good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. we start this morning with the markets and the likely drivers of today's trading session. the big three, earnings, economic data and janet yellen on capitol hill. among the corporate names set to post quarterly results before the bell, we have goldman sachs, jpmorgan and johnson & johnson. this afternoon, we'll hear from intel and yahoo!. on the economic report, three reports of note. we have retail sales, import/export prices and the july empire state survey. at 10:00, we have business inventories. fed chair janet yellen will begin two days of testimony. what has long considered and can be called the humphrey hawkins semi address on the senate side will begin tomorrow.

lawmakers are expected to press yellen for a timetable when rates rise for making progress. really to talk all things fed and the economy, we have paul macaulay joining us on set for two hours, starting at 7:00 eastern time. then at 8:15 eastern time, we have senator heidi heitkamp. also in our lineup, gard bernstein and larry kudlow. both of them will testify today at a hearing. andrew, i'll send it over to you. >> thank you, becky. it's nice to see we're altogether, everybody. we're all back together. let's talk about corporate news this morning. the justice department reportedly investigating possible pricing coordination among music publishing companies. "the wall street journal" reporting that the doj is now reviewing decades old rules. joe, are you a pandora user?

>> no. >> that's half of what this is about. there's a view that sony some some of the other guys have gotten together and tried to make the price of music -- and i know you listen to all these songs on satellite radio and elsewhere. for new entrants to come in, they've made it different than some of the streaming stuff. dish network, this could impact us in a strange way, they just won their latest court decision on the, quote, ad hopper. i don't know if you know about this device. the federal appeal escort ruling that customers can continue to use the dvrs. you can watch tv remotely live and transfer the programs to mobile devices. the supreme court had ruled on aerial, which is similar in some ways, but not other ways. the network sued dish two years

ago along with abc and cbs and -- >> are you wondering about this thing? >> you've seen the commercials, right? >> i think everybody in the world has seen those object knox yush commercials, right? >> everybody has seen those. there's a lot of different variations of it. dozens. and every single one, is it a boston accent? >> yeah. >> and they're everywhere, saying hopper. now there's a -- i think it's a kangaroo sitting in the front seeing saying hopper and the kids are in the car. >> right. >> you don't watch tv, really. and the kids are in the back screaming and the mother and the kangaroo says i can get all the movies that you've got, whatever. it's done all the time. >> years ago. >> years ago. >> the guys in the house. >> where is the hopper? >> there's a bunch of new ones where there's a kangaroo sitting

in there. i'm not familiar with pandora, but i don't want to open up a pandora's box. isn't that a bad thing to do? >> never want to open up pandora's box. >> isn't it like letting the caugcat out of the bag or something? that's like opening a can of worms. >> that's a jeanie out of the bottle, it's humpty dumpy out of the bottle. >> i'm going to open up pandora's box and give you the final headline of the morning. >> that makes no sense. we're watching shares of apollo education group. it has been formed by the department of education and it intends to conduct a review of the university of phoenix's financial aid program. there's been lots of debate about that program and about for profit education that's taking place over the past two years. israel is stepping autopsy cease-fire plan, but hamas is

rejecting it. let's get to martin fletcher in tel aviv with the latest. here we are again, martin. but this, i don't know, sounds like baby steps to some kind of resolution. >> well, yes, it's definitely the most important first move. the egyptian proposal. so since that cease-fire went into effect at 9:00 local time this morning, israel has been fired any rockets into gaza. israel accepted the cease-fire. but hamas initially rejected the cease-fire. they have fired since the cease-fire since 9:00. they fired more than two dozen rockets into israel. israel has not yet responded, hoping that the cease-fire will, indeed, take place and that what mags will change their mind. but israeli prime minister benjamin netanyahu said this morning if hamas does not agree to the size fear, then he said

israel will have all international legitimacy to do whatever it takes to intensify it's fight in gaza, meaning potentially air attacks and the ground invasion which everybody has feared. right now, there's about 194 people dead in gaza. most of them civilians. there will be much greater civilian loss of life in gaza. as you say, baby steps twadz the cessation of hostilities. the positive thing that is developing at the moment in terms of hamas is yes, they rejected the cease-fire very strongly this morning. in fact, they said they would increase hostilities severely and intensely. but the political leadership of hamas just in the last few minutes have said they are indeed considering the proposal and we'll have to see whether the political wing of hamas are in sync on this.

potentially, a cease-fire could fall into effect during the day. but at the moment, it's principle clear israel said yes and hamas said no. >> that's weird, though, martin, the way you phrase it. if i had to choose, i'd choose from the military wing of hamas to accept a cease-fire rather than, i don't know, maybe one -- you never know who controls whom, i guess. but once you get that, if they cease-fire in the military, there wouldn't be any rockets coming, no? >> that's right. that's what everybody hopes. but the military wick of hamas, the deal proposed doesn't give it any gains. so the question then becomes what is this all about in the last week of fighting? >> what is it ever all about, martin? i guess we know in the big picture what it's about, but it seems like it never accomplishes much. anyway, we appreciate your reporting this morning. thank you. all right. let's get a check on the markets this morning, as well.

we've been watching the futures this morning. big gains from the markets yesterday. you saw the dow up by 111 points. the dow industrials did hit a record intra day high, up about 13 points shy of a record close, closing at 17,055. the s&p was up by 9.5 yesterday. you can see this morning there are some red arrows. dow futures down by about 13 points below fair value, s&p down by 2 and the nasdaq down by 2.5. taking a look at oil prices, yesterday crude oil rose by 8 cents. it's sitting at a two-month low. this morning it's down to $100.47 a barrel. the ten-year note, we've been watching the yield and the yield snapped a five-day loogz streak after edging higher yesterday, recovering around 2.55%. we see the yield this morning at 2.53%. right now, if you take a look at the dollar, you'll see it is -- at this point, wow, it's a different currency market that we're looking at, but it looks like the euro is trading at 1.3593. the dollar/yen is at 101.56.

gold prices, taking a look at what's been happening with gold, it was down more than 2% for the year. it settled at a 3 1/2 weeks low. this morning, it's up by just $6. $1,312.90 an ounce. joining us right now is eric wasserstrom, managing director at sun trust robin is on humphrey. what should we be looking for this morning? >> i think what we saw was a couple of different trends. on the advisory and underwriting side, results were pretty robust. and on the trading side, they certainly ended up being less bad than feared, so i think that's raised expectation aes bit for jp and goldman this morning as we look for their prints. >> what are the numbers you're looking for? >> in terms of estimates, from

the consensus. i think the consensus is up around $1.30. i would say that's based on the citigroup results may be a more reasonable level. and for goldman, a little over $3 and i think, again, the consensus is it's a bit higher around $3.20. >> you think the upside on this, based on what you saw from citigroup? >> that would be the trend. in particular, the base on expectation for trading markets, both equity and fixed income, was to be down 20% to 25% year over year in the second quarter. citigroup results were more in the 1 is% range. that's raised spec actions for these two names. >> we hear time and time again this lock of volatility. how clear things have been. it is a big deal when you look at some of these trading desks. why do you think things could be better given that low volatility?

shaking around, how are they getting around that? >> well, i don't know that they're getting around it. being down 15% over the course of the year isn't exactly, you know, a stand out level. i think it just means that in the last few weeks of the year, you know, maybe with some of the stabilization, the geopolitical issues and that kind of thing, trading markets were a little less bad than what the expectation was, let's say, in late may, which was around the last time we revised estimates. >> you know, when you look at our banks versus what's happened in europe, there is this real sense that things have been much better here, have been much better taken care of. given some of the conditions that we're seen in europe, some of the conditions about the banks over the last week or two, does that buy investor will have for some of the u.s. banks? >> i think it draws a reasonably start comparison between the policy decision in the states and what we've seen in europe. both regions have central banks

that have the market liquidity and liquidity is critical for banks because it's what they need to function day-to-day. but in terms of the actual cleansing of balance sheets and recapitalization, that's something that the fed really forced and the treasury with the t.a.r.p. program and then the required buyout of t.a.r.p. would equity with the larger banks. in europe, we haven't seen that cleansing process and of course, the strength in the economy isn't enough to bail those banks out with respect to the asset quality issues. >> eric, when the numbers come out later this morning for jpm and goldman sachs, what numbers will you immediately look at? what lines should we immediately look@to see if this is a good report or not? >> obviously, in supporting the revenue, everyone will be looking at that trading line, equity and fixed income. the advisory results, the underwriting results and, of course, how they control expenses. again, citigroup set a high bar there with a very tight comp

ratio. so i think that's a number people will migrate to, as well. >> thank you so much for joining us today, eric. we appreciate your time. >> thanks very much. >> he mentioned comp ratio. >> yes, he did, i noticed that. when we return, joe is going to discover the container store sort of. we'll explain what all that is about after the break. and then nike's tip of the hat, the future hall of famer ahead of his last all-star game. if you have not seen this commercial, you must return with us in just a moment. "squawk box" is coming back.

♪ >> tip of the cap to the yankee captain who is retiring after this season. the commercial includes cami yoes from michael jordan, tiger woods, mayor giuliani, jay-z, some of the mets and even some boston fans. it's going to air during tonight's all-star game for derek jeter. >> you know, even if you don't like the yankees, a lot of people like derek jeter. >> carl tweeted it out yesterday. it's an awesome commercial.

>> did you see the lou gehrig commercial where each first baseman in the major league read a line from lieu gehrig's speech it it was the 76th anniversary. he died less than two years later. he was never seen again. he's the ironman. so i saw that commercial and i cried. i'm not going to be crying with this one. last night's home run derby was rain delayed, but for the second year in a row, oakland a's joudfielder -- do that for me. come on! yoenis cespedes, the long ball. the reds are now a game and a half out of first place. >> are they, really? >> yes. >> wow. >> the mets have won eight out of ten, but they're still five games below. >> 1 1/2? >> a game and a half out.

>> you go. >> they beat milwaukee in a two out of three. i think they almost swept the cubs. >> that's amazing. last week, andrew and i were off. we didn't get the chance to talk about the container store, but we did hear joe was really into that story. he has a container for almost everything and that he even went to check it out for himself. >> when becky and andrew were away, joe discovers the container store. >> what the hell is the container store and why do i care? >> it's a big store. >> is it like a tupperware party? >> and while he was busy watching the world cup this weekend, joe's cutout took a trip to the container store in northern new jersey. the search was on to find something big enough to fit joe's head. how about a wicker bin? no. in the clothe hammer section? nah. maybe in metal. negative. this plastic thing? not quite. this one? way too big. how about a reusable grocery

bag? forget it. but on the last aisle, there it was. the perfect container to fit joe's head. >> ah, yes, container nevana. we happen to have the official squawk container right here. why don't we take a look inside. >> have you been -- >> i've been to the container store, yeah. i've been to that container store, in fact. >> well, that's nice. the complete idiot's guide to the federal reserve. i can give this to liesman. it would help, i think. the "squawk box" blue chip book award. that's nice. >> there's one for you. >> wall street, at least it's wall street won. this might be for you so you understand other references. and then timely -- heard of this one. too big to fail starring william hurt -- main street took the

fall -- main street but wall street got the check. yeah, that's what happened. the true story behind the 2008 -- okay. >> i wanted you to have that. >> and wow, oh, my god. whoa, look at those eyebrows. there we go. that's nice. look at you. >> look at your hair. >> anyway, the container store, you've really never been there before? >> no. >> you didn't know what it was, really? >> i didn't know what it was. i talked to the boss about it and she told me -- penelo penelope. >> she told me mostly a new york thing because there's so little space and it's constricted. >> i did find some nice glass bottles with corks on top. >> they have polls with ladies'

shoes so you can put 50 pairs of ladies shoes. and jewelry holders that you hang in your closet. >> big box things. i had never heard about it. >> i hadn't heard of -- >> oh, the family. >> marcus. >> yeah. i heard it had been saved, but no one told me it was from our guys, which is really -- that's cool. >> did you see our prime time scheduling coming up? shark tank every night. oh, yeah? i did not see that. >> where were you guys? >> sun valley. >> yeah, shark tank and then, you know, we've got some new stuff coming. but i think we broke into the top ten of cable shows. >> would you want to be leading

or -- >> me, too. glad they're -- >> yeah. it might be a cinderella story. perhaps a little bit after. >> when we come back this morning, it is show time for corporate america. will the quarterly results justify the valuations? we have that conversation right after this. and is the coconut water crave here to stay? the chinese are buying into it. founder of vita cocoa will join us in the next hour. take a look at yesterday's winners and losers. moderate to severe crohn's disease is tough,

