all right. that does it for us today. rebecca, thanks for being here. now it's time for "squawk on the street." good morning and welcome to "squawk on the street." i'm david faber along with jim cramer live from the new york stock exchange. carl quintanilla is off today. let's give you a look at futures one day after a very big sell-off on wall street with the s&p and dow negative by well more than 1%. the nasdaq in particulately, as we falling.

how about that ten-year note yield? we have eclipsed that 2.5% number. that occurring yesterday. the dollar has strengthened. a lot of people talking about that, as well. we are going to be keeping a close eye on the markets, talking about what you can expect from here given that sell-off yesterday. that move up in the yield, as well, in the ten year. we start with really a stunner in the bond fund world. legendary portfolio manager bill gross leaving pimco, the investment firm that he founded to join janus capital effective monday. janus says gross is going to manage a recently-launched global bond fund and will be responsible for building out the firm's global macrofixed income strategies. for those who may not be familiar with the fund marketplace, janus has always been an equity-focused house. only recently having started a fixed income product, which i believe has about $12 billion or so in it, having started i think

in the spring. this is stunning news. >> monumental. >> in particular the man who began pimco. allianz owns it now. he started it way back when and arguably the greatest bond fund manager of his time. >> how can you call him anything but that? why do we have him on constantly? he knows more than most people. lis hertis letters i find to bee best explanation. has he slipped up here? >> his total return fund, in particular there have been outflows, clashes. mohammed alarian cited him his 10-year-old daughter writing a list as to why. there was potential tension between the two. it's stunning for a founder to walk out the door with a release and nothing more. especially the particularly

loquacious mr. gross. >> we know he's one of the world's richest men. maybe he just got tired. earlier this week we saw the article -- excuse me for picking up a paper and reading it -- pimco draws etf probe by s.e.c. janus which is an okay equity house just got the biggest fish in the pond. there are people who will be loyal to bill gross because he is pimco. allianz, big firm. we don't know. to speculate would be wrong. bill gross is a fine man. we could say x, y, z. i won't do it because bill gross will have good reasons and i will feel awful i said it's because of xyz. i take him at face value when he says it's mixed blessings. all i know is it isn't you're only as good as your last trade in bond. this man has $2.2 trillion over

management. >> he had. now he's going to -- >> janus offers him a deal. he gets to say where he is. >> he gets the newport beach office. janus stock price is up sharply. we know there is a big back story here. this was head as we were heading to air. hard for me to do some reporting, but andrew is off-air in nantucket. he's probably been able to do a little more reporting and can give us insight here. any sense on what the back story is here? >> let me tell you what i do know. i just got off the telephone. i'm going to get rid of this, i have a little bit of back and forth. what i do know is the following. here is the relationship in terms of how bill gross ended up at janus. the ceo of janus is dick weill. dick used to be the coo of pimco. that's the relationship and

where it came from. dick weill left pimco because of another problem, talk about a lot of infighting at pimco. dick weill didn't get along with who the ceo of pimco used to be, bill thompson. he left the company when mohammed alarian got there. what i think has happened here is the relationship between dick weill and bill gross is the reason that we are seeing him back now at janus. let me see if i can't get this back in my ear. i apologize. i can't speak -- i should say, i can't speak to whether he was pushed or left on his own volition. i can say this. a number of people very close to pimco had no idea. this is shocking and surprising everyone, not just in the markets, but people literally in

the room. that unto itself is surprising. i whether he is gone and this is a surprise to them this morning. we will continue to find out what's going on. it is really the relationship between so many people inside pimco and all the different infighting and troubles between bill thompson, dick weill. it's remarkable where things have gone in all of this. >> the largest bond shop by far at pimco. a couple of headlines here from dow jones citing a source. i'll share them because we know there's going to be a lot more. gross new he was being ousted from pimco. again, this is dow jones reporting. >> they are saying they were firing him. >> this is with a source. and walked away without a severance package. >> wow. >> these are sources being cited by dow jones. i share those as headlines.

severance for a billionaire -- nonetheless, he was responsible for creating it. >> there was obviously turmoil there allianz is not a place that likes turmoil. they are not doing that well right now we know that. i think the's interesting. one of the things to take a look at, pimco high yield fund which is phk is off really badly in the premarket trading. >> this is not just an isolated, but fascinating personnel story about big personalities. this could have an impact on the fixed income market. >> presumably what people are betting is he has to liquidate. i went over some of the top 50 holdings, top 50 junk bonds. you would be surprised how good the credits are. a lot of refinancings. that group is so sick. bob pisani reporting really well yesterday. this will accelerate the down turn in that group which we know is probably, as you taught me, the achilles' heel of this

market. >> just to your point exactly, a couple of e-mails i'm getting right now. investment grade cds is wider by about two basis points. that's fairly significant in that market or something worth mentioning. pimco is the single largest holder of credit derivative risk. there are redemptions. >> right. >> you have to sell. hence, people start to look. then they look through the portfolio. high yield. what do they own? sprint, big high yield name. see what happens to the bonds. this is not just a personnel story, though a fascinating one for one of the -- well, the single most important figure in fixed income investing. it's also about the markets. >> you talk about sprint, nextel, chrysler group, hca, these are all -- hj heinz. it doesn't matter. if they are leveraged, they get sold if there are redemptions.

maybe that's part of the trade. dick fisher was saying this is the area that is also the most vulnerable. this is the bubble. people want to call the internet a bubble. a lot of people saying there are multiple bubbles and they are all being -- one week ago we had alibaba. that is an ironic bubble "usa today" is talking about. what i urge to do is balance things between nike, nike being the proxy or metaphor for business in the world versus europe, where business is really fabulous. this pimco story versus the fact we actually want rates to go up a little because then the market at least is making sense. the cross currents are amazing. bill gross iconic figure. bonds, not so iconic. >> people are trying to short the market furiously. they don't know how to do it. >> they assume there will be redemptions. we see that a lot with hedge

funds. maynor markets trying to recover from the worst day in almost two months. nasdaq down almost 2%. apple's 3.8% drop leading a rough day for technology. apple happened to be the worst performer on the s&p 500 which was down 1.6%. it was ugly. >> can you average the two days? >> sure. i'll give you that. >> then you have a slight decline. we keep seeing numbers out of europe. >> you mentioned this many times. what's going on in ukraine and russia and the impacts on europe and the likelihood of recession for countries that were barely growing to begin with. >> right. i think is there a real edge fund bent to what is going on.

