i really think we've got to get an underpinning where the economy has much more strength, joe. we talked about it. that's through better job creation. that's through the energy independence we've talked about. andrew, i think we've got to get a better fiscal policy -- or a fiscal policy so the certainty of uncertainty is done. >> perfect! >> right now, it is time for "squawk on the street." >> beautiful. good morning. we are setting up for a choppy open as the nikkei plunges 7% overnight. global markets are in the red. welcome to "squawk on the street." i'm carl quintanilla with david faber. jim cramer at the nyse. only the ninth time in half a century that the nikkei has fallen that much in a single day. reacting to china's pmi which shrank to a seven-month low. european markets moving lower in unison and our own futures are down but the dow will be helped this morning by of course hewlett-packard, the stock is up 11% pre-market on better than

expected earnings and upbeat guidance. speak fing of which, david has exclusive interview with the ceo, meg whitman. yesterday's capitol hill testimony by bernanke an the fed minutes combined to spark concerns the central bank might begin to scale back its bond buying program later this year. china pmi falling in may to 49.6 from 50.4 in april. the number below 50 marking contraction for the first time in seven months. how much damage is being done today, jim? what does this open look like to you? >> when you get up in the morning and you see down 7% for japan. japan was up 1.5% before that chinese news came out. i think we come back once again. i know that's repetitive but david you've been stressing it. europe, not that strong. therefore, china, not that strong. therefore, still need fed. did we lose fed? it's what makes people feel like

what the heck, why are we up 16%? that's wrong. you have people trying to lock things up ahead after very long weekend. >> you mentioned japan was actually up. it was not going down as a result of our turnaround yesterday. >> i felt that was -- >> it did react then to china. it also reacted, to be fair, to that jgb yield hitting 1%. account bank of japan really control yields here in this experiment, if you will, that they've undertaken with massive qe, unexpectedly seeing rates go up which is shocking for many and certainly disturbing if you expect they will stay at a level or even higher level because they don't have enough tax revenues to meet their interest payments. >> but what's i think difficult for people at home -- so you have hewlett-packard, that will be fascinating. really good number. pet smart last night. i know it is a theme retailer doing really well. yet home depot. people at home saying why do i care? what is the jgb and why should i

really care if auto registrations were up or down in europe. it is still in the grichps of t macro world. some see it as a result of the fed's easing. we haven't been able to break away from washington, europe, japan, from china, even as we are up so strongly and i think that's confusing to people. >> the equivalent on the dow -- japan's decline overnight would have been 1,117 points. that's dramatic. you said we are setting up for a tough open. you said the sell machines are if control this morning so you're not bargain hunting today. >> you start from a plus-one to finish down one. then you say down 2% in sync with germany. now you're down 4% from the top. i'm sure some people will say i got to put money to work but a lot of others just say, look, i never believed it. i never believed it. this money from the sideline, as you heard herb greenberg going back and forth at 4:00 a.m. --

wow, are we struggling. money from the sideline i don't think comes in. that would be the nice trampoline cushion. because the yields are still not that great. this rollover in the utility stocks has got me worried. all that said, i come back to -- i do not think the fed did anything really important yesterday. it reminded me very much of greenspan which where you got a good -- in the morning you got something that says i may tighten, in the afternoon you got something that says i may loosen. so i come back to the fundamentals coming in to play but not yet. not yet. >> but does that action yesterday in the market -- we don't typically talk about action -- that reversal. >> you're going to give me head and shoulders next? >> i don't even know what they call it. >> key reversal. >> they leave it to somebody like me that doesn't follow that stuff at all to go, that doesn't feel good. >> let's use opentable as an example. these are reversals of 5%. instant like that. you say, look, i don't want to get near that. that's strange.

you you get suddenly kimberley and clark. merck announces this buyback that opens at $48, finishes at $46. i think we're feeling the sting. only thing i lixd was all morning as i listened to unbelievable people on squawk only 1 out of 5 just said you got to buy it right here. sometimes the buy it right here crowd does surprise you. i think there are some of the buyers will come in before the three-day weekend but there is a lot of people who are just thinking i never believed in it. it turned out to be phony, like japan. i'm not going to get involved. >> they told me to sell in may, i didn't, it hurt. you have raised sort of the picture of a fund manager who's done well this year who is ready to take the summer off, right? like you did at goldman or -- what i did at my hedge fund. it's interesting you say that. i'm going back and forth with managers. they say who's really beating the market? believe it or not, there are always people beating the s&p

which is up 16%. when we were up this amount we'd go to martha's vineyard. we'd say who needs this? we're going to martha's vineyard. >> these days they don't do that. >> why don't they do that? >> they'll maybe take a few long weekends. but they're not going to disappear for two months. that just doesn't happen anymore. >> that was a good life i had had. >> yes, it was. however brief it was. >> yes, that's very true. carl, i don't think it brings people up off the sidelines because i think that those people -- they didn't like it at plus 9%. they didn't like it when the market was up 11%. or up 14%. they're suddenly going to like it when it is up 16%? these are people permanently opposed to this kind of rally. maybe it is june 17th instead of june 38th. >> are we going to focus more on climate change? you pointed out japan turned when we got china. we'll talk to the

hewlett-packard ceo shortly. >> she had nothing good to say about asia in that conference call. i think that china is a function of europe not taking product and not being able to stimulate their own economy because the infrastructure's just not generating the jobs. >> though some of the european pmis were up a little bit. >> you know what? i've got good news, i've got bad news. right? that should weigh on us to say, if the fed has good news and bad news they're not going to really do anything. >> talking about good news -- hewlett-packard is one of the few winners on what's going to be a down day at least for the markets. up next, a live interview with the chief executive, meg whitman. more "squawk on the street" live from post 9. [ kitt ] you know what's impressive?

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meg, as always, we appreciate you being here and waking up early in the morning to join us from the west coast. as i said are you being rewarded this morning in the market -- or certainly were after the close yesterday for your bottom line numbers but i'd love you to address this larger issue some prospective investors have which is essentially, yes, you're hitting near-term profitability and in fact getting better at profitability that many expected but are you sacrificing market share, are you delaying r & d and other investments, are you perhaps not fully taking financial benefits of past restructuring actions. essentially are you shrinking to profitability? >> well, let me set the stage for you. we are embarked on a five-year turnaround journey. we're about 18 months into that journey and i think we're right where we thought we would be. in fact probably a little ahead of schedule. we generated a lot of cash this quarter, $3.6 billion and beat earnings per share, our high end of our guidance, by 5 cents. in fact we are investing a lot

in our business. remember, we're creating the financial capacity to invest through our restructuring program, and then some of that we're bringing to a bottom line and a lot of it we're investing into things like moon shot, three par, our ap networking, enterprise services, the i.t. that runs this company that had not been kept up to date. we are investing in a lot of our internal processes. so it is always a balance but i feel that we have laid out the investment plan and we are making those investments so we are not mortgaging the future. you will recall when i came to hp, i said i'm coming to set this company up for the next decade. not this quarter, not this year and we are sticking to that. we feel good about where we are. >> you of course say you're not mortgaging the future. this is a multi--year transformation and transition. but looking at each of those reporting segments still down, though some not that much in revenues, i wonder at what point do you see one of your big reporting segments actually

turning up in terms of revenues? >> what we've said is we didn't think we'd see revenue growth in 2013, our first cal 2013 which ends october 31st. but we could do believe growth is possible in 014. probably not in every business but we hope overall we'll see growth in 2014. you have to remember we're undertaking a rebill of hewlett-packard amid some of the biggest changes that the technology industry has seen in at least a decade. there are huge tectonic plate shifts about the way technology is consumed, the way it is bought, paid for, the way software is written and delivered, the way end users engage with technology so there is a lot going on in our world. but we are growing businesses that power the new style of i.t. we've got declining businesses that powered the old style of i.t. so we're in that knot hole that one has to get through but i feel good about the growth p prospects for 2014. >> printing has been a bright spot for the company. margins better than those who

followed the company closely had anticipated over the last few quarters. is that margin level -- let's call it right around 16% -- sustainable and do you see printing perhaps even making that turn to revenue positive let's call it the next 9 to 12 months? >> yeah. so we think the margin is sustainable and the team's doing a great job, printing team doing a great job in innovating not only in technology, ink in the office which is basically just as fast as laser, just as good quality as laser at half the cost and we've done some incredible technology innovation but we're also innovating around the business model, in developing countries we have a model call ink advantage where the printer is a slightly higher cost but the ink is a lot lower cost. that's taking off really well. we are introducing subscription ink in the u.s. next quarter. so we got a lot of things going on there. i do think actually growth is possible there. home printing and photo printing is still declining but we see lots of other growth segments. so we're optimistic about pri

printing and i think concerns people had about printing a year ago are starting to dissipate. >> concerns when it comes to the pc part of the business aren't dissipating. it does seem we're in the midst of something perhaps few people have seen in terms of a change in a business so significantly in such a short amount of time, down 20% in personal systems. where is the bottom, meg, when it comes to pcs and did you choose to chase price all the way down here and continue to take margin out of the business? >> so we seeing one of the biggest shifts of i've seen in my professional career. personal systems is growing because the desire to compute, to share, to create, i think is only growing but the form factors are changing dramatically. so, by the way, is the operating system and the chip architectures. sosuing a multi-os,

multi-form strategy. but we he have to get to the new world order as fast as we can. and we didn't chase margins all the way down here. a number of our competitors, dell in particular, was very aggressive in this space and you saw what they did. they cratered their margins and maybe that's what you do when you're going to go private but we can't do that because we need to have margins to invest in the next generation of personal devices because when the pc market begins to level out, and i think it will -- >> meg, let me just stop you. i don't mean to interrupt, but level out. why would you think -- some would say it is over. there's not going to be a significant increase in pc sales any time, maybe in our life times. everybody's going to tablets and leveling out, forget about it. that's years away. >> i mean that's not my view. by the way, i can be proven wrong here but think about it. there is 140 million laptops that are more than four years old. people are still doing real work

on their laptops and tablets are great but if you're doing office or excel or real creation, it is very hard to do that on your tablet. we're investing in hybrids where you have a laptop plus a tablet because the screen comes off so it's all tablet, all laptop, all in one. i think that's the direction the industry may go. i think -- listen. my rview is people want to create, consume and share and i think that form factor will have a future but i -- listen. i agree with you the real growth in the market is tablets and smartphones and we're on to a whole new era in personal compute, no question about it. >> meg whitman, jim cramer here. thank you so much for coming on. congratulations on the amazing work you did on the balance sheet. i remember when your credit rating was really struggling. i remember when i felt that the issue was going to be whether you got would be able to offer the credit to other guys. have you fixed that. i understand that you will be in cash you will be positive by the end of this year but i want to

