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8:00 out west. 11:00 a.m. on the east coast. what a morning to talk about technology business news, markets the fed. all of those things over the next hour. what an hour planned for you. joining us from delivering alpha today, kara swisher, jon fortt here at post nine and ceo, jon steinberg. good morning to all of you. kara, quite a morning. you're going to moderate a panel at delivering alpha later this hour. walk us through what you're doing there, and then, of course, we'll get your thoughts on murdoch and time warner. >> i'm talking with jim breyer, happens to be on the board of 21st century fox. interesting how he will get out of my questions, but -- then talking to another fantastic investor and talking where investments are going, and in front of a group of finance people, about what's happening in silicon valley. although all the action is back in mediaville in new york. fascinating. >> first take on this move that murdoch has made.

your thoughts on it and where does it go? >> he's crazy like a fox. what a fantastic entrepreneur in a lot of ways. we used to be with them, and, but it's really an interesting idea. obviously, we think it's about cable. about making a bet on the cable business which is a troubled business over the long term and lots of technological challenges. it's interesting, if any technology company enters the picture, there are rumors of google. doesn't make sense to me. they never want to own content. they want content rights. you can see an apple interested, verizon, very few that could do something like this. this is a gigantic deal, but it's interesting to contemplate some day technology companies owning big media companies. not vice versa. >> yeah. about content versus distribution and distribution is basically bulking up in the form of merger prp content is bulking up to level the playing field in their negotiations. disclosure all of these media companies are tune-in advertisers. have been at every company i

work at. >> kara, early day, termed as sorkin reported, has the fire power. this number, $100, keeps getting tossed around. what do you think gets this done for him? >> for rupert or -- just wants to go -- he's in the later part of hits career. this kind of thing. but doesn't stop. never stops. that's the mark of an entrepreneur and someone thinking where it goes next. why not strike at a company somewhat vulnerable and has cable assets that are important. >> the other thing, able to then negotiate the digital rights more aggressively saying you have to take our programming, channels from us. we weren't certain rights to do over the top-type things. might not be an either/or choice for hbo. maybe have the leverage, going over the top and want fees as well. >> kara, your former boss. >> yeah. >> you've covered aol more than anyone. we'll talk about in a minute. people still want to associate this with some kind of market

top. i've seen charts today. murdoch buying dow jones and the eventual, subsequent quick dron in the s&p. >> right. >> does this mark that? >> it's interesting, because talking about digital rights. both companies have had terrible records in ditch ill's. failures. a doubling down in an old media model, and bulking up for what's to come, which is the big distribution net works owned by google, amazon and not the traditional media companies. it's an interesting -- again, another rupert murdoch classic as far as i can tell. >> a fair point. very defensive. defending what their existing turf is to compete harder on what they are. not getting more innovative doubling in size? right? not more scrappy and aunt trant pra neural, just more defensive and fight harder. >> percentage likelihood it happens, kara? you want to put a number on it? >> i don't know with rupert murdoch. very persistent. look what happened with dow

jones. a lot with his kids, working on it. chase kerrey, great regard for, classic of these people. a classic rupert murdoch move and he'll do it until the end, i think. >> meantime, yahoo! something we're not talking about as much this morning. second quarter profits last night missed by a penny at. cents announcing they'll keep more alibaba stake after the ipo revealing plans to distribute half its after-tax profits from the alibaba offering directly to shareholders. and the core business. poor advertising sales. dragged down obviously as one analyst said, dismal. kara, the headline in "usa today," a q2 not worth shouting about. >> it's awful. i said it for months. the core business is problematic and masked by alibaba gains and they did yahoo! another favor letting them hold on to more stock. they got a little stock prop, but the core business is troubled, and every quarter it's some excuse about something and

what's really happening a solicit to programmatic. shift in online advertising and yahoo!'s inability to keep up. all grow, facebook, twitter, google, of course. even microsoft just passed yahoo! in online marketing and microsoft is not known as the best online marketer. >> kara, bad quarter, but part of my take is, the board was organized much more to her liking. able to keep more of the alibaba stake. if you believed in her before, nothing was in this quarter to make you believe in her less, and she still got some runway. what do you think about that? >> i think what's going to happen, i mean, where is the big move that changes things? i keep saying that, and everyone says, that's so mean. again, in sis where it leads to. they're not making the improvements in advertising and technology, and doing these content deals, very flashy content deals, making no sense to me. they don't scale. >> look at the numbers.

