"squawk box" begins right now. ♪ ♪ good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky along with joe and andrew. we've been watching u.s. equity futures. after the big gains you can see red arrows. the stock futures down about 61 points on fair value. s&p off by over 8. the dow, s&p and nasdaq are up 13 to 15%. minor red arrows may not give you too much cause for concern. a strong dollar is hitting oil and gold prices. the dollar is down against the euro which is back below 1.30. it's also down against the yen. let's keep that relatively speaking, 101.60 is where the dollar yen stands. gold prices this morning, you can see that they are down by close to $10. 1427 an ounce. oil prices are down by just over

a dollar. that's a drop of just over 1% to 94.93. on the economic agenda, retail sales and business inventories are out. retail sales looking for a 0.3%. 0.2% when you look at autos. in corporate news, jpmorgan's ceo jamie dimon may leave the company. he made the comment at a meeting with investors last week. shareholders will vote. we'll talk to a jpmorgan shareholder calling for that split. in washington news, a senior irs official new in 2011 that they were giving extra scrutiny to conservative tea party groups. the report on the irs practice and who knew about it and when is expected to be issued publicly soon.

john harwood will be joining with us for more on this. that's coming up at 6:40 eastern time. in the other big story of the morning, a controversial privacy breach involving bloomberg reporters and the company's data terminals has wall street and washington buzzing. at issue is word that the financial data company had allowed journalists to see some information about terminal usage, for example, when customers had logged in to see how often they used messaging or looked up data. bloomberg ceo said they stripped reporters of information last month after bloomberg said our client is right. our reporters should not have access to any data considered propriety. i am sorry they did. he goes on to say at no time did reporters have access to trading, portfolio, monitor, plotter or other related systems. nor did they have access to

client's messages to one another. they couldn't see the stories that clients were reading or securities that clients were looking at. kim is here with steve. let's start with kayla who's going to explain what reporters were seeing and why wall street firms are crying foul. >> it's first important to understand how big a business this is and how captive an audience wall street is. 315,000 terminals as of last year coming in at $20,000 a pop making up 8 a 5% of $8 billion of revenue. this is something that every single trader, banker, executive have used to track securities to send messages, even for trades. that is why they're so concerned, because they feel like they really have no choice but to use the system. i did talk to bankers who said they might be viewing securities on google finance, other systems

because there's a lack of clarity about what exactly reporters were able to see even though today we do have the disclosure from winkler that it was pretty specific high level information. let's see what function it is. to bloomberg a function is a four-letter command or less. it lets you do a shortcut to a yield curve, your messages, your bio page and what reporters could see is specific information about whether the client was currently logged in, if they had logged off, if they had logged off completely which is how they're using information to determine that either a trader or a banker had been raid off or stopped trading. they could see some of the user i.d. information. how many terminals a bank had outstanding, what they were paying for it and who specifically had access to that. it would be the most used functions. whether someone was looking for a job. jobs go with one of bloomberg's most popular functions.

some salespeople were mentoring the jobs go tracking to see if someone left the firm and follow them. so often reporters who had access to that could see if people were thinking about leaving the firm. here is what actually has wall street the most worried. there's the lack of clarity about exactly what information they could see. they say they did have access to help desk information transcripts when a certain user duld say i need help. >> including alan greenspan. >> including alan greenspan. that would have been watched. you have proprietary trades. this stuff is sensitive. this stuff is market moving if it were to be found out. if there were a lack of compliance on the news side. what's to say there was proper compliance on the back end that kept this from making it out to the market. finally they just believe that it skewed the coverage towards

layoffs because they could see when a user, trader, a banker had gone eye doidol on a machin. some of these things like goldman sachs, jpmorgan laying off traders in small groups and their derivatives and equity trading and all of these various divisions. >> i think it's just crazy that the explanation today is that this is an error that they're apologizing for. i think they say that this is akin to being able to see how many times someone used microsoft word versus excel. this is not word versus excel. this is much more important proprietary information as kayla just said. >> what's interesting is there were thousands of functions. what we don't know is what level of detail those functions were visible to reporters. >> right. >> so that if, for example, there's a function for looking at european sovereign banks. if you looked at that a lot, that would strike me as something that would be more

than calling up word or excel. i think when i look -- >> is that how you're -- >> there's an interesting question. here's what we don't know. i will tell you what we do know. the extent of the investigation at bloomberg into the use of this information by report eers. i sent a query last night about when they learned that and the extent to which they figured out the reporters use this information. we have no indication reporters did use the information. in reporting, there are allegations that kayla came up with over the weekend from jpmorgan that it was used in reporting on the london whale. "the new york times" when they were reporting this morning, they took winkler's letter as an unbelievable admission. it goes back to as old as bloomberg. it's been around for decades. i want to go over what we know. there's a whole other level.

we all know these terminals are on bernanke's desk. every treasury secretary that i've ever talked to has the bloomberg on their desk. we know over the weekend the federal reserve and the treasury are investigating it. bloomberg violated customer agreements. we also know that they're tracking top officials investigating whether they're tracking officials. we were able to find a former employee who told us we could call up data usage from bernanke, geithner, and paul o'neill. if you add in greenspan, that's two fed chair men and two treasury secretaries. there's no reason to think it wasn't other than that. the reporters have said a help desk transcript from green spab. if i call up and i've done this with reuters, for example, and i said i want to know how do i track cds forward spends, something like that, that's

revelatory. bloomberg is saying what you're reporting is untrue. please tell me specifically what is untrue. they wouldn't tell me that. >> the interesting thing is the help desk transcripts. here is one employee saying reporters could physically access the amount of usage that certain terminal users had. the help desk transcript is, as steve said, revelatory. i'm calling and i'm telling the help desk assistant how to -- exactly what i need to look at. that's all in that transcript. that is our story. >> a couple of points. we've been talking philosophy. sadly, i think i should tell you i think i have known about this in the back of my little head for decades. forever. it didn't put two and two together. the first is on the transcripts. the people who call the help desk the most are actually government officials.

wall street folks don't call because there ab's somebody over here who knows how to do it. apparently if you call most of our white house officials because in part the fed and the treasury have their own internal data -- >> you remember they put together that data room, for example, during the crisis. if you could actually figure out what the folks in the data room were looking at and if you looked at those functions, that's pretty interesting. separate piece, we haven't talked about the eric shatzker moment. it occurred a year ago. talked on the air directly on their network about using this function and my understanding is the ceo of the company tried to shut it down then. thought it was shut down. now the last piece that i think is the most interesting is not the journalism aspect. we're talking about whether stories have appeared. the entire business operation of

bloomberg at some level uses this data to create new products. that's what they're constantly building new screens. they're constantly going to goldman sachs, jpmorgan and saying, you know what, we understand that you guys like to do x so we now made it more convenient for to you do x. and at some point they are eventually -- not eventually but already competing with their own clients because some of their clients are building trading platforms for themselves. so the idea that you can actually use that data. there's been no conversation yet about what the business side of bloomberg can see and continue to see. clearly a lot of this was used for the -- >> there's a big question, too, about, okay, so you have reporters who had access to information about what the sale side is doing. the answer that we still don't have is how often, if at all, the sale side had access to information about what the reporters were doing. there was a function on the blomberg terminal from when i used to work there called repn that was a variable sought only to journalists where you would

store information about your sources, when you passed it along. that would become available and it would help you sort of get your feet wet on a beat because you would already know some information about the people that you were going to be calling. that was very, very personal at times. some of the time it would talk about if the trader had gotten remarried, if he had kids in a second marriage. if the fed might have ever had that information, that is sacred. >> we last night sent a letter to bloomberg asking specifically about this story and the query we made was when this came to light, what actions were taken in 2011 and was there a written memo to employees banning this? and the importance of this is not so much -- and referring me to the public comment on the web. i don't think they're responding to all queries.

the question is how does bloomberg come out of this? how much detail do they have to reveal about their internal investigations, about how this information was used. it's interesting. winkler quotes himself saying the best way to get out of this is to get in front of it quickly. >> he insists the sooner they report it. it's been occurring for 20 years. >> getting to kayla's story, which is really important, wall street and bloomberg, what will constitute the reporting of the lapses. >> if you have a terminal today, my sense is you're not getting rid of your terminal. even though you mentioned google finance, i don't believe that going on google finance or yahoo finance -- by the way, maybe we should look and see or any other website which is 10,000 times less secure. >> a reuters terminal. >> a reuters terminal. one of the things we're not recognizing or explaining well

enough. you could see certain things like a c b bs screen but -- >> the short amount of time they're feeling the sting and they think i have a live deal that's about to get announced. i want no one to explain what company i'm looking at now. i'm going to check into world finance. you have to believe that the salespeople are getting them off the hook. a lot of banks -- >> they want to understand something. let's say i was david einhorn and i did a function banks repeatedly. i had not done it before. all of a sudden i was doing the function banks, looking at banks. do i know he's looking at banks now? if i have a rumor that tells me he's interested in some kind of takeover or some big move and i see his data on banks, is that something i could put together? >> we don't know that a function

