why are we playing the theme for three's company? you'll see in a second. good morning and welcome to "squawk box" here on cnbc. i'm michelle caruso cabrera along with joe kernen and sara eisen. yes, two ladies today. but fist, the portugal bank and shock waves has been absorbed and now european are higher on the week. the futures are higher, the dow would open higher by roughly 37, 36 points. the s&p is higher by 3 points and nasdaq higher by 11 points. dow futures were down nearly 125 points. the dow did drop as much as 1830 points in the early trading and clawed its way back to finish down only 70 points. the s&p 500 fell briefly prosecute rebounding.

portugal recovering by more than 2%. that doesn't get back all the losses from yet. let's get more headlines from sara. >> billionaire investor carl icahn putting up the caution flag. reuters says it is time for investors to be cautious about the stock market and he's been very selective about the companies he's choosing to purchase right now. we'll hear more from carl icahn next week. do you have something to say? >> i can just tell you, i've known him a long time, i've been to dinner with him many times. he's always -- every time i have had dinner with him, he's on the stock market, every single time.

and especially like carl that looks at first vacations, a lot of these ooips guys always sort of think that things are overvalued. i'm thinking this time -- i don't know if we had children, i mif just had any daughter. so it's 14 years ago. we had a huge discussion at dinner on and on and on about it. all these reasons. and he went up -- well, since then we've tripled, probably. but we've at least doubled over the next few years. >> guys like him are always looking for great deals, right? when they can't find them -- >> nobody has a better record over the last ten years. when i was talking about him, he was a billionaire. he went down to hundreds of millions of dollars, right.

>> to get that kind of a search, whether the market is overvalued, undervalued. they're looking for a change. >> guys will talk about that. and down at the lows of 656 on the s&p, roubini kaem out and i was a stock market timer. all of it when they come on, alan greenspan at 5,000. >> the pundit crisis. >> wells fargo is going to be reporting this morning. analysts expecting profits up 1.01 a share. that's versus 98 cents in 21.4 billion a year ago. we'll have instant reaction to

those numbers as soon as they are released. same story. who is supposed to read this? >> yes. citing gains on asset sales, chevron reported first quarter earnings of $2.36 per share. chevron expected to report second quarter earnings in august. gap reporting that same-tore steals fell 2% in june versus a 7% increase a year ago. comparable scales fell 7%. turchbs out thoughts sales at its old navy shot, pretty mixed picture we're getting in the last 24 hours. >> you've got the other guys that are actually -- and people will never look at carl and say wow, he doesn't know what he's

talking about. jeremy siegel, or pick a guy like ron baron who is always optimistic. suddenly we're at 17,000 and you look at those guys and you snicker. but we're at 17,000. who has been right? al.ableson, who is so smart that he's always bear yesh from 800 and -- >> maybe it just doesn't change. >> you guys are late, great -- if i came back as something, i would come back as appear embarrassing -- >> they have celebrity status. >> they do. and you can feel like a contrarian because you feel like the market is the crowd.

>> finally, their moment and it's going to get worse or it's over. >> let's get to the conflict. we're talking to martin fletcher who is legendary. i used to watch him. but now i get to toss him which is an honor. martin fletcher joins us from tel aviv. hello again, martin. >> hi, how are you? >> i'm well. good to see you and glad to be able to speak to you. did you ever find out what that was yesterday that you were hearing? were those more rockets?

>> well, there were more air raid sirens, but no rockets over tel aviv at that time. hamas today issued a statement warning airlines not to fly into tel aviv because they say they're going to target there are archts. i flew it into the air a couple of days ago, lufthansa delayed their flight to tel aviv for about five hours. they said because of the political situation. the iron dome presumably will be an effective defense. auto serious set from her mad

military wing. and at the same time, israel is continuing its attacks against gaza. we will see more in just a few moments ago. is israelis have been ringing their cell phones and sending text messages saying evacuate the hotel, you have ten minutes. there's cell phone calls and drops telling them leave your homes now. normally that is a precursors for raids in those places.

>> so if you had to handicap that at this point, mart yip, that's one of the things we talked about yesterday is how many times we've seen something similar to this play out. a lot of times, it doesn't accelerate into any -- or get worse than it is at the current time. what is your gut feeling this time? >> that's right, joe. israel's movement here is to prepare for a ground invasion of gaza. to terrify everything that it's going to happen. >> hoping they'll be too afraid of the combination 37 that will stop.

everyone is afraid of a ground invasion. however, it may happen. it's not something israel wants to do. as long as the rockets keep being fired from gaza, israel has to find a way to stop it and the ground invasion increasingly day by day becomes more likely. the palestinian rockets, our 550 palestinian rocket have been in israel over the last two-week period. nobody has been killed by these rockets. but today, a rocket did fall on a gas station creating some serious damage in the gas station. eight israelis were wounded, one seriously.

>> thank you for your reporting this morning. you figure israeli reservists are -- >> they don't mess around. >> not that we don't have guys here, but a reservist is almost like a regular database. >> well, they're more ready to be called up. exactly. >> if i was a reservist -- >> you would have on be trained first. >> you could do it. everyone in israel does it when they turn 18. let's get back to the problems in pore tu began. steve sedgwick joins us from lisbon. hey, steve. >> hey, michelle. i remember a conversation i had with john, i think it was about

the lisbon zoo. but that was premay 2011. that's when they had their bailouts because sth this economy was in a real big problem. the season is expected to get nervous. the fed in porch with a ten-year debt saying below 4% before this crisis, and the peak of the debt crisis in 201 is. people just didn't know what was going on. they saw the questions about default at one of the paring companies. they're still not sure how this goes. it is a paid three. the company is reported on its

loans is not bank your despirit, and it's controlled by this operate family. getting back to what we're doing today, a little bit of calming with the market. they are problems isolated with the family who have a lot of explaining to do. portugal telecom, which has loans for the espirito santo family. you can see the issues here. everyone doesn't have any clarity.

there's a lot of questions remaining and that's why people got nervous. people get very nervous and rightly so. >> absolutely, steve. we were wondering if it's slighted or symptomatic here. so this is current. wells fargo results, is that the day at 8:00 a.m.? >> that is today. >> and from rome. >> three's company. >> i'm sorry, just me. anyway, let's continue our conversation. the worries over oorp and portugal's banks were muted -- anyway, that was a short session, don't listen to what everyone else is saying, what, did it go down 6/30 or something? should investors be concerned?

i don't even know what happens in portugal. you said it's going to hit 2% at some point. >> well, it's on its way, we'll see. in a macro accepts, that the fiscal troubles are back in that part of europe? >> the bank itself and his oven buy of five or six different holding companies. but my concern here is the ecb and as portugal moves in and investigates the holding company, they're going to buy more than we even know at this time and general michigan experience on wall street has

been that is what always happens. my second concern of the situation is contaj him, fear some of the difficult is. because it's al intertwined and we don't mow the answersess. >> i'm shocked 37 and if they ferg out how it's -- whether the ecbc has over this, if that doesn't allow them to capitalize, then what would? >> well, i think that's right. i think that's why the market normalized later in the day. i think the two issues here that

i mentioned, the contagion issue and what's really there, but i don't think it's going to be a disaster for the american markets. >> mark, we were just talking about rome and spain. quality of life isn't bad. in terms of like the brakes in the middle of the day, i remember in pore due gal, not a lot happening between 11:00 and 4:00. is this a problem in all the company companies over this? >> you do need at some point. the european european country and that's been one of the difficulties of meshing all this together. >> honk are we talking about europe in terms of our own situation over here?

>> i think the big issue between europe and the united states is how low their interest rates are. in the five-year german sovereign debt is 500% less than ours. which is one of the reasons that compared to value, a relative value basis, certainly you talk about all day in toerms of the equity markets, that's one of the main reasons i think the u.s. is going down by comparison. >> okay. well, i just -- we made a lot of portugal yesterday. if none of this is important, i feel used. >> i think the question when we woke up was, like i said, isolated or symptomatic or something far more widespread? and when you start to read about the governance issues of this particular bank, how the bank of portugal has basically

nationalized the management, you start to think not a lot of people on -- >> but the biggest country to worry about has not moved forward with reforms. >> this is not a reform issue opinion all right. mark, you're very calm today. you are basically saying this is not going to be anything. >> what do they need to change? >> they don't need -- we're going to keep going there. it's the greatest place in the world. >> they just need restructuring. >> i go there and i come back here and think, why don't we all nos to italy. >> the fact that they're not going to pay it back, they can just keep going with it.

>> remember when we said g2 -- no, it wats g1, when al pachino was struck by lightning. coming up, three of the world's richest men are calling out cob for not taking any drones off am con. check out the fuchs. we've seen declines in three of the last four sessions. lookses look like we're going tokt a rebounce today. n riemomentum indicator that makes researching sectors and industries even easier. because at scottrade, our passion is to power yours.

act zon making a request to the faa to start testing its drone delivery service. granting the internet retailer an exemption to drone testing rules to restrict flights and fix official staging areas throughout the cup. the country's drones can now carry about 5 pound loans over 50 miles per hour. outdoor flights and potentially pilot program would take place in the seattle area, about five pounds. i don't know. i don't know about this. >> tested in seattle. did you see where those guys were arrested for flying something around, they were commercial helicopters and they almost ran into each other? how far is seattle? >> far enough from you. >> i don't know. how do you feel about it?

>> i wonder how they would do this in new york city. >> you can put an eye out with one of those things. >> yeah, that and how do you reach the fifth floor? i don't know. >> the windows open, it would be like hovering out there. >> i love the whole concept. >> that's nice but, you happen, science fiction is nice, but what if it runs out of gas and hits you in the head? >> people said that about planes and cars at some point in time, right? >> we're going to look back and say remember when we worried about drones? okay. three of the world's richest men are taking up the issue of immigration reform. sheldon adelson, warren buffett and bill gates have an op-ed in the "new york times" this morning. the three are calling out

congress for not taking action on immigration reform. weblg it borders on insanity to train intelligent and motivated people in our universities, often subsidizing their education, and then to deport them when they gautt. many of them people, of course, would like to stay. but some return to their home country. that's fine. but for those who wish to stay and work in computer science or technology fields badly in need of their services, let's roll out the welcome mat. the three of us vary in our politics and would differ also in our preferences about the details of an immigration reform bill. but we could without doubt come together to draft a bill acceptable to each of us. we hope that fact holds a lesson you don't have to agree on everything in order to cooperate on matters about what you are reasonably close to agreement. at the time that this occurred,

they picked the easiest stuff to talk about. we all want legal immigration to come in, how then do you address what's happening in texas and the concerns? it's almost like a different bill. it's almost like a different -- you know, almost a different aspect of the whole issue? >> what a lot of folks don't want to say out loud is we need immigration, high skill, but we also need low skill immigration. no one wants to go near that and that speaks to the border issue that you're talking about. trying to bring those two items together, incredibly difficult. >> but that doesn't mean they shouldn't try. they call out what happens in virginia where 36,000 votes elected someone completely new which put the whole immigration issue off the table and saying that's completely ridiculous. we didn't elect our congressmen for that. >> but out of the people that have come in so far, what is the answer for what we do? they go back, they stay, what do

they do? >> i thought you were talking about the amnesty issue. you're talking about the children? >> the people crossing the border right now, what do we do? >> the logistical details of trying to return all of the people who -- >> but how many border people are now trying the keep people out rather than pay for the people who are already here? >> boy, so if we had a much better immigration system, a lot of that would be reduced dramatic will i. then those who are trying to sneak across the border you know because of the criminal element and -- >> you think it's a humanitarian issue right now? >> yeah. >> if you were in texas and there is a humanitarian -- wouldn't you have gone for the season? >> uh-huh. >> so this is a poisoned atmosphere in congress causing all this? >> it has become a political issue. that's what the president is

making of it right now. despite the fact that it's a humanitarian issue. >> why would a photo-op means that -- why would that somehow tarnis his image if he was photographed at the border assesstion the situation? >> i don't know. >> because it would somehow associate him with the problem. >> we're at a place in politics in this country right now where there's a lot of plame on both sides, but it's unbelievable. it's part of the lame duck. he's not running again. >> which is why i don't understand why he can't take up immigration. >> that's some relief there. you want to make -- >> well, i don't know. someone said literally. coming up, should the bulls proceed with caution as carl icahn says? and as we head to break, a look at yesterday's winners & losers.