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good morning. and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. making headlines, albarol is buying rockwood for 85.53 a share in cash and stock for about $6.2 billion. that's a 13% meem yumm based on yesterday's closing stock price. staples announcing it will end a pilot program with the u.s. postal service to set up postal offices in the program. there was a hair's chance of earning a profit and not losing

money. just days ago, the postal workers won the support of the american federation of teachers which approved a resolution to boycott staples. why does that seem like a marriage made in heaven? ness labs encouraging makers of smartphone gadgets to use thread. nest is trying to lead the way of how future household twices speak to each other. everyone is trying to develop a standard which makes it hard to develop a standard. >> once you have a standard, it's a very good thing. but everyone wants a chance to decide what that standard is. let's take a look at the markets. you'll see some red arrows and modest declines after dow futures yesterday. this comes after major gains yesterday, a day when the dow was up 111 points.

the s&p was up 9.5 and the nasdaq was up by 24. you'll see red arrows in europe. there are more significant declines. in portugal, the stock market down by 1.25%. in italy, the market is down just over 1%. in germany, the dax is down by 0.4%. overnight in asia, there were some green arrows. this is coming following what happened here, but the nikkei was up by 0.6%. the hang seng was up by 0.5%. oil prices this morning continue to decline. another drop of 48 cents for wti. $100.43. and with the ten-year note which, again, yesterday, we've been watching those treasury yields closely. yesterday the yield snapped a five-day losing streak. you'll see this morning the yield is coming in at 2.539%. >> markets are going to be paying attention to janet yel n

yellen's appearance on the hill. will yellen's performance help or hurt the market rally or not have any effect? joining us now, michael tyler. and jim swanson, chief investment strategist at mfs investment management. jim, good or bad for the markets or is it going to matter? >> it's not going to matter. she's not going to change her stance here. she may have this wrong, but i think she's going to keep very steady here with her taper plans. you're not going to see any new news. >> mike, is the law of diminishing effects on this qe is well known to most people, i think. i tell worth it to keep going even though we don't know the long-term effect and the benefits seem to be shrinking? >> i think it's pretty clear that getting out of the qe business is the right thing to be doing. the question is whether that's enough or whether she needs to start thinking about tightening a little sooner than currently she's been expecting.

in other words, is the labor market beginning to tighten up a little faster than the unemployment rate, which is by iftsdz coming down quite quickly? >> so that is the question to both of you gentlemen, are you behind the curve or just right? is it like the three bears, monetary policy at this point just right, mike, or behind the curve? >> i think they're beginning to slip a little bit behind. i think that the unemployment rate is coming down quickly. even the long-term unemployment rate. i think that inflation data is beginning to pick up a little bit. companies are reporting that there are some spot shortages of skilled labor. so we are seeing signs that the economy is gaining a lot of momentum and they should start thinking more quickly about what to do next. in fact -- >> like that minus 2.9% gdp, jim, that the economy is gaining momentum? >> right. how do you get a minus almost 3% in one quarter and immediately shift back? >> you've either got to believe

at least a little bit that it was indicative of not a great comedy or you have to write it off, one or the other, right? >> i think you do. and the test here is you walk around here, you see the planes are full, the stores are full, hokd that have been a recession in the first quarter? >> but then you hear that the employment picture is not fully illustrated by saying 6.2 or..3% in terms of participate, people not shifting jobs or getting better jobs, people working in positions where they don't feel like they're getting paid what they're worth. it's not -- it doesn't feel flush. you don't feel like, wow, these are good times. look at the sentiment. >> you don't. you talk to companies and they're running out of skilled workers. they can't replace them. >> but if there's a huge body of people that just aren't trained to do those jobs and all they can do is fast food, that's not a great -- >> that's not a great economy. but money is coming through the system. retail sales keep going up. we'll see later today. >> we've heard from walmart

about concerns about what's happening at the container store. there have been -- but even walmart is saying that the improvement in the jobs picture is not helping their client. >> yeah. and they tend to be middle to lower end. but you look at what yellen has to deal with here, what if they're running out of skilled labor and we just have to start paying the existing workforce higher wages and she starts to get those phenomenal wages moving up, about 60% of the cpi? they could be behind. >> so, michael, we've got macaulay coming on. he's going to say that janet yellen is just doing a phenomenal job. and to me, it's, you know, sort of going 10 each month, getting out of bernanke's thing. do we really -- can we grade her? do we have any identity if she's any good at this point? do you know? >> i think it's too early to say. i think what i do notice is that she is talking and doing slightly different things. >> like what? >> we've got the cover of europe.

>> she is -- that does allow her some flexibility to be a little bit tighter. because european investors will keep pushing treasury rates here down towards simply bauts because it's so much lower in europe. so she has that opportunity. and if you look at the estimates for things like what the fed funds rate will be in 2 1/2 years or 1 1/2 years and compared that with where the markets are, she is somewhat more hawkish in her action and in the fed's estimates than the markets are currently expecting. but her words are still emphasizing the uncertainty and still emphasizing that it is a fragile economy. so she's kind of playing it both ways a little bit and it will be very interesting to see, as becky said at the top, it's show time. it's time for corporate america to start delivering the earnings that will demonstrate that, in fact, the macro data, the economy really is on a stronger path. >> if we see wage growth middle to upper tier, will that pull everybody up on the bottom or no? >> i think it will. but the danger here is these

guys are the ones working in the s&p 500. and if you get wage pressures that we're going to lose some of our operating margin, that's the danger. >> on the market side. >> on the market side. >> but in terms of the economy side? >> it's the higher income workers that have the disproportionate share of all consumption. the top 10% -- >> my point is, will it change the consumption pattern is the question. >> meaning is there a marginal increase in consumption or not at that level? >> no. they tend to be savers, that's right. that's correct. >> so the money is not going to come back into the system? >> no. but do you need more? these companies are making record margins. five years since july '09. where are these people getting their money if they're working at food companies? >> so you think the market is what, fair valued?

overvalued? undervalued? >> the stock market is slightly expensive. but compared to the fact that interest rates are still near historic lows, i'd say it's reasonably attractive and certainly by no means overvalued or fully valued. >> yeah. i think it's fairley valued, but earnings are moving up and my litmus test for that is the first quarter. if the economy shrank, how did we get 9.9% margins in the first quarter? and it's going to be better this quarter. >> you see, i hope that's -- you know, that's key. because if the market is where it is just because there is nothing else, and we know where there's nothing else because the fed is keeping things at zero, that's almost orchestrated that there's nothing else which causes people to move out the risk curve. but if there's nothing, hopefully eventually it will be justified by natural corporate profit. >> but we've seen remarkable profitability so far.

>> they're not investing, they're not hiring. >> i think that's sales growth, as well. >> but they're looking for 4%, right? which is much better than the last couple of quarters, right? >> exactly. you need to see sales growth and double digit earni inings growt support the market at this point. and i think you'll get it. >> thank you, gentlemen. >> we were talking about risk aversion at some point. >> you've got a big -- >> it's one of my favorite topics. >> i'm surprised you got cramer to go along with you on that. >> what do you mean? >> he went along with you, we should make it against the law to do it. >> we have to do something. >> that's like a wage -- >> it's allowing them the loss. >> it's the reason that it's happening. >> the ceo of mylan is the daughter of a u.s. senator. >> so? >> no, my point is, if she is willing to go abroad with her company, to get lower taxes,

that's an issue. >> work with me. change the law. people were saying yesterday, the president has said he wants to do that. he's going to leave office without having done this. >> i agree. >> and out of all the other things he's tried to lead on, he's going to leave office and this is not -- why? >> the catch is, that he wants a 28% at the top, 25% for manufacturing. it's still too high because you look at a company like mylan, they're going to get into the high teens. >> why can the left not see a connection between a robust private sector and more jobs? >> it's not that i don't think that they see it, it's that me don't understand what is the possible number that makes sense because it becomes this race to the bottom. let's say you go to 20%.

then you have to decide, you know, two years later, if the netherlands, which is giving her the high teens is going to stay at 15. so fine, we'll watch the global rates and stay competitive. we've watched the entire world move away from us. we have to make a dent somewhere, but we're not going to. >> i don't know. i agree that we need to do something, i don't know what the right answer is. >> and can you get behind this on the shortages snm. >> water shortages, much more pressing than climate change. i'll go out city to city and talk about that, about water and about how important it is and about how skaicarce it is and h we need to do things to protect it and clean it and all at that stuff. you've got me on that. i'll stop eating beef, like richard branson, although i will still fly around to my own proofrt island. there's four people that are lucky enough to go to my island.

another story that includes water, david winters criticizing coke again, unhappy about what is happening at the beverage giant. he has now sent a letter to a few other shareholders. we got a copy of this letter. the letter reads in part, we believe coca-cola shareholders deserve better. we asked ourselves, what if coca-cola look like if it were a well-run company with a focus on shareholder returns? murnt winter suggestion, he says he wants the separation of the company's chairman and ceo roles. he wants those to be split. he wants them to withdraw and replace the 20134 equity compensation plan which he has talked about before. you can also take a look right now. shares of coke during the last year on a relative basis to what's going on. 42/38 is not a horrible place to be, but nonetheless -- what's

going on? >> nothing. >> looking at the pictures in the rotation down below. >> i just don't think that -- i don't know if that's paul macaulay. >> so the one before -- we'll see it in the rotation again. we'll take a look at it. anyway, we have david winterses coming up. we will talk to him a little later this morning. also coming this morning, what do warren buffett and paul mccartney have in common? let's say it's gone viral. we will show it to you next. "squawk box" will be right back.

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welcome back. time for the squawk planner. business business inventories. today is the deadline for companies to weigh in on the fcc's controversial net knew translate proposal. that would allow broadband providers to charge content for so-called fast lane of service. don't, don't miss an all new episode of cnbc's prime restaurant start-up. among the highlights, joe and tim are going to decide to give the ladies a bad-ass burgers, yeah, that's what i said. here is a preview. >> we have a proven track record and i want to make sure that you guys are great partners as well as we're great partners. >> we're being vetted by them. >> i opened up 32 restaurants in my life and they were all hugely successful. i think i'm vetted enough, so -- >> okay. >> i think that sex sells, you know? >> i've never sold sex before or been in the sexy food business,

but i think done properly, it works. >> i think negatively, i worry about you guys operating the restaurant. i'm not seeing it in you. >> maybe i should have shown up on my babe hat because i live on that truck. we can dangerous up nice and -- >> if you get the opportunity to launch bad-ass burgers, you will be showing us what you can do. >> am i dealing with two entrepreneurs who sell themselves as restaurant people or are you real restaurant people? >> i am a real restaurant person. >> you're very confident. >> well, you know, i think it's time for us to make a decision. >> all right. >> and you don't want to miss that. the full episode coming up tonight at 10:00 p.m. eastern time and pacific. sometimes a stefy is better than an autograph. certainly a picture is better than a thousand words. sometimes those selfies can go viral, too. check this out. warren bust and paul mccartney sitting on a park bench.

along comes 16-year-old paul white who snaps the selfie that everybody is talking about this morning. buffette and mccartney went to dinner. they had ice cream cones, sat on this bench across the street. people started showing up from all over taking pictures. this is one of the one that's went viral, though. >> i thought it was in sun valley. that's weird. >> in omaha. >> apparently he was doing a concert or did concerts the day before. >> who did the kid recognize? >> it's omaha. everybody probably recognized warren. but i think mccartney, that's what set off twitter. >> and i couldn't tell, did warren and paul know he was taking the picture? >> it could be that the kid said, god, who is that young guy with buffett? >> or the kid might have said who is that guy? why is his hair so long? >> it's a generation, there is

probably no one in the world they would rather see, my mother, paul mccartney. >> i have a picture with him. >> really? where? >> from one of -- >> oh, that's cool. >> paul was honored for something. >> i'd love that. okay. when we come back, cashing in on the coconut water craze. vito coco has taken the market by storm. red bull china buying it. is the company's founder willing to sell out to one of the big beverage boys? tomorrow, "squawk box" will be live at delivering alpha. that's starting at 6:00 a.m. eastern time kicking off a very big day on cnbc. we're back in just a moment. ameriprise asked people a simple question: can you keep your lifestyle in retirement? i don't want to think about the alternative. i don't even know how to answer that. i mean, no one knows how long their money is going to last. i try not to worry, but you worry. what happens when your paychecks stop? because everyone has retirement questions. ameriprise created the exclusive confident retirement approach.

