it's run like we do, the personal interests on nbc and the person usually wins something, they don't finish eighth. q, you're doing great and have fun. you're lucky. >> we'll talk longer tomorrow. >> yes. when we come back the ceo of cargill. stick around. m. m. family... i lead the cheering section for tatyana. friends... i push her, i push her a lot. coaches... i take some of the pressure off. he takes some of the pressure off. she's a fierce competitor. when you meet sanya for the first time, you better tighten up your skates. thanks coach. bp is honored to be part of the support network for team usa. the team that stands for us all.

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heading for the fiscal cliff. >> don't drive angry. >> we have the results of the fed survey. >> we are at fefcon 1. the dangers of the drought. >> i'm dying, dead, finished. >> the ceo of the nation's largest food producer, gregory page of cargill tells us why we should not push the panic but theton yet. >> take to us defcon 5. "squawk" is ready for fine dining. famed restaurant tour is joining us on the set and whipping up a

tasty menu. the third hour of "squawk box" begins right now. ♪ food, glorious food ♪ still worth the king's ransom ♪ welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen along with becky quick and andrew ross sorkin. our guest host is jim grant, well-known founder and editor of "grant's interest rate observer. "u.s. equity futures, pfizer had good numbers although now we're not up as much as we were earlier, up about 11 points for the dow jones, which at least at this point are still above 13,000. it's been a while. let's talk about headlines, fomc gathering in washington for the start of a two-day meeting. fed officials signaled concern about weakening job growth and consumer spending so economists are watching to see if the central bank moves towards announcing another round of

quantitative easing. apple is in the news, lawyers for apple and samsung will begin opening statements today in the company's big patent trial. the jury was selected yesterday. among those on the jury an insurance agent, unemployed video game enthusiast, and a project manager for at&t wireless. that's actually sort of an interesting mix. the tech giants are cuesing each other of patent violations as they vie for control of the mobile device market. the trial is expected to last four weeks. meantime apple is reportedly gearing up to unveil a new product at a major september 12th event. the big speculation they'll introduce the fifth iteration of the iphone 5, a larger screen and smaller dock connector so those of us who have had the apple connectors for years we'll have to throw them out and buy new ones. >> boo! >> exactly. u.s. ranchers and poultry producers are looking to the

government for relief from the severe drought in the midwest. they're lobbying for a one-year reduction or suspension of the u.s. government's ethanol mandate that requires more than one-third of u.s. corn harvest to be used in motor fuel. corn and soybean prices have been climbing back towards last week's record highs, have that big drought going on, meat prices are expected to rise as producers shrink herds and flock to reduce costs. not since 1956 has the agriculture industry faced such record drought numbers as we've been seeing recently so the question is, will the government need to step in to help with the 3 billion bushl shoel shortfall expected? joining us is greg page, ceo of cargill. first of all, why don't you set the table for us. how big of a problem is this drought right now. corn prices have skyrocketed, touching above $8 yesterday. >> good morning, becky. i think the problem is serious. we expected to raise 14 million

bushels of corn and now it's perhaps 11 or less. we're going to reduce supply in a multitude of ways. number of ways which that will happen, the rationing by poultry and livestock users all across the globe. we see it starting to happen in china, you talked about things happening here in the u.s. we think that it is a manageable problem, but it will need thoughtful responses from governments. we need to be sure that free trade remains, that in past periods of short crops we've had embargoes that exacerbated people's supply concerns. they raised anxiety and caused people to take actions that were not helpful to global aggregate food security. >> things like what? what sort of actions are we talking about? >> well, in some cases, those countries that typically buy and import their food, if they needed six ships of grain, they bought eight as a way to give themselves an additional margin of protection for fear that additional embargoes would