display advertising, down 8%. the core business. not search. and then on the conference call, the second issue in q2 lower than expected contribution from premium advertising. and goes on to say, high quality content best monetized through the premium direct sales force. core business, selling display, selling it direct, talk to advertisers and it's declining more rapidly than ever. >> she picked the wrong dealmaker to do those exact premium ad deals and got to get that part figured out, sure. any reason that the entire business crumbling beneath her feet? we knew pc's were crumbling, mobile going, dollars aren't there. she has time and money to figure it ounchts the job differs with everybody. for the moment. a quick break. leon cooperman just delivered some of his best ideas. for that we go to dom chu. >> putting his ideas, see him talking about his particular investments. a number of different ideas. the list quickly for viewers to

get you the headlines coming out of here. his top picks this time around are -- act activists, a company with tax eversions. mentions that. and citigroup, could trade a book value in the coming months and years. again, trading at, call it 15% discount to book value now. also gaming leisure properties. nordic american offshore and an interesting one. qep resource, super value and a couple international stocks. louis xiii and monoteese, made energy plays. qep one of them. independent oil and gas drillers based in denver, colorado. stock gaining steam throughout the course of the session. you can see so far, they're still speaking about it. we're asking about the picks. you can see up toward session high, up 2% on the day. more details.

larry robins of glenview coming up. and cooperman's picks from last year, pretty good. >> and the year before. >> yes. >> he's 10 for 10 for 10. >> an amazing streak. kara, the other story everyone's talking about, that big profile of you in "new york" magazine. >> no. >> titled "kara swisher is silicon valley's most fear rnd an wred-liked journalist. how does that work? and diller, people are afraid of her and trust her. that's not an everyday combination. >> yeah. i paid him for that quote. no. that was a very nice piece. a rather nice piece, but i feel like i am actually not feared and disliked. i always thought it was the opposite. >> feared and liked. >> i know. i don't understand that. i was going for the opposite. >> when people ask you, kara, part of the point of the story, tech journalist in general is cozy, inherently tied to product

and access. you've managed to carve out a lucrative space, not by being that way. how did you do that? >> you know, i think it's just -- i think you have to be fair. i think i said this in the article. you have to be fair and honest and accurate, and i think smart people respect that, and you don't have to be snarky -- there's a line between snarky and khmer leading. that's where the sweet spot for what we're doing add our firm. we are accurate, tell it like it is but don't necessarily -- people aren't see it coming from us, it's fair, but we make the calls. tough on yahoo! on twitter, things like that, but they respect that. it's good analysis and based on reporting. that's what we're all about, and i don't know why anybody who's smart would not think that's the right people to deal with. >> yes. kara, glad to be a partner with you. can't wait for your panel later today. >> thanks. >> kara swisher at delivering alpha. nbc universal is a minority

share holdner recode and has a content market agreement. and steady gains, transports and the industrials, once again set for the third consecutive day, and all-time intraday high and nasdaq 100 repeated for a third day now. that 14-year high. keeping an eye on all that. when we come back, apple's ceo, ibm ceo, sitting down with cnbc on their new partnership. take a listen to tim cook. >> in order to fill out and deliver the promise of mobility, in a big way, that takes apple and ibm doing that. i think there's no better two people on earth to do this, or two companies on earth to do this. or for that matter, any number of companies. i think we fit together like a puzzle. >> we'll talk about all of that with elevation partners roger mcname and more of cooperman's presentation at delivering alpha and druckenmiller later in the

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some big tech news. apple making a play to become king of the office, forming an his toshic enterprise with ibm bringing business apps exclusively to ipads and i phones. some details after that interview last night. josh, good morning once again. >> carl, you know, a big deal that really potentially does shake up the enterprise mobile

market, apple and ibm, longtime foes, now teaming up to develop more than 100 industry-specific apps for the iphone and ipad. sat down with apple's tim cook, and ibm's ginni rometty and asked, what this new partnership really means for their customers. >> just like the consumers that write me every day and say what a difference we've made in their lives, we want to play a part in that in business, and we're doing that to some degree today, but arguably, there is a new level to achieve in business. so i think this is great for apple and ibm, but more importantly, it's great for customers. >> we're going to take our strengths, as tim said, these puzzle pieces that go together. we've built a $16 billion business in big data and analytics married with mobility growing over 70%. a cloud business growing over 70%. security strong double digit. all the shifts you see, this pulls them all together and we

