good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. the dow is now just two points away from hitting a record high. it alternated between gains and losses for nine straight sessions. that is now up about 23% for the year. futures this morning, after all of this, i think they've barely budged if you want to take a look at where they are compared to fair value. right now, the dow futures up by fair value. s&p up by 1.3 points. we are on track for a winning week once again. joe talked about earnings central. dow component procter & gamble is this morning's headliner. among the market moving names after the bell last night, you had microsoft and am zone. shares of both companies giving a boofrt.

microsoft's earnings and revenue topping expectations. results were helped by shares of its offices and server sales. we're going to talk to an analyst who covers the company at k67 40 eastern time. amazon reported results, as well. sales grew by a better than expected 24% which investors say bodes well for results this season. we will talk to an amazon analyst in just a few minutes, as well. let's take a look at today's calendar. the commerce department will release two reports. durable goods for september. coming up at 10:00, we can wholesale trade inventories and consumer sentiment is worth talking about. andrew, good morning. >> thank you, becky. we have corporate buzz this morning, including wa joe was talking about, including twitter's ipo is now pegging the valuation of that company at a modest $11 billion. they want to he avoid a repeat of facebook's troubled debut. maybe they're pricing it on the low end. twitter plans to sell $70

million between $17 and $20 apiece. the stock could begin trading as soon as november 7th. so mark your calendar. in other ipo news, i don't know if this is a sad one or not. alababa has now reportedly abandon its plan to sell shares anywhere in the near term in order to let the heat die down over its controversial class structural. st the chinese e-commerce talking, his comments leave the door open for a alibaba listing in the future. finally, dupont announcing it's going to spin off it's titanium did i oxide unit within 12 to 18 months. there's been pressure on the company to divest the volatile business. the ceo on with cramer last

evening. >> this is the next advancement in our transformation. i think it's the right thing to do for our company. it's going to create two strong companies. you know, i'm out with investors all the time. they have a lot of ideas about what we do well and where we could improve. and i'm sure there's several of them over the next few weeks who will say that this was their idea. >> we will call this a win for nelson peltz this morning. he disclosed a stake of about 5.8 million shares in dupont, saying the stock was undervalued and had potential to grow. many speculated he bought that stake to break up the company or spin off major units. and to toot our own horns, remember, we first reported his investment at cnbc's delivering alpha conference. >> i learned literally in the past two hours that you have just amassed and are continuing to amass a very big stake in dupont. can you comment on that? >> andrew, you asked me in the green room about ten minutes ago. if you say dupont, what comes to

mind? remember, i told you, i said, paint. and there it is. paint. he's the winner this morning. and nice going, mr. peltz, if you're watching. >> and i asked myself, honestly, just to try to gauge that alibaba story, to try to see whether i was sad about that. and i gave it a fair shot. seriously, i asked myself objectively. you know, i listened to what you said. i said do i feel sad? i do not feel sad about that. you said you don't know whether to feel sad about it or not. i dug deep, deep, deep, deep, looking for some sadness. >> yeah. >> nothing. >> i'm sorry. i'm sorry to hear that. i'm sorry to hear that. >> i don't feel anything. i feel -- i think the alibaba people might be sad. >> i am numb. i guess. because did you feel any sadness? >> you know why i have such emotion about it? because i was just in hong kong

and that was the issue. >> that's your excuse, okay. >> and everyone is desperate for alibaba the crown -- >> except the jpmorgan deal was the issue. >> all right. >> thank you, becky. >> it's friday. you flew to hong kong and back. you forget. >> let's check on markets. go the god forebit they're down. >> they're up. >> because i don't need any more sadness this morning. >> andrew did fly to hong kong and back. >> that would make me sad. >> you're one of our favorites. anyway, there is -- the craziest stuff times. there is the dow. what a day yesterday. no reason. no rhyme. it must be earnings or something. and then you saw amazon come out, just like was said, it lost money. >> and everyone was fine. >> revenue up 24%. >> that is not sad. that is a good story. and there's -- it's 97 on crude right now. let's look at the ten-year,

which has been under 2.5. now it's over 2.5. but you have to call that kind of quiet. we've got to get this euro down quick. >> are you planning that trip, still? >> if there will be one, it will be in the summer. but anything over 1.30 or 1.35 is, you know -- puerto vallarta, here we go. >> disney. >> go down to orlando. >> universal studioses is always a great destination. >> it is. >> either one. the one in orlando or out in ron meyer -- >> i think they're owned by some friends of ours. >> oh, i always forget about that. there's gold down $8. at 1,342. time for the global markets report. it helps to check the rest of the globe. ross, we're in charge here. our markets are doing pretty well. hopefully you got the message. i see some red, but i see some

green above your head. how are the markets over there this morning? >> well, you have to remember, joe, we've been up ten out of the last 11 sessions here in europe. so if we're a little red today, it's against the trend of what has been a steadily rising european equity session so far for the month, really. yeah, decliners currently outpacing advancers by around about a ratio of 6-3, something like that on the dow jones stoxx. had quite a bit of data out today, as well been the ftse 100 has been fairly flat, in modest positive territory up 11 points at the moment. we had the export of gdp in the uk. came up 1.5 percent on the year. this quarter in 2012, up 0.8% quarter on quarter. that is the strongest year on year growth since the first quarter of 2011. construction doing fairly well because the government has a help to buy mortgage scheme going on at the moment. xetra dax is fairly flat. we had the first tick down in

the ifo business climate index for the first time in six months today. so just ties in with the pmis yesterday. slightly weaker economy than we might have thought, although still expanding, of course. the cac 40 is down 0.2%. french footballers are going on strike in november to complain about the high rate of tax, 75% top rate of tax. so the entire french football league, the top division going on strike in protests against that. the french football fans won't be able to watch any games for a week or so. and the ftse mid down about 1%, as well. we mentioned the strength of the euro. today we had a lot more. renault came out down 2.35% today. revenue had suffered from the depreciation of several emerging market currencies against the euro. axa, the insurer, down 2% today. blaming the strong euro and seasonal weakness in life insurance for a slowdown in its

earnings growth today. and saint gobain, the glassmaker, stock is up 4.5%, but it stalked about the stifling currently impact and it said a 1.4% fall in sales would have been a positive figure were it not for the strength of the euro. though investors have looked past that. the question is are they just blaming the euro for things that they could be doing better or not? but they are all talking about it. and this level up near 1.38 that we've been, it's record high for the two years is higher than the level of 1.37 when the ecb were talking about it back in february. and they haven't talk about it at all at these sort of levels. we'll keep our eyes on that. for now, back to you. >> all right, ross, thank you. they don't like it. i don't like it. we don't -- why can't we all get together on this and change it, then? nobody likes this euro up where it is. >> why donts we just pick a level we think it should trade

at and fix it? jimmy carter tried that. nixon tried wage price control. yeah. >> what does angela merkel have to say about this? and did you see the great response from the nsa yesterday that, yeah, okay, we've done some -- we, like every other country, listen to what's going on. and they said we're not going to comment on this particular situation, but like every other major -- >> when you get caught -- >> do they lisp to our phone calls? do the brits listen -- you think everybody is listening to everybody? >> i think the expectation is the united states might be better at it, too. when you get caught by somebody doing this, that's a bad situation, raises problems with france, germany, brazil. >> france has their own problem. they're not even going to have any soccer because of their 110% marginal rate, which works in

the '50s, as you pointed out. anyway, amazon.com reporting a third quarter loss of 9 cents a share. that was in line with estimates. revenue topped $17 billion and that was ahead of expectations. and as the journal says, we're going to talk to tom forte. tom, the journal first line, for amazon inc, investors, a loss is just part of doing business. every quarter, the company spends more than it takes in in sales, but it is building a huge company that will be profitable some day. is that the idea? >> yeah. the idea is that they're taking a ton of market share. if you look at their investments, they're investing in fulfillment centers, they're investing for content amazon video. they're investing in servers for their amazon web services. so they're taking market shares. sales were better than expected. stockses will be up today. >> it is up today. jeff basos, don't you think we just defer to him at this point?

wouldn't you, with money? here it is, jeff, do you figure out what you need to -- you know, i wasn't really asking for that. he's iconic. he's -- if he wants to use some of my money to expand the business, i would say, give it back to me in a couple of years and i'll trust you to use it between now and then. that's not a bad idea, is it? >> definitely he manages the business for the long-term and he's clearly focused on getting market share. i mean, you look and basically they have a three-pronged approach. fast delivery, low prices, that's their strategy. they keep advancing it. it's working very well. >> but why does everybody believe one day in the future there's going to be this moment where he's going to decide to flip the switch and when he flips the switch it actually works? >> the reason we believe that is in 2004, they hit their high water mark and their csio margin of 7.1%. if you look at the recent

announcement, you have the buy $35 worth of merchandise to get free two-day shipping. so fulfillment costs could trend down over time. they have a lot of levers they can pull. increasing third part unit sales is high margin revenue for amazon. so the idea that over time they could return to that 7% rate from 2004. >> you look at these numbers. in a world where everybody complains about revenue growth, did you see -- these numbers are, like, ridiculous. almost 17 billion -- no, over 17 billion. last year, 13.8. and in the united states, sales up 30% to 9.5. i mean, 30%. to billions and billions and billions. >> look, i -- >> they can flip the switch. >> they can flip the switch. >> would it do it if -- know now, for example, prime is no longer a -- it used to be you could order a toothbrush and you didn't have to care.

they would ship it to you and life is great. but now you're saying 35 is the minimum now? >> 35 is the minimum. but if you're a prime member, there's no minimum. >> well, no, now amazon has somethi something. i think i recently joined to get a toothbrush. that's how this toothbrush story came out. >> you actually had to leave your house. >> yes. but over time, it may be there's certain items that you might have gotten from amazon that you won't in future. >> but maybe that's a good thing for investors. they don't want to pay to send you a toothbrush, shipping freight, right? >> yes. but that goes to the revenue number, which is the revenue won't, therefore, be as high. right, tom? >> they're very data driven firms. i'm sure when they made the decision to increase the hurdle rate to $35, they didn't anticipate a significant

pullback in volume. >> tom, if there was a transition where revenue went down, but profitability were to increase or margins were to increase as a result, how would wall street react to that? you know, you really saw that in the forty quarter of last year. they reported their first adjusted sales growth of less than 30% in something like two years and a 4.9% north american operating margin. and the stock slowed, i would say. so if you look at what determines their share price on a short-term basis, it's definitely sales growth. and number two would be unit growth. so in that scenario, becky, where you had improving margins and flowing sales, the stock may not perform quite as well. >> tom, real quick, how much built into the stock is this idea that they are going to one day take over the living room, meaning -- >> aws, amazon web service. >> smartphones. >> streaming.