arrive so what we had was supplying countries put on embargoes against exports and we had importing countries that in many cases were buying more than they actually need. the combination of those two actions by governments exacerbated the sense of shortfall and i think accelerated the price increases. >> but the reality is we are talking about a 3 billion bushel shortfall. how does that play out and what impact can we expect to see on prices, on what's going to happen down the food chain? >> we've seen it already in terms of prices but to put that 3 billion bushels in context and certainly the u.s. isn't the only country facing issues, we have a modestly disrupted monsoon in india, some weather problems in parts of the former soviet union, and so there are few other small trouble spots but we have other places that are going to have excellent crops. we're looking at about a 3%, perhaps 4%, depending on how the summer ends in the northern hemisphere, 3% to 4% shortfall

versus the trend line production we would have seen globally so it's a manageable shortfall, if we make good decisions but there will be rationed behavior, as you mentioned, livestock cattle producer also likely feed less corn in the year ahead and all across the world we'll see the minor adjustments that are needed if we're to make up for the 3% to 4% shortfall. as for the impact on consumers, compared not to lower the prices we saw in may and june but go back to a year ago today, take the average consumption of aban american consumer, one ton of all the various grains per year, per person here in the united states, prices will be up about $75 per person for their annual diet, and so if you're a family of four on a tight budget, it's not inconsequential but to put it in context, it is about $75 per man, woman and child here in the u.s.er have su er haveu.s.

saw a year ago. >> greg, did you see adm's numbers? >> i did not see them this morning. >> i wonder -- i just don't know whether we can extrapolate -- the stock is, like soybeans, i don't know if i'd say crushed but 27.49 was the close, 26 bid, 26.50. i don't think the numbers are very good and it's because of margin pressure at this point i assume. would you have anticipated this? is this predictable? >> yeah, i think it was. when you have fewer crops to process as livestock producers feed less, they're going to need less soybean meal and therefore less demand for the facilities that companies like abm and cargill provide, so with less grain available, we operate our plants at a lower utilization rate than it typically hurts you both in volume but you occasionally see margin compression as well. >> greg, wall street is rooting for the fed to print more money, so-called quantitative easing. >> yep. >> as someone in the food business are you rooting for or against a big, new gush of money

that might tend to lift agricultural prices, land prices and all the rest? >> a lot of questions embedded in that. clearly long-term inflation i think will always be a threat to the consumer disposable income so to the extent that very easy money has a long and unfortunate tail two, three and four years forward probably wouldn't be in favor of it. you mentioned land prices and i know in your earlier comments you'd talked about land prices. certainly we've seen land prices around the world rise and i think to a great degree it reflects very low interest rates, to give some context, if you go back 20 years ago, the price of land was about 11 times cash rent. today it's more than 20 times cash rent. the impact is not price of commodities t is the very low interest rates allowing investors to feel comfortable with relatively high land prices relative to the rent that land will earn. >> greg, when you start talking

about shortages of corn and again, i know you're saying don't press the panic but thetot raises the question of what about ethanol and the requirement that ethanol be in a certain amount of fuel. is that something that you think needs to be revisited? >> in the last year, if you look at it globally, about 8% of our grains globally were converted into fuel, 12% to 13% of our vegetable oil was converted into biodiesel, so that gives a global sense for it. here in the u.s., about 40% of our corn last year was converted into fuel. the challenge that we see f all of this rationing to deal with the 3% to 4% reduction versus trend line in production this year, if all of that burden of rationing is placed only on livestock and direct food consumers, it really makes the burden disproportionate, and so what we see are 3% and 4% declines in supply, leading to

40% and 50% increases in price and i think the mandates are what drives that price elasticity which i think needs to be addressed. >> and if it were addressed, how quickly could the government address that? would they be addressing it before they get to the next season? >> there are mechanisms in place for a combination of agencies. there are some controls involved, but there is a methodology to reduce the amount of biofuels that is mandated here in the u.s. certainly we saw in brazil a year ago in the presence of a drought there, they made adjustments to their biofuels program that reflected the constrained supply as a result of weather. there have been other countries that are big proponents of a biofuel component in their energy policy who have taken action in the past, and the tools are there for us to do the same. >> you have 34,000 employees. you've got more than 30 different facilities that you operate with your north american business. what are you hearing back from your customers at this point?