put the two gold standards together. >> i think it is absolutely huge. it's landmark. it takes the best of apple and the best of ibm, and puts those together. there's no overlap. there's no competition. they're totally complementary. >> now, analysts are describing the deal as a win-win for the company. so who loses, carl? well, news of the apple/ibm partnership immediately impacted blackberry shares and continued to weigh on that stock this morning. no surprise, given, of course, the company's enterprise focus. blackberry, though, now going on the offensive, telling our own jon fortt, enterprises should think twice an relying on any solution built on the foundation of a consumer technology that lacks the proven security benefits that blackberry has always delivered, android could also take a hit. creative strategies head says android struggling with enterprise penetration due to issues of fragmentation and

security. now he said there could be less interest in google's operating system in cubicles around the world. carl, back to you. >> josh, interesting. blackberry down 9% today after a rough go at the open. thanks, josh. why is the apple and ibm partnership a big deal? joining us, roger mcnamee, elevation partners joins us. good to have you back. >> carl, good to see you. >> they want to mark this as historic. do you agree and does it move the needle in the market for either company? >> remarkably enough, may move the needle for both of them. the reason is, i think, a very important thing that that's taken place in the broader technology market. think about it, carl from 1980 to about 2000 or 2001, whenever a consumer bought technology what they were buying was a personal computer that was designed around the needs of businesses. since 2001 or so, the focus of technology has been on the needs of consumers.

and enterprises have struggled to adapt to that. in fact, the first really good idea they had about it, which they've exercised aggressively for the last five years, is to let consumers buy they are own devices. what is known at byo dmplt. by your own device. that content, a lot from corporations but increased complexity. now all of these phones out there, people using as their main screen. most of which are not connected to the core enterprise applications. so from ibm's point of view, there's a huge business opportunity, from having a tight relationship with apple, and apple in this case has a vastly subpoena platform for enterprises relative to android, for the two reasons you just described. security and fragmentation i. hear that, but there are big opportunities for other company, too. look at vm ware, purchased airwatch, goes head to head with -- >> sorry. of course. >> in the mobile device management space. microsoft already has office on

ios. while ibm is writing apps for this, microsoft could, if they're nim belong, say enterprise, while you're paying attention, by the ways with those ipads, buy this. i mean, this -- >> oh, no. that is true, carl. but, carl, right. this is not like an end game strategy. what this is, is a recognition by ibm and ap that if they work together, in e can increase the size of the pie available to each of them, but it doesn't block anyone else. clearly, microsoft's position around this is really intriguing, and i think it would be a lot more compelling if microsoft had mobile devices that were the end points, and one of the things that has been confusing to me, microsoft's reluctance to build devices around skype, which i think would be a much better platform for mobile than windows. i totally agree with you. i think what's going on now is, we've spent five years where i.t. has been entirely focused on court cutting. so korngs corporations figured take out layers and expense and

are looking at mobility and realize, wait a minute. we now have to integrate that, and it's almost as though a light bulb went off and you can see this in intel's number, with the rising performance there. you can see it in microsoft's numbers. apple and ibm are going to attempt to gain a piece of that for themselves, with this transaction, and what's interesting to me is, you go back to 1992, the last time ibm and apple tried to get together. they both did it from a position of weakness. a thing calmed -- supposed to do it, operating system, and i think you could charitiably characterize it as a failure. >> roger, exactly my point. i mean, i'm living to this press conference, puzzle pieces, gold standards coming together. chips and -- >> hang on, carl. it's not as complicated as it looks. >> i'm not impressed. it's two companies saying we'll work together, when we see the apps what they do together, uncharacteristic of apple to come preannounced vaporware with ibm. i don't get it. >> okay. that's a fair point.

and -- but the observation that i think really matters here is that the enterprise is no longer a place where your revenueless go down every quarter. enterprises have begun to look at mobility as the only strategic option that they really need to focus on today. and for apple what this really signals to me is the need to treat icloud as a separate platform, because the place where ibm and apple will come into conflict is if -- if apple remains with a very weak icloud product, then ibm's going to get a lot of business doing corporate clouds and integrating iphones into that. >> you've been -- >> well, there's a good reason why, because that's where the opportunity is. right? and they see part of it. that's why they're getting together. and, again -- i don't think this blocks anyone else. >> a lot of are unanswered questions about how this is going to work. like i'm wondering, is ibm going