>> the whole thing. >> if you look at the revenue market, the fourth quarter, they're going to sell amazon fires. you have amazon, apple trying to get in there. i think they're going to expand their hardware efforts and it makes it so much easier to buy on amazon and you don't have to worry about paying apple or anyone else. >> that's bizarre, though. seems to me -- i remember when hewlett packard decided it was going to have all these consumer devices. and compaq for a while. are you sure? they're good at this. are you sure they can develop a set top box? >> look at what they're doing with the next generation of kindle fire devices, with the may day button, making it very easy for you to access customer service. i think they have a lot of things they can do in hardware to differentiate themselves. >> all right. this fun to even consider. i hope it doesn't turn into a sad story some day. i just don't think i could take that at this point, tom.

anyway, tom, thank you. appreciate your time this morning. i don't need it. i don't need it at this point in my life. >> just be happy. okay. we've got a lot coming up this morning, including is the clock to blame for productivity issues in spain? a little tease. but first, squawk news, the st. louis cardinals have earned -- have evened now the world series at a game apiece. the cards beat the red sox 4-2 in boston last night. and thursday night football, the tampa bay buccaneers, they lost again, find themselves 0-7 for the seventh time in the team's checkered history. cam newton threw two touchdown passes and ran for another score to secure the win with for the carolina panthers. the final, 31-13. but first, the weekend forecast coming from the weather channel's julie martin. julie. >> hey there, good morning. well, the big story, you know that crisp, cool fall air, millions of us are going to be wishing we had some of that because it's getting replaced by

winter. an arctic blast across a big section of the country. in fact, you see here what i'm talking about. we've got cool air coming from the midwest into the deep south over the next few days. and we're looking at temperatures even below freezing for many of us. rain and snow around the great lakes today. some rain in places like new mexico and foggy conditions here in the pacific northwest for seattle into portland this morning. taking a look at the weekend, cool continuing again. across the deep south. cool air coming in from canada. we're looking at temperatures now that are going to be more like late november. so more like thanksgiving instead of halloween. that includes here in the deep south where we're looking at 30s across the region this morning. 37 in atlanta for tomorrow morning. 31 in nashville. we'll be going below freezing. we have those freeze warnings and advisories up. sunday morning, another very cold one here in the south, as well. only 41 in savannah, georgia,

and 43 in atlanta. keep in mind, a lot of these southern cities right lane going to climb out of the 50s through the weekend. more "squawk box" when we come back back. tdd#: 1-800-345-2550 ...you see opportunities. tdd#: 1-800-345-2550 at schwab, we're here to help tdd#: 1-800-345-2550 turn inspiration into action. tdd#: 1-800-345-2550 we have intuitive platforms tdd#: 1-800-345-2550 to help you discover what's trending. tdd#: 1-800-345-2550 and seasoned market experts to help sharpen your instincts. tdd#: 1-800-345-2550 so you can take charge tdd#: 1-800-345-2550 of your trading.

time now for the executive edge. sh our daily segment focused on giving business leaders a leg up. a lawsuit against silicone valley hiring practices has been given class action status. in 2011 been five software

engineers sued adobe, intel, apple and google among others regarding hiring practices. it alleged a broad conspiracy by not posting each other's employees. some of this was started based on e-mails back and forth between steve jobs and eric schmidt. >> this idea, by the way, more broadly has been true of silicone valley for a long time, or at least the contention that there is almost a cabal that five, ten venture capital firms and five or ten major employers in town. this has fwon on or there's been questions about -- >> it's weird to say that that's improper business. what you're really saying is, hey, wait a second. you're not stealing each other's employees. it's not fair that you're not poaching each other's -- that's weird to say there's going to be some legal action you're subject to because you're not in there stealing other poem's employees.

>> that would be bad for us. if there was no other business network, that would be bad. >> and then what would the employees do? they would have no other opportunities. >> no resource. >> you know, there have been some pretty active packages put out to lure employees back. >> remember when dan loeb sent an e-mail that was published to ken griffin, when he was stealing his employees and how they almost had a truce. is that a good thing or a bad thing for them to call each other and say, don't take my people? >> it's like when -- do you remember when you buy an airline ticket and every air line, there were like 12 of them, 3.89.15. it's weird. wow, just -- >> what a coincidence. >> yeah. so it's probably bad if all these people get together and say don't hire, keep everyone.

and lights like any cartel. anyway, the fda is now recommending tightening access to hydrocodone painkillers. regulators want the drugs reclassified as more restrictive products. that would make it harder to obtain both by addicts and legitimate patiences. emergency room visits were like 500,000 a few years ago. and that had doubled. >> a serious problem. do you remember when we had barry meyer come out here and -- oh, he wasn't here. he was from new york. he was talking about all these drugs. >> openaiates are so addictive. whatever reason it's prescribed in the first place and the best intention people can end up like with a habit, which you don't need. >> we definitely don't need. >> and, you know, i've told but the down sides. literally of -- >> oh, yes.

i remember that segment with -- >> i only took it for three or four days after i had my appendices out. and you're going to learn about loss. remember -- that was from cape feared. but you're going to learn about -- you'll learn about constipation. you'll learn what it is, what can happen. >> okay. it's breakfast time. >> imodium. >> no, no, you have to attack it from both ends. you have to attack it from both ends and then it still takes -- okay. let's just say they're bad. >> yeah, they're bad. for a lot of reasons. >> for a lot of reasons. finally, hoe, let's talk about a entrepreneur in spain would says it can be a pain to keep up with the clock inside country. productivity he thinks is being zapped. that's why he is now calling on the government to abandon the central european time and turn the clocks back by an hour. there's a piece in today's "wall street journal" that says spaniards generally start the day around 9:00. then they live the rest of the

day on solar time. that means they lunch around 2:00, businesses close in the afternoon for to to three hours for a siesta. most people don't stay those naps. businesses stay open until 9:00. >> no, but they go out and drink. i've been there. prime time tv doesn't start until 10:00. nobody eats until 10:00 over there. >> correct. >> you think it's cool. >> yeah. i think it's cool and, b, i don't understand why -- >> show up for "squawk box" with that schedule. >> you know why they started it, though? franco -- >> who is still dead. >> decided that he wanted to be on the same time with hitler's germany on this entire thing. even after hitler's regime fell, they never changed it back. that is weird. i didn't realize -- >> you change the time, all of a sudden it's a cultural thing to take a siesta. >> yeah, but one of the major employers, an electric company or something, one of the major

employers that did go to six to nine with an eight avenue hour work day, they noted productivity gains. people got in earlier, got out earlier, they got to go ohm with their families and his argument is this will boost productivity, give people more time at home. >> with 30% youth up employment, does it look like -- you know, there are some things that probably need to be addressed. probably. at this point. don't you think? >> and the time could be one of them. >> the time. do you remember, this just in, franco is still dead. do you remember that? >> i don't. >> i think that was weekend update, the original chevy chase update. because he had died in the 70s, i think. so they would come on and it would be this just in. anyway, that was the guy who decided the move things around. >> i always think of jane line, jane, are you ignorant? >> yeah. but i can confirm, he is still dead. >> still dead. when we come back, disney is

moving to china. plus, markets are on track for a three-day winning streak. first, though, it is friday and that means it's time for a new blog. go to squawk@cnbc.com and get the full story on what happened on and off the air this week.

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good morning and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. making headlines, disney plans

to open its first china store. >> shanghai. it's expecteded to be its larnlthest ever. analysts say the move underscores the need to indicator to the growing middle class. walmart says it's going to he up 110 facilities in china in 2014 to 2016 in addition to the 30 it's opened this year. boeing has secured commitments for about 200 of its 737 max aircraft from multiple chinese customers. the deals are worth a combined 20.7 billion at list prices, but they still have to be approved by the chinese government. and one more story out of china, the country launched the new benchmark lending rate today. the new prime late will guide bank lending for it's banks. it's another step towards letting market set the cost of funds in an attempt to reduce distortions that have led to excessive investment and overcapacity, that hopefully never comes home to roost because the whole world is

dependent on it really not coming home in a bad way. let's talk about the markets this morning. we're talking earnings, the economy and the fed and much more. let's start with larry summers comments on closing bell yesterday. >> it's wrong to be relying on monetary policy as the main driver of the economy when you're in liquidity trap. it's wrong because we're not sure how large the effect he of it are. we haven't been in this territory with quantitative easing and forward guysance and the like before. >> joining us now to talk more about this and more is zach carabow. we also have michael hansen, senior u.s. economist at bank of mishg global research. good morning to both of you. i want your comments on larry, but i also want your comment on this. i am told that you think that we are so far from being in a bull market and the fact that we

talked about being in a bull market is completely -- you say we're touting a bull market that is not real. >> until you invested 100% of on your money in 2009, in which case, it is. it's been a 13-year period from march of 2000 where markets have essentially done nothing. the market is still 20% or more below its peak and this is much more like a period in the late 60s and the mid 70s when they were 50 office off. >> how do you think we're not in the early stages of a bull market? >> my point is, to say it's getting long in the tooth -- >> it sounds like it's a positive. >> i am simply saying that you cannot make a statement, that this has been a forthy -- >> well, then you can never say -- you would hoel hope someone can take we're in a bull market before you're looking back at the end of a bull market. >> this is where green span was absolutely right. it's very hard to do that. the nipts, a lot of people were saying that at the time. a lot of people were saying --

>> if it is, i wish you would say it was. >> i would if he felt like we were -- >> but if it's going to be a great market for the next five years, i need you to tell me that now. >> not five years from now. >> i think they will continue to be. >> michael, do you buy that? >> all things being equal. >> i think as we go forward, it's obviously we're going to be in an environment where growth is going to be better and that has to be is in the stock market. >> and how much of this is a function, i know you think, but i'll ask you, how much of this is a function of mr. bernanke, now ms. yellen? >> i think it helps give support, gives a lot of confidence. but on a sequential basis looking better. we'll see pent up demand, a fiscal drag. >> and you don't care whether she takes it away? >> well, i think there's going to be a challenge there, there's no question.

but i think it's going to be a bumpy ride. but i think we have some fundamentals that are going to support the company moving forward. >> i would agree with that. another issue is the u.s. economy and markets or even the global economy and markets are some sort of parallel exactly in sync universe. i think you have had and you still have very strong physically equity markets and weak national economies. national economies bear all the costs of being alive. health care, elderly, benefits for retirement. companies bear very few of those costs and many of the benefits. therefore, national economies lag. >> would that be different in china were to slow down substantially? >> if the united states were to implode, that would have massive consequences and would indeed be a crisis period of substantial proportions. i'm not going to venture to say what would be on the other side of that, but i don't see that happening. >> okay. hold on.

for the past couple of months, we complained bitterly on this program and elsewhere that the government is slowing down everything, right? when, in fact, we have this big campaign, we keep talking about it. and yet there is -- the other side of that argument, which is the companies are playing through rain, right? they just don't care. do you agree with that? >> well, there's certainly some evidence that there's heightened levels of uncertainty are having adverse impacts. it's been pretty flat for the last year or so. >> and do we blame washington on that? >> no. i think washington play aes role. >> but haven't we bm been blaming uncertainty for whatever roles we can 12347. >> isn't it a different situation if you're looking at some of the big multi nationals, they are still investing and they still have high cap spending. >> not currently, no. which is greenspan. >> after long-term kacht yab investment -- >> but i think mid sized businesses and smaller business businesses, i think it has a much bigger impact on them. >> but there's uncertainty and

there's certainty. we're certain that there's a lot of regulation right now. there are headwinds -- >> your argument is there's certainty that there's uncertainty and -- >> no, my argument is that there's certainty that regulations are way too high and corporate taxes are way too high. >> but small and mid sized businesses get stuck. >> not to continue the conversation about whether fracko is dead, but the reality is there has always been uncertainty. >> feeling better every day. doug cass already sent in the video and a very politically incorrect -- totally nonexpansive in a second. because are you a -- is this some kind of red sox thing with the -- >> no. >> when do you shave? >> well, i think if the yankees were to -- >> so your beard has nothing to do with the red sox? >> no. it's there because i like the way it looks and so does my

wife. >> does it hiding something? >> no, it's not. i hide very little. there's always been uncertainty. americans for a time had the fiction that we were going to grow and the government was going to be responsible. but it's not like certainty has ever been a part of the human condition than now. >> you talk like a philosopher. >> ddp -- >> you were looking at the expectation of better gdp. >> and we've had better expectations that haven't been met now. >> talk about risking the debt until recently. there's definitely a level change in the amount of brinksmanship in washington. >> the conventional wisdom is that we will not have this debate gen again in january and february. >> we didn't have it back in january and february of this year, right? we had much, i think, more benign resolution of the fiscal cliff than a lot of people were fearing back in november and december. you have the midterm elections ahead of you in november. i think leadership really --

there's, of course, a chance you're going to have factions on either extreme drive a wedge again. but i think leadership doesn't want to replay this. it doesn't come at anyone's benefit. >> thank you. appreciate it. >> never wear socks. >> who is not wearing sock ones? >> the philosopher king never wears -- look at that. >> what do you do in the winter? it's getting cold. >> that would have been vaguely invisible on camera. >> it's getting cold out. >> but i much prefer the cold to heat. >> why not wear -- i know what you should wear. >> pants? >> no. spanks. spanks. >> now, that's interesting. >> they don't keep you warm. >> you know, you cannot tell women to wear spanks. >> i was just trying to help that lady we had on. i thought it was a great idea.