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if you're still just managing your symptoms, ask your gastroenterologist about humira. with humira, remission is possible. good morning and welcome back to "squawk box" here on cnbc. i'm joe kernen along with michelle caruso cabrera and sara eisen. we're playing these weird songs

and stuff. i had gender blind. >> if i'm playing andrew today, i guess -- >> you are. >> you know what they say in universities? gender is a social contract. >> i'm blind to everything. i'm blind to everything. >> politics. >> everything. and i get a lot of mail that says that i'm blind to everything. and the headlines this morning, britain's imperial tobacco says it's in talk toes buy assets from reynolds american and lorillard. our david faber -- >> our david faber? >> yes. has been reporting that reynolds and lorillard will soon announce a merger deal and that imperial is likely to buy and possess the assets. analysts say it could be worth more than $5 billion. sales of video streaming devices are booming. new figures show that roku and google's chrome cast are leading the way.

roku and chrome cast each accounted for about 32% of u.s. devices held last year. al.tv was third. and the energy department says there won't be a repiece of the long gasoline lines that were seen during sandy last year. a planned 1 million barrel gasoline reserve will be in price. there a peak between mid-august and october. let's check on the markets this morning after the sell-off that we saw yesterday. futures are higher. >> we can share. go for it. >> let's take a look. we are seeing a calmer market right now. looks like we are headed for a higher open on the s&p. on the dow, up 40. this is a reversal to yesterday, though. yesterday didn't end as sharply as it looks like at the open. we should note, we are headed for the biggest weekly decline on stocks since back in april. three of the last four sessions

were negative. there's the european picture. as you can see, it's a big improvement from yesterday, especially with portugal. portuguese stock market up almost 2% right now in italy. joe, up 1.5%, perhaps while the traders were listening to those positive comments. >> look around. you're in italy. >> you're in italy. i guess that's a -- >> what more do you need to know? >> germany is pretty much flat. france and the ftse over in london, not big gains as we're seeing in the peripherals. in asia overnight, the nikkei fell. they were reacting to what we saw in the u.s. and european sessions yesterday. although interesting to see in shanghai stocks finish higher. looks like we've got energy here, as well. >> we can do that. >> pressure on wti and on brent. wti down for the 11th day in a row. brent, the international benchmark, also lower, down by 0.5% from shaking off the geopolitical concerns there. and there is your market,

michelle. >> markets ending to the down side, well above session lows in portugal's banking problems, initially rattled investors. those fears seem to be contained at least for now. carl icahn says it's time to be cautious about u.s. markets. is he right? joining us right now, bruce kasman in new york city and patrick. it's great to have you guys here. patrick, you agree with carl icahn, i understand. >> yes. there are two things to drive this market forward. there's valuation momentum and earnings performance. last year, two-thirds of the gains from last year came from multiple expansion. that's fine. there are years where people expect it to get better. but usually consequence years performance is about delivering on that. and so this is why second quarter earnings season is going to be critical. we need to see whether the actual performance is going to put some foundation underneath

these stock prices. >> are you making a bet on that right now? it sounds like you're skeptical. >> no, it just needs to happen. you know, the numbers that we're seeing for the second quarter look strong. they look like there's a rebound taking place. and we think that they're -- actually, it's a little bit more cautious than the consensus about earninges this year. we think it's going to rise about 4 1/2, 5%. but that's good. anything that moves in the direction of actually put something foundation under the stocks rise that we've seen this year is good. >> bruce, are you in agreement? what's your assessment of it? you're the economist. >> looking at it from an economics point of view, i think the big issue we're trying to grapple with right now is how you interpret what happens after the pothole of the first quarter p in p. i think what we're watching right now is an economy that has the momentum. i think after the big drop in the first quarter, 2.5%, 3 the%

growth in the second quarter is not very impressive. but there's some inklings here. and i think it's the rpt cos that didn't go back after the first quart he. some of the survey doing better. that stuff is interesting and i think it holds out hope for the second half of the year. but right now, i think it's a disappointing first half with some hope more than that. >> can we put that to bed? >> i don't think there's a systemic threat in europe. i think it is a reflection, the fact that europe still hasn't gotten its act together in terms of dealing with banking and more generally with i think structural issues. i think what really bothers me, though, is that the european economy, which we thought would be gathering momentum at the middle of the year looks lackluster here. it's not a real threat of something really bad happening, but sort of softness in europe is i think a concern. and about financial markets, the banking sector is part of that. >> the concern seems to be in the u.s. economy or at least a wild card. the u.s. consumer.

we got negative same-store sales from gap. what is the state of the consumer which obviously is the most important part of the economy? >> i think it's been kind of odd. i think we have had a problem with higher inflation. but we've had good labor income. we've had wealth go up. the back drop looks good and we've had some decent news recently on car sales and home sales. so the spending numbers have been disappointing. it's something that has to turn here. we think it is going to turn. but i think you're right to point to the consumer as one of the sources that has been a bit of a problem here. i'm less worried about that if we're right, that the corporate sector continues here with job growth and with the pick up we're seeing in an underlying sense on the spending side. >> patrick, if you're cautious, are you looking at cash? what are you doing? >> no. all last year, people were saying move money into cash. i think you have to be part of this market. but look, you know, people are

uncomfortable with this recovery because it doesn't look like recoveries past. it's not driven by the consumer. and i think we all, even though we all say that 2008 changed everything, that really people want to go back to the worth before 2008 where the u.s. consumer drove the global growth story, the emerging markets provided that growth. we're fought going back to that. we are in an environment where i think we're going to see significant global rebalancing and actually what we're seeing is a production story out of the united states. and what we're going to see is a consumption story out of emerging markets now. that's a good story. but it's not going to happen overnight and it's will say also very disruptive. it's very different from the growth patterns that we're comfortable seeing. >> that's a turning upside down of the way we used to look at the world where we were waiting for the emerging middle class to finally emerge with these big consumers. are we there? >> well, i think the last four

of five years has been a story where the u.s. demand picture has been weak. we started the cycle with strong em and now em and now we're in a funk in the global economy overall. it feels to us, though, that the adjust manies in the u.s. private sector over this drags from the u.s. public sector starting to fade. and we should be able to do better here. i think the issue right now, which is a low bar, is where we can get from 2% growth to 3% growth. if we can't do that, there's something really seriously wrong with this economy right now. right now, the first half of the year hasn't given us enough confidence. >> i think that's unbelievably bullish. we've waited for a long time. we know the problem from china is they need to do from a producing country to a consumer country. and over here, given our trade imbalance and how much we owe china and how much we're paying it forward a little, the idea that we could become suppliers to the rest of the world, how

many levis can they buy? eventually, that's incredibly bullish. >> it's not -- >> it's not going to happen easy. >> it's a transition -- it's the only way out because -- >> it's not a way out. we're doing pretty well the way we are. >> no, look, if the u.s. is going to achieve any breakout momentum, it has to come from external demand. the u.s. is not going to leverage back up again. it's not sustainable if they do. the u.s. government isn't going to come in and replace them. so it has to come from this, you know, in china, you see $4 trillion worth of reserves. it's buying power. >> you almost sound like it's negative. we're looking at the production economy and -- >> well, but it almost means that rising standard, living standards in the united states have to come from productivity gains. and they have to come from -- exactly. but -- >> it's 4:00 in the morning.

what time do you want me to get up, 3:00? >> maybe they won't come from you. >> i've given. >> you know, one of the problems here is that europe has not -- europe has not seen internal regrowth. it's seen internal rebalancing. so it's on the back of the u.s. demand. that's not a sustainable story. that puts a real cap on the growth story out of europe. anyways, the growth stories in europe and the united states are -- they're all trying to draw on the u.s. consumer. >> we're in a bad place right now and we're going to come back there. do you remember? how internally open mystic he was about our process? we're going to get back there. i don't want you to worry so much. you're a young fellow, aren't you? am i right or aim right? we're coming back. the american dream is alive and coming back. in i think we're going to do better, but i think we've lived on emerging -- >> let's leave it right there on a friday. >> all right.

>> all morning in america. it's always morning in america. it's always morning on "squawk box." >> and with that, coming up, how pharma is dealing with the battle against alzheimer's epidemics. we'll hear a live report, next. [ both ] we checked into our hotel in paris, and our luggage was immediately... taken to... stolen from... our room. the hotel manager was clearly behind it. he was such a... kind man. con man. my husband wanted to... hug him. strangle him. and to this day we're still in contact with... the manager. the police. i wish we could do that vacation all over again. don't just visit paris.

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welcome back to "squawk box." let's take a check off u.s. equity futures at this hour point to go a higher open across the board. the dow up 34 points. no major earnings. wells fargo earnings will kick off earnings in full. portugal in the lead up 2.6%, sharply rebounding from yesterday's even bigger sell-off. we're seeing that iraqi. >> when we return, dealing with alzheimer's epidemic.

right now, it impacts 30 million people worldwide. that number is expected to triple by 2050. there's huge challenges facing society and the pharmaceutical industry. we'll have that next on "squawk box." b)4

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epidemic, meg terrell joins us now with more. it should be, i mean companies don't always do things for altruistic reasons. that's not the only reason. >> they usually don't. >> that doesn't mean that this isn't going to get handled. because this -- anyone that figures something out with alzheimer's is going to make a lot of money and help a lot of people. >> absolutely. this is a double whammy doing well by doing good. >> think how many people that we're talking about. and you look at what it might cost a year you're talking about $10 billion, $20 billion in drugs. >> i was thinking about that this morning. two years ago, three years ago when there were a couple of trials going on the estimates for what these drugs could bring in was about $5 billion. now you see drugs for hepatitis-c getting up to $11 million a year. >> that's an epidemic but it's not like this is an epidemic. >> something like alzheimer's you can imagine it would be huge. >> would affect how many people? >> what are the numbers? >> how many people -- we've got 5 million people currently have alzheimer's in the united states. it's the sixth leading cause of death. worldwide 36 million people have

alzheimer's or dementia. and as you said in your intro earlier, that's expected to triple by 2050. so we're talking a huge number of people potentially getting alzheimer's. and we actually don't know what causes it. we don't understand the biology well enough beneath this disease to be able to treat it well. there's currently five drugs on the market for alzheimer's. but they treat the symptoms, not the underlying cause of the disease. when you look at the pipeline, it looks like potentially good news. at least drugmakers are still working in the space, even though we don't understand the disease that well. there's 67 medicines in development, up from 22 in 2004. the biggest players are some of the biggest names in pharma, pfizer, j&j, glaxosmithkline, roche, jen entech, eli lilly and merck. a couple were working in the space earlier and had the big blowups. you probably remember from 2012 when eli lilly had the phase three trial that failed. lilly is still trying to work in the space. they're really trying to bring these drugs to market and this weekend should give us a glimpse at what the latest research is,