to be allowed to essentially jail break ios inc., enterprise customers, lack customization. they might want the ipad to turn on certain ways. >> of course. the answer is of course they will. >> well, i mean -- i'm not sure, apple doesn't like jail breaking in general. will other partners -- >> yeah, yeah. seriously. >> have that capability, too? i mean, lots of questions about execution here. it's going to be a very complicated -- for ibm. so -- it's a new era. >> we don't need to know the answers, carl. we don't need to know the answers to those questions to realize the following -- that in the future the failure to integrate mobility into enterprise solutions is going to be punished severely. so the fact they understand that it's an issue and that they've done something that is captured the imagination of customers. i don't think there's any doubt that if you are an ibm customer today you are cheering this. this is going to make your life easier. seriously. this stuff matters. press releases can actually move the ball forward.

>> i saw a piece yesterday, statistics, 70% of workers to have an ipad or iphone. >> that's good for both of them. >> got to go. thanks for your insight. druckenmiller onstage soon add delivering alpha. we'll take that live. of course, famously short, ibm, get you all that exclusive coverage, in just a minute. you can't always see them. but it's our job to find them. the answers. the solutions. the innovations. all waiting to help us build something better. something more amazing. a safer, cleaner, brighter future. at boeing, that's what building something better is all about. ♪ at boeing, that's what building something better is all about. in a we believe outshining the competition tomorrow requires challenging your business inside and out today.

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welcome back to "squawk alley." you're seeing the tail end of the best ideas panel. larry robins, latest ideas person to come out over glenview capital. he had a great performing fund last year. as you watch his best ideas, we'll bring you through what they are. about six of them and we'll reel through them. thermo fisher scientific, the sea giant, flex tronnics, outsoars electronics maker. hci holdings, huge hospital company here in america.

auto rental company hertz and national oil well barco. two picks to highlight. hca, shares up 9%, 10% today. again, famously notes he was holding this position before this move up here. but the company boofrted its 2014 earnings guidance as well as saying it's going to report better than expected second quarter results. another one. national oil well barco. a new pick. up towards session highs. up by about a percent. a common theme, carl, links all of his picks. he says that these companies are ones that have either levered up that is take out debt at very low interest rates to use that money to perform shareholder-friendly activities like buying back stock or, carl, have the ability to do so. take on more debt to do shareholder-friendly activities. those sick picks, the outperformers in next year's trading and of course we're minutes away from stanley druckenmiller. a protege taking the stage at alpha. ang his to see how his best

ideas are playing out. >> and not to mention, yellen and a bunch of other things. thanks. intel shares jumping as q2 results beat estimates on the top and bottom line. upside from the companies positive reannouncement in june. the pc market, a surprising area of strength. still weakness in mobile devices. $1 billion operating loss in mobile chips and communications, although gross margin forecast, jon, look goods. a ten powered quarter. >> save. well, gross margin forecast look goods for the next quarter, but then after that, in q4, expecting them to come down ramping up factories. long-term benefit because it will give them a manufacturing advantage over competitors, but again the question is, are they going to be able to solve mobile faster than the forces of mobile, which kind of grew up under intel's nose, going to be able to solve productivity? we see apple teaming up with abm. apple does not use intel chips in its mobile devices. intel will not get the benefit,

if that works out. intel has to figure how to organize its ecosystem to get an answer to things like that, and we'll see in 2015 whether it can do that. >> and whether or not they can do it before this refresh window on pcs closes. >> yes. the question, it probably has the rest of the year left to it. that's it. look at numbers. pc client group one up 6.2%. data center group up 19%. and then internet of things up 24%. down to jon's point, mobile and communications group. down 82% off a small base that is. getting all of the growth in people that need new computers, because of an upgrade cycle. a one-time type thing and the guidance the rest of the year is flat. basically that's the story. >> not necessarily one time. a lot of people don't realize, for the past year and a half, intel worked hard behind the scenes, the way it never had before, to get the price of touch technology down. for the oem. they really pushed to create this environment we have now.

cheaper touch pcs that can compete with tablets out into the market. part of the reason why they're getting this bump in enterprise. they worked for that. question, can they to get those results in 2015, when they have 14 and also can they really get their wireless business working to combat qualcomm? lots of ifs, thus far, they managed to do pretty nice, strategic work. >> the best performing dow component of the year. up 30% now to date. trading at a ten-year high. bought back $2 billion in stock in q2. this quarter buying double that. bringing cash balances down. they played that book maybe better than any other dow component this year. >> ibm used to play it pretty well too. called financial engineering. >> it's fed-inducing engineering. it happens. on the show this morning, talking nowhere else for people to put money, other than equities. buy back all of the stock. it's very much fed-induced growth in a lot of ways.