there is a feeling that the fed has to raise rates. that's been trumpeted by a lot of people. the problem is that if the fed were to take into account the world emerging markets, china, where obviously the export growth is minimal versus historic. and europe where things are bad. you don't want the fed to tighten if you're a holder of equities, obviously. it's the wrong time. earnings estimates are coming down. that's the next light. earnings estimates are going to come down. we are going right into earnings season. it makes all the sense in the world to do some selling. i can't fight that because of russia, ukraine. there is a meeting between the ukrainian leaders and russia. everything is being ratcheted up. the president is the leader of the ratchet-up fashion. the president has been probably the strongest against russia. >> his words in front of the u.n. were -- >> they were hawkish. it's hard to retract the

rhetoric. at a certain point the rhetoric is so high that people are saying, what is russia going to do? is russia going to nationalize visa? meaning nationalize their payment system and kick out visa a dow stock? i don't think that will happen. i think russia needs visa. you are going to hear that kind of talk because our rhetoric is harsher than their rhetoric. our rhetoric, the president, is such a hawk on this issue that he's well ahead of the germans. the germans will bear the brunt of the problem. >> all right. let's talk -- coming up, let's talk about nike, blackberry which posted a narrower than expected loss. >> john ford has an exclusive. >> there is a key clause for gross leaving. keep that in mind.

>> okay. we are going to have a lot more on the stunning news out of pimco. later on, hear what "shark tank's" o'leary has to say about the sell-off. we've got a lot going on here. take a look at futures on this friday. we are poised for a higher open. "hello. you can go ahead and put your bag right here." "have a nice flight." ♪ music plays ♪ music plays traveling can feel like one big mystery. you're never quite sure what is coming your way.

but when you've got an entire company who knows that the fewest cancellations and the most on-time flights are nothing if we can't get your things there, too. it's no wonder more people choose delta than any other airline. . . nike poised to open at new

all-time highs. the dow component saying its flagship brand saw growth in every key category except action sports and golf. nike adds it saw double-digit growth in orders scheduled for delivery from september to january 2015. they're getting it right over there. >> this is really one of the great ironic stories. remember you'll see the stock up very much. this was the layup short. that's what i was being told. in other words, they're big in europe. $5 billion in europe. they've got china. united states, how could that do well? you have futures orders up 14%. 20% earnings per share growth. 170 basis points in gross margin

expansion. the two countries they are weaker in? only two. russia and israel. both war. you come back and say -- they talk about currency. they went out in the currency and said currency is not a problem. how do you grow 20% in china, 30% direct to consumer? western europe up 25%. >> what's at the heart of this? they talk about under armour and their ability to create new technology. >> this is big technology. i'm going to sing mark parker's praises. he is one of the great competitors of all time. what's the story here? it reminds me of "i love lucy." you know why? >> no, i don't. >> you know how les moonves says he makes so much money with "i

love lucy?" the jordans, it's still the best-selling. duran who is a hero to many people. jeter. these people are incredible. we should talk more about those guys and less about the guys we all know without going into who is bad. world cup people thought it was one-time only. they used world cup to build their brand. emerging markets strong. is there any -- personalization of shoes is big. in the end, people will say -- i'm waiting for the hedge funds. i'm using them as my personal villain today because they are fun to vilify. >> they are. >> adidas had a horrible quarter. i think under armor had a great quarter. if you want to read a great quarter, read this thing.

an analyst, first question, your e-commerce number is through the roof. 14% futures on the currency mutual basis. nike demonstrates when you get too negative, you get hit in the face with a nike. there are a lot of put buys. >> you do. went to that jeff coons exhibit at the whitney. >> we are talking about our lead story of the morning, which is bill gross going to janus capital. walking out the door unexpectedly. leaving from a $2 trillion plus asset house that he built in fixed income to join janus. and its fledgling effort in fixed income. >> i don't want to fly all over

the place, but it's a big story. phk is a close-end fund. >> that is a closed-end fund. >> i can rumor that down and be a moron. >> therefore, what selling will take place among the names they have in the portfolio. you pulled the names the way you would for a hedge fund under pressure conceivably looking at the big fixed income names. and the name on the equity side being sprint which has well over $20 billion in debt out there in high-yield debt. >> you think, samsung investment, not that strong. valiant, pharma, giant. say they've got allergan. the liquidity is not great even for the individual issues except for sprint. there was a man who sat opposite us friday who is, who i think

will buy every sprint. >> you don't go against massa. >> no. do you go against reynolds paper? philip morris downgraded today. you want to shoot against heinz. i don't want to shoot against heinz. you go after these etfs which have little liquidity and not necessarily the right trade. i should be talking about nike. nike is very important. i'm trying to get everything. >> think about what you're going to be talking about for your "mad dash." as we count down to the opening bell. cute little guy, huh? this guy could take down your entire company. stay with me. on thursday a hamster video goes online. on friday it goes viral - a network choking phenomenon. why do you care? he's on the same cloud as your business. the more hits he gets, the slower your business may get. do you want to share your cloud with a hamster?

