>> okay. good morning. good morning. and welcome to "squawk box." we're live from the pierre hotel in midtown manhattan. even though with a jacket on, i am still joe kernen. >> you still are. >> this is everything that you've dreamt of, jack, at the anchor thing here. >> more britney spears than true anchor. >> britney spears. >> or madonna. >> i think madonna. >> you had your -- you and eliot spitzer. >> you're promising to wear the cones. >> in the 7:00 hour. >> becky quick is here, looking resplendent and andrew ross sorkin is here. the s&p 500 and nasdaq falling for the first time in nine sessions. u.s. equity futures this morning on the other hand are headed lower. but it is early. the big driver today is going to be fed chairman ben bernanke. it has been so long since, you

know, he's weighed in on anything that finally we're going to get some clarification. >> the big mover today is delivering alpha. >> it is. it is. a lot of people promise to seek alpha. very few deliver. this is the humphrey hawkins, maybe his last one, among the house financial services committee on monetary policy begins at 10:00 eastern. but his prepared remarks will be made in time for us to look at them at 8:30 eastern and investors obviously are going to be hanging on every word, if he adds and if, if he takes out an adjective, you never know about the future of the fed's bond buying program, which we tried to say that we were going to good news as good news and i'm not convinced we're there yet. every time you think something -- >> i'm not there yet either. >> it is still -- the addicts are still -- it is the accommodative punch bowl that -- >> i do think the biggest shock

may be out of the system. can't confuse people again that fed tapering may be coming. may be the biggest shock. >> this ridiculous argument about whether cutting back on the bond buying constitutes tightening and people are parsing it is not raising rates, but the thing is, when people anticipate the tapering, the rates seem to go up and though they don't orchestrate -- >> the market never had quantitative easing to react to before. and the guess is that you will get that market reaction you usually get from higher interest rates and when you see they're reversing direction. >> did you see the analysts saying it is going to be dovish today, even more dovish than you normally -- >> when i did the he loves me, he loves me not, he loves me, he loves me not, i got he's going to be less dovish. >> did you see every time he does one of these things on average the market goes up, i think it was .1%, a study that was done, so traditionally if you hang out -- i think it is the two-day average after he

speaks. >> what i saw was the average gain for the rest of the year when you're up that much is like 7%. >> yeah. >> it doesn't normally -- it doesn't mean you're -- doesn't go back to the main. that would be nice. in other economic news today, housing starts and building permits come at 8:30 eastern and then the feds, i don't know if we'll report those today, with the delivering alpha thing. did we preempt delivering alpha for the government stuff? >> we have not only the government numbers, but a lot of other things that we're expecting to see right around the same time. >> has to be pretty important number. pretty weird for us to break in. fed beige book at 2:00 this afternoon. looking for housing starts to rise by 3.9%, permits looking to increase by .5%. >> it is also another busy day in earnings central. results before the bell, bank of america, abbott labs, bank of new york mellon, northern trust, pnc financial, st. jude medical and u.s. bancorp. after the bell, we'll hear from

american express, ebay, ibm and intel. so it is a pretty busy day. also, watch shares of yahoo! today. that company reporting better than expected earnings after the close last night. the revenue outlook fell short of consensus. the stock initially fell on the news, but then moved higher in some bouncy trade after hours. ceo marissa mayers was upbeat on the company's progress. speaking to analysts via video conference. >> in q 2, we continue to invest in our core business. strengthening our teams and launching new products in our quest towards long-term growth. we made real progress over the last year, and we have positive momentum heading into q-3. >> have you ever seen a video conference call before? >> i have not. >> or the company -- i've never seen that either. but it adds another dimension. you can see what they look like when they're saying these things and that's kind of interesting. anyway, we'll talk more about yahoo! in 15 minutes. there is another after the bell

mover, csx, beating profit estimates. growth in merchandise and intermodal shipments set off a drop in coal volumes and shares were up on the news. we'll talk with michael ward at 6:50 eastern time. and in other corporate news today, michael dell is reportedly standing firm on his buyout offer for the company that he founded. dell is not expected to raise his bid for the pcmaker, even if a vote skethd for tomorrow is delayed. carl icahn is leading the opposition to the bid, presenting a proposal of his own, in fact, sweetening that deal once again. icahn is a keynote speaker at today's delivering alpha conference and that is perfect timing with that vote set for tomorrow. >> i should say, sources i was talking about last night think the vote now will be delayed. people are coming here today to see carl icahn who have booked flights and/or one private plane supposed to go to austin, texas, after. so we'll see what all happens. >> to hear what he has to say. >> to hear what he has to say first. other news for you this morning. the european commission

reportedly considering a plan to cap debit and credit card transaction fees. the proposed plan stops short of a full pledged ban on debit card fees which had been considered. in 2007, the ec had ruled that fees for cards issued in europe violated competition rules and raised costs for consumers and merchants, shares of the major credit card issuers dipped on the news late yesterday. a federal judge ruled the u.s. government may pursue its $5 billion civil fraud lawsuit against s&p. the case accuses s&p of misleading investors by inflating credit card ratings -- credit ratings. that's a huge case. finally, in other legal news, the case against former goldman sachs trader fabrice tour continuing in new york today. earlier in the week, the judge warned lawyers to aroid cvoid z confusing jurors with lingo. in other developments, this was pretty interesting, the s.e.c. attacked one of its own

witnesses as hostile. john paulson lieutenant john pell greeny was one of the architects behind paulson's successful bet against the housing market. the regulator labeled him a hostile witness indicating his testimony may be prejudiced in favor of the defendant and there was a back and forth yesterday that went on for a good ten minutes where he claimed he didn't know what a cdo actually meant. until he finally copped to knowing what -- it was like the definition of is is. they would say what is a cdo, well, a cdo could mean -- and then it got a little testy. >> wasn't the judge the one who said let's not use the technical terms to begin with and now they're arguing about the technical terms. >> they made a sheet for the jury, an abbreviated list. >> in other legal news, asiana -- >> i did just see this.

>> decided not to pursue legal action as a result of -- >> that was a losing case. >> a public apology by a ktvu that reported the names of the pilots of the asiana flight 214 with a straight face, by the way, and instead they're going to use all the resources to support the investigation into the cause of the accident and family members that were affected by it. they're not going to -- >> they could have never sued. you would have to prove damages, reputational damage, whatever reputational damage already happened. >> right. why doesn't -- he's got tourre, and it is pronounced tour. why have all the -- if you're not going to use them, why -- tourre, isn't he french? >> he is french. i was told that -- >> why? it just seems -- >> they don't want to confuse the guy on msnbc. >> he only has one name, doesn't he? >> the trademark situation, a licensing problem. >> can we -- is ross -- are we

able to -- >> ross isn't -- >> how did you know? >> i read the notes. >> where do you get those? >> in my old -- >> did you see this thing? >> antique phone. >> you turn it to do the ring and talk into one thing and hold the -- what is this called? >> a blackberry. >> i've seen this in a museum for what people used to -- >> it works. that's how i knew -- >> it is all about texting with these -- >> e-mails. we like to talk and we like to text. >> it is like a model t and i've got a ferrari now with an iphone. >> i know -- >> time for the global markets report, karen cho, confirming becky's reporting, standing by in london. ross is not there. good day might be afternoon. i'll go with good day, karen. >> we're coming up to the lunch time session, still morning here, guys.

i'm stepping into ross' rather sizable shoes. let's look at the market action. we have been extremely choppy here this morning. there was an initial burst of enthusiasm for stocks out of the gate, but that's faded pretty quickly because it is all about central bank speak today. we're coming up to what ben bernanke will say to lawmakers. there was also a reminder this morning about the problems. with had mark carney's first meeting with the bank of england, those minutes were released this morning. and we sthau aw he voted agains further qe this is what the market has been waiting for. the wild card was that he managed to convince the rest of the mpc members to vote with him, against qe, so he saw a 9-0 vote. that's what the markets have seized upon today. also comments suggesting that more qe could complicate the eventual move towards exit. across the charts, you see the extent of the red. the ftse was tracking up about half a percent first up, now down half of a percent. the cac quarante in france, the

xetra dax down .6 in germany. it is the spanish market that is the weakest of the european markets, down near 1% sell-off on that market. let me show you a couple of individual stocks moving around today with big stories as well. barclay shares down almost .8%. the u.s. energy regulator has fined barclays and its traders $453 million. this relates to allegedly manipulating energy prices in california. investors, though, say it is not material to the company's earnings. novartis also in our focus today as well. this is after the drugmaker says it is not part of an investigation by china's authorities into alleged bribery in the pharmacy sector. this comes on the back of the glaxosmithkline scandal in china, apparently four more global companies are in the eyes of regulators. the share price tracking lower by 1.4%. let's move on to what we're seeing across on some of the bound markets. u.s. treasuries in focus with what ben bernanke will say.

ten year gilts is where we see the most movement today. they were tracking lower. we spike to 2.33%, not matching up to u.s. treasury. still firmer in session and across on the periphery, there are some gains there as well. on foreign exchange markets, it is the trade in sterling, the most activity has been. we saw a fairly sizable jump after those minutes as well. we're tracking firma through the 152 mark, guys. back over to you. >> thank you for that. we got a scandal in china this morning. a nationwide crackdown on the sale of illegal medicine today, promising to tighten industry regulation, the comments coming a day after the chinese police accused glaxosmithkline of widespread bribery of chinese officials and doctors to boost sales. they did it through travel agents. bribing people, paying through travel agents, creating fake conferences. cnbc's eunice yoon joins us from beijing with the latest this morning. good morning. >> good morning, guys.

there is a very common practice here and a common belief that when the government tries to send a message, they basically go after one big fish in order to scare all the little fish. and a lot of people here are starting to believe that glaxosmithkline is that big fish because the government has been on a nationwide campaign to try to root out corruption. we have seen that because they put in place a very powerful anti-corruption czar, also been trying to cut access within their own ranks, but today, the commerce ministry said that they were going to go after any form of commercial bribery, no matter the company, where it's from. they said whether or not a company is a chinese company or international company. the government also said today that they were not going after foreign companies, particularly, but there have been a couple of events in the past couple of days that have led a couple of people -- some people in the international community here to believe otherwise. one thing is that in the people's daily, a communist party paper, today, wrote an

editorial which said that a crackdown of commercial bribery among multinational companies was necessary in order to bring order to the market economy. another event that people are watching and were unnerved by is the fact that one of the detained glaxosmithkline executives was put on nationwide tv yesterday, supposedly confessing to these crimes. so we don't know the circumstances around this so-called confession, and we also don't know exactly what the glaxosmithkline executives actually did, but what we do know is that the particular circumstance is making a lot of people in the international community very, very nervous. guys? >> eunice, real quick, do we know how far up the chain this went? there seems to be a sense that perhaps the office in beijing, in china, was lying or trying to cover this whole thing up so that it is not clear that the folks at glaxosmithkline headquarters knew, but i always

wonder about things like that. >> well, at this stage we don't know how far -- how far up the chain it actually goes. but what is interesting here is the fact that there have been a lot of people within the drug industry who said that some of the practices that they heard -- that glaxosmithkline executives actually did was not terribly uncommon in china. this is a place that has rampant corruption. and especially the pharmaceutical industry. in fact, there are a couple of people who have been asking the question as to whether or not this is a market access issue because we know that big pharma has been trying to get into the chinese pharmaceutical industry. they have been complaining for years about the lack of distribution and the public hospitals. also been complaining a lot about the ipr issues. there have been a lot of people who have been talking about how this particular industry was just rife for all sorts of questionable behavior. and some of it illegal, some of

it not so illegal because in china, a lot of, you know, there is -- with the legal system, just isn't very firm. sometimes you see that -- there is a gray area within this legal system. >> and there you are, thinking that, like in mexico, or china, that you have the same sort of playing field that we have and automatically glaxo that they're at fault here, when to do any business over there, i'm sure you got to play by the local rules, just like in -- you were shocked that walmart had actually to deal with local officials to build in mexico. >> it appears it was done in secret. they knew what they were doing wrong, they were moving money through the travel agencies, creating conferences that didn't exist, paying for trips that didn't -- >> you know how hard it is to get market access in china and you're ready to sell all of our bacon to the chinese. were you out in the truck?

did you see that? we'll have none of that next year. >> the bacon. >> or the sausage or any pork products whatsoever. any pork products. if that's the world that you want to live -- i love your blackberry when i think about it. i miss mine. >> you don't e-mail anymore. you don't text. >> are they a sponsor of -- yeah, i love -- i miss mine. i miss my blackberry a lot. coming up, chopping trading in yahoo! after the company posted quarterly results. everyone is buzzing this morning about marissa mayer's unique video conference call. looked a little weird. >> you can see -- it makes such a difference. >> the ceo twitches when they're -- looking down, left, right. i personally -- >> i think it helped. >> you do? >> it gives us video. >> right. >> we're a visual medium for some. we're going to talk to -- >> yahoo! analyst next.

