expand beyond that into what i would say an asset -- broader asset management construct. we like being owner-operators of businesses, at least what most of the senior guys like. >> okay, scott, thank you for being here. >> you're welcome. >> appreciate it. it was a lot of fun. that's it for us today. make sure you join us tomorrow. right now it's time for "squawk on the street." ♪ i'll teach you teach you teach you yes ♪ good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with krim jameer and davjim cramer and sc faber at the new york stock exchange. results out of citi and goldman and the bleak warning out of best buy. in the meantime futures are lower after the best two days for stocks since october. ten-year note may react to bernanke's appearance today over in brookings. programs the last time we'll hear from him in that kind of setting begins around 11:00 a.m. and europe at this hour relatively mixed. the roadmap begins with shares

of best buy plummeting in the premarket down 30% after reporting u.s. comps for the holiday season fell 0.9 percent. jcpenney cutting underperforming stores and cut 2,000 jobs to save $65 million a year. citi results were short of estimates and goldman beats on earnings and revenue. and united health beat estimates by one cent a share, increase in enrollments helping there and cms missed by one cent a share. best buy tumbling after reporting u.s. comps for the holiday season down 0.9. citing intense discounting by rivals and supply constraints for key products and significant declines in traffic and what it calls a disappointing mobile phone market. best buy saying it sees fourth quarter operating margin coming in below year-ago levels. we know what a high flier it was last year guys, but to lose a 30-year value before the market and many millions of shares trading before the bell.

>> this was a case we were joking about it, remember when one after another after another analyst was upgrading it. going over the notes from the last ten days about what people were predicting, gary bolder one of my absolute favorite analysts at credit suisse said the bad news may be in the name. that was wrong. and on january 15th deutsche bank came out and said best buy reports a solid low-single digit comp and indicate market trades in line with the previous trade s, we think it will be a positive catalyst. this is just a sample of what happens when you get way too bullish ahead of a quarter and shorts cover betting this will be the continuation. >> i think that's a key point as well, you had a lot of guys short this stock throughout last year who then took the loss at the end of the year. >> yes. >> now, there is still a large short position in the stock, but a lot of it has been initiated just in the last couple of weeks. >> right. >> it's been interesting to watch a number of these names

that were up so strongly in 2013 fall quickly in 2014. >> gamestop. >> another name exactly. but as for best buy, i guess, jim, it's about, what, sort of this idea that there's going to be permanent operating margin pressure for this company given their inability to grow sales? >> yes. and also this is one of those where why do people start liking it versus amazon? because they cut price dramatically and they offered the lowest price. it turns out when you offer the lowest price, you don't make as much money and one of the things that bothers -- it's kind of an algebraic equation, if you sell 20% under amazon and you sell "x" number of units, you don't make it up in volume and i think a lot of people are going back and saying, do you know what, the amazon showroom again, and bed bath & beyond disappointed, they are an amazon showroom. it's been an amazon quarter and it's so discouraging to merchants. i was speaking yesterday at a book conference, showing "get rich carefully" which is what

i'll change my name to it's much easier. what were people talking about? amazon. just amazon and the idea that the ncook is bad for barnes & noble and they are losing money on every nook. >> amazon killed it. >> it's important to remember it's not just amazon in the sense of amazon buying from manufacturers and selling to you, the consumer. 40% of the units sold on amazon, this is an estimate because, of course, we get so little information from the company, are sold by third parties. many of those are fulfilled by amazon and coming from an amazon warehouse and some of it isn't but you've got amazon competes with the third party merchants, but there's a lot going on in that amazon ecosystem and it keeps growing. >> and by the way, ebay, there's a couple of cautious notes today. u.s. not doing as well. remember, ebay has a come pet competitive service to amazon. >> online was up 23%.

appliances were up 17%. not even sears could post a positive appliance comp when they had their numbers. so, bright spot or not? >> look, they also said the video consoles were doing well. i don't know. we're going to have a reset on best buy. just a big reset. what really is a shame is that all the analysts kind of got it at the same time, things were better at best buy. each day one came out and another came out. if they'd all come out at once, the stock wouldn't have been pumped to where it was but it was a serial rollout of positive. this is what happens when you have the expectations for this thing had gotten to the point, yes, they were the last man standing. it did trade at $11 in december. there's a big difference between last man standing -- >> december of 2012? >> 2012. hewlett-packard was another one that traded really low and that one the number -- they better be careful because there is that same fervor of buying. >> b of a taking hp to a buy this morning. >> i do think hp's going to be

fine because they have a lot of differentiated businesses and i thought dell would have price cutting and that's not the case, dell is claiming they have a lot of share. but best buy is daunting to people because once again what caused the market to be weak at the beginning of the year, you heard retailers doing badly and people extrapolated it to everything. >> it's not everything. >> no, it's not. >> the consumer is fine, it's retail that -- >> right. >> certain retail that has issues. >> jcpenney cut a couple of stores and many analysts used it to cut price target at jcpenney and there are eight overlaps between jcpenney and macy's in the mall and 15 between jcpenney and sears. some people will say, listen, buy sears off that and i think it's the wrong takeaway. i continue to reiterate macy's is doing better. >> courtney reagan is back at hq, and what do we know? >> this is a conference call that the company decided to add basically last minute. i think once they realized how the street was going to react to

their results for the holiday. they decided they better talk to the street directly. so, we heard from the ceo today on the analyst conference call. basically saying, look, we're disappointed. this wasn't how we'd hoped it would go but he's staying resolute in the company's long-term strategy. take a listen. >> we hit a speed bump and we don't want to minimize it because, frankly, we care deeply about our month-to-month performance. but our sense is that it doesn't change the overall story. it doesn't change the long-term perspective. it doesn't change the priorities and the trajectory. >> so, of course, as you mentioned, the ceo also noting a couple reasons why the sales were hit a little bit harder than they had hoped including, of course, that aggressive promotional cadence, not just at best buy but really across the entire sector. unfortunately it did not spur demand. it did not make consumers want to buy, that's part of the reason it got hurt. we're seeing the shares take a

big, big fall in the premarket and most people think it's because of the margins, but we knew margins would be weak across the board for all retailers not just best buy and we'll see what happens throughout the day. i know david strausser at says he thinks it's an opportunity to buy on the dip here. best buy is just a victim of a really tough environment but they did gain share. back to you guys. >> courtney, thanks for that. what do you make, really quickly, jim, this notion they don't want investors to extrapolate from this quarter that it's a speed bump apparently? >> nobody wants to extrapolate from this questiarter, the ques is the secular decline versus cyclical. the momentum that best buy had is over. i don't know if you can recover. because, remember -- >> you mean from a business standpoint or stock standpoint. >> the speed bump, the selling season in retail, look, my father sells boxes and sold boxes back to a retailer. you got, like, a four-month

window here, maybe three and then you're just back into the humdrum. we used to come home and my father used to say, all right, christmas is over, we have valentine's day, the hallmark theory. i'm not going to valentine's day and buying anybody a 60-inch screen, partner. hey, what did i get you for valentine's day? chocolates. >> really good deal. >> i'm looking forward to something nice from you on valentine's day. just saying. >> it could happen. >> okay, good. >> it may be a special valentine's day between you and me. of course, people at home are now saying -- >> the bromance. >> what are jim and david up to. that was a joke. >> we'll let them think about it. >> now, your wife, on the other hand, she's getting a 70-incher from me. >> today is my anniversary. happy anniversary. >> wow, i feel like i'm a -- am in a french president thing with you? will she make a choice by the end of february between you and me? can you imagine? >> that's incredible. >> that's a high-level -- >> how do you get away with it? it's amazing. >> they designate a reporter to bring it up in the press

conference. >> is that what they did? >> it's your job to ask. make sure you ask politely. >> not the 50% unemployment and the decline in fringe -- no. high quality -- that's a distinctly first world problem that gentleman has. >> i know. let's move on to bank earnings. goldman sachs reporting fourth quarter profits $4.60 a share ahead of forecasts and revenues also came in above consense sus. citigroup's fourth quarter results, though, not so good. fixed income revenue declining in what the bank calls a challenging trade environment. i always like to look at those quotes. lloyd blankfein says even in a somewhat challenging environment our work in advancing our client franchise and ensuring continued cost discipline allowed us to provide solid returns. however, although we didn't finish the year as strongly as we would have liked, we made substantial progress. >> i want to throw in the mix the interest margin went up

seven dips. i only throw that in because you just provided all the thick, the fixed income was really bad. >> commodities at citi was not -- >> really bad. they are saying 2013 was weaker, emerging markets and overseas in 2012 andpecting better in 2014. return on equity up to 12%. >> 12.7%. >> we were joking that you'd never see double digit return on equity again. how about buyback? lloyd is always -- lloyd. he's one of those guys. if lloyd was saying he never knew where to buy back stock. how about this? they retired -- they're down to 467 million shares now. that's up, remember a couple years ago they were over 500, 437 is the number he wants to get back to 2008. but they are buying back their stock hand over fist. >> 39.3 million shares, total cost $6.17 billion. that's a cap shrink as we say.

they issue a lot of shares to employees. and everybody is very happy about the deferral from last year because it's gone up so much, article today in the "journal" pointing that out whether it's morgan stanley or goldman sachs or even jpmorgan to a certain extent stocks are up. >> people have to prb at goldman sachs there's a window that opens after they report and typically there is some selling and those that want to jump at it might think about it. >> a couple of things jumped out at me. i went back to 2009, that incredible year that goldman saab sachs had. do you know what the r.o.e. was for goldman? 37%. and they are at $13.39 billion in 2009 with revenues at $23.3 billion puts it in some perspective. nonetheless a strong quarter, don't get me wrong, for goldman in many areas particularly in investment banking and others. good underwriting, good for the

year and not as strong in the fourth quarter and they came in at a comp ratio of 36.9. >> yeah. >> which they've moved a lot lower. 48% was the comp ratio in 2008. >> wow. >> and the lowest they've ever had is 35.8. that was 2009. they made so much money that year. >> this is one of those where the hamptons will notch up a little bit in terms of value for this but not going to soar. one thing that is so interesting about goldman, we felt if they get -- the volcker rule is really going to hurt them. no. >> no. >> it hasn't been completely codified so to speak. >> no. but you look at their businesses. they're finding new ways to make money. citi did not find new ways to make money. >> you worried about citi? >> i would have liked to have -- i would have liked it better. >> put a lot of faith in corbat. >> expenses were down 6%. that's part of the mission. >> i just thought that there would be more progress. i mean, i think it's a continuum, citi had been getting better.

i guess if they had reported before bank of america. i used the term blowout last night in a speech that i gave about -- a talk i did with stephanie link at the "y" about bank of america and people are, like, there was a guy walking his dog and he stopped me in the street and he said, what is with you and bank of america? it was a really good quarter, blah blah blah. and the guy says, so what? it's awful. you know, the facts are changing here. bank of america's now best in show from this quarter. and citi is worse in show other than huntington bank, not that good. pnc was very good. >> some people want a theme. investors say what are they? they're a global bank based in the u.s. under sandy wile you had a theme song. >> what is theme song? >> i don't know. we makes lots of money. >> it's a large world after all. mexico is a little better. asia is a little better. they are using a down-tick for china. i keep hearing it. 7.8 down. and citi holdings shrunk. i'm not saying that it's bad. i'm just saying that, you know, you got to blow away the numbers

if you're a bank. that's the way it works. >> i'll tell you one thing we had a 15-minute a-block and we're not even halfway through. when we come back, yahoo! ceo marissa mayer brings down the hammer by firing the coo that she brought from google with her. >> did she let him stay until the end of the day in was it a 36-hour window he had to clear his desk? >> i'm not sure he'll make almost as much as obitz did at disney. >> we'll also talk to former congressman barney frank. we'll talk about bernanke as the outgoing fed chairman gets ready to speak later this morning. one more look at futures. we just had the best two days since october. dow hasn't had three triple digit days up since september. a lot more "squawk on the street" from post nine in a minute. covered call strategies to generate income? with fidelity's options platform, we've completely integrated

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we do? i took the trash out. i know. and thank you so much for that. i think we should get a medicare supplement insurance plan. right now? [ male announcer ] whether you're new to medicare or not, you may know it only covers about 80% of your part b medical expenses. it's up to you to pay the difference. so think about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, they help cover some of what medicare doesn't pay and could really save you in out-of-pocket medical costs. call now. with a medicare supplement plan,