ask you, i saw something very significant, apropos what david said. you mentioned a.r.m. holdings and you mentioned android. if you're going to build a new system that's different from the cratering dell, is this the beginning of you moving away from intel and microsoft? >> well, we're diversifying, there is no question about it. we'll always make wintel devices. we have a very good relationship with those companies but we have two diversify to new operating systems and new chip sets so we're building a.r.m., chrome bucks, android systems, we have our new slate 7, our seven-inch tablet that runs android on an a.r.m. chip and that's the direction we must go. what we're going to do is basically segment the market and create the right product for that market at the right price. sometimes that requires android and an arm chip set. sometimes that requires windows and an intel chip depending on the market segment but this is

the new world order. >> you also tease this moon shot. 89% less energy. is this an emc killer? >> well, this will revolutionize the data center. and largely will i think change the fundamental direction of hyperscale. what moon shot does is in the old days, basically the app was driven by the hardware. today the app drives the hardware. so when you think about these big hyperscale deals, effectively they are tuned for one work load. and what moon shot does is make that incredibly easy, very cost effectively, very energy efficient and very space efficient. so i think this could be a revolution in the entire server business, not dissimilar to the introduction of the x86 server 24 years ago which hp invented. >> meg, i'd love to get your take on the world. in the press release in your conference call you mentioned continued weakness in europe. nothing new there. but did you bring up china as a weak spot. i know pcs, industry standards,

servers are sort of the key market that you have there. what's going on in china? >> well, we have seen a slowdown in china. we also have a very big networking business in china, you might recall. and we have a services business. we actually have the whole portfolio in china. what we see in china is that there will be a slowdown and the government will take some actions and you'll see a pick-up again, then it will slow down again. in at least the last couple of months we've seen a slowdown. so it will be interesting to see what the government decides to do to juice that economy. but it's been tough the last four to five months in china, no question about it. >> and meg, finally, you made a choice, of course, not long after taking the ceo position to keep the company together. there had been the potential of actually spinning off or separating personal systems. i wonder with all the sales declines there and with how difficult it is, have you thought about revisiting that decision? >> so we continue to believe that keeping hp together is the

right thing to do and the reason we chose to stay in personal compute is we know a lot about computing. we know a lot about convergence and we know a lot about security which i think are going to be three very important parts going forward of the personal compute business. so we're happy with the portfolio we have. we think it is well positioned for this new style of i.t. so onward in the same direction. we're going to continue to work on this multi-year turnaround plan. so far, so good. we just have to keep executing and we got a heavy lifting ahead. >> board any closer to getting a permanent chairman? >> so we're working on it and we've had some good interest by people who are well known and really highly qualified. nothing to announce today but we are working on it. >> meg, as always, we really appreciate your willingness to take the time with us. good news or bad news, you've been there for us. thank you, as always, to meg whitman, ceo of hewlett-packard. >> thank you very much. >> you're welcome. >> good news, or bad news, comes right on air. very impressive balance sheet.

>> she came on the autonomy more. >> i think most people agree, whether or not you agree with her strategy, she is one of the cleanest communicators in the ceo community. that's a big reason why the stock has led the dow so far this year. >> i remember when i thought it was a big credit rating downgrade after downgrade after downgrade and suddenly she took that off the table in a very fast period of time. >> carl, you raise a very interesting point. being able to communicate when you have 300,000 people in your company? >> you are saying the same thing every day to a different group. >> it is extraordinarily important. >> we didn't even mention seven-day turnaround on some of that money? $7.5 billion in free cash flow is a key number that the market is certainly very happy with. >> i've been very critical of this company. you can't be as critical after what you just heard. we'll get jim's mad dash after break. the opening bell 7:30 minutes away. away. bny mellon combines investment management & investment servicing,

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few minutes before the bell. let's get jim's mad dash. we are talking about going private and being a retailer. >> another name. >> the shorts are not ruing this day but they will be ruing if they are short 21. i've kept this store afloat because my daughter would shop here constantly. here's what you need to know. this is that teenage apparel segment. pacific sun wear is up, too. it is very difficult to gain but maybe they've had it with the public partners. apex partners has been a part of them since 2009. guys who can't stand public

markets have true religion. i know there aren't a lot of positive signs this morning but this is the kind of deal that if the stock doesn't do anything for a while, people then say, you know what? to heck with this. i'm taking myself private. very important deal. >> seems like there's two stages. on the one hand, they stop giving you monthly sales guidance. if they're really sick of the market, they just leave all together. >> rule 21 has figured out the quarter better than any other company. fasten your seatbelts. market is poised to get off to a rough start as futures go down. we got three companies going public today and we'll watch them all when we come back.

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>> i know -- i follow you on twitter. one of the things that's incredible is there are people who have never experienced a bad day. there's a lot of panic among individual investors who have come in. that's unfortunate, because they will lament their own declines. they don't really know what they own. i think it is a shame because a lot of people were lulled into believing the market couldn't have two bad days. >> there's the opening bell at the big board. channel advisory, provider of clous based e-commerce solutions celebrating its ipo. we'll talk to the ceo in a few moments. at the nasdaq, odyssey marine exploratio exploration, celebrating its exhibit at discovery times square. obviously let's check in on hpq after david's interview with meg. good questions from jim as well.

it's led the dow so far this year and was up double digits premarket. >> david, you often talk about credit. the idea is that a dell could be heavily levered. she used the term crater. i rarely hear one executive in the industry point-blank knock another. >> yeah. we didn't -- so many things to talk about. we didn't follow up on those interesting comments from meg. carl tweeted them out. there was an expectation i think, jim, that hp might capture some market share from dell. for any number of reasons. they did not. and when i've asked meg about it, both here and then off air as well, it does appear -- they mentioned it on the call -- that dell was chasing price down. we know the margins were severely pressured but her comments were maybe that's when you do when you go private. we're definitely a little bit of a "take that." >> right. i also felt that there were a lot of red arrows for each division. but it is incredible how much fat there must have been at

hewlett-packard. >> cost savings are coming through here. they did bring operating expenses down 5. %, revenues declined more than that. how much are you chasing one or the other. but they did get a decent margin, improvement in a couple of key areas. i think investors are coming back to the generation of cash. $3.6 billion. up 44% year over year. >> we didn't mention dividends. >> it makes people just feel better. to your point. a lot of good it did on that balance sheet but now they'll get back to even very quickly. >> i wish we had a chance to ask her. she highlighted japan vendors could be getting aggressive. had this is the big yen trade. remember, hewlett-packard does go against a lot of the commodity japanese players. also, david, this android shift is -- intel, microsoft, listen. a.r.m. holdings in android, just

one more example of what's going on. google. google. and google. >> when hp talks about different form factors, they are talking about making all these other kinds of tablets. those things don't go into the same -- it is not a pc. >> you can see, breadth is pretty lousy in the early going. the nikkei -- every constituent of the 2.25 was down. that's the first time we've seen that since 2005. >> the banking stocks, does the government have enough money to cover the bonds. the banks own the level -- they pay on a bernanke like slug of japanese bonds, david. >> what i think has been unexpected to a certain extent is you have the bank of japan going on this incredible foray of qe which is designed to bring rates down. and yet the question is whether the bond market has gotten away from them. and why. >> couple individual names we've not done. hormel had a tough go in the

quarter. grain costs, some weakness in jenny-o turkey. stocks had a pretty good year so far but not today. >> a huge dividend payer, one of the best records over time. i still believe the feed of the things that they buy will be coming down in price. one to watch is starwood. when a company's upgraded by two different firms as starwood was this morning, that should be able to be a turn. if you see starwood hold in, you may be surprised at the strength of the market. if you see that give it up all day, it means that even two big bulls can't save enough stock. >> you mentioned pet smart earlier in the show. they beat by two cents. raising their outlook a day after we toualked about how muc consumers love to spend on their animals. >> that was one where people thought they could be amazoned. well, they weren't. people like to spend money on their pets an they like to see and feel what they're getting for their pets.

>> gold, as you might anticipate, is up this morning. the gld up 1.7%. not a big surprise given tumult in world markets. >> gold opposite of biotech. when gold's gone up, biotech has gone down. they've been the market leaders in this year so watch those because that's where the money -- that's the hot money, is in those stocks. >> meanwhile, jim, if i'm not incorre incorrect, celgene's multiples may be lower, but i've got it growing. bristol-myers has some great cancer drugs. but come on. how is that possible? >> is it just because you want

me to say bristol-myers? bristol-myers has a terrific pipeline. celgene has a terrific pipeline but bristol-myers is like a lovie blanket. it's like, i can be in bristol-myers, i feel so good today. sure enough, it's up. bristol-myers is a night light. >> i don't understand why i'd say buy one and not the other. >> last i looked, clorox can kill germs but it does not necessarily wipe out multiple myeloma. >> can we use it as a test today of the appetite for people to buy dips? >> yes, absolutely. i tell you why, carl. because there's this cohort that has to catch up to the market. are they going to be able to use a down day to be able to catch up to an s&p up 16%? are they going -- they're hedge fund -- the average hedge fund is ten. ten points behind the s&p!

do they press it lower and say, we've got the momentum, we're going to crush the market? if the money comes in, then what's going to happen is this is the low? i know that would be the most least expected thing. i don't believe it is going to happen but i'm not going to leave out the fact that there are people who need to put money to work in order to catch up with the averages. >> bob pisani watching stuff for us on the floor. >> before i get to channel advisor to bring you an update on where the market are, we are down about 90 points on the dow but there was greater damage done in other parts of the market. dow utilities, i see the utilities down 61 points right now. that's about a 10% drop at least. that's even more. 12% you see there. there's a major sector of the market that's getting hurt rather badly now. utilities have been for sale for the entire month so we are certainly now into correction territory, down probably 20% on the month on utilities. reits down 2%. other interest rate sensitive

parts of the market are also weaker as well. year's waiting for a channel advisor to open here. indications are 16 to 18 here. they priced at $14. it was the high end of the range here. this had the magic word. last year's magic word. that was cloud computing. basically it is software as a service. they allow customers to optimize the merchandise sales across a lot of different channels. for example, you have something to sell, they make it easier for you to connect with amazon or with ebay or for example get on the online comparison shopping sites like the ones that google has. it is a great idea. it is a smart one but it's been around for a while. i guess my question for the ceo would be are you a little bit late to the party at this point? there is plenty of competitors out there but still pricing very well. we also had an aluminum products maker that priced before price talk. $17 to $19 was price talk. that was priced at $15. i don't have an opening on that.