>> right. first, squawk sports news. the first inning of this last night, unbelievable to see the robinson cano get hit in the knee. in an exhibition game. i did see that. >> the most valuable player. >> i watched the two reds in first inning both -- barely just evil swings. the american league shut out the national league. who wants to watch an all-star game one of the league gets zero. it was 3-0. they lost so many in the row at one point many years ago, but we saw mariano named mvp. pitching a 1-2-3 eighth inning. now the american league will have home field advantage in the world series when whatever a.l. team plays the reds. >> oh, really? counting your chickens, are you? >> yeah.

yahoo! posted quarterly results last night after the bell. the internet -- i guess an internet giant -- trying -- middle sized giant trying to grow, reporting profits of 35 cents a share. is it better than analysts estimates? congratulations to those of you who helped us, i guess, drive some type of traffic to our website basically.

armchair analyst poll, you got it right, has anyone not bet that a company is going to beat in any of these polls yet? no. but yahoo!'s revenue outlook -- joining us is ken sena, managing director at evercore partners. what are the key metrics we watch now with this company? >> i think we're looking at growth in the asian assets which came in very strong, margin expansion in the asian assets. 2013 was basically about -- i'm sorry, it was about 50% below what the street was expecting. so that i think sent the stock down initially. but i think as people dug through the slides, et cetera, you could see some of the disclosures it was something you wanted to step in and just when you step back, actually, from

yahoo! the core business is only about 25% of the value now. really about 50% is alibaba. it comes down to whether or not you really make a bet on that business. and just to put it -- to frame it a little bit, ali baba is probably -- it is more than amazon, ebay combined. revenues probably about 50% or more than facebook's this year,year, growing at twice the rate. i think you can start to come into some pretty big numbers around what that asset will ultimately be worth, when it goes public. and so, you know, how much read through do you want to give yahoo! credit for that. it has more to do with that story versus whether or not or how marisa did on the video call. >> is it fair to be looking at what you think your revenue is going to be less the acquisition co costs? it is weird. why do we have all the companies that look at revenue less all

your costs? >> i think the -- in truth, a lot of companies wouldn't consider that as a real cost of doing business if they were collecting it as a fee. if you're acting as an agent and getting a certain fee for being an agent, should you get credit for the revenue your publisher or customers are getting? >> that's a more fair -- got it backwards. >> i prefer to look on it on a net basis. some companies, groupon looked at it on growth basis. >> can you find a way to justify the tumblr deal? >> i think economically, no. i think that, you know, i think that was probably a difficult part of the conference call yesterday was how do you actually show what -- how much of the margin erosion we're seeing initially coming up is going to be due to specifically the tumblr acquisition. and then where does that turn around, where does it give investors some sort of tailwind in terms of what they can expect from the financials. we don't see it now. >> if you were an investor, potential investor in yahoo! and the only other thing you had to

look at were the prospects for the domestic business of yahoo! i mean, and increasing traffic, the yahoo! sports or -- i mean, how -- without alibaba, what can marissa mayer do? this company will never regain what it was. there is no way to do it, is there, unless they take shots with -- >> it is possible. you have a large organization -- if what she says around talent acquisition and, you know, the fact that resumes have skyroc t skyrocketed, et cetera, they're in the valley but start to do some products that are going to resonate and catch on and have new businesses, i don't know. >> is there something that impressed you at all? >> within the core business, no. i think at this point it is still very much a wait and see. >> so it is a slim down niche, like aol, still viable, they make money, but never going to be the yahoo! of old, right? >> don't want to say never, but certainly not in the -- >> without alibaba, what are they? >> that's the hard part of recommending it as a stock. you have less visibility into

the alibaba asset. >> real quick, what did you think of the conference call or video call? >> i like it because i feel like -- i liked to look at the products as they're explaining them. it is hard if you're trying to visualize it. it was a little bit uncomfortable at first, just because you're not used to that format, but i think it will get better over time. i appreciated being able to see more. >> did you think there were tells, if you will seeing the person on the other end, seeing marisa try to answer a question or not answer a question. >> i think maybe i perceived some of it as nerves in terms of the initial video format. but i would think that over time that would become better and it would give you tails both positive and negative. >> which camera am i on? >> looking at the wrong place. >> just look at us. >> don't know what you're doing -- >> when they ask a question, if they go, well, well -- they're not taking me. take me on a single shot.

never mind. i was going to have my eyes dart and say why, why, why? why are you asking me that? why? why does that matter? if you see something like that, it makes you nervous. it took so long to do that. forget it. my bits won't work down here if the guy is like, what happened? you have -- you break both your hands yesterday? anyway. thank you. >> okay. >> thanks for coming in. >> thank you very much. still to come on "squawk box," we have famed short seller jim chechenos, ray mccormick an jack lew. the excitement is building here at the pierre. >> chenos is okay. >> he almost got hit by a bat last night at the all-star game. >> to be clear, wasn't a girlfriend or something, or -- >> we're at the delivering alpha conference here at the pierre. final setup is taking place. participants and guests will be here soon. among the early arrivers, ian -- >> wow. >> we'll talk to him about the

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welcome back. our top market story today is ben bernanke, he's heading to capitol hill in what could be his last testimony there. joining us now is ian shepherdson. and, ian, this is going to be something the market is watching incredibly closely. is there anything he could say that would surprise? >> no surprises of what everybody wants. the last time he spoke at the press conference after the june conference, he surprised everybody and didn't end well, especially in the bond market. >> he's been careful to try to dial back what he said since that time. hasn't been just him, it has been a coordinated effort.

>> it has been. >> other fed speakers as well. my guess he's going to be very careful to make sure he stays in line with when has happened since then. >> no more damage in the bond mark set what he wants. the cat is out of the bag now. can't dial it back right now that he takes away the expectation of tapering. that's a done deal now. unless the data really knows in the next couple of payroll reports, doesn't mean likely to me they'll do it. >> you think they'll do it in september? >> i do. we have stronger than when they made the decision to go ahead with the press conference and said they would taper. since then, a strong june report. as far as they're concerned, the labor numbers are even stronger than when they made their decision. i don't see them weakening. so why delay. >> does the rest of the market realize that september is probably the most likely scenario at this point? >> i think we're getting -- the consensus looks like we're now looking at a starting tapering in september and then at every big meeting with the press conference there after, we take a little more away, to the middle of next year, down to zero and somewhere after that we

raise rates. that's what priced in now. life is never that smooth and easy. >> that sounds like he successfully completed if that's the case. can we really expect that kind of a performance? >> there are so many bumps on the road. i'm nervous about what happened in the fourth quarter and we have to fight over the debt ceiling again. the last couple of times that played badly with the service sector and that's where the job growth has been. i'm nervous at the payroll that we're happy with can kin if we have a horrible terrible mess in q 4, could slow thins down. >> would you ever expect they would actually dial things back up again, like maybe we start down that path, we get to 60 or 65 billion, things are a mess in the fourth quarter like you suggest, what does the fed do? do they stand pat or dial it back up? >> i think they would just hold it for a while and not do the next state of the tapering. to wrap it back up would be a big deal. the sky has to fall in for that to happen. it is not impossible, but unlikely. >> we should have permanent fed.

80 should be the average. and then -- >> forever. >> forever. and this is -- this is john macon this morning. no good alternatives for facing bernanke now. the best he can do is admit to the slowing economy and return to the original qe 3 messaging plan of the monetary policy. >> where do you get that? >> morning money. ben white morning money. beltway ben. >> beltway ben. politico. what does cnbc say? >> i'm saying what -- you like aei. >> kind of a token sorkin that they have over at aei. they do. >> good morning to you. >> who is that? >> i forget the guy's name. >> john macon? >> no. >> this guy is singing your playbook. >> i think we should be on permanent fed life support. >> that's basically what he said, by the way. >> go up above 80 when things aren't good, we just taper back a little when things are really -- if we get to 8% or 9%

gdp, down to 30 -- >> i wish you were running it, joe. i do. >> i know. i know you do. permanent fed -- the private sector, you know, just really isn't, you know, we can't count on that. >> not in the short-term, no. >> do you buy the argument that actually bernanke will never change his tune this whole time and we have taken it differently each time. >> he has changed his tune. i nearly fell off my chair when i heard the press conference. i'm glad it wasn't a high chair. >> we never heard it before. >> but there has been a shift within either him personally or the body of the fomc. hard to tell. there has been a definite shift. while they have shifted, growth has slowed. i reckon second quarter gdp will be sub 1%. >> does the ten year yield go up or down today? >> i want it to go nowhere. i would be surprised if we get a big move. i think they want to play it calm, not scare anybody again and hope that the data goes

their way. >> not bad. >> people love it. >> 250 is fine for a while. mortgage rates, they're quite scary. we see no impact. home builder survey was through the roof yesterday. you go from 3% to 4% and mortgage payment goes up by a third, it is a hit. there will be some slowdown in housing. mortgage rates are falling a bit now. >> need to normalize things some day, though. >> we do. not when gdp growth is trending. >> whose fault is that? >> that's another question. not necessarily the fed's. >> no, no. not blaming the fed. >> ian, thank you very much for joining us. we'll see you a little later today too. >> thank you. >> okay. coming up, it is the book that everyone in washington's buzzing about this week. called this town, the author behind the title is going to join us after the break. still ahead, from cnbc's delivering alpha conference today, we're going to be joined by jim chenos and david mccormick and at 8:20 eastern

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welcome back, everybody. it is a busy morning. we have three reports of note so far this hour. mattel earning 21 cents a share for the second quarter, that's 11 cents shy of what the street was expecting. revenue below consensus. mattel is pointing to strategic investments made to support future growth. that stock is down by .6%.