if you cut out the -- >> this squadward moment is brought to you by joe kernen. >> don't your spanx make you warmer? >> i'm not wearing spanx. no, i have that t-shirt, but it's a regular tee on shirt. >> it's not for your butt? >> no. >> really? >> sandra bullock was wearing -- >> was she? i haven't seen that yet. >> we're going to look at the whole boston red sox thing. i looked at the boston americans in 1903. not one. they won the world series. they beat the pirates. what happened? >> oh, that makes you look normal. all right. >> you work here. it's time to take a break. we'll get the street's reaction to microsoft's quarterly results right after this. shares up nearly 5% in early trading. first, though, take a look at quarterly results, rubbermaid

posting better-than-expected earnings. rev nay came in better than expected. that stock is up in the premarket. eaton met earnings expectations. revenue came in a little short. finally, simon revenue results topped the isn'tance and the company is raising its quarterly dividend. we'll have results after after this. (vo) you are a business pro.

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microsoft reporting profits better than expectations. revenue topped street estimates coming in at about $18.5

billion. kurt is an analyst at evercore partners. he upgraded the stock to overweight. kurt, you went against what a lot of wall street was thinking here. with microsoft, they were expecting the death of the pc and the drop in sales was really going to hit them hard. what happened? how did they beat? >> i think pcs, especially on the business side were better than they expected. the commercial side is still tough. and i think when we upgrade the stock in august, one of the things we said is you don't have to like the windows to like microsoft the stock. i think one of the more underappreciated assets of microsoft is that the commercials of their business generates close to 70%, 75% of the profits. so while we're discuss pcs, we'll discuss mobile a lot, the reality is that what moves the profits for microsoft at this point in time are their commercial lines, server and tools from their cloud offerings. so what i think this quarter related was the commercial business is still up 10% and the consumer side wasn't quite as bad as wa people were expecting.

so i think that combination is sort of what is feeding to the upside at the time mom. >> i think the cloud is important, but it's a relatively small slice of the business. do you think that's going to keep growing quickly? >> it will keep growing quickly. and it's tiny for a percentage of overall revenue. i think it brings back a story that people want to talk about, right? just like amazon has gotten a little bit more of a story around aws on top of everything else they've done. for microsoft, it brings investors to the table to hear about a part of the business growing at is 100%. now that they've broken out the revenue mix differently to show you how the commercial side is growing versus consumer, i think you're able to see that growth a little bit more clearly and that helps. >> priced at 38? >> 40. >> it was 38 in august and you raised it to 40. >> i raised it 40 bucks. >> this stock has not been to 40 since, when, 1999?

>> a long time. >> and it's tried so many times. it's kind of a -- that is sad. >> that is a sad story. >> this is a sad story. if it is 40, i will faint on the air. >> i think that is -- i think that could happen. >> wouldn't it be unbelievable because you can see how many times it's -- >> you know, they do a deaf depd, they give cash back to shareholders. and it's tried and tried and tried. and earnings have gone up, revenue ves gone up. it was 58 in 1999. >> i think what's changed is that the mix of business is back in their favor. for the last ten years, what you've seen is that shift from the consumer side driving everything to now the commercial side is revenue, it's consistent, it's growing at 10%. so i think what you see today is you've hit that inflexion point where even if the consumer remains difficult, and it is, revenue has an up hillside in mobile. by when you look at the commercial side, it's a pretty good story. >> wait a second.

it's just that they broke it out differently? >> i think what ice allowed people to do is you could always see the server and tools. what you weren't sure about is how much did commercial impact office and some of the products that span both consumer and business. >> this is like their operating different, they're just telling wall street is a different story and that's helped? >> i think it helps investors understand the downside risk of the consumer side. wall street knows the consumer side has issues. that's not a big deal. they've known it for years. what you can do is say here's the downside risk you have. if you can cap that, it helps. >> but is it really just different story telling? it's not different operations, it's just okay, here's the risk we're just telling you -- >> what's also different is more transparent. i think they're being more clear on guidance. i think the new cfo has done a great job around disclosure and what they're doing on guidance. it takes tail risk out of the story. >> but that's amazing that you can tell the story differently

and show people, it's not as bad as they thought. >> and perhaps it's oversimplify it. the company is becoming more rad cat in nature, b moving to a more services oriented model. that creates consistency. and i think what microsoft hasn't done ov earlier this week they were going to start giving away their operating system for free, they were going to be giving apps for free. and people wrote these stories as if the world had just changed. does microsoft care if so much of the business is a commercial business anyway? >> i think -- do i care, yeah? i care that the consumer business needs to not fall off a cliff over the next couple of years. but the reality is, you've seen, you know, they've been behind in mobile. you've seen that impact occur. you've seen the pc market has been a disaster over the last year. i think what you see with microsoft you're at the point where if the news gets less bad on the consumer side, i think where the stock's priced, it's kind of in it. and when you look at the company on a bit of a sum of the parts basis and put a fairly average

enterprise multiple, you're getting a lot of the consumer products for free in terms of how the stock trades right now. if you do see the mobile -- if you see pcs even flatten out, i think the stock goes higher. >> does apple take market share with this new policy? >> i think in business, it's always going to be a little tough. . modest amounts of share, but they've taken share. >> the trade was always -- and i can remember our guest hosts, five or six of them when google was at 400 and 500, they would say i would go long microsoft and short google. and then it was apple at 150, 200. if i was going to buy a tech stock, i would buy microsoft at ten times earnings. it never worked. apple went to 700, google went to 1,000, microsoft went to 34 again and again and again and again. so we'll see. that was always the trade. i remember the guy, i'm not going to mention the name. still ahead, the cfo of

consumer giant procter & gamble. that's why i will faint if it goes to 40. plus, you want to achieve the investment success of the oracle of omaha? the author of the "warren buffett way" has an idea or two for you. he'll join us at 7:30. it's true that we just had the oracle himself on for three hours, but we're going to talk to somebody who is going to tell us what warren thinks. but anyway, looking for weekend reading, the latest edition of the talking squawk blog. read about kid rock when he threw madonna under the bus. and see what i would look like as kid squawk. i look like that crazy software guy. >> you look like breaking bad. >> no, thetware guy. >> mcafee. >> yes. all you have to do is go to squawk@cnbc.com.

still to come this morning, we're expecting to see those numbers any minute. plus the company's cfo first on cnbc. and as we head to a break, take a look at the futures. right now things have barely budged but the markets are on track for another week of gains. "squawk box" will be right back. my mantra?

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procter & gamble out with the results. discussing the dow components earnings. investing the buffett way. an investing author out with his third edition of the most widely read books on the oracle of omaha. find out if his vision still works in this unclear market. and generac knows a thing or two about generating profits. the second hour of "squawk box" starts right now.

good morning, and welcome back to "squawk box" here on cnbc. i'm andrew ross sorkin along with joe kernan and becky quick. take a look at the futures. we do have green arrows, the dow looking like it would open up 10 points. we have some news, though, that joe's looking at. >> i am. and, you know, i'm like a.g. -- oh, yeah. i forgot. $1.05, right in line with expectations, organic sales up 4%. first quarter sales, 21.21 billion. $21.21 billion -- >> that was better than what the street was expecting, i think the street was right at 21. >> the stock at this point is indicated up about -- well, you can see it there. it's up 30 cents at $80.61. we are going to talk to jon moehler. we talk to him every quarter. we talk about the organic sales

forecast and it's usually a range and then we check the past quarter to see how that range was. and you think about procter & gamble. and if it's 50 basis points, with what they sell around the world, 50 basis points can be an unbelievable amount of stuff. >> the first quarter results were consistent with their plans and expectations, puts them on track to deliver on their goals for the fiscal year. also said they have good market share momentum, a number of innovations. and cost savings from productivity efforts that he says will continue to build. >> from what i can tell, all of the 2014 estimates, net sales, organic sales, core eps, it's all the same range. 1% to 2%, 3% to 4% for organic sale. earnings per share growth, all in earnings per share 7% to 9%. so -- >> pricing was unchanged, organic volume also up by 4%.

>> they remind me of mcdonald's in some way because can you invent anything else? you know. they got to continually innovate. >> mcdonald's can be a contrary indicator, right? >> in terms of innovation. >> right. >> what is mcdonald's going to bring out. now they're trying chicken wings. with procter & gamble, they've got pods -- >> well, he's saying there's more innovation coming. >> there is more. >> i'll give you the innovation. amazon setting up the headquarter. >> that's innovation too. >> talk about supply chain innovation. >> there were people that said we didn't need a patent office after 1870 because everything had been invented. that was wrong. >> it was wrong. >> and will always be wrong. and there are people who say we're going to run out of copper by now too and oil and all these thin things. and you are free to -- and this looks like a relatively happy story for you. >> so i don't have to be sad.