that specific exists. >> it does. i've used the terminal. you can decide i'm looking up banks. >> banks is a function. >> that's a real function. >> hold on. would that constitute a source? >> but it would have to be one of einhorns top eight or ten most visited functions. >> if we called it up you could see. >> the same inquiry that watches like words. >> that's the same. >> instead of him watching whether a reporter uses a banned word, make he should have been -- >> how about the other thing? i have to steal this from her y. weren't they more awesome? why weren't they kicking our ass? they had all of this information and they still sucked. >> winkler would sometimes come out of his office and tell you as a reporter, you should go look at x. people always thought that he

somehow knew something that other people didn't, in part because he had access that other -- >> so if, let's see, bernanke or geithner was up in the middle of the night like this, would they know he was logged in at 4:00 a.m.? >> i'm getting some information that the fed chairman -- i need to run this down. over the weekend it seemed as if bernanke may have shut off that ability to track snim nothing during the crisis that they were in the office at 1:00 or 2:00 in the morning, if that was available, that was important. >> guys, we have another conversation. john reed stark is managing director of straws freeberg. he is the founder and former chief of the s.e.c.'s office of internet enforcement. thanks for being with us this morning. >> thanks, becky. >> you've heard this conversation. coming at this from your previous life at the s.e.c., how

do you judge this? what are your concerns? >> first of all, this is a common occurrence. they suddenly find out that they're somehow looking at information they shouldn't be looking at. we see that all -- very, very, very, very often. i'm listening to the debate and listening to you all talk about it. the reality is you have to get to the bottom and seek the truth and figure out what exactly happened and you have to fix it. >> i guess what the big questions are at this point, what is happening, how often, how frequently? is it easy enough to say this was a mistake, it's an error, we've corrected it and move on? >> i think it is. andrew said it himself. he didn't put two and two together. oftentimes in these situations you have a marketplace where the competition is fierce, where reporters are fighting for sources, for stories, anything they can do to get an edge. lots of marketplaces are like

that. in those situations you have front line people. you have rows. you have situations where certain data is somehow exposed. whether or not the suite knows about that, they usually don't. i think in these types of situations, again, you try to seek the truth. you figure out whether it's the tip of the iceberg or just an aberration and my suspicions are in these kinds of situations it's often an aberration. >> john, i have a question as to whether or not this is a unique story in the sense that bloomberg is a powerful news media organization. to what extent will the clients and the people who would otherwise complain, either in the government or on wall street, maybe hold back because of that? >> well, no, i don't think so. i think that these situations are always so sensitive. there are multiple constituencies that tend to speak out whenever anyone's personal space is somehow violated. the reality is in today's society there's lots of situations where you just don't have the privacy that you used to have. i think we're all becoming more

and more accustomed to that. >> john, what are some other situations? you said that this is very, very frequent that situations like this come up. can you give examples without necessarily giving away company names or other things? just because i'm struggling to come up with a similar situation. >> sure. similar situations even in litigation where you're suddenly in litigation and you freeze down the person's computer who suppose that person left your company. we call those people bad levers. you go on to their computer and you see that they've prepopulated their password to their gmail account. let's look at what they've been e-mailing. the next thing you know you've looked into their personal e-mails of someone and maybe you shouldn't have. >> would you say that's unlikely that managers knew that they could do this? i mean, it would seem like dozens of employees would know

that they are doing this. >> hundreds. >> how can it not be known company wide? maybe they didn't know it was wrong or maybe they thought they were lucky that they were able to do this but -- huh? hundreds? what do you mean it wouldn't go to -- i'm thinking the mayor himself probably knows what his terminal can do. people are drinking big gulps at their desk. caught a lot of them doing that, dammit. >> i know that, you know, this is one of your competitors at bloomberg. i can see you guys are having a good time with it. >> we don't think that. no, no, no. >> i can't believe that so many people knew it that in some way see no evil, hear no evil, speak no evil at the top. >> i think often what you find, what andrew said, people didn't necessarily put two and two together. maybe you suddenly get a chief privacy officer. you realize everyone has a chief

privacy officer. they find out that what's going on is not right. again, somebody just didn't deliberate over it carefully. i think oftentimes, again, the most important thing is to go out and seek the truth and find out independently, independently what happened as opposed to the company saying what we say happened. finding someone independent to go out there and make sure that you've gotten the truth. secondly, going to your customers. looking at their agreements. talking to them and reaching out and making sure that they understand, look, it's in your best business interests to keep your customers and your client's information private. nobody likes the feeling that their information has somehow been compromised. i think you want to be very, very careful. it's always going to be in your business interests to do that. it's logical to me. >> johnny, it's always been a sensitive issue on the possibility of regulating news agencies, but a financial data company, who should have been regulating bloomberg, finra, the

s.e.c.? >> that's a good question. you can start thinking about when the sec started asking reporters about different sources and different things that they were reporting on because the s.e.c. was investigating something. you've got to strike the right balance. yeah, bloomberg is a private company. i've read some news reports that talked about the private operations. they're very aggressive about protecting their private information. i think private companies versus public companies, i don't know if there's a distinction here. there are probably 40, 45 statutory regimes with respect to privacy in each state. whether you're even violating privacy laws is not an easy question at all. >> josh, only the competitive media companies are likely to try to pile on to this story

just to put this into perspective. the story will grow frankly because the companies want it to grow. winkler has created a great corporation. there's some conversation at bloom birg about what's going on there. my question is the percentage of times -- even if hundreds actually knew it, do we think long term that this has a huge impact on the business, often the way they do business, on the customer base? >> i think you make some excellent points in your discussions about bloomberg terminals. i was at the s.e.c. for 20 years. i looked at the bloomberg terminals. from the day i started i was on the bloomberg terminals. especially pre-internet when you didn't have access to pricing and trading information and volume information. the basic information like that.

you needed that bloomberg terminal. i think there is truth to what you're saying, people need this. if they seek the truth and find out what actually happened and it turns out it's something more minimal like log-in information and it doesn't seem to be, again, that much into the personal space of these traders, i think they'll move on. i think customers should also reach out to bloomberg this morning and say, what's going on? what sort of information are you tracking and what sort of safeguards do you have in place to make sure that that information isn't improperly used by anyone, not just by the reporters but by anyone. >> john, thank you very much for joining us today. we appreciate your time. at this point there's no evidence that that little camera -- i mean, what you're doing, for example, at home on your pc -- >> watching you on your ipad. >> what you're doing. >> that would be a problem, would it not? >> yes. >> i can see that. joe. we'll talk more about that. >> that's what i said.

>> i'll talk to you. conservative. i don't know. >> you guys don't even have to follow. >> i don't know if bloomberg had a -- >> the obama administration just files you rebate checks. you don't even have to file. i knew you were going to tell that. if they're watching people on your -- you know, anyway, coming up, jpmorgan -- cue up the -- coming up, jpmorgan investors gathering next week. a among the top again -- agenda items, jamie dimon. ♪ [ laughter ] ♪

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welcome back to "squawk." tim bush is head of governing and financial analysis in london, pirc is calling for the split of the chairman and ceo rolls. good morning to you. >> good morning. >> so here's the question, is your decision to push for a split a referendum on jamie dimon the man, the ceo, or is this a larger governance story. today when you hear stories that he's considering resigning, it changes a little bit of the equation of how i think some shareholders consider voting.

>> the past six, seven years has shown that jpmorgan is one of the most competently banks run in the world. >> why push for that? >> the chief executive is employed by the board and the job of the chairman is to run the board. a problem runs if you have a joint chairman chief executive. you can get to a decision where there's a lack of confidence in the chief executive, the chairman should be able to be there to lend support but also if necessary it's the chairman that has the conversation with the chief executive and says it may be the right time to leave. >> you just said you like jamie dimon. either you trust the ceo or you don't trust the guy at the top. if you don't trust the guy, there's no reason to have adult supervision. am i wrong? >> absolutely. you don't need to strip the person at the top.

in general it's very difficult to see how you can rely on that principle because you have 1 person in 1,000 that you can trust in that position. >> you just said in this case though you do trust the man. >> trust as far as you can see without knowing everything that a person in that position knows. trust is obviously something that happens at a distance. >> now let's just talk about splitting these rolls, not just at jpmorgan but more broadly. this is something that's going on in europe and the u.k. i look at example after example. the british banks, most of which, frankly, all went under or required a bailout and they had both roles. what is to say that this serves the shareholder any better? >> that's a very good point. we've had separation of chairman and chief executive back to 1991, '92. it would be very wise to have a combined role. therefore, it was working pretty

well. i think the banking crisis is a completely different kettle of fish. incompetence is a better word which i think has been the major cause of certainly two of our largest banks collapsing. we don't necessarily feel that was our government's problem. >> as a shareholder you said this is not a referendum on jamie dimon. you think this has been incredibly well run. if the roles are split and jamie dimon as a result leaves, would you still be in favor of splitting those two roles? >> i would be very surprised if somebody wanted to step down purely because of splitting the role. most of his job has been taken up -- >> if that was -- >> as opposed to running the board. >> if that was the practical result. if the choice was you either can have jamie dimon lead your company or not, what do you do?

>> i would question why he wanted to go if this was the only issue that mattered. i would be surprised if this was the issue that was a resigning matter, therefore, if he wants to go, i would just question whether there's another reason and this is coincidentally happening at the same time. >> them, thank you for your perspective this morning. we'll leave the conversation there. we'll be watching the story over the week and see where things wind up next tuesday. >> thank you very much. still to come, the privacy issue at bloomberg. as we head to a break, take a look at last week's winners and losers as we head to a break. flying is old hat for business travelers.