also, bank of new york mellon posting better than expected earnings in revenue. and that stock is up by 1.8% with tech strong earnings coming out, they beat, but fell short of estimates and the street is looking at that as a wash. flat at this point. 23.73 a share. our next guest believes while washington may be dysfunctional, far from divided. mark leibowitz is the author of the book of the moment, this town, two parties and a funeral and plenty of vallet parking in the guilded capital. >> based on the initial response, i think so because in washington, i mean, even if you're infamous like i supposedly am now, there is a sheen of notoriety. if your brand is ubiquitous, you

must be popular. >> you go after a lot of people personally in this book. you pull no punches. we're a business network. i was fascinated by the evolving door stuff you got into. you took a shot at orszag, for example, for going to citi, jake seward who went to goldman sachs. >> treasury, yeah. >> how much of a problem really is this? is it just an optical problem or do you think it is a real problem? >> i think that's a great question. first of all, i don't blame any of the people individually. what i blame is the rhetoric of the obama administration was that we were going to be different, we were going to be better and we were going to close the revolving door and we -- and president obama said we believe that there are two kinds of people, one who is in politics for money, and one who is in it to do good. dent s he didn't say that explicitly but that was his message in the last book. but suddenly his people all had to sign this no glory, no ego, no glory form when they came

into the transition staff. and then you have not so much a revolving door traditionally, but a seamless interplay between k street and washington -- and pennsylvania avenue. and wall street and pennsylvania avenue and there has been a pipe dream it turns out. >> if you remember the public, should that be upsetting? mary jo white, new head of the fcc, before that, in private practice, clearly represented a lot of big companies, big banks. how are we supposed to think about that? >> i think what you're supposed to think about it is as american taxpayers, investors, what have you, you have to wonder who is working for whom, right? are people working for the next employer? there is a great line from i forget who it was, a lobbyist, once we talked to someone on the administration and someone on capitol hill and said, you should think about where you're going to come to work after you're finished in public service, i know i've owned him, because everyone is essentially so available -- so much money coming out of government, they clearly have their eye on the next gig. >> is that why we're never going to get something like tax reform

or any of these big proposals that sound look a really good idea in practice? >> i think the fact of the matter is, this is a core point in the book, and for people outside of washington to really understand, disagreement is very good business in washington. for as long as bills do not get passed, lobbyists will get paid, corporations will pour zillions of dollar naz paying lobbyists, paying corporate consultants, paying things to manipulate laws and bills that don't get done, and also pundits can disagree. disagreement is a -- >> the sad thing i'm hearing is that it is backwards. you go to washington and you get notoriety, then a big check in the private sector. god, if only the president would have been in the private sector for a little while before he became president, so he actually learned how the private sector worked instead of backwards. it should be a one way street the other way. earn your stripe in the private sector so you know what you are doing when you go to the public

sector. >> it is the wealthiest community in the united states. it is home to -- >> virginia always is one of our best states. >> seven of the wealthiest ten counties are in metropolitan washington. and 20 years ago, people didn't go to washington to get rich. theoretically a lot of people did get rich, but it was the land of public service, built on public service. >> and saw bills paycheck after being president, i forget what it was. >> once you get elected to -- not just president, former congressman, former top staffer, you're set for life. >> what changed in last 20 years? >> two things, money, just a lot of money, just poured into the city, just from government itself, a lot of money that washington can print benefits the area, but also media. new media has become -- has transformed -- the information economy of washington has been as transformative in the capital as it has been in wall street, as it has been silicon valley. essentially today's washington is more in common with the cut

throat lucrative and status obsessed worlds of hollywood, of wall street, of silicon valley, than the sort of stodgy old washington. >> he opens a book with this anecdote about tim russert's funeral and it is like high school, not because anybody is focused on the funeral, but so much -- everyone is focused on how they appear and who they're sitting next to and what they're saying. >> the big ticket washington funeral is a great networking opportunity. i hate to sound cynical, but i was there and just business cards were flying and people were trying to get each other booked. >> last question, we got to go, tim geithner is now on speaking circuit, hillary clinton is on the speaking circuit. if you could change the system, would you put a moratorium in place between the times that, you know, you're in office to the next thing, do you -- would you put -- people make a lot of a revolving door. >> i want the experience with these people. look, no, people are entitled to make a living. if the market is there for them, they're entitled to it. i'm not -- look, one thing i'm trying not to do is say, we need

to have a moratorium on this, or term limits here or third party candidate. i just try to sort of hold a mirror to a culture and if it brings about change, great. >> mark, thank you for coming in. the book is called this town. >> coming up, shares of csx getting a boost after the company posted better than expected results last night. we'll talk to the ceo michael ward. he's going to deliver the railroad operator's outlook next. much more from the day's delivering alpha conference. participants and guests are arriving here at the pierre. we have new mikes because it gets loud. but these supposedly will work, these madonna things, britney spears things. >> madonna to britney spears unless you wear the cone bra. >> you're going to wear the cone -- you can't say that. you can't say you're going to wear it now. jim chanos, and he'll be our guest host at the top of the hour.

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. csx posting better than expected results last night. michael ward is the company's chairman and ceo. worry is trying to decide whether -- there was con sistt r consternation in a something was going to happen that didn't. how were you able to work through the problems people were concerned about? >> it's been terrific.

the men and women have really focused on the things we can control which is our service, safety and productivity. we're at record levels in the service we're providing to our customers. we'll have productivity of over $150 million this year. and plus the other markets were able to grow sufficiently to overcome some of the challenges. >> coal people were worried about. they were also worried your inter-modal couldn't continue to shine as much as it did. how do you account for that? is it just execution or things didn't deteriorate in inter-modal like people thought? >> well, actually inter-modal trends are running well and our domestic volumes were up 4% for an all-time record for us. so we're continuing to see growth in the transfer where truckers are working with us for inter-modal product and we're very pleased with what's going on. >> what is it, what is driving it, the construction or autos or what? >> i think it's a number of

factors. one is the price of fuel. it's highway congestion. and driver shortages. in today's world even with the high unemployment, a lot of people don't want the lifestyle of an over the road trucker. so we're finding that the trucking companies want to work with us on an intermodal product where they can have their drivers home with their families every night. >> i know the rails are more efficient and that has been driving traffic. as you start to watch oil prices which have spiked again, they're well before $105, what does that mean? is there a tipping point where you actually see more traffic -- or more of the load coming over based on the price of oil? >> yes, becky, i think we've seen a longer term trend as the oil prices have moved up. we're three to four times more fuel efficient than trucks. so besides the driver shortage issue, we can produce a product for the trucking companies that allows us to make money and saves them money, as well. and as you know, we have a fuel surcharge program in place for our customers that goes up and down with the price of oil. so the impact on our bottom line

is minimized. >> i feel like running a trucking -- i don't know. with unemployment where it is, i don't know why they can't find drivers. it's kind of a -- like modern day cowboy. instead of being unemployed, why won't you drive a truck? >> people don't like to be away from their families. >> they have to figure out a different way of doing it. like the pony express. take it one and drive it back and someone else takes over for you at the next place. they have to figure out a logistical way to do that. >> well, we've figured out a better way, intermodal business. put it on the trains. >> coal is tough enough to just for so many reasons to be involved in that business. it's not getting anymore popular. and the epa will -- you saw some of the executive orders. do you take that into account that your business is going to be affected? and you don't move really natural gas, right?

>> that's correct. on the coal side, we're expecting domestic volumes will be down about 5% to 10% this year. but we think that's where it begins to plateau. on the export market, we're still expecting about 40 million tons to go in the export market. so while we're at reduced levels of coal, we're able to grow our other markets more than enough to offset that. our coal was down about 6% this quarter, but our other markets grew overall about 3% and revenue basis 2% higher. so we're growing our other businesses to offset some of the coal challenge. >> all right. so far so good. thanks for coming on today. appreciate it, michael. >> thank you for having me. >> when we come back on "squawk box," we have quarterly results from bank of america. a look at the numbers and instant analysis right after this. plus our delivering alpha headliners are starting to arrive.

we'll talk to david mccormick. and then coming up at 8:30, treasury secretary jack lew takes the stage. first, though, we will welcome famed investor jim chanos. he'll give us the long and short of it when "squawk box" comes right back. every day we're working to be an even better company -

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"squawk box" is delivering alpha. we're live from the pierre hotel in new york where top hedge fund and market minds are gathering to share their ideas on the economy, investments and politics. in this hour, joe, becky and andrew are joined by jim chanos and daniel arbis.

all leading up to our special presentation from jack lew. all this plus bank of america earnings as the second hour of "squawk box" begins right now. good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin and we are live at the pierre hotel in new york. this is the site of the cnbc delivering alpha conference. we've been keeping an eye on the futures thon and you' futures this morning and there is improvement. looks like it's flat lining practically for the dow and s&p. nasdaq has basically turned positive. so we'll keep an eye on this. let's get to some of your morning headlines. bank of america is out. estimate for 25 cents. >> so far 32. but we have to look more closely at the numbers, make sure that's a real number.

$22.7 billion in revenue. >> in line of expectations. they do talk a little bit about the coupler real estate services revenue. and they're talking about the second quarter basel i ratio. we will take a look at that. >> see if they brought some of the reserves back. provisions for credit losses, $1.21 billion in the second quarter. and net chargeoffs, $2.11 billion. >> take a look at the stock and you can see it is up by about 1%. again, this is a dow component. we will keep an eye on this. a few other headline, investors are looking ahead to congressional testimony today and tomorrow from ben bernanke. the chairman doesn't speak to lawmakers until later this morning, but this is new. the text of his prepared remarks will be released about 90 minutes from now. usually you have to wait. but this time we'll get them at 8:30 eastern and that is certainly something we'll be poring over. european union regulators say

concession offered by google are not enough. google is accused of stifling competition in web search. the company has been asked to present revised proposals. and michael dell and silver lake partners have no plans to raise their bid for the company. david faber has reported that the vote may be pushed back if it appears that there aren't enough votes to approve it. carl icahn has been pushing an alternative proposal that he says is more valuable for shareholders. he will be our special guest later on today. during our delivering alpha conference right here at the pierre hotel in new york. >> all right. bank of america earnings as we said 32 cents a share which was above expectations. revenue in line. deposit balances company wide up 4%. mortgage production up 40% from the second quarter of '12 and i don't know what it was the previous quarter. but that sounds pretty good right there. global wealth and investment

management had record revenue and pretax margin. commercial loan balances, people complain about this, they're too tight fisted. up 20% to $381 billion. global anden ve investment bank fees up 36%. credit quality continued to improve with the net credit loss of rates below 1% for the first time since 2006. second quarter of 2006. and that was a 63% jump if you just look -- i don't know if you want to do apples to apples so net in-come, but it was up 63% and makes over $4 billion. 32 cents was versus 19 cents in the year ago period. come, but and makes over $4 billion. 32 cents was versus 19 cents in the year ago period.come, but i and makes over $4 billion. 32 cents was versus 19 cents in the year ago period. >> brian moynihan says they have momentum across every customer group, but they must keep

improving with the customer recovering and businesses strong, we have lots of opportunity ahead. >> what was the reserve number? that's always the one number -- >> they figure to be seven cents ahead. probably brought some back. you look for that. i have backup. chanos hasn't been here so long, i had to give him a bunch of grief about stuff. i watched all this -- our guest host, the world's -- like you're jumbo shrimp. the world he's lar's largest sh seller. broken bat dodger jim chanos. my history goes all the way back to you -- there you are. what happened? your son had just left? >> this was last night at the all-star game. >> draw, two of my three sons i was with got up to go to shake shack and as soon as they did,

cabrera let go of the bat. bat was in-tagtaintact. someone tweeted to ask if the bat made in china. >> and it's nice to be -- you're so smart. and i'm not trying to suck up to you or anything. but you can be too frickin' early sometimes almost. >> a lot. >> and you have been coming on here, i'm trying to figure out when we started with china, and every day there is another headline. now. >> the first time we talked about china on cnbc was very late '09. >> i thought it was three years. so it's going to be four years. >> four years at the end of this year. >> when you describe what you have seen -- you saw signs of trouble way back then. would you describe it as a really slow motion train wreck or something that's happened? is that the best way to make money or have you had to stay