elsewhere, there was talk this morning about two pandora's box being opened, one being mr. bernanke. the other being it is highly unlikely. economic data is going to support suddenly being able to dramatically lessen bond purchases. it was the first pandora's box. we see the effects on the market today. but the concept with what was going on with the irs hearings, the important thing here is we saw lois learner take the fifth at the exact moment when the market started declining yesterday at 10:30. i think this is farfetched but a number of traders said these potential hearings on this irs scandal could tie up washington all through the summer and make it very difficult to get any kind of agreement on a fiscal negotiations and fiscal deals that bernanke was talking about yesterday. that's very important and potentially we could see a problem there. bottom line here is on channel advisors, we're at $16 to $18,

right now dow is down 95 points. david, back to you. >> i do want to point out -- hear from a couple of people via e-mail that the utilities are not done 12%. you saw that shocking -- at beginning of bob's report. that's bad data. we will try and get you updated numbers that are correct in terms of the decline in the utilities. but it is not 12%. >> it is a flash crash. >> there's something going on there. i'm going to make a couple phone calls. >> i'm sure they didn't like to see that two for one split. >> no. yeah, that's not right. sharon epperson at the nymex. >> there is a great deal of focus on that china data and pmi data coming in at a seven-month low is having an impact on industrial commodities. copper was at a six-week high yesterday and we're seeing copper down the most, down over 3% in this session. but copper also lost a bit of

ground of the gains it had made yesterday as many of the metals fluctuated from highs to session lows as we listened to ben bernanke's testimony and he seems to appear to some traders to go from a dovish tone to a more hawkish tone. traders are continuing to watch as well what's happening with gold prices. a lot of the focus is of course on the reaction that we're seeing in equities from japan to the u.s. in terms of the weakness that we've seen there. europe as well and gold now as a safe haven but keep in mind, david, that $1,400 is level is going to be key for gold. traders say we definitely need to get back above that mark to see a full-on uptrend in the gold market. back to you. >> got to tell you, this aep, when you see this kind of thing is drives people crazy. it should drive everyone at home crazy because once again it says don't trust. you you had a market order to sell aep, you might have gotten

$22. >> they keep throwing big boulders in the road for those people who want to play at home. it is a difficult time. kelly evans is here at post 9 joining us with what she's watching as we look at the chart of aep. >> if you want to know where utilities are down 12%, it is in japan overnight. tepco i think was down 14%. just want to revisit this theme we were talking about on monday where we were looking at differential between ten years in japan, ten years in the u.s. put up the charts. and whether there would be a convergence play here. we've already seen inflation expectations pick up in japan. the market is testing the bank of japan here overnight. you saw the yield jump above 1%. there was a muted response from coroda in the presser yesterday. the point is a lot of this is about the japan story. to the extent that it is relevant to the u.s., maybe in the longer term sense of when we start to look at what happens down the road when we look at our own yields rerating here. nevertheless, above 1%. bank of japan has to respond and

we saw this so often in the nikkei. we saw the way a lot of those higher yielding sectors took it on the chin. if you want to know what a lot of guys are doing to play some of this volatility -- because if you say ultimately is this a buying opportunity, we've seen this kind of activity before, no real signs of panic overnight. even with that china data. some of the miners, some of the material sectors in australia were outperforming. not necessarily the sign we're in a broad risk-off phase. if you want to look for gold, as example, as maybe a short-term play but nevertheless a play on volatility. maybe the market moves around here searching for direction as we process whether this is a high-yield environment or not. >> put some perspective here for me. china, the impact on japan, japan was up 1.5% when that china pmi -- >> yeah, exactly. it comes out overnight and sells off 7%. we had what? a 1,000-point swing in the nikkei? >> 1,148. it is really kind of extraordinary because i had felt that japan was unto itself an

island. but it is not. but it just turned out that it just turned on a dime. >> right. was it really china? this is interesting. i sort of look at this and say, if you think this is actually a story about higher jgb yields and how the bank of japan responds to that, et cetera, maybe you get weaker chinese data, maybe you get the federal reserve coming in and as part of a catalyst for that move overnight. but again, i'm with you on this. i'm not sure that the 1-1 sort of cause to effect looking at the nikkei action is there as obvious. >> ford pulled out of australia. i think australia's becoming too europized. >> australia's treasure saying the australian dollar has been too high so he's joining the ranks of those who are saying this is hurting our export capabilities. japan, by the way, making itself more competitive. korea's upset with the yuan's done against the japanese yen. australia is as well.

>> vix above 15 for the first time since mid-april. if you're wondering where the dow would be without hp, hp is adding about 16 points. so it is significant, not dramatic. >> did also want to mention this utilities index we saw down dramatically. that was because it appears there was a data feed problem with two stocks. dow jones utilities. nee had a lapse of 37 at one point. then a bid of 77. >> good yield down there. >> so if you have some seniors on fishgsed income, suddenly this morning you watched that for a second, don't worry. but it did add into the index being down dramatically. ignore it. it was not correct. >> but do you ignore it? what this is really telling us is all of the sudden the prospect of higher yields is making people jump out of higher yielding equities into cyclical plays. look at these order and balances. >> nothing's going 37.

they are going down because of your point you're making. >> it yielded 8% momentarily. >> this doesn't happen in -- this is a reminder of market structure failures that we're seeing as we've turned to a system driven by computers and not by the guys out here. you would never see that kind of thing 20 years ago. >> no. it is disgusting. >> yeah. we don't know -- whether it was just a data feed problem though or something along the lines of another one of these minilittle flash -- >> there's people, individual people who may have had a market order because they're worried about the futures and they sold it and that market price -- maybe they did get $20 and change which would be a travesty. just break those trends. just break 'em. just break 'em. >> xlu, utility etf, down 1.1%. want to get a census where utilities really are. >> still under pressure. >> still a lot of data on the way later this morning.

we got claims. we'll get new homes and kansas city fed when we come back. goldman's chief u.s. equity strategist david kostin raised his target a couple days ago. he'll join us live and explain his bullish call. take a look at this morning's bright spots and there are a few. are you still sleeping? just wanted to check and make sure that we were on schedule.

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the dow jones utilities were down at the beginning of the session as much as 1%. that's because of aep and way out of range ticks. it was wane correct. not sure if it was a data feed problem but they were both down

dramatically. we don't believe it was a data feed problem but we are still trying to understand why that happening. those opening ticks that were literally 50%, 60% below where the stocks were. that had the impact as you might expect on the index which at one point printed down 12%. everything's been normalized now. bad day for the utilities but not that bad. >> i think it makes the public feel, wait a second, i thought i'd be safe in aep. no, you were wrong. anyway, i look at a couple things. ralph lauren this morning down 7%. this makes people feel like things aren't so good. >> i'm in front of the aep post. let me explain what happened. there are no circuit breakers in effect in the first 15 minutes of trading.

by circuit breakers i mean limit up, limit down rules that were put in after the flash crash to protect heavy buy and sell orders that might result in unusual price drops. there is none for the first 15 minutes and the last half-hour. there will be, beginning of august. but as of now, there isn't. that's what caused the problem this morning. it was unusual sell pressure in some of the utility names at the open, aep is one that went from $48 to $22. you mentioned nee, david. i have it as low as $30. it was $78. that's because with no circuit breaker there's nothing to halt an unusual series of sell orders coming in. then they sweep the book and it just keeps dropping until it fills the amount of orders that are available. now, another problem is that the books are thin. there's not a lot of buy and sell limit orders on a lot of these books anymore. that's a separate market issue. that's the main reason that we had a problem today. now these stocks are moving back towards a normal situation. aep back at $47. nee back closer to $78 but it is

that lack of the limit up, limit down, lack of the circuit breaker that was the main problem here today. guys, back to you. >> all right, thank you very much, bob pisani. we'll take a quick break here. so much is going on. this issue with the data. companies going public. the nikkei already plunging overnight. we'll get to all of that when "squawk on the street" comes right back. has a lot going on in her life. wife, mother, marathoner. but one day it's just gonna be james and her. so as their financial advisor, i'm helping them look at their complete financial picture -- even the money they've invested elsewhere -- to create a plan that can help weather all kinds of markets. because that's how they're getting ready, for all the things they want to do. [ female announcer ] when people talk, great things can happen. so start a conversation with an advisor who's fully invested in you. wells fargo advisors. together we'll go far. [ engine revs ] ♪ [ male announcer ] just when you thought

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let's get "6 in 60" with jim. >> i put this in because it is very much like channel advisor. goldman upgraded it today. >> upgrade on diamond offshore. >> this one is very cheap. >> seagate. hold the buy. >> seagate, there are a lot of people who say this is a value play. still don't see it but the shorts are dieing in this one. >> dollar tree earnings this morning. >> yes, this is my absolute favorite. i will be there with my father this weekend. they reported a good number but it is the right time for a dollar tree. >> wells says buy target on weakness. >> i don't get it. >> diana shipping. >> the shipping stocks have been red hot. this one is up 40% for the year. it was a negative call, frankly. >> channel advisor is open for trade. jim. as we look at some of the first

ticks. >> i like this one. operating expenses do increase significantly. but this is an e-commerce play. you find yourself if you're trying to do retail, you use them to get in a lot of sites. >> what's on "mad money" tonight? >> oh, boy, we got the whole panoply. salesforce.com, the stock down hideously, yet it's often been an upside surprise. union pacific, first time on "mad money." nwe. mark west. this stock was 52-week high yesterday. >> some mornings i don't know what we would do if you were not here. >> oh, please. what a show. hewlett-packard, carl, thank you so much. >> we'll see you tonight, jim. new home sales after the break. ♪

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busy morning shaping up. dow down triple digits. new home sales being released. nation shares in chicago, hey, scott. >> new home sales on an annualized basis for april, 454,000. that's better than the 425,000 we would have expected. also, march saw a big revision up to 444,000 from the 417,000

that it was initially roared. that had happened on market just a little bit. at least our equity market but the s&p is still down 17.5% about where the number was when it came out. this won't do a lot of good. s&p will focus on china, asia in general and whether or not the fed is going to taper. let's move to washington for more analysis on that data. diana olick is with us. how good is this? >> this is great when we talk about prices. first of all, that's the lead in the story. prices for newly built homes up nearly 15%. that is the highest price range on record since 1963 at least when they start keeping these records. we've been talking so much about pricing power. we've seen in existing homes prices up nearly double digits. new homes we've heard from builders they're actually slowing production in order to gain pricing power. of course we are nowhere on existing home level back to where we were during the housing boom but you wouldn't want prices to move that fast.