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is. a bloomberg database has a management crisis. jeff simonfelled is a cnbc contributor. joe is from fordham university law. before we get started we have comments coming in. one of our favorites, tony, pointed out that people are looking at this as a privacy violation. maybe that's not the way it should be looked at. it's a journal listic ethics violation. you have an idea that not everyone has access to this.

it's probably not kosher. sometimes i think journalistic ethics and the world we live in right now is an oxymoron. joe, am i not right about that? >> that's a good point. this is akin to rupert mourdock's phone hacking, not rupert mourdock but news corp. it's not akin to some of these kind of legal stand calls out there. i think we wonder why somebody has access to information everybody else didn't have. did it matter? no. it seems inconsequential. that's perhaps why it didn't trigger an ethical prop. there's an issue of trust. i think the perception is worse than reality. i think the symbolism is real. the symbolism and substance are different. i think the company has been very fast to respond. they've shown some accountability. even great companies like jeff bloom, they've looked over

private data about customers. >> jeff, you think that winkler apology went far enough? -- >> you know, you know what's missing, matt winkler didn't say who did what where, but this is not like we're looking at the senior editors of "news of the world" or things like that where we saw a news core that was involved in guiding people to do this stuff. here apparently since the companies are there. journalists are helping to sell these systems. they would shell some basic information on who was logged on. they're not trained to do this. it's a z function to hit a key. it's not like this was part of their protocol. but winkler doesn't tell us who did it. in a lot of situations in management, we should have done a better job training people the first time this happens i think make a victim out of someone out

there who did something like this. >> i just saw winkler. is he a bow tie guy? >> yeah. >> he's pretentious? >> yes. >> oh, my god. i should have known. a journalist and bow tie. joe, what's your take on this? you're not on the bow tie, not on the other stuff. >> i'm not wearing a bow tie. >> no, i know. you know who does. levine. anyway. nbc. never mind. go ahead, joe. >> sure. as jeff said, what happened wasn't illegal. it wasn't like "news of the world" where they were committing crimes hacking into the contents of people's messages, but i think it still raises some pretty serious questions about surveillance and spying. americans generally are very concerned and weary on data spying. even though american law today doesn't protect against this, it doesn't diminish the concerns that most americans have.

>> don't you think it's an issue that the customers of bloomberg don't require more in their contracts? you're the privacy expert. i was looking at bloomberg's website. amazingly, they don't promise that this data isn't going to go to other parties and voluntary data. >> the web services agreement, which i don't know if it's the same language that's used for the kinds of data services that the financial clients are using, but for the subscriber services marked on the web, they outright say that they will share this information with any affiliate of bloomberg. >> it's a real issue of trust for the customer. >> you don't know it but it's there. >> all right, guys. we're going to be talking about this all morning long. jeff simonfeld, we appreciate it. joe as well. one thing that i have always been told about bloomberg, the

tv, the rating, they don't give -- they don't care about that. all they care about are the machines. >> they make a lot of money. >> michelle was listening when he gave a speech. they didn't talk about journalism at all. all about terminals. nothing about the reporters, it's just all about the next technology, all about their -- >> i don't think people are going to be yanking the bloomberg terminals. >> they do branding or other stuff. >> one of the things woorth pointing out about the culture of bloomberg. one thing you can see and everybody has always been able to see is everything about each other. when you badge into the company in the morning, it shows that you are there. >> if i was trying to reach out to you and say, yeah, he got to the london office at 8:11 in the morning. by the way, you just badged out at -- looks like you've got lunch now. you could actually see each other's schedules. >> back to the idea of sharing

reporter notes, this is a journalism ethics note to me at the very heart of it. i would never share my notes because that's a violation of what you tell your sources. you dump that into a massive cloud function. >> one of the things they did very early was try to institutionalize the journalism aspect by creating master source lists for example. >> for someone who's worked there 20 years, do we know everything that they were able to glean? i don't think we've connected all of the dots. >> no. no. >> and i have found out what you point out. malware that allows people to see what you're doing through the little hole on the ipad. >> yes. >> make funny faces. >> put a piece of tape over it but it will still pick up the audio. put a piece over the mic, too. >> thank you, joe. coming up from one controversy to another, we've got a watchdog statement. something that a senior irs

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the irs controversy over targeting conservative groups is growing. some on capitol hill are calling for investigation. joining us to discuss nbc's chief washington correspondent. real quickly before i get into this, "usa today" has gop demands obama apology. that's how they phrase it. you worked for "the new york times," right? i can't talk about andrew working there. >> go ahead. hit me. >> i have to use you. "wall street journal" says, wider problem found at the irs.

"new york times," which, you know, the editorial that never seeks into the news reporting, but their take was, irs focus on conservatives gives gop an issue to exploit. i'm sorry, an issue to seize on. but just the whole -- you know, in this case it's just maybe some would go there. it's going to be like benghazi. the gop is going to make a big deal out of it, right? it's a big deal. it's nixonia, is it not? >> it's not nixonia as far as i can tell. "the new york times" story i read, i don't know what headline you're talking about. >> front page. >> was pretty substantive about the -- how extensive the problem was and how long it went on. so i don't know what you're suggesting the headline was but the story was meaty. >> what would it have to get to to get nixonian. >> it's nixonian if we were

talking about something that was caused to happen by the white house and there was no evidence that that was the case. what made nixon nixonian was that he was personally involved and his people were involved in sticking the irs on his political enemies. this is something that involved, first of all, applications for tax exempt status, and second of all, there's no indication that anyone outside the irs was involved in this. if there is, it might be nixonian. we haven't seen that yet. keep in mind, joe, that the head of the irs or the -- at the time this happened -- >> i know. >> -- was a five-year appointee. he had been appointed by president bush, served across both parties, and the woman, norris learner, who was in the irs, gave an unsuccessful press briefing that i participated in

on friday had been back and forth with the individuals for a long time. the irs was wrong in the first place, what was done. second of all, they bungled the disclosure of it, but there's no indication that we have that this went elsewhere in the administration. >> if it did, then you can do the nixonian thing. >> i think the term chilling, i think, you know, that's not -- >> chilling, i'll -- i'm with you on that. look, it's wrong. the irs has a tremendous amount of power and it is incumbent on the irs to use the power responsibly. >> right. >> if you want to look at -- if you're looking at the political kind of elbow in this or where it comes from, i don't know who the individuals -- they haven't said who the individuals involved in the cincinnati office who was screening these applications were, but generally speaking is it true that federal workers as a group tend to be left of center, more democratic leaning?

yes. one of the organizations in question that were improperly targeted, were they ones that were more closely aligned with the anti-government party, the anti-federal worker party, yes? so it is not implausible at all. >> i was on it. i heard -- they just send you a refund every year, right. i got it already! >> i'm just worried about bloomberg coming after me. >> that's what i said. >> the whole show -- >> that little camera is watching you at home on the laptop. that's even scarier. put a piece of tape over it. >> thank you, john. when we come back, comeback companies. five well-known names and the road to recovery. stick around. we'll be right back. all stations come over to mission a for a final go.

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all all week, cnbc is taking a look at what we're calling comeback companies. good morning, courtney. >> hi. good morning to you, becky. well turn arounds, as jc penney is learning, talk time. now that all the puzzle pieces are finally in place, consumers and investors are, again, falling into the gap.

wall street credits the in flow of talent as well as improved supply chain. improved sales at gap, as well as old navy and banana republic. gap seems to have finally rediscovered its sweet spot. >> people have a very positive bias on the leadership team. they have done a great job of controlling expenses and building the business for the longer term. what's been interesting is the product has turned and embraced that message of what gap stands for. >> gap's fourth quarter profit increased year over year. april comps up 7%. the company upping its q1. glenn murphy tells cnbc, gap i

think has been executing its strategic plan to become a global retail we are a dominant portfolio of brands since 2008. gap shares have doubled the performance of the s&p retail index the past two years. some do question whether the strength is sustainable. it has underperformed on the stock. concerned about tracy gardener was who instrumental in last year's be bright campaign. but the company is only looking forward. part of its growth story includes international expansion. hungary and paraguay can look to see its first gap.

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the bloomberg breach. reporters with access to client information through bloomberg terminals. what wall street's biggest firms are saying as bloomberg scrambles to fix the fallout >> a special hour of what's working. big name money managers share their secrets to success. names that should be in your portfolio. >> the latest headlines and what you should be watching as the second hour of "squawk box" begins right now.