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a very busy day. time for our "mad dash." we'll have more on that incredible departure at pimco of its founder bill gross. let's talk sears holding. >> i've got to fill me in on this. i saw douglas campbell out at sears canada. sure, it's declining in value. seems thing to be unraveling faster than i think. >> the key for any retailer is confidence. most recently, that came in the form of a $400 million loan from esl, the largest, the controlling shareholder along with eddie lampert of sears secured. we've got a story st. joe's -- fair home, the big mutual fund

by berkowitz owns 23% of sears and controls st. joe's. st. joe's may have wanted in on the $400 million and chose not to get in. >> st. joe's, giant real estate. >> their 100 million piece would have been secured by real estate. they said in light of their investment criteria, they declined the opportunity to participate. the question on sears holding, you need financing going into the holiday. you need to have the confidence of your vendors. what about your customers? >> when you sell off all the good real estate, land's end was fabulous. it's done incredibly well. when you are a manager in stocks, a lot of the bad managers sell their strength and then have to keep the weakness.

when you look at gary bolter's report it was devastating. quoting jim morson with the doors with the end. it's got to liquidate, losing $10 per share in value. that seems extreme to me. berkowitz is good. he did get hurt on the banks on the way down. >> i've got to be ready for a lot of this. between his 23% ownership and lampert's ownership of 43%. there's not a lot of stock out there. >> you talked about the confidence. this thing had nine lives. eddie lampert decided who controls it. if he decided i'm going to back up the receivables, he is rich enough to do that. the big bet against sears has been made over again. it's not a new idea. >> one will be watching with so many others. we are going to have a lot more

on bill gross' unexpected departure from pimco. we may have a comment from mr. gross after the break.

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you are watching cnbc "squawk on the street." there the opening bell is ringing for this friday. by the way, ringing that bell over here at the big board, the birch family services helping people with autism and other development disabilities. at the nasdaq, the qatar minister of economy and commerce. and the national council on u.s. arab relations do the honor at the nasdaq. we are looking at the realtime exchange. people interested after what we are going to do with a 1.6% drop on the s&p. we are 1.9% below our all-time highs on the dow. then we've got this huge news in the world of fixed income, which we don't talk about perhaps as often as i would like to. >> we should. one of the reasons we don't, it's much more opaque.

it's easy to look at stocks. people are selling these closed funds well below their asset value which theoretically has some value. there are different people trying to get in on the bill gross trade. it may not be as simplistic as that. a lot of the offerings are going to be hitting the bids. they are going to change the offering and bang out these bonds we are talking about. i don't want to tell people that this is like other big collapses we see in the bond market because i don't know. >> we are watching the fixed income markets very closely. bill gross, the man who created the largest bond funds in the world at pimco created pimco, the largest bond fund manager in the world left the firm, resigned and joined janus capital known as an equity fund shop to launch a mason effort into fixed income. we have our first statement from

pimco in which they, of course, say that their chief investment officer bill gross -- pimco owned by allianz now. saying he left the firm. they say while we are grateful for everything bill contributed to building our firm and delivering value to pimco's clients, over the course of this year, it has become increasingly clear that the firm's leadership and bill had fundamental differences about how to take pimco forward. >> that shows you, again, we had a lot of turmoil there. the third line of this release in terms of the tea leaves, douglas hobbs and j. jacobs continue in the role of chief executive officer. i only knew bill gross. >> part of our responsibility to our clients and employees, pimco has been developing a succession plan to ensure the firm is well

prepared to manage a seamless leadership transmission. they established a newport folio management leadership structure which reflects their long-held belief they are talking about that because everybody needs to know that a succession plan comprised of the people are going to take over these funds. >> yesterday bob pisani was talking about the big hit in the high yield market contributed to doug fisher retiring. he's been very negative for a long time. now people are going to say maybe that market was all down because people knew about gross. at pimco high yield fund, it trades well. >> there is an opportunity because it is a closed-end fund. you are not going to see redemptions there.

>> some may be co-owned by other funds that do have redemptions, but we don't know. >> we don't know who they are run by. it's a fabulous story for janus. it's an amazing story in the whied that we at cnbc, cnbc has featured bill gross endlessly. janus has the biggest star in bonds running for them. there is a reason bill gross is, he controlled $2 trillion. that's a huge amount of money. remember, it is substantive to the market he leaves, is what i'm saying. that will be the real story. not the dow, not the s&p. >> people are going to try to figure out how much, what does it mean to the s&p? is it going to be like a 1998 scenario? where bonds let us down. >> no.

>> it was also credit. this is a one-time event. >> junk has traded more valuabye than it should. again the fact is there a slowdown in the economy, that is what you should go after. >> it may well create opportunities. i assume there will be hedge funds moving in on those including the funds that trade below their net asset values. >> i'm looking at those as an opportunity. >> when you have a huge manager of any kind of assets with the most notable name in that particular asset class, you would like to plan a succession in a very ordinarily way. for example, mohamed el-erian was there, conceivably many people thought as a successor to pimco.

continues to have a large, well-known big following, on television a lot, in print a lot. then he leaves. >> right. if you ask the american people, name me the top five fixed income managers in the country, bill gross, el-erian, dunlap. there are a million stock guys. name me blackrock. >> there has to be a much larger market than the equity market. let's get back to that equity market. >> blackberry, when you take a look at it, what is the new iteration? what are they going to do? $5 billion market cap. they did a debt deal. they went from 85 million users

to 90. some say this is an opportunity to take them over. if they increase their users, they have a new phone the square. apparently, it doesn't bend. >> talking about bending phones, shares of apple are up about 1.3%. >> the nine people complained. the youtube video, they should do bend doesn't break. i would say this bends, but doesn't break. >> can't bend my 5, not a chance. it's titanium. actually, it's alcoa aluminum. actually, that's the back of your ipad. jobs loved the feel of aluminum. that's why alcoa is holding up.

people are getting excited. there is a rosh hashanah theme. liquidity wasn't there yesterday. i saw this happen in the mid '90s. we often saw the jewish holidays be when people came in and bang the market down. micron is showing up the bears today because it was a remarkable quarter. the conference call everyone expected nan to be bad. there is no bear case against nan. average selling price going higher. only 10% in the stock market. contracts are going higher. micron, this is no new supply coming on. bears are scrambling today. >> let's get over to bob pisani on the floor of what's moving. >> happy friday.