>> so i think those are the numbers of employees that we have just in our livestock business, but clearly i think you saw in the last few days some positive indications on store traffic into the food service industry, restaurant visits, and so it's very mixed, clearly people are being careful. we probably see the biggest impact through our retail customers in what else' in the shopping basket. clearly high meat prices impact the most, meat is one of the expensive protein typically in the consumer's shopping basket. we feel a sense of caution and restraint particularly in the meet section of the shopping basket. >> greg, would you be inclined to hire or not hire, knowing the labor market is going to begin moving again, you have 34,000 employees in your large stock operations. what would cause to you want to hire more? >> demand, and so clearly we

would hire those people necessary to promptly serve the demand that we see out there. unfortunately, for us this year, in many of our businesses, we haven't necessarily laid off employees, but we have operated fewer hours, so the size of the paychecks for many of our employees is modestly smaller than it was a year ago and that's one of the early signs of diminished demand and eventually fewer livestock numbers. >> greg, the flipside of the question in terms of demand, is there an interest rate or anything the fed could do which would make you invest in either new factories or new something, putting aside the labor issue, for a second? >> to speak to investment for cargill, last year we set an all-time record for capital investment on a worldwide basis. this year probably the third or fourth largest year in history so we continue to see pockets around the world, where there is increased demand for the services that we provide, and we have a fairly robust capital

budget, so we may be atypical for some of your guests but we've come off of a year of fairly robust capital investment and have a reasonable agenda for the coming year. >> greg we really appreciate your time, thank you for joining us today. >> you're welcome, becky. when we come back, positioning your portfolio, we'll talk with value strategy investor paul isaac. and famed restauranteur, dan broulier, chef owner of at ward, several many award winning restaurants in manhattan, he's expanded his culinary region out of miami, london, beijing and singapore, he'll join us in the next half hour. what's the face? give me the accent. >> daniel baloud. >> you're not going to give me ba-lay?

with the fidelity stock screener, you can try strategies from independent experts and see what criteria they use. such as a 5% yield on dividend-paying stocks. then you can customize the strategies and narrow down to exactly those stocks you want to follow. i'm mark allen of fidelity investments. the expert strategies feature is one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account. this is new york state. we built the first railway, the first trade route to the west, the greatest empires. then, some said, we lost our edge. well today, there's a new new york state. one that's working to attract businesses and create jobs. a place where innovation meets determination... and businesses lead the world.

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welcome back to "squawk box." futures up about eight points remarket making headlines, discovery communications posting better than expected quarterly earnings, the company pointing to revenue growth at its international and at its

domestic networks. pretty good domestically but also a lot of the growth that zazlov is orchestrating coming from international expansion which i don't know, i didn't know that was the obvious thing to do. >> places where they've moved in, brazil, massive growth that comes in. >> in a lot of those foreign countries, dirty jobs, i mean, there are some -- yeah. you can find even crummier jobs than we have here. >> the translation translates universally. >> that's the nice thing you can say, more politically correct but there are some dirty jobs, even dirtier than here. >> a couple of good shows. we have a superstar investor, actually now we have two, his fund has enjoyed an average annual return of over 20% per year, since inception and our guest host, jim grant also dedicated his book to him. paul isaac, i can't mispronounce that name joins us now, principal and portfolio manager

at arbitor partners. >> thank you, nice to be here. >> in these relatively awful times you do what? >> you just keep on trying to find things that you think are cheap and that you believe will ultimately wind up being worth a fair amount more than they are worth now and part of the things that we do is we don't really believe that we can identify an immediate catalyst better than most of the rest of the people in the market and therefore we tend to have a somewhat longer horizon than most. >> is there any catalyst that you see right now, by the way, at all? >> for individual companies? >> broadly speaking. we've talked about the fed propping things up. is there anything else out there? >> no, there are people -- >> that makes you hope. >> there's always hope but we're trying to repeal the business cycle and i don't think it's going to work very well and as a result there's an adjustment process and it's going to be fairly painful to go through. >> paul, there is almost a single-minded focus in wall street on the income side of the