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own reflection i made the difficult decision that our coo should leave the company. i appreciate his him, and they lost the number two spot among digital ad sellers to facebook for 2013, all those acquisitions, jim, not moving the needle. >> google is such a juggernaut. and i just don't envy anyone who has to compete with goog. just like i don't envy anyone that has to compete with amazon. when the stock was at $18 this is alibaba and it does not change the alibaba deflection and sum of the parts. >> the question has been and we posed it many times, can she help turn around the core business of yahoo!? but it hasn't mattered because 24% of alibaba, they may sell as much as half that when alibaba goes public. also we talked a great deal

about the fact that there's an idea that they can tax efficiently and sell the remainder at some point down the road and so you're not going to be taking as nearly a big a tax hit on let's call it the other 12% of the company or more that they might sell. that has gotten into the stock the last few months. and don't forget yahoo! japan which has also done extraordinarily well. and those two assets and the continued increase in the valuation of the stock. >> everyone loves twitter because it's made for mobile. it's why i like yelp. but this is -- so far it's not panning out. >> here's a question posted by one of our smart viewers. is she trying to set up the quarter? a scapegoat for the quarter, this way she can come out and if the number disappoints, well, we were already cleaning house, making remedies. >> i don't know. she's a heavyweight. she doesn't play in that game. i don't think she's playing that game. i think that she is trying to

figure out how to reinvent this company in an environment where every day google comes out with something new. i think that people have to recognize, i do a lot of work on the internet, it is just like when you speak to companies and you do a lot of work with retail. the conversation goes, do you know what, we're doing this, we're doing that, i hate google. we're doing this, we're doing that, i hate amazon. these two companies amazon and google, they're like competing against -- you're going up against some incredible pitcher or, you know, google is brady, all right, and amazon is peyton. and until those two really knock heads in an incredible play-off game, it's everybody else is just kind of didn't make -- nobody's making the play-offs except for google and amazon. can you imagine? >> i can't. >> just like the old days before they did the wild card and the afc, this is just joe namath. >> leather heads. >> yes, it's leather heads. >> it's the pittsburgh steelers every year, right? >> yes. it's the steel curtain, you know, that kind of thing.

people have to recognize that google is now talking about buying maybe something in network security. i'm raising my numbers google on the idea that they're thinking about that. >> unbelievable. when we come back, we'll count down to the opening bell with cramer's "mad dash." take one more look at futures here as we kick off a busy thursday morning. "squawk on the street" from the nyse straight ahead. ♪ ♪ stacy's mom has got it goin' on ♪ ♪ stacy's mom has got it goin' on ♪ ♪ stacy's mom has got it goin' on ♪ [ male announcer ] the beautifully practical and practically beautiful cadillac srx. lease this 2014 cadillac srx for around $319 a month with premium care maintenance included. ♪

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and it's becoming a musk buy over at deutsche bank. they are saying $150 are easily achievable for the shares. why? because the adoption, they could double the adoption. this is residential solar. if the grid starts taking your ex's power, it's a win/win. >> this company is not profitable yet, right? >> well, it doesn't matter. >> are they generating any cash flow? once again you are trying to pin me down. no, they are. and what's amazing about this company, remember tesla, remember who tesla was. he should have won versus edison, right? i think musk in some form is a re -- he's like some reincarnation of tesla trying to beat edison, because edison is who is going to have to take your power if you do put the panels on your roof. >> look at the stocks move 400% in a year, jim. >> it was not a great equity offering. people kind of dismissed it. >> i remember when they came on. by the way, why wouldn't you sell equity if you are them and you want to make sure you're

good for years to come? >> because when you get with musk, what he does, people thought he was going to have to sell equity for when he was doing tesla and it turns out that, like, he would say because he understands conference calls better than anyone else. he'll say i don't need the money. he'll come up with a raised number. he may say, i don't know, there's, what, how many households have roofs? well, that's the total addressable market. or t.a.m. as we call it in the game. >> t.a.m.? >> t.a.m., total addressable market. every roof in this country. >> every roof, by the way, of home but think about your local walmart. we got the opening bell coming up in less than four minutes. man, "squawk on the street" is coming right back. [ male announcer ] this is the story

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it told him what was happening on the trading floor in real time. ♪ the shell brought him great fame. ♪ but then, one day, he noticed that everybody could have a magic seashell. [ indistinct talking ] [ male announcer ] right there in their trading platform. ♪ [ indistinct talking continues ] [ male announcer ] so the magic shell went back to being a...shell. get live squawks right in your trading platform with think or swim from td ameritrade. you're watching cnbc "squawk on the street" live from the financial capital of the world and what a morning earnings from citigroup, goldman sachs. we haven't even gotten to csx and united health yet. >> csx, a lot of people keep thinking coal is coming back. oh, will you give me a break? coal is going away! >> volume overall up 6% even with the trouble and the winter weather that they mentioned as

well. >> no. there were a lot of positives. they are in the thick of an area that's really coming back because of the shale gas issue. but at the same time, they are the provider of the wrong kind of coal to the wrong kind of power plants. >> there's the opening bell. and a look at the s&p. down here at the big board, the little baby face foundation providing children with birth deformities free restorative surgeries. at the nasdaq move, inc., operator of real estate.com and other moving companies. t . >> so many people loved it going in. so many. the analysts were all wrong with it. they all loved it. they upgraded it too late. where do you buy it? my experience just so you know in the empirical work on i did on stocks, the second day a bad day, too.

if you want to be the falling knife here, may i suggest henkel, butcher block. do you know how they have the wooden butcher block? they dull the -- yeah, you're a butcher block. tomorrow would be the day if you want to do best buy. >> that's an extraordinary drop for a fairly large company. still ten bucks above where they were even talking about trying to take it private not that long ago. >> that's why i say you cannot just decide, do you know what down here i want to buy it. these are institutions. they're institutions right now who are going, listen, i got a million to go. i got a million to go. someone said 24. this one is not done. tomorrow if you want to take a look at it, we can take a look at it. >> we mentioned the rails, csx is the second biggest loser behind best buy. norfolk southern not far behind it. was there anything in there to like? >> well, intermodal was very good. just in terms of general commerce. but a lot of people felt that norfolk southern had led this call by saying we're really kind of through the problems with

coal. when you hear that, that is a tornado coming at you. the shrinkage in coal because of the epa is just taking everyone by surprise. >> this is not a shrink to grow, it's just a shrink to shrink. >> people felt, do you know what, they'll export coal. i kept thinking about the joy global call, but there are no companies that are even buying equipment to mine coal. and the powder river coal, the cleaner coal, is not as bad as the dirty coal, but there was a series in "the wall street journal" last week about how coal is here to stay and coming back. >> right. >> i read it and said, do you know what are they talking about? what? coal is -- coal's going away. >> yeah. the rails are really taking it on the chin today. interesting deal for cec, apollo buying the parent of chuck e. cheese, it's the fifth biggest restaurant lbo ever. the biggest -- i guess the biggest since burger king was

taken private in 2010. >> restaurant groups are pretty hot. they've made a lot of move. they are a master at doing these things, david. >> yeah. you know, it's interesting, of course, we think of last year as the year of exits for private equity. there were a lot of purchases. many of them under the radar. this not that large, 900-some million when you take out debt. but they've got money to put to work in private equity. this is an example of it. they have a long-term track record even when they seemingly make poor choices somehow they come up on the good end of it, whether it's any number of names you can think of where, you know, they'll go in, then, and buy the debt of the company that's almost defaulted. they always seem to come out doing just fine. >> yes. other than wendied, i haven't really liked the group of late. and obviously someone does, private equity firm that knows a great deal. >> speaking of food, credit suisse cuts kroger to a neutral.

that will take you back to september or so on the price of kroger. we just saw the underweight of general mills a few days ago by morgan stanley. >> this is called the center of the store, the regular business of the store is just not doing well and kroger had come on -- they were pretty bullish, but what's happened here is that there's price wars everywhere in the supermarket. everywhere. and this is -- i know people like safeway on the idea that something could happen, again, maybe private equity. be very careful with the supermarket business. people are not spending a lot of money, if you don't -- kroger had been the leader, by the way, in private labeling, but apantly even that business has kind of played out. >> should they be concerned about being amazon? we hear amazon fresh, of course, the idea of same-day delivery which has to be a key for your groceries, they're serious about it. >> no. again, amazon if they do same day, warehouses everywhere. fresh direct has tried that. it's not -- i think the problem with food is it got too expensive.

everybody -- a box of cereal is a lot of money. >> did you see cpi today? up 1.5%, the highest in six months. >> i had your wife's unbelievable granola this morning, that's a bargain. she does make great granola, it's delicious. >> nice recipe. i think she stole it from danny meyer but she won't admit it. >> i have it every day. >> the leaders, black rock, schwab, pnc. >> black rock had an amazing quarter. >> yeah. >> larry fink has done a remarkable job and it's kind of a juggernaut there. because as they take in more assets, they just make a lot of money. they fixed a lot of the portfolio managers. schwab i keep hoping is the retail investor coming back. but, well, there's a lot of reasons to like schwab as a brand. but i'm seeing -- look, there's some pockets here that are very good. and then this is the first day we haven't really had -- there

was no jpmorgan today and there was no bank of america today. although i think that pnc has really done a lot of things right. and, yes, that's right that should be at a 52-week high. it was a good quarter. >> shares of citi are the weakest amongst the banks down about 3.2%. >> well -- >> not a horrific drop by any means. >> no, i mean, i can hang on to that interest margin as a reason. but i think that bank of america down four cents is more of a buy than citi down a buck 78. >> morgan stanley, i think we hear from tomorrow, if i'm not -- >> axp tonight. >> and ge tomorrow as well still has a fairly significant bank component. >> intel tonight. >> citi is rolling out the best buy relationship and, ah, not today. don't talk about it today. maybe hold off on that discussion. american express is doing well. capital one i think will be the winner in that category. a lot of people were worried, by the way, when elizabeth warren got into the senate and, remember, those companies, the

credit card companies, they were the public enemy number one. they're doing fabulously. mastercard is coming out, not exactly who they have been after and american express has been a wonderful job with expense control and the stock has run and my charitable trust sold it for a big gain. not where i want to be. >> finally after monday's action, right? does that set us up for a january that ends up being decent? a lot of guys get nervous around 1850, 1860. >> i still think there's -- look, we're really at the beginnings of the earnings. csx could nix the transports, the transports have been the leader and that's not what you want to see. we were up two straight days. we'll have this kind of thing. when was the two straight days we haven't had the big -- >> best day since october on the s&p. >> that's amazing. >> you got to go back aways before you get the kind of rebound we had. >> i want to look at tech here because a lot of people have been buzzing to me about elliott management.

who will be the next. lsi got the bid and that was a laggard that was doing well. elliott, the riverbed turned out to be a good quarter and hewlett-packard maybe a good quarter and sandisk. >> and juniper was this week, and rejected by riverbed and juniper they also file. a look at hp up on the analyst call. >> financial and tech, you are talking about 38% of the subpoena. of the s&p, that's a lot. and hewlett-packard if this comeback is for real, it means that intel is good. it means that microsoft could be good. microsoft is obviously still looking for a ceo. every day a new person is said to be in the mix for ceo. of mike vo cocromicrosoft. >> i haven't heard your name yet. >> or the guy that left yahoo! somewhat suddenly. >> today it's erickson. >> erickson, okay. look, they had an auto guy in there. christine day is free, right? she was at lululemon. it could be a natural.

>> another name, by the way, heavily shorted last year that finally gave it up this year, lulu. >> lulu was just really bad. that was another one that took people's breath away in terms of retail. morgan stanley downgraded ralph lauren today. they were very interested in china. corbat sees a downtick in china as did kleinfeld, it's all small. but when you're making a bet on china like ralph lauren has done, i can see people say do you know what, it's uncertain here. china not that great. not a big plus during this quarter. >> finally did you notice netflix first oscar nomination ever having gotten a couple emmys under their belts for best documentary something called "the ca" "the square." congratulations. maybe we'll see more of that in years to come. >> just kudos to herb greenburg, nu skin, he came on our network, talked about it. >> talked about, what, the chinese newspaper wrote some bad

things and now you -- >> he said it to me, when you read this, you will want to sell nu skin and i read it, it's in chinese! >> it's "the chinese people's daily." >> right after we said that vestia wasn't helpful with the russian stocks. nu skin is down again and people are running. now it's starting to impact herbal life. >> yes. that's why people are focused on nu skin in part. yeah, nu skin is getting crushed. >> nu skin rang the bell not that long ago in anti-aging. people are always suspicious of anything that has to this do with direct selling model. tupperware i think has always tried to distinguish itself from these others and avon desperate to try to distinguish itself. nu skin is going to be talked about because the herbal life shoe to fall next. >> apparently the chinese don't like direct marketing at all. finally did want to -- jcpenney shares are down about 8.5%. $642 that may be a new low or very close to one. very close anyway.