nice little bounceback in the markets. i want to show you the s&p futures. we had a little dip down. that was about the time the bill gross announcement came out. i don't believe that particularly moved the futures in the s&p. we moved back to the up side. one stock will be affected by bill gross is allianz. take a look at allianz. i'll show you what allianz is trading at in germany. now down about 7%. look at that to the down side here. what you want to watch today is high yield. you see they are down fractionally right now. it's been a rocky week for high yield in general. it's down almost 2%. that's a lot for a bond fund. it's been slowly moving down since tuesday. the only good news here is the

yield. the yield is approaching 6% on most of these funds. there is the cob volatility index. this is largely flat, at least for today. these funds, what i watch here is when this gets close to 20. it has been moving up this week. definitely bears some watching. when you get around 20 is when things start to get interesting. in asia. china closed up small. there's been a lot of debate how much stimulus to provide there. india, they got an upgrade. the s&p upgraded the outlook there for india. that closed on the upside. japan inflation numbers, they can't get inflation in japan. 1.1% was the cpi. the nikkei ended to the down side here. europe started flat. dipped about an hour ago. it started coming back. it's still in the red. most of europe is on the mixed side right now. as for the dollar, we are at another new high.

you see that going back to 2010. here in the united states, you mentioned nike. is this one of the great growth companies in the world? this is an historic high for nike. where else can you get a company so established that gets double-digit growth? we said before, some of these early companies, mobile and alibaba pay a lot of money because they get great growth. look at these stats here. sales up 14.5%? on a company like nike? that's amazing. it's not just we are growing like crazy in china. their three biggest markets, north america, europe and china, had double-digit revenue growth. that's why the stock is at an historic high. and they turned around and raised the guidance. they'll do $27 billion in revenues this year. finish line did not have a good earnings report. they blamed softness in their basketball offering, a huge part

of that. foot locker on the up side. under armor, a competitor doing well. would you agree, is this a world class company, nike? the innovation. they've got a lebron james shirshiroe, a new one. they keep innovating every quarter there is something new going on. just amazing. >> i couldn't agree more. one thing is how well they did it in western and central europe. these are places that are supposed to have fallen off the cliff. they delivered on every single line. gross margin was incredible. you're right. this is the great growth company that is often overlooked because it's not technology or biotech. >> it's been around for many, many years. we are not talking about mobile eye, alibaba or gopro.

it is extraordinarily rare to get double-digit, this kind of double-digit revenue growth and increase the earnings for a company that that's well established. it's the constant innovation that raises my eyebrow every time i look at the earnings report. >> one of the most exciting things, a secret moment where they talk about 3-d. 3-d has been a big winner to are them, online. you are right. this is the innovative company. under armour upgraded by deutsche bank. nike is world class. it's going to be wanted to be owned by every growth fund. we know it's doing well. we can't presume it's doing badly. >> you mentioned 3-d. they figured out a way, finally, to work on 3-d technology. labor, a major component. they are the leader in that part of know vague. >> thank you, bob. we've got a rare treat here. let's go to the bond pits. rick santelli knows his stuff.

>> there is such a mercinary aspect to trading. gdp matching the level we haven't seen since the end of 2011 at 4.6. should it be hard to extract what was moving the market? normally, i would say yes. hands down, there is no doubt that the notion of redemptions was rightly mercenary traders. the fact we are halfway back down on that spike leaves very little doubt as to what was motivating the sellers at this point.

market now with the central banks dealing with the same operating manual. everything is connected. boons did the same thing. so of course the spanish bonds. liquidity wasn't an issue. when interest rates move interest rate differential, the dollar spiked, as well. if you looked at the pound, it moved. the euro moved. the only two things that didn't move, and i find this funny, is jgbs and the dollar/yen have to correlation to that activity. this probably doesn't mean a lot near term but does open up questions. i was at meetings when mohamed el-erian left. there was a due diligence process that will have to begin. to think they are going to be trigger-happy is not a good idea. >> thanks very much. coming up, a lot more on bill

gross' departure from pimco for janus. >> john ford's includesive interview with john chen. ing fo? i have bayer aspirin. i'm not having a heart attack, it's my back. i mean bayer back & body. it works great for pain. bayer back & body provides effective relief for your tough pain. better? yeah...thanks for the tip! sometimes they just drop in. always obvious. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances.

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our lead story, bill gross, the bond king, a man over a 43-year career at pimco built that firm into the house of bonds with over $2 trillion in assets under management with what had been until recent years be a extraordinary track record in terms of investing in the fixed income markets. left the firm and is joining janus capital, a fund focused on equities, to help them launch what is a fledgling effort in fixed income. i do want to share with you some news from sources familiar with the situation. they tell me gross was going to be fired tomorrow by pimco.

the reason was what they cite as increasingly erratic behavior and a very difficult time in dealing with others in the office. and in fact, some ultimatums, other employees saying mr. gross goes on we go. i'm also told later today, pimco will have a detailed succession plan that it will make public about all the people who will be running the funds at the firm, of course. some of which were run, the total return fund most famously by mr. gross. 43 years, he walks out the door, joins janus. he was going to be fired tomorrow as a result of what sources say was, quote, increasingly erratic behavior, as you look at mr. gross there. >> they are killing some of these. there is no liquidity in junk bonds. pimco opportunity fund which is the pty under pressure at $17 is

still north of the $15.70 asset value. so there is an opportunity here in terms of the short sellers don't want to take that one down. that is too high. >> we reached out to mr. gross. we have yet to hear from him. certainly, we want his response to some of those charges being leveled by people familiar with what's going on at pimco. >> you say erratic, that is code word. who's going to do it? who's going to make it happen? discover a new energy source. turn ocean waves into power. design cars that capture their emissions. build bridges that fix themselves. get more clean water to everyone. who's going to take the leap? who's going to write the code? who's going to do it? engineers. that's who. that's what i want to do. be an engineer. join the scientists and engineers of exxonmobil in inspiring america's future engineers. energy lives here.