where we stand. but even the drugs that are on the market now, this forest labs drug nemenda was the last one approved. it just works on the symptoms rather than the underlying cause. so there's a huge need here. >> you think about with cancer you think about there's life years, people that die at 90 that finally get cancer, there's that. and with alzheimer's, if you get this when you're 50 or early onset alzheimer's, you're talking about 30 years of being cared for, and think about the cost to society and to families. and then there's the notion where dementia, there's all kinds of different dementia. sooner or later the brain just seems to age like other organs, so if we live long enough, if we outlive our brains, you're even talking about a larger percentage, maybe not necessarily alzheimer's, but some type of dementia or what we think of as just senility, or old age. >> absolutely true. >> and i don't know what the difference is between maybe even you look at what parkinson's does, and you look at dementia, can you call -- is it always associated with plaques like

alzheimer's? or is it just associated with the aging of the brain? >> i think some dementias are just associated with aging. but alzheimer's really has been tied to these plaques and this amyloid beta hypothesis. >> we don't know whether the plaques come after you get alzheimer's or the plaques cause the alzheimer's. >> that's the issue. we don't know what is causing the disease. but this seems to be the thesis this amyloid beta hypothesis. >> they've been attacking that for five years. >> are they getting any better at testing for it? because the tests are antiquated where it's just question and answer, there's no real -- >> that's a great point. imaging is a huge part of this. trying to treat the disease earlier and figuring out who is at risk of getting it. who is in the early stages. some of these trials that they tried before, now they're saying maybe it would have worked if we tried it earlier in the disease. that's what lilly is doing with the drug that was in phase three. they're trying to test earlier. people are starting to make progress -- >> you've got alzheimer's, diabetes, cancer, those are the -- that's the future for pharmaceuticals. and it's not only is it

something you want to do for society, but it's going to be very, very lucrative with the companies that do well. >> you have to hope that they succeed. >> well, we do. and that's all companies we hope succeed but in this case even more so. then we got to think about how to take care of everyone that lives forever. >> that's true. >> you better get a 401(k) going early. >> thank you, meg. >> thanks. >> coming up, our guest host today turnaround specialist steve miller. a famous band member, and also nonexecutive chairman of aig. >> we're going to beat this to death. >> we're going to talk to him about everything. the problems bubbling up in europe to the state of the insurance industry. is the fed ruining the insurance industry? "squawk" returns in just a moment. if you have moderate to severe rheumatoid arthritis, like me, and you're talking to your rheumatologist about a biologic... this is humira. this is humira helping to relieve my pain. this is humira helping me lay the groundwork.

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welcome back to "squawk box." trouble with the bank in portugal sends a shockwave through the global markets. but will this keep the bulls from running again? oil surprises slipping. crude in the middle of a losing streak. will the negative economic news around the globe continue to push prices even lower? and if the markets are no fun then it's time to check out brunswick. boating, bowling and billiards are paying off for the recreation giant. the company's ceo answers the ceo call. the second hour of "squawk box" begins right now. good morning. and welcome to "squawk box" on cnbc. i'm joe kernen along with michelle caruso-cabrera and sarah eisen. becky and andrew are off today.

our guest host, aig nonexecutive chairman steve miller. >> good morning. >> with plenty to talk to him -- with children on the set. but i think we should do it once in awhile. have you heard -- you know, there was a -- you heard of this guy steve miller? you were before him, though, really. >> shhh. >> yeah. >> i'm older than him. >> i remember, actually you're about the same time. because you started restructuring something, i can remember as a stockbroker you were structuring. >> well my first big one was chrysler corporation. >> that was ike. that was k-cars. >> i was with iacocca and i was the cfo and vice chairman. >> do you remember what year that was? >> yeah, i went there in 1979. >> so that's -- yeah, okay. so steve miller -- living in the usa probably before that. so he's before you. anyway -- >> how old does that make you? >> yeah, well, this is a well-known fact that i'm in that late 30s to early 40s to mid to

late 40s to early 50s. >> 40s is the new -- >> i have tried to shave time off but then that means if you shave it off, then you weren't -- you didn't see the moon landing. you have no idea whether that was real or not. no kidding. see i was there. so should i not want to be old so i can say that i didn't see the moon landing? i want to have seen -- i want to have seen the moon landing. >> lived under reagan. >> exactly. >> yes. >> but you'll never be able -- >> turn around chrysler, steve miller. >> first let's check. markets futures are rebounding a little bit but they rebounded midsession yesterday. it could have gotten ugly, was down about 150 points at one time and it ended, you know, kind of with a whimper. the ten-year got down to the low 250s yesterday. or still there. >> 249 actually. >> 252.5. it was 243 the day that we released the gdp down 2.9.

that figures that it rallied into that. and then, sold off as you can see and got all the way back up to about 270 or so and who knows -- >> 270. >> where you can't really -- who would get a mortgage when ten years at 2.70? >> i though. >> you have to be crazy. another thing you don't remember. you remember 18% mortgages? >> i have studied enough to know that there was a time when 18% mortgages were in this country. >> 21.5% prime. >> have you refinanced? >> 13% aaa-tax frees. >> and people were afraid to buy them. >> no, i was a broker. you know what people brought from me? floating rate municipal bond trusts so they floated all the way back down to 5, which was sad to see. >> all right. done reminiscing? we'll go to the head lines. about an hour away from key earnings report that would be wells fargo reporting its quarterly results 8:00 a.m. eastern time. analysts are looking for second quarter profit of 101 per share

on revenues about 20.8 billion dollars. we'll have the numbers, of course, instant analysis, as soon as they are out. the oil supplies are ample according to a new report by the international energy agency that's being helped by rising production in the u.s., and in canada. but the report also does say that risks, especially the volatile situation in the middle east, remain, in its words, acute. and that's why it expects prices to remain historically high here. argentine officials will be in new york today. they're going to be meeting with a court approved mediator. argentina, as you know, is trying to resolve that dispute with investors over its sovereign debt with a july 30th deadline approaching. there's been growing optimism here that a deal can be reached with investors who had rejected the country's debt restructuring after the 2002 default. that optimism has pushed the price of argentine debt higher in thursday's trading, as you can see. >> all right time for the global markets report. karen cho joins us now from london. here in the united states, karen, it feels like, hmm, never mind.

>> michelle, you might be right with that. because the closing bell yesterday proved somewhat of a circuit breaker for these markets. stock indices bouncing back right across the board. even some of those countries with direct links to banco espirito santo have rebounded in trade. there was a trading suspension for most of the morning in europe. it was lifted about a half an hour ago. the stock promptly soared 11%. yes you might be looking at this now saying it is a very different picture because those gains didn't hold, it's now trading lower by just over 2%. keep in mind there is now a short selling ban on the stock. the central bank of portugal has rallied behind bes saying it has sufficient capital to weather possible negative impacts from its recognized exposure to the holding company without compromising capital ratios. now bes itself released a statement earlier, european time, confirming its exposure is 1.15 billion euros. bes explained that it had more

than 2 billion euros over the minimum required capital ratio back in march. it has raised a further 1 billion in a rights issue. so the numbers crunch out if there is a complete write-off of that bes exposure and other factors remain stable. but that is a big if. because the problem arises if the potential black hole is actually larger. local sources are telling us in portugal the exposure could be as much as 4 billion plus euros. citigroup has put out a note and they also agree, remember the founding family woes are not the only reason the bank is in a pickle. it's grappling with bad accounts out of angola, as well. but for now, and today the message from the establishment is that there is nothing to see here. the prime minister of portugal is also drawing some distinct lines between the funding difficulties that the founding family and also the bank created. just a quick look at some of the other stocks out there. want to show you how credit agricole is doing, one of the major shareholders as well. bounced back. portugal telecom owns some of the debt. let me toss it back over to you.

>> karen, did you show an intraday espirito desanto chart? do you have one of those? >> i don't know if we have an intraday to show you. but we have the course -- >> it opened up 9%. now it's down 3%. >> 11%. it opened up 11% higher then it was 9%, then it tanked, it's been down 4%. it is very, very choppy across the day. some people taking this as the opportunity to get out of the stock. >> that's what i mean. yeah, someone was selling. but our futures are still sort of moving a little bit based on what's happening there. all right. thank you. those concerns over major portuguese lender rattled global markets thursday. joining us with this market insight is jurrien timor, director of global macroat fidelity investments. the tracks of his tears still after that first goal, you knew when that guy missed that first goal, you know there was a problem, did you not? did you not? >> a little bit too well during that match.

i had a sinking feeling. >> you know you are a big talker. big talker about that dutch team. i don't -- you know, you don't live there anymore. i don't know why you even care. but i'm not going to say anything. meanwhile, germany's throwing -- >> for a little country they did pretty well. >> oh, okay. okay, fine. here we go. all right. now you get offended. before you were going to -- >> okay. and our guest host this morning is a man with his finger on the pulse of many industries from autos to insurance to aerospace and beyond, steve miller is nonexecutive chairman of aig. also chairman of mid ocean partners and former ceo of delphi corporation. we'll be with you in just a second jurrien. i've always wanted to ask you, steve, take a look at the state of the u.s. right now. i want you to turn it around. what would you do? you would know how to do it. and at least can you diagnose some of the symptoms, some of the things that are causing us to -- i mean in general this feels to me like the end of the

carter administration, where we thought we'd never come back to our -- >> the malaise and yes reagan came in, and did a lot of things, including cutting tax rates, both corporate and personal tax rates. tried to slow the growth of regulation that was strangling business, and i think that cookbook would work again now. right now, business is afraid to invest in the u.s., they don't know what all the new regulations are going to mean, what the health care plan is going to mean for the cost of employment. don't know where taxes are going. the politicians are all talking about raising taxes in order to close the budget gaps. instead of cutting government spending. so, there's a lot of concern in the business community that i think holds us back. and there's a lot of opportunities elsewhere on the planet to go invest your money. and capitalist global, it's not limited to any one national border. >> you can see it, and i had -- we didn't prepare this. i'm not leading the witness. i mean, i asked you tat question

and you know where i was -- >> no disagreement from me. >> but you soared. your answered soared into -- i mean that -- it's clear to me that that's what's happening right now. and what you were just going to talk about. capital in the united states, we can see it state by state. and how businesses react to that. why don't we know that this same thing happens globally. we see what happens in illinois. we see what's happening in texas and florida and other states that are friendlier to business and we see that money flows and it leaves and so do tax revenues but we don't seem to understand that at the federal level. >> you know, texas is booming because it's the most business friendly state that there is. and they are pulling jobs and employment and capital out of the other states that have a different view about how to encourage the economic growth. and you also see this on a global scale. i mean, france has got a regime in right now that is, you know, wanted to raise taxes through the roof, very anti-business, and guess what?

businesses are able to move globally. no matter what you do. and in the u.s., our other big problem is the tax regime. it's the highest -- approximately the highest corporate taxes -- >> and all these things -- i'm going to go to jurrien and we are not saying all europe's bad. i want you to relax. and a lot of people over there they, you know, it's a good safety net and social welfare some people think that's the way to go. you got very defensive about the netherland soccer team. >> you notice he doesn't live there. >> yeah, yeah. >> he lives here. >> you know, there's a reason i live in the u.s., by the way. >> and you are welcome here. we got to figure out how we welcome people from around -- >> thank you. >> the market yesterday you heard now it's carl icahn, it was stiglitz a couple of days ago, it was "the new york times" we're in bubble territory. people have been coming out of the woodwork really for years that we need a correction or some kind of sell-off and the market continues to confound. do you think that it's due now? is it overvalued?