for newly built homes builders are facing higher prices for land, labor, materials so they've been forced to raise prices. but when you see these prices in the actual sales it shows that people are coming out and putting up the cash and paying these higher prices. that's a huge price jump. on the sales, again, good news beat consensus expectations. our supply, 4.1 month supply is still very low. supply has been the issue for existing and new homes so to see supplies still low is going to give them even more pricing power going forward. >> diana, thanks very much. markets are in the red this morning despite those figures with data out of china and worries the fed stimulus in the u.s. may be scaled back sooner than expected. on that note let's bring in the senior columnist with yahoo! finance and the chief investment strategist with bmo capital markets. brian, first to you. the market here, the s&p was already well above the 1,575

target. are we headed back down to those levels? is there we have the luxury of being a little cautious here given the fact we've been publishing a very bullish stance on u.s. equities since december 2008. what we find very interesting in a classic study of market psychology, as stock prices got higher, people have become more bullish. right now our outlook is really a very strong combination of process and common sense. given the fact that we think many of our institutional clients have been chasing performance in the market and buying stocks for the wrong reasons the last two or three weeks. we are not surprised that we're seeing some type after pullback and we remain very comfortable with our 1,575 target. >> you aren't buying into this weakness then or not recommending that people do. >> no, we're not. let's see how things settle in. when we see these types of dramatic reversals like we saw

yesterday and a continuation today, remember, we remain steadfastly bullish longer term. the 80s and 90s have very similar type pullbacks and i believe that we're going to get a better entry point to stocks. it is just not quite right here. >> okay. mike, are we in a period like the '90s? if so, when? is this a 1994 kind of moment here with regard to the fed? >> no, i really don't think so. . i think that's kind of been the big fear out there and i think that's a little bit of a flawed analogy. i fell like as i was writing yesterday, i feel like the chairman of the fed today has kind of promised he wants to be late and i think you can kind of take his word on that. i know we got a little bit of doubt in there in his testimony. don't think a kind of preemptive forceful rate raise by the fed is going to be the sort of bond crash scenario. but i do think -- i agree with brian that this market was in search of an excuse to do some pent-up selling and to pull back

here. obviously the world view of the -- you can't get them down bulls was disturbed a little bit when you had at least the prospect of tapering and i think the growth scare coming out of china is, if anything, a little more immediate and might be the bigger issue. >> mike, isn't it -- can we not actually go further than that potentially? i thought the speech that we carried on this network live from ben bernanke live from chicago two weeks ago when he was talking about financial stability and within that he said we're less concerned about whether a given asset price is justified in some average sense than in the possibility of a sharp move. doesn't that therefore mean that they can't afford to end qe? they're basically bound to this market whether they like it or not and the sharp thing -- or the smart thing potentially is to buy on dip. >> i do think that he's not in a hurry. i think the comments he made back then kind of do hint at

that general view that he doesn't want to look for a reason to move faster but i do think when you're seeing the jumpiness in world capital markets the way we've seen recently it's made people a bit uneasy. when you see the japanese government bond market, the kind of volatility and the kind of sense i think that you have that there were these easy telegraph trades that a lot of fast money found their way to. to me how that gets disturbed or plays out in terms of day to day pricing is the question. to me it is really not about bernanke's next move. >> brian, you want to respond? can you just clarify. if 1,575 is the year-end target here, i know are you saying longer term we go higher, what levels then are you looking at as a place to gain exposure? >> that's an excellent question, kelly. we've seen many of our com patriots raise their targets as prices go up. we don't run our strategy like that. we let our models dictate on where fundamentals are and we think the market is a better

price level in terms of the attractiveness around 1,575. that being said, again, we think we're in a multi-year bull market. market's gotten a little ahead of itself on a near term basis. i believe mr. santolli is absolutely, positively correct with his 1994 assessment. remember, markets are not linear for long. we needed to have a little bit of a breather. we have reared an entire generation of investors, kelly, that all they remember is let's buy stocks because of monetary policy. we have to have some perspective here and the perspective is when the fed begins to taper, that's an absolutely good thing for equity markets because that would tell you that the economy is on strong footing and that stock prices can, will and should go up. >> sure. all right, brian, mike, great to see you both this morning. first on cnbc this morning, straight from the opening bell, celebrating its ipo today is channel advisor. the provider of com based

e-commerce solutions. shares of e-commerce trading at $18.20. >> this is a stock i told people on "mad money" get in on. the reason i did, this is the kind of e-commerce infrastructure and cloud infrastructure. i quickly want to explain to people what you do. it's father's day coming up. i told my daughter go on ebay, look at men's clothing. up pops a joseph a. bank special. is that done by you? >> it is. our customers are retailers. they want to get to consumers shopping at places like ebay, amazon, comparison shopping. we help those retailers connect into those channels so that when your daughter's out shopping for the great new suit that she finds joseph a. bank's products and we help wire that all together behind the scene pz. >> it is a subscription business. companies pay for a longer term relationship with your company. >> yeah. retailers sign up for a year. it is called shared success. if joseph a. bank does much better than they thought we did, we have a revenue share model.

we are incented to help our customers sell more. >> you're on amazon, ebay, but you mentioned a company that's very controversial -- groupon. is that working for customers. >> one of the fastest growing parts is called groupon goods. they e-mail national goods to their base of millions of subscribers. what some of the retailers do, they like the ability to flash sale thousands of something. >> it's also all high-end. saks hired you, too. >> yeah. when your daughter's out there looking she can maybe find something from saks as well. >> she's a high-end consumer. thanks. also in the s1, "expect our operating expenses to increase significantly in the foreseeable future, which may make it more difficult to achieve profitability." shouldn't people be worried this is one of those situations where

you are in a company that isn't strong enough right now to generate profit? >> we were profitable from '08 to '09 time frame. we've been investing in sales and marketing, specifically sales reps. swree 2,000 customers. we think that's just the start for us both here in the u.s. and nationally. we're making a very measured investment in sales and marketing for a period of time to get more and more customers using the channeladvisor software. >> when i see this i often think expenses. you have accelerated revenue growth and it is just worth to put money in your business. >> it is. we measure this very closely. when we hire a new rep we watch very closely to make sure they find new customers an bring them in. we've had accelerated revenue growth. >> scott wingo, chief executive officer, chairman of the board and co-founder, congratulations to you and your team. carl, back to you. >> thanks so much, jim cramer on the floor with channel advisor.

when we come back, goldman sachs chief u.s. equity strategist david ckostin. one more look at the markets with the dow off the lows.

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jpmorgan managing director and chief asian and emerging market equity strategist, adrian mowat. thanks for being with us. we're still reading some of the headlines, this comment from the japanese economic minister to reporters, "there is no need to be perturbed after the nikkei's fall." are you perturbed? >> no. my favorite statistic is despite the sixth largest fall ever in this market with 6% above our 50-day moving average. our japanese equity rally has been absolutely spectacular. think we're up 45% year to date. a bit of a correction is probably what the market needs. what we saw today was primarily futures action and the futures volume was second only to the futures volume after the earthquake. >> was this a retracement of the

so-called repopulation tradflat? or was this actually retracement of a cyclical economic rebound play of japan? >> well, it was primarily driven by the futures so it was broad based. but you definitely got larger corrections in the real estate names in reits. probably reacting to the move that we saw in japanese government bond yields. >> adrian, if you look at tepco, it really got hit. while this was across the board in futures, it is quite clear that the areas of weakness were focused on some of the higher yielding names. even though we are well above those levels, as you say, what's the nature of this sell-off, a 7% decline, the boj having to intervene, what's that tell you about the precarious situation over there or is it precarious? >> i really don't think it is precarious. we have seen quite a dramatic

move in japanese bond yields. we close just below 90. nearly went up to 1%. but 10-year money in japan is still less than 1%. put it in perspective. for the bankafter pan to be successful, those yields need to rise more. some of the commentators who have been on already just make a very important point that success in qe is not lower bond yield, it's higher bond yields as people switch out of low risk assets into growth assets like equities, like real seat. and companies start to invest in the economy. >> adrian, though, if that's the case, why did the bank of japan respond to those higher bond yield by jumping into the market? >> well, the bank of japan has a mandate of financial market stability. also announced that it will buy 1.6 times the net issuance. this seems like a very sensible

time for the bank of japan to come in and manage the volatility. i think the problem in the japanese government bond market was everyone was assuming yields would just keep going lower, that option vol would keep going lower and that it was a mistake because the big holders of japanese bonds have been switching into equities and real estate and that drove the yield up and the positioning was wrong. i think that's why we've seen such volatility in this asset class. >> adrian,ky ask you a bigger picture question about where we are around the world? it was always the case that the united states would lead recovery. but today we have for the first time in seven months a contraction now within chinese manufacturing. is it possible that the chinese and the european economies, in a sense, locked together in a contraction and together they're at 1 1/2 times the size of the u.s. economy, that they lock together in contracting and basically pull world growth back towards zero.

is that possible? >> look, i think it is incorrect to say that the chinese economy is contracting but it's clearly performing well below expectations. just some of sort of the headline figures also, sales are still plus 12% year over year, as are retail sales. i think the area of anxiety is the industrial base and construction, diesel consumption this year is down around 2%. electricity consumption is just up 4%. when we look at the investment story and some of the steel consumption, that does look weak. so i think we have an okay consumer in china, we have a problem with the investment growth model though. >> is there -- every time we see shanghai or some of these pmis come in, adrian, we await the government response. is the economy still sensitive to any policy that they may put

in place as of now? >> well, the government has been trying to stimulate this economy since august 2012. the statistic of total social financing, so loan growth, net bond issuance, trust financing has been growing extremely rapidly and i think that is what's unnerving the market, we're nearly nine months into a very large stimulus and this is not working. this is not 2008-09 when the stimulus worked very effectively. and that's what the market's concerned about. maybe the chinese policymakers have run out of bullets. >> that is the more worrisome notion that we're all wrestling with, adrian. always good to have you. thanks for coming to the phone. >> pleasure. is there adrian mowat. >> what i suspect is a linked story, one shipping company on the move. let's send it over to josh l

lipton back at hq. >> another quarterly loss for dryships. that loss was really in line with consensus. i spoke with jeffries who says the ceo does not expect any positive sustainable development in charter rates this year. now that comment coincides with that negative data point out of china. pmi below 50. people are worried about china importing more iron ore and coal, then they get worried about those dryships down at 5%. >> we see that across a lot of the shippers. maersk is in trouble again today chiefly because europe is not importing what it was. >> and the china growth worry is something we've been seeing. strong dollar also feeding into that. up next, meg whitman's message to investors. highlights from david's