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it. >> people interested can read the latest article. this is what you're talking about. >> just go look at the article. when i did the piece, highlighting this, people told me i didn't know what i was talking about. it's jerry groupman. >> it's still very early. >> that's the thing. why would you do that? present it in november? why present stage one? you shouldn't do that yet unless it's big. >> let's get breaking news and go to rick santelli. >> the mid month look was 84.6. it is now the final september read. if it moved the needle 84.6. that isn't a bad level to put it in some form of historical context. the next best number if you were to comp it would be 85.1. that was july of last year.

that was the highest read since july '07. we are in the top several numbers on michigan. remember, it does tend to track the equity markets. they've been good outside of the last couple of sessions. back to you. >> what have we got on "mad money" tonight? >> this is it. what's the stock up the most today? >> janus. >> what is down the most? finish line. i've got finish line on tonight. i like the fact he is coming on. no ducking. >> it's something to be said when a ceo is willing to come on rain or shine. >> and when you have a dow jones stock with a short squeeze? there was so much money bet against this company. >> we did not get to a lot of other stories. there's always money. allergan will be going on monday.

>> the building down in texas, oklahoma and louisiana. take advantage of that thing. >> have a good weekend. >> you, too. >> i think we'll be e-mailing a lot. >> i think so. >> we'll have more on the big news of the day. bill gross leaving pimco, saying see you later, right before apparently he was going to be fired. goes to janus. it's progressive pain. first you have that, that feeling of numbness. then you get the hot pins. it got to the point where i felt like, almost like lightning bolts, hot strikes into my feet. the pain was, it was... i just couldn't handle it, so my doctor prescribed lyrica. the pain has been reduced and i feel better than i did before. [ male announcer ] it's known that diabetes damages nerves. lyrica is fda-approved to treat diabetic nerve pain. lyrica is not for everyone. it may cause serious allergic reactions or suicidal thoughts or actions.

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good morning. our road map starts with the markets after that huge sell-off yesterday. gdp revised upwards. big moves in the bond worlds. stocks are starting the session in the green. >> apple also back on offense. out with the software fix overnight. a bending demo for reporters. the stock is back in the green. >> nike shares soaring as the company reports a strong outlook for the rest of the year and earnings beat. >> back to our top story of the morning, of course. certainly probably of the day. bill gross, the renowned bond fund manager, the man who over a

43-year career built pimco into the nation's largest single home for bond funds and fixed income management. this morning announced he is leaving the firm effective immediately and joining janus capital to help that fund company, which has typically focused on the equity markets with what is a relatively fledgling effort in fixed income where it has roughly 12 billion in assets under management versus some $2.2 trillion at pimco. the new is royaling the fixed income markets, to a certain extent. taking certain closed end funds such as the one you're looking at there down. not down nearly as much as it was earlier. remember, you can't redeem a closed-end fund. you can redeem other funds. so there is a focus on some names and high yield and the like. just overall perhaps more caution in the fixed income markets begin this huge

departure. the question as to whether a lot of the money will follow mr. gross to janus. all that said, people close to pimco tell me that the firm was going to fire mr. gross tomorrow. and that he simply got ahead of that knowing that his time was up. he is leaving the firm without any severance. those sources citing the reason for his firing being because of what was cited as increasingly erratic behavior on his part, and real difficulty in his getting along with other members of the firm. in a press release from pimco, they say while they were grateful for everything bill contributed to building the firm and delivering value, over the course of this year, it became increasingly clear the leadership to the firm's leadership that bill and the firm's leadership have fundamental differences on how to take pimco forward. off the record, we are getting a bit more in the sense of increasingly erratic behavior. pimco is to roll out a detailed

succession plan later today. >> in a matter of hours. behind the high-profile nature of this people move, pimco has had 16 straight months of outflows in terms of funds. $25 billion just this year and some high-level names like fidelity in july began pulling their money out of pimco, as well. certainly under a lot of stress in terms of restoring investors' confidence. this is one of the firms total return bond fund that is the most widely held in american's retirement portfolios. >> without a doubt. many people may not realize they own it, but they do. i'm glad you pointed out. performance has been a key to this, as well. pimco, the people close to it would cite not just increasingly erratic behavior, but tie that -- again, these are their words. mr. gross has not responded to this. we tried to reach him. they would point to that and performance kayla cites. >> it may be a question of strategy. allianz made much of the fact

there are these six deputy chief investment officers they say are capable of countering him on the executive committee. dow jones reports because of clashes on that executive committee that ultimately he kept offering to resign. they would say actually this was one regulars fashion they were ready to accept. they put it in a different sense. it may be pimco will not be as bullish on bonds as it might be. >> i think it's much because of concern you are going to have a lot of money moving out of these funds as a result of mr. gross' departure. >> a lot of people were not pulling their money out because they had a relationship with bill gross or because they had had private meetings with him, but yet $25 billion year-to-date. that's roughly 10%. >> that was performance-related. total return fund trailing its benchmarks. >> how old is he, 70? he's worth $2.3 billion.

just buy a yacht. >> some people don't want to give it up. clearly, that's the case with mr. gross who will go on to try to create an empire, perhaps, in fixed income at janus. >> up next, let's turn to the markets. it's been a roller coaster ride for u.s. stocks during the course of the week. we lost heavily yesterday. still unable to regain the 50-day moving average on the s&p. let's get analysis on what is going on and bring in now daniel morris, global investment strategist and scott renn with wells fargo. welcome to the program. >> thank you. >> thanks, simon. >> we lost 264 points on heavy volume op the dow yesterday. what are you telling investors about what happened and what that now means for the future? >> well, i tell you. think of it. we are only 2% off the record high, basically. we've been looking for a pullback. we wanted our clients to have a plan. when we see some pullbacks

execute, now, this hasn't be be noise. we want investors to step in here. i think the next 12 to 24 months will be good for the market. we are telling them definitely on pullbacks, need to be in here buying stocks. >> what do you buy? >> the stocks we like are in sectors like industrials, technology. industrials have gotten hit. there is a big fear and much of the sell-off is related to uncertainty as to what global growth is going to be. in our minds, it's going to be okay. we want to buy industrials. we want them buying technology. we like the consumer discretionary sector. we've ridden that long and hard the last three, four years. hasn't done well this year. i think it has another leg up and better relative performance before it's all over. >> what do you think about where we are at the moment? we are trading on 18, 19 times