>> no, actually i don't. first on the portuguese situation. our own analysis shows that, you know, if this bank needs to be nationalized and we're not saying it does, but if it does, you know, the sovereign will have the resources to do so, and of course the ecb will provide liquidity, and it's got its new ltro. so it's unlikely that this situation systemic although it did happen on the backs of a very big compression in peripheral sovereign spreads, and obviously very, very low volatility levels, as we all know. it shows you when everyone gets complacent and something happens you do get an outsized reaction which we got yesterday. although, as someone mentioned earlier, the s&p closed well off the lows yesterday. so i think, you know, like the ukraine, or the more recent situation in iraq, or even cyprus, awhile ago, after a few weeks of being in the head lines, eventually investors will

return to look at the fundamentals. and the fundamentals, q1 was terrible but the numbers recently have been much stronger. the payroll number was pretty good. and you know, earnings are growing at around 6%, 7%, and you add 2% dividends, you get 9%, maybe add a point per share buybacks. you earn a 10% market on valuations in the mid to high teens. it's not great, but it's not terrible. >> that's the point. so we had someone earlier saying don't look for any help from multiple expansion. i don't know if he knows that. we're in the sort of the high middle part of value -- what are we, 17 or 18? and in the end of bull markets we're up in the 20s. >> yeah. on a forward basis we're around 16 times on a trailing basis around 17, 18. you know, from the beginning of a secular bull to the end of a secular bull the ps go from 10 to 20. march of 09 on a forward basis the p/e was ten. we're at 16 now. if we are in a secular bull market which by all appearances

actually we are, since we've broken out to new highs about a year ago, you know, there's still a ways to go. >> you're yen if you look at what's working, it is some companies, the income plays like utilities, best performing groups so far this year. is that where you want to be given the fact that you present that the economy's recovering and if you look relative to some of the other economic data from around the globe the u.s. is a bright spot. >> it definitely is. since '09 china was the marginal growth leader after that huge infrastructure stimulus that they put in place back then. and now, you know, china clearly, at least in my view, is slowing on a structural basis because their credit cycle appears to have peaked. but at the same time, the u.s. seems to be now the leader. obviously the growth rates are much slower. but, you know, we're in a pretty steady midcycle expansion. and that's a pretty good deal.

so, the markets are kind of boring. you know, volatility is low. you're clipping coupons on the bond side. but, you know, sometimes boring is good. especially after '08. >> all right. jurrien, thanks. steve you're going to be with us. i want you to think of something and how we do this. you're describing something that the other side would call as trickle-down. the companies end up doing well and it doesn't mean everybody's going to do well. do you have ways that we can help with the -- to equalize opportunity for everyone so if we do have 3% or 4% gdp growth we can lift up? i mean could you restructure education for me? could you restructure entitlement? i'm asking you to do a lot here. but you've turned around a lot of companies. >> there are a lot of tasks here. and education that you mention is one of the critical ones. we are not training the people that it takes to run sophisticated high-tech businesses of the future. and that's the earning power will come from those high-tech skills.

low-skilled labor is very much a global commodity these days. and that's why so much of that is leaving the u.s., and going elsewhere. and if we don't educate our people, then they -- your kids and grandkids are not going to have the lifestyle that we had hoped for. >> with 4% growth, you look at all of our problems right now that we're wringing our hands about, i mean, that -- just by definition fixes a lot of things, doesn't it? we could do infrastructure, education, a lot of things with 4% growth. >> being a business guy, i am very much, you know, pro-business, and the role of business in driving a better lifestyle -- >> doesn't business create jobs? >> business creates jobs. >> people that don't understand that, what are they talking about? >> right now, investors i know are afraid to invest in the u.s. in job creating industries, because they don't know how punitive the regulations will be, how costly the health care mandates are going to be. and why would you do that if you

can get your labor component done so much more -- >> they would say that it's still a lack of demand from the hangover from the financial crisis. >> there's a lot -- >> well, obviously. this whole immigration thing is just -- >> when we return is the fed ruining the reinsurance industry? we put that question to our guest host next and for brunswick they're all business when it comes to having fun. the company's ceo will tell us if consumers and shareholders are having fun in the recreation economy. "squawk" is back with more in just a minute. vidual. white chocolate lovers don't like dark chocolate. milk chocolate lovers don't necessarily like dark or white. before we couldn't really allow customers to customize their preferred chocolate. we needed a scalable cloud solution allowing them to select what they are looking for. now there is endless opportunity to indulge. customization is made with the ibm cloud.

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comcast business. built for business. europe appears to have calmed a bit with u.s. futures right now suggesting a positive open. let's get back to our guest host for some perspective on reinsurance. steve miller is nonexecutive chairman of aig. the company's own turnaround kid. there have been lots of reports about different pockets of the market that have been affected by the fed. and there's reports that people so desperate for yield, pension funds, hedge funds have been going into insurance and reinsurance and accepting low premiums and taking on undue risk. it's so bad that the ceo of a company called score which is in the reinsurance business said my message to mr. carney, mr. draghi and mrs. yellen is please stop ruining the reinsurance industry. >> yeah, well i feel sorry for his company being collateral damage in an era of low interest rates. but the job of any financial

services company is to make sure they have balance on their balance sheet so that whether rates are high or low, they are relatively protected. it is tough for us, for example, as we are an insurance company, aig, and we offer financial products to our customers but in a low-rate environment it's hard for them to save money through us and have enough income. >> are you worried, though, about players getting into this market that don't understand the risks that it entails and offering lower premiums than -- that they're going to suffer from later on, when some catastrophe happens? >> i think there's been a sea change in the regulation of financial services companies around the globe as a result of the meltdown in '08. unfortunately aig was a big part of that. those days aren't going to happen again. the regulators are going to make sure that people don't go out the risk curve as a way of solving their earnings problems. i think the real problem with the interest rates simply is

that it's a fool's paradise. an unsustainable model for us to assume that we can have massive government deficits and keep rates low indefinitely. >> janet yellen as fed chair this is really exciting, you're right about this. the one bright spot in this economy, which must be a shock to you, because you've done so much work there. but 17 million. what did we run, what's the run rate for auto? so this is a good business, auto parts, is it not? >> i believe auto parts is a good business. the news of the day is that zedoff is taking over trw if their bid is successful. creating the world's largest auto parts company. >> yeah. >> bigger than -- bosch is big, that's $37 billion. and the japanese company denso is $47 billion. this would be a $40 billion company if trw goes to zf at this point. >> it's a tremendous company, but two big things or three big things about the auto parts industry that supports the auto

assembly industry. one is, it's going global. the auto companies need globally competent companies. secondly, it reflects specialization. the focus here is on the safety, of the equipment for automobiles which is becoming a bigger and bigger imperative. just pure size in the auto parts industry so that you have reliable and financially sound players so that they don't let you down. >> that traded as high as 102 yesterday. it was up huge yesterday closed at about 90. it's not reflected on those charts. another company, though, the tax dollars are no longer becoming domestically -- >> taet true. >> it's not an inversion but it's going- >> this is not a pure inversion where they just simply move the headquarters -- >> but they're buying up, because they can rationalize -- >> a very large u.s. tax paying entity will now be headquartered over in germany, and our u.s. politicians can't tax them any more. >> right.

>> and that said you're going to see this more and more -- >> and it's possible that a u.s. company can't make it work and save it from going to germany because they don't have the tax advantage that the german company has. >> that's right. i mean, our tax structure -- >> we've got to run. steve, hold that thought. we'll have more "squawk." got to get out at 24. ♪

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okay coming up next we have oil and currencies at the center of today's trading bloc. plus fun on the water or fun any time. the chairman and ceo of brunswick. i thought i bought one of this guys -- dusty mccoy, doesn't he sing on the highway. >> star in dallas, right? >> we're going to tell us if consumers are spending more money.

welcome back to "squawk box." let's take a look at some of the stocks in the news this morning. tobacco companies reynolds american and lorillad have released statements saying they are in merger talks. our david faber had reported last friday that the two were talking and likely to announce a deal in weeks. he also reported that britain's imperial tobacco would buy divested assets from the two and imperial did release a statement confirming that earlier this morning. also keep an eye on shares of whirlpool. that company is spending a little over a billion dollars to buy majority stake in indesit.

whirlpool says it will help strengthen its european manufacturing operations. and retailer gap is in the news as well. it reported a 2% drop in same-store sales for june compared to what analysts were looking for which was an increase of 0.7%. gap did see rising sales at its old navy chain but declines at gap and banana republic stores took their hits. onto our trading block right now. light sweet crude oil settling slightly higher yesterday after nine consecutive days of losses. also taking a look at currencies this morning. joining us now from houston on oil is carl larry oil outlooks and opinions president. and from new york, on the dollar, kathie lee. kathy, correlations are breaking down here. what does the dollar mean for stocks and for oil? does any of it matter together anymore. >> that's a very good question. we've seen a little bit of a bounce in oil. overall oil is down yet the canadian dollar has not reacted at all. this is all a story about the

overall dollar weakness that we've seen since the beginning -- since over the past month, where, you know, u.s. dollar is pretty much weakened across the board. now we got a very important week ahead of us. and i think that the dollar's due for a bounce and it will probably see a limit to the decline that we've seen so far. because if you think about it, there's very low justification for the decline -- for further decline in u.s. yield. we've got janet yellen speaking. u.s. retail sales. all of which could shed a little bit more optimism for the u.s. economy -- >> but kathy, people have been saying that for awhile. they've been saying yields have bottomed and they keep going lower. is that going to be the key to get this dollar to turn around and go higher? >> it is the key. i know i sound like a broken record. but at the end of the day, i think there's no way we're going to revisit the 2.44% low that we had in ten-year yields. i do think we could potentially test 2.5 but we need a shock to get below that. so that's why i would start to look at scaling in to some dollar longs. if you get the euro/dollar up to

1.37. dollar/yen drops down to below 101 which is not far from current levels would be a good opportunity to buy. i think we're reaching value points in the dollar. >> carl, are you surprised to see what's been happening with oil? this string of losses given increased tensions in israel, and iraq, and none of it is solved, and none of it seems to even be near ending. >> you know what's changing so much is that oil has become us and them and wti is american oil and we have plenty of. i mean we're hitting almost near record levels right now, 8.5 million barrels a day. we were just at 7.4 million barrels a day aier ago. at this pace it's likely in 2015 we're pumping 10 million barrels of day of crude oil alone. so we're becoming this oil independent country we always wanted to be, and now we're just dealing with the repercussions of that. >> should that affect wti and not brent? brent has also been down to 108. >> libya came back online the past week or so and that's kind of put a little pressure there.

it is the geopolitical tension. remember that brent contract is really, really kind of related to what we do here. it's based on imports. it's based on the same grade. so as we decline they kind of have a little bit of a sympathy move, also. but definitely that contract will see a little bit of a bump up, especially as those tensions continue to rise, in israel, iraq, you know, countries out there. >> libya has to be a big part of that story. kathy, janet yellen you mentioned speaking next week. she's going to be testifying before congressional panels. are you expecting a different message, perhaps, given what we've seen with the jobs report, steady improvement and with some of the other reports that came out after the minutes? >> well, i expect it to be a bit more optimistic. just kind of like the tone of the fomc a bit more optimism. but at the end, everyone wants to know is whether she's going to provide any signal in terms of the pace of tightening. i think the answer is no. they're not ready to do so yet. they've made it clear there's going to be a long period

between the end of qe and the beginning of a first rate hike i think at this stage we don't want to risk a shock to yields. as a result they're not necessarily going to provide that clear timing, what we may have had when she first took office when she gave the six-month mark. i think there's going to be very little anxiety in the markets around that. and so as a result, we may see a little bit of a bounce in the dollar, but probably not much more beyond that. >> which is the key currency right now for stock, kathy? is it still the japanese yen where it weakens and that's a good thing for stocks? >> yes it is. the euro/dollar itself seems to be -- the correlation between dollar/yen and stocks is probably strongest right now because the euro/dollar is disrupted and distorted by some of the problems in the banking sector in portugal as well as the mixed messages we're getting from the ecb. if you're looking for a tight correlation it's either stocks and dollar/yen or ten year treasury yields in dollar/yen. >> carl i know you follow oil. i want to ask you about gold which has been sort of a surprise winner so far this year in the last few days.