ledger. people talk about gdp growth, they talk about earnings growth and earnings momentum. it seems to me almost the value tribe is unique in its focus on balance sheets. so how does a balance sheet-minded investor proceed in investing and how is that different than what somebody might do who is looking only at earnings? >> well, two things. first, generally you think an income statement is going to tend to flow from intelligent adjustments to balance sheets over time, that if you have honest corporate managements that are working hard, they're going to try to have the return on their assets revert towards the mean and therefore if you're buying things that tend to have cheap balance sheets that ultimately that will be reflected under a different set of circumstances and better income state and better valuation. it isn't just wall street focused on the income statement. it's clear that the fed is concerned any kind of downturn

in income would propagate backing the balance sheets and therefore create financial stress that would cause the economy to go down. >> you know what's interesting is that, so the dow today is about 13,000. >> right. >> it was last at 13,000 in november of 2007. so then the book value of the dow jones industrial average was about a 3,000 number, 3,000 on 13,000. today the book value is 4,800 on 13,000 so the price book, the dow has fallen way below what it was the last time the dow was at 13,000. >> you can argue it's "alice and wonderland." >> yes, to be sure. yes, not only has price book declined meaningfully but it could be argued the quality of the book value has increased substantially so we're 13,000, as we were, but at a better 13,000 with regard to the balance sheet of the dow companies it seems to me. is that -- >> if you're looking at it as a

whole, it's not historically terribly cheap. some of that is distorted because you've had active share buybacks and that clearly reduces book value in some cases for companies that have very good businesses, and part of it is a question of how companies deploy their free cash flow, and third, i think you do have a developing issue in terms of the inadequacy of corporate pension plans, if some of these interest rate policies persist for a very long time. i'm not sure that book value is the only or even prime metric that you should be using. >> i want to ask you about one particular stock, which is amazon. you're a long-term investor of values. some suggest amazon is being run like a company that is supposedly longer term than most and yet you don't like this company at all. >> no. >> why? >> well, for a couple of reasons. first, there's a question separating out price and value

from the underlying operations. clearly amazon does certain things really, really well. they've managed. they have good fulfillment operations. they've managed to dominate various aspects in the media business, but the price is enormous, and they have a couple of headwinds, one is that some of their inherent structural advantages in books, dvds and cds are going away because digital media offers other competitors opportunities to come in and compete with them more effectively. they are building a tremendous number of warehouses, they're more exposed to sales taxes which are likely to go away in any event. at the end of the day, they really are dependent on a guy in a brown suit and a brown truck delivering merchandise. it is a company which has grown to enormous size and has yet to demonstrate that they can turn that into net income. they're not in the, we're losing money and making it up on the volume. we're not making money and making it up on the volume, and

i this i that world of increasing digital sophistication is at best a not proved verdict. >> paul we have to run but give us one stock you like. >> sealed air. >> bubble. >> yes, that's a bubble stock. >> love to pop those little bubbles. >> who doesn't? everybody loves that, if they're a kid or adult. >> it's depressed in part because demand out of europe is a lot lower, they took on a leverage buyout for which they paid a fairly full price but on the other hand they have cheap financing for it, the financing is termed. >> okay. >> and it's i think a very attractive stock two to three years out. >> paul thanks for coming in. >> my pleasure. thanks for having me. when we come back, more results from cnbc's exclusive fed survey. we'll talk about the politics of interest rates and the implications for the fiscal cliff. plus we are pulling out all the stops for breakfast this morning, famed chef daniel

baloud is in the house, his executive chef olivier kenyon is whipping up famous award winning recipes. >> awesome.

coming up, personal income numbers and spending for june. is [ male announcer ] when she takes the starting block this summer,