>> good morning, everybody. welcome back to "squawk box" here on cnbc. the futures this morning are a little bit weaker. we have that several weeks of gains. you can see right now dow futures up 50 points below fair value. s&p off 6.5. in our headlines this morning, a controversial privacy breach has wall street and washington buzzing this morning. at issue is word that the final data and news company allowed journalists to see some information about terminal usage for its customers. the firm restrict reporters access after goldman sachs complained. our client is right. our reporters should not have any access to any data

considered proprietary. at no time did they have access to trading, fort folio, monitor, blotter or other related systems. they could not see the stories the clients were reading or might be looking at. unfortunately they didn't explain exactly what they could see. we will have more in just a moment. jamie dimon has said he may consider leaving the bank if shareholders vote to splitting his duties. shareholders will vote next week to separate the chairman and chief executive roles. senior irs official knew back in 2011 that irs agents were extra scrutiny tea party groups. the report on the irs practice and who knew and when is expected to be publicly issued soon. the privacy breach involving bloomberg and its customers.

the company trying to explain itself to clients. kayla has been looking into some of the people who have confirmed. >> several banks said they have been fielding calls all weekend in response to this news that reporters had been using the pricey terminals to dig up information. it posed a lot of questions on wall street. like exactly what information was accessible. whether any of that sensitive information was available, whether it was out there and how strong the fire walls in the back office were that were protecting this information. and how it influenced news coverage. citigroup, morgan stanley, the banks declined to comment on the matter. this came to light after goldman

sachs said they were queries based on bankers status available on the terminal. itsell was logged out of his terminal. he didn't confront further. ceo called it a mistake. new ceo said the information was, quote, limited, high level and was fixed as soon as the issues were raised. it did look at a copy of the bloomberg way, the style book. there is a section about conflicts of interest and there is an example used about what to do if you're reporting on a resignation of an official and the company claims you got that from sales data or salespeople.

in this situation the reporter has actually obtained the information from a fax. so the advice he gives, be as clear with your sourcing. say you received an internal memo by fax, as detailed as you can, so you can tell them you did not obtain the information by salespeople. it does not say this information is available. but early on it does say this is a weight of information. >> my question is how much information was used? how frequently this was. how much of an organizational issue this was. was this passed through and culturally accepted? >> the other question is, you know, you always see often in bloomberg stories more than others because they have always had a tight story on it. they would say according to at least two people. sometimes three or four. they would try to quantify

actual number. does that quantify a snow showers. >> that's a good question. >> you saw some information and you got one other person to confirm it. >> i can't believe that's the situation. if it is i would be more stunned. >> it becomes very complicated. >> we're going to talk to him. i don't know how much of this he knows. what's the name of that guy? does he wear a bow tie? >> that's tom keane. he's a commentator. >> what's the name of that show? >> they're going to have to rename it. >> bloomberg surveillance. >> what? that's just too good, isn't it? is it called bloomberg surveillance? >> that's the name. >> airing on the cob serve active side, the "new york times" referring to an internal analysis that was completed by the company in response to the issues raised by goldman -- >> you just glossed right over

my joke and go right to substance? didn't you say have fun? >> it's early, joe. it's a good joke. but i did want to say this was mentioned in the "new york times" article. this is the report sourced unanimously that mentions this was a practice carried out by hundreds of reporters. i would like to think that toer on the conservative side. >> in sufficient. >> we should make some suggestions to rename. >> that might be taking satisfaction. what does the logo look like? >> bloomberg snoop. >> harvey pitt of the sec and

michael driscoll, professor and former global head of training. haf harvey, improper purposes was incurred by senior managers. there is no internal recrew. they put a stop to it. it provides a whole new dimension of the concept of shooting one's self in the foot. you take a much dimmer view than some people that are a poll gists for this. >> i don't see how anyone could take anything. first of all, all we know is what the people who have put all of this terrible activity in place are now telling us. there's been no internal review. there's no independent assessment of what was or wasn't done. and therefore we to the floor any knowledge except the fact

that this practice has been going on for years and apparently was condoned by senior management. >> also, what else did you have here that was -- conduct almost unbelievable, according to you. you also call this apology from matt winkler self-serving and basically meaningless. it doesn't help at all. >> it couldn't possibly help. having allowed this to go on for a long period of time, unless somebody tells us what really took place and what access bloomberg reporters had or could have had, we don't know all the facts. we just have bloomberg's denials. and at this point those aren't very credible. >> can i call you professor? >> you can call me professor.

>> just for the record, i was one of an army of traders in bear stearns. i used bloom berg for a long time. great terminal. and the system that's out there, i don't think there's anything terribly nefarious. it was used to see if they were in the office today. >> if you're out playing golf, i don't want people to know. >> then you're on a conference. >> but you're from the wall street side. you're not that upset. >> i'm not upset at all. now, again, the differences to what level it was used. if there was access to firm's trading records, to hedge funds, that's a whole different story. absolutely no indication that

was the case. bloomberg as a company was customer responsive. >> they knew where they were going. >> if you have 51 on the cards, that's an easier game. >> we have been talking about the journalistic ethics of all of this. but the business side collects all of this data to be able to build new functions, products. some are starting to compete with some of their own clients. are they going to have to change or adjust how they collect this data and how they communicate with clients? >> i think they do. you know, even the police when they have hidden radar devices, warn motorists that their activities are being monitored. we have what was a very respected news information, and it was using data from its customers without telling its customers that that was going on. i don't think there's anything

wrong with trying to collect usage data. but i do think there's something wrong if you don't disclose that first and get the permission of those whose data you are collecting. >> harvey, i don't know what your relationship with one of your predecessors was, arthur levy. you guys get along? >> oh, yeah. >> he's on bloomberg board? >> he is. >> he might have thought -- do you think he didn't know, he wasn't aware? what do you make of that? >> well, i think the question really is how could this activity have been on without there being any oversight by anybody within bloomberg. that to me seems to be the problem. one of the places where oversight should come from is board of directors. i don't think that arthur or any of the other directors necessarily knew what was going on.

but i do believe that there's an oversight function here, and it wasn't being performed. >> do you care? if you were to go on yahoo! finance or google finance or cnbc.com, would you put in tickers of companies that you're secretly interested in in meaning you have a project going on. >> that's the definition of the efficient marketment all the information is out there. what's the difference? and what i would strongly object to is build my portfolio on google finance. that's a different issue. but in terms of what i'm looking at, i just really don't think it's that big a deal. it's not as big a story as everyone is making it out to be. this has been out there a long time. >> okay. thank you. appreciate it. harvey pitt, might just keep you on for the rest of the show. maybe on retainer to say the

stuff that we really want said. i'm not saying we want it said. but at least it makes it interesting. makes it a much bigger story. appreciate it. and obviously you believe that. that's your opinion. thank you. next is don't say okay. viewers who watch very, very closely notice when i start a segment i always say okay. i'm not going to say okay. anyway, up next. >> beautiful. >> barrens roundtable oscar schafer will add another title to his resume. market master. we welcome him to the club and get his thoughts right after the break. [ male announcer ] this store knows how to handle a saturday crowd.

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welcome back, everybody. there are red arrows. you will see dow futures down 47 points below fair value. that's showing improvement through the morning. s&p futures are also weaker. down by 5.9 versus down 8

earlier. we do have a new "squawk box" market master this morning. oscar schafer is a member of the barron roundtable. >> you are master emeritus. but this is the official. >> you have to be in the business 50 years? >> i don't know what you need. you have to get rid of half the other ones. you need to be able to look at the market and tell us things. the big run we have to this point, did it makes you more or less optimistic about the future? >> i am a stock picker not a market timer. but simplistically people don't

talk about stocks anymore. taxi drivers, shoe shine, nobody talks about stocks. as lee keeperman said stocks are the best house in a bad neighborhood. i don't know whether they're going down today or up in the next week or two. but eventually people will come back into the stock market. and they're not now. >> with the averages running up, we tend to think that makes the average investor say they're going to start paying attention to what's happening? it eventually means more people will come back because of all the down turns. >> yes. the march the market goes up the more people will say the more interest. treasuries. you name it. >> i think the people that are eventually talking about it at the cocktail parties are saying right now, it's already gone up too much. they're going to have to finally

capitulate. they will make money for a while. i mean, this is like a long process. >> and everybody is let's waiting until it goes down 5% or 10%. when it doesn't, they go down a little bit. >> right. >> and then we have to pile in. >> we kill, buy, hold. first of all, the internet bubble and the new nifty fifty. then we had -- >> 9/11. >> and then we had the financial crisis, the mother of all -- by then these people are lie, some people that will never buy a stock again. >> well, not yet. just wait. >> well with, we'll see. >> but you think we're still very early on. if you're looking on this, what would it be? >> third. >> third inning. >> and it's not an extra inning. >> third of the way through. >> third of the way through maybe in time. i can't tell what the averages

are going to do. our job is to pick great stocks, great prices. >> you had a tougher time than a few years ago. prices have come up quite a bit. >> there are still opportunities overlooked. we're still finding good prices. >> such as? >> well, one of the things that we really focus is on capital allocation. when we visit veos it's very important where they allocate their capital. they can buy companies, invest in the business, pay dividends, buyback stock. they can do equity or debt or tapping the markets. it's really important where they allocate capital. such as somebody like directv. it has two businesses. the domestic and international, which accounts for 30% of the

earnings. 60% of stock in the last five years. so the perception of this company is that it's a slow grower because people see it in the united states. in fact, by buying back stock, this is a company that's growing earnings per share, 20% to 25% per share. so there's an example of the ceo allocating capital really well. >> do you look at a company buying other companies as a poor use of cash? >> number one, a lot of companies are buying to grow. historically acquisitions turned out pretty badly. you won't be able to tell three or four years. it's neither yes or no. if they make a good acquisition it's okay. day one you can't really tell. >> oscar is going to be with us

the rest of the program. we have a lot more to talk about. >> we do. >> we have him here another 1:40. >> if there was another black swan two years from now and faber guys think that, that the financial crisis was almost a pre -- it wasn't an aftershock it was preshock for what was going to happen. but we will talk about that. there's still a lot of debt. >> more on the terminal breach. what it means for wall street and the issue of trust. and sam zell's little sister leah. changing the world is exhausting business. with the innovating and the transforming and the revolutionizing. it's enough to make you forget that you're flying five hundred miles an hour on a chair that just became a bed. you see, we're doing some changing of our own. ah, we can talk about it later.