>> a lot of annan sis of pcs versus tablets. an argument saying tax are nice to have. not a must-have. and is that dynamic going to last for a while? >> software is going to be the key to changing that, and so on intel side, trying to change pcs to make them more tablet-like. now apple and its partners have to try to change tablets to make them more productivity-like, and i actually like the mobility forces chances a bit better in this case. partly because microsoft, remember, brought office to the ipad. they're helping. >> we'll see what happens with intel. fascinating. meantime, bringing you exclusive coverage from the fourth an cruel alpha conference in new york. q&a with our own coming up. thank you, and good morning. is this mike on? can everybody hear? okay. great. first of all i want to thank c

nbc for the opportunity to be here and present some views that are a little different on what i've heard from others about the federal reserve. secondly, i want to congratulate delivering alpha on this great conference. it's only a few years old, but it's made a huge impact already. so as a macro investor, my job for 30 years was to anticipate changes in the economic trends that were not expected by oth s others, and, therefore, not yet reflected in security prices. i certainly made my share of mistakes over the years, but i was fortunate enough to make outside gains a number of times when we had different views and various central banks. since most investors like betting with the central bank, these occasions provided our most outside returns and the subsequent price adjustments were quite extreme.

today's fed policy is as puzzling to me as during any of those periods, and frankly, rivals 2003 in the late stages to early 2004 as the most baffling of the number of instances i have in mind. we at duquesne were mystified back at that time why the funds rate was 1% with a considerable period attached to it given the vigorous economic growth statistics available at the time. i recall walking in one day and showing my partners a bunch of charts about economics -- economics statistics of that day and asking them to take the following quiz -- suppose you had been on mars the last five years, and had just come back to planet earth. i showed them five charts, and i said, if you had to guess where would you guess the federal funds rate was?

without exception, everyone guessed way north of 1%, as opposed to the policy at the time, which was a verbal guarantee they would stay at 1% for considerable period of time. so we were confident the fed was making a mistake. but we were much less confident how it would manifest itself. however, our assessment by mid-2005 that the fed was feeling an unsustainable housing bubble with dire repercussions for the greater economy allowed our investors to profit handsomely as the financial crisis unfolded. maybe we got lucky, but the leadership of the federal reserve did not foresee the coming consequences as late as mid-2007, and surprisingly, many fed officials still do not acknowledge any connection between loose monetary policy and subsequent events.

that is why i am personally experiencing a sense of deja vu. i'd like to go through today's sets of charts, and the first one you'll see is of average net worth per household. it's textbook to use monetary policy after a financial crisis to repair balance sheets. but the data that is already happened, and we now have accelerated above 2000 levels, which, by the way, the fed agrees were unstainable -- unsustainable. employment. the labor market has largely healed. as you see, employment is back above trend in both services and manufacturing. industrial production. as you can see, industrial production is at a new high, and it's been growing steadily for

five years. u.s. retail sales. they have normalized, and are back to at or above trend. and finally, this is a chart of the u.s. core cpi versus the japanese cpi. for years the fed has argued that deflation is a risk like japan. therefore, justifying exceptionally aggressive policy. the data just suggests no similarity whatsoever. japan has had deflation for 15 years while the u.s. price index has increased 40% over that time frame. with no noticeable change the last five years. while the deflation risk story may or may not have been a viable theory a few years ago, it is long time past to move on. okay. you've seen the last five charts. each represent a key sector of

the u.s. economy. i'm asking you, like i did my partners ten years ago, to step back and look at the big picture. suppose you had been at mars for five years and you landed and i showed you these charts, and i gave you the same quiz. can anyone in this room tell me that you've been away for five years and i showed you these conditions and guess that interest rates would be zero? how about the fed that would be assuring us they would be zero for a considerable period of time? how about that the fed would still be buying mortgage-backed securities? how about that the fed would be suggesting that if and when they ever don raise interest rates, they're going to continue buying to maintain their $4 trillion balance sheet for a while? i hope we can all agree that

this once in a century emergency measures are no longer necessary five years into an economic and balance sheet recovery. there is a heated debate as to what a neutral fed funds rate would be. we should be debating why we haven't moved more meaningfully towards a neutral fund rate if for no other reason, so the fed will have additional weapons available, if the outlook darkens again. many fed officials and other economists defend their current policies by claiming it is better than it would have been -- the economy is better than it would have been without their ongoing stimulus. no one knows for sure, but i believe that is logical and correct, however, i also beli e believe, if you'd ask the same question in 2006, that the economy was better in 2004 to