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welcome back to "squawk box." are we just starting to tap into the coconut water craze. you didn't even know what it was. >> no. >> the owner of red bull china bought a 25% stake in vita coco for $166 million, the biggest seller of coconut water in the u.s. at $665 million. with us now is michael kurban, cofunder and ceo of vita coco. we were joking about this earlier. help joe -- you know about coco water. >> of course. >> my whole life people have wanted to -- >> my whole life people have wanted to drink the inside of coconuts so you put it into -- you take it, and marketed it.

>> we did, yes. >> so what was the inspiration to originally do this? and there are, by the way, joe, a number of others who has done this. coca-cola has bought one of these guys. >> have you bought it and had it? >> i have, absolutely. >> does it taste good? >> amazing. delicious. >> it's better than drinking like gatorade. >> you agree with that? >> much more hydrating. loaded with potassium. >> what's the calories? >> in each serving it's 40 calories. >> how many servings in one of those -- >> in one of those is 1.25. >> well that's not bad. >> so here's a question. on this red bull deal, what's the difference between red bull china -- there's regular red bull and red bull china? >> there's red bull the company that is red bull everywhere outside of the world except for thailand and china. the original red bull comes from thailand. and the thai family still owns a huge piece of the austrian red bull that we know here today in the u.s. and then there's red bull china, which is just exclusive to

china. >> got it. >> which is a $3 billion business in china. >> is there enough coconuts in the world to actually support building this business out in china? >> yeah. so today we're cracking 1.5 million coconuts a day. and our goal is to source 5% of the commercially harvested coke nutds in the regions that we're already producing and that builds us into a $1.5 billion business. >> coconut, obviously, coconut cream pie, so many things have coconut. what did they used to do with the water? >> it was a by-product. >> you're kidding. >> for generations. >> did you really have to use new coconuts to do this? >> no, we're -- >> you're using a by-product. >> it was always a by-product. we built production facilities next door to coconut manufacturers. >> that's really good. to use all parts. >> yeah, exactly. >> what's the margin on this product? it's a very expensive thing to buy but i also imagine it costs a lot to crack open all these coconuts. >> they're already cracked. >> i know that. but it's much more complicated than filling up a can of coke.

>> exactly. it's not sugar, water and flavors that are made in a bottling facility in nebraska. >> so what's a price point on one of these things? >> that retails for $1.99. >> and how much does it actually cost to manufacture? can you tell us? >> no. >> is it that much difference than grapefruit or orange? that costs money to bottle that. >> it does. coconuts are 30 feet up a tree. >> but tear already down to get the coconut out of them to make the stuff to put in all the bakeries and pastries and all that different stuff. >> but it's a very expensive process. because you've got to climb a tree, you've got to climb a tree, crack a coconut, you got to process it, you got to ship it here, and then it goes through a whole distribution. >> nobody actually climbs the tree -- >> they actually -- every coconut is hand harvested. >> why? >> swear to god. i don't do it personally but yes. >> isn't there an easier way to go through it? >> get a drone up there to slice them off. >> we're working on drones. that's big news, right? we're working on it. >> this is just a selfish question because i'm just curious. why do they come in these kind of packs?

>> it's the only way to take coconut water in its natural state did >> rather than a bottle. >> look at milk. milk comes refrigerated or in a tetra pack. it's hard to find milk in one of those two ways without adding some preservative. >> what's your market share of this market obviously there's ecoand a couple others out there. one was acquired by pepsi. >> so if you look at the three brands owned by coke and pepsi together and us, which is the premium coconut water set we have almost a 70 shares, like a 68 share in the cat gore. >> so it used to be called milk, coconut milk. >> coconut milk is actually a process of mixing the meat so you use that in like thai cooking. >> how many coconuts are in one of those? do you know? >> that is about a coke knit and a little bit. it's just more than one coconut. >> so there is that much in there? >> yeah. >> i'm going to give him a free promo for just one second beyond

the one they're getting. they make this with caffeine. >> all right. let me try one. >> they do a mocha one and a coffee one. >> viet to cocoa cafe and it's a shot of espresso with coconut water milk and a little bit of sugar. >> these are only sold in the container store? that's why i've never -- >> you want to try it? >> try it. go for it. >> a little taste test. >> it's like water with a little bit of sweetness. >> i love pina coladas. could you use this to make -- >> no. actually it's early in the morning. i just -- >> try it. >> i like pina coladas, i like getting caught in the rain. >> walks on the beach? >> how do you know all this about me? >> he read your personal ad. >> no, that's good. >> okay michael. thank you for being here. congratulations on the deal. >> thank you so much. >> we hope that you succeed. >> we got a lot more earnings coming up after the break.

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welcome back, everybody. we are just looking at jpmorgan chase's earnings that are coming out. looks like it's better than expected numbers. bank is reporting $1.46 a share. estimate was for $1.29. revenue number coming in stronger than expected, $24.45 billion. the revenue -- the estimate on that number was $23.76 billion. just looking through some of the numbers in the release right now, they say that the firm had strong underlying performance not withstanding industrywide headwinds in both markets and in the mortgage business. so again, acknowledging what has been a rather difficult environment but coming up with better than expected numbers across the board. just some of the other numbers that pop out here.

they say a trillion dollars of credit and capital raised for the first six months of 2014. and that they had 14% return on tangible common equity. we'll get some more of these head lines. again if you take a quick look at what's been happening that stock looks like it is trading higher up about 79 cents to 57.08. we are welcoming a very special guest, paul mcculley and chief economist at the managing director of pimco. the world's largest bond fund. he's making a rare east coast appearance to be on set with you. >> good to see all of you guys. >> you're going to be with us for two hours. we have a lot of things to talk about. we've been trying to get a feel for just where the markets stand right now versus the economy. numbers were really weird for the first quarter of gdp and yet the markets keep hitting new highs. what's happening? >> i think the first quarter truly was an anomaly in the gdp data. on the supply side of the economy, otherwise known as jobs, and income, you did not see the downward turn. statistically that showed up as a negative productivity quarter. but actually from the standpoint

of what matters on main street, jobs and income, the first quarter was not a negative quarter. and we're seeing underlying healing blossom in the american economy. so i think the economy's doing well. and we can get in through all the statistical stuff for the first quarter. but the bottom line is that the fed has been successful against great deal of odds and a great deal of criticism on wall street, in getting us out of this liquidity trap. so i think today is the day of celebration for janet, not an issue of having to defend herself. >> you were here on an interesting day. it's been a time of healing for the economy but there's a story again in "the wall street journal" today about what's been happening at pimco. you are coming back to the firm at a time of some turmoil there and i just wonder what led you to come back and where the firm stands right now? >> i've known bill gross for almost a quarter century. i've known doug hodge for almost a quarter century. pimco is in my blood. >> who did you know longer, bill

or me? >> actually i've known you longer. i've known you longer, joe. >> so i can ask you anything. >> and i cannot answer, as well. >> this article that -- and i think becky is very nice and she wouldn't just pin you -- but did they beg you -- they needed you, if you read this, bill's fund is losing 4.5 -- i mean there's an outflow, even though he's doing pretty well and there's a view that there's tomb ultimate there and leadership missing, did they beg you to come back? >> i would not use the word beg at all. >> did they approach you, because you were doing just fine, weren't you, with your beard and your up on a mountaintop in the lotus position? did -- was this your idea or their idea, paul? >> it actually evolved from discussions that i had with bill. bill is a personal friend of mine. has been for a long, long time. and as you have observed and the world has observed pimco has been going through some difficult times earlier this year.

and i spent time with bill personally, as a friend, and out of that discussion came the idea, maybe we can find a space -- >> you're back full-time -- >> -- for both sides of the equati equation. so there's no begging going on. >> i understand. it sounds like he did -- and the only thing that paul, becky had to negotiate was what kind of haircut. i mean did you actually say -- it was down to here. >> it was down too here to last year. >> is that the corporate -- that's as close as you'll come to the corporate look? no beard and then that, right? is that what he basically said at that point? >> absolutely not. >> you could have come back looking like -- >> so he was going to cut his hear live on our show last year. >> remember that? >> he was. we couldn't figure out -- >> i couldn't have come back to pimco with long hair and a beard because i took both off last summer. almost a year ago. functionally totally independent of pimco. >> i can imagine that they -- >> it was actually your girlfriend who told you to do it, right? >> yes. >> we saw some of those pay

checks like mohamed with 100 million a year or whatever it was. i guess they made it worth your while to come back. >> it had absolutely nothing to do with money. >> you know, paul, i will say the thing that struck me from this article today is the idea that bill's been outperforming. his fund has done better than other foreign funds that go up against it yet there has been money coming out even at times of inflows going in. i wonder what it feels like inside the company. does it feel like a time of siege when you're performing better but still struggling with stuff? >> first the issue of lag between performance and lows. it works in both directions. we had a good second quarter. but institutional investors with fiduciary responsibility look at one year numbers, three year numbers, five year numbers and we're turning the numbers. it takes time to turn the numbers. so i think investors will come back to pimco with a lag, if we put up good numbers. that is the reality of the business.