with your positions, add new ones? good it's been a great place to be short, first of all. the markets have done nothing but go up globally in four years with one exception basically, china. and the credit stik kell that we saw which we thought would happen first in real estate has not happened. real estate actually has held up which is the interesting thing about china. i think it's actually the next shoe to drop. but the credit cycle just got worse and worse and i think that has worked its way through commodities globally. i think we're seeing arguably the end of the commodity super cycle. so all those things have played out in the last three years, but interestingly the chinese are still buying condo apartments like crazy. >> your big bet was that real estate would fall, that the banks would fall apart. and so to the extend you've made money over the past three years in china, it's been in what

places? >> real estate, banks, steel. >> but the real estate and banks have not gone down nearly as much as other people had -- you were saying the whole thing was a miles per hour rarage from mo. >> i still think the credit bubble issed world class. i think people are misled by chinese gdp numbers. it's a very managed number as you know. meanwhile corporate profitability has gone through the floor. credit problems have begun to multiply. the shadow banking system which we talked about in 2010 has finally come to the fore. so again, if you had to be short anything in the last three years, the one place to be short was china. >> but you're not pulling back. >> we're about the same place. global portfolio about 20%. >> we've heard for years they're trying to orchestrate the

consumer society there. and they raised wages, they have done some things. is that a bridge to filling some of the empty buildings, creating a middle class that will occupy some of the real estate you're short? >> again, the problem is that the people that can afford the real estate are not the people moving to the cities. real estate is very, very expensive there to income levels. and they keep them empty. and in the last data we saw, investment increased as a percent of gdp achbnd consumpti dropped. so the rebalancing doesn't happen. part of the problem is that investment also leads to employment. a lot of these people are employed and krublconstructing things. it will ultimately employ fewer and fewer people or pay them less. >> a china really trying to put the brakes on? >> i don't know if they know what they're doing. it's a complex economy. it is not totally subject to

pushing buttons and pulling levers as i think everybody thinks it is. it is an $8 trillion u.s. economy. it's half our size. and then it is subject to all kinds of things like the shadow banking system that they really can didn't have their hands around until this year and a lot of balls in the air that any one of which could fall. >> someone tweeted a question asking about their own interbank offering. it didn't get a whole lot of attention. >> a little bit. >> is it a big deal? >> here is the real problem. what it underscores is that both in the regular lending market, but particularly in the so-called shadow banking wealth management products, trust products, many of the maturities of those investment products that they sell literally over the phone to you are three and six month maturities. so they constantly have to be

rolled. but they're financing off an infrastructure, real estate or losses. so it's a little bit like our subprime brokerage problem that we had in the investment bank when they were basically financing their balance sheet of derivatives and bad mortgages in the overnight repo market. >> don't you think it's as manipulated as any other and didn't we ultimately learn that the government was the main manipulator? >> they provide lots of liquidity at the end of every quarter and they will have to do that more and more as the economy goes on and more of the paper rolls. and i think that they did want to send a message. and you saw a bunch of odd occurrences. three large banks went down all claiming software upgrades at the same time, which seems a little suspect. and so it does seem to be there was dislocations at the end of june which came right back out in july. but a lot of that also was from

the demand side. there is just a tofn of demand o roll that paper. >> commodities cycle might be over. just right there, do you know how many investment themes you could key off of if you knew that for sure? so that's one effect of what we're -- >> look what's happened since like the miners. >> and countries that are more dependent on china than -- could you go there and figure some things out. >> i think that there are countries certainly that have tied their near term prospects to the chinese. >> emerging markets, that whole subgroup of investing you'd have to at least consider this, wouldn't you? >> gweagain, the question is whether or not as a western investor you benefit from growth and emerging markets. and in some countries i think you do, but in some countries like china, you clearly don't. the gdp growth goes

predominantly to in that case party insiders and state owned -- >> nobody watches anymore. >> there is crackdown supposedly. >> what about do we need to worry about the gravy train from into china? >> the deficit is coming down first. china is not needed as much anymore. i don't know if china has bought net that much of our debt net in the last three years. >> i would think you'd be angry at the fed. are you on board? >> the fed is what it is. you can't get angry. >> do you like my idea, though, that 80 should be the average and when times are good, we maybe go down to 50. when times are bad, we go up to 120. and we just stay forever. 80 is the average. we should assume 80 from the fed

and just -- what's the difference? it hasn't hurt us. doesn't matter. let's just keep doing it. so the balance sheet goes to $120 trillion. is that really that bad? >> one of the few areas you and i probably agree is i don't think they have the intended consequences. we don't know when the fed is so engaged in setting market rates beyond the fed funds rate or talk to the market what implications that has. make no mistake about it, the fed is targeting asset prices. they said so. and that's a whole new road for them that really they have gone down in the past few years. so we can talk about fed models. we can talk -- if you're embarked on a whole new set of policy implementation and tools that are really aimed at targeting asset prices -- >> how does that change your calculus as a short seller? >> again, you pick your spots. we just doid a study on a serie of companies to take a look at

today versus spring of 2000. you remember the spring of 2000. a lot of silliness going on. and we wanted to see just how the high end of valuation, and we don't short on value aches but we just wanted to see what it looked like, and there are as many companies today trading at three times the market multiples in terms of price to sales, market cap and price earnings looking out one year as there were in the spring of 2000. and -- >> what? >> you can name name snsz. >> i have a whole list of them here. maybe we can talk about some of them on the list. b but -- and we're short only a handful of them. but i hear people on this network and others say this is the most hated bull market ever and people just don't believe in this. well, you can't tell that from speculation. because there a lot of it going on. >> when you talk about the china play and trying to take it out from what joe was talking about with the commodities cycle, the super cycle, can you take that

even beyond that to some major companies, dow components that i think about like a caterpillar or somebody who has benefited from that boom over this time? are they able to diversify enough or do you look that far down the chain? >> i think that companies that are dependent upon certain areas, a lot of them are first or second derivatives of china. for example, caterpillar you mentioned does not have a lot of direct sales in china. less than 5%. half of their profits for example come from the mining business. which is very tied to china. so when you begin to sort of make connections, even though companies may not have a direct market into china, they certainly may sell into businesses that do. and so that's what you have to sort of look at. >> you haven't visited there. if we did, there would be negotiations in trying to get you out of some work camp.

but do you -- the smithfield thing. do you like pork? where are you? should we sell smithfield? >> they sell us pieces of their companies all the time. they're always selling stock but it's never controlled. look, i'm a free trade and free markets guy. if they want to buy our pork products -- >> they won't give you any pork. >> i don't think i'd eat it. but subject to national security considerations, i would think that free trade and free inve investme investment -- >> some plastic laden baby milk. >> they closed a bunch of museums because there were fake exhibits, fake artifacts. quite amazing. >> they hahave billions of peop. who is going to check? does it matter? really? >> i want to talk to you about dell. coming up neblxt, we'll gel get reaction to bank of america earnings and get market reaction and later we'll talk private

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bank of america out with quarterly results. joining us on the squawk news line is jeff hart. jeff, the earnings per share came in a little better than expected. revenue came in line. what do you make of the report? >> from the first look through it, unfortunately it seems like there are hundreds of pages, but i think it's pretty good. that interest income was actually a little better than we thought. noninterest income was more or less in line with our expectations. they did have some bigger than expected security gains to help drive that 32 cent number versus kind of what we were looking for. but all together, revenues didn't disappoint.

they're hitting on the expense save side. and credit keeps getting better. so i think it's a pretty good number we're looking at. >> the cfo says at the beginning of the year, they told investors that they would be focusing on three things. revenue stability, strength ping the balance sheet, managing costs. they say they have delivered on all three. is that enough for you? >> yes it's enough. i think they're doing all the right things. the problem i still wind up having and really doctor we have a hold on the stock as i look forward, i have a little trouble getting the revenue growth up to where it needs to be. after that, some of the expense saves kick in. but i think they're in a position where they need the environment to get a lot better for their earnings to get a lot better kind of in the near term and i don't think the environment will get all that bernie time soon. >> we have heard from the fed. it sounds like tapering is inevitable at least if the

numbers, the numbers continue to come in for the economy as they have been. that would signal that maybe interest rates rise at some point down the road. is that too long of a view for now? >> given the economic numbers we've seen and to some extent it's anybody's guess, it seems like short term rates at least going up is a he ways off. but as always, the real key in the analysis is what's driving that rate increase. if it's a strong economy and they're raising rates because of that, that's great news for bank of america. if it's not that, then they're raising it to fight inflation or something like that, that's a different story and not one with a happy ending. >> jeff, used to be we'll follow merrill as a big stock. and now the big brokers are all part of other places. is merrill doing better than morgan stanley's guys? gist sort of in the same environment, is anyone outdistancing the others? who is doing better?

>> they're all doing okay. merrill lynch has actually been performing pretty well. morgan stanley is more of a turning it around story and they're starting to perform better. the merrill lynch franchise has really done well for bank of america. forget about the investment bank and everything else. >> we have to go, but investment bank business has been less across the board. >> jeff, thank you. >> thanks, guys. coming up, a lot more to come from cnbc's delivery alpha conference here in new york. we're like on fifth avenue and of 61st street. we're surrounded by mega bucks and elitists and old money. >> time for aflac trivia question. what does yesdoes yahoo! stand ? the answer when cnbc "squawk box" continues. f-f-f-f-f-f-f. lac-lac-lac.

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national league and american league met up in the all-star game last night. the american league came in on top 3-0 and quangained the righo home field advantage in theto r. he's set to retire at the end of the season. bud selig presented rivera with the mvp award. he's the first pitcher to win it since pedro martinez back in 1999. >> a check of the futures right now ahead of the markets, dow turned around a little bit. nasdaq up about 6. s&p 500 up about 2. up next, we'll talk hedge funds and deal making with dan arbess. we have a big morning on "squawk box" and cnbc. we'll turn to pierre hotel live in new york city. what's in your ear? oooo! a quarter!

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welcome back to squawk box. in our headlines this morning, bank of america reporting second quarter profit of 32 cents a share. revenue came in essentially in line. ceo brian moynihan says further improvement is needed but that the bank is gaining momentum across all of the customer groups that it serves. and you can see the dow component is down about two cents this morning. mortgage applications fell by 2.6% last week. that was led by a drop in refinancing activity as mortgage rates remained at two year highs. and fed chairman ben bernanke appears before the house financial services committee later this morning for his semiannual testimony. we'll be getting the text of his prepared remarks about an hour from now and that is different, this is the first time we'll get a look at it. make sure you join us 8:30, we will have that. >> we're back at the alpha conference. former advisory board member and

his thoughts, dan arbess joining us. you're the partner's partner. >> yeah. >> easier way to say that. so in an hour as becky just said, we'll get this text. we've never seen it in text form like this. what do you think it will say, what does it have to say? >> i think it's the exact same thing that the fed chairman has been saying without deviating from the script for the past four years. i'm looking for sustainable improvement in employment market conditions and inflation anchored satisfactory at 2% to 2.5%. >> so there's a running debate on this table about this issue of whether bernanke has actually changed his tune. >> he has not changed his tune one iota. all that's happened is market participants have taken different pieces out of context, blown them into big headlines and then traded around them. if you look at the text of what the chairman has said, he's been

remarkably consistent. he has not deviated one iota with the possible exception of emphasizing certain things. the most interesting thing -- >> but that speaks volumes. >> it does, but -- >> if you're data dependent, if the data changes one way or the 00, then you in fact are either going to -- >> and the day thta has changed. >> we were going go above 85 for a while. that was taken off the table on may 22. >> i think the most revealing thing that the chairman said was july 10 in boston where he elab operated why he started talking about tapering to begin with because he's concerned with bubbles in the bond market. he said if we didn't start laying this out now, we would have a bigger problem later. >> you've argue that had we've already begun tapering. what does that mean? >> i think we've gun tapbegun t in a that will way because the fed has been buying two thirds of all new issued treasuries for

the last couple of years. they have been buying -- treasury has been issuing 67 billion a month. the fed buying 45 billion of treasuries. everybody expected a deficit to be $800 billion this year. the cbo said, oops, the deficit will only be $642 billion. so now for the rs of the year, the treasury only needs to issue $45 billion a month in treasuries. if the fed continues at the same pace, they will buy every new bond. i don't think that will happen. so i think you'll have natural tapering to the tune of about $105 billion for the rest of the year. that soups assumes foreign buye don't -- >> when does the real tapering begin? >> i think the real tapering probably begins later this year. whether it begins in september or december, i think it's almost irrelevant. what is relevant is that the fed chairman has pretty much single handedly recalibrated the range

for ten year treasuries now from 1.6% to probably 2.5% to 2.75%. and that ihe's been able to do without damaging the economy and resetting expectations on bond yields. another pot step in the right direction. ultimately what you want is the economy to be -- >> how did he reset it if he didn't do anything different? >> emphasis as we said. >> but either he said something different or he's emphasizing. >> you just gave him credit for doing it, but before you said he didn't do anything. >> markets have done it together with him -- >> this is fuzzy math. >> he says bernanke belongs on mt. rushmore. you think he's been that good? >> i think he has pretty much single handedly been guiding the economy while the rest of washington has been sitting there doing absolutely nothing. >> we don't have washington guiding the economy, how could we ever do anything?