trailing earnings, according to birinyi. average would be 15 to 16. some say the market does look expensive here. >> that is not our view. valuations should be looked on expected earnings and look over a long enough time period to get a fair analysis. in our estimation, we are at the estimates back to 1995. especially when you take in account low inflation. we think multiples are just fine. >> there does seem to be an increasi increasi increasing divergence between high-yield and growth stocks favoring u.s. domestic stocks. where would you advise investors to stay out of and put their money in within the specific subsectors of the market? >> as we move to this post qe world, a lot of the trades that

have worked so far are probably not going to work quite so well. high dividend-yielding stocks have done well. that may not do well in the futures. people are starting to get some income out of fixed income assets. the other thing to keep in mind, when we do get these pullbacks, you might want to think more about international. obviously, emerging markets are going to face a bit of a challenge with the rising dollar. valuations look good. in europe, you are going to have more likely than not quantitative easing. that tends to be good for equities with liquidity and depreciation of the euro. it may be as much reallocation to the u.s. >> what about the rest of the landscape? how worried should people be? yesterday kayla mentioned the high-yield sector. outflows, $20 billion over the last few weeks. 8% of the market. the rumor is it was a hedge fund that had difficulty potentially from high yield yesterday that

was a full seller in the equity market. that's why we may have had the move we had. how worried are you with the shallowness of liquidity in other parts of the system now? >> i think this has been a very illiquid rally. in equities, i'm not aware as much in the bond market. certainly in equities it's been thin. high yield? fed president fisher pointed out issues there. that was another thing that contributed to yesterday's sell-off. certainly, investors in general are loaded up on things like high yield securities, high risk securities that can be very illiquid when everybody wants to get out at the same time. that is something you definitely have to think about. i personally don't think interest rates are going to move much higher. i don't think spreads are going to widen out dramatically. i don't think we are in any kind of a panic mode. that's one thing we want our

clients to not do. we don't want them to panic. we want them to adjust to maybe take a little risk off the table. be leaning more towards large cap u.s. stocks. don't panic here. we are 2% off the high in the s&p 500. >> guys, thank you for the advice. scott wren and daniel morris. >> thanks. meanwhile, apple is out with a new software fix. ios 8.0.2. responding to the controversy of the bending iphones. they gave nbc access to their testing facility last night. apple is pushing back. the first time they opened the doors to this facility since 2010? >> with antennagate they opened up to a few journalists to say here is how we test. this is interesting because apple did this this time a lot more quickly. if you're an investor, this is just what you want to see them do. this launch period, days after

they launched this phone is key for device sales. any single day of lost momentum is worth hundreds of millions of dollars of lost revenue, considering they are launching in most countries starting today. the key stat is the nine customer complaints they had on bent phones. that is staggering low. it's sure to go up. that gives a sense of the real scale of this problem, despite what people might be complaining on twitter. the next key moments are consumer reports test. they are a neutral third party, and how apple responds to the customers who do have problems. >> it's worth pointing out, as they made us film the video, that it doesn't bend the iphones. it presumably pummels them. >> they do actually put seated type pressure on a flat surface and curved surfaces to simulate sitting down on a couch. i asked them if they do sustained pressure for a period

of several hours, which is what some people claimed, what is sitting in a car for a long time and it bent. i didn't hear back from them on that question. >> they test for water resistance and several other things. for only nine people having had this issue, do you think this is going to end right here? >> we know apple heard officially at retail from nine people. there could be others who haven't noticed the bend, who didn't feel like going to the store because there was a huge line, i think that number will go up about you how dramatically is the question? >> do we know how many people have the ios problem? >> apple said 40,000 have the problem with 8.0.1. there's been no great outcry since 0.2 has been put out. probably they are doing well. >> what is the fix that's out now? that is not a full fix for the whole system. it's a temporary patch? >> no. it is a fix. what they did with 0.1, that was a problem for phones.

they pulled the update. they asked people to roll back to 8.0. now they've got 8.0.2 that restores some of the bug fixes that were supposed to be in 0.1, without the bad parts. and we move forward. >> i've done a great job keeping these straight. another company on your radar this morning is blackberry out with earnings. less of a loss than expected, narrower loss than expected. revenues did slow. what are you going to ask john chen later today? >> less revenue at $916 million. the street was looking for something over $950 million, i believe. a few things here. with revenue slowing, he managed to handle expenses well. at a certain point you wonder how much room is there left to cut, and can he grow the other areas of the business, mainly blackberry enterprise server 10 and 12, which saw nice growth in the quarter. he's launching best 12 in mid november.

can he grow those quickly enough to make up for the uncertain hardware revenues? >> all right. you'll be interviewing john chen later on in the show. >> that's right, "squawk alley." >> we are looking forward to it. even with the stock up 6% on the day's trade. let's go back to hq. >> here's some news with regard to the auto front. ford motor has issued a safety recall for certain 2013 and 2014 model year ford c-max, ford fusion and escape models as well as lincoln mkz in north america. recall is for around 850,050 vehicles. they say the recalls dur s are potential issues with restraint module. they are not aware of any accidents related to this recall.

dealers will replace t constraints recall module at no cost to the customer. if you own a 2013 or '14 model c-max, fusion, escape or lincoln mkz, you may have a safety issue that's being recalled for ford. 850,000 vehicles recalled for this alert. we'll bring you more updates as they become available. those are the headlines. back to you. >> thank you. up next, nike trading up after sales up double digits. what should you be doing with the stock? it's trading at an all-time high.