>> 52-week low, $6.24 is the two-week low. $6.24. >> i don't know what to say there. liquidity concerns off the table some are saying ubs lowers price target 7 to 5. goldman cuts price target 7 to 6. it's the incredible disappearing retailer. >> a $2 billion market value kind of says it all. >> 100,000 people work there. >> market value to number of people that work there is quite a ratio. >> right, when we talk about employment numbers from last friday, there's weakness. people are firing people in order to make numbers. >> absolutely. bob pisani is on the floor with the dow down almost 70. hey, bob. >> a mixed market, strength in energy and material and beaten-up groups and consumer discretionary and industrials on the weak side right now. yesterday was another shallow pullback that dissipated. remember, we were down only 1.7, 1.8% from historic highs december 31st a couple days ago and now we're back close yesterday at new highs and on

the best volume in months, going back to november. new highs on big push in volume, that's technical analysis nirvana at this point, we're back to where we were. i think the important thing here right now is we've had some positive comments on the day from some big bank officials generally they've been positive recently. look what lloyd blankfein said this morning. the economy continues to heal and provide considerable upside for our shareholders as conditions materially improve. jamie dimon said essentially the same thing last week, he said he was optimistic about the u.s. economy. the ceo of wells fargo said the same thing as well and they don't have to. they're cautious, they'll be cautious. i think that's a good sign. speaking of the financials the big theme of 2014 health care and financials have shown real improvement. you see the bank index, the bkx, big bank stocks, bkx is at a five-year high and you know that's good. we've had a number of the bank earnings pretty good on where the trends are right here. stronger capital liquidity. lower credit costs, lower expenses. net margin income not great but

okay. the lower expenses that's a real big thing. did you see citigroup this morning operating expenses dropped 5.9%. that's a lot with a company like citigroup. they've made that a big theme cutting expenses. did you see bank of america yesterday? 6% of its branches had been cut. 9% drop in the staff. they're really going after these expenses and it's impacting the bottom line. i know all this talk about the trading profits are down at fixed income. that's certainly true. but, remember, this is all money center banks you're talking about. when you get to the regional banks, they don't do that kind of thing so there's less of an influence you're seeing. citigroup is down they're one of the only ones that missed this morning. let me move on and talk about commodity companies. did you see rio tinto? i know there's concern about commodity prices in 2014. they reported record fourth quarter production, record iron ore production, copper ahead of expectations. china had very good iron ore imports in november and december. and i saw something i hadn't seen in ages, somebody upgraded

the miners, citigroup upgraded them to bullish exactly on these ideas, they upgraded rio and billiton and finally i just want to note, guys, we're waiting for companies to comment on how europe is looking. a major component of earnings. ppg big materials company came out this morning and said they see an improving european economy. but still fragile. i'll put that in the modestly bullish camps. guys, we got to hear more comments like that to get people more confident on what's going on in europe. back to you. >> all right, thank you, bob pisani. did want to take a quick look at some of the cable companies. the shots finally have been fired there that we've been long awaiting. now what? of course, continues to be the question in terms of charter's efforts to acquire time warner cable and what our parent company comcast may choose to do or simply not do. some reports yesterday about continued conversations between charter and comcast. what i can tell you is, joint bids are notoriously difficult to pull off and while all of

these companies have talked and continue to engage in dialogue of some kind, nothing points at this point to comcast joining forces in any way with charter. comcast, our parent company, needs to make a decision or perhaps not, but is best served right now by just kind of watching what's going on and seeing if at some point it does need to try and do something if it wants to try to do something. no doubt many tell me it would like to own time warner cable, but the timing of that not seen as particularly good right now. it's not the doj. it is much more sort of on the broader regulatory front and what would it be imposed on the company by the fcc if it were to try to acquire all of time warner cable. but many of those same problems were to accrue to it if it were to even join with charter in a joint bid and how you structure things like that becomes very, very difficult. we'll see what happens. the key now is the window for nominations on time warner cable's board of directors opened yesterday. i believe it was yesterday.

we got about a month to run on that. how many weeks will it be if and when charter proposes a series of directors, a slate, kind of moves this up one more notch in terms of its hostility. interesting, though, to note, jim, that hostile bids, we've had so few. >> right. >> and those that we've had rarely work, and they rarely work and for the better for shareholders. whether it's in air gas or a cf, or you can go through a lot of names p names. they are so far above by the price bei ining offered by the hostile acquirer. and the shareholders must be happy they didn't acquiesce. >> air products, when they made the bid, listen, i'm going to come on your show. i'm telling you, i can get to the price that they want and more so if you give me one year. i mean, the stock is at $110, goldman downgraded it to sell

yesterday 111. and peter is, i can get there. come on, man, this is instant wealth. >> yeah, both sides for their part charter and to a certain extent time warner cable put out a smaller deck all the reasons why they don't feel it's anywhere near fair what they are offering at this point and making their point as to why $160 is is the price they'd be willing to take. let's move from stocks to bonds and to the cme group in chicago, joined by rick santelli, rick? >> good morning, david. as you look up at the ten year we're down two basis points on the day, down 18 basis points on the year. we settled at the end of last year 303 the high-yield close going back to the summer of 2011. if you look at the ten year boon on the euro zone side, it had a similar pattern even though i didn't find the 830 data all that enlightening, it's the hurdle mentality, sometimes traders wait until the data is out to do whatever move is proactive on their next trade. that seemed to be the case. but let's really take a bigger

look. and let's forget that we're looking at the fixed income markets for a minute. but your chart caps on and look at a may 1st chart of ten-year yields and look at a chart on ten-year gilts. it's similar down to the 3%. it looks like a double top. most people that traded fixed income futures only looked at substantial reversals off of double tops and double bottoms. is this going to be the same? we'll have to wait and see but it is something to pay attention to, something strange happened to the way to 4%, it's called 285 i guess. if we look at foreign exchange, i guess the dollar index says it best, when rates came down so did the dollar index. today's an interesting day. the dollar index is mostly euro and it's up a bit but so are the canadian dollar and the yen against most major currencies, that's not something you see every day. pay attention to that. might give you an in for a move so say traders. carl, back to you.

>> rick, thank you so much. rick santelli. when we come back, the end of an era. ben bernanke set to speak this morning as his fed chairmanship hits the homestretch. we'll have live coverage, of course, beginning around 11:00 a.m. right here on "squawk on the street."

lot of things dragging on the dow. unh not helping matters by any means even though they beat by a penny. enrollment is up, any thoughts? >> people are looking for the key ratio like net interest margin, how much you are losing on people or making on people. >> of course, it will be a big night for american express another component reporting after the bell. we'll get 6 in 60 with jim in just a moment. roof of insurance. that's my geico digital insurance id card - gots all my pertinents on it and such. works for me. turn to the camera. ah, actually i think my eyes might ha... next! digital insurance id cards. just a tap away on the geico app. could save you fifteen percent or more on car insurance. everybody knows that. well, did you know that when a tree falls in the forest

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time for 6 in 60 with jim. 6 stocks in 60 minutes. start with vm ware. >> it continues to hit the ball out of the park. very good stock. >> priceline one of your favorite. >> snobs in new york don't realize, this is still how people get great bargains. part of the new frugality. >> edward life science. >> had them on last night, this company is a great deal. they have a device you don't have to crack the chest cavity open to put a valve in.

>> wells has a note on c.s. >> they say because the black fish documentary did not get nominated for an oscar it's positive for seaworld, he rang the bell yesterday. he seemed sincere. >> aol sells a majority stake. >> to buy this very expensive local paper thing that they have and this is what people have been looking for. armstrong delivered. >> then positive on facebook. >> facebook we haven't even talked about it but they are setting expectations that are very good. what's amazing is you could have a whole show and you don't even get to facebook? >> we need a 70-minute hour is what we need. but you'll have more time tonight. what's tonight? >> life lock is a company you might have remembered it from when donald trump's show came on. this is all about, by the way, identity theft, okay? and maybe we know from the credit card breaches everyone is worried. and golina, a this is a lot of

people wanted me to have on. very special breast cancer breakthrough perhaps. i always like to give -- always say false hopes in breast cancer have been a continual theme and so i'm not trying to create false hope, but i am bringing them to see what they have. >> see you tonight, jim. >> thank you. >> 6:00 and 11:00 eastern time. when we come back, breaking news, philly fed, home builder sentiment and former congressman barney frank on bernanke when we return. in today's market, a lot can happen in a second. with fidelity's guaranteed one-second trade execution, we route your order to up to 75 market centers to look for the best possible price, maybe even better than you expected. it's all part of our goal to execute your trade in one second. i'm derrick chan of fidelity investments. our one-second trade execution is one more innovative reason serious investors are choosing fidelity. call or click to open your fidelity account today.

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♪ welcome back to "squawk on the street." we're looking for philly fed january read and it is out at 9.4, a bit better than expectations. our last read stands at 6.4. when was the last time we had a number at 9.4? well, we had 15 and change in october. still better than expected, though, and now we're going to go to simon for the next set of data points from the national association of home builders. simon? >> okay, thank you very much. let's get over to dianadiana ol. >> confidence fell one point in january after a big jump in

december, the monthly sentiment of index now stands at 56. 50 is the line between positive and negative. december's four-point jump was also revised down by one point. of the surveys three components buyer traffic fell the hardest down three points. current sales conditions fell one point and future sales expectations fell two points. regionally both the northeast and the west saw the biggest jumps in home builder confidence. south was flat and the builders in the midwest posted a one-point drop in confidence. the nhhb's chief economist said the pace of the every could be stronger were it not for rising construction costs and inaccurate appraisals that are keeping some home sales from going through. a separate survey from the mortgage bankers association today showed an 11% drop in december loan applications for newly built homes from november, the survey, though, is not seasonally adjusted. all the numbers are online. kayla? >> all right, thanks so much, diana. the big mover of the morning, though, best buy. the stock getting slammed on disappointing holiday sales

numbers for that we have our own courtney reagan who got off the phone with the best buy ceo joly, down 28%. what did he have to say? >> best buy isn't hiding from wall street this morning. they added an analyst call to talk about the holiday sales numbers and spoke to me a few moments ago and they say we have the operational levers that we have to use in the future that we haven't used in this holiday, one of them is personalized e-mail marketing to our 50 million loyalty following. we don't do personal e-mails to them and he said the holiday which he categorizes as a speed bump only, quote, reinforces our determination to cut costs and go deeper faster. he continued to say this is not a three-month or six-month turnaround story it's a multiyear turnaround similar to home depot years ago. that's the example that he used on the phone with me. his tone was straightforward but resolute, he told me he doesn't want to minimize the negative but doesn't want to hide the positive either noting the

strong online sales growth of 23% and all stores are capable of shipping from store program which does help unlock inventory and leverage it across channels and he called the holiday promotional environment extreme and he does expect it to subside now that season is over. we'll see. david strausser said his team was wrong about expectations for best buy's holiday season but notes best buy is gaining share and like others is a victim of a tough environment. he says today's selloff is an opportunity to buy. however, goldman sachs is factoring today's results into their model and it now implifes a four implies it compares to 1.06 previously and the margins get come propressed and market shri. >> i have a follow-up question which is, you know, you note he mentions he doesn't want to minimize the positive and online sales were up 23% but a lot of the retailers act surprised by these numbers. why wasn't the strategy better to actually tout the online sales and bring in more revenue from those?