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hewlett-packard, one of the few bright spots today. that stock up over 13% after reporting better than expected numbers last night after the close. certainly the bottom line much better than anticipated. cost savings, margins, as a result of that and other reasons were up and certain businesses that might not have been anticipated. we are still talking about a company whose revenues declined by 7%. hewlett-packard continues to shrink as a company but again, investors are at least becoming perhaps more confident in its ability to deliver profitability. we did speak to meg whitman, that company's ceo which took

over in october of 2011. we spoke to her earlier on "squawk on the street" and we focused in part on one of the lesser bright spots, if you will, that being the personal systems group which includes the sale of pcs. that continues to be weak. many would say there doesn't seem to be a bottom in sight. however, whitman for her part disagrees. >> there's 140 million laptops that are more than four years old. people are still doing real work on their laptops and tab plets are great but if you're doing office or excel or real creation it is very hard to do that on your tablet. we are investing in hybrids where have you a laptop plus a tablet because the screen comes off so it is all tablet, all laptop, all in one. i think that's a direction the industry may go. >> of course there was an expectation or at least a question as to whether hewlett-packard would benefit from some of the tumult that's been going on at its key

competitor, dell and therefore take market share. when we asked whitman about that she indicated that was not the case because dell was very aggressive on price. >> a number of our competitors, dell in particular, was very aggressive in sh spacthis space. you saw what they did, they cratered their margins. maybe that's what you do when you go private but we can't do that because we need margins to invest in the next generation of personal devices because when the pc market continues to level out -- and i think it will, i don't think you'll see this level of decline, we want to be there. >> meg whitman believes you won't continue to see this level of decline as you look at worldwide pc shipments. that's been a key thesis overall in why people are questioning microsoft to a certain extent or intel and certainly dell and that continued fight over whether $13.65 is enough for that company who continues to watch its own margins get crushed. other parts of the business were

quite good. for an ink company, hp has done extraordinary well in delivering that well in different way with different value propositions, margins in that business, 15. 8%. >> her saying yes, we've seen a significant slowdown in china in the last four, five months. other when asked about windows and intel, what cramer was saying there. she said, look, sometimes you need an android and a.r.m. chip set when you are making some of these tablet models. this was the trifecta. she's looking at other options as you would but a big deal for those companies. >> no doubt. she continue to voice her confidence in keeping the company together. you would think when you look at the weakness of pcs in particular, maybe they should have perhaps split that part of the business off. whitman says for her part it still fits and fits ext extraordinarily well in what's their future strategy what have still will be a year-long

turnaround. >> using that comment and the one about dell. she's playing a long game. part of that is trying to get that across to the street. a portfolio manager who called the apple stock swoon. find out where he thinks you should put your money now in light of the global sell-off, though dow is now down only 50. back in a minute.

natural gas futures are slightly higher. at the moment it is up about two

pennies as ane crease in natural gas storage levels is slightly less than what the market was anticipating. i'm sharon epperson at the nymex. looking at natural gas storage levels rising 89 billion cubic feet in the last week. traders were looking for perhaps an increase between 90 and 94 billion cubic feet. it is pretty much though in line with what we've seen for the historical average but the fact that it was slightly less than the injection that was anticipated may be why we're slightly higher for natural gas prices right now. traders are continuing to watch the range that natural gas has been in and whether or not it will be able to get to recent highs we've seen around $4.44. today fbr analysts out with a report saying they believe the fundamentals for natural gas remain bullish and they are actually looking at a $5 price tag for natural gas going into 2014. >> want to get back to a story we were following at the very beginning of trading day, two unusual trades in two utilities.

both of which on their opening trades were down as much as 50% or 60%. it was very much unclear exactly why or what was going on. bob pisani explained there are no circuit breakers at the open. i can tell new a highly volatile environment like we had this morning, volume quite low, you got a lot of market orders in there and maybe the book just keeps spiraling down. these were trades. these were not just data feed problems and it did have the impact on the do you jones utility index, down what appeared to be 12%. we don't know if the tray will be revoked but somebody bought and somebody sold at significant huge discounts to where those two stocks are now. >> the point being, can you call these erroneous trades if it is a failure of market structure as opposed to just an error. i think this is a really

important question going forward as we see more of this in the kind of market that's developed. >> great question. we don't know the answer but that is now normalized trading there on aep, nee. our next guest caught many people's attention in march of last year when he suggested that you should not join the apple buying frenzy he's john gold man, portfolio manager for overmier portfolio management. why did you tell people not to buy andle? it rose a great deal after that, and then fell. >> obviously back in march of last year it had a great deal of attention because of the run it had in the first quarter. the stock ran for about $400 a share up to $650. we thought, well, okay, that's about $170 billion in market cap which is about the size of

johnson & johnson. we thought, okay, let's take a look at what's going on here an maybe weigh in on what's happening with apple. upon our analysis we kind of came to the conclusion that it was very difficult to make an evaluation on apple because apple is a great company. its products are ubiquitous. it comes up with cool stuff that people gravitate to. you know, it's had a long stretch of having great economics for its business. >> sure. sure. >> but, you know, when we look at it, we just found it to be difficult that it's very difficult to say within a five or ten-year period what that business is going to look like. >> presumably you have much the same sort of view on it now at these levels. >> we do indeed. we look at nokia and rim as cautionary tales for apple investors. >> let me switch into today's market. what i think is much more interesting is what you are saying about people who have bought dividend paying stocks in particular, defensive areas of the market. and you are issuing a warning to those people.

why? >> well, not necessarily a warning. i guess one thing that i think people that are gravitating to dividend stocks should be thinking about is that they've had a run. a lot of capital flows into dividend stocks. potentially we can see a pick-up in bond yields here as payroll numbers have improved and so forth. i think that when you look at how dividend stocks have run and the leadership in the market with defenses, traditional defenses, health care, utilities and things, the market's really telling us that we're going to be enduring a low growth, low rate, low inflation environment for a long period of time. >> you are seeing through what we just heard from this back-up in yield saying actually the prevailing framework is going to be around for some time. >> that seems to be what's being implied by the leadership in the market. what i would be worried about is that if that doesn't work out the way that the market is expecting it to, given what's happened in the market, then the wrong people might get hurt by

that. >> can you just spell out exactly what you are saying here? what are you suggesting might happen? >> well, what might happen is we'll get a pick-up in growth? >> how will that affect these stocks? >> given the run, i would say they are more vulnerable to a sell-off at this point. i'm not calling dividend stocks bad investments necessarily. it really depends on which ones. but there seems to have been a mass gravitation to dividend payers. >> you are talking about rotation within the market to other areas? >> correct. some of the overlooked and ignored areas, some of the cyclicals look interesting at this point from a valuation perspective and some investments that might participate in growth a little bit more than dividend stocks do. >> if and many was your big worry, april 2012 or the place you saw the most highly bid, overvalued, what do you see now? is it high yield? >> that's a good question. if we are talking about high-yield bonds, certainly,

high-yield being below 5% for the first time. i would say that there is some vulnerability there. it is very hard to say but i think, yes, dividend stocks, large cap, there seems to be a lot of indexing happening at this point. for better or worse. sometimes indexing is great, sometimes it is not. it falls in and out of favor. >> your caution means you have@underperformed so far this year. >> yes. our portfolio doesn't look like the s&p. it is a little bit different. >> this notion or this promise that -- we get growth that lead to more cyclical names. is it claims? jobs? labor? bulls out today inflation continues to track down, that's why we're here to stay. >> that's right. we feel that might be a temporary situation. when you grow the adjusted monetary base, you we would look at the broad money supply metrics and see kind of what's going on there because it could

be that. money supply starts to pick up, money supply growth at a greater rate than gdp growth. if it does so on a sustained basis, i would look for inflationary pressures and a change in expectations there. >> a move in gold would argue very strongly against that. >> that's right. gold is kind of independent. gold is -- there's a lot of leverage speculators involved in the gold market. you never really know what you're going to get there but i agree with you, at the moment, with the price action in the gold market it looks like inflation expectations are not being priced in at the moment. >> good to meet you, john, after so many years of being an avid cnbc viewer. >> thank you. now markets are still digesting ben bernanke's comments about qe. is this the start after bigger market correction? find out what big ben's latest statement mean for the economy and your money when we come back in two. i have low testosterone. there, i said it. see, i knew testosterone could affect sex drive, but not energy or even my mood. that's when i talked with my doctor. he gave me some blood tests... showed it was low t.

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progress in the labor market outlook and this is a judgment that the committee will have to make. if we see continued improvement and we have confidence that that is going to be sustained, then we could in the next few meetings take a step down in our pace of purchases. again, if we do that it would not mean that we are automatically aiming towards a complete winddown. rather, we would be looking beyond that to seeing how the economy evolves. >> the rest of it didn't matter because it was that phrase in the next few meet thaings that caught the market's attention yesterday. that was fed chairman braben bernanke talking about prospects for winding down qe. asia overnight was the weak spot with japan down 7%. but here in the u.s. we are back off the lows, till down .5% on the s&p and dow. let's bring in the u.s.