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welcome back welcome back to "squawk box". a little news o'dell. the company just releasing a letter they sent to carl icahn requesting additional information on the proposal. needs to understand the full terms and structure of the transaction proposed by icahn. tell us who is going to run this company. secondly, it says you haven't taken into account how much more you need to borrow to make this transaction work since you're using all of this cash.

it's a pretty interesting letter. it's worth taking a quick read. becky? when we come back, more about stories in the headlines, including the bloomberg breach. is jamie dimon ready to leave jpmorgan? we'll talk more about that. [ penélope ] i found the best cafe in the world.

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welcome back welcome back to "squawk box" here on cnbc. a privacy breach involving bloomberg data terminals. steve liesman joins with us the latest. what have you got? >> three significant dimensions when it comes to journalist usage of bloomberg terminal. first, the private sector

clients. it's a business story about how this controversy affects business prospects, short, medium and long term and whether the company is doing now to esuage concerns. the agencies are interested especially if bloomberg might have violated customer agreements. bernanke, geithner and o'neill. bloomberg telling cnbc what you were reporting is untrue but fail to go specify what we are reporting. that is also untrue. greenspan helped by employees and bloomberg data from a separate report. knew of us of this data in 2011. bloomberg is taking steps to take this issue behind it. these are still early days. giving access to the information was a mistake.

that gets back to where we started. the market dimension. how much bloomberg has to reveal from this point on ultimately going to be determined by how much more clients wall street and government will demand. >> we talk a lot about the big banks and the government. but the biggest client i think are the hedge funds. if you're actually looking at a screen every single day all of a sudden you can start getting a better idea what's happening. >> you keep saying you don't think they could glean that much information. the person who should be most angry, i think, john snow. you have o'neill, geithner. no one wanted to look --

>> we just -- look, i have -- >> i would be mad. by implication, joe. >> nobody looked at what snow was doing. o'neill, geithner, you can imagine. if winkler says these are bloomberg itself, you can imagine. >> i would be miffed if i was left out. >> we don't have the animation, do we? oh, i do. >> which animation is that? >> ♪ >> that's what we picked for this story? play that again. ♪ >> without the animation. >> like this. that's what the music -- i can

see them all at their desks now. play it one more time. ♪ >> what's the theme music for bloomberg surveillance? >> i don't know. all right. go ahead. >> okay. our next story is not about broken trust, we should say. this is a story about what's working. >> that's what you were doing all weekend long. >> john snow. he's on game of thrones. by the way, i just saw that he checked into his office. he's actually at the office. i just looked at my terminal. >> isn't his office by the wall? >> yes, by the wall. >> joining us now is the the

founder managing director of glendale capital bottoms up equity. i'm sorry. but all of our shenanigans. >> you're apologizing for the shenaniga shenanigans? >> one of the interesting things about this market is there's been a lot of talk about correlations among industries, and in the market. i think this has been an incredible market for bottoms up stock picking. we have had a lot of success. you have talk about defensive industries being the only industries looking. we made a lot of money in retailers, packaging companies. >> let's walk through. >> so one of the stocks we look, which works within your theme this morning of privacy is an

israelly-based company, nice systems. they capture and analyze voice, text, video. there's a big push within the world today in terms of big data and analysis. in a call center environment, they record all the calls but then they run an analysis. they look to see have there been a lot of customer complaints. they could have analyzed boston. in public environments they put cameras in place. then they are programmed in a way if someone leaves a bag unattended that will give an alert signal and the authorities can come in and inspect it. >> in the aftermath of the bombing, are you seeing or do we know if there are huge sales of this product? >> there is clearly an uptake

particularly as people get more comfortable with the privacy issues. >> who competes? are there other companies that aren't as good? >> this is a business relatively consolidated. the other is derrick, which is not company we happen own. technology is very much at a favorite at the bottom. balance sheets extraordinarily strong. we believe it's growing and has secular tail winds. >> covanta? >> sure. covanta takes garbage and turns it into electricity. look at it as green play. we think they are irreplaceable assets, located along the northeast of the united states where there's barriers to entry.

very large facility in the uk. therefore they have a tremendous amount of free cash flow that they will have to return to shareholders. 3% yield today. and we think they have the opportunity to grow that substantially. and you can see that they've bought almost 18% of the company in the last five years. now we think there's going to be a big push to return more capital to shareholders as these international opportunities have faded. >> do you want to jump in? >> as it turns out, this is not exactly what you're supposed to talk about. but since we're talking so much about bloomberg, glenn and i worked together in 1989. why don't you tell us what you did. >> when i first walked in they

had cofan machines. i had to figure out the best systems we could put in place. there is a bond machine called bloomberg, which i decided we would take a risk. we were about the first equity installation in the country. to give you some sense of the service intensity, mike bloomberg used to come to my office with a yellow pad of paper and make notes of all the problems in the system. i wasn't aware of the problem you were talking about this morning. but we used to go through a series of things. one of the interesting things on the news side, at one point dow jones threatened to pull their news wire from bloomberg. it created a whole bunch of controversy. you would have to have a second box on his desk. >> are you going to do anything differently on your terminal? >> no. >> you don't care no? >> no. >> thank you, brian. >> thank you. >> appreciate it very, very

much. it's interesting. >> my guess is it's not going to make people pull the machines. maybe they would request more privacy. >> we talked yesterday about your view as consumer. >> you have to look at the consumer like as a business. the consumer has a balance sheet. the single largest asset that a consumer owns is their home. we all know they have bottomed and have moving up. it is moving up. that coupled with the fact that it is at an all time highs. the other side of the equation or the other thing that you can look at is you can look at the free cash flow of the consumer. look at the cash flow statement of the consumer. it's very interesting. the free cash flow is at all time highs. why is it at all time highs?

>> interest rates are down, so they have less to pay on their credit cards, less to pay in terms of mortgage payments. gasoline price are down, which is a rebate in terms of the consumer. so if you put it altogether the u.s. consumer is one of the best places it's ever been. >> i feel a little bit better this morning. thank you for coming in. appreciate it very much. when we come back, zell's zeal for profits, focusing on mainly small and mid-sized companies. leah joins us after the break to add international flair. still to come oscar scafel's top three investment idea. what he thinks will bring him big returns. "squawk box" on cnbc. profit from it.

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5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ our our what's working now series takes us on an international tour. leah zell is founder of lizard international fund. she joins us now with her stock picks. lee wra, thanks for coming in this morning. >> thank you for having me. >> how do you judge companies? >> we look for three things,

sustainable businesses with good balance sheets and a reason to exist that we feel have run way. we look for good managements that are disciplined, understand the -- how to allocate capital and are aligned with us, and finally compelling valuations. pretty straightforward. >> what would be your favorite pick right now? >> my favorite pick right now? >> i'm sure we love all our children equally. >> which country do you want to talk about first? >> how about we start off talking about europe. maybe go to japan. >> well, japan is in the news today. >> the yen. >> the yen, the market. it is down 25% since the bottom -- or since the peak. and the market is up 65% in local currency terms in the last six months.

one way of looking at this is the greatest shoring cover rally you can imagine. the market was underowned, terribly unloved, and cheap. and nobody thought they were going to get out of deflation. abi comes along and bang. i would call his strategy shock and awe. i would say it's been fabulously successful. >> do you think sticks this time? 13 times forward earnings. today it's about 18 times forward earnings. it's actually up to 1.4 times book value.

i don't think it's as cheap as it was. i think you have to be selective notwithstanding. the real question is whether abi can break the deflation mentality of risk aversion. >> the last time they tried this it worked a little while. >> he is doing some things that are very interesting. he's changing the tax law toss allow accelerated appreciation, encouraging businesses to raise wages. he is actually breathing some confidence into the economy. what he really has to do is get japanese consumers to spend and get japanese companies to invest. >> nakanishi we have had in our portfolio for a year but we added to it this year.

800 market cap. >> where is that? >> three and a half hours outside tokyo in a very pretty place. they have a lovely sculpture garden outside the the offices. it is one of these niche global multinationals. it's like the kinds of engineering companies you're more familiar with maybe in germany. they have 21% global market share in drills and hand pieces. all the stuff that sits on the tray that makes you feel warm and fuzzy when you go to the dentist. balance sheet ridiculously overcapitalized. 15% cost advantage because they are vertically integrated.

given the weakness of the yen, 70% of phafrg is in japan. 80% is outside. so our investment thesis is really simple. first of all, you have a great company with a fortress balance sheet at a -- when we bought it, ridiculous price. and not even that expensive today. second of all, they have had issues with u.s. distribution. they were working through a distributor that private labeled about half their sales. they want to raise their own brand in the u.s. looks like it's working. last quarter, north american sales up 20%. so the second leg of the investment thesis. and the third leg of the investment thesis is the yen. we bought it with the yen as a

free option. today it's actually -- we think it's going to add 500 basis points to the gross margin. we don't think they will keep the 500 basis points. they will take market share from kabo, a german company they compete with, and we think the earnings will grow. >> leah, thank you very much for coming in. wish we had more time. i know you have more picks with baidu. hope you come back and see us again. >> thanks. >> up next, three names you need to have in your portfolio. we'll tell you what those names are. then at the top of the next hour, reporter access to client information with the man -- he looks like he's surveying a lot. bart chilton. it's monday.