2006, that it would have been without the monetary stimulus that preceded it. but was the economy better in total from 2003 to 2010 without the monetary stimulus that preceded it? the same applies today. to economists and fed officials who continually site that we are better o -- delight we -- cite this, five years after the crisis and with growing signs of economic normalization it seems time to let go of myopic goals. given the charts i just showed and looking at economic history, today's fed policy seems not only unnecessary but fraught with unappreciated risk. when ben bernanke and his

colleagues instituted qe 1 in 2009, financial conditions and the economy were in a dysfunctional meltdown. the policy was brilliantly conceived and a no-brainer from a risk/reward perspective. but the current policy make nos sense from a risk/reward perspective. five years into an economic and balance sheet recovery, extraordinary money measures are likely running into sharply diminishing returns. on the other hand, history shows potential long-term costs could be quite severe. i don't know whether we're going to end with a malinvestment bust, due to a misallocation of resources. whether it's inflation, or whether the outcome will actually be benign. i really don't. but neither does the fed. given the time, resources and effort policymaker have put

forth to make sure we don't experience another financial crisis from dodd-frank, to recapitaling the banks, to other measures, does it make any sense to double down on a monetary policy, which many of us believe was the pry marry imp 'tis leading up to the financial crisis. yes, we strongly agree there were bad actors and regulators that failed in their job to rein them in, but given the complexity of our financial system, if policy strongly encourages investors to move out the risk curve, as it did then, and even more so does now, market participants invariably find a way around existing regulations, and stay one step ahead of regulators. failing to take into account the lessons of history leads to a bad risk return. i played a living analyzing the future, not the present or the

past. and while i don't have a criystl ball, it's high in my mind the fed's monetary experiment will be more disruptive down the road than the fed currently anticipates. i'm sure they are predecessor with the best of intentions thought they were buying insurance for the budding economic recovery in the early 2000s. instead, we believe they were sowing the seeds of the housing bubble and the financial crisis nap is why it is particularly puzzling today that the fed is using wage growth as a key determinant of their current stance of policy. waging lag unemployment, which itself is in the lagging indicators. shouldn't the fed will focusing on leading indicators? i really hope i am wrong in my assessment. i really do. in that case, i can just adjust my portfolio either way.

the problem is, the fed is making a bet from which their adjustment could be way too late and have significant adverse consequences. and, frankly, i don't know what it is in their forecasting record that gives them the confidence to make such a bet. as i said when i opened, for 30 years i've made a living analyzing risk versus reward. i understand there are risks in suspending bond purchasing, ending zero interest rates and moving towards policy normalization, but if not now, when? because as pointed out in the recent bis report, every month that goes by, the misallocation of resources and their potential consequences of accumulating. and while the demand returns have been engendered by qe, diminish over time, the side effects accelerate as investors are emboldened by risk rallying

over an extended time frame. while i don't have a sophisticated econometric model to graph a cost benefit analysis, every ounce of intuition in my body tells me the potential costs have crossed the potential benefits of the zero interest rate policy et al., and more importantly, the gap will continue to widen as we go forward. we are already seeing excesses in the ipo market, and more importantly, in the credit markets, and it is not a given that the recent uptick in inflation is indeed noise. in 1980, paul volcker risked a severe recession to slay the great inflation of the 1970s. while that recession occurred, the eventual long-term benefits far aweigh go ahead the recession's cost. i am fearful that today our obsession with what will happen to the markets and the economy in the near-term is causing us to misjudge the accumulation of much greater long-term risk to

our economy. thank you, and now i'm going to, i guess, talk with joe about this. [ applause ] >> awesome. thank you. all right. so when we have talked in the past, you were even more, i guess, strident about your biggest bets, biggest money and we know how well you've done. we heard julian robertson, we know compounded return for years and yeeshars and years. betting against central banks. if you can find a mistake, that's what you key on. sounds like you found a mistake and given the depth of the recession in 2008, and now the type of measures the fed has used, these were shock and awe measures compared to what was dmun 2003 and 2003, a-- 2002 an