economics editor at "the economist." greg, it is great to see you. >> you, too, kelly. welcome back. >> i come back to quite a volatile couple of days. i wonder if you can shed some light on whether it was ben bernanke's comments here that were really responsible for some of the sell-off that we saw across the globe. and if so, is it warranted? >> i think it was his comments and yes, i do think it was warranted. clearly there are some positive fundamentals that explain how well markets have done this year but an accommodative fed and the prospect of all that money being pumped into the market was clearly a factor. i think yesterday more clearly than anybody else at the fed has done to date, bernanke put on the table the commencement of the winding down of these asset purchases. i think that the fed probably had the back of their minds knew that the process was going to involve a little bit of heartburn on wall street and all things equal, it is probably better to get that out of the way earlier rather than later. >> is this a trial balloon, greg? you know as well as anyone, most

of substance of his discussion as well was about the prospect for doing more, if that was the case. so it is a data dependent situation. >> it is a trial balloon. but let's keep something in mind. even though the fed's statement and the prepared testimony of bernanke talk about the symmetry of their stance, we could increase qe, decrease qe, in his spoken remarks, all he talked about was a different parameter by which they'd start to wind it down. i think that clearly tells you it is a question of when, not if, that they start to taper it off. the other point to keep in mind, he kept emfizing simply decreasing the amount that they by, not go down to zero. in fed thinking, $85 billion a month is around a ten basis cut in the federal funds rate. he says we made decide to only cut by five basis points or three where or back up to seven but no matter what the number is, it is still a easing of monetary policy. >> greg, i used the term "we've

only lost" 320 points from the highs before he said that yesterday. that doesn't smell right to me. if the market really thought that they were beginning to taper qe, i would have assumed -- maybe i'm wrong -- that the markets would really have fallen out of bed around the world and that hasn't happened which makes me think that actually the market doesn't believe, for whatever reason, that that's about to happen, maybe because it doesn't believe that the data is going to be significantly better in order to warrant that tapering, or that they don't have the guts to do it for fear of the effect of what it would have on the markets. >> simon, i think that understanding how the market reacts, you have to figure out what was the market expecting from the fed over the next year-and-a-half. now every meeting cycle, the new york fed does a survey of the wall street dealers and asks them how much more qe do you think is in the pipeline. the last round of that survey suggested that wall street thought they'd be doing $85 billion a month to the end of this year. in the minutes yesterday it was interesting that fed officials

were a little worried that was too aggressive. later today the new york fed will release the latest installment on that survey that will show those numbers. i think you are seeing not the sense they'll be doing $85 billion a month or $60 billion a month. it is the shift in expectations that explains the market's reaction. if the fed said we're going from $85 billion to zero or worse yet, we're going negative, you would have seen a much more destructive impact. >> you know the conspiracy simply wants to say, this is a great way of getting more bullets into the gun, isn't it? because if you guide down expectations, then you did go full throttle at $85 billion. we've got more qe! >> i guess you don't have to be conspiracy theorists duped to believe that the fed, like anybody, likes optionality. they don't like to be locked into a predetermined path whether cutting or raising the federal funds rate to a certain amount or buying or selling a

certain amount of treasury bonds. one thing i think bernanke was seeking to do yesterday was insert a little bit of construct ambiguity. that imbues a little more optionality and flexibility when the day comes to pull the trigger. >> you mentioned the fed was prepared for a little bit of heartburn on wall street. is there a limit to which they are prepared to let stocks fall? in other words, is policy now or at some point going to be beholden to equity prices which is what a lot of people that's all ben has going for him right now? >> if you actually look at the minutes, there's been all this chatter from fed officials to j jeremy stein and others. only one was prepared to use monetary policy to puncture that bubble. i don't think the fed is out to eat a prop-up or knock down a stock market. for them it is all about the economic outlook. if it turns out that the market falls and falls because the economic outlook suddenly took a

turn for the worse, yeah, that will affect what they do. but g it falls because they are taking speculative air out of it a little bit, i think they'll say fine with us. >> the fact they aren't more aggressive, may have given a lot of people the sense it is a green light for further gains. greg, great to see you. we'll look for the new york fed release later in the day. still ahead -- the tale of very two different retailers this morning. ralph lauren in the red, dollar tree on the rise. what do those contrasting fortunes tell you about the state of the economy and how best to make money moving forward. later in the program, goldman's david kostin will be here to tell us why he thinks the s&p will climb another 5% before the end of the year. [ female announcer ] there's one thing

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welcome back to "squawk on the street." i'm josh lip on the. we are watching the worst performer on the s&p 500 right now. that would be sempra energy. as for 2014, expect per share earnings below what they were

looking for. near session lows right now. down more than 4%. simon, back to you. >> thank you very much. and two big movers. two other big movers this morning. retailers in opposite direction. ralph lauren down more than 3%. dollar tree, on the other hand, up 4% after the results beat estimates. stacy is president of sw advisers wels a cw contributor. also matthew boss a retail analyst at jpmorgan one is at the high end or higher end. is this two tales about the economy? >> i think it's more company specific with dollar tree and with ralph lauren this morning. i think dollar tree is showing signs of life on a more discretionary side that's the higher margin. the other thing is that is

proving resilient with margin expansion and same-store sales easing in the last half of the year. at ralph lauren it's less about the high end and more about the investments. they're making investments in infrastructure, supply chain. they're moving over to s.a.p. they talked about a $75 million investment over the next year. i think it's proving that 2014 could be another investment year for ralph lauren. and with sales choppy, i think people are taking profits here. >> or is it possible to slice it the department store way? i hear from the apparel industry that department stores are in horrible situations in various parts of the country. and ralph lauren sales. is that also a factor here? >> well, i also think that obviously all of the retailers this quarter are blaming the weather. you have to give some validity

to that. it's been a really tough start to spring. there's pent up demand going into my. and yeah, ralph lauren sales were below expectations. the guide was low here. particularly where i am in europe the environment is very tough. sirnly in the whole sale sector. so that's hurting here. >> stacy and matthew both, but stacy comment first because you called it out in your note. wal-mart flagged cigarettes in the latest place where it's losing out to dollar tree, the dollar stores. they're increasingly on the turf of these tra dpiditional player. despite the efforts to fight back, are they ever going to win? right. that's the question here. now dollar trooe came out and said it's up 100 points. so is this continued market share gain? wal-mart called out on the last call that the dollar stores are rolling out cigarettes and

gaining share. dollar tree does not sell cigarettes, but dollar tree did that. the discretionary business is doing better than consumables. >> let me ask each of you in 20 seconds how you make money in your sector. matthew, what is your top pick at the moment? >> we like dollar tree at the low end. macy's in the department store. the other two are nike in footwear we deemed those at the four horse men. those are four ways to win in the market. >> stacy, what is your top pick? >> mine is pbh which has tommy hilfiger over here in europe. they've been doing very well because of where they're positioned from a price point perspective. so i would look at that one. >> have you had summer yet in london, stacy? is it at all in evidence?

>> absolutely not. kelly, you are missing nothing. >> say hi for us nevertheless. i was looking to see if i recognized anyone. >> next time. we have an all-star lineup ahead. david kostin is coming to post 9 to give us his take on where markets are headed. and hedge fund giant kyle bass will tell us about the plunge overnight and if things could get work over there. hey, so uh... what's going on here? do you want the long or short answer? long i guess. chevy is having a big...huge, in fact...event. the-great-deals-on-our-most- fuel-efficient-lineup-ever- for-just-a-very-short-time-so- you-better-hurry-extravaganza! so what's the short answer?

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all right. we want to talk about housing this morning. prices up 14.5% year on year. here's the s&p 500 home building index already on a tear adding another half percent in a tough market today. and by the way the fhfa home price index. this tracks fannie and freddie-backed mortgages doesn't get a lot of attention. it comes out and shows an increase in 1.3% in march. just talking about the month, you get a sense of the gains that we're looking at.

>> yeah, a lot of cities have gotten ahead of themselves. we had zillow on saying sacramento, vegas, some are just too high. >> and had a guy on worldwide exchange the other morning. what caught my eye is him asking if this is another housing bubble. he said prices rising at bubble levels are still low. he's saying prices are rising that quickly. >> it's not a bubble because the interest rates are so low. thank you, ben bernanke. we'll see you in a few minutes. if you're just joining us, here is what you missed this morning. >> welcome to "squawk on the street." here's what's happened to far. >> so we're undergoing a correction in a bull market in the context of a long economic expansion that is going to run for the presidential election of 2016.

>> we're going to continue to plan for an anemic global economy. i think it's a mistake as a ceo to do anything else right now. >> there's a lot of people who are thinking, i never believed in it. it turned out to be phony like japan. >> they told me to sell in may. i didn't. it hurt. >> what we're going to do is segment if the market and create the right market for that price. sometimes that requires an android. sko this is going to be the new world order. >> with think my of our clients are chasing performance and buying stocks the last two to three weeks we are not surprised on the pull back. >> we have 2,000 customers. we think it was just the start

for us. so we're making a very measured sales and marketing to get more customers using the software. good thursday morning. welcome to post 9. we're watching the markets on an important day. owe all know about japan's selloff overnight. one of the worst in the history of the index. dow opened up down triple digits. s&p is down about 13. handles with 1687. we're now at 1642 and the nasdaq is off almost 20 the viks spiking above 15 for the first time in a month. now pulling back about half and sitting right under that level. >> now goldman sachs chief strategy david kostin recently raising hiz price target for the

s&p. does today's stability throw off that thesis? we'll ask him. and find out what gary kaminsky is telling his clients on a day like today? he returns to post 9. and putting aside today's emotional ride, we'll take a technical look at key market driver. >> first up, goldman sachs raising the s&p target after the prior target was already met. they said the positive outlook played out a lot faster than expected. one of our favorite guests is here, david kostin. welcome back. >> let's walk through the thesis as it was when the note came out. dividend growth, right? multiple expansion. why 1750? >> so we started the year with a positive outlook for the economy and the idea that earnings would be growing and they would expand modestly. obviously had a robust performance in the market and the first five months of the year. and we took a look at the

models. most approaches suggest that the market is at or above fair value. the notable one is related to interest rates. we also look to the dividends. we look at the dividend forecast. and it's interesting how much they were raising their companies in the first quarter. we expect a 30% rise in dividends in the next three years. 10% the following year. nine after that. that is a real driver in my opinion. >> we are starting to hear people say dividend names are expensive. i realize it's for buying the whole index.

by the way with the fed's talk yesterday, does that change your view at all? >> what has been domestic has been great. they are the best performance sectors of the market. defenses aren't well. the one area that is done poorly is global. >> yeah, 12 multiple on some of the global companies as opposed to 16 on the rest of the market. >> you're saying this is hold your nose and buy caterpillar market. we sit here today and ask hourss what is the economy going to be like? the economy is growing close to 2%. housing is getting better.