>> no, don't be sad. >> no tears. >> now it's actually not up anymore. we'll see. >> we also have morning headlines for you, including a little bit of innovation. twitter expected to price the ipo on november 6th and begin trading the next day. the company tends to sell 70 million shares, priced at $17 to $20 a share. that would value the company up to $11 billion, considered a modest valuation. we'll see if that -- those shares pop. obviously the company trying to avoid the facebook situation. maybe we could call it fiasco, i don't know. anyway, amazon.com jumping in premarket trading, lost 9 cents a share for the latest quarter. matching estimates and everybody's happy about it, but the revenue was above consensus and gave indications of momentum heading into the holiday shopping season. also microsoft, higher ahead of the bell. earning 62 cents per share, beating estimates by eight

cents, saw improved sales for server software as well as the software sweet. suite. lt. >> maybe we'll do this first. we've been taking a look at the macro view of the markets this morning. global director of the global strategies fund at fidelity investments. ian shepheardson. welcome to both of you. >> thank you. >> we've been talking the last few days, maybe even last few weeks about how the fed seems to be the only story at this point. ian, you're looking even further than march before you think the fed starts to taper. >> yeah. the economy right now is unclear. we've got a data backup because of the shutdown. and when the data does start coming through, the shutdown's going to distort it until december. so we won't get a clean read on the labor market until january. that doesn't leave a lot of time if the fed's going to taper in march. that seems to be the consensus

at the moment. my guess is they're going to want to see more data. i don't think the data's going to be great and there's not enough of it by march to get moving. >> what do you think about this? >> i agree. we've had this environment for the last year. very slow, but stable growth. very easy fed, no inflation and the fed, of course, tried to tee everyone up for a taper over the spring. we were talking about it back then and then at the last minute they had the free option to do it and they didn't take it. and, you know, makes you wonder, a, about their communication strategy because it really was quite muddled. and i think the bigger question, i agree with ian, it could be march or later. i think the bigger question is how will they do it when they do it? will they see this preannouncement doesn't work, let's go ahead and surprise the market. >> no, janet yellen is miss transparency. that's her whole policy. >> yeah. >> she's been the architect of the transparent policy. >> i'm very interested to see what she's going to say.

she's been silent for months now. now she's going to get the job. she's got to say something. my guess is what she's going to do is to push us away from focusing on the unemployment rate. it's been coming down, down, down. and instead to broaden things out and look at a much wider array of labor market numbers. the broad health of the labor market, which is what she's been focused on for a while. and by doing that, you give yourself more room for maneuver and more time for maneuver, as well. the employment ratio and the various other things she's talked about in the past, they're not improving like the unemployment rate's improving. >> and gives her cover, then, to continue the policy. >> you know, headline on employment is great, but all of these numbers are and we're going to wait. >> i think they must also be getting concern just about the size of the balance sheet. the market accounts like 3.7 trillion now. >> that's an argument to start tapering, to continue. >> yeah, so at some point, they're going to be at 4 trillion by the end of the year and 5 trillion next year. someone's going to say this is too much.

their communication strategy, i think, has been really impaired. their credibility has been. and so they've got to figure out a new way to do this. >> what does this mean for the market? if you're talking about march or even june or beyond, i mean, to this point the market has bought in and said, okay, this is the scenario, we get to have our cake and eat it too. is there a point where the market turns on that? >> yeah, but not yet. as it dawns on the market we've got a longer period where we're getting 85 billion a month. it's hard to fight that. it's hard to make money by going the other way. i would guess that actually we can see the rally continuing for a bit longer yet. but we are going to see real dislocation when the day comes as it will eventually come when new chairman says, by the way, the party's about to come to an end. i think it'll be longer than people think. >> we're going to get more through the show. they're joining us as our guest hosts today. check out the shares of procter & gamble. joining us after the break.

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procter & gamble out with quarterly numbers. reported earnings in line with wall street. joining us now to talk through the results is jon moeller. jon, it's good to see you. he had to go. dusty baker, i think. i mean, you know, you lose six straight. are you with me on that? >> we're looking forward, joe. we're looking forward. >> oh, are you? okay. so these numbers -- i looked at everything and in the past when you've been on, you've noticed how a stock sometimes -- here we are right near a 52-week high. is that an all-time high too, jon? i haven't checked. >> yes. all-time high. >> it would be an all-time high. you're right there and you can see some of the weird stock movements. because people really do go into your organic sales performance and they want to see you hit

exactly where you say you're going to hit or they don't like when you lower the low end or any of that stuff. is everything going as planned that you told us last quarter? >> everything is going as planned. organic sales growth came in at 4%. we held sales in each of our reporting segments, we grew 8% in developing markets, also grew in developed markets in the u.s. which is the largest consumer product market we grew 2%, grew 11% in japan. and earnings where we expected them, as well, which is why we're able to reconfirm guidance for 3% to 4% in the fiscal year, 5% to 7% earnings per share growth which importantly is 11% to 13% growth excludeing foreign exchange. so we're right on track. >> i mean, at p & g, we were talking about this earlier. the amount, the sheer amount of stuff that you guys produce and sell around the world and then you come on and you usually don't miss what you say by like a basis point. it's a little bit scary to me.

was the -- wasn't the 4%. what was the -- was that in the middle of the range? was that the high end of the range? >> well, we don't provide quarterly guidance. so our fiscal year guidance for organic sales was 3% to 4%. >> so that's a high end? i can quickly deduce if it's 3% to 4%. is that not to the high end? >> it is, indeed. >> take a lap. take a victory. don't tell me -- that was good, right? that was at the high end if you do it for the rest of the year, you'll hit the hype end of the guidance? >> absolutely. >> did you -- could you notice that europe is a better place than it was a year ago. >> i've seen some of the commentary from the others talking about a potential bottom in europe. i wouldn't say we've seen a bottom. it seems to us to be going a bit sideways, but hopefully that turns positive soon. you know, and then in developing markets, we're still seeing very strong rates of growth even though they're a little bit lower than they were last year. and the u.s. is holding up

fairly well. so it's not -- it's not a bad operating environment. >> when did a.g. get back? what day? >> got back in -- some time in may. >> can you -- watch how going to say everything is unbelievably great. can you point to -- >> yeah. yeah. can you point to things that are different? can you just give us a couple of examples about how things are different since he got back? >> well, he's tightening our focus. he's ensuring that the consumer and customer at the center of everything we do. he's working with us to accelerate and exceed our productivity targets and he's emphasizing consumer value and share owner value as key deliverables. and those are things that make a difference. >> wow. those were good terms. do you -- do you know who is being anointed? can you tell? who are the top three guys, you think? how long do you think he's going

to stay? >> well, as a.j. said when he came back, we're going to be criteria driven, not time driven on succession. and look, we've got a very deep bench of talent. i don't spend a lot of time, frankly, worrying about whether it's person "a" or person "b." >> are you raising your hand? >> got a he will of a cfo. >> not raising my hand. >> he's on the short list, we know that. >> but he's tall. >> he is tall. jon, we were talking about it earlier in the show. amazon, tell us about this deal and what it ultimately means. also whether other companies like amazon, other retailers are going to come to you and say they want to do the same thing. or can they? >> sure. so, you know, we want to be available for consumers. we want our products available for them wherever, whenever, however they want to shop. and we have ongoing tests with the variety of retail channels to ensure we're providing a good

both customer and user experience. anything that we do, whether it's a product, brand, distribution opportunity is available to all customers. >> but how much -- amazon's making a huge investment in building these warehouses right next to yours in terms of shipping capability. >> yeah, building fulfillment centers within our facilities. >> and if i called up tomorrow and said i want to do the same, how much product would i have to move to be in that same short list? >> well, there are qualifications, but we'd talk and we'd love to, you know, we'd love to have that conversation with anybody. >> all right. jon, do you know recently, has anyone come running into your office saying, oh, my god, look at this! do you have anything we don't know about for innovation that's going to have -- what can you tell us? >> well, we just went through each of the product categories and did an extensive innovation

review as a.j. came back and we're very happy with the status of our product pipeline. there's a lot of very exciting things for consumers in that pipeline. and we're in good shape. >> all right. you can't give me anything special. you could tell me anything. it could be a lotion or a deodorant or a diaper or anything. >> it's a competitive industry, joe. >> it is, right? you've got those little pods. didn't that transform the deterrent business. teeth whitening stuff, right? >> yeah, those are good examples. the tooth whiteners we've talked before, we've built shares for 41 consecutive months. fusion proglide is another example. >> i said diapers. >> we're at different points in life. the diapers you're talking about. anyway, go ahead. >> i have a question about what you're seeing in china on your sales and business in general. >> growth rates in china continue to be pretty strong, actually. high single digits and we don't see that ending.

our business, we're sequentially improving our market share performance, we still have work to do but generally very happy with our china business. >> okay. all right. we're going to go. you know you got the jets coming in to town. >> looking forward to it. >> are you? 5-2 versus 4-3. i can't tell who's playing above their potential at this point. whether it's the jets or the -- you know you -- bengals won the last two in overtime with a field goal. >> last one was in regulation, but, yes, close game. >> do you like the cardinals because they were better in your division than the reds? or do you like -- do you want boston? you remember what happened in '75. i still take a lot of satisfaction in that world series. >> i'd kind of like to see a midwestern team pull it off. >> i do too. i don't want to see duck dynasty meets zztop come in and beat

these clean cut -- every team's going to start growing. every game is going to look like a civil war reenactment if these guys win, everybody's going to be wearing a beard from now on. watch what happens with the boston fans what i hear about now. thank you, jon. >> have a good day. >> great sports city, chilly city. >> i'm supposed to go there. >> you are. >> in december. >> you're welching on that. >> legg mason chief strategist adding some revisions to his book "the buffett way," we're going to talk about buffett-style investing. "squawk box" returns after this. time now for today's aflac trivia question. what percentage of american adults do not use the internet at all? the answer when cnbc's "squawk box" continues. ready to run your lines? okay, who helps you focus on your recovery?

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>> won't you please welcome the legendary james taylor. ♪ o beautiful -- o say can you see ♪ >> yeah, we've all had moments like these. senior moments, i've got to cop to it to. that's james taylor. he was singing prior to last night's game two of the world series in boston. he was going to start out with "america the beautiful," this was the song he was singing for the beginning. you saw him kind of catch himself. the first time i heard it, i didn't realize because he was so smooth. >> right. >> trust me, if i could read prompter this well, i would take that in a heartbeat. he did sing "america the beautiful" eventually, but man, anybody who can catch a save like that. i didn't even hear it the first time.

>> and the chords, i don't think it starts the same. >> he managed to just kind of wind right into it. >> he did. >> well done. game two of the world series was all about power pitching and fielding failures. the cardinals even the series at one game apiece, beating the red sox at fenway 4-2. michael wacha gave up a two-one homer in the sixth. making it 2-1 sox. the cardinals then scored three runs in the seventh. matt carpenter hit a simple sacrifice fly. but a pitcher craig breslow made a wild throw to third allowing john jay to score. >> nice. >> giving st. louis a 3-2 lead and the cardinals added one more on carlos beltran single. and another run. >> this makes it much more interesting, 1-1 going into the weekend. >> absolutely. every series should go to seven. so i went back the 1903 boston team. i figured they probably have more beards than, you know, because back then -- wait a

minute. >> yeah, there's a mustache. >> not a single beard. not a single beard on the boston americans. they, by the way, were world champions, they beat the pirates and were called the pirates and won four more world series. by 1918, they won four more until the curse of the bambino and had one of the longest droughts ever. and then you come to these guys who -- >> joe -- do you think we should do this? >> if they win -- i can't. maybe that's why i'm saying all this because i don't think i can get a beard like that. >> i think we should try. >> if they win, everybody's going to start doing this. and like i said, it's going to look like the battle of antietam and look like the reenactors that dress up on weekends. and there was a time when we didn't have technology that p & g gives us. >> are you going to be off christmas week? i think you could start trying to build, you know -- it's going to take you a couple of weeks to grow it in. >> part of the red sox dna to be

scruffy and scratchy. >> you can taste your soup three days after you -- >> ack. >> that's what little bill said. he also said. anyway -- >> when we come back, we're going to talk about keeping the lights on for investors. generac's ceo joins us to talk about business conditions. and then, is this market getting frothy for you? the chief strategist of legg mason, the author of the warren buffett way will join us. "squawk box" will be right back. bny mellon combines investment management & investment servicing,

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welcome back to "squawk box" this morning. in the headlines, key economic report ahead of the opening bell this morning. the government set to release september durable goods orders coming at 8:30 eastern time.

economists expecting a 4% rise. we're going to watch for that. also european leaders angry with the u.s., yes, they are over the latest reports of spying on allies. angela merkel said that the incident has now shattered the trust in the obama administration. she apparently was not satisfied with a phone conversation with the president earlier this week in which he assured her the u.s. was not listening to her phone calls. i'm sure someone was probably listening to both of their phone calls. also, dupont is going to be spinning off the chemicals unit into separately traded companies. many had been calling on dupont to make such a move. among them, nelson peltz. >> the journal got that story wrong. remember when we were talking about it. the spinoff and then the analysts was talking about it. >> what do you mean? >> because they were talking about spinning off the ag business and we were saying why does it make sense to spin off such a profitable business?

and the guy had an answer for us saying, well -- why would you spin off your most profitable business? >> although dupont and, you know, if you talked yesterday to dow chemicals' liveris, why would you spin off either? you need the science that works across -- >> and some investment banker is going to say, this would fit in really well. >> build it up, tear it down, build it back up again. >> i know. >> and you take a little bit each time. nice little business. >> little bit. >> lot a bit. >> exactly. talk about generac, came out with results yesterday. the stock surging to a record high. this came in the wake of hurricane sandy which hit the jersey shore a year ago. the company also raising its sales forecast for the full year. and joining us right now is the president and ceo of generac. aaron, thanks for coming in. >> thanks, becky.