>> okay, joe. we want the economy to operate independently. the economy was in recovery from -- >> five years ago. >> it was five years ago. we're getting to the point we hope where growth will be sustaining and we can dial back -- >> do we have to hope? >> we all hope and that's the point. the fed has been trying to buy time for the economy to recover. the economic recovery is still weak. we want the economic recovery to get to the point where the fed can dial back its involvement in the economy. you don't need the rest of washington to be stimulating this or that. maybe even get some tax cuts. maybe get some deregulation and the economy keeps going. >> how long do we stay at this new range of 2.5% to 2.75% for the ten year yield? >> i think until the data continues to improve. >> but maybe this year, by next year do you think we get into much higher -- >> not much higher. i think rates will continue to creep up. ultimately higher rates is good for the economy. and by the way plan b for the

global recovery is a stronger dollar, higher u.s. interest rates, more money in u.s. savers, u.s. consumers pockets and the united states returns to its leadership in the global economy. >> and think if we don't -- and hopefully this won't happen. but think if we hit another swoon, a bona fide swoon where you actually saw an uptick in unemployment or a down tick in the 2% that we've come to expect that we're in this healing process. think if we did have -- who knows when it's an external threat or, i don't know, maybe obamacare doesn't go as well. something happens. the fed will be expected to be there. >> i hope they won't be because i hope the fed is not day trading the way the market is day trading. >> you know it we went back up 208% unemployment, there is no way -- >> joe, you're completely focused on getting the fed out

and ending qe. i've heard you ask the question what's so bad about the fed standing there and buying every bond. i'll turn it back to you. why is removing the fed a singular focus? >> because when it was first suggested that they would do this, people on the fed said this is shock and awe, this is such a qualitatively different move than ever. and now after eight months, it's almost as if it's business as usual. and i'm just making the point that, hey, let just stay at 70 and go up and down from there for the next 30 years. >> but what do you think would happen to the economy if the fed had done nothing? >> there is something to be said for clearing the system. you know if we hadn't done $85 billion a month we'd be on our ass. >> we might not risk -- >> you'd be really -- >> we might be 2,000 points

lower on the dow, we might be -- >> we'd be in the hotel chanos if that happened. >> before we let you go because we have mr. chanos here, i want to get something going for one second which is he's matt argument that china is still a huge short. it's been the best place to short in the past three, four years. that was the comments you made earlier this hour. you come at this from a very different perspective. >> well, i come at this from a longer term perspective. jim and i were here two years ago at this conference and we debated china and we both laid out our arguments and then we said we both agree with each other, we're both right. we were talking on different horizons. jim was talking about what's going to happen in the short term and he was absolutely right. i was talking about a long historic arc here of china reforring going through stages of entering into the global economy from the export stage to the investment growth fuel stage of development to now the consumer-led stage of

development. this last transition is the ultimate transition and it's not going to be easy because in order for china to become an economy that is led by consumer growth, okay, it's got to change the composition of its economy. right now it's a state-dominated economy. it has to transfer ownership from the state sector to the household sector in order to give the household sector the bulk it needs so that when consumption picks up, it makes a difference. >> you can invest in the longer term? >> depends what kind money you have. if you're a hedge fund, i probably agree with jim. we're neutral. the whole chinese story, we're watching. there are a local bunch of technical issues in my view associated with shorting chinese stocks and jim's probably better at playing the short side than we have historically been. but we're watching it and at some point things will get cheap enough that you'll want to be long. and to the extent we can find

shorts, there are for example mining equipment companies that are still very high valuations. >> so if we hadn't done the t.a.r.p., if we hadn't done the 800 billion stimulus, if we hadn't done the very, very, very, very long time qe 1, if we hadn't done qe-2 and 85 billion, we had to do all those things everyone the very last one, we would have fallen into the great depression? >> i don't know if we could have fallen in to the great depression, but we would be in a much -- i wasn't just saying the 85 billion. >> but we must have some real structural problems. >> and we do. >> to be on dependent on all this stuff. >> we do. we have to run.son dependent on this stuff. >> we do. we have to run.on dependent on this stuff. >> we do. we have to run.n dependent on a this stuff. >> we do. we have to run. dependent on al this stuff. >> we do. we have to run. >> global excess capacity and labor which is creating -- >> i feel like i'm in an iron lung. if i need to talk, i have to go like this. i'm not even breathing.

next up, more from the day's special guest jim chanos. here for two hours.

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welcome bag. we're here at the delivering alpha conference. our guest host today is jim chanos, and, jim, thanks so much for being here with us on a big day. >> my pleasure. >> last year your pick was hewlett-packard. why don't we talk about hewlett-packard now. what's happened to the company and what you think about it. >> we're still short. the stock has had a huge run. a lot of value stocks has had this year on the perception that it's a turnaround. stock similar to best buy and others. and we're just not convinced that's the case. no company goes straight down the line. on the other hand, they have some real issues. their revenues are declining at about 10% annually. and it's across the board.

it's not just pcs and printers. it's services, too, which everybody is sort of holding that out as their salvation. an argument can be made that one of the nest problxt problems in technology is the services business. >> why? >> well, because more and more stuff is going to more efficient platforms, the cloud and elsewhere. it's changing the picture. and services, as well. a lot of value added stuff. a lot of fat the to cut there. >> so you doubled down on hp? >> we covered when it got down in the low double digits.he to . >> so you doubled down on hp? >> we covered when it got down in the low double digits.e to c. >> so you doubled down on hp? >> we covered when it got down in the low double digits. to cu. >> so you doubled down on hp? >> we covered when it got down in the low double digits.to cut. >> so you doubled down on hp? >> we covered when it got down in the low double digits. one of our arguments was and still is accounting issues. and -- >> where was it when you first put on the short? . >> it was in the high 20s and then last year i think it was about 19. >> got down as far as 11. >> and now it's 26, i think.

and then we covered our dell since the last time i was on squawk. and we're watching this i think as much as you are. >> if you were an investor in dell right now still, would you vote for the transaction, at that time money and run at $13.65 or do you say shareholders are being ripped off and you take carl icahn's deal and let him lever up the company? >> i don't think shareholders are being ripped off. you can infer that from my views on the industry. on the other hand, i just hope this goes on and on and on. because its eye hystericis ts's. the end/she sahe said/she said e great. i don't get it. i don't care what the bankers are thinking about here. >> what are the shareholders thinking? >> i think the shareholders at this point, i would note southeast asset, which had been

with carl, has been selling a lot of their stock. i think that i guess they see a hugh let pack lard before the turnaround, that the stock could double if the right stars align turnaround, that the stock could uble' if the right stars align. >> the pc industry overall, you've laid out your arguments against that, the newspapers are pretty clear with what's been happening. you think that's it, game over? >> it's a tough business because increasingly brands mean nothing in that business. it used to be dell is better than xyz or abc. and that's just not the case anymore. companies that buy lots of servers are now building them themselves. and then you have the chinese for example. lenovo and acer are taking market share. it seems to be a horrible business and as more and more

business goes mobile, i think it will be tough to justify that architecture at a premium. >> you point out a couple of big problems like we said for services. does that mean that you've also taken a look at ibm to short? >> we've looked at a lot of different services companies. i'll leave it at that. i'm not disclosing anything about that today. >> we'll have to jump from that. jim will be with us. we still have more time before we get through the show -- >> ♪ papa don't preach, i'm in trouble ♪ >> madonna style microphone. ♪ like a virgin ♪ open your heart to me >> coming up, we have stocks to watch as we get ready to trading. plus more from jim chanos. joe will do some more britney in a little bit. futures right now looking green. dow would open up about 7

higher. bank of america reporting earnings. we'll have more stocks to watch when we return and joe as britney. still to come -- bridge water associates co-president and former under secretary of international affairs at the treasury department david mccormick. plus a special presentation from treasury secretary jack lew. "squawk box" is delivering alpha all morning long. and it's only on cnbc. peace of mind is important when you're running a successful business.

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we're getting ready for our big panel presentation. jack lew will be live from our delivering alpha conference. and steve liesman joins us how from the ball room where the event will be taking place. and he has a preview. good morning, steve. >> andrew, thanks very much. looking forward to the interview with jack lew. he will begin with his first major speech on the financial reform in which he will cull for an aggressive time table for implementing dodd-frank and also respond generally to a bunch of the bills and legislation working its way through congress that would aim to change dodd-frank. he'll begin speaking at 8:25, it will be followed up, i'll sit down with him for an interview. >> thank you, steve. joe, do you have some stocks to watch? >> yes, andrew, i do.

let's take a look at stocks to watch this morning. when we return, ray dalio -- >> there is bank of america. >> okay, back of america. seven cents above estimates. revenue in line with expectations. we saw some credit quality improvement. big gains year over year. jeff harte said it was kind of enough. >> he said this was a good report, but he still has a hold on the stock. his concern is about where they get the revenue growth down the road. he said if the fed was raising rates because of a better economy, that's a very different picture than if they're raising rates just to be raising rates. >> we never really asked him about whether reserves were brought back. >> no. >> doesn't matter because they -- >> frankly, they don't reserve enough, then there is a suit or something else happens. >> thank you, new york mellon

reported five cents above estimate. revenue also exceeded consensus. mattel reported 21 cents a share. 11 cents shy of estimates. strategic investments that the company made designed to support future growth impacted. i'll take a look at that. yahoo! reported second quarter profit of 35 cents a share. outlook wasn't maybe as positive as some people had hoped for. and revenue was slightly below. csx, we had michael ward organization reported 52 it cents a share. five cents above estimates. revenue also above. it was intermodal and michael ward talking about how much cheaper it is to do it on rail rather than with trucks. and that helped offset a drop in coal shipments. and then visa, mastercard, and american express are all moving on an ft report that the eu, an eu proposal, would cap currently

lucrative fees collected by credit card companies and to process transactions. and you'll see an across the board weakness then. >> when we return, ray dalio's right hand man david mccormick, he'll be joining us. all leading up to our very special presentation, jack lew. a big morning on "squawk box" live from new york city. i turn ed 65 last week. i turn the math of retirement is different today. money has to last longer. i don't want to pour over pie charts all day. i want to travel, and i want the income to do it. ishares incomes etfs. low cost and diversified. find out why nine out of ten large professional investors choose ishares for their etfs. ishares by blackrock. call 1-800-ishares for a prospectus, which includes investment objectives, risks, charges and expenses. read and consider it carefully before investing. risk includes possible loss of principal.