>> yeah, you know, it is really interesting and best buy has done a pretty good job of growing that online business as consumers move more and more to online, but it doesn't really seem to be something that was as highlighted this much in this release as they've done in the past. i suppose they just want to come right out and call a spade a spade, talk about where things went wrong and hopefully move forward in the future. pointing out here and there the positive notes, but, you know, by and large, just sort of coming out straightforward, hey, things weren't great this holiday season but it was one month and we move forward. >> for the moment, thank you very much. for more reaction let's bring in joe feldman, assistant director of research at the telsi advisory group who has been positive so far on best buy. joe, good morning to you. this is brutal. >> good morning. >> this share price movement today. we've erased, $4 billion, $5 billion of market value. is it justified in your view from what you've heard? >> well, when you look at the eps decline that they're suggesting, it's about that much. i mean, on an annual basis they're talking about taking it down 20% effectively today.

so, you could see that. but, you know, i tend to agree that this creates buying opportunity, you know, anybody -- i think best buy's a highly relevant retailer and will be for some time. i mean, consumer electronics is a very confusing category. people have lots of questions. they want to go to the stores. they want to get help with their electronics. best buy is really the only place to go these days. >> joe, i mean, how do you -- let's be honest about it. the price target you have here was $50. >> yes. >> so, you know, i don't want to intrude on private grief here, but what do you learn from the process? what have you learned from the expectations that you had going in to the conversation that we're now having? what is the learning process? >> well, yeah. now, that price target obviously was on the old numbers. we'll be playing around with our target today. but, you know, it was based on the sales expectations were pretty much in line with where we were. we were a little below the street on sales. it was the margin pressure that was significant, much more than expected, yes, we and everybody

else were caught off guard with that. i think you have to adjust for that. assuming a much lower eps, let's say 2014 is 225, 230, put in, i don't noaknow, a 13, 14 multipl the stock price is worth more than it's trading. you're in the low to mid-30s. i still see pure valuation as opportunity. they haven't done much yet with personalization and direct to the consumer in that way. they're relaunching their website. there's more to go on costs. >> i mean, when the guy's grappling around saying, look, we've got 50 million e-mail subscribers maybe we should have made more than that, what do you do if you have competitors like amazon who are basically ripping the heart out of the margins, i don't know what amazon is making on a television, but i don't think it's very much money. he says, joly says he doesn't expect that extreme promotional situation to continue, but there's no reason to believe amazon won't be there next time doing exactly the same thing, does it? >> no. i agree with your statement. i mean, there's no reason to believe that the promotions

won't continue and i do think that that will be the case. i mean, it's always been case in electronics.vary, sometimes it's more, sometimes it's less. every retailer so far that has presented whether it's h.h. gregg and even costco last month which had a very good december, electronics were not great for them, the category has been tough. target had said that, too. you know, even though amazon probably did take a little bit of share i'm not so sure yet that they'll come out and say they had gangbuster electronic sales. >> hey, joe, people are trying to pare the weakness out of best buy from what we heard from bed bath & beyond the other day. are you envisioning some sort of broad structural weakness in housing resale, housing renovation demand? appliances were up for best buy. but is there a bigger story here? >> i think the bigger story may be where we are with the consumer. i just came off a big retail conference in orlando the irc

exchange and the sentiment was so poor just among all the retailers. holiday season was a tough season for most people and you saw a lot of surprises so far. we've heard a lot of surprises. so, i think there's maybe something going on more broadly with the consumer right now that spending wasn't quite as great as we'd hoped. i think it will kind of work itself through. all -- everything points towards a better economy in 2014. a little bit stronger in the u.s. and i still think, like, home depot, i think housing will be a good place to be. bed bath's creating opportunities for people. i'm getting calls about bed bath. >> okay, there's two names. joe, thank you for your time. >> thank you. >> joe feldman joining us there. moving on to yahoo! ceo marissa mayer firing de castro, i made our decision should leave the company. i appreciate his contributions and wish him the best in his future endeavors. a disclosure note, cnbc and yahoo! have a business alliance

to share and co-produce editorial content. our jon fortt is here on set with your take on this. you know him, a lot of talk about his severance. what's his overall story? >> i've met him. the overall story marissa mayer can be tough to work for, those known to work on thought experiments on what life would be like without you and the thought experiments -- that's what she calls them, thought experiments, life without henrique would be better and q-4 was probably not as impressive as they would like. they are were relying on bigtime advertising on their major pages to really carry them forward to grow this display ad business that has not been growing. i think she's aware that the alibaba effect is likely to peter out somewhat in 2014. that core business has to start growing. it's interesting she doesn't seem to be replacing him. that puts pressure on her existing team including kathy savitt in media to really get that business going but it's got to get going. >> you think this may presage a

bad quarter? this is a way of getting in front of that? >> i don't know that expectations were that high to begin with, but q-4 is really when you want to see things pop a bit if they're going to, and display hadn't been trending well. it seems that maybe the trend continues at least. >> it does leave a big hole and obviously there will be a lot of questions on earnings to answer about this. any scuttle about potential successors? >> there's no successor to de casstro she seems to be splitting hupp his duties among other executives and taking on more reports from the key revenue business. >> you are so polite, jon. this is an utter disaster. it's her guy right at the heart of the business and she kicks him out and pays $110 million to leave. something must be rotten right at the heart of the business unless it's some personal conflict, unless it's some argument on strategy. if not, there's something very badly wrong at yahoo! >> i think you got to plainly

say that she chose the wrong person for this job. and it was a clear monetary cost. >> or the business can't be fixed. >> business can't be fixed? >> he can't return display advertising. >> it's possible but, you know, i would say facebook's metrics that i've seen from some third parties coming out later this month look especially strong in display. the display business is shifting more towards social, pinterest is going to pick up more of that business this year or try to, so they're fighting some trends. we'll see if they can invent something that will get the business back. >> it's been said when you pay someone this much money to leave after so short of a time says more about them -- about you than it does about them. we'll see what the quarter brings. thanks for coming by. citigroup's q-4 results missing expectations as fixed revenue declined and weakness on the international consumer front, but goldman sachs reporting fourth quarter profit that beat analysts' forecasts but there's more to that story as there always is and mary

thompson has gone inside the numbers. >> fourth quarter profits dropped 21% from last year, still the investment bank managed to beat forecasts for both earnings and reevenue in fourth quarter. earnings of $4.60 a share, 38 cents better than estimates, revenue of $7.8 billion more than a billion dollars above wall street's forecasts. on the conference call they said 2013 like 2012 was characterized by an improving u.s. economy, unprecedented central bank action and continued political uncertainty. 2014 he struck a cautiously optimistic tone. >> this is a solid result. and a modest improvement over last year's performance despite what at times was a difficult operating environment. it shouldn't be lost on us that the long-term trend is slowly and steadily improving. >> goldman's peak spot was trading unit, and the group's

performance improved from the third quarter, but total revenue generated by trading bonds and commodities and currency dropped 15% from last year and 27% in stocks or equities. in the third quarter the firm added more to its legal reserves while keeping a tight rein on expenses including compensation as a percentage of revenue the firm's compensation expenses coming in at 36.9% a year the second lowest ratio since goldman went public. the return on equity and measure of profitability dropped to 12.7% in the fourth quarter from over 16% last year but for the full year it did increase slightly to 11%. carl, back to you. >> all right, mary, thank you so much, mary thompson back at hq. one of wall street's top regulators out with new rules for the big banks and it could change the way they take risks we'll talk to the comptroller of the currency later. and ben bernanke's last speech as fed and some are calling it his exit interview that begins at 11:00 a.m. "squawk" will be right back.

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welcome back to "squawk on the street." another day another big move for a biotech company, this time sarepta surging. said they had positive test results for one of its experimental drugs to treat a rare form of muscular dystrophy. the trial showed no clinically significant adverse side effects. they specialize in the treatment of rare and infectious diseases, still, kale ylkayla, a very nic.

back over to you. >> big mover certainly today in the market. moments ago the financial industry's top regulator announced a proposal to raise standards around how the banks take risks, it would affect institutions with at least $50 billion in assets, most, if not all, major banks in this country and it carries tough consequences if banks fail to comply. let's bring in thomas curry, the first on cnbc interview, thanks soap for being with us. i'm interested, though, because you took this office in 2012 but even before that there was some push from the occ to increase the higher standards for banks. why is now the time to start holding these companies accountable for this? >> good morning, kayla. what we're doing today is really filling in one of the other pieces of the post crisis reworking of our financial system. what we're talking about today is how we supervise the largest, most complex banks that are under our jurisdiction. what we're focusing in on is

really risk management and audit practices and corporate governance practices at those banks. and in our experience over the last couple years, those are the areas that you really need to pay attention to in order to keep the institutions within the rails. >> in some of the specific rules and the guidelines put out this morning, you safe that the banks should put out a report on risk appetite, a review of what they're doing. they should have risk officers reporting directly to the board and more discussion around risk, but does that actually fundamentally make these banks safer. do you believe that? >> i think it's important to have the structure in place and that's really what our proposal is aiming for. you need to have risk management structure, a strong one in place, a framework that identifies risks and has protocols in place to deal with them. and most importantly, to hold the individuals accountable, particularly on front line. >> and one interesting facet of this is holding the board accountable. that's not something that we've seen in any other regulation.

actually introducing that culpability to the board level. but my read of this, forgive me, mr. curry, it is that this is moaned morni monday morning quarterbacking to try to go prevent a loss that jpmorgan saw. is that a fair assessment? >> not really, kayla. what we're trying to tell the board is inform them what their ongoing responsibilities are, and what junctures they need to intervene in order to be an effective check and balance on operating management. they need to be involved in the development of the risk appetite and the strategy. they need to make sure that those critical functions of risk management and audit are independent and have the stature and access to the board. we think that having board involvement in these fundamental areas is actually an important safeguard going forward. >> but when i go line by line through the guidelines that were put out this morning and compare that to the senate report on the london losses that senator carl

levin put together about a year ago, it seems that everything is in response to something that did not happen at jpmorgan during the situation surrounding the london wale. it's pretty easy to draw the comparisons between that. i'm asking if these rules were in place and you go back a couple years ago, do you think this would stop something like that from happening? >> absolutely. these rules represent our collective experience since and before the financial crisis as to what works and doesn't work from a risk management and from a corporate governance standpoint. and our hope is that if we can institutionalize this across the universe of the large banks, that we supervise, you can dramatically reduce the potential incidents of risk management failures like the london wale. >> so, mr. comptroller, i'm reading between the lines here, basically you've come out with a set of rules, in response, it would appear, given the two-year timing that you mentioned, precisely to the london wale.

you want that to have been tied to the board so that the next time it happens the board can't say we didn't know anything about it, you will go directly to them and say you should have known and you have consequences to bear. >> yeah, certainly that would be the case if something goes wrong, but, again, our role as a supervisor is to try to reduce the likelihood that instances like the london wale or breakdowns in risk management will occur in the first place. if you have a strong framework in place, you really are reducing the likelihood of serious breakdowns. >> comptroller, just one quick question on another topic. this was a ratio that was introduced to the banks in july and we've now started to get some tea leaves to read from the banks this week. citigroup looks like it's already at the level it needs to be and bank of america as well and jpmorgan 4.7%, that's not the level that it needs to hit and wells fargo doesn't disclose it. looking what we've seen at the leverage ratio which now leverage is really thought to be the single culprit of the

financial crisis, are you pleased with the progress they are making? >> we think having a leverage ratio in place as a supplemental measure of capital adequacy really is important and i think it does address the issue you've raised, about addressing overleveraging within the banking industry. it also has the advantage of when it works in harmony with the risk-based measures of being a check and balance or a belt and suspenders approach to capital adequacy. in my business capital is very important. it's the cushion against loss and helps prevent the taxpayers of the united states from being called to bail out an institution. >> all right, we'll leave it there. tom curry, come. troller of the currency, thanks for being with us. it's an important story. >> thank you very much. coming up on the program we're kicking off cnbc 25, marking the 25th anniversary of

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2014 is a special year for cnbc it's our 25th anniversary and to mark the occasion we'll be rolling out a year of special events and guests and series and we kick off one today and each month we'll be looking at what an industry or sector or in today's case the global economy will look like in 2039. our chief international correspondent michelle caruso cabrera playing the long game today looking at china. >> cnbc 25, we didn't want to look backward, we wanted to look forward. what is cnbc covering 25 years from now. clearly china. china is widely expected to be the largest economy in 2039.

according to pricewaterhouse coopers, they ran projections for us they believe the gdp will be $34 trillion roughly four times what it is now. with that massive growth comes massive energy increases as well in terms of consumption. by 2040, china will consume more than twice as much energy as the u.s. coal will still be their leading source of energy supply, but by 2040, china will consume more oil than the u.s. keep in mind, though, china is still an enormously poor country when you account for the massive 1.3 billion person population, so their gdp per capita will still be far behind the united states according to pricewaterhouse coopers. in 2039 they say the gdp per capital will be $24,000 that's versus the u.s. coming in at $72,000. this is a good reminder despite all of the growth we talk about in china there are still 600 million people there who live in abject poverty. as part of our cnbc 25 project

we interviewed george freidman, the founder of stratford, a geopolitical intelligence firm and he's written a book called "the next 100 years." he said the issue of china and the levels of poverty pose a huge challenge for them because they still fall so short in terms of internal demands for the products they produce. >> china is hostage to its customers. it's an export-oriented economy and if walmart isn't buying, the chinese really can't sell those products in the interior. >> the other big hurdle for the next 25 years for china, their aging population, okay, this is 2010. 26% of the population is under 20. 8% is over 65. go out 25 years. and look at what happens. the number of people who are under the age of 20 actually falls while the number of people who are over 65 jumps sharply from 8% to 22%. "power lunch" we've got three trends coming up in 2039 and

also check out cnbc.com. we've got a of information there. >> i watched "squawk box" and when china's population is 1.4 billion the u.s. is only 400 million, that gap only increases. >> which explains a lot of gdp per capita split. >> very interesting. we'll watch on "power lunch." and straight ahead on "squawk on the street" as we wait for ben bernanke to speak we'll talk to former congressman barney frank about the fed and what he wants to see from incoming fed chair janet yellen. "squawk on the street" will be right back. (vo) you are a business pro.