>> joe and i know about this well because we both have generac generators. if you look at last year with sandy where people were without power for two to three weeks and some people longer than that. sales skyrocketed at that point. >> they did. >> what's happened since? >> it's interesting when you get a storm like that. we make small, portable generators, the ones that use gasoline. people run out in a mad rush to try to find those types of products and they're gone in an instant. what happens is, you know, when power does get restored. in this case, it was weeks later, people start to look for another solution and that's when the home standby generator category starts to kick in. >> make a decision before it happens. >> you do. >> some of the saddest scenes were people with gas cans in lines of, you know, you couldn't get gas for your car, how will you get it for your generator? they were four across going back 60 people. you need a natural gas generator. >> the gasoline generators are great in a pinch, but unfortunately, when you have a

major widespread event. >> how long do they last? about three, four hours. >> no, you can go eight hours, but if you can't refill, that's when things get dicey. the natural gas generators are the way to go. if you can look at that product. >> maintain it, you could go months if you maintain it. >> months. they're fully automatic too. you've got to be home when power goes out, so you've got to be able to pull them out of the garage, put gasoline in them. >> did yours, sometimes you can hear it and sometimes you hear it go -- and you go -- you go like this and it catches. but when it's on for 18 days, you can hear it almost cut out like -- but it never does cut out. >> when you're tuning on things in the house. the furnace kicks on or a high load appliance kicks on. >> and if you lose it, the idea -- because everybody else -- the whole neighborhood eegs da 's dark and you've got heat. >> it's a great feeling. >> when you lose a garbage disposal, the food is in there. you can't hear your doorbell.

>> you also have people now have the triple play with the cable phone and internet. that's gone. used to be able to -- get a phone line. >> i understand what these cowboys are supposed to do, what about us city folk? >> that's a little tougher. >> you're a goner. >> you can't get down in the elevator, right? >> when it hits the fan, get in position, put your head between your legs. >> or come to jersey. >> aaron, i would imagine that sales really took off right after that because people knew what they were -- what they were in for. as you get further away from that time point, did the sales start to drop off a bit? >> yeah, what happens is -- we've been doing this for a while. and there's a bit of a cadence to this because it's a category that's pretty new still. only around for about 15 years, 3% of u.s. households. it's an underpenetration story the macro thesis of the business. when you get major events, it accelerates the penetration. and it levels off back into a normal kind of cadence.

because there's still 250,000 to 500,000 people every day in the u.s. without power somewhere. >> right. >> it's amazing. >> wind storm. >> snowstorm. >> the heat in the summer causes so much power -- droopy lines. >> yeah. >> and then you lose -- >> what do you think it is? not everyone could afford a $10,000 generator. >> no, and that's something we've been working on too to bring the price down for an affordability standpoint to turn it into a mass market product. i think for us when we look at the penetration curve and what could be ultimate penetration, the first fence post in that curve is portable generators. these are people who have paid good money for a backup solution. >> you can get them for $250. >> you're not going to power a lot. close to $1,000 range to something you're backing up. it's a great product and pretty new still. and what people do, they bought a portable generator ten years ago, that generator's old and

when they go to replace it, they understand how there's a more sophisticated solution to the problem. >> you know there are other people courting me, at least, for my generator needs. does cokohller compete with you? >> they're not quieter. it's -- >> you can say, they're awful generators. they're terrible. they don't work. >> it's a plastic enclosure. >> is it a plastic enclosure? would you put anything important in your house in plastic? >> and i've told you before i need a quieter one because if there is a -- >> ours is quieter. >> can you make one that's really quiet so if there is a zombie apocalypse? >> we can. >> you're working on it. >> they're more expensive, which is why people tend to go with, you know, the solutions that they're louder but no louder than, you know -- >> and not necessarily worried about zombies. >> well, they haven't seen some of the defense department

research which has looked into the possibility of this. it doesn't have to happen the way you're thinking. one other -- what about -- what is the problem with these gas stations that lose power and then can't pump gas? why don't they have generators? >> this is a huge opportunity area. because so many businesses. homeowners have figured it out, there's so much that in terms of comfort and security and safety and property protection. but businesses, in terms of having an extended outage, they don't understand the loss of revenue that they have, you know, if it's a restaurant. >> if it was a -- >> if it's a small guy, they say it's not worth the money. >> and we don't want regulations that force them to do it. the supermarkets bring in the big -- >> they have to, though. >> they bring in the big ones. >> think of the amount of loss -- >> but the small places, you should be able to have a gas station stay open so we don't have the problem we had. >> there was --

>> like the only regulation you've ever wanted. >> i know. >> you wouldn't have these problems if you had your power lines underground. >> yeah. >> $2 trillion. >> many infrastructure difficulties. and one of the things we do, underground power lines. you see the storms and everyone loses the power. >> look long and hard. >> i've been saving that one for months and months and months. >> much smaller geographical area. >> everything else over there. >> we won our last game. thank you. >> even that's not a cure-all, i had a tree fall during sandy. >> that's unbelievable. you got -- what did you do in the last day. you're living wrong. if you have the tree fall on your generator -- >> it's tough luck. >> they'd have to be replaced. >> could've fallen on you. >> better option there.

>> thank you so much for coming in today. >> thanks for having me. >> he was cleaning up -- >> he was early. >> great story. coming up, we're going to talk a little bit about warren buffett, his investing style with legg mason's author of "the warren buffett way." he's sold over 1 million copies. and at the top of the hour, we'll talk obama care under fire. why the next shoe to drop could be the people buying coverage on the exchanges. we're going to speak to health policy experts about the possibility for delays and what it means for patients. "squawk box" coming back after this. i love having a free checked bag with my united mileageplus explorer card. i've saved $75 in checked bag fees. [ delavane ] priority boarding is really important to us. you can just get on the plane and relax.

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optionsxpress by charles schwab. welcome back to "squawk box." inside the mind of the oracle of omaha. our next guest is a stock market pro who has written about warren buffett more more than 20 years. sold more than 1 million copies of his "new york times" best-selling book, the warren buffett way and out now with his third edition this week with more now on the set here. chief investment strategist at legg mason and author of the warren buffett way. >> good morning, andrew. >> we have warren on, just had

him on a week ago. we think we know the way he thinks. >> yes. >> i want you to tell us something that would surprise -- something you think most "squawk" viewers don't know about the way warren buffett approaches the investing world or something else. >> i can't think there's anything we don't know about warren buffett at this point in time. i think the thing we underemphasize or basically don't embrace is the fact he's probably one of the most rationalist investors that you could ever meet. he understands how to make money and he goes about it in a very rational, direct way. >> do you think -- so you wrote this book literally 20 years ago. >> 20 years ago. >> do you think his approach to investing has changed? has size changed the way he's had to invest? >> no, size wouldn't change it. now, it would change the types of things he has to go buy like burlington northern and ibm. but the methodology is the same as it was 20 years ago as it is today. how he goes about picking stocks, businesses, hasn't changed at all. >> what do you make about his

investment in ibm? that is something that i think threw a lot of people through a loop. >> and me included. i didn't see that one coming at all. but we'll see this one bear fruit probably five years from now, ten years from now and much of it will come from the share repurchase plans that are going to be continuous. i think that stock's going to do very well for warren. we won't see the fruit for five years or more. >> heinz. >> i think he has changed a little bit his stripes. the deal looks different to me, ibm looks different to me. >> ibm, i've heard people say it looks like coca-cola to them. we can talk about that at a later time, but it is different. that's a different type deal. we'll have to keep an eye on that one to see how it evolves over time. >> is there -- the opportunity that existed 20 years ago to really follow buffett as sort of

the buffett way. does that opportunity still exist today, do you think? >> you know what, i'm amazed that the millions and millions of fans that warren buffett has. but i'm also stunned that i don't see millions and millions of professional investors that invest like warren buffett and that's a question i continue to ponder. he's so transparent about how he goes on investing, but we don't have millions of professional investors that go about it. and that's a big question for me. what do you think? why aren't there more warren buffett professional investors out there? >> you talk about the idea of unforced errors. >> yes. >> and my sense is that most investors by default have more unforced errors than they'd like to admit to. >> that's a bull's eye for me. i think there's a big difference between managing a portfolio of stock prices and managing a portfolio of businesses. and when you manage a portfolio of businesses, i think you reduce the number of unforced errors. when you're managing a portfolio of stock prices, you're trying to guess the market, the economy, the sectors, you're making a lot of unforced errors

that aren't necessary for you to grow your capital all the time. >> give me a perspective on this. when you think about berkshire, it is in large part about warren buffett. >> sure. >> there's a lot of managers that have gone to work there because of warren buffett. people who are done deals. he's been able to buy companies. i would argue at less -- at cheaper prices because people want to do business with warren buffett. >> yeah. >> in 20, 30 years, i hope he's still here, but if not, what happens to berkshire hathaway? >> it lays with howard, his son, who will be nonexecutive chairman and his number one goal and objective is to make sure the culture that attracts people to berkshire hathaway is maintained and the decades to come and the ceo of the executive chairman after that will have to have that same objective. people want to do business at berkshire because they're all

allowed to sell their business to berkshire but they can still operate independently. >> do you think that will continue? >> if howard has anything to say about it, yes, it will because that's his charge from his father. >> let me ask you another question which is even businesses that have languished at berkshire. >> yes. >> warren has been -- he doesn't want to sell. he doesn't like to get rid of businesses and part of that, i would argue, has been -- has been a successful approach in terms of being able to find other peoples he can acquire at cheaper prices because of it. >> sure. >> is that the right strategy? >> i think your point is exactly right because he doesn't sell underperforming units, more people are likely to call upon him to sell their business because they know it's going to be a long-term deal. it isn't going to be if i don't perform in the next year or two warren's going to sell me. >> i look at the buffalo news, right? >> right. >> that's a business you might have thought about selling if you were trying to maximize your capital allegation. >> yes.

well, to maximize the capital allegation, yes, but one thing about the buffalo news, it doesn't cost him any money, it generates a profit. remember with berkshire hathaway the textile business, he did shut that down but only because it was losing money and required more capital expenditures over time. if even the mediocre companies can send $1 bill to omaha, he'll keep that business. >> thank you for joining us. >> thank you. >> the warren buffett way is the book third edition. good luck. up next, final market bouts, in the next hour we'll be tweeting to look for tweet investors, the company kicking off the road show. we'll have more details on the pricing and what investors should expect. in the meantime, check out the futures this morning. they have been indicated a little higher. right now the dow futures up by about 17 points. earnings from u.p.s., came in with earnings of $1.16. and that stock is indicated higher. "squawk box" will be right back.