do you need to own a little cold given what's going on around the world? >> well, you know, here's the funny thing about oil, gold, the dollar, stocks and bonds. you know, because dodd-frank kicked in in 2014 there's not really much else we can invest in. so gold is seen as this almost i have nothing else to put my money in kind of boost right now. i think you see a little bit of instability globally that kind of gives us a little bit of an edge towards gold. at the end of the day there's nothing else to put my money in. stocks are at their highs. interest rates are low and not moving. gold is just your next alternative. >> kathy it just seems weird. we are seeing improvement in the u.s. economy. we are seeing stockses amazingly resilient. the u.s. economy doing better. shouldn't we be seeing a stronger dollar, higher treasury yields? why is it all out of whack? >> we absolutely should be. right now you're seeing a little bit of risk coming back into the market. for example, the portuguese banking sector, the fact that israel is mobilizing its troops

and we also have puerto rico introducing a new law to restructure its debt. it's reminding the markets that there are risks out there. as a result you're not seeing the expensive extensions that you're seeing in stocks. that's causing a little bit of anxiety in u.s. yields. which is also driving the dollar lower a bit. there's a lot going on. at the end take a step back, really in a low volatility consolidation mode in fx. we're just talking about a little bit of half percent rise here, half percentage drop here. at the end of the day i think we will get a bottom in the dollar and that could come in the next couple of months especially as we need the end of quantitative easing. >> i know a lot of people are long that etf eup. guys good to see you this morning. talking oil, commodities, and currencies. >> thank you. >> my favorite. >> okay. you were on the board of reynolds? >> yes, i was. >> so this -- to keel in tobacco at this point it's got to be a -- you're doing it globally,

is it a dying industry in this country? >> well, the utilization of cigarettes is, you know, down by half or two-thirds from what it was at the peak in the early '80s. it's been phenomenal impact of government regulation, and just changing consumer attitudes about smoking. >> what were you thinking on the board of reynolds when you were there a few years ago, what did you guys talk about on how to try to preserve value for shareholders? >> well, one of the ways that we created value, was we did a merger with brown & williamson, which brought tk the kool brand and a couple other things to the pleau yo of the reynolds company. through the merger we got cost efficiencies, distribution efficiencies and created value in that way. but the long-term trend is very strongly downward on consumption of cigarettes. >> both of these stocks are sharply higher today, though. lorillad and reynolds, right?

>> oh, yeah. >> it's just makes sense -- >> that's because there's a lot of synergies from the business combination. >> are the regulators going to let this go through? >> i would think so. >> doesn't create concerns about duopolies? >> no. >> monopolies? >> the e-cigarette. is that one of the reasons why we see a decline or is it just the -- >> the ee cigarette is certainly spectacular growth. but a very small base. the real thing is that it is now become you can't smoke on an airplane. you can't smoke in a public building. you can't, you know, in some places like california, i think it is, you can't even smoke on the beach. and you know, where are you going to go have a cigarette? and that has driven it down. >> is this -- okay, so reynolds is owned majority by btf by british american -- >> it's a very significant controlling interest but not a majority interest by british american tobacco. >> is this another -- if

lorillad, if reynolds, reynolds is still domiciled here? >> yes. in winston salem, north carolina. >> right. >> where the elevators say thank you for smoking. >> right. and they sold winstons and salems. >> yes. >> reynolds is camille, lorillad is newport. >> lorillad's biggest one is newport. reynolds american had the winston brand, the salem brand, the camille brand. and so on. >> is there any money in other forms of tobacco? not these guys -- >> very little. i mean there's the smokeless tobacco, a tiny fraction. pipe tobacco. >> this is still about cigarettes. >> it's still about cigarettes. >> is it an international play for these two companies or is it here? >> well, reynolds american had become purely an american company. they had sold off all their international businesses elsewhere. and part of that, it's very hard for a cigarette company to diversify because you're always such a target for the trial bar.

now there was this big settlement a decade ago, kind of settled things down, and made tobacco companies into a public utility for the benefit of the trial lawyers. and you know, that's not changed much over the years -- >> what's amazing to watch is that all these states depended on all that revenue from that settlement and now they're struggling with that revenue falling off, and they're -- they wanted cigarettes to last, quite frankly, even as they publicly said that they didn't. >> yeah. tremendous political two-sided discussion. you need the revenue so you want more cigarettes. >> yet you continuously demonize it. >> there are people that still smoke marlboro lights. and what is it like $8 a pack or something now? >> well in new york it's about $12 a pack. >> is it really? >> yes. >> holy moley. >> menthols, very popular. >> i don't -- you know, i'm kind of like everybody else now. i look at and just wonder what are you thinking? you got kids. i wonder, what are you thinking? if you're smoking at this

point -- >> i believe cigarettes are -- >> if you want -- if you want to do it, fine. but you got to have rocks in your head. but i'm not going to tell you not to. but you got to have your head examined. they ought to be free to not have rocks in their head. >> they should be free to have rocks in their head. >> they are free but they ought to stop smoking. >> could amazon drones be taking to the sky sooner than you think? that story is next. plus mark mahaney takes on what he's expecting talks about what he's expecting when tech companies start reporting. his tech earnings preview is being released this morning and we have him next. and from bill yards to boats brunswick has you covered for fun in the sun. the company's ceo joins us to talk business. we'll see you back here in a bit. (trader vo) i search. i research. i dig. and dig some more.

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carry five pound loads over 50 miles per hour. if the request is granted outdoor flights, and potentially a pilot program would take place in the seattle area. earnings season kicking off and a couple of key names are going to report. plenty of high flying momentum names have been hard-hilt lately. let's find out what's in store. joining us is mark mahaney, lead internet analyst from rbs capital markets rolling out his second quarter review for tech results. >> good morning. >> what's the big highlight you're watching for. the most important thing in this space? >> where we see the greatest risk going into earnings is with three names in particular. ebay which had kind of a trifecta or perfect storm of events intraquarter. very specific to the company. netflix would be the second one, and then twitter. so all three of these, we've had a bit of a trade down recently and for probably for good reasons. there's a couple of stocks where we think there's least risk which we particularly like into the quarter and for the next 12

months. those would be facebook, priceline and pandora. >> we just told you about the amazon drone story. weigh in on how much that matters or doesn't matter to amazon. i know it gets all the publicity. but i keep hearing it's the cloud computing aspect of that company that matters the most at this point. >> the drones are completely immaterial to the investment pieces probably for the next three years. but this is a part of, you know, long-term innovation by the company. i think a bigger innovation in terms of the delivery is going to be the use of robots within the company's own distribution centers. and in near-term there's a slew of investments that amazon is making that are probably much bigger than drones. the investments in china, in video and devices like these smartphones, and then into grocery delivery. this company is probably taking more risk in terms of the spread of investments that it's making now than it probably ever has in the last 20 years in any one year. and that's the why it's corrected so much. >> the constant debate we have about amazon. amazon gets a free pass.

they're never super profitable. it's revenue, revenue, yet when are they going to make a lot of money for shareholders. where do you come down on that? >> the truth is we had thought this was the year in which we'd see margins come back up and i think the market thought so, too. that's why we're all disappointed and the stock traded off. we think it's next year. it's hard to know. the way jeff bezos runs the company he's got a long-term investment horizon. he did show reasonable profits for about eight years 2003 to 2010. they did run at 6% operating margins which is what you should expect this company to do. it's a mass market retailer. those are the kind of margins you should expect. we think we start seeing a recovery next year. unfortunately i think i said that last year. >> you excited about alibaba next month looks like? licking lips to cover that one? >> i'm going to avoid that question like the plague. we're completely restricted on that. >> oh, got it. >> sorry. >> okay, that's too bad. but, you can't even tell me in the pantheon of like the twitter going public, facebook going

public, where's that going to be? >> no comment. look, we've had -- we've had a series of big ipos in the internet space over the last couple of years, and they always involve a heck of a lot of work. >> google is the big one next week. i know you have a buy on the stock very quickly. it missed in a big way last quarter. this one going to be different? >> i think so for one particular reason. last quarter they didn't announce until after the earnings call. they had a one-time very significant legal expense. and a couple of these big tech names did. there was a poaching anti-poaching employee settlement between some of the largest tech companies, and the u.s. government. so that was about 100 -- over 100 million in one-time legal expenses. we don't expect they'll be back this quarter. we don't think we'll have the cost expense. we think the revenue results are roughly in line. we like google for the print and long-term. >> thank you, mark. >> coming up when you hear the name brunswick you may not think of boats but the company owns some legendary names on the

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gritty and anyway, let's talk boats, bowling and billiards. one company that is a strong indicator of disposable consumer income in america is brunswick corp. it's the market leader in all three of those segments. here now the ceo and chairman f

brunswick, dustan mccoy. it's boating for brunswick. >> boating and engines. >> and engines for boating. how much does that represent? >> 25% of our revenues are boats, joe, and 50% would be engines. so we're 75% marine. >> and i mean, you know, i think about this country, and if you can't go out in the summer and see some lake in the middle of this country and see a brunswick boat or a boston whaler i mean it is, that's so americana. i feel good talking about it. right? >> well, it is the heart of america. we're probably the greatest family recreational activity there is. i like to tell people if you have children and boat with them you're going to do well. because you've got to talk to each other when you're on a boat. >> you know what i don't like? i don't like cleaning the hull. and taking it out -- it's a pain. isn't it? >> well, there's lots of things that can help you do that. first there's lots of mariners tat will pull it in and out for you. secondly there's a lot of floats, you pull your boat on a

float -- >> it always gets dirty inside. all the beer cans and everything. >> can you boat on the ohio river? >> actually boat on the ohio river. and you're having fun when you're having beer cans in the boat. >> i used to ski on the ohio and fall in and sometimes swallow a bunch of water and i never knew if i was going to live or not. >> that is disgusting. >> you and i are a little older than some of these young ladies. the ohio is a lot cleaner now. it's beautiful now. >> are people on a scale of one to ten, it is a luxury, isn't it? what are -- i would say it's not a walmart item but it's not a tiffany item either. it's somewhere in the middle. >> it depends on the type of boat. we sell boats from $10,000 to $3 million. so, the range of buyers is going to be different. >> where's the sweet spot on that spread? >> boats over 40 feet is where we make a lot of money right now. and those boats right now are really hot. we're fundamentally sold out on backlog. and those boats start, michelle,