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the energy department has just reported the largest drop in natural gas supplies in the united states on record. and yet natural gas futures are down ten cents. what has happened here? well, it's all about expectation. the expectation was that we would see a drop in natural gas supplies of more than 300 billion cubic feet. the drop was 287 billion cubic feet. it is still the biggest drop on record for natural gas supplies. but it was not at expectations. that is why we are seeing this pullback in natural gas futures. a lot built into this report today. a lot of traders watching it very carefully. we had seen natural gas rise to just under that $4.50 mark and, again, we are looking at the biggest drop that we have seen, even bigger than the decline that we had last month. and we're looking at this because, of course, the polar

vortex that had record cold temperatures across the country last week. credit weis is ssuisse is sayin heating demand was five times greater than a year ago so we are seeing that impacted in the decline we're seeing in storage levels of natural gas but, again, the decline was not as great as many analysts had indicated. they were looking for a decline between 300 and 304 billion feet, the decline was 287 billion cubic feet. back to you guys. >> that's some news over there, sharon epperson at the nymex. ben bernanke set to speak on the economy in what could be one of his final speeches as fed chairman but before we speak about bernanke today, we wanted to look back and look at his time as fed chairman. >> thank you, again, and i'd be happy to take your questions. ♪ ♪ it's something unpredictable but in the end is right ♪ ♪ i hope you have the time of

your life ♪ ♪ for more on what to expect today from outgoing fed chair bernanke, we want to bring in barney frank a former democratic congressman from massachusetts and a cnbc contributor. congressman, i like the beard. good morning. >> thank you, yes. i'm happy with it. it turned out to have more black than i hoped for. >> that's always a pleasant surprise. >> yes. >> you know, we're trying to take stock of his tenure obviously this morning and there are still those who say that bernanke didn't see subprime that qe will be our undoing. how fair is that? >> yes and no. he did not see the subprime problem. very few people did. little noted fact, some of us on the democratic side did try in

2004 and '5 to get a bill through to block it. interesting we were attacked in one of the places "the wall street journal." bernanke took over from alan greenspan and didn't make any changes for a while. but very early in his tenure, congress in 1994 had given the fed power to regulate those. greenspan ideologically explicitly refused to use that said the market could handle it. bernanke finally did invoke it, but once he did that, i think he did an excellent job. i think he deserves a great deal of credit. the argument about quantitative easing, the people who are critical of that, who essentially don't like -- and here's the point. the federal reserve has in america unlike almost every other central bank in the world what we call the dual mandate. under its statute, the government -- and bernanke, a republican appointee, has been very, very diligent in making sure that he pays attention to

that and a lot of conservatives don't like it. in fact, many republicans wanted to amend the law and it was only because bernanke, a bush appointee, opposed them so much, that they never really got very far with that, so the attack on quantitative easing is an attack on the fact that the federal reserve should care about employment levels, because every argument about quantitative easing has fallen flat and they are about to scale it back and nearly none of the complaints that it would cause inflation or cost the federal government money, or disorganize markets, this and that, has been proven false. >> but one of the unforeseen consequences, congressman, there has been a wealth gap of sorts caused by qe. it's something that really no one had foreseen. >> there was what? i missed that? >> a wealth gap an income gap between the haves and have-nots. >> that's simply flatly wrong. as a matter of fact, i give bernanke credit again because he's one of the people who talked about the need to deal with inequality.

in fact, i think that people who i am most concerned about, people of lower and middle income would have been worse off, because what quantitative easing did i believe is help stimulate the whole economy. i think our economic growth would have been somewhat lower and that would have hurt everybody, but the notion that quantitative easing caused the wealth gap, no. that's unfortunately caused by factors going on in our economy for decades. >> congressman, there's so much i want to say to you, just on the subject of the wealthy, there's a report in the "journal" today that goldman staff, for example, are sitting on an extra $600 million of bonuses this year simply because their stock has risen so far during the course of the year. and surely the fact that we're at record levels on the stock market has something to do with the fact that the fed has trebled its balance sheet on qe. >> yes. but are you suggesting that we should criticize bernanke

because the stock market has gone up? frankly, there is in the media i think the notion that public officials can do no right, so if the stock market had fallen, it would have been something to criticize bernanke for. >> i'm not. >> i think the stock -- may i finish? i'm sorry, sir, i'm trying to respond to you, you said isn't it a problem that the market's gone up so much? and i'm saying, no, he should be proud of that because, by the way, this is one of the things we know, when the market goes up, people's pensions goes up. one of the things we worried about years ago was people's 401(k)s and i.r.a.s dropping and the fact that the stock market has gone up is a good thing. yes, in america, the way it works is wealthier people will benefit more, but public policy needs to do a better job on the distribution. he needs credit for the stock market going up and even the lower income people are better off than if it would have dropped. >> i would like the stock market to go up as well, it was to the point about inequality in the

country. one final point to your central assertion that actually he's helped to reduce unemployment through qe, even austan goolsbee is suggesting, you know, this extra $3 trillion spent only reduced treasury rates by about 30 basis points. that's a very marginal stimulation to the economy, isn't it, for so much money that could come back and bite us? >> one, it's not going to come back to bite us by every evidence we have and that's the prediction that people who have been critical have made and there's been no sign. two, i wish there were more, and bernanke acknowledged that the main way to deal with unemployment should be on the fiscal side and he's had to step in because congress has been unwilling, but something is better than nothing. this is what i least i learned in economics optimal, it makes some people better off and nobody worse off than i can see. and to go back to the point about inequality, i understand, given the structure of the american economy today anything that increases wealth is going

to benefit the wealthier more than people at the lower level. that's no reason not to be for growth it's a reason to be for growth and also for public policies that do something about the distribution. >> finally, congressman, volcker always said the fed's mistakes come from not being too loose when times are bad but waiting too long to tighten when things are getting better. as you look forward to yellen's tenure, is that a danger in your view? >> i don't think it's a realistic danger. they have already begun to slow down. and, again, this prediction that this is going to be inflationary i don't see any sign of it. no, i think ben bernanke has had a very successful tenure. i was very pleased that janet yellen was picked to succeed him. let me put it this way, i think janet yellen is as aware of that danger that you and i are and i am confident that she will not allow it to happen. >> congressman, good on see you. we'll see you next time. >> thank you. >> barney frank talking bernanke today. as we mentioned it's about

half an hour until we hear from ben bernanke for which could be the last time in his position as fed chairman. obviously a man who has his pulse very much on the heartbeat of the fomc, see what he has to say when "squawk on the street" returns. ♪ do you stand above me [ male announcer ] start the engine... and shift through all eight speeds of a transmission connected to more standard horsepower than its german competitors. and that is the moment that driving the lexus gs will shift your perception. this is the pursuit of perfection.

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welcome back to "squawk on the street." glad you're viewing and listening from satellite radio. listen, there's been so many debates over the last three or four years that called for rates to go up for very logical reasons. i mean, seriously. would you lend to uncle sam for ten years for 1.40, for 140 basis points? well, there was a time in 2012 where the world was willing to do that. whether that makes sense carrying deficits like this or not, i think many forgot that there's a relative value issue here. that unless there's somebody bigger and more liquid and able to step in, even the greatest economy in the world with warts

and all, and it does have its warts, is just going to end up being the relative value area and the interest rate might not make sense. now, fast-forward. we've dabbled with 3% and believe it or not we haven't closed with a 3% handle all that many times but the argument now is, boy, we're going to probably see 4%. but it isn't playing out in the marketplace. i'll take it a step farther. what many of the debates i participate in every day are, like who in their right mind would buy treasuries? you know, it's the duration argument and the credit risk argument, i get it all. but at the end of the day if the only game in town is an alley called equities, okay, and we'll oversimplify here, what if the game goes awry for a variety of unforeseen reasons, there has to be some type of hedge. there has to be the second act. and the second act is that the only hedge, think 1987 crash, think the credit crisis, the only hedge, think of 1.38

ten-year, the only hedge for anything disastrous that could happen in the stock market would be to be long treasuries. if you look at a 20-year chart of 10-year note rates and you can see it on the screen and i'll draw it, what you had were 20 years where interest rates were going down and it turns up a bit. just a simple line to tell you why we are spending so much time at 3%. but the chart i really want to talk about is the chart just since may. if you look at rates just since may basically you have something like this. you have what's a double top at 3%. why is this significant? because we never know when a double top kind of changes and maybe you take it out and it becomes a wedge or variety of other formations. but i will caution those that think it's afait accompli that rates have to go up to 4% us because the path at which they get there is what's important and right now from where i see whether you look at gilt, boons or treasuries there's more downside than upside at least based on the recent chart

patterns, back to you. >> i bet you play a mean game of pick pictionary. we'll talk to you next hour. and vimeo is trying to compete with youtube and growing direct distribution movement. will it pay off? the ceo will join us live at post nine right after the break. [ tires screech ] [ car alarm chirps ] ♪ [ male announcer ] we don't just certify our pre-owned vehicles. we inspect, analyze, and recondition each one, until it's nothing short of a genuine certified pre-owned mercedes-benz for the next new owner. [ car alarm chirps ] hurry in to your authorized mercedes-benz dealer for 1.99% financing during our certified

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welcome back to "squawk on the street." check out aol shares. hitting session highs. the company is hand mag jority ownership of the patch unit to turn around specialist hail global. as a result, topeka capital markets is increasing the price target of aol shares to $50 a share. the stock for aol has been up 57% overourse of the past year. back over to you. >> thank you, dom. video sharing site vivio is looking to boost the viewers of posting free content by making sure it has more cutting edge film to offer on demand. they're going to skouch around to find filmmakers that have already successfully raised so,000 and give them a 30-day exclusive distribution deal. kerry trainer is the ceo send

joining us now. we should note, too, of iac. good morning. >> good morning. >> i guess in many senses this makes you a bit more like netflix, a bit less like youtube. >> yes, vimeo start eed as high quality set of tools and now transitioning into thinking about our audience experience. bringing content to the service and programming for viewing experience. and vimeo on demand allows creator to offer paid content direct to audiences around world. >> is the deal similar who what you after ied to those debuted at the or roberto film festival? $10,000 up front, exclusive window for digital distribution, and then over those 30 days you hope to recoup that $10,000. after that that it's 90/10 share split going forward? >> yes. very similar. what the crowd funding program is and expansion to another group of creator.

. theive program was targeted at the independent film festival community. now we know that crowdfunding is a great source for funding so we make an offer directly to that group. >> it's interest that you said you've got to raise $10,000 sales no do this. >> yes. >> as a result of a management reshuffle. you are now a direct report to barry tiller. >> yes. >> did he say to you i will not figure in there because i know at least i got some pull in the public before you start spending my cash? >> he did not say that directly but that is exactly -- that's part of the spirit behind that determination, meaning that we're looking for filmmakers who have enough of an audience and following and are serious enough about their work that they're looking to build a business around it. that's what that threshold is intended to target. >> where are you on that neutrality and the discussion that we've had? let me just explain here, of course, as a result of potentially a change in the rules, you guys that pump out a lot of data are going to have to pay the broadband providers a lot more to do that. for a business like you which i imagine is not making a huge

amount of money, that's got to be an issue. >> net neutrality is a very big question and i think this is certainly a development that they're all watching closely. i don't know that it would be the final word on it so we've not gotten to the point, i don't think anyone has gotten to the point of forecasting any specific commercial impact b from this. >> you are, i think, night accordin according tocom score ofeos not. you're coming a long way from behind. what sort of trajectory do you think you're going to get? >> we had a very quiexciting sef last year. we hit great new audience records. with it 149 unique viewers by com score's measures in november. we crossed through the 100 million threshold in 2012 and now to reach nearly 150 million. and we think it's attributed to the experience that vimeo offers. we focus on being the high quality platform for creator sglsz no ads, hd, a new player. you moved away from flash. >> yes. >> i imagine moving forward i'm

going to get e-mails from you like i get from gilt or mr. porter where you cure rated stuff and try and sell to me direct via e-mail. 50 million on our e-mail list, this is how we're going to sell. >> we want to do that in a respectful and value added way. speaking to the audience and creators which haks always been the core is a very much a part of the sglan nice to meet you. thank you for coming in. >> thank you. >> kerry trainor, ceo of vimeo. this rusty car could sell for millions. we're going to tell you why after the break. [ male announcer ] it's simple physics...