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let's get some more thoughts from our guest host. ian shepardson. would either of you give any possibility that the next move in qe is above 85 as they go up from there? is there anything that could happen that would cause that? >> well, if there were to be no

recovery from the rollover in consumer confidence we saw during the shutdown and that filtered through into a horrible holiday shopping season and a horrible fourth quarter gdp number, then maybe -- >> more brinkmanship in three months. >> that wouldn't help either. i wouldn't bet on it but it's not beyond the bounds of possibility. >> is it in any of your -- >> it's hard to see because then the exit after that will be even more difficult. >> will there be an exit? >> probably not. >> it's like hotel california. >> i don't know, but there are government in the past where there's a crisis, a government program comes to address the crisis. >> remains permanent. >> i think if the economy rolls over and it is a very slow stable economic expansion, if it rolls over and the fed is out of ammo other than to do asset repurchases, i guess it's possible but my guess is they would play around with the communication at about when rates would rise and push that

back we were talking earlier about nominal gdp targeting whether that might be something they would embrace. but eventually if the economy rolls over and they're already doing all of this, a trillion a year, hopefully some would say it's not going to matter if we do more. >> are we keeping mortgage rates below where they would be? >> yeah. >> we are? >> yeah. >> demand is still -- how much higher? i'm not sure how much higher. and my point is that i'm wondering if there's anything wrong with that. whether -- are we really -- is the money going into some big bubble that needs to be reckoned with eventually? or are we just keeping rates low? >> just as reserves at the fed. but were the economy ever to start and the money come out into the system. of course, remember, if you've got a big balance sheet, you can shrink it quickly. it's a problem for the fed but also an opportunity because it gives them a tool they've never

had before. >> some people say you're already seeing inflation in the stock market. that these are -- >> that was the unspoken objective of qe in the first place. >> so that's not asset inflation. a bubble. >> no, you can't stop doing qe because one of the things you wanted to happen when you started doing it actually happened because boosting asset prices was part of the game. >> we don't want it to be the metaphors are getting maddening. but we wanted to prime that the engine with qe. we don't want the engine running on gasoline that furnished by qe. >> ultimately comes down to liquidity conditions. that's what we saw in the spring when they started talking about tapering, liquidity conditions seized up, rates went up and mortgage rates really shot up. >> why did they come back down? because of qe or the economy's bad? >> because the market has concluded that the fed is not going to taper any time soon. so the ten years went from 3% to 2.5% and might go to 2.1 or so. >> because of the shutdown? >> that's part of it and the

numbers have come in softer, the payrolls have been missing the last few months. >> it would be happy it came back down or worried? >> well, you don't want growth to be so fast that liquidity starts to drain through a taper. but you also don't want it to grow so slow that liquidity drains because maybe banks are not lending or liquidity conditions seize up in the financial markets in some other way. >> if you were trying to manipulate the stock market, they're doing a hell of a job because it's hitting new highs every day. >> over the past five years if you're stranded on a desert island and only one indicator to watch, it would be the -- >> even in the last month since the shutdown began and ended, i mean we're up another, what 80 points whatever it was yesterday. but it's like on a roll. that's nice for everybody, isn't it? >> because the markets decided the tapering is somewhere -- when they said in september we're not going to taper this month, the immediate thought was october or december and now it's, well, march, and i think june or later and that's just

giving people a longer period to expect more liquidity and it's very hard to fight $80 billion a month. >> all right. we've got to -- >> and equities are relatively under other assets. >> you're staying with us for a while longer. >> coming up, we're going to talk more obama care which is under fire. why the next shoe to drop could be people buying coverage on the exchanges. plus an earnings recap of names you need to watch at the open. and check it out, weekend reading, go to squawk@cnbc.com. ♪ on the road ♪ and we know that it goes on and on ♪ [ female announcer ] you're the boss of your life. in charge of making memories and keeping promises. ask your financial professional how lincoln financial can help you take charge of your future. ♪ ♪ oh, oh, all the way

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obama care, in need of a trauma specialist after technical glitches prevents people from signing up. >> couldn't you just inject something right into his heart? >> i'd love to, but we have no way of knowing where the heart is. see every human is different. >> dr. scott gotley debating the implementation of obama care. >> better than expected sales growth, but can the online retailer maintain momentum into a challenging holiday season? >> and david harding uses pattern of behavior to generate investment strategy. >> 60% of the time it works

every time. >> that doesn't make sense. >> we're going to find out what red flags he's seeing in the markets as the third hour of "squawk box" starts right now. welcome back to "squawk box" here on cnbc. i'm joe kernan along with becky quick and andrew ross sorkin. with us ian shepardson. you made your name -- what was the name of that other place where you worked? >> high frequency. >> you're famous. you're iconic. it's our pleasure to have you here. steve liesman thinks you walk on air. he does. more from me. >> let's get to some of these earnings reports we've been hearing this morning. procter & gamble reporting $1.05

in line with what the analysts were expecting. revenue also in line. beating the street by a penny. we have revenue that matched consensus, up by 1.8%. dupont announcing it'll spin off the unit into a separately traded company within 18 months. there's been pressure on the company to divest the volatile business. the ceo, here's what she had to say on "mad money" with jim cramer last night. >> this is the next advancement in our transformation. i think it's the right thing to do for our company. it's going to create two strong companies. i'm out with investors all the time. and they have a lot of ideas about what we do well and where we could improve. and i'm sure there's several of them over the next few weeks that will say this was their idea. >> we'll talk more about dupont with jim cramer at 8:50 eastern time. markets are on track for another week of gains. dow futures up by about 12 points, dow's only 200 points away from an all-time high.

s&p 500 up by 2.3 points. . twitter's ipo, planning to sell 70 million shares. that would raise up to $1.4 billion for the company. stock could begin trading as soon as november 7th. mark your calendar, november 6th is when they're going to price this thing. we'll be talking with kayla tausche about all of this in a minute. is that me or you? somebody. i think it's you now. >> it's me now. it's changing. >> speak. >> i don't use that term. >> as we speak. >> or going forward or all eyes. anyway, all eyes will be on this interview. the white house continues to struggle to get the plagued affordable care act back on track. meanwhile, american companies have to make decisions about their health insurance offerings and premiums for the next year.

joining us now to talk about this is dr. scott gotley at the aei. university of -- and some other -- the third brother. i forget who that was. university of pennsylvania, also the former white house special adviser for health. scott went to mt. sinai. where did you go to medical school? >> harvard. >> harvard. both incredible institutions. both of you, gentlemen have some similar backgrounds. you're so different on this issue. i don't know how it happened. i'm going to start with scott. >> well, he's just wrong. >> we agree on something, zeke. >> i've heard that before, i'm not sure who. you think it's a bad law, basically, scott, don't you? >> well, i think it's a flawed law. i think what you you're seeing

now, the i.t. problems are just -- they're small compared to what we're going to see going forward. >> what problem is going to be the worst about the actual law? >> i think what will be the most painful in the near term, the calculations are wrong. that's going to be clawed back from them. bigger than that, the marketplace isn't materializing the way the administration thought it would. plans aren't getting into this market in a robust way. 2,500 counties in this country, 58% of them only serviced by one plant or two plans. only most of them signed only one contract. that's not a robust market. and the single thing the administration did wrong and did a number of things wrong in terms of haw they regulated it was to cap the operating margin of the insurers. that prevented new insurance companies from entering the markets and protected the incumbents. i think this is a high water mark. the number of plans and providers you see contracting, i

think it's downhill from here. >> zeke, did you -- i'm told you didn't want to cap those margins either. >> i believe in the marketplace and i -- but that's not the real issue. let's just talk about the real issue. there's a lot of competition in the marketplace. all the counties he's talking about are rural. and while rural is very important, it's only 20% of the population, 80% of the population are being served by multiple competing insurance companies. if you go to a place like california that has thoroughly embraced this law, you have 35% or 40% competing insurance companies in a place like los angeles that has the highest uninsured numbers in the country. secondly, most insurance companies are sitting back, i agree with scott on that, because this is the first year. you don't know who's coming in, you don't know what the marketplace is like and you want to learn and so you have aetna going into 16 marketplaces, if once they get experience, they're going to go into all of them. and the last thing i would say

is the hospital network, that point that he's showing is actually a positive about the law. we are going to see a lot more defined networks, a lot more careful efficient production across the spectrum. and that is a key element of this bill. one of the things we have seen from the exchanges already is a lot of competition in places that have embraced it and lower premiums. much lower than expected. and notice scott didn't say anything about that. the cost control, the affordability of health care is going up dramatically. now, there are glitches in the rollout of this thing and i'm very disappointed in it. and it wasn't managed well. but these are technical problems that are blocking and tackling. and that will be solved and over the next year or two, it's going to be a much better shopping experience. and then we're all going to look back and say, wow, this was a great restructuring of the health care system. >> well, and you know, one of

the things here, the administration because of the regulation and i think the regulation is what stored in this market. they prevented the insurance company competing on all things that they traditional compete on. the only thing they can compete on is the network design. >> quality. >> well, they can't compete on benefit design. the only thing it can compete on is the networks and since that's the only tool to hold down costs, the way they're holding down costs is by offering narrow networks. i think people are going to be very surprised by the limited choice they have. and the difficulty is once you go outside the network, you'll be faced with high co-insurance. if you're a patient with an unmet medical need with a specialized condition, you want to go to a specialized institution, it's going to be very hard for you to do that. there were ways to address this. you could have risk adjusted the plans you might have provided for some way to reinsure that risk. >> scott, scott, what you've just said is just not true. there is risk adjustment in the exchanges. we put that into the law. and second of all there is

reinsurance possibility. >> there's not appropriate risk adjustment for people with really difficult conditions that are going to be expensive to treat. >> we don't agree on. >> you agree there's going to be heavy co-insurance outside these networks. >> the other thing i would say is, i think the insurance companies learned a lot from the 1990s when there was a managed care backlash. and they are going to have safety valves here. i've suggested in print that one of the safety valves is you get a serious illness like cancer, you be able to go for an innetwork charge for a second opinion. i think those kind of safety valves and i agree with you, scott, people have to have those for rare conditions, for conditions that are life threatening. and i think the insurance companies are going to respond. after all, like you i think they're going to be customer driven and they've learned that if you lock people in too severely, there will be a backlash and it will not be to their advantage. >> outside the major cities is not a competitive landscape. i'm not sure there's going to be

response to the consumers. >> let's get to the, you know, the news of the day here. you helped design this plan. what happened when they were hiring the people to do the website you went back to pen or something and said i'm just going to leave this for you to do here. because you and some of the stuff i've seen written, you realize this is bad for the whole idea that the government's competency in trying to do such a -- undertake such a massive project. and when it starts out like this, everyone questions whether it's ever going to work. >> so, i think this is clearly a problem with implementation and clearly a problem of management. and i think that needs to be recognized, and i think the people who were in charge did not do what managers have to do which is assemble a good team and assemble the team that has competency in the area you need.