$800,000 to $1 million and move on up. >> that's really the sweet spot. and you can sleep in those, too, and go down underneath. that's so much fun. >> there's an exploding segment, interestingly, pontoons. >> why? >> a couple things. there's probably been more innovation in pontoons in the past five to seven years than any other type boat. >> are they house boats? >> no. >> pontoons. classic pontoon. but it's not your mother and father's pontoon, it's really not. so you'll have seating that haslettha has leather that's better than any luxury car. 250 horse poweragens. if you want to do, but a lot of people want to do 60, 65 miles an hour in a pontoon. if you want to let your children ski or tube and things like that the boat serves a wide variety of persons. >> your stock has underperformed the broader market so far this year. i know it's had a tremendous run-up up until now. is that a play on the u.s. consumer? >> i actually think it's three things. when the consumer durables are always going to be under

pressure when you're in a flat gdp environment. that's kdly what we are in the first half of this year. the second -- >> all come back after the weather got nice. >> well, we're very second half loaded and we've been saying we're second half loaded in earnings. so i think a lot of folks are going to be wait and see. compared to where we've been, though, we're talking nickels and dimes right now from my perspective. i'm confident about where we're going. our path forward has been laid out very clearly. we've given 2016 guidance already. and we're confident -- >> does the -- in the middle of the financial crisis, did people think the world was -- >> why would you stock tell for two? did people think the world was going to end and no one would ever buy a boat or go bowling again? >> i think what happened, joe, we had a lot of boats in the field. >> the company itself could have gone out of business? >> no. we were worried about it. and the reason was we had a lot of floor plan liability out in the field. we back up our dealers on that floor plan liability. a lot of folks thought the

dealers would start to fail and then we would have to come in, and we wouldn't have enough money. it actually was that simple. we spent probably less than $20 million in the deepest part of the recession taking care of dealers. and that's a tribute to our strong brands. >> 20 million and you could have bought the stock for two bucks, and now it's 40 again. >> unfortunately, one or two days under $2. >> we've got to have you back. we've got to go somewhere i guess. >> wells fargo earnings. >> okay. >> thank you for having me. >> we didn't talk bowling. >> coming up.

welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen, i'm hurrying because i guess wells fargo is getting ready to come out. i'm with sarah eisen and michelle caruso-cabrera. they're looking for $1.01 for wells fargo right in line with what the company just reported. the revenue estimate was 20.83. and it looks better. it's 21. a little bit better. because 20.8, if you round it up, it's 21. 21.07. the net income number is 5.73

billion. there's a provision for some credit losses. that came in at $217 million. net chargeoffs in the period, $717 million. stock is already trading a little bit higher on this news. closed yesterday at 51.81. bidding 51.99 now. bidding 52. do i have 52.05? bidding 52 even and 52.25 is where the ask is. 52.02 now. the yearly high, we're getting close, setting a new high. i believe a new 52-week high would be a new all-time high. >> 53 would be -- >> that would be a new all-time high. >> it has outperformed the xlf financially up about 15% this year. >> i don't think it's ever been up here. it is still even though not in terms of assets i don't think it's the biggest, in terms of market company it is by far the biggest. worth a lot more than jpmorgan. worth $272 billion. jpmorgan about $210 billion.

and bank america $162 billion. okay. so a guest host occasionally says second quarter results reflect strong credit call driven by an imper -- let me hit that driven by -- that's part of improving. >> right. >> i should have probably should have known that. actually i can't find the rest of the quote. driven by improving something. improving results -- what other -- >> scrolling, too. >> what's the other -- >> you see other news worth -- >> no. >> the impressive thing here is they're facing a slowdown in mortgage refinancing. >> that was what we saw last quarter. >> and they're able to offset that with growth. >> strong results in the second quarter reflected our diversified business modded and long-term focus on meeting financial needs of our customers. >> second quarter was helped bys housing market. the application pipeline was $30

billion at the end of the quarter. $27 billion at the end of march 31st. >> and i found it here. an improved economy, especially the housing market, and our continued risk discipline are what drove it. >> mortgage origination's $47 billion in the second quarter. up from $36 billion in the prior quarter. so that is pretty good -- >> repurchased 39 million shares. >> and we've actually got the stock now, 51.89 to 51.94. at this point, when we talk to an analyst that has -- they have like estimates for every -- >> everything that the bank puts out, there may be something in here that may be better or worse than expectations we'll talk to someone about it, but that's the preliminary look. >> other head lines this morning. we are watching gold prices this morning. although it hasn't moved that much compared to yesterday. the metal is on track, though, for its sixth consecutive weekly gain. it is near a four-month high with port gral related concerns.

this morning lower by six cents, 1338 per ton. carl icahn says it's time to be cautious about u.s. stocks, joe. the billionaire investor told reuters that despite a great year so far he's being very selective about the stocks he's purchasing. and we are watching shares of chevron today. the company says it expects second quarter profit to be higher than it was during the first quarter. self ron's bottom line has been hurt by currency issues though asset sales are helping. chevron's second quarter earnings report is due to be released on august 1st. >> portugal's largest bank reinsuring investors overnight over troubles at its biggest shareholder. the bank saw stock climb 19% over structural issues at the bank. a lot calmer today. steve sedgwick joining us from lisbon with the latest. good to see you, steve. good to see you. i've been thinking about how these crisis can turn into something bigger.

if it wasn't a bit of smoke we wouldn't have had the fire of the last 48 hours. yes, banco espirito santo said they don't specifically have problems but there are still question marks about that statement, as well. they're saying it's about the holding company and that is contained. but if there are problems at the holding company which owns a company which owns a company which then owns bes and we don't know the structure of those debt problems, of course everyone's going to get worried. because this comes down to the fact you've got a family called espirito santo who own a company called eoi which owns company, and then owns a company called eosg that owns bes. no wonder people are worried about this. people start thinking about the broader company as well. are there problems, they've got billions of dollars worth of loans, to we don't know who. and therein lies the issue. that's why the likes of goldmans have downgraded the stock. then you think about the country itself. how far away is it from, how different is it from the country that i was here three years ago when we had a $7 billion

bailout. the answer is it's a bit different. it's a bit better. the deficit's a bit better. they've still got 15% unemployment. they've still got 130% debt-to-gdp, negative growth in the first quarter and corporates who have got debt of 25% as a percentage of gdp. yes, this may be contained this time round but there are still some shocking fundamentals. back to you. >> all right, steve sedgwick, thank you. yeah, you're right. i told you about the there's a hippopotamus and they were -- shooting water into his mouth. at the lisbon zoo. i think that's what we talked about back then. >> three years ago, joe. >> it's a heck of a zoo. >> three years ago. you were going on about the zoo. >> i was. and it's beautiful -- >> get over the zoo. i haven't been -- i love in london. the society of london. we don't need other zoos. >> how about sintra, have you been up to that incredible place? they have a conference up there. amazing, beautiful part of --

>> no, i haven't. >> anything? can we show the view? look at this town. it's stunning. >> i can't -- >> hotel airport. hotel airport. i didn't get to see -- >> okay. i know. our next guest was one of the legendary investor julian robertson's first tiger cubs he launched his macro investor group responsible for some of the biggest calls during the '90s like the collapse of petroleum prices after the start of the persian gulf war. also the drop in the british pound joining us now is david gersen hower president and pounder of capital management huge fund guys typically can't just bloviate and pontificate and suffer the consequences. i'm not going to mention anyone in particular. but you did 53% in your equity fund last year. >> we did. >> even in the macro fund, which is probably the risk profile is different. >> yes. >> still able to do, what, 19 or 20? >> about 14. >> but who's counting. >> yeah but who's counting.

>> at this point, you hear, and i don't know what -- do you smile when you hear -- do you watch cnbc? >> yes. >> do you smile when you hear everyone say it's got to pull back and it's too high now. does that make you happy because you can be contrarian. >> everybody thinks it's got to pull back because it's gone up. but you have friendly central banks pumping in a lot of liquidity and i think any pullbacks are going to be quite limited at this stage of the game. we have an economy that's expanding again at a reasonable clip. the first quarter was an aberration. the second quarter things are coming back. third quarter seems to be off to a decent start. i'm not sure what the argument for meaningful pullback is at this point in time. >> do you care whether it's earnings growth or multiple expansion? or a combination? do you even try to figure out which it's going to be. >> we do try to figure out which it's going to be. so far you've had a fair bit of multiple expansion driving the market. you have modest earnings growth. and you have a benign interest rate backdrop which ought to

keep multiples reasonably elevated. >> and the feds are so lucky because they've got to exit but they've got europe giving them cover. it's like they won't spike here because of what's happening over there. that's very lucky for them. is it serendipitous? >> they've been lucky with bonds. bonds don't show good value but german bunds is generating attraction to u.s. bonds. >> everybody's buying them. why? >> everybody's buying them. >> that's a good question, i wouldn't be buying them. >> yet millions of investors are. >> there's a lot of cash out there at this point that needs to be invested. so it's finding its way into the bond market. >> is it because of the ecb and its don't fight the central banks and the ecb has come in as a backstop and said they're going to do everything it takes? >> they have said that. and they have a very aggressive monetary policy and it's not clear they're done at this stage. >> i love that you're here. 2,000 on the s&p by the end of

the year. next year's a long way off but do you think we can continue to make gains in equities next year? >> i think as long as earnings move up at a renal pace we ought to make gains in equities next year. the conditions that end a bull market, which is the fed tightening an economy that's overheating aren't in place at this stage of the game. >> i like people like you that, you know, that go back and they talk about like these huge macro calls that you make. because i want one now. i want a big one so i can sound smart if i go out tonight or something. the also -- yesterday was sitting here with wilbur who is so smart, willler ross and just looking at that euro during the portugal story, looking at where rates are and 1.36 we both just said why is that thing at $1.36. can you tell me? >> the problem with the euro in terms of why it doesn't go down is they have a very large current account surplus. so there's a lot of capital inflows -- >> so it's not destined. it's not doomed to go down? >> i think it will go down. i think we're set up for a stronger dollar environment. the fed is going to be

tightening monetary policy before the other major central banks. you've got both europe and japan with extremely easy monetary policies. and the u.s. will be done with its bond buying purchases in october. >> what's your big macro call? >> i think the dollar being stronger is an obvious macro call that we can make. >> can i ask you about something and you know we have delivering alpha next week and everybody's still wants to know about the fed. and the argument about the fed is whether at this point they stayed at the party, just too long given that things aren't that bad in this country right now. in terms of employment, in terms of almost anything you look at. maybe the consumer is sluggish. but we are in emergency mode for the fed, and you just wonder whether that ever has adverse consequences. >> i think that behind the curve. >> they are. you do think that? >> i do think they're behind the curve. >> what could be the negative consequences of that? >> well the negative consequences are a loss of fed credibility. which is negative for the

markets. so the real question i think is whether or not the fed changes its tune in september -- >> can the fed change its tune though? >> well and that's the problem. you know, if we see the economy continuing to move ahead at a reasonable clip, the monetary policy settings on a forward basis are inappropriate. >> do you worry about that? >> i am very worried. i think the current situation is unsustainal. you cannot keep rates that low while government is running these huge deficits. ultimately it has to break. the problem is it probably won't break at a nice, even pace. there will be some triggering event. hopefully in portugal you know that triggering event's been avoided because somebody else is going to bail out the bank. but, at some point there will be a triggering event that will cause a sharp rise in rates, people will get afraid. >> they're not in position for that either. this is something i didn't think of, i was thinking europe will keep us low. what if it starts there? those yields can go to 6% or 7%.

they went there easy last time when europe looked shaky and we wouldn't be able to say the whole world has low interest rates and we could spike higher here, right? >> well i don't know that you're going to get a rapid spike higher in rates but i think that the idea that rates should be higher by the end of the year is one that people ought to pay attention to. they certainly don't represent good value at current levels. >> can you play on this idea if the fed loses credibility anybody covering the emerging markets knows what happens when a central bank loses its credibility. what would happen if the u.s. central bank seriously lost its credibility? >> you'd be in for a good correction in the stock market. >> what's a good correction? >> 10% easily, i think. >> that's not that scary considering. >> in a market that's had such low volatility recently i think that would get people's attention in a big way. >> i thought you were going to tell my a sharp rise in interest rates like really sharp. >> i think if the fed loses credibility the prospect of interest rate curve steepening substantially is quite real. at this juncture.