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only at a sleep number store, where queen mattresses start at just $699.99. sleep number. comfort individualized. it is no secret classic ferraris are valuable cars but what about the rusted shell of a ferra ferrari. turns out that also could be worst millions of dollars. robert frank is onset with more on that. basically the ferrari beat is what you cover. >> yes, it's a tough job. imagine the classified ad for this car. for sale, 1967 sports car, very rusty, engine doesn't run, damage by fire, replacement parts don't exist. asking price, $2 million. crazy? well, welcome to the world of

collectible ferraris. 1967 330 gts is being called the lost ferrari. it vanished in 1969. it will reappear on the auction block this weekend in scottsdale. estimate, $2 million. it could fetch a lot more. the reason it's so valuable is because it's in original condition. now, most of the old ferraris out there had been rebuilt and restored. untouched ferrari is gold. now an old fer. >> reporter: ferraris are tracked by historians. discovering a a lost ferrari is a huge deal. this was one of only 100 cars built by new york plastic surgeon named paul sheer. well-known collector. after the car caught fire in '69 it ended up with an insurance company and sold to an unknown buyer. it was rediscovered in philadelphia after 44 years of sitting in a carport and is now going to come on the auction block. so kind of what they call a sleeping beauty or a discovered car.

>> can it actually be more valuable than those that have been restore and refub established? >> this is the dark secret of the ferrari world. most are 80% to 90% brand new parts. very little of that car is original. imagine in the art world if we say it's a repainted picasso, it wouldn't work. in the car world a lot is brand new. that's why this car, which is all original even though it looks like a piece of junk, is so valuable. >> except if it has been refurbished it will drive which is an advantage. >> yes. >> so it's more valuable to have something that just sits there untouched that doesn't go anywhere than to have something that actually behaves like a car and takes you from a to b. >> somebody will probably buy it and get it to where it runs but keep most of it in original condition. that will preserve its value over time. >> and climate control edgar raj. >> yes. >> a couple laps around the neighborhood. >> yes. they will get it running again. its value in its originality.

they're going to preserve that. >> i have spare time over the summer. are there many lying around? should i search for them? >> no, ferraris are almost all accounted for. all serial numbers and vehicle id numbers. to have one lost and rediscovered, maybe it's once in a generation that a ferrari is found. >> once in a generation. >> great story, robert. thanks. >> thanks. >> robert frank. if you're just joining us, here's what you missed early this morning. >> welcome to "squawk on the street." here's what's happened so far. >> it's getting crushed on a same-store domestic decline of .9%. >> what are you saying going forward? >> they're not. >> that's maybe part of the problem is the uncertainty, is making people worry that they're at some kind of inflexion point and this is the beginning of a down ward slide. >> this is one of those why do people start liking it first as amazon, because they cut price

dramatically and offered the lowest price. it turns out when you offer the lowest price you don't make as much money. who google is braiding. all right? amazon is peyton. and not tense in an incredible playoff game, it's everybody else is just kind of didn't make -- no one is making the playoffs except for google and amazon. >> there's the opening bell. >> this is a buying opportunity. everybody best buy is highly relevant retailer and will be for some time. >> what we're talking about today is how we supervise the largest, most complex banks that we -- that are under our jurisdiction. we're focusing in on is really risk management and audit practices and corporate governance practices at those banks. >> i like the beard. good morning. >> thank you. yes, i'm happy with it. it turned out to have more black than i had hoped for. >> that's always a pleasant surprise.

welcome back b to "squawk on the street." dow is down 104 points on this thursday. a lot of earnings out. there's a look at chrissy roemer, awaiting remarks by fed chairman bernanke and what could be one of his final speeches as fed chairman. he's talking about the brookings institution. and may in some way give us an opportunity to reflect on his tenure. you can see david wesle, formerly of "the journal" there as well. when bernanke starts speaking we will take that live. in the meantime, to weigh in on the discussion about the fed and markets, jeremy siegel is a professor at u. penn's school. fifth edition of stocks for the long run is out. book has been named one of "washington post's" best investment books of all times. jeremy, it's great to have you. congratulatio congratulations. five editions. >> five. >> just like yesterday. >> i know. >> how is the year shaping up,

in your view, and is it going to be markedly more difficult than last year? >> yeah. we're much closer to fair market value now than we were a year or two ago. i still think we are below fair market value, so i still think we've got 10 to 15% to get there in the markets. we know nothing goes in a straight line, up to fair market value. either has a correction or will over shoot. i'm calling for around 18, 18,500 is what i think is the fair value for the dollar. >> so many things that we talked about being uncertain last year, yellen, a spending bill, essentially taken care of for now. >> right. >> where is the risk? >> well, you know, you worry about when there's no risk. bull markets climb the wall of worry. some of those worries are disappearing. what i still think is a push in the market i still don't think the public is back. i mean, they're tip towing in. but when you look at the flows,

the equity funds, it's not there. so even though we get bull/bear, it looks very bullish. when you go to the general investing public, they're still very kepticle. we've got to bring them much more in before we get to the top of the bull market. >> last year, of course, driven somewhat by m and a but largelily buybacks and dividends to some degree. >> buybacks are going to be there because, you know, firms, although they're inreesing in their dividends, still only 2% dividend yield. so they're making 6%, 7%, and if they don't invest in cap backs which is slowed down they buy back their shares. by the way, i don't consider that to be negative for the stock market at all because that really increases per share earnings. lowers the supply of equity. that is almost as good as dividends and my way of getting money back to the shareholders. >> it's somehow a hollow victory, right? smaller dploe. it doesn't count. >> you know what, it goes all of the way back to when the tech firms, if they bought back their

shares they were blamed for not having any good investments. oh, you don't know what to do with your money. this is not good. but today, a lot of firms have actually expended what they want to do and they say, listen, let me get it back to you in a capital gain. and they're buying back their shares. that's very positive. >> we just heard from rick santelli. made the point that rates are higher. >> yes. >> but we haven't closed above 3 many times so far this year. are we going to have to get used to that? >> i mean, we're going to work our way higher. i think 3 1/2, maybe 4. if the economy accelerating, and i'm still hoping it will, 3 1/2% to 4%, we will definitely get to 4%. as we all say, that's very low compared to the historical average. >> are you worried about, as some traders are around here, the velocity of money picking up where the fed loses some control? >> short-term rates are going to stay near sooer row. that's going to keep that velocity down. we're going to have to push the inflation down. it's not happening soon.

>> good to get that insight ahead of bernanke. putting a nice period on his tenure. >> which i think is going to be remarkable when we look back in history on bernanke's dtenure. >> thanks so much for coming in. >> thank you. want to get back to the big mover of the morning and that is best buy. continues to slide down more than 27% after weak holiday sales. blamed a lot of different things for the drop including declines in instore traffic and what they're calling a disappointing mobile phone market. this is the worst gap down in 11 years. the second worst ever for best buy. stacey is sw retail adviser and cnbc contributor. nice to have her onset today as well. welcome back. you surprised? >> i mean, the level of its decline, yes. here's the deal. best buy set us up in q3. they told us that margins were going to be really, really bad. we were somewhat prepared for that. what we were not prepared for is giving away product didn't actually have the revenue effect that they expected. so they were trying to defend

the market share and they missed the comp. >> did they gain any share? this was the point of some debate earlier today whether or not, as bad as the season was, did better than some competitors. >> true. best buy said they gained shares. when you're gaining share in a declining market, do you get rewarded for that, particularly when the stock was up over 2 pun% last year and analysts were raising expectations. i think the margins were worst than expected and, again, if you're not getting the revenue lift, you're just creating deflationnd that's a downward spiral. >> jolie describes it as a speed bump. says it doesn't change the story. don't extrop late a bigger narrative from these q4 results. is that -- does that make any sense? >> i would describe it more as road kill versus a speed bump because, you know, what he was saying on "the call" is don't read into this but why shouldn't we believe that this is the new normal and that margins are being compacted permanently? this is not going to change.

>> i assume it's an amazon effect, right? are we back to talking about showrooming for amazon and is there any point at which discounts do drive traffic if they didn't do it this time? >> yeah, i mean, i think the market is tough and, again, you're just seeing deflation in products. it was interesting i was at the icr retail conference yesterday and hh gregg, they were saying that they just came off of ces and there's nothing exciting. there's nothing exciting in ce to make them feel -- >> similar to electronics. >> yes, consumer electronics. they just felt that there's no real driver which is why they're focusing on appliances where there is a left and also you're seeing sears which owns the most market share of appliances, so that's an opportunity. but best buy has a small market share of that. >> appliances were up 17. something even sears could not do went they posted their number. people, i asked joe feldman earlier, you look at what bed bath thood said and now what best buy has to say. not just about the consumer but

about the consumer and how they're tailoring their house, which is where we were led to believe they were focusing their spending. is there something broken now in that narrative? >> i think obviously that's been a sector that's done incredibly well as people upgrade their homes and spending more and maybe that hurts the less exciting categories like apparel, like other things. but i think going forward, you know, are we -- are we sort of set up for a pause in the home upgrade potentially and that's what you're hearing out of, you know, whether it's bed bath, you're talking at, you know, more promotions out there, people are using coupons more. maybe we're set up for a breather in that space as well. >> finally it does sort of set up a lesson for why shorts don't work and then do work. right? what changed between now and late last year where shorts were really out of options and a lot of them had to give up? >> yeah, you know, it's interesting last year retail was up almost 40%. yet the fundamentals were pretty bad in the second half of the year. everybody kept saying let's look

forward to an operating margin recovery story. finally, you know, we're looking at the numbers for 3/4 in a row saying it's not happening. it's absolutely not happening. so now retail is imploding and that's probably not going to change any time soon. >> frusz traiting for those who covered at a loss late last year. >> incredibly frustrating. >> nice to have you. we are still awaiting comments by ben bernanke and what, as we said, could be one of his last speeches ever as fed chairman. we will take you to brookings and listen to him live. dow is down 92 points. and this will be your premium right here. sorry to interrupt, i just want to say, i combined home and auto with state farm, saved 760 bucks. love this guy. okay, does it bother anybody else that the mime is talking? frrreeeeaky! [ male announcer ] bundle home and auto and you could save 760 bucks. alright, mama, let's get going. [ yawns ] naptime is calling my name.