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welcome back to "squawk box." june personal income up 0.5%. spending, gooseegg, unchanged. if we look at last month's, up 0.3, originally released 0.2% and down 0.1 on spending unchanged as well. i don't mind this dynamic. income moving higher, spending a bit flat. maybe there's a little saving going on. but i'll tell you somebody who doesn't like it, the guy sitting at the big spot at the table at the beginning of the two-day fed meeting. remember, we're in a consumption economy, they're doing everything they can to make

interest rates more negative. they want to see some spending. now if we look at second quarter employment cost index, it rose exactly as analysts had predicted and pretty much the same as our last look, up 0.5. so summarizing the data, not too far off the market with expectations, income strong, spending unchanged and cost of index rising in a fashion that is predictable. we see interest rates are three basis points under 150. we have three central bank meetings over the next several days. the u.s. gets to go first. i don't know if this is like poker usually you want to be the last guy dealt a card but we'll have to wait and see. back to you. >> great, rick, thanks. steve liesman joins us with more results from his cnbc's -- he's the head of our economics department as chief economist. from the survey. >> i'm also the senior vice president of public opinion research. >> and the front man for the mud puppies. >> moon cussers. >> moon cussers.

>> which would be garcia's 75th birthday. >> larry kudlow is with us, larry legend i like to call you, great tie. >> thank you. >> is it new? >> it is new. >> great knot. >> this light blue thing i like it. >> yeah, yeah. >> i can see it moving. >> you're disrupting once again. you're disruptor is what you are and you should have been one of them. >> i am one of them. >> very good. we're glad you're back, joe. >> you see who we have here. >> another disruptor. >> absolutely. >> it's disruptors all around the table. >> you see the way he mixes interesting sort of it shall -- >> right. >> -- what would you call them, metaphors and allegories. >> he's not that interesting. you're fooled by the bow tie. >> that's a low comment. you're free to say something. why even bother. >> it's like a guy with a british accent. >> i think i've said enough. >> results from the survey we asked our 50 respondents who

were economists, money managers and strategists what the biggest threat that is facing the u.s. economy, it wasn't inflation t wasn't high gas prices, they got goose eggs. deflati deflation, 7%, i was surprised, regulatory policies 16% and european crisis coming in second position at 30%, the fiscal cliff 41%, the top threat facing the u.s. economy. we asked people, is it affecting us now, will it affect us later? 4% said it had no effect, 18% later this year, 78% saying it is hurting economy, the economy and business already, right along those lines. david resler of nomura grade economist says the odds that we reach the cliff with no action taken is rising. dennis gartman, a sage but much like jim grant in my opinion "the biggest test facing the u.s. economy is that we shall do something truly stupid, raise taxes and cut spending aggressively doing immeasurable damage to the economy in the

process." finally "the fed now faces the possibility of trying to offset policy errors not only in the euro zone but also its own backyard on capitol hill," lynn reaser, point loma nazarene university. >> you have a $450 billion tax hike built in for 2013 and the rates would go up, thereby reducing incentives. i don't agree about spending. there's about $100 billion spending cut in there, depending on how you count it. >> right. >> it's 65 to $100 billion. my problem is, half of it is defense, and defense is not half of the overall budget. and when you read tax, it's very interesting. defense contractors and defense builders, this is probably the only place where government purchases actually stimulate the economy. they're actually building stuff. they are already laying people

off in anticipation of a failed deal. >> so your problem is not with the number, larry. you don't think $100 billion is a problem for the economy to think this year and then next year in terms of cutting spending? >> you know, and they have a lot of flexibility, but you know, here, the kudlow formula, stop a recession, we are perilously close to recession in my humble opinion. the bush tax cuts need to be extended all of them. we should be cutting the corporate tax rate and begin the process of lower government spending and we should also implement the keystone pipeline which is an immediate job creator. extend the full bush tax cuts, all of them, stop the class warfare. lower the corporate tax rate, cut some spending to give some confidence out there, and keystone pipeline, those would be my four points. there's nothing hard about this. >> you won't get there with this president. i believe this president is dead set on raising the tax rate.