>> or do they buy u.s. government bonds like what happened when we got downgraded by s&p or the dollar rose and treasuries rose? >> well i think they're done buying dollar bonds. the fed is getting out of the market. they've been a meaningful force in the market for bonds. they've absorbed essentially the fiscal deficit with their bond buying. and this program is coming to a conclusion. and you know, the exit will follow. >> last time you and i talked we talked about japan. that was certainly a big macro call and it played out nicely for those that were long the equity market there short the currency. is that trade over or do you expect it to ramp up again as the prime minister and the central bank governor continue to turn this economy around? >> i don't think it's over. i think the economy will surprise people as we come into the third quarter, with the degree of robustness that shows after the impact from the sales tax increase that they've had. so they've had some setback as a result of this, but, i think the general fear is that they're in

the 1997-like situation when asia went into crisis. and that's not the case at all. their external trade partners are growing at a reasonable clip and the domestic labor market is very tight providing wage gains for consumers, and this ought to help support the economy. so we think it does reasonably well and the stock market i think is in the early stage of a bull market. >> yeah. now, you have the macro in the equity. how much is in -- can you tell us? >> i can't tell you on tv. >> you'd have to -- >> because of regulations? >> yes. >> you'd have to kill me, huh? are you still 2-20? >> we are. >> you're not so great that you've been able to -- >> is it -- >> is it over a billion dollars? never mind. all right. i'm doing the two and 20 math on 15% and 14% and -- >> he's done well. >> it's awesome. >> anyway, shall we change

carrying interest or you don't care? >> carrying interest is much more important for the private equity guys than it is for the hedge fund guys where things tend to get realized on an ongoing basis. >> doesn't matter that much? >> doesn't matter that much. >> you ought to charge 3%. >> listen we need to do that every year. >> if it's 3% -- it's 53% he needs to charge 25%. keep the asset, and keep the two where it is. >> good point. >> kwaen way, thank you. come back, please. >> okay. >> appreciate it. >> thank you very much. >> let's get more reaction to wells fargo's quarterly results. joining us is anthony pollenny, banking analyst at raymond james. came in at 101, what are your thoughts on the numbers as you've dug through them? >> you know i'm so used to wells fargo beating that initially i was a little disappointed. the more i look into the quarter the more i like it. they had higher litigation expenses. if you add back that's three cents. they had a higher tax rate, if you add that back it's four or

five cents. on an operating basis they did beat -- >> where did that come from the operating? >> expenses were under control. revenue was sleetly higher. and the big positive was commercial loan growth. >> it actually went up. >> it went up. and it's double digit now. it's actually if you annualize it, it's well over 10% on the c&i. >> that would be great news for the economy overall generally right i mean when people apply for loans and because they think they can actually pay them back and the bank's willing to give them the loans, that's a great, great signal. what is this telling us about the rest of the banking sector, do you think? >> well, i think it's good news for the u.s. economy. i mean, wells is always a good indicator. you either have a national banking platform. their ceo john stump has been particularly bullish on the economy. now some of the big banks have other problems like citi and jpm et cetera but the bottom line here is that this is a very good indicator that the economy is on track for an improvement. >> very close to 52-week high.

you buying it here? >> this -- you know there's another 8 or 10 points in wells. you know, it's due for a breather. it has been one of the best, certainly out of the big banks the best performer year-to-date and the best performer this quarter. >> okay. >> but by historical measures it's still relatively attractive. >> thanks anthony. good to have you on this morning. anthony polini. >> so you're doing "squawk box" and "squawk on the street." >> a twoer if. >> that's like csi-miami, all of the different parts of the franchise. you can do it all. >> i enjoyed myself this morning. even though you treated me a little like andrew. i was getting abused a little bit. >> it's the chair. >> it's the chair. >> the chair -- or maybe it's -- >> well you're from -- >> and you're from the west side. >> if you don't think i'm going to have a chip on my shoulder. you're from amberly. >> have a good show. >> sensitive. >> thank you. it was fun. >> make sure you tune in to the

closing bell because wells forgo ceo will talk about the company's results and next week join "squawk box" when you're going to have chairman and ceo john stump on for a full hour as guest host on thursday. you do a lot of things great. but parallel parking isn't one of them. you're either too far from the curb. or too close to other cars... it's just a matter of time until you rip some guy's bumper off. so, here are your choices: take the bus. or get liberty mutual insurance. for drivers with accident forgiveness, liberty mutual won't raise your rates due to your first accident. see car insurance in a whole new light. call liberty mutual insurance.

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some breaking news right now. synk technologies. shares have been halted. it's a social networking company, supposedly. it's got no revenue. it's got no assets. it's got one employee. its stock soared thursday to a market cap of over $6 billion at one point. the firm's meteoric rise is so unlikely that even it's last auditor says it defies longic. cynk is based in belize and only has one reported employee. runs a social networking site called intro biz. says it allows users to both buy and sell the ability to socially connect to individuals such as celebrities, business owners and 258ented i.t. professionals but it is not clear how many registered users it has. cynk's stock was valued at less than a dime in june. >> june? >> and rocketed to over 20 bucks at one point thursday morning.

>> that feels -- >> boilerroom, doesn't it? >> feels late ninetyish. >> yeah. >> i don't know anything about that. >> no, neither do i. >> i thought you were talking about siri. isn't there a ford sync, something in fords that allows you -- >> sync technology. like synchronization. >> something like that. >> that's giving the company way too much credit i think. >> all right coming up we head to the -- >> i hope you're not watching. >> cynk? >> you're being really mean. >> to the one employee in belize? we had to the media conference taking place in sun valley, idaho. kayla tausche will discuss media, and the article in "the new york times" about more. no,thank you. we know you're always looking for the best fill price. and walk limit automatically tries to find it for you just set your start and end price. and let it do its thing. wow, more fan mail. hey ray,my uncle wanted to say thanks for idea hub. oh,well tell him i said you're welcome.

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welcome back to "squawk box." let's take a look at some stocks in the news this morning. we're going to check in again on shares of wells fargo. the match street estimates of quarterly profits of $1.01 per share. revenue slightly above consensus. right now the stock is lower. initially had gone higher, looked like it was going to approach new 52-week high. >> it's world cup weekend and we have some football news. it was an awful season for manchester united. . it did nothing to dim one of the most valuable franchises commercial appeal. the team is ready to sign a sports wear deal with adidas worth twice what rivals have been earning. the partnership in a short

sponsorship with car brand chevrolet will likely help underwrite a rebuilding of the team. nike pulled out of contract renewal talks saying the price had gone too high ending a partnership dating back to 2002. there are reports adidas offered upwards of $102 million a year for a ten-year deal and it will see it replace nike in 2015. world cup has changed me to some extent. i saw the story about, they kicked our spy out of germany or something. and i'm thinking they're getting -- they're feeling their oats they think they're pretty cool. argentina is up here. i know their mind isn't on this debt restructuring. >> the match! you have to call it a match, not a game. >> on that match as it should be. coming up ken allate to live from sun valley. we'll have that next as we head to break. u.s. equity futures.

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let's get to sun valley and the allen and company media conference. kayla tausche is there. she joins us with a special guest. hey, kayla. >> hey, michelle. good morning to you guys over there. ken auletta is the author of ten books and he's been writing the annals of communications column

for the new yorker. he joins us now. ken you're the eminence grieze of this industry. >> i don't feel like it at 6:30 in the morning. >> you've been coming to this conference for awhile. i wonder who you think the it person is this year? >> i don't know if there's one person. you see people gravitate around certain individuals, certainly the ceo of google, certainly mark zuckerberg of facebook, tim cook of apple. certainly jeff bezos of amazon. those are people that you see crowds clotting around. >> why do you think that there's a four-way tie on that question? what is it about these companies and what they're doing right now that you think makes them have so much gravity? >> well, you just look at their -- either their market cap, or their user base. i mean, facebook doesn't have the market cap that apple or google has but what it has is 1.2 billion users around the world. so, -- and growing.

and so people say, this is a big company. they're all disruptive companies, too. they're all challenging the old order, in various ways. and so that's one of the reasons why people gather around them. if you watch their schedules, these people are packed in interview times all afternoon. and sometimes into the evening. back to back, which they scheduled before they came here, to talk to other people. including traditional media. >> most interesting pair you saw talking? >> oh, i just saw a lot of them. i mean i want to be a little discreet in that, you know, that's supposedly off the record. but you see the heads of telephone companies meeting with, you know, each of these people. you see the broadcast networks and the cable networks meeting with each of these people. so it's very common. and it doesn't necessarily mean anything. some of it is just dancing around getting to know you. >> it's certainly interesting. i know joe back at headquarters has a question. >> ken, good to see you. fall of the house of lehman, i

couldn't help notice that bunker behind you. you know who used to play out of that bunker all the time? i know you do. >> dick fold, right? >> that was his course. >> i didn't know that. >> oh, yeah. >> i assume he had a -- i assume he had to sell his property here, right? >> i don't know the details. i saw them the other night at a charity function standing in the corner looking sort of, you know, god bless him. just kind of looked shadowy. i feel bad for the whole situation. that's not where i wanted to go. i wanted to go to whether -- i think i might consult with you if i were a media company right now. because i think about three blind mice and the way you documented the decline of the network, and the business model. and then i think about where networks and media and comcast, or '80s, wherever. what you are dealing with back then to try to explain and try to forecast what was going to happen compared to now is so

counting, do you have any idea how to forecast the future in media, and what to tell network or media executives at this point? >> no but the analogy you're making with the book three blind mice which came out in 1991 and how the broadcast networks were being disrupted by cable. and today the traditional media, and i mean by that, everything from telephone company to retail sale stores to cable companies are being disrupted by digital companies. so something similar is happening. a new technology, in this case digital and the internet, comes along and suddenly traditional ways of doing things are challenged. >> what about aereo? do you think aereo is innocuous. they tried to get around the retransfer fees. now they're going to be paying them. >> i think it would have been usually disruptive to the entire television ecosystem, including cable, not just broadcasting if

the supreme court had ruled differently than they did. but i think now aereo is challenged to stay in business. but the supreme court said you can't take stuff off this way. the consumer can record things so i'm sure some other technology will come along that will be potentially equally disruptive. this is a period where no one gets to sleep peacefully. >> you spent two years embedded at google. there have been questions about google' ambitions in content with youtube, which is worth a fortune at this point. that was a very well-timed bet several years ago. i'm wondering what you think about where google will go next and what investors should expect from that company in the next couple of years. >> the criticism of google had been there was a one trick pony search and i always thought that was kind of crazy. it's a multiple pony business. i mean just look at android. android has 70% market share. the operating system, which they give away for free to all cell phonemakers around the world. that is a growing business and what it is, you give it away for

free, but it features google applications on your cell phone. so they are cleaning up. they're cleaning up with youtube. they're cleaning up with search which continues to grow, particularly on mobile devices. so google, and then they have all these other investments that they're making. so google is a very vibrant company, and what they will choose, what fields they will choose to enter, they're in driverless cars, glasses, wearables. >> on that note, ken? hi, it's michelle here in the studio. on that note in google's other investments can you give us any insight. you mention the driverless car. but they've done this big purchase push when it comes to robotics. where do you think they're going with that? >> i don't know. but i mean, i think google is such an ambitious company and they have so much cash that they are willing to make big bets on things like robotics, artificial intelligence, and see whether those bets pay off in the future. they are not worried about quarterly returns, they're not

worried about satisfying investors' concerns this quarter or this half or this year. they're long time players. >> should they be? >> no, because they control the stock. larry page and eric schmidt control the majority of that stock voting stock. it's a two-tiered stock plan the way mr. murdoch has, the way, you know, rupert murdoch had. murdoch and warren buffett have the same thing. >> ken, i think that aereo would have hurt content in some ways, or at least the production of it. see being this daunting unknown future can you guarantee me that content is not going to come less valuable, and you know i look at sports is now, since it's live it seems to be more valuable. i don't know if i were a network whether i'd try to do a drama series given what can be done with, you know, even a netflix or something. can we just be confident that content will always be rewarded for great content? >> no. you can't -- you can't be confident. >> that's the wrong answer.