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just a couple minutes from now ben bernanke will take the podium to speak about the economy at brookings. i want to bring you steve liesman in washington and our own art cashin here at post 9. steve, good morning to you. walk us through what we're about to listen to. >> well, he's going to be interviewed by the famous author -- author of the famous book "lords of finance" about the three central bankers during the great depression. and i think we're going to hear a little bit of legacy and talking about bernanke really depending his legacy. i know he believes about over time what the decisions he made will look better in the rearview mirror than he did at the present sglim art? what are we going to be seeing 15, 20 years from now about this man? >> well, i think he's going to try and help put that legacy in

some kind of posture today and, again, coming out and i think he wants people to believe that he tried in ernest. the difficulty is we really don't know because we've got every central banker in the world shuffling as hard as they can and we don't know what the end game is. we've got things like dodd frank and some of this legislation, will we be creating a new kind of shadow banking business, will there be hedge funds and others taking over an so of those responsibilities? so we still face a world that we don't know exactly what it looks like. >> carl? >> go ahead. >> no, i was just going to say, on the one hand it's about his own personal legacy but i think also he knows as a monetary policy expert how critical it is that we understand what happens. so the next time it happens, whether or not the fed should be using the large scale asset purchases. what it should be doing regulatory. all the things art menked, those are up and running. >> with that, i think they are going to mike up lea of

brookings who is going to talk to the out-going chairman of the federal reserve. art? >> steve, thank you for that. let's take a listen. >> thanking the chairman for coming on behalf of brookings, for coming and having this conversation. >> it's a great privilege. >> so the way you handled the financial crisis in 2008 will clearly go down as one of your signature achievements. so let me start with that. you've said somewhere that the playbook that you relied on was essentially given by a british economist in the 1860s, walter badger. and his victim was that in a financial crisis the central bank should lend unlimited amounts to sov velvent institut against good collateral at a penalty rate. how useful in practice was that

rule in guiding you? >> it was excellent advice. this was the advice that's been used by the central banks going back to at least the 1700s. when you have a market or a financial system that is short of liquidity and there's a lack of confidence, a panic, then the central bank is the lender of last resort. it's the institution that can provide the cash, liquidity, to calm the panic and to make sure that deposition ors and other short-term lenders are able to get their money. in the context of the crisis of 2008, the main difference was that the financial system that we have today obviously look very different in its details, if not in its conceptual structure, from what walter badget saw in the 19th century.

so the challenge for us at the fed was to adapt his advice to the context of a modern financial system. for example, instead of having retail depositors standing in line out the doors it was the case in the 1907 panic, for example, in the united states, we had instead runs by wholesale short-term lenders like repo lenders or commercial paper lender lenders and we had to find ways to essentially provide liquidity to stop those runs. it was a different institutional context but very much a -- an approach that was entirely consistent, i think, with badger's recommendations. >> now, you also rather than lending only to institutions you intervened in markets. is there a sort of similarly

victim, i don't know, a bernanke rule, that you can come up with about when the fed should intervene in markets and when it shouldn't? sxwr if you're talking about the crisis period i would say all the things we did fit under the badger heading. for example, the commercial paper facility that we set up was essentially designed to prevent a run on this particular form of financing. it was essentially the same bagehot being applied in the institutional concept. we have done other interventions, if you will, with our asset purchase program, for example, but that, i would call, the monetary policy part of her response. so again, while the analogies between it's a wonderful life and people running on the

thrift, are not always immediately obvious are. it was, in fact, a very close parallel throughout the whole response. >> now, the crisis began in august of 2007 when there was actually a problem with a french money market, fund run by a french bank. if you traced through it, it actually continued until the spring of 2009. that was a long time. and despite major interventions, after lehman, despite t.a.r.p., you still had a run on citi bank, still had a run on bank of america, why did it take so long to get it under control? . >> it was not a continuous crisis. in fall of 2007 we were seeing obviously a lot of stress in markets but at that point it was not obvious whether this was

going to be the start of something bigger or whether it was something more comparable with the disruption in the '90s, for example, around the russian debt crisis, for example. there was a critical point that occurred in march of 2008 with the bear stearns episode. and that was a period of very intense stress in the repo markets and other parts of the financial markets. after bear stearns, financial conditions comped fairly notably for a while. obviously we remained very alert. we were beginning to -- the federal reserve was beginning to supervise the investment banks together with the s.e.c. over summer, so we were not complacent about the crisis being over but conditions were certainly more stable after bear stearns for a number of months. and there was at least some hope, given that, for example, that the bush administration was undertaking a fiscal

expansionary policy, there was some hope that some things might calm but we were very attentive. i think the real, the real intense face phase, i think everyone would agree, began with the takeover, the putting into conservatorship of fannie and freddie in september of 2008, followed through a very intense period of lehman and aig, the t.a.r.p., et cetera. so i think that very intense period from, say, september 1st until the latter part of the year, that was the period of greatest stress and greatest risk. and the combination of our lending programs and the injection of government capital, the fiscal aspect of that, brought the crisis down considerably by the end of the year. of course, into the next year we were still working to stabilize

the system with our stress testing, addressing some concerns at specific institutions, but our monetary policy and the like, but i don't think it's fair to characterize the crisis as being something that was continuous for a year and a half. rather, there were periods of e ebbs and flows. and most intense period in september and october, i think we got that under control reasonably quickly with the combination of the fed easily qu liquidity provision, actions by the fidc and other agencies as well. >> now, hank paulson describes having sleepless nights at that time. you know, agonizing that he would go down in history as the herbert hoover of this episode. i think tim geithner once described you as the budder of central banks which implies a certain level of detachment.

did you have sleepless nights? >> oh, sure, absolutely. but it's my nature, i think, to kind of focus on the problem. you know, i was so absorbed in what was happening and trying to find response to it that i wasn't really in that kind of reflective mode. later on, i was kind of like, you know, if you're in a car wreck or something you're mostly involved in trying to avoid going off the bridge. later on, you say, oh, my god. but -- but during the -- during the crisis, as i said, there were some very intense periods during the september/october 2008 period. not only were we, you know, trying to address the crisis, we were trying to deal with our international colleagues around the world. this was a global crisis. and then, of course, we were, you know, constant li testifying or otherwise trying to keep the world informed about what was happening. so it was a very, very intense

period. but again, i was, you know, just focussed on the task. >> now, your partnership with secretary paulson and then secretary geithner was clearly central to solving the crisis. now it's -- to an outsider it's remarkable what a united front you presented but you did have different background, different personalities, you represented different arms of government. and to some degree there's a natural tension the central bank does liquidity, treasury does insolvency. but the distinction is not always very clear. were there any big disagreements? >> so first of all, you're absolutely right that we had very strong partnership. paulson, geithner, and me. we are different people, different backgrounds. but i think we were actually

quite complementary in various ways and we certainly all recognized the seriousness of the situation and the need for cooperation among the treasury, the fed, and other agencies. that was the overwhelming imperative to work together to try to solve the problem. there were certainly points where, you know, we were trying to address the financial condition of the aig or some other politically very difficult problem, and there's a little bit of discussion about whether or not the fed or the treasury should take the lead on that particular area. but in the end, paulson in particular who, during the heat of the 2008 crisis, was the person who was most exposed to the political winds because secretary and treasury he represented the administration and he had to go to congress and so on. in the end he always did what had to be done. and i think that was the reason

that we worked together, the combination of our complimentary backgrounds and skills, and the fact that we shared a common purpose. there were many people in the world, economists among them, who thought that it's perfectly safe to let financial company goes down biological weapon heard that even at jackson hole a few days before the crisis intensified in september of 2008. the three of us never -- we were all very much in agreement that that was not a wise thing to do. and we were committed to doing that. let me just also say though that while the interventions with large failing firms are the part of the story that gets the most attention, most controversial, much of the good work that was done was a little bit more under the radar and had to do with our actions to try to stabilize key financial markets like the money market funds, the commercial paper market, the asset backed

securities market, our work to strengthen the commercial banking system and so on to work with our foreign partners, to do currency swaps with 14 other central banks. there's a whole range of things that we did that didn't involve firm interventions, which were less visible but probably occupied a much greater portion of our time and which were at least as important if not more important in terms of stabilizing the system. >> now, i think in david wesle's book there's a scene where he has used sort of pushing secretary paulson to go to congress. so if they had gone to congress to get money earlier, could we have avoided lehman? >> no, for the following reason. even with lehman, even with the stock market tumbling, as you know it took two votes of the house of representatives to get

the t.a.r.p. approved, i remember a senator telling me when we were trying to go around and explain to congressman why we needed the t.a.r.p. and why it was critical to the stability of the american economy. he said, well, i have to tell you, my calls on this from my constituents are 50/50, 50% no and 50% hell no. so it was a very unpopular -- as you know, very unpopular policy. as barney frank has put it, it's one of the most successful government policies ever and never the less, of course, it's also one of the most unpopular. there was no chance. there was no chance that we could have gotten a t.a.r.p. type program. before it was becoming evident that how bad the situation was going to be. so that was the catch-22 we were in basically. but it was also clear to me that at that point in mid september that the ad hoc interventions in

which we had relied given that we didn't really have a framework for resolving these firms had reached their limit. and we had no choice but to involve congress and it was very clear about that. >> so let me talk a little bit about that political backlash. i mean, i get the impression that dodd frank, for example, while giving the fed more power to prevent a crisis, limits the ability to -- of the fed to intervene in the way that it did in 2008. can you tell us more about that? are you worried about, you know, what the consequences of that are? >> no. we were supportive of those changes. we're totally comfortable. the -- what the -- what we're talking about here is the so-called 13-3 provisions which allow the fed to make emergency loans to individuals, partnerships and corporations, under certain conditions. unusual and we used those tools

for the first time essentially since the great depression to, you know, to support the collective effort of the government to prevent the collapse of some critical firms as well as doing broad-based lend for -- in a number of key different markets, as i was describing before. the former, the interventions for firms, again, happened because there was no framework. there was nothing but the stand da dard bankruptcy code and what bankruptcy does is, first and foremost, is defend the interest of the creditors, which is a great thing but there's no recognition in the bankruptcy cold that you also have to worry about the stability of the financial system. in any case we didn't have anything like that in 2008. so the dodd frank act, title ii, provided much more structured

and flexible approach to addressing a failing critical firm in the middle of a crisis. so we don't need that authority anymore. the -- we have tools now, which we didn't have to address individual firming. at the same time, the 13-3 rules in dodd frank do permit and we just wrote the imp mementing regulation for this, they do permit a so-called broad-based program so that our actions with regard to commercial paper, asset backed securities and some of the other markets that we provided liquidity to presumably would still be legitimate, still be legal, as would the state of primary dealer facility which was open to all primary dealers. so the key things that we did would still be possible, although we have to give

treasure of secretary permission now. we are happy there are alternative ways to deal with a failing firm that the fed doesn't have to intervene in that way we did in 2008. >> now, we all heard from don kern this morning talking about the whole political environment. i mean, are you worried about the political backlash against the fed, the consequences, both for monetary policy and our future fed decision makers will be able to respond in a crisis? >> first of all, it wasn't really a surprise. this is another place where history helps you. if you think about the 1930s, as you well know, we had exactly the same kind of reaction. in fact, it was much more intense. >> although those guys did the wrong thing and you did the right thing. >> well, it wasn't so much even the fed, it was -- it was --

because the fed did keep its head down in the '30s unfortunately, but the government in general. you know, there were marches on washington and strong populous movements and serious talk about revolution even among some parts of the population. roosevelt, what he argued is the strong actions he was taking were about saving capitalism essentially. and, of course, analogously to the report that we had on the crisis in congress this time there was the commission and all of that has happened before and it's not surprising, in a sense, that you would get this populous type of reaction. i guess the only thing -- one comment i would make is that the alternative, if not doing what the fed -- the fed was created to address financial panics and its independence and stability

to act quickly is a key feature of what the fed is about. and if we had not done that and if the financial system had imploded and the economy had plunged into even a deeper depression, i think the populous reaction would have been pretty bad, as well. so we were kind of stuck one way or the other. so we did the right thing, i hope. we tried to do the right thing. and there certainly has been pushback. we hope as the economy improves and as we tell our story and as more information comes out about, you know, why we did what we did and so on, that people will appreciate and understand that what we did was necessary, that it was in the interest of the broader public. it was a main street set of actions aimed at helping the average american. and as time passes and that

becomes clearer, i'm hopeful that these political concerns will wane. that being said, the reason the fed is independent is that it can take emergency actions or any other actions, policy actions, independent of short-run political pressures. the day that we allow those short-run political pressures to make us do something which is not the right thing for the economy, then our independence at that point is effectively gone. >> so i could keep on going about the financial crisis but let's move to monetary policy. in many ways you've had -- you had a playbook for how to deal with the financial crisis. the monetary policy post the financial crisis and reviving the economy, i mean, we heard from john williams this morning that, you know, essentially this was, you know, there was very little -- there was a little bit of theory, some of which you have helped develop, but we were

really operating blind. so in devising qe and all these other unconventional monetary policies, were you pretty confident that the theory would work or what whatever you -- going into it? >> well, the problem with qe is that it works in practice but it doesn't work in theory. >> yeah. >> and the other way about forward guidance probably. >> so i think it's a bit of exaggeration to say that it was all -- it was all unprecedented. obviously we had the case of japan and they had taken some of these actions. we had those experiences. we learned some things from the 30s and so on. i think of qe as being a basic monetary principle which is that these are some of the ideas that

we've been in shorts and friedman talked about, which is that the way you can stem tlat economy is by swapping liquid assets for less liquid assets. that's essentially what a less open market is. on the side of forward guidance, et cetera, people like michael woodford and paul and others had talked about those issues and how that would -- how that would work. so we were relying on research. i think just, we say parn thetically, i think that monetary policy in general is an extraordinary example of how thinking within a policy institution and in the academic world can, you know, mutually benefit each other. and we made use of the ideas that we got from academia and also ideas that came from our own experiments. the basic problem was that