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let's get let's get investing ideas. what should we buy? >> two things i would like to suggest. i talked about tv already. one thing we like is hertz. they are going through a huge change the last 10 years. ten years ago, 10 companies.

they use their rental cars as dumping grounds. now, two things have changed. number one, only three players in the industry. they are interesting in profits versus volume. so they bought dollar/thrifty. they rent the cars during the the week. they can use the same cars over the weekend. so, a, consolidation. b, capital allocation, they can use much better means that hertz will earn $2 this year and $2.50 next year. it sells about 26. it should be in the 30s or 40s. >> all right. we already talked about directv. what about enter action. >> data company in europe. whatever happens in europe, and leah talked about how bad europe is. we all know it is not growing, if at all. no matter what happens there will be more need for data. this is a data center that's

located all over europe. they have 21 basically real estate operations with huge computers in it. and no matter what happens to the economy, people are going to need more data. the reason the stock is so cheap, it's located in europe but trades on the new york stock exchange. so it's grading 11 times earnings and growing 12% to 15% a year. it's unloved, unfollowed and sells at a big discount. >> wow. back to hertz. they're moving the headquarters. >> they're moving headquarters to florida. >> to the gulf coast side, is it not? i thought that's where it was. that makes sense in terms of employee satisfaction? >> i have no idea. years ago there was a company called greyhound and the ceo's wife had asthma. they moved from chicago to phoenix to help with her asthma.

i said why did you move? he made up all this stuff. it was all about his wife. >> but it doesn't matter to you one way or the other? >> not at all. >> hertz has been on a run already. they see the numbers already. >> phenomenal. who owns it? not them. >> avis. >> avis bought zip car. >> i think they bought it at a much lower price. >> thanks, oscar. thank you. coming up, futures have been down all morning long. down 37 points. they have come back a little in fact. up next, commissioner bart chilton on the bloomberg breach. we'll play that music again. very ominous. "squawk box" will be right back. [ penélope ] i found the best cafe in the world.

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bart chilton from the cftc. we're launching our cnbc disruptor 50 list. a company that wants to change the way you buy fashion eyewear. the third hour of "squawk box" starts right now. welcome back to "squawk box". first in business worldwide. our guest host this morning, oscar schafer, a member barron roundtable. >> senior irs official knew back in 2011 that irs agents were given extra scrutiny to tea party groups, according to documents from a treasury department watch dog.

irs report on all of this is expected to be issued publicly soon. wall street journal said dimon made a comment at a meeting with investors next week. take a look at the markets right now. you will see at least right now still red arrows. this is market improvement s&p futures are down 4.5 right now. in asia overnight, the nikkei ended up 1.2%. hang seng down 1.4%. and in europe, in the early trading there, right now at least modest declines. ftse is down, as well as the cac. a controversy breach has reporters in wall street and

washington this morning buzzing. kayla and steve liesman is covering this story. what are they saying right now? >> well, they have always been a linclinchpin of bloomberg busin based solely around this terminal. 315 how of them currently outstanding. private equity firms. you name it. all customers contributor $6 billion in revenue by using this and mining for economic data. they won't pull their business because it's the only game in town. some say they will consider fees if they find the company in breach. right now issues raised by banks like goldman sachs and less so by jpmorgan. they look at their terminal log

ins. the bigger question is how protected the more economically sensitive information like the trade books were. matt winkler said that was never compromised saying at no time did reporter have access to trading, portfolio, monitor, blotter or other related systems. they couldn't see the stories the clients were reading. information like login, keystroke functions and help desk data were available. and help disk is where some of the potential questions lie about specific securities and what got disclosed. he called it almost as as bloomberg news. >> steve, you've been working the angle here. we have been talking about -- >> it was my first thought when the thing happened. bernanke has one on his desk. it goes down from there. you know, deputy treasury

secretaries. also inside the white house. >> john snow had one. >> it was a concern of joe. >> there's a couple things. they could see help desk. i know if somebody had access, if somebody had access to my questions to the help desk during the crisis they would have known exactly what i was working on. i was talking about getting the structure out there. the aaa, bbbb. if they knew i was asking about that they wouldn't know what i was working on. personnel a appointments. the federal reserve and the treasure are interesting. we know at least one former employee told me they looked up information on bernanke and

geithner. >> we have talked to a lot of investors on the set. you don't seem to be that agitated about it. some others don't. there seems to be a larger issue, the journalistic ethical issues. do you think we're going to hear soon from the investors and the clients who are going to take a whole different step in this? >> i do. i don't think it's strictly journalistic efforts. that would be like us spending the the entire morning on inside story. >> they tell you not to half the time. >> exactly. >> prevent that. this is an issue that gets to the heart of wall street. sepl nation of information on wall street. it is a business story in the sense that how do you something something like this. is bloomberg handling it correctly? it's a story about fairness, ethics and business. >> talking to some sources at the banks, the cruellest irony

of all is how many questions they get from reporters. but of course bloomberg is a media company. very stern questions about how strict the chinese walls are at a lot of these banks. morgan stanley was doing this. all the questions about the brokerage versus trading floor. what information was disseminated. for the banks to get all these questions about chinese walls and having to defend themselves at all times for those walls not to exist. >> i think it is this whole big brother system. when you badge in in the morning, everybody in the whole operation they can see your calendar. they think of the whole system as an open system even though the customers don't realize. >> andrew, 20, 25 years ago, michael and i back from the world economic forum. one of the things he asked me in the car is what do you use the

bloomberg machine for? it started that he really just wanted to have more -- he wanted you to be more addicted to the man and know what you were using. the that morphed into doing things maybe they shouldn't have done. >> there's a 6:00 a.m. show called bloomberg surveillance. it end at 8:00 and it's followed by in the loop. and you know if you're not in the loop, what are you? >> out of the loop. >> out of the loop. so you have to be in the loop. i mean, they have to change both at this point. don't you think? >> it's not clear to me that that's the first thing they have to change. >> you wouldn't change bloomberg surveillance? >> my personal -- >> bloomberg surveillance. >> there are things they need to do before. >> the issue is with snow. who cares what john snow is at.

just keep talking. it's like i'm santelli again. >> you made this joke eight times, joe. save the network by continuing to talk. >> nuances of fed decision-making. >> one important point that has sprung up -- >> she's getting serious. >> and i'm going to get it too. bloomberg is one of the only big media organizations that was not created as a news gathering organization. it was created as a financial data organization. and the news element of it was created to supplement what traders were already using. so it was a way for them to not have to leave the term knoll. all the news they needed was right there native to the system. they never had to click out to the internet when it was invented by al gore. it was a way for them to stay on the terminal. >> nice plug for al gore. stay where you are. >> nothing from joe. crickets.

>> bart chilton, commissioner of the cftc. good morning to you, bart. thanks for joining the conversation. is there a role for this? are you going to be launching an investigation? >> well, at this point, andrew, they're not under our jurisdictions. but on thursday, we are hopefully going to kd this on swaps execution facilities, ses. so once bloomberg would be under us, under our jurisdiction, this is definitely something we go after. there's sort of a void here in that there's no regulator that really looks after news information providers. but these terminals. people are sort of getting to it. they tried on these things. so any time there's a permeable membrane between the trading arm and news arm, that's a huge issue. and i think you should just accept from people that they only got mundane data.

who the heck knows that? i think it merits further review for sure. >> i think i can report that conversations with wall street folks were the least of their concerns might be how journalists uses information. and there were questions about what are the -- what is the security regime in the back office? and whether or not they have one that is equal to the standards of wall street firms? >> right. and, steve, you know better than anybody. if there's trading data that got out. if they were impacted by this, look at the facts and circumstances, but that could theoretically be a lawsuit. i'm not saying by government, although you wouldn't rule it out of the question. but by firms. if prices are moved, that's when you get into culpable behavior that can be dealt with a court case. >> are you a bloomberg user? has your department or agency

ever gotten a phone call that you thought was based on information they shouldn't have had? >> not myself personally, andrew. but, yeah, we use bloomberg. but i'm not aware of any of these things. but, again, i think it's -- look, it's ethically challenging whether or not you should be using that stuff. certainly it raises the question. but my deal is looking at the trading, if prices were impacted. and it gets to this thing we were talking about overall, about technology moving, high frequency trading and whether or not we are up to the game of monitoring how technology has morphed in markets and do we have procedures and practices in place. >> bart when you get this authority, does that mean you have the authority to go back and look at whard. can you be a little more

prospective. >> dodd/frank, the financial reform law said that we should, we will, we're mandated to regulate swaps trading. and so we're setting up the rules for these platforms called execution facilities. and bloomberg will supposedly, presumably, rather, be a swap execution facility. so it's after that fact we can go ahead and have oversight and look at these things. i can tell you if this occurred when they were registered we would be on them, all over them. >> bart, just to -- >> and look at every violation. we could charge 140,000, which is too low, for every single time they did this and went in. >> how far back -- is there a statute of limit nations? if you decide to do so post thursday? >> it's going forward, andrew. it's not going back.

i wouldn't want to say 100% we couldn't look at some in the past. we're just going to do the rule. hopefully it will still pass. it won't be effective for some time after that. . coming up, we're launching a disruptor 50 series. 50 comes chasing the game across a wide range of industries. first of all, the hunt for yield. where to find value. here's what warren buffett told us last week. >> in terms of stocks, you know, stocks are reasonably priced. they are reasonably priced now. they grow in value because they expand the companies underneath. i like owning stocks. i do not like owning bonds. their conditions are far different now. ♪

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welcome back to welcome back to "squawk box", everybody. futures are weaker today. dow down 43 points. s&p down by 5.5. warren buffett callings bonds a terrible investment

right now. high-yield bonds less vulnerable than other classes of fixed income. here with more is our guest host oscar schafer continues with us. i don't want to overstate you're disagreeing with buffett kwraous you're not i don't think really, are you? >> no, that's right. >> high-yield bonds are less value initial. >> spreads are way down on those too now. >> spreads are fair relative to history. history have been very favorable in relative terms. >> turn it into a discussion about stock. like lee cooper man. we would not be that interested in the stock market if rates weren't zero. but they are zero. the best house in a bad neighborhood will get a lot of play. they will not be excited about it.