it's not great, but it's getting better. you look at dividends and cash. interest rates are low. that is based in our asujss on the market. 2100 in 2015. >> you look at a day like today and you're telling people to use all of these occasions to gain exposure to buy? >> the projections are near term. maybe 1700 is the target the next couple of months. but further out we're looking at profits. we're looking at the direction of the economy getting better. and rates are super low. still relatively speaking. you have earnings yield of 7%. that's much larger than three percentage points, which is your

long-term average. the question is where is that going to close? from which direction is that likely to close? if you assume it closes in the middle you get 1,750. >> the picture your painting sounds like where the fed can say mission accomplished, almost. so where is there pain as a result of policy control? >> so many companies have been taking advantage of the opportunity that rates are low. they are extending the maturity of the debt. they are lowering the cost of borrowing. those will last for a long time. and the companies that distribute dividends. look at the dividend hikes in the first quarter. significant growth in the dividend sector. 15% growth in financials. the cash. the dividends in yield and income is a resource on the community. so just a quick question in

terms of beneath the levels. what is your target? what is your view? and where do you think the multiples go from here? >> we're about 108 earnings this year. 116 next year. that gives you a runway of where the growth is likely to be from a profit point of view. other work would suggest the 15 .5 level this year. expanding in 2014. >> some people say the 15 multiple in the past is a sign when stocks underperform. you're not only saying we outperform but we continue to see it expand. >> well, the long-term multiple of the market is 12.9 times. so it's higher than average level. last 15 years is always around 15%. we have to think about the interest rate environment. at 2% it may rise slowly over

time. we expect that to happen. but sort of modestly higher. it still looks attractive. we also have to think of dividend yields. so we look at the yield environment, that would suggest that target. >> area where is you could be wrong, if interest rates really spike. >> interest rates. if the economy is weaker, doesn't have a recovery as we are currently anticipating. margins have been level for the last two years basically. not expecting them to go down. we're not expecting the recession when margins typically fall. there's certainly risks out there. i'm not suggesting they don't exist. take it into perspective in may. 2013, middle of this year, generally things are getting better. housing is improving. those are the metrics that we

look at on a fundamental basis. >> david, thank you for your time. now one of the namesout performing is hewlett-packard. that stock is skyrocketing after beating expectations. it was already a best performer in the dow, adding 14% today. meg whitman joined david faber for an exclusive interview earlier on the program telling cnbc her multi-year turn around is on track, if not ahead of schedule as they navigate the changing technology landscape. >> there are huge tectonic plate shifts about the way technology is consumed, the way it's bought the way it's paid for. the way it's written and delivered. the way end users engage in technology. so there's a lot going on in our world. but we are growing businesses that power the new style of i.t. we have declining businesses that powered the old style of i.t. so we're in that hole that one has to get through.

but i feel good about the growth prospects. >> he said she's seen continued weakness in europe and slowdown in china. >> what we see in china is there will be a slowdown, and the government will take some actions. and you'll see it pick up again. and it will slow down again. so it will be interesting to see what if government decides to do to juice that economy. but it's been tough the last four to five months in china. >> when we come back, kyle bass and that man right there, gary cay back here to navigate the market with the dow down just 26. back in a minute. . stereoscopic vision... distronic plus braking... lane keeping and steering assist... eleven enhanced systems in all.

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they were white knuckles this morning as the dow was down 127 it's erased 100 points of that. down currently to 30. one stock in particular helping that sector out, josh lip on the has it back at headquarters. >> carl, on this down day, here is one sub sector in the green. computer storage. and one of the reasons, cgate technology hitting a new all-time high. analysts are fans. they raised the price target to 46 from 40.

saying the price drives are offsetting the demand. the highest level since december of 2002. it's up some 40% this year. kelly, back to you. >> josh, thanks for that. the dow rebounding from the triple-digit loss this morning. now down 26 points. we have morgan stanley's vice chair, gary kaminsky. mr. kaminsky, welcome. >> great to see you, kelly. welcome back to the states. >> thank you. the market is down 2% since i came back, so what are you telling complaints here? >> market is up since i joined morgan stanley. first it's great to be back and see old friends. john was on early today. i met him in aspen. a little secret we never discuss here. as i am talking to the clients, really getting reengaged, it's not a surprise to see what we

saw happen today. the one message that is loud and clear is you cannot try to min mime what the impact has been. so yesterday in the middle of the day you get concerned about the withdrawal. as long as there's an underlying bid to the market, which there is that the easing is forcing people to equities, and that's not going to change. >> do you think the stocks are out there and waiting for things to go on sale? >> you've seen it in the tape today. i get to see the numbers. it's what people are thinking right now. the first is about the apple bond yield. i was here that day. i was here that day when they priced it. but it created a conversation that people were not willing to have before.

what does it mean owning a bond? people have a much better understanding, they're much smarter than a few years ago. that was the difference for owning a bond as income and owning a bond as investment. the second thing is the dislocated equity premium. all the models use lited. it's been out since august when draghi spoke. >> that's a temporary model. but it's also people are getting back to the idea that if you're going to be in equities. you have to stay invested. you're going to be selling at the bottom.

a lot of people are very comfortable in the models and staying invested through the models. >> as a result of the last couple of years. the mentality was not look at the top, it was look at the bottom. this is where things stand. do you think that has changed as a result of the rally? the experience of the last 10 years, if your asset allocate properly, that you don't have to watch the tape on given days. you don't have to be concerned about the movement. if you stayed invested, you participa participated. the big conversation that i have is this idea of what is irrational exuberance? all morning everybody was asked what is going to happen when the fed stops? the answer is nobody knows.

but there are signs everywhere about what the money printing has done. >> this is great. >> he converges. it's the first thing i have seen every morning. i am certain bernanke was not planning on this. this is an example if you look at what is happening. this is what happens when money is printed. obviously the by-product for those not necessarily renting the houses. they have to find places to put the money. so you don't see the marginalization out of bounds. people are putting money on the sidelines. but there's a longer term investment horizon and it feels

good. the leadership team there has just been spectacular. and i believe that it is now the time where people want advice so it's good to be in the business of giving it to them. >> it helps after a rally as well. a couple of years tg it was all panicked calls. >> you don't think it's the equivalent of the double click party in 2000. >> it absolutely is. >> you do. >> it absolutely is. and it's right there. the difference is you never had central banks telling you we're going to keep printing until we want to stop. so yes, writing is on the wall. he made that great point yesterday. >> good to have you back. >> good to have a little reunion. >> we'll see you next time. >> you got it.

let's get to pisani, a check on what exactly happened with those utility stocks this morning. bob? >> yeah, some wild action. put up the screen here. they said they are reviewing trades in both of those stocks this morning. it was based on stocks that drove down the pricing. they have to make a ruling on whether mistakes are made. clearly erroneous trades. but if they were based on legitimate market orders, now they haven't said this yet. they may not bust the trades. you till vis have been on pressure for days now because a they are interest rate sensitive. see that drop there? right after it opened it traded down as low as $22. that's a big drop, obviously. that was just a little bit below where it closed yesterday.

but it traded as low as $30.37. that's what i have as the low trade there. it trade down there as low as $30 in change? so what happened here? there are two problems? there is no limit up, limit down. there are now circuit breakers between 9:30 and 9:45 and 4:30 and individual stocks. the sec required that of all the exchanges we'll get market wide circuit breakers going in for the full trading period on august 5th. right now there isn't. that's the major problem. the books are thin. they keep sweeping the books on all of the exchanges until they fill the number of orders there. why do they have problems with these two stocks? i don't know the answer. remember, you put in a lot of market orders. it keeps going and deteriorating

until it's filled. that may be a problem. and finally, this happened last week. right at the close, highlighting the need to have a circuit breaker open during the full day. >> that's a great point. that happened after 3:30 when the trial circuit breakers are in place. the s&p is still up more than 15% this year. so what level should you pay attention to? we'll consult the chart and tell you how to play it. we'll get his reaction coming up on "squawk on the street."

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morning, would the dips be bought? the dow is not kwiz positive. but off the lows, obviously. we were 127 on the downside of the entry day low. take a look at that. let's send it to josh lip on the for a quick market flash. >> have a look this morning at electronic arts. says xbox just introduced a couple of days ago has a lot more responsive kinectic control. meaning it reads the image of the user and incorporates that to game play. that could be a boom for makers of sports games. e.a. dominates that field. up some 55% so far this year. kelly, back to you. >> thank you sr. much, sir. the bell is about to sound in europe. we'll have the close and details. keepen an eye on markets here now. we'll be right back. but we can still help you see your big picture. with the fidelity guided portfolio summary, you choose which accounts to track

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the european markets are closing now. >> bells ringing across europe. let's get to simon hobbs. we started deeply negative. >> yes, and we continue to remain in negative territory, despite the rebound in the united states. in many senses it's a perfect storm for a classic day. you have the ben bernanke fallout. you have manufacturing in china and the data is also bad. so the mining stocks have continued to fall through the session. that's why there's been no rebound. the automotive sector is in

negative territory. clearly chi ma is a major focus for them as well. simply creating the trade of the day, which is to show automotives. banks are also down around europe, which is very interesting. and they sold off in the equity markets and the bond marks to a great extent. a lot is being made of the fact that yields are higher in spain and italy. the bond market has turned. people are booking profits after the huge gains that were made there. but let's get perspective. still german bonds. if you look at the spread between spain and german bonds, it's still down from where you were if you have to move today. i mention the data in europe. and this really marks europe out from the united states. you continue to see a contraction. these are pmi figures. combined services and manufacturing means you have a

contraction. over in the euro zone, it's not quite as bad. will you still have recession in europe? that'sen indicated there. it is taking far longer for europe to recover than many people expected. and you have the bank of england. the swedish national bank looking at more furlt down the line in contrast to what's happening in the united states. the load who is in a french quarter today. a magistrate is accepting a 2500 million payment to a friend of nicholas sarkozy when he was prime minister and she was minister. they do the investigationing all the time. that's not to say she may not be ut under indication tonight that

theically further investigate it. >> we also hear from mario draghi. as we turn our attention here to the big board. bob? >> you know, it's somewhat of a quiet day. some said, what the heck down 17 on the dow? i was expecting more action one way or the other. sideways is not what people were anticipating. tech is holding up very well. thank you, hewlett-packard, they are doing all right. health care and consumer discretionary, kind of indeterminant day. that's the surprise here. in tech, who knows. this is the best day for hewlett-packard since about three months ago. there you see up 14%. that's helping all the tech and particularly the hardware sectors. the hwi, which is the tech hardware index. it's at a one-year high.

but there you go. holding up right now. interest rate sensitive groups. we talked about the wild open in the utilities. on top of that we had bad data at the open that threw me on the utilities index. there's you are down 1.4%. these have been under pressure for quite some time. utilities down 7% or 8% for the month. other sectors in the market? home builders, decent data today. kb home, it will brothers knocked the cover off the ball on the earnings report. they are able to raise prices, and they're also able to increase sales. it doesn't get better than that. that's margin expansion right there. and they are happy people. how about the banks on the weak side here. you may be surprised. we saw that. that's generally very good news

for the banks. you can see not really doing much today. >> bob pisani. after that 7% drop on the the nikea, want to look at japan and the global markets. mark, good to you back. >> thank you. >> you were talking about levels we had to hold. let's do equities first. >> sure. yesterday was the first sign of any sort of reversal that we have seen in equities. yesterday we saw reversals. so it is somewhat significant. particularly the fact that the dollar broke out to new higher toir. we saw signs also moving 2%. we followed that up with the nikea dropping 7%. this is a trend from really mid-april, which was violated as

of yesterday -- actually as of today. the area near 1645. so that's going to be important. europe and most parties have already violated the level. we have rallied on the make or break levels. they were very frothy. we're in a weak period where equities have peaked. it will lead to short-term weakness. >> levels to watch, 1645, 21? >> 1621 was last week's lows on the s&p future. my thinking is it gets down to 1600 on the short term. that also aligns with the up trend. >> obviously much more dramatic day for the japanese. what do you think of the nikea?