i pointed out a big mistake, assigning this to cms which doesn't have experience integrating these complex i.t. systems doesn't have experience in ecommerce website development, was not a wise choice. i did not make that choice, i was for the idea that we have bring in a competent manager who has -- and i listed out the experiences in my new times op-ed. they need to be a good manager, know something about the health insurance industry, they need to know something about i.t. and i think that was a failure. >> zeke, do we have time -- you talk about hiring a ceo or to manage this process. do we have time to find that person now? or do you think ultimately for the next -- to get this thing off the ground properly we're going to have to go with what we got. >> i think the administration as best as i can see has done a very good job by putting jeff zions in there. he's a good manager, excellent people person.

he's been a consultant in the health care industry. i think he has the requisite knowledge. he's got the job to start in general at the general economic council. for two months in the crisis, he's a very good choice. i think they have to hire a permanent person who really does -- is the ceo of this who will go for the long haul until everything is up and -- as i said, the goal has to be here. amazon like shopping experience. and i think in the next two months, they need to identify that person and bring them in. >> the reality is, they will get the i.t. issues sorted out. i think the risk is the entire market in 20 a gets repriced off the experience in 2014. to the degree you've had a difficult experience in 2014, it's going to be that much more difficult in 2015 -- >> that's something we agree on. i agree. if it's a very difficult market in the next five weeks they don't get this working adequately and we have a very difficult market, it could

rebound -- >> it's not just the patients, zeke, it's the providers too. unlikely to get in that market now or discount. why would you do that looking at this? >> i'm not so pessimistic about it. >> okay. >> and there'll be some doctors left. >> there are plenty of doctors. and remember, this market we're anticipating in 2014, 7 million people. you don't need 100% of the doctors and 100% of the hospitals for essentially 2.5% of the population. >> well, i'm not -- i'm not so sure there's going to be a doctor shortage. i think you're going to see -- >> another thing we can agree on. >> you won't have to wait longer for a specialist. none of that -- >> well, inside the exchanges, you will. these will be narrow network plans. of providers that do get in the exchanges will be fewer and far between. these plans will be austere. even the health care plans called medicaid plus. many people, it'll be a good benefit. >> you're still practicing? >> zeke, are you practicing?

>> you're coming back, zeke. you're coming back, i'm sorry, we need you. >> anyway, gentlemen, we appreciate it. thank you. >> thank you. >> thanks a lot. >> i understand some of that. >> it's good to have two people that understand this. right, andrew? there's so much. so much about this. >> there's a positive this is all going to work out. >> i think it's going to be a much more niche market. probably small. at the peak. we're also talking about twitter this morning. the company kicking off the ipo road show today and kayla tausche joins us now with more. she's got some of the details. good morning. >> hey, good morning, andrew. it's one of the places twitter will be making its rounds. giving the pitch to investors or

rather the sales force of these banks that have questions on behalf of their clients and basically twitter for practice before it meets on monday. here at goldman, they have the right to change parts of the deal. of course we know they're planning to sell 70 million shares up to $20 a share. but they can raise that, they can change that. we reported previously that the tentative date for the ipo was november 14th. but because the government shutdown ended and the market volatility slowed down, of course now we know that has been moved up. now, steering the ship for goldman are a few key bankers who have partnered. you have david ludwig and andy fisher who has become infamous for telling facebook cfo in 2012 not to raise the price of that ipo because investors wouldn't be buying it at that price. now, leading the goldman deal making team is anthony nodo, he was a former cfo of the nfl, before that entertainment and

media analyst at goldman. returned three years ago as co-head of tech media and telecon banking. said to be a straight shooter that is pitching this as everything facebook wasn't. and they've done a lot of things that have been different. they're trading on the nyse, for instance, doing a dry run this weekend. pricing on a wednesday instead of a thursday. they're not letting any insiders cash out. and i'm told the three top banks, jpmorgan, goldman and morgan stanley will get roughly an equal amount of shares to sell to the public. that's different than facebook. but nonetheless, you've got to find those investors. that's what the next week will be for. and so twitter executives are on wall street practicing their pitches in earnest today, guys. back to you. >> all right. thank you. we'll check in with you, of course, throughout the day. and coming up, amazon posting sales growth of 24% in the recent quarter. but can that momentum continue into the holiday season? we're going to ask mark mahaney

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. welcome back to "squawk box." amazon stock has been on fire over the past five years and shares jumping after the company posted revenue that beat expectations. but while it may be a favorite among american consumers, should investors still be loving the stock? joining us now on the "squawk" news line, the internet analyst at rbc capital markets. good morning to you, mark. >> good morning, andrew. >> so revenues up, that's the good news. still losing money, that's the -- i would think bad news but no one seems to care. when does the switch get flipped that everybody decides this is all working out perfectly. >> well, i think the switch got flipped has been flipped over the last year as gross profits have started to reflect this company. you willed almost a 15-year record high growth margin. they had the highest gross margin since the 1990s. that's the evidence the market's been looking for that they can sind of solve their bottom line

problem. there's the series of things to work through. if they've got the top line growth, that's starting to reaccelerate and you've got acceleration, that's enough for the market. >> when does that happen? >> i think you're actually -- i think, andrew, you're seeing that now, but for a variety of different reasons. you've got this growth in the amazon web services business, shipped over to third party retail businesses and digital -- >> project out for me. when is the quarter we'll be on tv having the same conversation and instead of just announcing they had remarkable earnings -- remarkable revenue growth, i'm going to say, wow, we had a profitable quarter at amazon? >> yeah. we think we're going to start seeing margin stabilization this next quarter and december quarter. you know, 1%, 2%, we'll start seeing this recovery to the 6% level. just as a reminder, this company did execute on eight years straight. >> and investors will be happy about this or not?

and i say that only because to the extent they have had profits, the stock has come down -- come off or at least hasn't had the -- this stock has grown while the company has been unprofitable. >> yeah. that's true. market is making a big assumption that this management team will be able to recover margins to where they were historically. i think the company actually deserves that has earned that confidence given the significant investment cycle it went through five or six years ago and recovered out of that. assumption we're going to see the same sort of recovery now. >> your price target on this stock? >> we're at $425. we're using our price to sales multiple that's similar to what it traded over the last four or five years. >> one last question i asked earlier in the program to another analyst, how much do you care about the living room. owning the future of the tv, the tablet, effectively trying to get into the business i would argue amazon and, i'm sorry, that apple and so many other

hardware makers are in? >> i think the three biggest parts of the thesis, that would be one and the other two that are just as big, however, is the cloud business aws that they're building out. and third is, they're now starting to get in the consumer staples. amazon was always a media product. that's what it grew up on. and now you're seeing acceleration in bigger and bigger sales and much bigger than media sales coming out of things like consumer staples, fashion and apparel. those are very lightly penetrated categories online. if they're successful and starting to show this, that will be revenue growth and acceleration, not just for a quarter or two, but a year or two or three years. that's the new bull story, i think on amazon. >> mark, thank you for joining us this morning. >> thank you, andrew. >> go ahead. >> well, i just wanted to make sure this is when ian's leaving. thanking him. >> i want to thank our -- thank our guest hosts. i got it, mack.

i see the camera. guest host ian shepardson. there's only one camera. he's leaving to cover some breaking economic data. september durable goods. we'll be back. thanks, ian. >> thanks very much.

we have some breaking economic data. just a few minutes away from durable goods for september. and then we have squawk market master david harding. he'll be joining us, he made billions through systematic

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welcome back. we're just seconds away from durable goods for september. rick santelli standing by at the cme in chicago. steve liesman back onset with us in the studio. i don't know what we're expecting, rick. but give it to us. >> all right. survey says, more than expected. durable goods september up 3.7. up 3.7. our last look had a subtle change from up .1% to .2%. let's look at the internals, take out transportation. here's where the number goes off the rails. down .1%, it's affected by transportation, a volatile series, important but not sustainable on a month over month. let's look at capital goods orders, a proxy for capital investing and that's down 1.1. that's not good. and our last look, which was a

solid 1.5% was cut by a major chunk to remain at only up .4%. let's switch a minute from the orders to the shipments which has been a particular interest to many traders because it's been running on the negative side. this month it is also running on a negative down .2%. our last look revised from 1.3 to 1.1. at least for august, it was a positive number. i think taken in its entirety, this report is like many preshutdown, pre-blaming all the various political players. it shows a slowdown that was occurring that will probably be our baseline when we look at durables and ultimately numbers like we received tuesday in form of the employment report. >> for more on the data, let's get to steve liesman. you concur that this was -- >> yep. pretty comprehensive. except for the top line, which is what has driven the number up 3.7% is essentially boeing and

boeing had a huge number of orders. and that's filtering through. so aircraft nondefense aircraft, civilian aircraft up 57.5%. that's not inconsequential for the economy. there's a bit of a slowing here when you look at the transportation part. the revision to august. i had a chart that was going to look at the year-over-year change in this business investment number, but i don't want to put it up because it's now been revised away. there it is, they put it up anyway. and you could see it was reaccelerating, but i'm not sure that chart would look the same now after the revisions. they'd have to update it. and so i think rick's most important point to me was there is a slowing baseline going into the shutdown data that we're going to get some time next month. i don't think there's much more you can say about that. computers were up, communications were up, orders were anyway. and transportation equipment up but motor vehicles were down as was general machinery. we're going to have to watch

that stuff and watch the business investment numbers because that is the most important confidence survey on the part of business. we do these surveys for consumers, but business investing and putting new orders in for business investment, that's a confidence survey. and when that number starts to slow, confidence slows down. now maybe it's a sign that they were gearing up for a slowdown kind of thing or maybe they were just losing faith in the economy. and one other thing you find, becky, is the jobs numbers and the investment numbers, they pretty much go hand in hand. when you're building, investing in new machinery, investing in new capital and new people. >> right. >> those things go hand in hand. so that goes along with the slowing of seeing the jobs numbers. >> that makes a lot of sense. question is just to see how to get that to turn. >> how to get it to turn. and again, we'll have a month. i think it's going to be somehow affected by the government

shutdown. either in business investment or consumer confidence. we'll get a number today at 9:55 on confidence we'll be watching. and i think the question becomes what was going on in the economy beforehand. what goes on during it and what went on afterwards. and those are really unclear. >> hey, steve. >> yeah. >> when we had that horrible storm sandy and ultimately congress got out of its funk and appropriated some money, i believe the amount of money for that was about $65 billion, was it not? >> i think that's right, ultimately. two appropriations. >> after we appropriated that $65 billion, we didn't go at every number and say, oh, my god, if we didn't take that $65 billion, that hurt this or helped this. how much do they say the slowdown actually costs? about one-third of that, correct? >> yeah, that'd be about right. >> why are we going to bring this up after every single number. you know, i liked talking about the economy in impact. but all of these little issues aren't important. and we spend so much time on them.

ultimately, we have stock markets going up towards record highs, we have interest rates going back down, and that dynamic, investors are so happy with is basically born of this intense rivalry going on between, you know, entitlements and spending and tackling the third rail, putting on a new entitleme entitlement. but really, don't you think it's a bit disingenuous to spend so much time about that. >> i would generally agree with you, but this may be more important to look for trends at this point. we're also trying to look at what the fed is watching, which is to see -- >> $85 billion a month and all those things are so much bigger. >> but the fed's going to be looking at these numbers to decide whether to taper and if it really is what's driving stock market prices at this point. >> taper. you know what, you make an assumption they had any intention to taper anyway. i say they didn't. and it's my word against yours. they don't want to. they'll look for any excuse not to. we have an interest rate subsidy, we have an equity subsidy and, boy, that's going

to be tough to get off. >> when a hurricane comes along and we spend money to rebuild it, you're right, we don't spend a lot of time counting what it is to rebuild it. >> because it isn't political like all the other issues are. >> but when we create a storm for ourselves. >> oh, you know what, a storm's a storm. deal with the market aftermath and not the politics underneath it. >> by the way -- >> the underlying politics, it's the idea we created something -- >> no, it isn't the politics. the reason those guys can't get together is because the country's divided and we're adding a huge entitlement to an already existing series of huge entitlemen entitlements. then you add in all the other subsidies. >> amen, we've got to go, but there has not been an atlantic hurricane this year. >> there hasn't -- maybe -- >> good news. >> it's good -- >> let's talk about how lucky we are. >> it's good news unless you, you know, unless it hurts some of your -- >> i think you want to count -- >> will you work with me on this? >> don't do that.