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welcome back to a special edition of "squawk box" live from the delivering alpha conference presented by cnbc, apinstitutional investor. some of the world ea's biggest investors have gathered. this hour we talk banking with david mccormick, plus the headliner of the morning, treasury secretary jack lew. the third hour of "squawk box" starts right now. welcome back to "squawk box"

here on krccnbc live from the pierre hotel in manhattan. i'm joe kernen along with becky quick and andrew ross sorkin. our guest host, iconic short seller jim chanos. much more from jim still ahead. there is a din now. >> that's a good word. >> we're yelling louder and louder. >> it's behind us, right? >> a lot of people. >> well attended. a lot of suits as we like -- >> and you. >> we're wearing suits. >> a rare, rare occasion that you see these two in suits. but we do have a very big day this morning. >> no pants, but -- >> treasury secretary jack lew will be giving the keynote address at the delivering alpha conference in just about 20 minutes. that will be followed by a question and answer session with steve liesman. and fed chairman ben bernanke is set to address the house financial services committee at 10:00:00. but get this, you toont have to

wait until 10:00. his prepared testimony will be released at 8:30 a.m.. just a half hour away. and we'll bring you those details as soon as they are available. we have had some big earnings this morning including bank of america which came out with second quarter earnings of 32 cents a share. that was 7 cents better than the street was expecting with that revenue came in in line with expectations. brian moynihan says further improvement is needed, but the bank is gaining momentum across all the customer group there is it serves. so that stock was indicated slightly higher. let's take a look at the markets. overall the u.s. equity futures at this point are indicated a little about the hire. at least they were the last time we checked. okay. right around the flat line. dow futures just below, done over 3 1/2. s&p futures slightly higher has are the nasdaq. this is coming after a day of losses. very modest losses, but about the worst decline in three weeks if that tells you anything. take a look at what happened

overseas. nikkei up by about 15 points, shanghai com positiposite down . and in europe, things are bury bunchidge there, as well. modest advances. >> today is about the intersection of policy and investing and economics. and no one better equipped than david mccormick, bridge water associates co-president and member of the management committee. he was treasury undersecretary for international affairs during the bush administration. brid bridgewater has more than $150 billion under management and the world's largest hedge fund. thanks for coming in. so we'll hear a couple things in the next frankly half hour. we'll hear from jack lew on dodd-frank and i want to get your views on that but we're going to get bernanke's testimony at 8:30. what are you expecting to hear? >> i think what you're likely to hear is what you've been hearing. if you would step back and said

how would we have expected if this was managed well the qe process managed well, how would we sxrekts this had to go. >> that implies you don't think it's being managed well. >> no, i do. i think it's managed well in the following sense. harrim bernanke says here are then cans that need to be in place before we begin to pull back on qe. if those conditions are in place, we'll begin to do so. and if those conditions are not in place, then we'll make policy decisions. >> how would you position yourself for whatever he's about to say today or the last two months? >> well, we've had two major strategies. we have our all-weather strategy and our pure alpha strategy. the all-weather strategy is a portfolio of assets that we hold over time. pure alpha strategy, we're taking particular positions. in the current situation, we're long equities an bonds. >> the all-weather strategy,

reports out about a month ago that it's underperformed.d bond. >> the all-weather strategy, reports out about a month ago that it's underperformed. it's a strategy that supposed to perform in all weather. so what do you think has gone wrong or is there a longer term horizon that will change things? >> if you look at all weather, we would say it performed just as we expected. so if you step back and look over 18 years, it's had something like 8% performance annually net of fees. and it's a strategy that you'll hold over time. and if you're holding risky assets and risk premiums come in, ultimately you'll see that in the performance. >> when we interviewed ray dalio, your partner, he talked a lot about the great rotation from bonds into equities happening in the second half of the year. is that still on track in your mind given what's going on with

the bernank? >> if you think about what's happened, the u.s. policymakers have managed the tdeleveraging n a very good way. and we're beginning to return to normal conditions. when you begin to return to normal conditions, you would expect to see investors to begin to move out of the risk curve in terms of the assets they're holding. that's what we've seen over the last few years. >> we saw it particularly last month when people were selling their bond funds in great numbers. is that the beginning of something or was that just something tied to the movement that you saw on the ten year? and i guess do you think the ten year stays in this range where it is right now? >> well, i think what we would say is that we expect interest rates to rise over time. you have to keep in mind that the economy is still very over indebted. so very sensitive to change in interest rates and that's why the policy dilemma is for the fmoc and federal reserve to

watch that very carefully and you see that debate taking place. >> jim, what do you think of that? just trying to figures out where the ten year is headed from here. have we seen the greatest dislocation or are you going to see more shocks? >> i don't know about rates. i'm curious, i have to justify the short side constantly when i present my business to people and i'm curious on the all-weather, one of the interesting things about the last 20 years or 18 years is that basically stocks and bonds both went up at the same time. it's been a great time in effect to have a balanced portfolio. and how do you navigate in an environment where only one is going up and the other is going down? >> well, the notion of balance and the notion in all-weather is the idea that you want to hold a portfolio of assets that have performed well under a variety of economic scenarios. and so that balance is going to have a set of assets that have performed well and raising

growth, rising inflation. >> so you vary the asset allocation basically. >> and you'll allocate the portfolio and the risk of the portfolio in a way that -- >> but you see what i'm driving at. if equities say are going up, do you think equities will do better than bonds and equities are going up 10% a year and bonds are going down 2% a year, net all in, and you're 60/40, you make six points on the equities, you lose a little bit on bonds, but that's not 8% or 10%, that's 5% and change before fees. >> it's important to differentiate the notion of a balanced portfolio that's going to perform over time relative to cash versus an active portfolio where you have a point of view on different asset class. so this is a portfolio of assets to perform well under any environmental scenario. >> you talk to investors all the time. what is your sense in terms of

where they're placing money? >> well, i think just to the conversation jim and i were just having, i think there is a growing recognition that it's very difficult to generate alpha in this environment, a lot of uncertainty. and so you see investors increasing and might having towards more of a balanced portfolio. >> do you own any gold? >> we own gold. >> what percentage of the portfolio? >> i won't get into the percentage, but we own it. >> okay. real quick because we do have jack lew coming on, dodd-frank. you were there in the midst of the crisis. you look at where we are coming up with the fifth year anniversary. have we done enough, have we done too much, have we done too little? how do you see it? >> it's still very much under way. i think it's too early to tell in terms of the balance of the pros and cons. i think here's wlhat we know. we know we're safer today in the sense that the banks are better capitalized, there has been focus on regulators.

but we also know there has been an excessive amount of regulation and that's just in the process of being implemen d implemented. not even half of dodd-frank has been implemented. that is imposing a great deal of cost and there is a great deal of uncertainty. >> biggest risk that you guys think about. >> it's the risk that you don't see. the unknown risk that is the most challenging one. if you think about it from a policy making standpoint, we're in the midst of a deleveraging. and you see those different case studies playing out in the u.s., europe, japan. and the big risk is that policymakers get that one. and i think the highest risk of that being the case is in europe at the moment. >> okay. one final question for you. we had a guy on, mark leibovich, a book called "this town" and it's about the revolving door. you went from washington to wall street. how do you think about that issue? >> well, i think that you can see the different models when you're dealing with people from

different countries. obviously there are pros an cons to each. i think there is a real vibrancy that was within our systemd cons to each. i think there is a real vibrancy that was within our system where you can draw talent from the outside and people come into public service for the sole reason to try to contribute. so i think there is enormous benefits of that and you see guys like that when guys like than pa hank paulson come into be treasury secretary. but there is risk. >> thank you for coming in. >> some bells going on. food maybe. >> no, i think that's get your seats. >> shoot. so you're trying to generate alpha. rarely do you find a place -- we're delivering it. that's why you're here. coming up, treasury secretary jack lew. skip to my lou. will be speaking at our delivering alpha conference. he's the keynote speaker. and ben bernanke will address congress. we'll tell you what to expect. and jim cramer will join us next. we'll get his take on the day's

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dow off about 7, nasdaq up 4, and s&p 500 let's call it punch. gr t >> the wrong way. >> for mr. chanos, it's the right way. >> that was a softball i'm throwing up. baseball. >> jack lew, you heard the bells announcing there? >> telling people to get ready. >> he's speaking in just a few minutes. we'll bring you the speech live plus we're expecting the text of bernanke's congressional testimony that will hit right at 8:30. joining us now, jim cramer.

you haven't released this to anyone else kret. we're getting it now. >> i've just been working on bank of america and i know this one has been hobbled. it was kept back by countrywide. i think this was the first quarter where i don't see countrywide. what i see is much better growth, commercial loans than i expected from other banks that have reported. and i think net interest margin. theirs was up. a lot of what's being done here is that they are finally getting it together to expand. so this is a story you could argue not as bad as it used to be. you could argue very expensive stock, but it's a positive. >> the analysts we spoke to earlier, jeff harte, said he thought the numbers looked good. but he still has a hold on the stock because he's worried about revenue growth. >> if there's one that you shouldn't worry about revenue growth, it is this one. they have citicorp like in terms of the distribution, the overseas revenue growth for

commercial, that's 60% of their business. no one thinks that this company as an international bank, but what they have done is taken advantage of the fact that a lot of international banks have pulled back. this is the first bank that i've seen that has actually said we're taking advantage of the weakness in europe. >> wouldn't merrill lynch some day be worth something? >> yes. >> valued at $14? >> no. >> everybody is in -- >> you need the legal fees to go down dramatically. you need to be able to say, okay, listen, this was the last quarter where we'll have to ask to risk legal fees. that's not necessarily clear. obviously you'd love a difference differendividend that is more than just a pen any. but it doesn't allow you to focus on -- >> at the peak was 50 billion. >> how about the fact that the reputation was the best there was at the peak. and i think it was the place for

middle america to do their business. it was the aspirational bank and aspirational brokerage house and it's just disappeared. everyone is so excited about morgan stanley getting smith barney. i'm sorry, maybe i'm old school like you, but merrill was much better a broker. >> in all of them i can tell you they're all getting their act together. because of ge's arrangement with ubs -- somehow we ended up at u ubs. but they lend money. you don't need mortgages. you don't need credit lines. they make money just by having the assets there, they get 1% but it's net of -- they really have their act together. >> people get credit lines to go buy homes at merrill lynch. that was a pretty good business. i think it is still a good business. but again, i mean, bank of america was really a story about we've made a lot of bad

decisions between -- merrill was not a bad decision. countrywide was terrible. if you get countrywide to be an unimportant part of the business, then i think you have the story where people say maybe the book value should get a little bit more of a premium. this was a terrible situation. and this quarter was a pretty good quarter. >> and this is the first time you've seen this. >> when warren buffett as you know, when he got involved, that was the bottom. but what you really didn't see was growth. and that's why i felt that the criticism of saying no growth when i look at the other banks, this really had good growth and the commercial loans are making it, so you're getting more margin. this was a clean quarter from what i can tell. >> we'll take it. do you like my idea that -- if you have an engine and it's an internal combustion engine and you want to run, you need to have gas, right? can we view qe as gas for our engine and can we just set a

floor of 60 billion a month forever and then if the engine is running a little light, go to 85, if -- >> what if it's a tesla. >> now people look at me and they're like maybe. no one thinks that a $10 trillion balance sheet will ever be a problem. and then other smart people write in saying we don't know where the dislocation is and this is not free what we're doing right now. >> nothing's free. we did have a tremendous shock so to speak in interest rates and it turned out to be a great buying opportunity for amazon and netflix. i'd like to ask jim chanos a question. yesterday rick santelli said, listen, i don't care if the individual investor is making a lot of money. it's a rigged car game in favor of the bulls. is that something we should be worried about?d game in favor of the bulls. is that something we should be worried about? >> when the central banks start tar 2k3wtar gets asset prices a

opposed to interest rates or direct to their mandate to employment or inflation, you begin to go down a road that they really haven't gone down before. and i think that's the issue. and what are the unintended consequences. what are the unforeseen costs to that. if the market isn't clearing because there a fed put there, and we saw that in the late '90s, when that put suddenly is not there, you raise real issues. and i think that that's what you have to be careful of. >> if we don't just go higher, 2%, what if we went 2% down, unemployment goes back up, the fed's not going anywhere. >> if you want to take to the logical extreme and say you have a government trying to pull every level, it doesn't work there either. sdwr we' . >> we'll continue the conversation. when we come back, we have jack lew.