>> you're completely right. >> for the wealthy and i also think -- >> it's staggering. >> i point out one other thing i believe the republicans are also not for cutting the corporate tax rate absent broader tax reform because it's a loophole issue. >> all of the plans from david camp and paul ryan, talk to any of them,er this more than happy to simplify the codes. that is real tax reform. >> let me stop you, what is the chance of that happening that you cut the rate and don't deal with the loopholes. >> you can't. >> that's the danger. >> you cannot do that. >> republicans and democrats have to take on the entrenched interests that are getting the tax entitlements out there. >> i love taking on the entrenched interests. >> i'm just saying the point of reality here. >> i'm a free market guy as well as a supply sider and please, everybody read steve moore's column in the "wall street journal" today about milton friedman saving capitalism, it's

a splendid column. my other point, there's a government shutdown threat, we should not forget that. if you read "the hill" website, thehill.com website which i think is the best for the congressional stuff, they have got to come up with a continuing resolution, otherwise there could be a shutdown. they only got a couple of legislative days. this week is the end, and they're going to overturn, they're going to extend the bush tax cuts. then they're going away, right, god bless them, take a three or four-week vacation. they come back in september and they only have, if i'm not mistaken, a few days in september before they take their election recess. it's not the debt ceiling, because geithner can do whatever he wants. >> it's right to spend. >> they've got to finish off, we're not going to make the september 30th and not going to make the january 1st obligations, and the government might run out of money. we could talk about that. there are pluses and minuses

there, but i'm just saying, add that to the mix of uncertainty and worries by business and hiring. >> do we have a second to ask you what you think the fed should do, larry? >> the fed should continue, as bernanke did, to point the finger at congress, and say the reason we have a 1.5% economy is fiscal and regulatory problems, tax and spending, and regulatory, and obama care. to me, with $1.5 trillion of excess reserves right now on the books, if the fed does a quantitative easing and throws another 500 billion in, you'll have 2.1 trillion in excess reserves, and makes no sense to me just pouring money into this. >> did you hear how jim said the balance sheet has been shrinking. >> yes. >> and -- >> fed credit down year over year over three months, six months? >> because they stopped the quantitative easing and that's one factor, i love this, because that's one factor i think helping the dollar.

>> larry, isn't there a looming continuous uncertainty in the value of the dollar? when you don't know from one day, week, fiscal quarter to the next -- >> preaching to the choir -- >> i'm not finished here. >> he loves king dollar, yeah. >> wouldn't it be better, larry, to institute a gold standard that would fix currencies in their place and in an objective way, what do you think, steve, pretty good idea? >> i disagree, jim. i think the dollar has been the least of the problems of the united states over the course of this financial crisis. there have been many problems, and maybe fed policy is one of them, but when you look at what's happened worldwide with the dollar, it has been something that has held up remarkably well and the faith in the dollar based upon the faith that the united states treasury and the united states public will back the dollars for their value is there and i don't think the gold standard is going to be a solution. >> i believe in faith, very strongly. >> i just want to point out the most important thing for the dollar is the policies that boost it.

>> ben bernanke doesn't look at the exchange rate, james is right and i don't see why they can't have a dollar price rule, stable money targeting the dollar against gold or if you want a larger basket of commodities it would all be an improvement. right this second, with the dollar rising sharply in the last what, four, five, six weeks, that's not the issue. it's probably -- >> inflation is such a non-issue. >> all right, we're -- >> there's a deflation pressure. >> we're just started. >> i know. you two together, it's like pointing two clock radios at each other and both turned on loud. >> that's why i'm so worried. >> you know who is here? daniel so sorry, guys. >> i guest host, i anchor and you have domino's and dunkin' donuts. you come in and some classy food comes to the table. >> what does that tell you? i'm not going to tell you anything. >> i'm not going to say

anything. i'm going to get nathan's. i like that food but i'm saying. >> 40 of them. >> joe teed it up, when we come back, restaurant week in new york and chef, entrepreneur daniel balou is broing bringing his award winning qucuisine to e set. tomorrow, we have them all there at one time, two governors and former fed vice chair. we'll see them. [ male announcer ] this is the at&t network. a living, breathing intelligence helping business, do more business. in here, opportunities are created and protected. gonna need more wool! demand is instantly recognized and securely acted on across the company. around the world.