with respect to your question of the mood of pimco, i think it's positive. remember, i just rejoined the firm at the end of may. so my on-the-scene, in the building, it's actually a new building has only been since the end of may. >> if you can't be happy on the 21st floor of a new building in newport beach, then you, you know, you've got a problem. if the mood is bad on the 21st floor of the brand-new building in newport beach then you need to get rid of those people and get some new people. it must be great. >> i do get the sense, i like him a lot, i think he's a great guy. i imagine this has been a difficult time for him. >> it has. and as i said, i have a personal relationship with bill, as well as a professional. and i'm happy to talk about the professional side of things. and some areas on the personal side that i will talk about, as well. such as us bowling to the and things of that nature. but there are other things that, you know, obviously, you know, will remain confidential as they should. >> you have something -- >> well, there's a couple deals,

i just want to get a little bit of reaction. >> jpmorgan? >> what jamie dimon is saying in terms of where you think the market is and the economy is. here's what he has to say this morning and this is just off of their earnings report. towards the end of the second quarter we saw encouraging signs across our business, including an uptick in wholesale utilization, strengthening pipelines in our commercial and banking businesses, and some improvements in market activity. while it's too early to assume that this momentum will continue we have confidence in the long-term growth of the economy. consumers, middle market companies and corporations are increasingly in good financial shape and the labor market is showing steady improvement. jpmorgan chase provided credit and raised capital of over $1 trillion to our clients. are you in the carve -- are you in jamie's camp or a different camp? >> actually i could have written jamie's comments, i think. the economy is healing. and a bank, such as jpmorgan, will be at the front end of seeing that. and it comes from middle america. large corporations have been able to access credit for a long, long time in the capital

markets. but you actually want to see a footprint in real america, you will see it in his book of business, and i think he's seeing that phenomena going on. and we're seeing it in the macro data. and we're seeing it in retail sales. we'll get that a little later this morning. so actually, i would say amen to basically what he said. >> what's the new neutral that you're going to bring us today and how is it different, what used to be the new normal. what is the distinction between new normal and new neutral that you're talking about? >> they're actually related but they're two different concepts. the new normal was about the fact that we could have weak growth. >> for years. what's happening? >> and it happened for five years. so you declare victory on the growth forecast associated with the new normal. the new neutral is a different idea. which is that the equilibrium level for the fed funds rate is

dramatically lower going forward than it was prior to 2008. we know the fed's going to tighten. >> right. >> in our lifetime. most likely within the next year or so. and actually that is a good thing. zero is not a natural place for the fed to be. it's called a liquidity trap and you don't want to be there. and the fed needs to get off of zero in a reasonable time frame. that's not yesterday. but in a reasonable time frame. our whole focus with the new neutral is okay, they're going to declare victory. declare victory, not defeat but victory and get off of zero and start a tightening process. where do they stop? >> but you know -- >> and we think it will stop at 2, not 4. and that is profound. >> and it's profoundly bullish because it means that they're not behind the curve. and it means that they're not manipulating it. it deserves to be somewhere right around where we are anyway

so the whole idea that they're orchestrating this and that the market itself would find a much higher level if it were free to do so, that that's not the case. that it should be about where it is. >> actually you put that very, very well. >> thank you. that's because we know -- i know how you think. and i just say one thing, paul, if i had seen this article and was coming out and i was your pr people, oh, no mcculley is going to be on "squawk" tomorrow, who else -- i would say perfect, mcculley is going to be on "squawk." that's why they brought you back because this is -- you can handle this. >> you can handle it all. >> you can handle that. >> and i would say good, we got paul on tomorrow and he'll -- you know. >> thanks, joe. >> you're welcome. >> i want to say that we just talked about the new neutral. we've got you fortunately here for two hours so we'll get to talk about what that means for market implications, too. >> sounds great, thanks. >> let me tell you what's going on on this other deal that just happened while you were speaking. reynolds american, which is a parent company of jr reynolds

tobacco company confirmed this legal with lorillad a $27.4 billion transaction. that includes debt in that deal. the price tag, $68.88 per lorillad share. you're looking at those shares right now trading at $66.97. >> the day before you left faber broke that. and all last week when you were out we talked about it that it was going to happen. >> i think we've been talking about that for weeks even before i -- >> that's the smokeless -- >> no it's not a smokeless. >> they do have some. >> it's about kool and all these other -- newport. >> 50/50 in cash, most playing at home 0.2909 shares of reynolds america. we'll talk more about that. it's a 40% premium over the transaction when first announced. not announced but speculation. >> when we return, we'll have a breakdown of jpmorgan's results. and if the numbers are passing the smell test. it's up $1.20. more "squawk" in just a moment.

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welcome back to "squawk box" everybody. we've been watching the futures. take a look right now after we heard from jpmorgan. they came out with numbers better than expected. and we have seen a turn in the futures. originally we saw red arrows after yesterday's big market moves. right now the dow futures look like they're up above 10 points above fair value, s&p futures barely higher the nasdaq up by one point. a new york supreme court

judge has told app based ride service lyft to continue negotiating with city and state officials. on friday the state attorney general's office sought a temporary restraining order to halt lyft's launch. joe? >> as we mentioned earlier, jpmorgan posted second quarter earnings of $1.46 a share on revenue of $25.34 billion. both numbers were above expectations. for more insight and reaction to that we're joined by eric oja, senior bank equity analyst at s&p capital iq in new york. the 120 points in the dow yesterday almost looked like it was sparked, and there was some m&a stuff but sparked by citigroup. this is another pretty good number. i thought financials were underperforming. >> well, sure, but the expectations were just as low as they were with citigroup. i mean, these shares of jpmorgan chase trade at about 10 times and the same with citigroup. so, the expectations were low, and citigroup just vaulted right over them.

>> so what, in the numbers, allowed them to exceed expectations? what different areas of the business outperformed? >> well, certainly there were no great weaknesses, which dragged down the results. and we see that there was very good outperformance in asset management. as well as investment banking. >> okay. what do you see in terms of trading or anything we can extrapolate to either a commercial bank or investment bank in jpmorgan? >> well, sure. the trading revenues, which the analyst community expected up to a 25% decrease from a year ago were not down as much. same as citigroup. it's a similar report to citigroup's yesterday. >> okay. there's something i wanted to get to in addition. oh, yeah. okay. how about commercial loan growth. as a sort of a harbinger for whether we're going to see, you know, credit conditions easing,

and expanse -- we can even gauge some demand in the economy. how is that? because it's been lackluster, hasn't it? >> yeah, well core commercial loan growth this quarter was in the high single digits. and that's really one of the brighter spots in the whole banking industry. it's certainly better than consumer loan growth. consumer loan growth has lagged commercial loan growth the last three years. so, this quarter there was no huge surprise. i mean that's really driving -- >> didn't you say that? didn't he say that it's going to be credible, start flowing everywhere instead of just the big, well-heeled corporation. and you're starting to see that? >> yep. >> and in this report that would confirm what you say. hi single digits is good, eric? >> yeah, that's very good. and that's the core commercial loan growth. >> what's the difference? >> well, there's also the runoff portfolios. so, it will be a little bit lower if you add in the runoff

portfolios. >> that's why these are complicated. >> eric, i just want to tell you about the trading issue. marion lake, the company's cfo i think just a month or two ago had sort of talked about how there's too much capacity in the trading side and had sort of suggested or at least hinted at this idea that they could either slash jobs or compensation. was there anything in this report that suggested that? >> well, in this report, the results were a little bit better than expected. and that's because june was very strong. april and may were weak because of the crisis in the ukraine, and other global macro issues. but the fixed income markets rebounded in june. so citigroup and jpmorgan chase swim in the same pool, and so the results were as expected there. as far as the market, i mean certainly there's a secular change to fixed income. there's much narrower spreads. and so it's becoming less and less profitable each year. and then, when you look at how interest rates really haven't

moved that much in the last year. they had a big move in may of 2013, but they really haven't mored since -- >> and you consider that permanent? >> no, i don't consider that permanent. but i think that waiting for interest rates to rise, or change, is proving to be a fool's game. because we don't really know. >> if you're running a bank in the interim, what do you do? >> you have to certainly manage your expenses, keep your star performers, and certainly they have been reducing head count. their head count reductions over from a year ago were about 3%. >> all right erik. thanks for your time this morning. >> thank you. >> okay. >> coming up we're waiting also on goldman sachs to report. that's expected around 7:30 a.m. eastern time. and next, getting ready for tomorrow's big delivering alpha day. we're going to get a preview of what's to come. kid: hey dad, who was that man?

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tomorrow "squawk box" is going to be coming to you live from delivering alpha. kate kelly joins us with a preview of one of tomorrow's big speakers. >> thanks so much, andrew. the last time stan druckenmiller was on our air he was talking about the opportunity janet yellen had missed when she

declined to start tapering last fall. >> i don't see that happening for a long time for a couple of reasons. number one, if you look at where they were in their head with the economy, and last june, i think everybody's economic forecast are lower now than they were then. the other problem is, they've seen the trailer of the movie of what happens when you do start the tapering. so i think what happened in june, and the pullback, has made it much, much more difficult for chairman yellen to pull the trigger. >> well, it's almost ten months later, the tapering is well under way and the markets are rallying in spite of some expectations to the contrary. and gdp, while lousy in the first quarter, would seem to be on track for some improvement. so it will be interesting to see if druckenmiller, whose recent investments have run the gamut from a heavy presence in the pharmaceutical industry to his favorite stock, google, considers it to be nervous time. it would also be interesting to hear his take on the tax

inversions now in use by so many drug companies, in particular as companies worry about the possibility of congress removing their ability to move offshore. druckenmiller is in favor of eliminating the corporate tax rate, partly to avoid these elaborate tax dodges, even though he wants to add taxes to investors. >> i would like to see capital gains and dividend tax normalized, which takes warren buffett's and mitt romney's taxes to 40% and all the rich, elderly people, who by the way have five times the net worth of younger people and are clipping coupons, it takes their tax rates up substantially. but when you do that, i want to take corporate taxes to zero. then they'll stop building plants in puerto rico, they'll stop building plants in ireland, they'll stop gaming the system through corporate welfare, which is done through the tax system. it simplifies it. and we'd get growth. >> of course, he's been equally outspoken about the need for pension reform as he sees the younger generation essentially floating the elderly for years

to come. so i think there will be plenty for you and him to talk about tomorrow, joe, and i'm looking forward to hearing what his latest take is on the economy and the markets. >> yeah. he -- he's made big investments in the past, kate, on things that the federal reserve has done, and usually has worked out in his favor. we'll get a snapshot of where he stands on a lot of that -- on a lot of that stuff. >> well you know what's interesting, too, hasn't he broken with some of his own cohort in the sort of wealthy bracket, and the money management bracket in terms of saying qe actually made the rich richer, and that was a huge problem. >> and if you look at things long-term, you don't, you know, i don't know if paul is declaring victory today, for janet yellen. i don't know. i mean i think they would have declared victory in '04 and '05. >> for janet yellen or a victory for the new normal? >> no victory for janet yellen. >> i think that janet, speaking for herself, for the committee,

and also for ben bernanke -- >> declaring victory. >> can declare victory that not withstanding everyone saying they couldn't do it, they did it. we got sturdy job growth and now we can talk about getting off of zero. >> right. >> and the taper went just fine. >> but it's been a balance sheet orchestrated recovery that has left, as we've just pointed out, a lot of people behind. and wage growth, and we certainly don't feel flush right now as a country. in terms of where we are. we're better than we were, but we'll see. there's a lot -- >> you don't -- i don't disagree on that. using monetary policy alone to get out of the liquidity trap is not your preferred solution. >> right. >> because, for good or for bad, qe is going to enrich those who have stocks and risk assets. so therefore it will widen your income inequality. i don't like that outcome. but i prefer to have that outcome to remain in a liquidity trap like japan for 20 years. what you needed was fiscal

policy we just had totally wrongheaded fiscal policy the last five years. >> kate, that will be the most important interview tomorrow. thank you for illustrating that. >> when we come back we're going to do goldman sachs' earnings. we started zya with the thought that the kid on the back of the bus might have a song that he has in his head but he just can't get out. with the technology of cloud, we change all that. i can sing something into my device, up to the cloud it goes, back down it comes, sounding better. we break down the walls of creation and we give music creation for the masses. ♪ ♪ unlock the creativity in anyone. with the ibm cloud. the ibm cloud is the cloud for business.