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every day of the week. centurylink® your link to what's next. welcome back. we're talking with jim cramer

and jim chanos. dodd-frank will play a part in what jack lew is talking about. what do you expect and where do you think we are? in when i look at the bank earnings so far, i keep coming back to what jamie dimon told me which is that it turned out to all come out in the wash. he used to talk about it constantly. really go to the government, really take on the senator warrens even when she was just a thorn on his side. and he says, look, we're dealing with it. and it's not so bad. i wish goldman had addressed the capital ratios better. good article today saying why did goldman play coy when no one else did. i know brian moynihan is not going to play coy. >> jim. >> take federal deposit insurance. you should expect to be regulated. if you want to do the stuff outside it, holding company, in

sub sis de subsidiaries, i would define clearly what the taxpayer stands behind and make that the bedrock of banking system which is necessary for growth in our economy. everything else, let the free market decide it. let it happen at the holding company, whether you call it a break up or not, you can just separate it. but anything else like cross border derivatives, it should be subject to market funding. let the market decide. because an awful lot of capitalists in our banking systems when you scratch deeply, are not capitalists. they're capitalists when things are going well. they're socialists when things are not going well. >> are you an elizabeth warren fan? >> i'm a big elizabeth warren fan absolutely. >> how about the idea that we got some transparency in the derivativ derivatives, we could make a judgment. i still can't find out what the book is. >> fine. or how much is netted. and particularly in some of the european banks. to me you can't have it both ways. >> but you were even talking

about is doing some of the stuff in subsidiaries, that doesn't avoid the problem. it's still there. >> no, above. at the holding companies. let that all occur at the holding companies. let the banks, let citibank, let the bank of america that take deposit insurance that we back right here at this table, that needs to be regulated in my view. >> do you see risk in the system? because right now i don't think the banking system will come crumbling down because there is no leverage. >> we're long u.s. banks in our hedge fund. there are risks elsewhere. >> is that in part because we also far go has 30% of the market, something that the united states never allowed before? >> we're long the u.s. banks global presence. again, in our global fund just because i think that there is a real problem matt it tick youat still and disasters in asia. >> when we had liz beelizabeth organization i guess you're not tying the financial crisis to

normal banking or -- you're not tieing it to the investment banks. because -- right? >> i don't know, because -- it was commercial banks. >> right. so -- >> but it was also the mortgage operators. >> gentlemen, hold on one second. we do have jack lew beginning his speech. let's listen in. >> thank you, tyler, for that kind introduction. i'm not sure my fourth grade teacher would have appreciated it. and thank you all for having me this morning. i'm glad to be here at this year's delivering alpha and to be here in new york. not far from wall street, the engine of america's financial system. next week will mark the anniversary of the dodd-frank wall street reform and consumer protection act. and i'd like to spend a few moments this morning speaking about financial reform. what made it imperative, what we've accomplished, and what direction we're going. when president obama took office

a little more than four years ago, america was in the depths of worst economic crisis since the great depression. we were losing an average of 750,000 jobs a month. our economy was contracting at a rate of more than 5%. the pain was severe. you didn't have to be harmed directly to know how painful it was. there is a good chance that a family member, neighbor or someone you knew was affected by it. and the harm was not limited to the united states. it spread beyond our shores damaging economies around the world and undermining our reputation as a read leader among nations. now, there were a number of factors that led to this economic catastrophe. none more significant than the near collapse of our financial system. in the span of a few weeks, many of our nation's largest financial institutions failed or were forced to merge to avoid insolvency. the panic that gripped the financial system reflected a buildup of risk that was mismanaged or misunderstood. some found loopholes and

outdated regulatory system to take on more risks than they should have. others create a complex financial products that few understood. borrowing standards loosened allowing too many americans to take on more debt than they could afford, while leaving investors and institutions with risks they were unable to manage. at the same time, government oversight failed to police or even detect the abuses that were occurring. regulations on the books were old and worn out. leaving consumers, investors and financial systems itself with inadequate protections. the regulators were operating under a structure that was largely designed in the after math of the great depression and was out of step with the far more complex modern marketplace. so the president faced an economy in free fall and he moved quickly to break the back of the financial crisis, ease credit and reignite growth. because of his actions and those of the previous administration, the federal reserve and congress, our economy began to turn away, growing and creating jobs faster than many had

anticipated. but putting out the fires of the crisis was not enough. we had to reform our financial system. we had to strengthen the rules of the road, put powerful consumer protections in place, and modernize our regulatory framework. we also had to make sure the taxpayers would never again be on the hook if a financial company failed. >> we have breaking news for you. ben bernanke's prepared congressional testimony is hitting the wires right now. hampton pearson has the details. >> let's get right to the highlights. the fed chairman preparing to tell lawmakers economic recoveries continue at a moderate pace despite strong headwinds created by federal fiscal policy, housing has contributed to recent gain, housing prices and activity seem likely to continue to recover notwithstanding the increase in mortgage rates. labor market is improving. unemployment rate remains well above longer term normal levels. the job situation is far from

satisfactory says the fed chairman. consumer price inflation running well below the fed's 2% longer run target. looking again at the overall economy, the pickup for economic growth is tied to less of a drag from the spending sequester and tax increases in the future. the risks remain, however, says the fed chairman that the federal fiscal policy will restrain economic growth over the next three quarters by more than we currently expect. on monetary policy specifically, the fed chairman saying we intend to continue our asset purchases until a substantial improvement in the labor market outlook has been realized. the asset purchase program and resulting expansion in the balance sheet is primarily tied to increases in the near term momentum of the economy. on the future of the asset program, our asset purchases depend on economic and financial developments. they are by no means on a preset

course. expectations for the exceptionally low target for the feds fund rate will be appropriate at least as long as unemployment rate remains well above 6.5% and inflation remains well balanced. the fed chairman emphasizing the phrase at least as long the fed chairman says is the key component of policy rate guidance. specific unemployment and inflation numbers in the guidance are thresholds, not trigger actions according to the fed chairman. and he closes by saying increases in the target for the fed funds rate once they begin are likely to be gradual. we'll hear from the fed chairman at around 10:00 eastern time. becky, back to you. >> hampton, thank you very much. again that is hampton pearson joining us right now with reaction to those comments from bernanke, james chanos. and our very own jim krarcramer. sounds like it's very much the theme that bernanke had been

kind of giving us all along. a couple things that stood out, housing prices have improved, labor market is improving but far from satisfactory. inflation running well below the fed's own target of 2% over the long term. i guess the question happens at this point, those thresholds that he was talking about, not trigger points. did you hear anything different either one of you? >> i think that's a great summary of it. remember we had two bernankes. we have a hawk bernanke and then a dove bernanke. maybe we finally got dove-awk? >> it does not want to move the markets at this point. i think that was his goal for today. >> i think this sounds to be pretty accommodative still. i don't think -- i would agree with what dan arbess said. i don't think a whole lot has changed. >> he says bond buying could be reduced as a faester place, slower face or even increased. >> fantastic.

exactly the gobbledegook we expected from greenspan. he's finally figured out how to talk like green span. >> i think the key was try to be as open as possible, but now that you're trying to back ut, maybe you want to be more opaque. >> you don't see anything to the notion that this is looming, it's always there, until it's gone, we can't just do what we used to do? >> i haven't forgotten what happened after may 22. when you look at what some of these emerging markets did, it took your breath away. more importantly, david faber has come out every morning on squawk in the street saying has anyone looked at their bond funds? weren't these supposed to be -- you make a little money every single year? >> wouldn't you like to fast forward to where they're out and we're back in a normal -- >> the temper world? yeah. >> because we still think there is risk in unwinding everything.

we don't know how it will play out and we can't get businesses normal. >> it would be great to view stocks as stocks. >> but until they're gone, it will be looming. and what he says today, he doesn't do anything to remove the uncertainty. >> put still in place. >> i think so. >> this is what i said to you off camera. it's at 2% we have this incredible put. what if there is -- remember i said we got a five year recovery here. recessions come that when you're not expecting them. who knows what kind of thing could cause it. but what do we do at minus 2%, 300 billion a month? >> i don't think it will get there. >> but if we did have -- let's say we were blindsided by a global recession for whatever reason. >> but isn't that what asset purchase programming is, the fact that we got to a zero bound on the zed funds fed funds so te next policy iteration? >> but if we take stocks out at

2% growth, what do we codo at minus 2%? >> europe we need to see a turn there. we go back and forth with whether china has bottomed. but he's going against congress and the president. he's going against the world. i mean, items n's not like he's worst guy. the chinese communists, what the heck are they really doing? do they know? >> in my view, it is a centrally planned shall we say -- >> planning what? >> i don't want to say practice to being crass city, but it's a pretty different economy from what lennon and marx would have envisioned.it's a pretty differ from what lennon and marx would have envisioned. somebody else called it the people's republic of madoff. >> they do have a concentration

of mind thing when you do steal, but then they hit the drug companies with fraud charges and i think that that's just something to distract the people. >> if you see tapering let's say in september, do you think the market already knows it? >> no, i think we go to 3% on the ten year. >> so we have not seen the greatest dislocation yet. >> kelly evans had some great points yesterday. she goes everybody thinks rates will go hire. what happens if they don't because the economy is so -- >> everybody thinks that we slowly trend down from 7.7 or 7.8. within a year we should be 6.5% and then after that, we should slowly get to 6%. that is consensus. isn't it? i get nervous about consensus. >> and you think 8%. >> i have no idea. i don't know. i probably agree i'm part of the consensus, i probably agree that we still heal, but i'm saying if we didn't, then we're they ever getting out. >> how about what becky said about what he said about

mortgages. they're saying real estate remains strong, but when you look at bank of america saying the pipeline will be down 5%, john stumpf, why is he saying that market is still good? >> maybe he's looking at the house prices he pointed out specifically, he said and activity on top of it. i don't know if that means some of the building is coming back. >> he wasn't a great predict tore in '07 and '08 about housing. >> no, he wasn't. >> taking a look at what the market did, i think it was up -- well, dow futures up about 22, 24 points at the height. not massive moves in any of these directions. but if you think the put is still in place, we've been trying to figure out, does the market want to hear good news or bad news? >> a great point. >> maybe it's been discounted. maybe the put being there is the given. >> here is another assumption.