and in term s of the bushel bub scares me. i'm not sure whether i'd hold anything at this point. >> it's a great question. first of all, at this point in time, i don't see this as systemic. what we believed in 2005 and 2006 was that you had double leverage going on. people borrowed to buy their home, and then they were borrowing against their home, and the shadow banking system had accumulated those debts. so while the fed thought the crisis was containable, we saw no such thing, because when the bad stuff gets into the banking system itself, it has huge wider implication for the broader economy. the current situation is a little -- is a little trickier, joe. first of all, like '04, i don't

have great certainty how this mistake will end. in fact, i'm not even sure it's going to end badly. >> and it wouldn't be housing this time. i mean, we're waiting for housing. >> no. what i am sure is they're making a bad bet. a bad risk/reward. you could go to the lottery and win the lottery, but it doesn't mean it was good bet. so when i look at this monetary policy and i look at all the money my firm has made in the past, due to improper monetary policies, yes, it looks extreme, but since it hasn't infiltrated the banking system, i don't think at this point we're looking at an '08 or an '09 in our future any time. >> in terms of our future, you said 2000, you gave a speech in 2004. you didn't make the bet for another year, in -- >> it was 2005 yes. >> and made the bet when?

2006? >> i -- i made a lot of are money in '05, because i wanted to ride the overly aggressive policy. '06 i stunk. made some money, but i had left the party, and -- >> you knew there was a housing bubble, about three, four years early before '08. okay. we don't know where we are chronologically right now. you have been on "squawk box" and said as long as the -- sounded like chuck prince. still dancing now, basically. until they raise rates, you're going to dance. right? the first rate hike? >> it's not that easy, but first of all, i'm not like chuck prince, because i can get out. i am still dancing, but chuck prince and the fed, if they're wrong, can't get out. >> yeah. you can readjust. >> i can get ow. >> where do you think we are in terms of the last time? i mean, it's impossible to say. do you think it it's 2005 hi to? >> not to a systemic phase. interesting to see what goes on

in the next year or two. i mentioned in my talk, ipos and credit. so ipos as you probably know were right on the border, we're right on the border of where we were in '89. 93% of ipos went public and never made a dime. today it's 80%. the only time in history we've approached that. those who say how great ipos are encourage investment, how good for ept ploim. it's myopic. good for employment today but not if all the high-tech firms in '99, get a job, laid off or fired or your company goes bust. so that's the ipos. when i look at credit, it's a little more problematic. you probably saw in the "economist" this weekend, s&p this year, corporate credit is growing at a record rate. far faster than it grew in 2007, and s&p pointed out that 71% of

debt issued is a b rating. or worse. to put that in perspective, in the '90s, that number was 31%. do you remember all the hull la bao in '07 about covenant light loans? they did $100 billion in '07, and 38% of them were b rated. this year, we're going to do 300 billion. we did $260 billion last year. up from $90 billion a year and 58% of them are b rated. so anybody who says they're not a bubble, i just don't agree with it, but you've asked the better question. so what? because the bubbling is appropriate given monetary policy. and normally the playbook says exactly what you said. you don't have to move until -- >> until the birth. >> they raise rates. the only nuance i would put, the marketa a nasty setback after qe 1 ended, after qe 2 ended.

gentlemjapan had a nasty set ba it makes it a little more complicated, because are we supposed to look at the tapering as the first interest rate rises or the rate itself? and i would lean more towards the rate itself. even when we start moving, as you can see by the charts i just showed, we're way behind. we are -- we are at once in a century emergency levels. we've never had these rates before, but it you look at the 100 years of economic history, we're probably in the 40th percentile. not the zero percentile. do those choorts look like 1932 or 1933 or 2008 to you? >> we have people, just had, i mean, pimco. thavg changed from new normal to new neutral. they're thesis, in an extended period of close to zero fed funds rate where they deserve to be. so that even though the fed is exerted influence, that rates wouldn't be that much difference, even if the fed wasn't in here, and the question

of the day, and it's all i care about, is either the fed's behind the curve, or there is enough demand disruption from the sfart severity of e radio s, all is appropriate to fill in from the demand -- >> joe, household balance sheet, all-time high. higher than '07. you saw the industrial production chart. what are you talking about? >> yesterday it was said bernanke and yellen can take a victory lap. they have won. they have put the stake in the heart of inflation forever. >> let me read you the last victory lap. >> he told me that yesterday. bill gross told me that. >> i don't want this to get personal. i've been wrong a lot of times. >> you're going to attack me now? >> possibly. >> oh, no. bernanke. >> in 1987, when the market crashed, i was convinced we were going to have a depression. so i'm not poking fun at people that have been wrong, but the victory lap thing, again, the myopia of focusing on the moment instead of looking at the big