interest rarkts t interest, the short-term interest rate was effectively zero in 2008. and that any analysis would suggest that it was not enough economic monetary support to achieve a sufficiently robust recovery. we needed additional stimulus. and these were the two methods with some experimentation that we came to. but again, and i do think, by the way, i do think that they both have been -- have been helpful. we've learned a lot. but i would disagree that these are, you know, completely novel ideas. a number of different central banks have tried various forms of forward guidance and the federal reserve talked even before the crisis about considerable period and those kinds of things as well. so what we were doing is trying to build on what others had already done. >> now, qe was much more dron verse sh controversial than the lender of

last resort type of things that you did, and you had to deal with a fair number of skeptics including within the fomc. how did you persuade so many people to go along with it? >> i'm not sure i would agree with you on that, which one was more controversial. i think they both had elements of controversy. we were looking for additional measures that we could take, again, to provide additional accommodation and to help stabilize financial markets. you know, the biggest measures -- some of the biggest measures we took were in late 2008 and then in march of 2009 when we put in a very big program. and that program, the beginning of it, was very broadly supported in the fomc. it was felt that -- that that intervention would both provide very much needed monetary policies and support and, in

addition, it would add to the liquidity of markets in general which were still under great stress at that time. so the beginning of it was certainly a broadly supported idea. subsequent to that, you know, that gave us the opportunity to see what the effects were and to do analysis and so on. and the staff analysis and pretty large literature that is out there, i think john's bibliography had some of that in there, had suggested that while there are difference and views about how effective qe is, the great majority of studies have found that there is is at least somewhat effective and that given that we were, you know, at the limits of what conventional monetary policy could do, we felt that we needed to take additional steps. and for the most part it has been supported, a number of the folks who have, o., some argued

that it wasn't needed or something like that. i don't think that a large number of people on the committee feel that it's inherently not affective. >> so we know what the benefits are because they're lower long-term rates, lower mortgage rates. so what are the costs that you most worry about? >> well, i think that some of the costs that people talk about are not really -- not really costs. i'll mention a couple. one cost that gets talked about is, oh, this is going to be inflationary. and while, of course, it's always possible for the fed to raise rates too late and too early and so on, i think we have plenty of tools now at this point.

we developed all of the tools that we need to manage interest rates, to tighten monetary policy even if the balance sheet stays where it is or gets bigger. to go that that means that we can run monetary policy in a normal way and avoid any risks of undue unnation or other such problems. i don't think that's a concern and those who have been saying, you know, for the last five years that we're just on the brink of hyperinflation, i think i would point this to this morning's cpi number and suggest that inflation is just not really significant risk of this policy. >> another concern that people have talked about is the idea that the fed might take capital losses which is not -- of course not impossible but i would cia that from a social point of view we have already not only helped the economy but we've actually

helped the fiscal situation with hundreds of billions of dollars that we've remitted to the treasury and that doesn't take into account the benefits for the public fist of a stronger economy, more tax rev neys and the like. so that risk is, again, not a true social economic risk. it's, if anything, perhaps a public relations risk for the fed but it's not a serious economic risk. the many risks that my colleagues have pointed to is various aspects of financial stability or potential for financial instability. there is always some concern that really for any kind of monetary easing policy, they may be reach for yield or some misvaluation of assets. given what happened, of course, five years ago, we're extraordinarily sensitive to that risk. with it, of course, now, that's really for a different kind of monetary policy.

qe, in addition, works on term premiums to a significant extent and we simply have less knowledge, information, at how appropriate yum premiums are determined. certainly some risks there. our strategy though has been to -- not to distort monetary policy in order to address those risks directly. indeed, insufficient monetary policy accommodation, if it leads to a weaker economy and bad credit outcomes, et cetera, is also a financial stability risk. so our basic approach has been at least for the first, second, and third lines of defense to rely on supervision, regulation, monitoring, macro policies and tools that we had in developing to try to avoid potential

problems. we also look very carefully at the implications of any potential kind of financial imbalance. for example, is that asset class heavily levered, is it supported heavily by leverage which in turn means a sharp drop in that valuation would lead to other types of problems. those are the kind of things we look at. we analyze those types of situations. so our goal is to -- is to address financial instability concerns, primarily at least in the first instance, through supervision, regulation, and other microeconomic types of tools. but it is something that i think of the various costs that have been ascribed to qe, i think it's the only one that i find personally credible, frankly. and it's the one that we have spent the most time thinking about and trying to make sure that we can address it as best we can. >> bottom line for the moment, you're not worried about too

much froth in financial markets? >> well, it's always, of course, bad luck to make any forecast about any particular market. but the markets currently seem to be broadly within, you know, the metrics of market valuation, seem to be broadly within historical ranges. the financial system is strong. the key financial institutions are well capitalized. so we are watching this very vigilantly. we developed tremendous additional capacity for doing that. but at this point, you know, we don't think that -- i think we speak for my colleagues in this. we don't any that financial stability concerns should, at this point, detract from the need for monetary policy accommodation, which we are continuing to provide. >> last question and then we'll turn it overed to audience.

has the crisis done long lasting damage to the economy? and if so, you know, what are the channels that you really worry about? >> that's an excellent question. i don't think we will know the answer for a while. i would note first, just i think it's important to say, that there's been a benefit, which is that obviously we've done a branch refrigerator formation of the financial regulatory system, and a financial markets, which will provide greater stability, i hope, and more effective credit provision in the future. so there is at least that benefit. although, of course, it was a very expensive -- expensive gain. there are some ways in which the crisis could have affects on the, if you will, the supply side of the economy, which means it might have a longer-term implication. one, of course, is the effect of

long-term unemployment on labor supply. obviously there has been declines in labor force participation, part of which is certainly due to ongoing trends that were in place before the crisis but some of which might be due to the depth of the reception itself and could affect the available labor supply going forward and, of course, has very important direct effects on those who are unemployed and their families and so that's certainly a concern. and it is, by the way a motivation for being aggressive with monetary policy to try to prevent those kinds of effects from taking hold. another kind of perhaps more longer lasting effect has to do with productivity gains. we've seen very slow increase in productivity recently. we don't fully understand why.

some of it may just be low demand, for example. but it could be that the financial crisis has led to slower pace of interventions, slower pace of firm formation, less capital investment, which has led in turn to a less rapid pace of innovation. there's interesting work economic historian alexander field who has written that the 1930s was actually a period of great innovation but it didn't show up in the productivity statistics because with the economy in depression there weren't markets sufficient to make those innovations commercial. something similar may have happened to some extent here. all that being said, these are important effects but none of them are truly permanent. eventually the economy will return to the growth path that

it was on prior to the crisis or close to that. these are long lasting and potentially serious effects but i don't think they are truly permanent. >> great. we're going to turn to questions which david has got. >> i want to ask if there's any of the people on the panel this morning want to pose a question? if not, we'll go to the audience. okay. do you want to stand up and wait for a mike and tell white house you are and let's try and keep the questions to questions and 140-word characters. >> ned. mr. chairman, as a student of history, talking about the role of the president. during the great depression we had franklin roosevelt fireside chats, explainer in chief, making some sense and comfort out of the chaos. did we have that in 2008? because my sense is the american people, main street, wall street, still a great deal of confusion, and i think we're paying the consequences of it

even today. >> well, it was a big challenge to explain what was going on. and at the federal reserve we tried to do it. we didn't always succeed, i'm sure. president bush, i give president bush actually a lot of credit. he gave a lot of leeway to me and to secretary paulson to do what we thought was right. he supported us throughout the process. i remember him going on television and giving a speech about the t.a.r.p. which must have been very difficult for him given his political lechs and the cost of that from the political side. so it was difficult and it was difficult. mmuns a challenge throughout this whole process. but i wouldn't put it on the president or anyone else. i mean, i think all of us who are involved in the policy

making had a role and had a responsibility to explain as best we could. and this was a time at which, you know, i came -- when i came to the fed i was very interested in increasing the transparency of the fed although my motivations were primarily for making monetary policy more predictable and more accountable. but as it turned out transparency was very helpful on other difficult mengmensions as particular i tried where i could to bring the story not just to markets and to other economists, but to a more main street type of audience, on television or in town halls and things of that sort. it was very challenging, frankly, to do that. obviously we had other things to do as well. it's -- if you look around the world, there are populous reactions in most countries where there were serious

financial crises and that's probably not avoidable completely. and what we have to do is, again, to explain what we did, why we did it, and try to win back the confidence of the public. that's, i think, an important objective for all of us around the world. >> gentleman here in the blue shirt? kerry? >> thanks very much. i write the mitchell report. mr. chairman, i would like to ask the question that broadens from mr. lamont's question. and that is, you've been in a remarkable place during a remarkable period of time. you are a great student of history. what i'm interested in knowing is whether this experience has caused you to think in different terms about the strengths and weaknesses of our political

system and, in particular, how you think the system -- and i mean that at large, the executive branch, the congress, the people themselves -- whether it gave you a different perspective, a stronger perspective, a more questionable perspective on how well american governance is working at this point in the 21st century. >> yes or no question. >> yes or no. there's two different questions there. one has to do with sort of the structure of the american government as given to us by the constitution and all of the evolution of the government since then and then there's the question of our current political sigtuation in terms o the mix of views around id s an that are currently on the hill in particular. in terms of the former, without

making a judgment at all, i'm certainly not qualified to make a judgment about overall political systems. one thing that really struck me during the crisis was that the governments that had more parliamentary type systems were better able to respond quickly to a financial crisis. i think, you know, it was envisioned in the constitution that the president might have to act quickly to respond to a military or some kind of foreign relations crisis. and that's why the president has a lot of flexibility to take action in the event of a military attack, for example. of course, ultimately going to congress to get ratification. during the crisis, say, the british, for example, very quickly put together a plan to address their banking problems because in this particular case

they had a government which controlled the legislature and was able to respond quickly. so i think that turned out to be a problem during the crisis. now, obviously, some of the legislative actions that have been taken in dodd-frank and so on have tried to set up frameworks whereby the fed, the treasury, and other regulators would be able to take necessary actions like, for example, the liquidation authority. so there has been an attempt to address that structural problem with respect to financial crises. on the broader question of governance, you know, i have felt some frustration. certainly it's been a concern that we've had these periods of fights over the debt b limit and things of that sort. i think those things have caused problems for the economy. they've hit confidence.

they certainly have prevent ed more positive constructive action on the part of the government to address some of these concerns in terms of unemployment, for example. but, you know, again, that's -- that's not a feature of the nature of our government. it's just a current -- it's just the current situation in terms of the disagreement and range of views that are currently on the hill. >> another question? >> krishna, isi. chairman, when we look beyond the legacy of the crisis itself in terms of deleveraging and other things that can rub off and others have written about, there are other factors that

play, the aging of the population here in the u.s. and in much of the industrialized world, the increasingly factural distribution of income games as well as factors as the continuation of the global savings and emerging market economies. when you look over the longer sweep ahead, beyond when we may have finally achieved full employment again here, do you expect that we will be at an era of sustained low interest rates? >> i wasn't expecting that end there to that question. i'm hopeful that we won't be in a situation -- i mean, part of the implication of your question is the zero lower balance, is that going to be relevant a lot or not. it's hard to know.

certainly there are a couple of ways of avoiding zero lower balance and one would be to avoid deep recessions like the one we are now emerging from. another would be to use a more balanced mix of monetary and fiscal policy in when responding to recession so as not to overrely on low interest rate monetary policies. given, you know, given inplace the determinative long-run interest rates is going to be the rate of return to capital investment, productivity, so on. that's a huge debate as you know. i guess i think that the jury still out about longer term technical trends and the productivity of capital one of the other things is the global savings glut. you know, during the period before the crisis, the u.s. had a 6% trade deficit. we still have a trade deficit,

which means, of course, that 6% of our domestic demand is being, you know -- is being drained off essentially abroad. at the same time, we, among the richest countries of the world, are receiving large amounts of capital inflows on that which both of those things are going to tend to push down interest rates. so one way to address low interest rate problems would be to get better balance in growth in terms of trade and capital flows. another one, again, is to have a better balance of monetary and fiscal policy including good investments and productivity enhancing projects like effective infrastructure, for example. but in the end it's going to depend a lot on the return to innovation, return to new capital. as i said, i think t