proceed corrected pick up in growth predicts that policy will ease. >> where do they get that? >> i don't know. that doesn't make any sense. >> well, if yesterday's filibuster deal indicates the next debt ceiling debate, republicans will give the democrats everything they want. did you see that -- >> how about the clinton impeachment brought up again. >> there is some good stuff happening on the fiscal side, too. >> fannie and freddie might not pass again. >> citi is coming down dramatically. medical costs for the first time -- >> they're going back up. >> i don't know. line by line it's been better. >> i'm not so sure. it's been trending down now for a couple of years. >> a couple days ago, there was a piece that it started reversing. who knows. buts he 00 not 6% to 9% a year growth anymore. which a lot of these long term

doom scenarios have -- when i saw the health care bills would go up, but in any case, there is good news on that front. >> we have seen the ten year treasury touching 2.496% after bernanke's comments and that's the lowest level since july 3. again looking at a vacuum. >> that's the fulcrum group. >> when would you buy housing? >> i'd buy houses like at -- get me in trouble with faber, but i can get those loans that joe was talking about and then i can go buy an apartment and then rent it out and in it overheated market and make a ton of money every month. >> when would you buy housing stocks? >> their time came and went. i would like to see people recognize that perhaps people will still buy a house at 4.25%,

4.5% mortgage. we're not sure yet. >> would you touch reits? >> i think they should be case by indicate case, but that's a group that got very oversold. i think it could go back. >> any last thoughts, jim? you've been with us for the morning. >> i can't believe in a i've been agreeing with kernen as much as i have. >> why do you keep saying that? just because i like the married life and the stability of a family, is that what you -- >> no, i'm talking about fed policy and fiscal policy. >> last thoughts, jim. i'm worried. >> the conference will be coming back up in a moment, but your big pick last year was hp. you can't give it away this year. >> and you were going to give us some names on the shorts. >> how about the drive companies? >> we're short one of the drive companies. >> painful. >> just for the last few weeks

it's been painful. >> what else? >> i think that on seagate and drive companies, people think that the cloud is going to offset pc. but in fact moore's law applies there, too. and shipments are going down. >> just need to see more fabs. typically they take advantage and build factory after factory. >> you have a lot of technological change happening, too, with solid state that is looming. and i think that that's a disloca dislocating -- >> do you hedge it with flash? >> we are. >> what else? >> variety of different things in the commodity area. i think coal. we're pretty big bearers on the coal industry. we are long natural gas. but we are short some of the levered natural gas producers. >> like who? >> a couple big ones you can probably think about. >> so you're short chesapeake, but didn't you hear michael ward say coal is not as bad?

>> i think it's the ultimate lead. it's on a long term decline because of natural gas prices, number one. and these really, really onerous epa regs which are the real deal. >> how much of your portfolio is long versus short right now? >> in our global short only, it's short only. people use that as a hedge. in our long/short fund which is more traditional fund, we're 5% hedge short. but that et's misleading becaus we're always 10 plus or 10 minus. so we run it pretty market neutral. >> and you'll be here this morning the morning. in whatever you need. people say fee income is the reason bank of america is not -- when you go line by line. >> quick question for you. my panel just to plug it for a second later today, nelson peltz, yesterday on your show you said that they shouldn't try to merge those two companies, that actually koch should by

mondelez. >> they need to get away from the weather and the economic issues of buying a can of coke. i just think that pelts should do what he did with bob johnson at heinz and say i like this long and i think a lot of good things are happening here rather than say it's a challenged company. that company at an all-time high. i didn't see that with coca-cola yesterday. >> and pepsi was. again, we're watching everything that has s. comi that is coming up. take a look at the boards and you'll see that right now the dow futures are up by about 34 points. highest we've seen all morning. they started out down 20. s&p 500 up by over just 6 points. want to thank both jim cramer and jim chanos for joining us this morning. right now let's get back to cnbc's delivering alpha conference. steve liesman beginning his q&a session with jack lew. >> -- who are proposing other bills around dodd-frank trying to change it, repeal it modify

it. even bring back glass-steagall. you're arguing dodd-frank ends too big to fail, but there's a lot of controversy about that. why don't we need glass-steagall to be returning? sdl what i'm arguing is we need all theed tools in dodd-frank to make sure we've ended too big to fail. that's why the rules and provisions that are are implement this had year are so important. that's why what's happened in the last 60 days is so important. i think there is a shared goal between what i'm saying and what many of the senators are saying which is that it's unacceptable to be in a place where too big to fail has not been ended. and one of the things i guess i would say is that any efforts to delay or dilute the implementation of dodd-frank, if we get to the end of this year and we cannot with an honest straight face say that we have ended too big to fail, we're going to half to look at other options because the policy of dodd-frank and policy of the administration is to end too big to fail. >> how did do you know you've

done that and how do you know when goldman stanley blows up or one of these other companies that you don't go in there on a weekend and you're panicked like your predecessors were panicked and you go in this with taxpayer money to bail it out. >> i certainly hope we don't have a real time test. the goal is to build procedures and mechanisms which we test with stress tests and with oversight that is very serious to make sure that there are adequate resources in place so that institutions can handle problems that they get into on their own and that if there is a need for resolution, there is an ordinarily process like the single point of entry where you can go through it without it causing the failure of our financial system. an awful lot of work has been done, an awful lot of work remains. that is the stated policy of dodd-frank. it is the law of the land. it is the policy of this administration. >> you will not be signing that resolution committing taxpayer funds. >> we are committed to ending too big to fail.

that's what dodd flank does as a matter of law and what our rules are intended to achieve. >> let's do another sort of washington business. there has been suddenly a bunch of talk about reforming fannie mae and freddie mac. there is a bill from senators corker and warner that you haven't had a chance to comment on. hat the way that the administration wants to reform fannie mae and freddie mac, what is in the senate bill right now? >> yes, i think that the conversations that senator corker and senator warner are having are very important. first of all, it is a serious bipartisan conversation. it's a conversation we've been part of and working with them as we've been working with the chair and ranking member of the committee. i think there is a set of principles that are very important that we have to make sure that we never again end up with the failure like fannie and freddie where the taxpayer is left holding the bag for an unbounded amount of risk. we also need to make sure we have a private financing of mortgage market in this country that's restored. we have too little private financing of mortgages right new. we need to go back to private

financing of mortgages. and we need to make sure that there is access to credit for borrowers who are wedding who worthy because owning a home is part of the american dream. i think that's the general goals of corker and warner. that's what we've been working towards. and i hope that this bipartisan conversation can continue and be successful about that. >> staying on fannie mae, a prominent ne promine prominent nent member of this audience asked me to ask you why do you need to take all the dividends. why are there no dividends or no distributions left for some of the shareholders and some of the bond holders? >> steve, i have to just remind you and everyone in this room that just four years ago, fannie and freddie were melting down and the taxpayer was put in a position where it was not clear what the limits of risk being taken were. it was set up in a way to save our financial system and it was set up in a way for taxpayers to get repaid. i think that it has worked and i

have to note just on a sad note that herb allison had such a strong hand in designing these programs passed away this week and he was a great american who did great service to this country. >> i appreciate that. back to the issue. is there room for compromise here with some of the private sector stake holders? >> you know there is litigation on the matter. >> we can settle it now. let let me move on. when we spoke if n. may, you said we would not reach the debt ceiling until at least labor day. has that changed and are we any closer towe would not reach the ceiling until at least labor day. has that changed and are we any closer tosaid we would not react ceiling until at least labor day. has that changed and are we any closer to avoiding a debt showdown? >> that is still where we stand. it's 00 bit jush that the secretary of treasury has to look at day to day cash flows

because artificial deadlines like the debt limit create the necessity, not just to see what our general condition is, but will we hit a day when social security checks have to be paid or disability or military retirement checks have to be paid and not have enough money in the bank because we have enough money in the bank because we have the debt limit. and steve, the debate over the debt limit in august 2011 and the months over that is one of the most damaging self-inflicted wounds that i have ever seen washington inflict on itself and the country. it can't happen again, and the congress has the do its job and extend the debt limit. no question about incurring new obligations, but it is a question of whether we pay the bills that are authorized in the past. congress has kept that commitment, and this country has kept the commitment for over 237 years and it can't stop now. >> and so will we have a deal in the 11th hour and 59 minutes or some way to avoid the train wreck? >> well, the congress is clear

that the president has made clear he won't get into the negotiation like 2011 to the question of whether to take a default is on the negotiating table, because it is not. congress has to do its work. >> when you came in, and you were talking about the grand-- the naivete, and what do you think of that? >> well, thank you for the extension of ni yaivete, but something has to happen by the end of the year to fund the government for the next year. i hope what we have is an agreement that will replace some of the damaging cuts of

sequestration to have a kind of recognition that building a better growth of america and future of growth of jobs that we have resources available for infrastructure and education and research and development, and there are a lot of things that there are bipartisan agreement on and we can work through in the time that remains. we have a package in place that essentially accomplishments the amount of deficit reduction that we set out for the ten-year period, but the question is composition. we remain of the view that medium and long-term entitlement and revenue review is the right approach. >> it looks like sequester is going to play itself out, and it is not going to be derailed which you were optimistic would happen in the spring? >> well, i think that there is still time for congress the act to address some of the issues that i have addressed. i hope there is a bipartisan agreement to try to do what is in the best interest of the country, and of the best interest of the economy and best

interest of americans who want a middle-class income for themselves and their children. >> something else is going to happen by the end of the year. we will learn about the administration's intentions when it comes to a new federal reserve chairman. i am guessing that you don't want to tell me any names, but feel free to correct me on that, and te me aboll me what the administration is considering for the new chairman of the federal reserve. >> well, i have to start with ben bernanke has done an extraordinary job as fed chairman and you look at the work they have done, they have literally helped to save the u.s. economy and the world economy from a depression that. -- that is enormous achievement. i will keep oval office conversations in the privacy. >> and is there something that you -- >> i will keep it in the privacy. >> that is move on, and i can

follow-up if you want. >> it won't be different wording. >> and let me talk about the washington post article talking about the sequester, and the government cutbacks and said very few of the most extreme outcomes that you guys and the administration predicted have come true. have we escaped the worst of this and did you overstate it for the political reasons? >> no, it is not overstated, but if you look at the impact on the department of defense, we have a bomber fleets sitting on the squadrons sitting on in desert storage and who knows if they will fly again if they are called back into action. we have pilots losing flight time who will have to requalify if there is an emergency. on the domestic side for the kids not making it into the head start programs and the research scientists not getting the

grants to maybe discover the cure to alzheimer's or kans eer, t -- cancer, the effects are rear. it is not and on/off switch, but there are consequences that we will pay the price. in broad macro economic terms we have lost the gdp growth whether it is half a percent or full percent, a nnd it is serious gd growth, and jobs. and if you gave me a program to create hundreds of thousands of jobs, i'd be a hero, and replacing sequestration with those programs is serious. >> and senator, i know you have to run over to meetings in washington and then to rush sharks but if you could leave was the single best one or two ideas that the administration has for creating jobs, what would they be? >> well, steve, no substitute for economic growth. so we are working everyday to make shure that we are doing wht

we can to generate the momentum of economic growth, because economic growth will create job s. we have targeted approaches aimed at creating centers of manufacturing excellence and modern manufacturing, but we need both. we need an economy that is growing, a growing, and we need to target the areas of innovation through things like manufacturing hubs and research and development. to say it is one thing would be to oversimply a very complex problem, but we wake up everyday of how to grow the economy and create jobs. >> how about things like tax reform and things like reducing the taxation on capital rather than increasing it? >> well, tax reform is import t important. i hope that as part of the frame to be dealing with deficit deduction that is balanced we can achieve tax reform. it would be a good thing, but the reaching the agreement on the frame is in the way. >> and i cannot be responsible for you to be late to a meeting with the president. so thank you kindly for joining us today. >> thank you all.

>> thank you. good to see you. i'm jackie deangelis, and welcome the "squawk on the street." looking at the boards, we are watching the 10-year note, and the yield is 2.849% is down slightly there, and taking a look at the futures as well, we are slightly higher, but off of the highs of the futures this morning when we did see the bernanke comments come out. we are seeing the asian markets as well -- actually a look at the dollar into -- index, slightly lower there. and looking at the asian markets there, we have them, and the

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