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a slam dunk quarter for nike. shares jumping more than 10%. stock opening at a new all-time high this morning after the

sports retailer blew past analyst estimates. let's bring in sam poser to talk more about the quarter. good morning. >> good morning. thanks for having me. >> it beat on all fronts. every sector except golf saw better growth than expected. what are your take-aways for the quarter? >> you just said it. the biggest surprise is how strong china was and the ongoing future orders from the u.s., north america as well as china. we really think it's because they are always dissatisfied. i spoke to you about that a couple of weeks ago. they are constantly pressing forward. we think they are continuing to do exceptionally well in all their markets. >> perhaps most surprising to me was the strength of western europe. the growth in western europe for nike was better than any other

region, even as other companies like adidas and other consumer companies are citing slowing growth there. what do you think nike is doing abroad that is working so well for the company in the face of competition? >> i think what they do better than anybody else, they get to know their customers and get on the ground. they have their marketing and brand people in the stores and market all the time. as they put it on the call, they'll merchandise or market to an individual city, and in some areas to individual retailers to make it work well. it is clearly working for them. that's true globally. >> how well do you think the company managed its currency risk? that was one of the big questions going into this quarter with the euro down 7% and yen down 6% in just the last three months. what do you see as any potential risk for nike going forward given the volatility we've seen

in the currency space? >> they are good hedging it. it's hard to model that. they said the reported revenue for the balance of the year would be between 100 and 200 basis points below currency neutral begin that volatility. they are pretty good managing that. we are modeling in the middle of all of that right now. >> sam, a lot of athletes have been in the news lately and not for good reasons. many of them formerly nike sponsored them. the company said it would experience costs associated with cancelling some of those contracts. what do you see as long-term costs to the company, if anything, because of those situations? >> i think as long as they act quickly, i think there's no real long-term cost because they han offset it with so much.

and as long as they've acted quickly and distanced themselves from those people, i think it's fine. as far as dollar costs, they are going to spend $3.5 billion in marketing this year and demand creation. just to put that in perspective, that's about $500 million more than under armour will do in revenue. a lot of those numbers could get -- they have a lot of flexibility within those expenses to manage it well. >> your price target is $95. today the stock is at $88. that is at or near an all-time high for nike. how soon do you think they get to $95? >> it's all based on what we hear from other retailers and so on. i think the stock is going to continue to work its way up. i think the momentum is going to

continue through 2016 when we get to the olympics down in brazil. after that, i'm going to see how they, what their curtain call for that is. i think they are work well to that. >> for a stock that's been rangebound year-to-date, a stunning move just today after those earnings. thanks for your time. >> my pleasure. have a great day. >> up next on the program, a legend. the founder of the vanguard group, the man credited with the invention of the index fund john vogel will join us live. >> plus million dollar homes is back.

hi, are we still on for tomorrow? tomorrow. quick look at the weather. nice day, beautiful tomorrow. tomorrow is full of promise.

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million homes. you are going to determine which is the best bang for your buck logging on to cnbc.com/vote to cast your pick. the winner moves on and loser gets eliminated. it is brutal. remember, the locations are not revealed until after we get the look. >> this contemporary 1 1/2 story home stretches over nearly six gorgeous country acres. there's lots of outdoor space for entertaining. even a three-bedroom guest cottage. the main house is 250 -- 5200 square feet. a home gym, game room and spacious floor plan that includes five bedrooms and 4 1/2 baths. and get this, there are two master suites. the expansive deck overlooks the pool and all features spectacular valley views. the price, $1.1 million.

>> it's the perfect mix of country living and rustic luxury. located just ten minutes away from two sprawling college campuses this 1 acre property features a 5,000 square foot patio that's built for entertaining. this kitchen is for serious chefs. is used by one of the top culinary programs in america as a test lab. subzero and viking appliances with italian tile floors are among the many features with 8,000 square feet of living space. you'll be hard pressed to find a master bedroom because there are six distinct master suites with their own bath. if it sounds like a hotel, you would be correct. this is rated as one by trip advisor. you'll never feel cooped up with four separate buildings to choose from. how about a meditation room painted by tibetan months and a safe room. >> voting is under way. it's up to you to select the winner. go to cnbc.com/vote to crown one

of those two reporters. brian sullivan or don chew. let's bring in dolly, super broker to the rich. we know brian went to virginia tech so his home is obviously in virginia. that was the country retreat. don chew in the red trousers -- >> the preppie pants. >> that also might be a clue. >> very preppie. ivy league preppie. >> and red. >> david faber, do you have an idea? >> i don't know why you would connect me to the ivy league. i appreciate that. >> preppie really. i'll take you out of your misery. it is ithaca. he went to cornell. >> hence the hotel and restaurant testing. >> amazing. both homes are fabulous. in their own right, they are both very interesting and fabulous. the question becomes, where can you make any money, right? at the end of the day if this is bang for your buck, not just

pictures, bang for your buck has to go with dom. that runs $8,000 a month. it has all kinds of stories attached to it, the tibetan monk story. >> did they go there? >> yes, they built it. people go there just to be relaxed. >> who needs six separate master suites unless you are going to make it onto a bed and breakfast. >> exactly. they rent it and get $8,000 a month. plus they rent it to use the test kitchen. on sully, never has anything sold in that area over $1 million yet. it's not going to be the first. >> it's not us deciding. >> people at home -- and according to the brokers, think about this, i asked what's the rental market for that home since i know the 8,000 on the other. they said there is no rental market nobody would rent this. great exit strategies here. even though it's a great house, fabulous picture? >> taxes must be different.

>> $6,500 on sully's, $20,000 on the other. >> you are moving the vote here. people were in favor of sullivan's country lodge. as you now said, it's dom chew's rustic version. >> it's dollars. this is cnbc, first in business worldwide. dollars. >> thank you. >> i must show you this picture -- is that brian when he was at college? >> brian as a hokey. >> we've got a picture of dom. >> look at that hair on the back of dom. >> i'm getting e-mails asking me if that is a donald trump do-over. >> dom chu's residence has won because we are -- >> cnbc. >> first in business worldwide.

see the next round unfold on "squawk on the street." i don't know where the next round is but coming soon on cnbc. >> "power lunch" maybe? >> yes, "power lunch." >> thank you. great to see you always. >> this is such a fun series we do. it's fun to do these and meet the homeowners and go to a different part of the country. >> yeah. it is great. >> thanks, dolly. >> thank you. >> back to our main story of the morning. bill gross' unexpected departure from the firm he founded to janus capital. let's bring in john vogel the founder of vanguard. get his insight and take on what is big news in the world of fixed income. what's your first reaction to this? >> well, i don't shock easily, but what is surely shocked when i heard that soon as i got in the office about 8:30 this morning. i think it's too bad. it's too bad for pimco. i'm not sure how great an opportunity it is for van yus.