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welcome back to "squawk box." not everyone is cut out for a life in the restaurant business but our next guest is a successful owner, that's an understatement of several award-winning establishments from fine dining on park avenue to sausages and beer at the

bowery. daniel baloud, french chef and restauranteur. i can do all of this now. i was at degalle less than 24 hours ago, a new addition in toronto will open in october, and you brought one of your great executive chefs, olivier with you, and there are so many ways to start this, because you are a great chef and you were a great chef. you were at la cirque in its heyday, four, five stars. >> four stars in the "new york times" absolutely. >> then you set out on your own. >> 20 years ago i opened daniel. >> being a chef doesn't make you a businessman and if you're not there cooking, not only do you have to make sure you have good chefs but the restaurant has to be run properly, it has to be financed. there's accounting, there's help, waiters. >> very good training first, i

think you have to work for the best in order to be one of them one day, and -- >> how do you find chefs that are up to your standard? >> well we train them. we sometimes take them out of school and make them executive chefs within five to -- i would not say five but seven to ten years. >> that long? >> yeah. it takes at least ten years to groom a chef, i will say. >> and we've seen these ridiculous reality shows where the owners of the restaurant have to be -- >> it's a little bit of an abuse of the name chef. >> they're not quite chefs but i imagine you have to be a great ceo too, to run a restaurant. >> very much. and definite netly there's a management company managing the operations, dynex group, supervising everything, basically it's managing the managers, and making sure that we have a vision within our restaurant, we meet consistency, quality, we, of course, the most

important thing is loyalty with our staff to make sure they feel comfortable working with us and they are really motivated, and the customer as well feels motivated to come back, of course, and i think consistency in our business, trust in our business, trust from our suppliers, trust from your customers and from our staff i think is very important. >> i have two questions. a, how much time do you get to spend in the kitchen these days? >> well, out of 14 -- how many hours do you work in a day? >> we work a long time. >> chefs easily work around 14 to 16. >> how many hours of a day are you awake maybe is the question. >> out of that, an average i spend about six to seven hours in the kitchen. >> most important question, how do you stay so slim eating all that food? >> i eat my own food every day, and no, i think i'm very careful. i am very conscious. >> portion control.

portion control. >> and food for me, it's health, and i think it's very important that we buy the best ingredients and then we prepare them the finest way and sometime daniel can be a very expensive but very elaborate meal and it can be a very simple meal such as what i prepared for you, which is basically a thai hotdog in a bun. it's a thai sausage in a bun and that's your breakfast for today, tbg downtown is the king come of sausage, burgers and beer. burger, bangers and beer. >> here it comes. what do we smell? >> thank you very much, olivier. what did you prepare? >> so thai sausage on a bun, sage. >> sage, that's what it is. >> thank you. >> thank you, olivier. i'm on a first-name basis.

>> that was quick. >> speaking of beer, the darden restaurants recently acquired yardhouse, which is a beer and gastro chain, 39 units, paid $585 million according to "restaurant finance monitor" that's $15 million per unit, $15 million per yardhouse outlet. >> right. >> isn't that a lot of money, even when you say it fast? >> i think it's a lot, but it is certainly the pay for the potential of growth more than for the reality of the business. i mean, dbgb is a very successful formula, where i think i always wanted to make sure as daniel the great chef i was going to be able to be affordable and when you have a dish at dbgb is affordable and yet met with the best ingredients so even my hotdog, i make the buns, we make the blend, we choose the best meat to do it. >> wow! >> and all that. >> can you scale this?