good morning. welcome back to "squawk box" right here on cnbc. here's what's going on in the headlines. fed chair janet yellen is heading to capitol hill today for the first of two days of testimony before congress on the state of the economy. she's going to be appearing before the senate banking committee today, and the house financial services committee tomorrow. investors will be listening for new information on when the fed might start to raise interest rates. also, jpmorgan just out with quarterly results in the last half hour. here's what they had to say. banking giant's earnings and revenues did beat the street. ceo jamie dimon saying the firm is performing well despite industry headwinds. though revenue was down, and issues about trading, we can talk about that. and then an egyptian proposal for a cease-fire in israel has ended in failure. the plan was accepted by israel

but now rejected by hamas. which says it was not consulted on the plan and that it didn't offer any tangible benefits. israel had warned it would strike gaza even harder if the truce wasn't accepted by hamas. >> let's get back to our guest host, paul mcculley is chief economist at pimco. we've gotten some of your best points out already. i think we can certainly go a little bit further on, you know, analyzing this new neutral thing. why would the new neutral, which means the fed funds will stay low, doesn't that -- isn't that a commentary on sluggish worldwide growth which puts this in kind of a -- not a great position? >> sluggish worldwide growth would be a factor. but only a small factor. >> what's the other stuff causing it then? what are the positive things allowing rates to stay so low? >> i think there are two key issues. number one is that the fed won

the war against inflation. >> yeah, i saw that in your note. so, you know all these wars that we win, so give me a time frame. 20 years from now, inflation will still be dead? ten years? five years? what are we talking about here. because there's been a lot of printing, and luckily it's been a beggar thy neighbor. no one has not printed so that the dollar relative to something else hasn't had a problem. but we're lucky that everyone's had to do it. but what do you mean we've won the war? i would think that volcker won it and it maybe would last 25 years and we're at the end of that, aren't we? >> well, actually the war went on from volcker in 1979, around the time you and i met each other. >> exactly. >> and i think the war was won in the recession at the beginning of this century in 2000. remember we went down to 1% fed funds. >> so it wasn't the volcker recession, that he okay stratded that was -- >> no, it was 20-year war. it was a 20-year war called

opportunistic disinflation that in each recession you would get a lower and lower -- >> and it coincided with the bond rally. >> it was a great 20 years for bonds and you look at an inflation chart it went down for 20 years and for the last 15 years we've oscillated in and around 2%. >> that sounds like a long time. that sounds like a long time to be at 2%. and it seems like the next move is up, isn't it? >> we may be on the north side of two versus the south side of two. remember we've been on the south side of two for the last five years. >> you have another 15 years under three? >> i have no problem with that as a forecast. >> really? >> in fact you can look at the marketplace and see the marketplace is betting it that way, joe. we have tips now. you can look at long-term break-evens, and -- >> and it happened in japan, too. but we can see we don't want too much -- we want a little, don't we? >> a little inflation? >> yeah. >> well, i think actually moving back up to 2% target -- >> that's just right? goldilocks? >> actually to say we're going

to move up from south of two for the last five years and stop magically at two, is not realistic. i mean i look at price stability, in and around 2%. which means that cyclically, sometimes you'll be below. we've been below for five years. and actually, i'll be a little provocative here, it's okay to be a little bit above 2% sometimes, as well. if you're going to average 2%, you have to have data points on both sides of it. and i don't think that janet will say that explicitly today but i don't think she would vehemently disagree with that. there's nothing like the world's going to end if we have 2.1 versus 1.9. >> where do you get to a point where you start to worry, if it starts to creep quickly higher? what would kind of get the hackles on the back of your neck kind of going, wait a second, this is different? >> actually, over the next 6, 12, 18 months i can't see anything that would really get me upset. i just don't see the

fundamentals of an incipient inflation problem. i see acceleration in inflation. and that's actually a success story. >> it's amazing, paul, because we've thrown everything that you could possibly throw at it. this is once in a generation types of fed emergency action. and we still are unable to get the hyperinflation thing started. >> as soon as you say -- >> unable to get hyperinflation. >> that's a really good thing, though. >> it is. >> we were able to get 200,000 jobs per month. >> right. >> come on. >> but what -- is there -- because we've done everything we possibly could have. there's nothing -- >> on monetary policy, i think that is true. on fiscal policy, we didn't. we went actually to the exact opposite direction we should have. >> then you'd need that to get -- to get a wage -- it's deadly for financials. it's the worst thing you can get, right? >> i don't think we're going to get a wage price spiral. also remember that the fed retains control over short-term

interest rates. and if you had a mean, nasty, nefarious inflation problem staring you in the face the fed has plenty of ammunition. they've been trying to fight denation, that's hard. fighting inflation is not hard. >> let me tell you very quickly goldman sachs is out with results. numbers were also much better than expected $4.10, versus the $3.05 the street was looking for. $9.3 billion in revenue. street was looking for just under $8 billion in terms of revenue. so both goldman and jpmorgan getting better than expected numbers. >> i thought -- just under $9. >> i had $7.97. >> i have 8.7 -- that would be a huge beat. maybe for the current, at the mean -- believe it or not the mean was 8.7 but then the current -- >> the current consensus was 7.9. >> are we back to goldman, remember when they used to do this every quarter. a dollar above and well above revenue. >> a billion dollars extra in revenue. >> gary cohn, i thought he said we can't make any money in trading. >> and he's now making a lot of

money on the trading side. >> jamie dimon said for jpmorgan that things really turned significantly in the last month of the quarter. i wonder if the same thing happened with goldman. i'm just looking through what some of the specifics, lloyd blankfein said they're pleased with the results for the quarter in the context of mixed operating conditions during the period. so it sounds like maybe things did improve a little bit. he said the performance was driven by the diversity strength and breadth, good activity and investment banking and investment management as a better environment for our investment in lending activities that helped offset less favorable conditions for institutional clients. >> all last week, and it wasn't the only way we've done this, we had trotting out stiglitz saying everything's overpriced. trotting out carl icahn, everything's overpriced. we had a couple of week days last week. everybody was on the correction band. no one seeing what's going to cause the next upleg in a market that already people thought was overvalued. we got to 17,000. now we're in trouble. here we are. citigroup yesterday adds 111

points onto the dow. now those numbers from goldman probably have people today buying s&p futures. >> probably rethinking everything. and paul you said you agreed with jamie dimon that things are improving, you do see some significant improvement. you said the banks would be the first ones to see that turn. >> well, right on the front line of middle america, and actually expanding their business, more working capital, more employees. this is all good stuff. and to the extent that wall street has doubts about this whole thing, you have the proverbial wall of worry. i think you just described it, joe. >> we talked to some analysts who said the only way some of these banks would beat is if they cut compensation, if they cut expenses overall. that's not the case with goldman sachs. noncompensation expenses were 5% higher than the second quarter of 2013. 4% higher than the first quarter of this year. and compensation and benefits also increased. it looks like it was up 6% from the second quarter of 2013. the ratio of the number that

people looked to was 43%. >> it's been lower than historical average, right? it's like 41 or something recently. >> it's gone down. >> it didn't -- you weren't nearly as upset recently with some of the -- right? >> i'm okay. >> oh, don't you start -- >> capitalism is -- >> oh, there is a wonderful thing. >> all right. okay. >> well, raiders deserve their due. >> you've been paying attention. good. >> all right. when we come back this morning, we will have more reaction to those quarterly results from goldman sachs plus it is official reynolds american confirming that it's buying rival lorillad in a cash and stock deal valued at $68.88. or 27.4 billion dollars including debt. reynolds will also sell its kool, salem winston, maverick and blue ee significants brands. also still to come this morning, we will talk ultraluxury watches. richard neil will join us with some million dollar watches. we're going to find out who's

bying them and what makes them tick. "squawk box" will be right back. ♪ [ girl ] my mom, she makes underwater fans that are powered by the moon. ♪ she can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. ♪ my mom works at ge. ♪

my mom works at ge. 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. welcome back to "squawk box." goldman sachs reporting quarterly results just moments ago.

let's get some reaction. joining us on the "squawk" news line is marty mosby, director of banking strategies and vining sparks. >> good morning. >> walk us through this. much better than most people had expected. especially on the trading side. >> exactly. and what we were expecting is that goldman could beat by about 10%. just on the fact that investment banking was going to be kicking in. we've seen investment banking starting on friday with wells forgo come through with citi and jpmorgan and now with goldman sachs. you get a lot of nice leverage because it represents a bigger piece of their bottom line. what we also saw was, you know, some capital go back to work in the fixed income, especially the spread business as we saw that in the last month of the quarter. >> but we heard mr. cohen say -- mr. cohen say that it was, you know, going to be tough going. >> because there's a lot of capital, a lot of funds on the sidelines. when you see some opportunities

or windows, and you see any kind of little trickle-up in rates you'll see some of that liquidity go back to work which is what this is a reflection of. there's a lot of liquidity in the marketplace that has to find a place to go and get reinvested. as that happens you can have months or periods when you actually have some activity bounce and that's what we saw in june. >> how much should we care about the investment banking revenue, specifically the advisory piece and all of these deals? literally every day now we're announcing a new deal that's coming across the tape. >> well for goldman sachs that's the key driver we've been talking about, which will differentiate them. and that part of the business now drives their returns. so what we're looking at in the banking sector, which we thought this quarter would beat expectations, as we've seen so far in each of the four announcements, but what we're getting is improvement in return in a very elongated recovery. and so as you have another driver, which is corporations now strategically looking at opportunities, that's another piece of the revenue stream that

starts to get online. >> in terms of holding the costs on expenses, should we take anything from the fact that they're spending a little bit more, about 6% more than they were before a year ago? >> percentage increases in expenses is really a misleading way to look at it. what you really want to look at is efficiency ratio, which is the comparison of your expenses to your revenues. so when you have a nice pop in revenues that we saw, it's very natural for the expenses to come along with that. with goldman sachs once you get on expenses is the last couple years they've had a nice expense adjustment in the fourth quarter, so these two large positive variances in first and second quarter are really playing into an even stronger fourth quarter. so you're doubling up in the sense of the positive you'll see by the end of the year. >> okay, mardy, we're going to leave the conversation there. thank you for helping us through this report this morning. we hope to talk to you soon. >> thanks for having me. >> when we return, richard mille makes some of the most expensive watches in the world. high rollers and big celebrities

pay millions for these timepieces. an example, rafael nadal paid $1.65 million for one. we're going to talk design, luxury, and who is ready to buy with founder and designer richard mille. tomorrow on "squawk box," it's the kickoff to the fourth annual delivering alpha conference. from hedge fund titans to the brightest political minds of our times, all gathered in one place, and setting the stage for groundbreaking interviews, and breaking news all day. leon cooperman of omega advisers. bruce richards of marathon asset management. former chief of staff bill daly and the keynote speaker of the event, treasury secretary jack lew. the conference kicks off right here on "squawk box." starting at 6:00 a.m. eastern time, only on cnbc. ♪

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trading sharply higher, up to 1.07, up 32 cents. the company is reporting $1.6, excluding items that's up 12.2%. and versus expectations which were down at $1.55. the company is increasing its guidance for the year. to 5.85 to 5.92. the street is already at 5.90 so given that they beat expectations by 11 cents, and the streets already at 5.90 for

the year they're not necessarily boosting the rest of the year, they're just adding in that 11 cent beat in the current quarter. the revenue number, let's see, revenue is 19.5 billion dollars. that was up, that's sales anyway, up 9.4 -- 18.99. yeah 18.99 was the estimate. so there's j&j and now trading up 82 cents, and goldman sachs is a dow component now. >> yeah. >> do you remember that? >> yeah. >> it's hard to remember all that. i remembered it. but now the dow and s&p. >> came on when visa and nike came on. >> got to remember all three of those. goldman sachs and j&j both trading higher. >> he has been called the mad genius of the luxury watch world. richard mille is here with our wealth editor. great to see both of you today. >> thank you. >> he makes watches for bubba watson, rafa nadal, johann blake and other star athletes.

his pieces sell for up to $2 million. richard, it's great to see you. i know it's rare that you do interviews. what's demand like now for your watches? >> it has been unbelievable since the beginning of the company, because the growth is incredible. but at the same time, i love to control my production, because they are very complex watches to develop. extremely complex. we have between 35% to 40% of the spare parts that goes -- that go to the garbage. because it's very tiny. it's very sophisticated. >> so 40% of the rare stones and things that you use just end up getting cracked or broken, you have to throw them in the garbage. >> yeah. >> complexity, you make turbions that bubba watson can wear when he golfs to measure the g-force.

rafa nadal plays with these things. are we in an age of watches for performance is the new bling? >> for me, my watches are a kind of anti-bling concept. because when you imagine that a watch like that, that is worn that flushing meadows. >> it's a velcro strap. this is a $700,000 watch and it's got a velcro strap. >> yes, and the strap is the hideous part of the watch. the watch weights 18 grams. >> is that heavy for a watch? or light? >> it's a lightweight watch in the world. it's the lightest mechanical watch in the world. >> oh, wow is that amazing? >> oh, yeah. >> and it's a turbion. >> it resists to something like modern -- >> how many of those have been manufactured? >> 50. >> rafa nadal's, that's the one he wore in the french open and u.s. open but you have a new one -- >> i have a problem with it. i can barely read it. >> it's not to tell time, becky! >> oh, i see where the hands are

here. okay, i get it. you can see all the pieces going on. >> how many watches do you make a year? >> about 3,000. >> about 3,000. >> whereas rolex is something like 750,000. >> more. yes. it's -- it's a really controlled growth, but the demand is huge all over the world. everywhere. >> now kieron the giant luxury group was in talks to buy controlling interest in your company last year. that deal fell apart. they valued your company at $400 million, something like that. what happened there? >> some offers i don't say are difficult to refuse, but are worth considering. so we have been considering some offers that were very, very interesting. but nothing to be independent. when they say that we don't conclude the deal, all my clients, they were very happy. i had a lot of congratulation

texts because -- because to do this kind of really cutting-edge, sharp, very, very -- very sharp concept, to be independent is a strength. and we have the wealth. i mean we have the cash flow to develop, because the r&d is huge because i create something like normally in the high end watch business, people, companies do one new model every five, six years. i do five, six new models every year. >> and you have a new model -- >> i refrain sometimes i have to say -- >> you have a new model that's a $2 million watch? >> yes. >> sapphire turbion? >> yeah. >> how many of those are you making? >> about 25 -- >> have you sold those? >> yes, all of that's. >> you sold 25, $2 million watches? >> yeah, yeah. >> he says, yeah, yeah.