>> it is what it is. as warren said, stocks are fairly priced, reasonably attracted. bonds selling at the lowest yields in history. >> would you still hang on bill gross's every word? because, again he said the great 30-year bond/bull market is over. you can only say it so many times. going to be right one of these times. >> i do have -- i borrowed some money in 19830. and i have a slip on my wall saying the rate is 22.75. that tells me they have a lot more to go up and down. >> that wasn't a rate from a loan shark? >> three-quarters over prime. we had something called prime over time. >> howard, you said the better the returns in the past, all other being equal the less like

hi they will in the future. bonds have been done much better than stocks. by definition, doesn't it imply less going forward? >> i think that's very much. >> when you get to a level like this and you stay at it for this long and you've got people issuing paper with very low yields. when it's been this long; there a huge dislocation somewhere that will have a negative adverse effect when it finally comes home to roost? do you think it will really hurt us? >> investors get accustomed to rates so low. the old saying, we've been down so long looks up to me. 5% on high yield bonds sounds attractive to people. there's something funny about that. five used to be the spread now it's the yield as my partner sheldon says. and i think you have to worry

when rights are as low as they are, people under ts take more aggressive behavior, bullish pwe haoeufr because they have to to get yields. they are accepting lower quality, higher quantities of paper. there's a headline in the wall street journal we're on track to have the most ipos in history. investor behavior tells us what's going on in the market, tells us whether we should turn aggressive or defensive. >> ross once said if the 10 year goes to its average it will go down 20%, 25%. it's hard to believe. that's only going back to average. what do you think? >> well, the math is what it is. i'm sure wilbur is right. will we go back to the average is another question. i think they will keep rates for a long time. with a nonbooming economy there's a low demand for money.

and so that's a truism. but not necessarily what's going to happen. >> given the fact that the fed is targeting unemployment, 6.5. and considering technology is replacing labor it's going to be a long time before they get there. >> and the labor force could keep going down and down and down. could never get to 6%. should be 20. >> well, there's reasonably the structural level of unemployment. it may be higher than in the past. i worry personally about where people who are not educated are going to find jobs in the future. and in the past it was much easier. >> what do you think the national unemployment rate might be? >> what if i said higher than 5.5. >> you can get easy credit. you can get drunk on easy credit. once you do you start doing things drunk people do. it's an open bar.

say it's 10:00. how many drinks have we had? >> back in '06, '07, my partner and i turned cautious about the markets because we found ourselves going into each other's office and saying, look at this deal. can you believe this deal got done? it's crazy. >> yeah. >> we're not there yet. >> drinks? done any shots? >> we're a little tipsy. >> no jaeger phaoeufter shots. >> people should start thinking about not driving. >> can i have one more drink for the road? >> he said the great the prudence with which we must conduct our own affairs. so the behavior of other investors should influence ours. investors are not behaving -- >> on so it's not like david hasselhoff with the hamburger on

the floor. do you remember that? >> you said you realized you should get off the road. >> it's impossible to do the right thing at the right time. i will settle for the former. >> high yield. if rates go up, you're screwed. if companies go out of business you're screwed. >> but there's something in between the two. >> 5% for a crappy company. you have the double risk. double rate and if there's a recession. >> that's why you get twice the return. >> 5%. >> what do you like better? >> pfizer. >> and everybody, you know, i did say i think stocks on balance or more attractive than bonds. >> you talked a lot about investors's thought process. i understand you did a study of different people in the investment world. can you share with us those conclusions? i thought it was great. >> i was an equity analyst back

in the '60s. i had a clipping on the board that said an analyst is someone who knows a lot about a few things and hraerpbgs more and more about less and less and knows everything about nothing. >> welcome to new york city. you just moved here. breaking economic data after the break. wena simple question:ople how old is the oldest person you've known? we gave people a sticker and had them show us. we learned a lot of us have known someone who's lived well into their 90s. and that's a great thing. but even though we're living longer, one thing that hasn't changed: the official retirement age. ♪ the question is how do you make sure you have the money you need to enjoy all of these years. ♪ to enjoy all of these years. ♪ ♪ ♪ ♪

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when we when we come back, breaking data on the consumer. we're just a few minutes away

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we are we are seconds away from retail sales number for april. steve liesman is with us in the studio. been watching futures. they have been a little bit weaker. at left check, down by just over 40 points. take it away and give us these numbers for april. headline retail sales is up 0.1. better than negative expectations of down 0.2 to 0.3. autos are down 0.1. but take out autos and gas, and you're up 0.6. i found that last one especially very interesting. there were some revisions but they don't make a big difference to the subtext of last month's number. interest rates indeed have moved up a basis point based on retail sales. on an absolute value basis coming out, you know, 0.4 better

than expected from minus 3 to 5. we do see that the preopening equities still remain under some pressure. and the new dynamic that many traders will continue to focus on will be of course the relationship between potentially higher interest rates, large thumb on scale off to the side for argument's sake. those of you out there that work on small engines to tkhrolgts the economy back, the equity prices at the very least. we have a boat load of very important data this week. it should be very interesting, especially in light of some of the biggest market moving stories of the day. back to you. >> all right. rick, stand by. we're going to continue going through some of these details. steve liesman is with us on set. retail gasoline sales. it was the largest decline since september 2008. >> right. i have it down 4.7%.

it is huge. so what's fascinating here is that consumers manage to eek out a gain in spending in april despite this. the dow jones was minus 0.4%. i think others were 0.3. it's a big upside miss is the best way to put it. it looked like strength and see what the economists are doing with it. but it's going to help offset some of the weakness out there. it raises questions, how were they able, given what's been happening with the increase in the payroll tax and that kind of stuff, how have consumers figured out a way, is it drawing down the savings rate? are wages doing better than expected? >> that's the key question. rick, what's your sense of that very thought? are consumers saying better than we had anticipated? >> you know, my feeling is i understand the nuances of energy prices. you know, if they go up, it

helps retail sales. doesn't necessarily help the consumer and vice versa. but i really think that the end consumer is going to be such a key issue moving forward not only for the u.s. but even more in europe. we see this dichotomy, for example, positive numbers. negative numbers. they're going to have to assess. it will be the missing good or missing variable negative for i think the growth factors for the rest of the year especially. >> have you been audited yet, santelli. >> i'll tell you what, with so many stories out there, i guess without a doubt -- >> that was an oversight. you're the first guy i'd do.

i go back 40 years on you. with a fine-toothed comb, man. >> you think everybody is thinking about this wrong. santelli exchange. the the most disturbing aspect of the irs. health care. being audited is one thing. to have your stint at the bottom of the pack is much scarier. >> you know i said to steve, they said we're just giving you refunds or all the work you do with us. >> yeah. i don't know. but when it comes to the bloomberg story, guys, come on. is anybody truly surprised? just think about it. whether it's your facebook, tweets, google, microsoft, whether it's the electronic platform. you trade the markets. whether it's the gps in your phone.

seriously, people. do you think there's not people on that system whose eyeballs look at all that? >> we always thought about all these privacies on the old technology not the new technology. >> you can't be a journalistic entity and have access to that. there should have been a china wall all along. >> i understand. i understand. but i guess once again i go back to the difference. if you have bloomberg, i remember in the '80s i was with drexel. we were one of the first companies to sign up for 100 contract machine. and i seriously can remember back then the big brother aspects along before anybody else talked about. to think that the goldmans, jm morgans or people on the fed didn't have this. still the main difference is you can get a difference news service, a different platform for research. when it comes to health care, taxes or government, you cannot

say you're fired. this is one of the fundamental issues why so many conserves think bigger government is a bad idea. to think that the name is the strategic name for the the direction of the news company and also the direction of how many ounces of pop you can consume. i'm not saying they are all related. but seriously, think about the under lying personality, all of that and the biggest issue for the election, fairness. this is what i have always said, fairness. when a politician says fairness, especially with this irs story, that means, you know, when somebody says trust me when they talk to you, run the other way! i'm done. >> thank you. steve, they're going to kill me for something this. but how closely does the fed look at the april sales number? >> i think it's a piece. what the fed, what consumers are going to do has to do with the weakness of the economy. and i think the weakness of the economy was something that spooked a lot of the market.

and it seems to be either being revised away or contradicted by current data. still doing 2, 2.5, maybe even 3 depending how this number gets calculated. it was before inflation. we will calculate inflation with that. >> if you're a bloomberg reporter, you would know how they look at it. >> exclusive cnbc disruptor 50. shaking up their tech tors. five of those companies behind the list which they will reveal. 's as simple as this. at bny mellon, our business is investments. managing them, moving them, making them work. we oversee 20% of the world's financial assets. and that gives us scale and insight no one else has. investment management combined with investment servicing. bringing the power of investments to people's lives.