picture. this is bernanke in 2004. and i, by the way, think he's the greatest living economist. the great moderation, the substantial decline in macro economic volatility over the past 20 years is a striking economic development. i've argued today improved monetary policy has likely made an important contribution not only to the reduced volatility of inflation, but to the reduced volatility of output as well. this was three years before the biggest shrinkage in 50 years in u.s. output. and i'm not mocking the man. i've been wrong a lot. i'm just saying, where does their confidence come from? i've heard all of these projections three or four years down the road and as for the zero percent guys -- and i have tremendous respect for bill grosse. he has a tremendous record, but this argument, we've got to stay at zero percent because the debt is too high. why do you think the debt is too high? an asymmetric monetary policy 30

years. it was 150% debt to good p all-in when greenspan took over and 390 at the crisis. we're only down to 350. if we keep rates at zero percent as i just pointed out, the party's just starting. the debt is now going like this, whereas the benefits are going like this. so the argument that we're going to have zero rates because the debt is too high, it's a little -- scurrilous to me, because if rates stay at zero, the debt's going to explode. when do you ever pull the trig jer the answer is, you don't. >> so we'll stay long for a little longer. you talked about ipos and credit, and you've made the case to me if there is one company that could represent kind of a poster child for a balance sheet orchestrated resurgence, it is ibm. >> oh, boy. kevin worse and i wrote an

editorial a few weeks back on the ballants sheet recovery and how corporations were more interested in buying back stock and financial engineering than investing in their business. i would say ibm is a poster child. they literally face the threat not too dissimilar to what kodak and xerox in terms of a new technology staring them right in the face, and instead of increasing investment to combat the threat, they've actually borrowed a lot of money to buy back stock. let me just give you a few shocking statistics. so ibm sale, where they were six years ago. despite the increase you saw in sales, industrial production i showed, they sell the corporate customer, they've had no increase in sales whatsoever. in regards to the competitor threat i just presented, no increase in investment or capital spending. what have they increased? their debt has tripled. so they could triple their

buyback. this is their response. i don't mean to pick on ibm, but this is the whole u.s. economy. this is what we're doing. capital spending is the lowest its ben relative to sales in many, many years. that's the reason productivity is down and we've got to get out of this financial engineering stuff and get more into investing in the real economy, and if you want to spur growth, i don't really think zero interest rates are the answer, because the unintended consequences, we immediate to do things like tax reform and cut back on regulation. >> well, we need to pass a lot of this week to just prevent companies from leaving here, and i think why not throw in prevent companies from building factories anywhere but here? do you think that will work? >> again, you know, it's sort of a band-aid policy. i heard some talk on your show this morning -- >> i was alluding to that. aye won't name -- >> i heard talk on your show this morning about officers of companies being unpatriotic.

>> right. >> let me understand this. we elect the politicians to make laws for us. but they don't want to pass reform, because they're worried about their jobs, and we're unpatriotic, we being the corporate community, because we're -- the laws they have on the books? i mean, that's a little weird, if you ask me. >> it is. i wasn't leading the witness or anything. >> these guys -- i mean, these guys are obeying the law. if you don't like it, change the law. of course, they want to change it, just this one law. if if you need growth, we need overall comprehensive tax reform. by the way, it's easy. it's easy. i guess it's not easy politically, but everybody knows what the answer is. >> go to zero. >> i don't know whether everybody knows that, but when i say, i heard somebody on your show this morning say it wasn't right to have corporations play zero. >> break a big story today? >> i want to point out, i'm not

for corporations paying zero. corporations are owned by their shareholders. i'm just for shifting the burden of the taxation from the corporate level to the shareholder level. warren buffett's tax rate will go up, mine will go up, all up to 40%. transparent knop more lobbying in washington. people wouldn't be moving jobs to ireland and god knows where else. in fact, those jobs might come to us if we had a zero percent tax rate but you still get the money out of the people who own the corporations. corporations are paying it once, and paying it transparently. >> can you envisage some type of excrement hitting the scenario for me if you're right about this? i mean, inflation, would it be inflation? would it be that the bond market gets out of control of the fed and crisises more quickly and people are on the wrong side of that? if this ends badly a year, 18 months, whenever it ends