>> hopefully. >> real quick before we go, what do you make of the idea that we all may be wearing apple watches in the future, and digital watches, and does that impact your -- even your thinking about the watch world? >> no, well i don't have a problem. i mean, you can have electric car to drive in the city, and then you love to have your ferrari, or your bentley to drive to the country side. >> like when swatch came out you weren't like quaking, oh, no -- >> no, completely unique. i just wonder what happens in the world if everyone decides that when they actually look at their wrist they need to have all sorts of crazy things coming through. >> to buy a watch of that price, you must have overcome all the psychological breaks, also, you know, thinking, et cetera, et cetera, because it's, as i say,

it's the contrary of a bling watch. it's very light. and the price is invest proportional to the weight. so my clients extremely sophisticated. they are very, very well educated. it's not the fact that they are billionaires, because they are billionaires. >> yeah. >> at the same time, they are extremely sophisticated. they are a level of culture that is totally unbelievable. >> yeah. >> but they know the details, unbelievably, sometimes they even put the salesman in the boutiques in trouble, because they know the technique. >> there's no customers here except maybe mcculley. you could rent one, maybe. but no, not even mcculley. not even mcculley. >> richard, thanks so much. >> don't get upset. >> nobody's here. >> i don't think anybody in this building unless -- yeah, probably not.

maybe tomorrow, delivering alpha. a couple of those guys. coming up story making head lines this morning including a subway derailment in russia during rush hour. details are next. and janet yellen will testify on the state of the economy today in front of the senate banking committee. we'll have committee member senator heidi height camp join us with a preview of that testimony. having the cloud allows us to rapid prototype a lot of ideas.

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the fed in focus. pimco's chief economist paul mcculley is our guest host. we preview today's big humphrey hawkins testimony. and talk about the fed's next move. goldman sachs and jpmorgan results are out. we break down the numbers. and tell you if now is the time to buy financials. all this, plus retail sales data. as the final hour of "squawk box" begins right now. >> good morning. welcome back to "squawk box" here on cnbc. first in business worldwide. i'm joe kernen. along with becky quick and andrew ross sorkin. in studio this morning, paul mcculley chief economist at pimco who got really in to

bowling. you know, there are like jokes about, you know, bowling it's like somebody who says oh, that girl, she's in a totally different league. if they're talking about bowling, that says something, right? if she's out of my league, they mean it's a different night. you know bowling -- you're a bowler? >> yeah. >> are you good? >> he must be good. >> have you done 600 in three games? >> yeah, i have. >> you have? >> here's the most important point. when you bowl the ball. >> yeah. >> do you bowl it straight like i do just straight down or do you curve it around so it's almost in the -- in the what do you call it -- >> you got to go in the pocket. >> you have to curve it to be good. >> i throw a big hook ball. >> except on -- >> we -- >> we have some breaking news. we've got to get over to david faber who has breaking news for us right now. mr. faber. >> thanks, guys. unfortunate news here involving the health of ralph whitworth the noted investor, of course, founder of relationship investors. also the current chairman of hp.

he will be stepping down immediately from the board of directors of hp and as its chairman as a result of health problems. namely what i believe to be recurrence of cancer, unfortunately, for mr mr. whitworth. and he is going to be focusing on his health according to a press release that was just issued by hewlett-packard, stepping down from what has been a role. he's been at the helm since april of 2013 on an interim basis. recently it seemed to be he would be the permanent nonexecutive chairman of that company. he also is stepping down, at least for now, from his investment activities at relational, as well. well-known activist fund with a long track record of some success in terms of getting a lot of companies to do various things that it wanted them to do. most recently, for example, tenkin. ralph wlit witworth dealing with

some whit problems. hp says it will take up who will become its next chairman at its regularly scheduled board meeting. >> faber, he's not even 60 yet is he? >> he was born in 55. >> no, he's a young man. he's a young man. >> not even 60. >> these kinds of things are obviously quite unfortunate. we send our best to mr. whitworth. >> came in for ray lane back in 2013. >> that's right. he took over and he was again, interim, interim, dinner up, more recently meg whitman has stopped using interim title. >> there was a story in the san francisco chronicle three days ago about whether he was going to be the one to stay. >> yeah. i think that was the expectation unfortunately now that is obviously not the case. >> all right, david. thank you for telling us about that. very sorry to hear it. we do hope -- we wish him the best with everything. we should also tell you about a mega deal that's been made official. reynolds american confirming that it's buying rival lorillad in a cash and stock deal valued at $68.88 a share. that's $27.4 billion including

debt. reynolds will also sell its kool, salem, winston, maverick and blue e-cigs brands. also other assets to imperial tobacco for $7.1 billion in cash. and in gia political news gaza militants shooting off repeated rocket fire on israel today. a senior hamas officials rejected an egyptian proposal for a cease-fire. israel had accepted the plan, and has warned that it would strike gaza even harder if the truce wasn't accepted by hamas. a morning rush hour subway train derailing in moscow today, as well. government officials are putting the death toll at 19. many others also injured. >> goldman sachs and jpmorgan will likely set the tone for today's trading session. mary thompson joins us now with more. and goldman was initially really up quite a bit, moderated a little. jpmorgan also, both of them are still higher, aren't they? >> yes, both companies reported better than expected results, so that's giving them a lift in the premarket. we should note that jpmorgan's results were down from a same

year ago quarter. the bank's net income dropping 8% hit by weak results and trading. that offset asset management businesses. revenue in fixed income trading was hurt by low volumes and volatility dropped 15%. mortgage originations dropped 66% in the quarter while profits in mortgage lending dropped 38%. still earnings of $1.46 a share were 17 cents ahead of expectations of $1.29 a share. the firm's revenue at 25.3 billion were down 2% from the same year-ago period. earnings we should note were impacted by a half billion dollars in legal expenses which trimmed 13 cents from the bottom line. in a statement the company's ceo jamie dimon said toward the end of the second quarter we saw encoiraging signs across our businesses, and while it's too early to assume that this momentum will continue, we have confidence in the long-term growth of the economy. now, like other banks, jpmorgan is keeping an eye on expenses to offset the impact of higher regulatory costs and the low interest rate environment. the firm's expenses did take up from the first quarter though

they were down from the year ago kwoorter as head count decreased at the bank. the company's return on common equity a measure of profitability fell to 11% from 13% in last year's second quarter. now turning to goldman sachs, the firm benefited from an uptick in fees that advising on deals as well as fees from debt and equity underwriting this is revenue from fixed income commodities and currencies trading dropped 10%. declines in currencies commodities as well as credit trading the cause here equity trading also hurt declining by 13%. its earnings up 4.10 a share came in well ahead of expectations of 3.05 a share. revenue was also above expectations of $1.93 billion. much of the beat can be credited to the investment and lending business which includes the firm's own investments. revenue in this unit rose 46% from last year. ceo lloyd blankfein noting in a statement the firm's results reflected good plan activity in investment banking and management and signs of the strength of its global franchise. now goldman's roe clocked in at

10.9% for the quarter as well as the first half of the year. the company's conference call will be starting at 10:30. we'll have head lines on "squawk on the street." andrew, back to you. >> thank you, mary. as you've been speaking kayla tausche has been taking some notes on the conference call that jpmorgan has been doing. a couple things actually on jamie dimon's health to bring you. he says that he is feeling okay. he tells everybody to take care of their health. he says he's going to be taking it easy for the next couple of days. but not, quote, fully sit out. as woor succession planning he says same as it ever was. any one of them could run a major financial institution, and he says that if senior leaders need to get counseled they could do it from their lead director raymond, if they ever can't reach me for a minute. so that is what he is saying this morning. but the quote succession planning is exactly what it was before and of course, we do wish

him well this morning as well as we're talking about different health issues. in the meantime let's get back to our guest host for some more perspective on the banks, some of the earnings and financial regulation. paul mcculley is chief economist at pimco. you've been hearing about all these different numbers, both from j.p. and goldman, do we think on the trading side, since you actually i assume care about that piece, that we are permanently in a different business, and that they have to eventually get out of the trading business? or do you think there's something else going on? >> i think they have to rebalance their business. prior to the financial crashes of 2007, ''08 and '09, banking had morphed into government guaranteed hedge funds. that's what they had morphed themselves into. and the old business of old-fashioned banking was over here on the side. and life fundamentally chained, and i think banking or borrowing

is going to be more of a utility model, and that core banking matters, because the real economy matters. and that's what banking has to be about, is the real economy. and we will still have leveraged speculation in the marketplace, that's called a hedge fund. but it will be outside, if you will, the banking industry. so i think that banks, which have access to the federal reserve, and also have deposit insurance, and got bailed out by the government, are forever changed. and they are moving towards a core utility model, whereas your more fun activities whether tend to be done outside the too big to fail banking system. >> you'll recall when some of the banks were fighting the volcker rule they said over and over again, you know, the real risk is if you take the trading out of our firms effectively, it's going to go into this thing called the shadow bank where it's going to be unregulated, nobody's going to know what's really happening and there's going to be risk that's going to

build up before we really know it. do we worry about the next crisis, if you will, being one that looks more like a long-term capital? and should we worry about something like that? >> well, certainly speculation on leverage will continue as long as you and i are around and long after we're gone. it is part of human nature to want to speculate on leverage. but to the extent that is being done away from the too big to fail banking system, then i don't spend a lot of time naval gazing about it. because it will be isolated outside of that which is effectively a joint venture between the public and the private sector. so yeah, i think we'll have financial accidents. we will have excesses. we will have irrational exuberance. all of that will happen. however, i think that that's just part of capitalism. you can't have rational exuberance without periods of irrational exuberance, and rational exuberance is good. >> let me ask you about a competitor of yours.

called blackrock. there's a great piece carol loomis just wrote about larry fink and one of the big issues is whether it is a systemically important financial institution and whether the government should regulate it. of course he says no. you say what? >> i understand and appreciate larry' argument. i've known larry for over 20 years and the central part of his argument is let's regulate to the extent we need to regulate activities. that it's activities that lead to financial disaster. so let's quit focusing on institutions, and focus on activities. now if you're a bank, and you have access to the fed's window, and have fdic insurance then activity and institution get merged. >> right. >> but if you're outside the safety net. >> right. >> and you think that there's excess focus on regulating activities.