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it's an exciting day here on "squawk box". we are taking our disruptor series to the next level with the kickoff of cnbc's disruptor 50 list. over the course of the week on this program and "fast money", 50 growth companies across 10 different industries that are shaking things up and threatening to disrupt the old guard. top b-school professors's guiding principles. replace incumbents, hypergrowth, ability to scale quickly, and

introduction of new business models across industries. we shared all of those with vc firms, industry analysts and our own reporters. they battled it out to get down to the final 50. jewel gentleman is here to kick things off with the first of our 10 sectors. the five companies that made the cut. julia? >> that's right. the companies are using technology, the the cloud, social, mobile, big data to empower consumers, cut on the the middleman and create channels for anyone to sell in the global retail marketplace. etsy is online marketplace for home made products. the company says 25 million members purchased from 900 million shops grossing $1 billion in revenue last year. that's up 70% from the year

before. by tapping into the economy, they are taking aim at local boutiques. pinterest may have started as an online scrapbook but they have tools to cure ate and share imag images. they can measure how people interact with their brands. investors report whopping $338 million into the tool. they're betting once it takes a cut of retail or flips the switch on advertising the potential is massive. next up shopify. build an e-commerce site in 20 minutes. this year is doubling to 80,000 and double revenue to $1.5 billion. shopify may threaten retail giants, even amazon, by proving you don't need deep pockets to reach consumers around the world. rent the runway makes high

fashion okay assessable to the masses. raising $54 million. spending a mint on a designer dress just once is hard to stomach. so you can rent and accessories for half the retail price. $2,000 versace dress you can rent for 300 books. it's doing it with only a dozen brick and mortar show rooms. parker sends shoppers frames to try on at home. and you can model glasses virtually on line. the company donates a pair to those in need. andrew? >> leah, thank you. thank you for all your work on this exciting new project. julia, you're eyes are not deceiving you. high fashion glasses for 95

bucks. cnbc disruptor 50 company, dave. thanks for coming in. >> honored to be here. >> do you ever wear contacts? do you wear glasses? >> i have glasses at home. >> my question, 95 bucks. how do you do it? that means everybody else is getting gouged. >> we started warby parker because we thought it was ridiculous that they cost several hundred years ago. it was invented 800 years ago. there's no reason they need to be so expensive. a couple companies run the industry. they markup two or three times. >> i saw it on "60 minutes". >> what kind of margin can you make at 95. >> free shipping, free returning and still have a healthy gross margin, much more typical than e-commerce. >> have luxotica called you

guys? >> we have had some interaction with them. >> if they called up with the right place, would you sell? >> we are just trying to build. >> say it again. we are -- if the opportunity came on, we might consider it at that point? >> for every pair of glasses you sell, you also give a pair away. how important is that to the business or frankly and i don't mean to be crass or cynical, is that just part of the market? >> there are a billion people in the world that don't have access to eyeglasses. we work for nonprofits to distribute a pair to somebody in need. we deemphasized that. we don't use it in part of our marketing pitch. it's most important in terms of attracting and retaining

employees that want to have an impact and work for a company that's doing good. >> how many countries are you selling in right now? >> u.s. and canada. >> how big can this get? >> what are the barriers to entry right now. besides luxotica. >> we think there's massive opportunity. we will launch internationally but not until next year. >> you're online but now you're brick and mortar as well. how important is that? >> we think the future of all retail, especially our business is going to have some online components and offline component. most glass are still sold in bricks and mortar. it makes sense for us to have physical presence. >> do you have a take on the sales tax debate. >> so we already collect sales tax in all 50 states. >> how much did those cost? >> $95, including prescription lenses.

>> do you wear them on purpose? do you need glasses? >> i do need glasses. i have been wearing them since the sixth grade. >> there's no lenses in there. i can see right through. no. those are the ones you picked, though? >> it has an old school look. >> old school look, there is speculation, there are reports that google glass has got in touch with you guys about you making the next google glasses to look more than like than the space age crazy glasses that we have seen. can you share with with us some news? >> can't really comment on any rumors. >> that's that other button. >> can't do it. >> we think what google is doing is really interesting, but we can't really comment. >> is that the future of glasses? do you worry about that short of changing the whole glasses

market eventually? >> we think glasses are a fun fashion industry. it needs to take fashion into account. >> in other words, the glasses are a little not so hot? >> i think it's super interesting. still in its early days. >> do you ever get into the contacts business or is that far afield? >> we think of ourselves as a fashion brand. it's not something on our radar right now. >> have to show off your beautiful eyes. >> dave, thank you. congratulations on being a disruptor 50, our first. we appreciate you coming on this morning. thank you >> thank you. lots more consent on twitter and the web. follow @cnbcdisruptors.

"fast money" at 5:00 p.m. immediate wra companies shaking things up. tomorrow on "squawk", disruptor manufacturers. when we come back, stocks on the move ahead of the opening bell. we'll find out what jim cramer is looking at the ahead. and jim chanos. [ female announcer ] what if the next big thing, isn't a thing at all? it's lots of things. all waking up. connecting to the global phenomenon we call the internet of everything. ♪ it's going to be amazing. and exciting. and maybe, most remarkably, not that far away. we're going to wake the world up. and watch, with eyes wide, as it gets to work. cisco. tomorrow starts here.

welcome back welcome back to "squawk box," everyone. the futures are down. that is market improvement from what we saw earlier in the morning when they were about 60 points below. s&p futures down by about 3.5. let's get down to the new york stock exchange. jim cramer joins us right now and, jim, i hope you saw those retail sales numbers because they were up 0.1% and that was a lot better than expected and it plays into what you've been telling us for months now that maybe things aren't that bad out there. >> they're not. when you said things aren't that bad and then the federal reserve

is going tighten. the automobile business is good, and people misunderstand housing. when the price of housing goes up you spend a huge amount of money on your house and this is the number, this housing number is reverberating throughout the whole economy. more than 60% of people own houses. >> did you see that number on your bloomberg terminal? >> the street.com has bloomberg. i've known mr. winkler for many, many years and i thought his op ed piece said there's not that much that they can see, and i agree with, by the way, with rick which is when you put something if your pc, you should expect someone will see it anyway. i was one of the first terminal users and i always think they're not really being looking at anything and they didn't have access to anything that really mattered. so, i don't know. am i giving them a free pass.

i think they admitted it and they came clean and they just didn't. >> they're similar things from what we've heard from the guest host this morning. >> this is the most trusted authority in the business and there wasn't anything i read in mr. winkler's note which made me feel anything about that. they were the best sense i got the terminal. i was one of the first 25 clients and he's done a great job with the service and there wasn't anything that i read that made me feel compromised. >> he would not change his behavior. >> jim, what about dell? did you see the latest note where the company stands and what they're not asking of carl icahn? >>. >> they want additional information, yeah. >> here's the problem with dell.

this is the one part of technology where there has not been a bottom. i know people are encouraged and intel's going higher, but you know when? this is just the weakest part of the whole chain and i still ink dell is going to end up very challenged and whoever buys this company, it just doesn't make any sense. this feels like the tribune company. i knew the tribune deal was bad because i'm from that background. this is a deal that will look bad and two years from now we'll be saying that is the top. how did dell let that happen and it played out leak a train wreck and icahn making it even more difficult for the company. >> we will see you in a few minutes at the top of the hour. >> coming up, our guest host has been oscar schaeffer and we'll give him the last word when "squawk box" returns.

we're back with our guest host oscar schaeffer with the last word. when we talk about being in the third inning or whatever for the stock market, do you think, look at what the fed's doing, 800 billion balance sheet to 100

trillion, but do you ever think, wow! the macro comes home to roost and maybe i just need to worry about that? >> you have to think about, the king has no clothes here, but we just try to buy good companies and good capital allocators and frankly, thinking about the economy and making money in the stocks. >> so you're there at the roundtable and you're listen, felix and you hear what they're saying and you kind of just ignore it. >> i don't ignore it. i listen to it, but it's hard to translate that and you can do stock picking. >> you would be in the fetal position with gold if you -- hiding in your bomb bunker if you believe that, and you're not. >> it's not that i don't believe it. it's just not what i focus on. >> okay, good. hopefully -- i'm worried now about the swine flu, bird flu hybrid. i think other people are worried

about the tides rising in the year 2100 now that we're at .04 instead of being at .02 co2. >> thanks for coming in. >> i appreciate it. >> we'll check out your bloomberg terminal. make sure you join us tomorrow. "squawk on the street" starts right now. ♪ ♪ ♪ ♪ yeah, happy birthday to a musical legend once billed as the boy genius. stevie wonder turns 63. >> i saw him play at harvard law school and he came up and said i'm telling you, i have a great experience. i can see. i can see. and he started reading things and he said -- fooled you! fooled all of you! >> good morning, welcome to "squawk on the street," carl quintanilla, jim kraemer and david faber at the nyse. retail sales kicking off the week with a beat. holding back from