>> it went up nearly 90% since last october. it's almost an average of 3% gains a week. we have seen similar deterioration in the nikea. we have a low important based on the past few months. 13,700. bigger support is down to 13,001. monthly charts, if you look from the 2000 highs to 2007 highs. that's a natural area to expect some time of peak in japanese stocks. >> you would argue more damage done to the nikea than to america? >> absolutely more damage. >> you made the point it's not about the damage done to equities around the world when you couple it to what happened with currency and treasury yields. >> that's the thing, to see all

these things happening at once. big breakouts in the dollar. the yen was given back today. treasury yields over 2% with the potential fap tapering coming up. this could be significant. and of course, the march highs at 2.08 we are going to move up and challenge that. it could accelerate up to 2.4%. it could be possible that equ y equities and treasuries could climb at the same time. thank you so much as always. when we come back, kyle bass making a big bet. david faber is on deck when we come right back. ♪ [ male announcer ] a car that can actually see like a human

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coming up on the half, we're looking at the future of the rally. john with with the truth on the taper. many others are with us on this volatile market day. we'll see you at the top of the hour. and now david faber is back onset with an exclusive interview. >> we're joined by kyle bass, a frequent guest on cnbc.

certainly a focus on japan over the last couple of years. he has become an outspoken critic of many of the fiscal policies the there. kyle joins us overseas on the phone right now. thanks for taking the time. explain the dynamic by which yields seem to be going higher in japan, despite the huge efforts of the b.o.j. to bring them lower. >> sure. i think the b.o.j. is facing something that maybe they didn't foresee in the first place. what i like to call paradox. where the d.o.j. investors, the funny thing is they believe in the new plan at the d.o.j. to double the base in the next couple of years. then a rational investor that owns their bonds is likely to

sell a portion of them the not all of them. they're set to buy roughly 60 trillion yen of bonds two years in a row. they will run a fiscal deficit of 11% of gdp. that means they only have 10 trillion yen of cushion to buy more bonds. if you look at the three biggest banks in japan and the ownership is. you're seeing rational investors start to sell and buy foreign bonds or japanese equities. it looks like they will have to make the plan bigger than they said. >> you believe at this point what was a large number needs to be even larger given that it's promoting selling by long time holders of jgbs?

>> again, it's such a paradox. if the constituency believe fls the plan, which i think many people are believing. many are believing that the d.o.j. will be successful, or at least partially successful in generating some growth. then the rational investors will sell only bonds. there's a quadrillion yen of bonds out there. it doesn't look like the plan is big enough. >> so what happens from here? do you believe they will increase the plan in order to bring rates down as opposed to watching them go a bit higher. it looks like the d.o.j. had to be in the marketplace every single day trying to buy bonds to hold rates down. every day but twoe since april

fourth. i think they are to make the plan bigger. >> kyle. youfl been talking about this for some time. the debt is 24 times the annual revenue. but in terms of your investment approach. what are you doing? where are you? what do you recommend to the viewers following you? >> i think the press has our ideology wrong. that's not exactly true. the way to heaj a global portfolio, and we inves all over the world. the way to hedge from a systemic risk or sovereign risk is to try to find the most convex or optimal investment you can find and yes, we have positions where

we are short yen. we also have positions where we have hedges against japanese rates. we're not making a lifetime bet on japan's failure. we're hedge iing our bets. just like everyone that is short yen, yes, we benefitted marginally from shorting the yen. that's about it so far. >> well, one thing i don't believe you have done is gone long on the nikea. those who have, despite the sell yn off last night. they seem to benefit and the betleef that the economy will get going in part spurred by larger exports for the major japanese companies? >> yeah, you know, when you look at japan, it looks to me like the industry has been hollowed out. and then to the u.s.

manufacturing business getting hollowed out in the late '70s and '80s. they are exporting jobs because of the strengthening yen. so i think the weakening yen f you look at the balance, you see exports moving up 5% year over year. imports moving up 3.5. they still have a balance to payment deficit even after they strengthened from the lows. i don't think -- i'm sorry. weaken from the lows. i don't think it's the panacea that equity investors think it is. i think the people who have brought into the nikea, i refer to them as macro tourists. i think they're renting the stocks. they're not really owning them. >> there are well known investors. you know him well. a friend of yours, who disagree on paper, at least. he has taken out large resistance because he thinks they can bring japan back to leadership and the the economy to one that regains some symb

symbolance of growth. >> i do this it will generate growth. especially on the front end. taking the pulse of people who run companies over there and investors, it seems to me that many of them do believe that omninomics will be slooes partially successful. we think gdp growth at 3.5% this year. so i think dan's going to be right about the front end and he is one of the greatest investors out there. so i think he's going to be able to, at least partially become successful with the sony investment. in fact, he probably already has. but i do think that it is not the panacea. just weak yen doesn't equal higher stocks. i think you're going to see things get delineated from companies that will benefit. let's say toid. some of the manufacturing

companies that still have businesses on the continent, or on the island. and many businesses are just going to continue to move south. in a secular trend. so i think you'll see things here in the next six months. >> kyle, as always, we appreciate you taking the time. of course, given all the volatility in japan, a story that we are following closely. kyle bass, thank you. >> thank you. >> great interview, david, does sort of explain how his philosophies and others can seemingly coexist, as for now, which has been confusing for some in the past couple of months. >> it's hard as well. you can like the story, like what he's laying out. maybe it happens in a couple of year's time. but how do you position for it now? it's difficult thing for a retail person to express that view in the short term. and it's not one necessarily, yes, we're back to 1% on the jgb, but we're talking about having to go significantly higher from here to really change. >> yeah, the idea that he expresses, though, that they're

going to have to buy a lot more is just shocking, if in fact he ends up being correct. i know. apparently there are potentially a lot more sellers than they anticipated. of course, we'll keep an eye on the yen. >> absolutely. >> thanks, david. >> hey, what's going on here? do you want the long or the short answer? long i guess. chevy is having a great-deal- on-the-2013-silverado- but-you-better-hurry- because-we-don't-want-to-see- a-grown-man-cry-spectacular! what's the short answer? nice.

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take a look at the markets. the dow did go positive for a brief moment. erase that entire 127-point loss. some are pointing to something things like for instance the new

york fed forecast which continues to see fiscal drag. jobless rate that will remain elevated is a sign that, you know, what ben, for everything that he said yesterday, he's going to be around for a while. maybe that's a reason for some buying. >> exactly. it is data dependent. how many times do person after person, not just on the show but sources everyone saying they're waiting for a moment to buy into the weakness. it's the point you made off the top which is to say that everyone who has been sitting this one out needs to catch up. they're looking for opportunities to do so. they didn't get much of one today. we'll see. >> no. >> keep an eye on markets. see if it can get back in. decidedly so in the green. in the meantime, what if you could always have the perfect play list for whatever mood you're in? look no fer there than sanz, a. the co-founder and ceo live at "post 9" next.quation. before reminding ourselves that some bonds are more valuable than others... and before weighing the ups and downs in your life

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ceo of songza is here. i was giving him a hard time, if you've ridden the subway in the past few months you've seen his picture because there's been a push to r for the local firms. >> mayor bloomberg has been responsible for that. >> you have big players, partnerships with google, amazon on the board. you thought of this idea when you were at ground, now in long island city. for those who don't know different, what is different about songza? >> absolutely. songza plays you music that makes what you do feeling better. others browse the music that you want. we don't assume you know the music you want. we assume you know what you're doing. it's our job to figure out what music makes it better. >> you have live human beingses, right? >> absolutely. >> music experts deciding what i might like, the way deejays used to? >> exactly. we have 35 curators, music

critics thinking about what music to make what you're doing right now a lot better. >> that requires a lot of people to be around. so ultimately that's got to be an expensive show to run, no? >> we spent a year building what we think is the world's best collection of edited player list. 90% of the content we will ever need. for a scaling perspective that doesn't present a problem. 10% is taking the new music coming out and figuring out where it fits in terms of existing play lists or create a new one to accommodate it. >> what would be the play list for being down at the new york stock exchange? >> aggressive dub step? i have some fans around here. it is interesting because ultimately if that's what differentiating your service that means you've got to keep those people around, right? >> it means we have to keep learning about what people do and how we make the things they do better. it's a lifestyle project. whereas for other services you mentioned before it's a music project. it's having the biggest catalog, the best search engine. all those things that i think very few people actually want to

use to go about their day. >> pandora has 70 million active users. you have almost 5 million active users. reviews for you much better than pan dooria just as an example. how do you get them to migrate with, imagining a limited mar marketing budget and crowded itunes store, crowd it app store. >> it's challenging. we've been lucky to get highlighted by major partners, apple named us one of the best apps of 2012. that puts us in front of people for the first time and after that it's up to the user experience to sell itself. >> what's your goal? >> we want to be the biggest service that makes the things you do every day better. for us it's not a music-specific vision. we want to take the world of things that there's too many of to browse on your own and make the right thing find you at the right time. >> do you need capital to do that? >> we always need capital. >> how so? >> for us it's the opportunity to have a marketing budget. it's awesome to grow just through word of mouth but there

are rock stars we would like to recruit as far as growing the neighborhood of start-up and all of that requires music. >> of music freaks, both kelly and me, will obviously be watching you closely. thanks for coming in. that does it for us here on "squawk on the street" as the dow continues to flirt with the flat line. let's get back to headquarters. wapner and the fast money halftime. >> halftime show, four hours to go until the close. we are all over the markets but first we want to go over to our breaking news desk where mary thompson has some new developments. mary, what are you watching? >> what we have, scott, is that the sec is charging the proxy adviser iss for failing to safeguard the confidential proxy voting information of clients that were participating in a number of significant proxy contests. the iss is settling the charges and has agreed to pay a $300,000 fine. according to a statement released by the s.e.c., an investigation found that a single employee at iss provided a proxy solicitor with material nonpublic information.