not institutions. >> when he says -- >> that's essentially his model and also our position as well. >> he says i'm an asset manager? >> yeah. >> but is $4 trillion too much? is the number itself? >> i don't think so. i think the real issue is are you engaged in activities that pose systemic risk? and if you don't have access to fdic insurance and you don't have access to the federal reserve, then you're not a transmission mechanism for contagion. you can't have a run that effectively washington has to stand up, like they did, in 2008. so, actually i think that, you know, larry and i would be in the same church out of the same pew out of the same hymnal. think about activities, not institutions. >> we're going to have a lot more from paul throughout the rest of the hour, thank you. >> when we come back, when will yellen and company actually begin raising rates? that's going to be the main theme at today's grilling of the fed chair on the hill. senator heidi heitkamp will join us with a preview right after

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goldman and j.p. you got dow looking like it will open up higher about 25.5 points. s&p up close to two points, nasdaq up close to four points. >> fed chair janet yellen is back on capitol hill today, testifying before the senate banking committee with her monetary policy report to congress. and senator heidi heitkamp joins us now. she's a member of the banking committee. senator, it's good to see you. >> it's good to see you. >> think you were one of our states that's good for business. one of the things in your notes, and i want to ask you this, because it causes quite a bit of discussion on both sides of the political spectrum, and that is one of the things you want to know from janet yellen is what she's doing to try to help the people that need help the most. and the income disparity, et cetera. and i would think, in most democrats figure just do more of what she's been doing to help them, where there's a lot of people now saying that qe itself has caused the income disparity

by blowing up asset prices for the people that own the assets. what's the right balance here on trying to help the people that need help. >> well, i think the most important thing the fed chairman can do is provide predictability, is to stay the course, not respond to political winds. that's why we have a fed. and i think she's been just expert at that. and i think she's sending that -- her concern, by her first speech being with the redevelopment corporation in chicago, so i think she's trying to say yes, we're concerned, yes we're listening, but monetary policy is a key factor, it needs to be predictable. we're going to stay the course. we're not going to respond to political winds. >> you're not answering -- then you think -- there are people that say that qe, and everything that the fed has done, has caused the income inequality. or at least has made it worse. what you're saying right now is you want them to continue being

very accommodative, as if that's going to actually help the people that at this point savers have not been helped by low interest rates. it's the people that are already at the high end, they're doing great. we hear it all the time from hedge fund guys and billionaires, they're doing great with qe. not everyone is. >> well, there was a need after 2008 to bring capital into the economy. i think we're a ways away from 2008. qe was one of the strategies, because lowering interest rates quite frankly wasn't as simulative as -- >> but it's 2014, senator. 2008, there are -- that's what people say that during emergency times is one thing. but it's six years later. >> well, you know, she's already signaled somewhat of a retreat from qe. we were looking at taking some steps backwards. but not a jump backwards. and that's the most important part. which is this gradual, not overreaction to political winds, but making sure that we are doing things in such a way that we don't shake up the markets.

we don't shake up the capital markets. and that we're actually easing in to the retreat on qe, and potentially eventually raising interest rates. >> but people would say the political winds, with the democratic president, and with, you know, the senate at risk in 2014, the political winds are to keep the spigots open. so she is responding by not getting out what you're saying right now, you don't want her to respond to the political winds. the political winds are for her to keep both barrels blazing with more qe to help the economy, to help people that are running in 2014. so what political winds are you talking about that she has to resist? >> well, what i'm saying is that she doesn't pay attention to the politics. what she's trying to do is to meet the needs of the american people, doing the two things she's responsible for doing, which is reducing unemployment, and taking control of crisis. and so to simply say she's reacting to political winds or trying to benefit one political

party or the other, i think, is way too simplistic. it ignores the history of this woman and it ignores the history of the fed the last six years. >> i would certainly concur with that. and i think the biggest thing that the fed can do now for main street is not to listen to the siren call of wall street that somehow increasing wages are a bad thing, and are a sign that we're going to have an incipient inflationary problem. i think that janet has articulated a viewpoint that increases in real wages, an increase in the return to labor, would be a welcome thing. so i think the most important thing -- i think she will communicate it today, is that an increase in wages, is not a problem to be solved. but a solution to a problem that we already have. >> one of the things that i've talked to the fed chairwoman about consistently is persistent unemployment, wage gap, and skill gap, and what we can do on our side of the aisle in the

congress to address these concerns. i think a lot of the things that we're talking about here, we throw on the fed, when we have to do the things that we need to do here, whether it's passing the export/import bank reauthorizing which i've been fighting for. whether it is taking care of tax reform. we've got a highway trust fund that's going to go broke in august and we're doing nothing. we're talking about nothing. >> while we have you here, we've had you on many times. there's one time you warned president obama about not delaying keystone. that was back in september of 2013. gosh darn it it has been delayed now past the election. are you just furious, or i mean have you aired your concerns about this recently, or -- >> oh, i certainly have. and i think it goes back to what i've talked about on this show, which is everybody talks about the fuel source, whether it's fossil fuels, or renewables. but what i'm mostly concerned about is transportation of

energy. whether it's building up our power grid or whether it's providing pipelines. now we've got a whole issue as it relates to moving crude on the rail. >> more dangerous. >> we've got to figure out how we're going to move our energy if we're going to continue this energy renaissance. and keystone is a huge part of that. >> yep, you got to walk a fine line there, senator. and i'm, you know, you're in one of those red states, and i think you do it pretty well. anyway, we appreciate your time today. thank you. >> thank you so much. >> okay. we'll see you later. coming up, tesla's first lemon law case. the details right after this. and then the signs of a recovery. larry kudlow and jared bernstein will be testifying today on capitol hill. five years into the economic snapback before they head to the hill they'll be yoining us. ♪

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attention all you music lovers out there. starting today you can catch some of your favorite groups in the concert without ever leaving your house. yahoo! and live nation are teaming up to supply free live video streams of a different concert each guy for an entire year. today's kickoff is the dave matthews band show in jacksonville, florida. yahoo! hopes that the program will help establish its video site called screen. it's a competitor to youtube. >> a lot of skeptics. there were a couple skeptics today. >> about stream? >> the idea that thousands, if

not -- i mean for this to make sense financially, yahoo's going to have to have tens of thousands, if not hundreds of thousands of people, who are going to watch these concerts online. >> i might tune in for dave matthews. i don't know about every day for a year. >> you might? >> they don't have to tune in. they just have to buy the subscription. kind of like the gym. you got to sell the subscription, and the -- >> i don't think they're selling it. i think it's free. >> it's free? >> it's free. >> yeah. you just have to go online and see it. i think the anxiety is that not enough people will do it. we'll see. marissa mayer has been spending a lot of money buying up content and deals. >> intriguing business model. i'll have to look at that one. >> let me tell you about another story. an attorney says he has won a lemon law settlement from tesla on behalf of a consumer who had problems with a model-s. the lawyer says the electric carmaker agreed to buy back the car and pay legal fees. this is said to be the first settlement of a lemon law claim against tesla. after the case was filed tesla blasted the owner in a blog posting hinting that the owner

may have tampered with his car thereby causing some of the effects. >> coming up june retail sales plus larry kudlow and jared bernstein on five years after the start of the recovery and where the economy stands today. we'll be right back with that and a lot more. ♪ during the cadillac summer's best event, lease this all new 2014 cts for around $459 a month or purchase with 0% apr and make this the summer of style. white chocolate loversividual. don't like dark chocolate. milk chocolate lovers don't necessarily like dark or white. before we couldn't really allow the consumer to customize their chocolate. we needed a scalable cloud solution allowing them to select what they are looking for.

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welcome back to "squawk box" everybody. we're just a few seconds away from june retail sales. rick santelli is standing by at the cme in chicago. you can see right now futures up by about 25 points. but rick, go ahead. take it away. >> all right. let's start with july data. a big jump on empire 25.6 versus last read at 19. now let's go to june retail sales on the head line. up 0.2. this is not what we were looking for. we were looking up 0.6. but you did get a 0.3 upward revision on last month's original release 0.3. let's "x" out autos up 0.4. that's close to expectations. "x" out autos and gas that's up 0.4. this variable called the control group is up 0.6. that actually is very close to where the marketplace was looking. if we look at import prices also for the month of june, they were up 0.1.

that's 0.3 less than we were expecting. ply guess as you go through that energy is going to be a huge factor. and implications for consumption and global economic horsepower. on a year over year, that was un0.1 month over month. year over year year up 1.2. that is very close to expectations. so to summarize, you know, when we look at the head line number, it really didn't look impressive, which means that it's kind of the reverse of what we've seen in the past. some of the industries like aircraft actually weren't the major positive that you subtract out because once we subtracted out the number improved. yields at 2.54. mr. carney at the bank of england seems to be doing the walk it back dance a bit because as their cpi numbers get very close to 2% he seems to be stammering a bit and yields were up a bit on the gild but only to 2.64 so we will continue to monitor everything and of course, janet yellen, on each side of the hill, i'm sure that

it will be an in-depth discussion, nothing but the economy, and the questions will just be so clear and succinct and right to the point. back to you, andrew ross sorkin. >> thank you, rick. >> car sachl. >> we appreciate that. >> another big hearing on capitol hill today. this one in front of the senate joint economic committee on the recovery at five years. it's called an assessment. testifying in front of the committee will be our next two ges, our very own larry kudlow who is here on set and jared bernstein, senior fellow at the center on budget and policy priorities as well as a cnbc contributor. i'm going to start with you, larry. you said when you got here, you haven't been up testifying in about 20 years? >> at least -- well over a dozen years. well over a dozen years. >> and you are going to go there and you're going to tell them what? >> because kevin brady is a good friend of mine and chairman of the committee. i'm going to tell them that this is the worst recovery since world war ii. roughly half the pace of an

order near recovery. that there are scattered signs of strength like nonform payrolls, but, but, but, but, temporary workers are exceeding full-time workers. people are still dropping out of the labor force. business investment virtually nonexistent in this recovery. that's a big job creator. why is this? tax rates are too high. you see another inversion story on the front page of "the wall street journal." in general, i would argue, my good friend jared will agree, he is a great friend of mine, none of this government pump priming worked. >> right. >> the federal spending didn't work. the monetary stimulus didn't work. all we did was create a lot of debt and saddle the country with that. and we'd have been better off doing nothing and let free market forces and business just carry the ball. much better off. >> jared is going to -- >> jared's not going to agree with that. >> i'll tell you -- >> more sarcasm. >> i agree on the underlying facts, looking at both your notes, you're underlying the facts of what's happened the

past couple years you agree on. he is a glass half empty guy. sounds like you're a little more glass half full. >> first of all let me say that there's nobody that i like more and disagree with more than larry kudlow. so, i hope that we can model being disagreeable, or disagreeing without being disagreeable. >> common ground. >> common ground, jared. >> yeah. and so the idea that i get to spend a good chunk of time with larry is making me very happy today. but larry you realize this thing is down here not up there so you need to get your butt down here. >> i'm on the 11:00. >> okay, good. >> so there -- look, there's a lot of what larry said that i disagree with. and i'll specify some facts. but, i certainly agree with the point that the recovery has not reached everyone the way it should. i think where larry is demonstrably wrong are in some very important points. first of all, remember this was the deepest recession since the great depression. i'll take you through the

numbers in the testimony. but, because of actions taken both on the fiscal and monetary side, we demonstrably pulled this recovery forward. that's just not my assessment. that's the assessment of a bunch of nonpartisan analysts that i'll cite later in the hearing. also, i certainly don't agree that this is the worst recovery since whenever. in fact one of the findings i'm going to show today, give you a little head line here is that if you look at the growth in private sector employment, it's 3% faster at year five in this recovery than in the last recovery. we don't have to go back to world war ii, just back to the last recovery. so more work to do but in fact the recovery has been stronger than larry's initial comments suggest. one of the reasons it hasn't been strong enough because of fiscal headwinds that congress has introduced. >> the last recovery was nothing to write home about. all right. that's very important point. and i'm taking this thing -- you can go back to 1960 or you can go back to 1947. this is a 2% recovery.