>> and you can't -- yeah, but you can't. i mean how can you be? on the other hand you know, if you look at it, when i wrote three blind mice in 1991 i thought tv networks were in trouble because they were reliant on a single source of revenue which was advertising. but what has happened? apple comes along with itunes and netflix comes along and amazon comes along and suddenly they have other platforms to sell their content to. so the tv networks looked like they're pretty strong today. but will that be true a year or two or three or four from now? i don't know. >> you wrote a fascinating profile of reed hastings earlier this year and you started with an anecdote from the year 2000 where he flew to dallas to blockbuster headquarters and offered them half of his company, wanted to merge. thinking about where netflix is now, and reed hastings' reputation as a bull in a china shop, so to speak, are you surprised at what they've become and how big a bet they've been making on content? >> i think reed hastings was brilliant in understanding that the world was going to move away from dvds, and mailing your

dvds, to a world where you can get over the internet. and he's been a leader of that. he's also a leader of something else, which is really potentially disruptive to cable, and to broadcast. if you watch netflix you pay $8 to $10 a month and you get no advertising. and you can watch as much as you want. you can eat as much as you want for as long as you want on any device that you want. and that's really disruptive. but the advertising, the fact that there's no ads on that, even on places like youtube, you can skip ads there, and so cable and the broadcast come along and say you got to watch a third of your program is going to be advertising. well, young people who grow up on netflix, without ads, and hbo without ads, are they going to when they become adults be like their parents, and watch the ads? orb are they going to say no we want to be able to skip them. and if you skip them, you then skip the major source of revenue for broadcast and cable network. >> cord cutting is a real thing. i know we have to go but i would be remiss to leave without

asking you about fund-raising here at sun valley. you have chris christie the governor of new jersey here having dinner with mark zuckerberg. ken langone big fund-raiser. do you sent rumblings about 2016? >> rand paul is supposed to be here, too. i don't -- and kerry, secretary of state was supposed to be here. he was in afghanistan yesterday. i don't know where he is today. in any case i haven't seen a lot of evidence of political fund-raising here. i mean chris christie was at this dinner last night. i mean i don't see him walking around with his hat to raise money. i think he's walking around shaking hands to meet important people who might be fund raisers at some point. or certainly a media mavens for someone like him. >> to be continued, ken. come back and see us in new york sometimes. >> i will. >> ken auletta from the new yorker. guys back to you. >> kayla you meet him, and hard not to like him. i'd be doing that, too. he's got a unique talent. kayla were you in the back room

or the front room of the pioneer? did you -- oh, we can't hear her. she tweeted out a baked potato. did you see it? >> she didn't lead with that in her report today? >> she didn't talk about that. she had a hamburger. i went into the whole menu, wondered if anyone had dessert. there's this back room where there's this great ambience. >> this is this great restaurant in sun valley? >> this rustic, cool place that serves steak and shrimp and baked potatoes that big and everything else. i asked her through twitter where she ate but she didn't -- she's busy. anyways, liesman, if you say fed's fisher nowadays, you -- >> it's confusing. >> stanley fisher, giving his first -- >> there's a "c" in it. >> i said -- >> if you say it correctly. did you say it with a "c" or not? it's up to you as anage core. >> he's the new fed vice chair to talk about stock valuations.

we love richard fisher. >> and now stanley. >> so there really are two fisher -- >> fisher and fischer. you get it? >> no. >> are you taking those anchor lessons they tried to get you to do? >> no. >> the one where you read the prompter without sighing? >> but you can't really -- >> we got to go. we got to get to this report here. stan fischer the new fed vice chair gave his first speech yesterday and he was asked after his speech about financial regulatory reform whether or not there's an equity level. before we roll this sound want to give i ail little decoding here. he's going to use the term mopping up and that refers to the greenspan idea of letting the market run, and the fed addressing the aftermath of it, rather than picking the bubble ahead of time. here's what stan said last night. >> at present we don't face a very serious macro -- any serious asset price problems.

i think there's a general concern about how strongly the equity markets are. but, i don't think -- i think when you're dealing with equity, the stock market can go down without producing a financial crisis. we've seen that. many people say that the reason that mopping up worked in 2001 was that it was an equity price bubble, and that was much easier to deal with. we keep looking. and we haven't found anything big yet. now there are people who disagree with that. so you've got to keep checking and you've got to keep listening to what other people say. and if you were to decide that you didn't have macro prudential measures, and there was a problem, you'd have to think of using the interest rate. >> so a couple things about that. the first thing is his idea of an equity bubble may be our idea of an equity bubble are a little different. fed's concern is can the market

pop without creating financial instability? without getting systemic risk. that's one. the other one is whether or not the fed needs to come in and use the interest rate ahead of time. might be a little different between fischer and yellen on this. he seems a little bit more willing, not a whole lot warning. let's just go to the companies who are saying it wasn't me. the bunch of companies out there the last couple days who were saying, it's the economy as to reasons why guidance is lower. popbelly we had yesterday on this show. rent assenter last night, family dollar, i think joe kernen's favorite company the container store, walmart, lumber liquidators, and here's a quote from the guy and bob evans as well saying the consumer is constrained here's a quote, macro economic pressures continue to burden our financially constrained consumers contributing to softer than expected demand in our u.s. business. so that's something that's been out there. that we have to follow. we did -- we know we sold a lot of cars. whether that hurt some of the

discretionary consumption, we don't know. we'll have to be monitoring it. >> who do you have delivering alpha? >> i'm not doing anybody. >> you're kidding me? >> the person i asked decided not to come. >> who was that? >> i can't say. >> why? >> you can't invite somebody, they don't come. >> is he also bald? >> they could be bald. >> does he have a beard? >> toy may have facial hair -- >> you know what we didn't talk about yesterday talking about the bald, anti-baldites. >> andy baldites. >> which you are. >> yes. >> you're an anti-baldite. >> and anti-dentite. i don't like dentists. they cause pain. up next -- do you know who the dentist was in the seinfeld? >> it was the guy who was -- >> bryan cranston. unbelievable. >> but there's a whole bunch of stuff he did ahead of time. >> okay. got to go. >> they're yelling at me now. >> we're going to talk china with john rutledge from climate change deals, to strategic oil reserves to apple being a threat to national security in china. all with john rutledge.

this week u.s. markets have dealt with the fed's plan for exiting qe, china's export numbers, the port kwees bank drama. joining us to talk about some of the big issues is john rutledge who joins us right now, chief investment strategist at the private investment firm in california. he's also the honorary professor of the chinese academy of sciences and a cnbc contributor. >> hi, michelle. >> want to focus exclusively on china because one of the reasons the market sold off yesterday is

the fact that their exports numbers weren't as strong as expected so maybe we weren't importing as much, a reflection on a weak u.s. economy. what's your sense of what's happening in china right now economically? >> growth is actually settled down and firmed a bit. in recent months. and one of the best ways of seeing that is looking at copper prices, or stock price like freeport that, you know, people were very worried about growth for a time but it stabilized some. they're also shifting from exports over to domestic consumption as a growth driver. and so i think that's not the -- that's not the problem that's on their mind right now. but, you know, growth this year looks like '07. >> i look at every single day the head lines in the chinese newspapers and they tend to be really horrible when it comes to the real estate sector. what's your sense of the real estate sector and should we in the united states be worried about the chinese real estate sector? >> we'll, real estate in china

has huge swings, of course. because so much of policy in the last financial crisis worked through building infrastructure, and real estate projects. and rl estate projects, but what makes it less dangerous here or other places is most property in china is bought without mortgages or large down payments. there's very little speculative housing other than the builders themselves, so we see prices going up and down and right now, prices are softening, but, you know, china's got 2.5% inflation rate so softening prices are not that bad. i don't think collapse of growth is the story there. they have a lot of problems, problems include pollution, corruption at local level and thing the new government there is working hard to get their arms around. i'll be there in a month for

meetings before the g 20 meeting. >> okay. >> but it's those things and the east china sea issues with japan -- >> sure. >> with the philippines is important. >> all right. so when you go and come back, we'll have you on again to tell us what you found. thanks, john. >> looking forward to it. >> great. coming up, jim cramer on wells fargo and what to watch today, rest of the day, and next week on wall street. we'll be right back. with fidelity's new active trader pro investing platform, the information that's important to you is all in one place, so finding more insight is easier. it's your idea powered by active trader pro. another way fidelity gives you a more powerful investing experience. call our specialists today to get up and running.

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get to the new york stock exchange. watch how i do this, jim. i looked at the show and what you're covering. you're covering wells fargo a lot. i'll wait to cover that. i wanted to ask about the trw deal, biggest auto part, another company paying taxes now to germany instead of us. >> it's funny. this deal was so huge, and yet no one talks about it anymore. you're talking about a consolidation industry, a giant amount. joe, do you remember the days if you got a $2 billion deal, we spent the morning on it. this is a humge deal, and like, oh, yeah, it's fine. we are too complacent on takeovers, really are. >> i wonder if a u.s. company

can compete with the german company with a better tax bases, and i don't think anyone from the u.s. can buy. >> it's a major issue. people do not understand these companies if you're an american company, you have to do the deal if your competitor does one, each sector's foiled if it happens, and you're right, government -- whether it's treasury or congress, they don't understand the lack of competitiveness they are creating. it's industry after industry going through the rest of the year. >> i don't want to lose trw, jim, but the germans with their machines, the way they play soccer, i just, you know, i can't stop it, can i? >> no. >> i lost the bacon maker, you know. look how important it is. >> you cannot stop it. someone in washington has to recognize this is wrecking. >> carl levin will figure it out. >> they are not even focused. >> we'll see your wells stuff in a minute. >> thanks. >> "squawk box" will be right

back. financial noise financial noise financial noise humans. even when we cross our "ts" and dot our "i's", we still run into problems. that's why liberty mutual insurance offers accident forgiveness with our auto policies. if you qualify, your rates won't go up due to your first accident. because making mistakes is only human, and so are we. we also offer new car replacement, so if you total your new car, we'll give you the money for a new one. call liberty mutual insurance at...

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in a we believe outshining the competition tomorrow quires challenging your business inside and out today. at cognizant, we help forward-looking companies run better and run different - to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because the future belongs to those who challenge the present. let's get back to steve miller from aig for thoughts on the aig succession. the new ceo's ready to go? >> announced, taking office september 1st, running the property casualty division, the

biggest division, well groomed, and he's ready to go. >> put up with a lot and did a great job. >> yeah. i call him our general patton, generally, he ticked people off, but got the job done. >> if you had heard stuff from whomever, you would have been ticked off too. pay, whatever it is. >> can a ceo -- is the ceo not allowed to piss people off -- >> can we say that word? >> public sector objectives, and we needed to save that company and get it back on their feet, incentivize and motivate the people at the time. it was a huge talk over executive pay. >> still something front and center, a lot of things are front and center that i think are not productive for the private sector and we're both hoping someday maybe we'll snap

back. >> i'm just hoping on a lot of fronts, our public sector gets out of the way and lets the ingenuity of american business get our economy going again. >> there with you. hope so. >> great having you today. thank you very much, steve miller. never gets old for us. join us monday, and "squawk on the street" is next. good friday morning, welcome to "squawk on the street," i'm carl quintanilla with jim cramer and dave faber, and the premarket relatively indecisive here, wells fargo kicks off financials today. ten years around 2.52, evans and lock hart on tape this afternoon, and europe trying to recover some of yesterday's losses, while we obviously watch portugal as well. road map begin