>> i can scale this up and i don't know if i'm going to be able to be bought out for $500 million, but -- we're going to try. >> in business, daniel, do you -- >> that's the only model that will be scalable. >> are you elastic or inelastic, with the financial crisis, wall street problems, did you ever see big declines, big snapbacks or is it relatively -- >> i think if you take very good care of your customers in good times i think they'll stick with you in rough times and food is still something will bring pleasure and will bring comfort, and will certainly is a luxury where people will be, it will be the last thing they will cut. >> this is spicy and delicious. >> this is amazing. >> amazing. daniel, thank you. took a while to get you in here, the day i get back, perfect. >> olivier, thank you, too. >> thank you, olivier. >> thank you. when we come back we'll talk about stocks on the move ahead

of the opening bell and head down to the new york stock exchange. and we'll finish these delicious dogs. . . to com e into a gym and train by myself, comit's nearly impossible. behind team usa stands another team. family... i lead the cheering section for tatyana. friends... i push her, i push her a lot. coaches... i take some of the pressure off. he takes some of the pressure off. she's a fierce competitor. when you meet sanya for the first time, you better tighten up your skates. thanks coach. bp is honored to be part of the support network for team usa.

the team that stands for us all. when we got married. i had three kids. and she became the full time mother of three. it was soccer, and ballet, and cheerleading, and baseball. those years were crazy. so, as we go into this next phase, you know, a big part of it for us is that there isn't anything on the schedule.

welcome back to "squawk" this morning.

ubs reporting a drop in quarterly profits. hit by a loss on the botched facebook ipo. tip of the hat for maria who reported last month that the banks lost on facebook trading could be as high as $350 million. it blamed the operator for making quote, multiple operations failure. ubs said that it will now seek full compensation for its losses. let's get down to the new york stock exchange. hey, guys, what are you looking at. >> well, coach disaster. north american slowdown, major focus. bring down a lot of the classic high ends. >> they pushed them into china, key markets, malaysia, that's an interesting time. you guys are laughing. >> no, my head was in the shot

and the director said something. >> he's eating the sausage. >> what are you eating? >> something from daniel boulud was just here. amazing. >> i just saw that. >> i like that. >> hey, jim, what about pfizer and that was a pretty good number, was it not. >> yes it was. and you know, they're doing the animal health spin. lot of people buzzing. >> i saw your tweets, jim. >> i was blue-skying it. >> i never thought of sprint, andrew. >> but, jim, you don't like the idea -- i was suggesting in the column that apple tries to buy sprint. it creates their own network. >> jim says no way because of their partners. >> verizon and at&t would never go for it. >> apple has so much leverage

with everybody else that may -- they still sell them devices but they would compete on the e other end. >> verizon and at&t do have a certain point, they can give away google's phone if they really have to. i thought that it was a great column. research in motion is great. but, again, you got that problem with verizon and at&t. they have been great partners. >> jim, we got to run. thank you for that. we'll see you guys in just a few moments. when we come -- we have some final thoughts from our grant host and some stocks that he actually likes. stick around. we'll be right back a of this. o. o. congratulations you are our one millionth customer. people don't like to miss out on money that should have been theirs. that's why at ally we have the raise your rate 2-year cd. you can get a one-time rate increase

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. we got some breaking news. let's get over to steve who has more. >> andrew, thank you. bundes bank telling cnbc that it should focus on price stability. the problem faces some member state are fiscal and those problems should be addressed by fiscal instruments. for examine pal, states should

use the esf if necessary. becky. >> all right, steve, thank you very much. some quick final thoughts from our guest host today, jim grant. you see some pretty good things to like when it comes to stock. >> yes, for one, google. which is kind of the considering could be argued as the most valuable company in the world that possesses the keys to the world of knowledge. i like the blackstone group. bx. which is in the private equity business and in the debt salvage business. it's priced for things as they are and not as things as well they might be. >> okay. we may have time for one more. >> i like trees. >> the black walnut trees, costs 5 bucks to