coming out of the deep recession we should have been much closer to 4% or better. and i just want to say that i believe, looking at this now, it's five years plus, all this government spending, and federal reserve pump priming, failed. that's the point i want to make. and these so-called fiscal multipliers and money multipliers, all broke down. that is if you ever believed they'd work in the first place which i never believed. we're out of recession. i'm glad. we've got people working. i'm glad these nonfarm payroll numbers are better. i want america to work. but what i'm saying is when you look under the hood, there are glitches everywhere. and jared bernstein, you're the best labor analyst there is. i love reading your blog site after the nonfarm payroll numbers. you yourself have pointed all this out. i go a step further on business investment. probably the most underrated factoid. everyone says consumption is 70% of gdp. if you look at it properly in

intermediate stages and final stages of gdp, it's business investment that counts. and we're not having it. and you know why we're not having it? businesses are worried about the cost of obamacare. they're worried about overtaxation. they're worried about various regulations going on. they're friesen in time. we haven't tackled entitlements, businesses are worried they're going to have to pay the tax costs of that. all these things add up and i will be a little partisan here. this president has been demonstrably anti-business throughout his six years. demonstrably anti-business. even his own business counsel like jeff immelt have walked away from him because they've made no progress on any of his promises let's say for corporate tax reform. start there. >> i will not yield my time to the gentleman. look, look, first of all, this is -- this is not the larry kudlow show. so you're going to have to back up a lot of what you just asserted down here -- >> you can have my time jared. >> thank you. that's very nice.

first of all, this idea that somehow fiscal or monetary stimulus didn't help you really need to bring some facts to the table. so here's what i've got. i've got a list of about six or seven different analytics from investment banks, from the congressional budget. i'm not talking about the white house here that show that in 2010, the actions taken by various folks, not just the fiscal policy, but monetary, as well, lifted the economy by 2.5 percentage points. that's a very big deal and i think you're going to need more than just assertions that that didn't work. secondly, in terms of the nature of the recovery, again, let's not forget that the great recession was truly a great in a negative sense. in fact, investments, which you're talking about, and i agree with, investment fell 30% in the fourth quarter of 2008, before the president took office. now if you want to talk about obamacare, i'm loaded for bear on that one.

because if you actually look at the impact, both on coverage, and on health care spending, which is so important, it's actually decelerated very sharply, in terms of health care prices, and coverage is up notably. >> guys, we've got to leave the conversation there unfortunately. you guys will continue this conversation in front of congress today. >> all say is i love you jared. but like i said -- >> you're getting what's called counterfactuals. i'm giving you factuals and i'm telling you those vaunted multipliers that you wrote about when you first went to the white house in '09, i'm still waiting for them. >> well -- >> where are the multipliers. >> get yourself on the train and i'll straighten you out when you get down here. >> jared, what you got like four net coverages that weren't replacing stuff that they got taken away from them. so there was like this small net positive. and then the reason costs haven't been going up is because what you just said the worse recession since the depression. >> wait -- >> both of those things have nothing to do with the bill itself. >> is this your cornerman there? your cut man?

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one of the most drastic responses yet to california's drought, state regulators are considering fines of up to $500 a day for people who waste water on landscaping, fountains, washing vehicles and other outdoor uses. the california state water board estimates the proposed restrictions could save enough water statewide to supply more than 3.5 million people for a year. that's enough to meet the needs of nearly nine of every ten los

angeles residents but that doesn't mean the proposal is free of concern. some say the fines are excessive but others have concerns about health and safety and tourism. example, san francisco gets about 8,000 calls a year to steam clean its streets of human waste. >> thank you for that. did you ad-lib that? >> and also of course nestle this morning is saying it's a huge issue which you have decided you're taking on. >> if i am going to take on a dream cause i would definitely get on that bandwagon. time to talk fed, the economy, let's bring in steve liesman and paul mcculley, chief economist at pimco. i never -- is this -- do you. okay you don't have anything you're going to read from the teleprompter so i wouldn't be remiss -- >> are you disappointed? >> you know that i am. when i read into the prompter. >> times i've tried to talk to you and you say no i have a thing that i have to get to and read and i get in trouble. >> sometimes joe as i walk the tightrope of my job i have to

say exactly what i wanted to say rather than extemporaneously -- >> you've been watching, paul. >> i have been watching paul. >> you guys could finish each other's sentences. you're basically soul mates. >> we like the same music. >> you like the same music -- >> you could get involved in the rock 'n' roll thing that paul and i are involved in. it's a -- >> but i saw you whispering that you were agreeing on basically socialism is the correct path. >> i -- >> i don't think that's true at all. >> i thought that's what i overheard. >> you're getting on in age as we discussed during the break and your hearing is degrading. >> yeah. >> happens to me, too, because i play with loud amplifiers. here's the story. the retail sales number was sort of good. the control group which somebody made fun of before, the control group, it's the reason why we have a control group is because it's the part of the growth -- >> did you really just say that? haven't you been -- did you really just say that -- go ahead. >> retail controls -- >> who would that be that --

>> hard wired into pcs that -- >> it matters. >> that was up more than expected. and so i don't know that that's probably going to flatter some of the gdp numbers depending on what happens obviously with inflation. i liked, paul, that some of the discretionary items, clothing, apparel, things like that, looked like they were up. department store merchandise sales looked positive along with motor vehicle sales. building materials down 1%. maybe that's a sign of some weakness in housing. let's talk about the fed. yellen has, from what i can tell, been let off the hook so far on pegging any timing for the first rate hike. is that going to survive? you think the senators might push them on that? and if you were to say, when is the first rate hike, paul? >> i think the first rate hike will be within the next year. >> year. so that brings me to the summer of '15. >> it could be the spring, it could be the summer. it could be the fall. i mean the whole issue of three months, one way or the other, plus or minus three, as an economic matter doesn't matter. >> hill of beans.

>> it doesn't matter whatsoever for as an economic matter. as a market matter it does matter. from the standpoint that it will be the first rate hike of the first cycle, and almost a generation on wall street. but i think that the chairman-chairperson yellen will be very good today, at pointing out, as she did in her most recent press conference, it all depends. and i think her big message today will be that increases in wages, are a good thing. are a good thing. because all i hear these days -- >> it's really interesting -- >> -- is that we're going to have rising wages. wages going up is the next leg of success of getting out of liquidity trap. >> people want that. you may not want it -- >> everybody actually gets some kind of huge problem -- >> no, people -- everyone who comes on here says that's one of the things that has been

missing. has been wage growth. and that's one of the things that makes us, you know, that we don't feel good, better about where we are right now. >> you hear people say that continuously. but then you have the same people say what's behind the curve. you can't have it both ways. >> you mean about -- >> what some people have argued is there are two economies that are being described here. you look at the numbers overall it doesn't tell you what's happening with the high skill jobs where they are seeing quite a bit of inflation, versus the low skilled jobs where you're not seeing it. >> just be clear. wage growth is not inflation. wage growth is thought to be a potential precursor to inflation. and yellen has laid out this formula where somewhere between 3% and 4%, there's a big difference, you could do 3% year-on-year wage growth and it not be inflationary. why? because you get the inflation of say 2% and you get the productivity of 1%, let's say underlying is 1.5. 3.5% wage growth would not be inflationary. and the idea, and this becomes a liberal versus i think conservative thing, joe, i think liberals are more inclined to

let wage growth run, whereas conservatives are more concerned about that wage growth leading to inflation and want to stamp bounce -- >> i don't know any conservatives that say wow i'm really glad these are crappy jobs we're creating that don't cost anything. >> that's not what i'm saying. they get to a point they're so concerned about wage growth they want to cap the recovery -- >> i hear more complaining that we need better jobs, you know, we need people in jobs where they want to stay, not in jobs that they had to take part-time. things like that. we hear that all the time. that the employment picture that's 6 or whatever it is, doesn't really describe the real feel of the employment. >> so -- so it's very hard to say that the job market has a lot more slack in it. it's not as good a job market as it appears and then say we have an inflation problem. those two things are not -- >> it's not hard when you think that we don't have the people for the skilled jobs but where we have too many people for the unskilled jobs. >> then you have to be

theorizing that the skilled workers, there's enough juice there to raise inflation. >> i'm not saying -- >> which there isn't. >> i'm not saying -- i don't know what finally comes from it. people that worry about inflation aren't just worried about wages going up. they're worried about just dollars and currencies everywhere around the world. that's what they're worried about. right? >> well, you have the antiquated monitors, yes. and then you have the wage cost -- >> and then you have reality. when you run a business, you can't settle for slow.

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i would. switch to comcast business internet and get the fastest wifi included. comcast business. built for business. let's get down to the new york stock exchange. jim cramer joins us now. if you had to pick one stock today, would it be jpmorgan or goldman, based on results? >> jp beat every line so i think this is a moment where jp is at a discount to the rest of the group. look, goldman was good, beat o on lines i was worried about like fixed income, but it's jp morgan, credit card growth extraordinary, and the rest growth amazing. hats off, they improved over the last quarter. >> yeah. we talked about this market too, jim. i mean, this is another leg --

or could be another leg based on those two and jj today. >> you're seeing double digit growth in credit cards and commercial real estate. double digit group in pharma from johnson and johnson. this is a big pharmaceutical company, many line items really good. it's difficult to say it's a multiple expansion market but easier to say revenue's up, falling to the bottom line, saved by equities, jpmorgan lending -- he did not think necessarily we know where the growth will continue. wrong way to read the sentence. he was saying the growth in the quarter got better and better with what the empire survey said this morning. there's so many good things buried within jpmorgan, goldman sachs, and johnson and johnson it's hard to imagine we do badly. >> see you in a couple minutes. >> thanks.

when we return, we have a lot more. check out oil now, back below a hundred dollars. we're back in just a moment. ♪

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we have talked briefly about bill gross's column, didn't get into on the air, but what he lays out is an argument for why the thinks minimum wage should be increased. do you want to talk a little about this? >> he's a principle populist. that's not in terms. he's a principle, a capitalist, but a populist heart, and he observes in the real economy that income inequality is not over the long run consistent with robust capitalism, so as a capitalist, you can espouse policies that lead to less income inequality, and i think it's particularly important that it's coming from bill because we know that bill, like me, is part of the 1%, and he's actually coming out, you know, in his position saying that an increase in the minimum wage would be a reasonable thing, and also, he takes his shod, and i think

appropriately, at carried interest, which is unambiguously a tax break for the 1%. i think it was a nice column on reality and he's a good principle populist. >> we talk about income inequality earlier, janet yellen will be speaking today. do you think the feds bear the responsibility for the growing gap in income inequality? >> no, i don't. i think it's a consequence of what the fed had to do alone. the fed only had monetary policy, and if you could only use monetary policy alone to get out of liquidy trap, this will be a back run. i don't think janet is yehappy about it. to deal with inequality, you need to deal with fiscal policy. >> if you were congress, what policy would you have done? more than $800 billion in stimulus? >> i would have done a large public investment program, and i

would have continued it for a long period of time. we needed to have a outright, no holes bar, no apology increase in the budget deficit to fund public investment because private investment collapsed. straightforward textbook stuff. you use fiscal policy. they didn't. >> i'm not -- just to be clear, that's what you're talking about. >> amen. >> there are people that disagree that would have been the answer, but -- >> yeah, larry would disagree, but it's interesting he looks at 200,000 nonforeign payroll as a side issue. that is the straw that stirs the drink. >> palm ul, thank you very much pleasure talking to you, and appreciate you coming out. >> thank you, good to see you

guys. >> don't miss tomorrow. you don't want to miss tomorrow. we'll deliver the -- >> some people seek alpha. we -- some people seek it, well, we deliver it. the guys on later in the day will be on "squawk box" and throughout the day, the biggest names in the world in finance and government. make sure you join us tomorrow, and "squawk on the street" is next. good tuesday morning. welcome to "squawk on the street, i'm carl quintanilla with david faber and jim cramer. three dow components out, j and j, goldman sachs, futures print tonight, and big they for the economy as janet yellen testifies on the hill. watch the 10-year, and q&a begins in an