>> no, selling sex. you have to use sex to sell in media. they've got farrah and rihanna and miley cyrus. >> we should have a segment. >> i tried today with this shirt and tie. will you help me and sell some sex with me? >> i would love to. >> let's do what we can. me and you, buddy. let's be sexier. let's make a concerted effort. >> it's hard to imagine. how is that possible? >> well, that's true. >> thank you. >> let's make a concerted effort to be sexier. >> i've been told that -- >> more rick? >> you guys are stepping out on a regular basis. >> how about we just keep -- >> you just stay out of this. >> we've got to go, we're going to sell some sex after the break. coming up -- too sexy for his shirt. he's a billionaire hedge fund manager. he's going to join us to talk about systemic investing.

red flags. and if you want to know what's going on behind the scenes besides the sex, check out talking "squawk's" blog, read about kid rock throwing madonna under the bus. go to "squawk," go to squawk.cnbc.com. we're coming back in a moment. avo: the volkswagen "sign then drive"

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master who is described as one of the pioneers of the hedge fund industry. he runs one of europe's largest hedge funds. we're going to talk about that in a moment. joining us right now is david harding. the fund has over $24 billion in assets under management and is the world's largest commodity trading adviser. and thanks so much for coming in today. >> thank you very much for inviting me. >> the idea of systematic trading, how does it work? we have a lot of data guests that come in talking about doing things like that. how do you use that for trading? >> well, in essence, we try to study the past to work out how to act in the future. how to act intelligent in the future. and we've got a data base of all the world's financial markets, all the stocks and bonds and all the financials about them and so on and so forth. all the futures markets. and our scientists, we have 120 scientists and their job is to look back into that data base and ask questions if we've done this in the past, would it have

worked? and thereby devise a computer program that's like a very elaborate plan for investing over the next 10 to 15 years so you kind of know what you're going to do in all circumstances and you don't have to respond every day emotionally to what's happening. >> does that give you a good enough blueprint that you could actually say we think the price of gold is going to go up 25%. or is it a little bit more complicated than that? >> it doesn't give us any good guidance, sadly, that's wasn't going to happen in any market at all. our computer doesn't give up. it doesn't know when it's beat, basically. it just goes on every day flogging away at these things none of which are good at forecasting markets. they have a slight edge, like a 51% edge in a coin tossing contest. >> because history doesn't repeat, it rhymes. you need to base your investments on something that might rhyme, not repeat. >> exactly. and you mustn't be blown off

course with what's happening today. you have to have a long-term plan with investing. >> then you've got to let your losers run forever, though. that's what's scary. then you cannot cut your losses short a lot of times. >> so diversified you can let them run. >> because you've got something else running. >> you have to get out. but we can really bury a lot of stuff inside -- >> can you tell us any big, major macro things going on that the past has told us that we might not know about right now? >> no. i can't. i can't. >> does the dollar lose its king dollar status eventually? >> no, we have no knowledge or information from our computer systems. i can tell you what we're doing. this year we've been long stocks, short yen, short gold, and as is often the case, money on bonds and commodities and so on and so forth. best you think i'm giving you all the winning trades. but we've made more than we lost overall which is kind of good, obviously. >> yeah.

>> but we have no long-term forecasting ability. where we score is we often have a set of positions which are inconsistent with anything anyone thinks is going to happen. >> what's an example of that? >> an example of that would be, you know, if you had known some years ago inflation that gold and commodity prices are going to soar up, then you would also have known that interest rates were going to go up, inflation was going to go up and bonds were going to crash. never would've been long commodities. long commodity and long bonds. no sensible economist would have had those positions and we had those positions and made loads of money from that set of inconsistent positions because the world turns out differently to what everyone is expecting. >> you did it based on what the computer was telling you? >> absolutely. and this year we've been short gold all year, you know, in long of stocks and short of gold. and i think that's taken a lot of people by surprise. people wouldn't have been long on stocks and short on gold. that's an odd thing. the futures doesn't work out

as -- >> you continue to upgrade your computer to make it more and more and more -- >> very, very much so. we have 120 people working full-time on that. they're all physical signs. >> my big thing is the day when computers know more than we know. think it happens in like 2045, where computers know 1 billion times the combined knowledge of all of humanity. and then they'll start doing things that we have no idea what might happen. >> sci-fi fans call that hard rapture. the moment of hard rapture. >> that sounds dirty. >> wait, i just -- >> i made it sexy for you. >> hard rapture? no, that was something else. that's amazing. >> and there's a book out called the fear index modeled on the business idea by robert harris written a year or two ago where that happens, the computer becomes intelligent and murders its creator. >> there's a lot of singularity science fiction. there's a famous guy, i got one

of his books that writes and terminator 2001, themes of that in science fiction for a while. >> computers are getting more and more intelligent. watson will show you that. >> he was evil. what he did to those jeopardy contestants. did you watch that? >> yeah, but within reason. >> he crushed them. >> our computer, we're only trying to give it expert in a field. it's limited very useful. >> does the computer ever output something to you that doesn't make any sense to you and to the point that you think it's screw ball and you say we can't follow this? >> well, i have to have a pretty good idea of why it was doing what it was doing. you know, i keep an eye on it. we have a whole load of people keeping an eye on what it's doing. if it said -- if we couldn't understand the outlook, we wouldn't follow it. if we couldn't understand why it was doing what it was doing. we haven't turned this thing loose. >> david, you've written about manias and financial crises, and i know you have strong thoughts just about the efficient market

hypothesis. we had alan greenspan here this week and he had to admit he had to go back and rethink things that markets aren't always efficient. sometimes you have crazy things that happen and had to do that in the wake of 2008. >> well, since i started working in the markets, i got interested in history and started looking -- as you get older, look back further. i discovered the 1929 crash and studied it madly which is what ben bernanke has done. and i discovered, oh, the 1987 crash. then i discovered 1873, then 1892, then 1825, mining boom, and 1720 south sea bubble then i discovered, and i discovered more and more and more manias, panics and crashes. there's a course of literature about it. there's a wonderful book extraordinary popular illusions. >> jessie livermore. >> kind of the bible of speculators. great book. and he roots -- >> yeah. stock operator. >> he roots the crashes more

solidly in human behavior. doesn't just do the bubble, he does the crusades, you know. and i would say financial market manias are a special case of other generalized illusions in the 20th century i'd include naziism and communism in the two. >> which two? >> communism and naziism. bad ideas that start spreading through the population. those ones didn't express themselves in financial market -- >> socialism's back, unfortunately. >> the japanese rabbit mania of 1872 did express itself -- >> 1872? >> there was a bubble, a mania -- >> who wanted rabbits, why? >> japan. >> magicians? >> to eat them or breed them. >> they don't need to breed. they'll breed. i've heard that. >> people were selling them for, you know, 100 times annual earnings. >> i know land in amsterdam. i never heard of the rabbits. >> read the book. >> a lot of magicians.

>> read the book, or just the bit about rabbits. >> come back in, i'd love to have you back to talk longer with us. can you do that? >> yeah. >> look into watson, held definitely turn off the oxygen in a space suit -- in the guy's space suit, i guarantee you. i saw him. i watched that jeopardy. >> i'm sorry, dave, i'm afraid i can't do that. >> he was malevolent. >> i'd hire him. >> ibm got mad when i called him malevolent, but it was clear to me this was a machine, whatever way we were going down that path, we've got to go back and go the other path because w.a.t.s.o.n. was evil. >> thank you very much. >> scares me right now. coming up, get ready to close out the week with jim cramer stocks to watch. we'll head down to the new york stock exchange next. the partisan bickering during the shutdown have many americans fed up with politicians. >> i wish i knew how to quit you. >> but cnbc isn't ready to give up. we're calling for a grand bargain in washington to fix the

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welcome back to "squawk box." let's get down to the new york stock exchange. i don't know -- we were talking about a.g., jimbo. it's near a high again. he is good, isn't he? >> yes, he is good and he is going to tackle the emerging markets. unilever slowing down a little. he's got to get hair and grooming better. >> he always looks put together. what do you mean? >> as a category. >> i think you didn't like the speekd look spiked look. >> my charitable trust owns it. that's going higher.

i have offered to faint on air if microsoft hits 40 because it just -- i hope it does someday -- >> you didn't put any time limits on it. we've tried so many times. i don't know what happens. and then andrew has used the term "flip a switch" like six times this morning about amazon. do they need to flip the switch to -- is that the question? when do they flip the switch? >> the stock goes down when they flip the switch. they've got accelerated growth in north america and in europe. i'm kind of blown away by how good amazon is doing. the microsoft is a total surprise. that is one of those calls where they basically said pcs are better. they underplayed how well xbox is going to do. they talked about having a plethora of devices. that was the biggest up side surprise of the night. >> andrew's making a point. i mean, a profit isn't

necessarily something you're looking for. if you can have revenue growing 30% and still not be profitable, that will be rewarded in the stock market, which is a limb count -- little counterintuitive, right? you need to harvest. >> you need to harvest at some point, never? i don't understand. >> look, i'm defending what the market is doing to it. this stock along with in the flicks and tesla and solar city are not bound by any sort of reason that every other stock, including every one we've just mentioned is bound by. that's just the way it is. there are growth stock managers who simply are not going to obey the conversation we're having. >> you know, jim, the companies -- it's much harder when you have -- like microsoft has had a great profit for years and years and years, they've had

a great profit, but it's hard to grow revenues. it's almost you're in a better position if you're able to grow revenue -- it's easier to grow profits sometimes than it is to grow revenues 30%. i mean, i can sort of see why you reward that because that is true growth. sooner or later you can work on margins and the build-outs finish. but when all you have is profits, you can't manufacture revenues. >> you want profits tomorrow, they can get profits. you want huge profits, that's fine. apple is in the fight of their lives with carl icahn. i will always tack world dom initial over engineering. >> revenue is harder to get. once you've lost it, you don't get it back. >> exactly right. >> i get it. i think they could show a lot of profit. >> you got to be crazy to second guess bezos at this point.

>> i'm not going to, i'm not going to. >> coming up, one stock you need to know before the opening bell. it is our stock of the day and it's coming up right after the break. [ female announcer ] it's time for the annual shareholders meeting.

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♪ i'm too sex see for my shirt, too sexy ♪ >> we're going to sex it up, andrew and me. we are vowing to sex it up next week. our stock of the day, it's ups. andrew, tell them to make sure they join us on monday. >> join us on monday. "squawk on the street" starts right now. have a great weekend. ♪ ♪ >> that's the way to start the show. good morning and welcome to "squawk on the street." i'm david faber with jim cramer. we're live from wall street. carl quintanilla has the day off. we're in record territory already. how about that ten. year note deal.