janus. it's easier for bill to run the small amounts of money than the billions he ran out of pimco. he is a true giant in the industry. he is a true legend. he earned all that. there aren't so many people in my field that measure up to that test. bill would be right at the top of that list. you can see all the politics that came into being involved in the management of pimco. i can see the s.e.c. challenging and pricing of some of his bonds. all those little knits drove him up the wall and he said, who needs this? i can't read his mind, but if he wasn't thinking that way, i would be a little surprised. >> what is your sense what will happen with investors who are obviously at pimco? the market is sort of focusing on will there be redemptions? i should tell you, of course, the number of sources say he was about to be fired from the firm. they cite what they call erratic

behavior of late from the 70-year-old mr. gross who is a multibillionaire. what's pimco got to do to keep that money, jack? >> first of all, bill is a young man. he's 14 years younger than i am. we do get a little erratic. he is very strong-minded. he is very self-confident. to make matters worse, he is usually right. that drives your adversaries nuts. i think to take your money out of pimco, a giant fund, do it for other reasons than bill isn't there. when you get that size assets, they will have a good professional staff. it's always going to be hard for them to beat the bond market in total. they did so in the last couple of years, but not this year. those things happen to any manager at any time. i think for there to be droves of redemptions, investors ought to sit back, think a little bit, take a couple of weeks to think about what they want to do and

where they can find a better alternative. the idea running out the door today is completely anatheman to me. >> they put in the six deputy advisors saying they are there to check what bill is doing, support bill in many respects. do you think allianz has done bill gross a disservice here in many evanses? >> i'm sure they are stunned. i never heard this rumor they might fire him. how do you fire bill gross? i wouldn't dare do it no matter who i was and how much power i have. he's the real thing in an industry based on illusion, largely on illusion. it's obviously not good for pimco's business. i doubt it will be all that harmful. i could be wrong there. investors in a big diversified

generally high-grade bond fund, it's not clear they have 1,000 options that are any better. >> jack from a macroperspective, pimco seemed to be in the right place at the right time. they rode the wave of an incredible multidecade bond rally. do you think that bond rally at some point in the near future just ends? >> well, you're talking about the interest rates going, they are going to turn around and go up eventually. of course they are. in that sense, that long rally is over, clearly. interest rates could always go down a little more. nobody expects that. maybe that's what will happen. i think in the context of should you hold bonds, the answer is any investor should have that anchor, that dry powder to protect them against panic in the stock market. makes it a little easier if you've got that little cushion. however the bond market, i tell people to be pretty wary, and

i'm not much of a market speculator. i don't do any myself. to be wary of long-term bonds and compose a portfolio manly of limited term bonds and intermediate term bonds so you don't get hurt when the interest rate, turn in interest rate upwards comes, as it will. >> mr. bogle, where do you see the equity market is going? we had a tough day down here yesterday. we are up 72 points. bit of a rebound on the dow. is the bill market in equities here to stay, do you think? >> obviously, i mean the market's up something like 150% from its low and probably 35% or 40% from its previous high back in 2007. earnings kept pace with that 35% increase. maybe done better. i couldn't see horrendous exposure in the stock market. i certainly don't think that this is a time, my own view and people can accept it or reject

it, this is a time to try to get out just as the news gets, not the news, but speculators lose faith in the ability of the market to continue to go up. i do think we will be looking ahead, and i don't look ahead to tomorrow, i look ahead ten years. market returns over the last ten years, stock market returns, will probably be a couple of percentage points below the long-term norm of 9%. maybe 7%. that's not going to come all at once. there will be big ups and downs. be prepared for lower returns than history told you about. >> you pioneered indexing and a middle of the road passage strategy rather than aggressive, erratic strategies, as you might call them. before we let you go, we are going to be discussing next the fact calpers decided it is no longer going to put $4.5 billion in hedge funds. what do you think of that

decision? >> i think it was inevitable. they had a tiny position, maybe 1% of their portfolio in hedge funds they probably weren't doing very well. that wasn't disclosed and should be. everything should be disclosed. they weren't shooting the lights out. it really didn't, you've got to do a lot of analytical work, coverage and stay up-to-date with what they are doing, the hedge funds you have in your portfolio. when you think about it that way, is it worth the cost no matter how well or how ill those hedge fund portfolio does, it's not going to change your total return very much. 1% can only do so much. i think they made an intelligent business decision and intelligent investment decision. >> jack bogle, 84 years young, thanks for joining us. appreciate it. >> my pleasure. when we come back, of course bill gross' departure, watershed moment for bond funds. why we may be seeing a watershed moment for hedge funds, as well.

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roller coaster ride of stock-moving news continues

today, as you see the markets are up after yesterday's huge sell-off. we are stabilizing this morning. gdp revised upwards 4.6%. big moves in the bond world is what we've been following this morning. the plot is thickening. the man who built pimco into one of the world's largest money managers, bill gross says, see you later. goes to janus capital a day before what i'm hearing and others are reporting, as well, he was going to be fired for what sources cite as increasingly erratic behavior. joining us now, pulitzer prize-winning columnist and cnbc contributor jim stewart who never behaved erratically. we haven't heard from mr. gross who is typically quite willing to speak and to respond, in fairness, to these charges that others are laying out there of his behavior. stunning, nonetheless, that he would leave.

>> i'm really shocked. he is a legend in investing, a legend in fixed income, synonymous with pimco. he's always been my first sort of go-to guy when i wanted to understand fixed income and the bonds markets. i do an end of the year column with pred predictions. the reason i go, he's pretty much been right. whatever these erratic things might be, he really was an incredible expert with deep, deep knowledge of income markets. >> known as the bond king. as kayla pointed out, his performance of late has not been strong. >> as well there's been talk of some investigations into accounting practices, valuation practices. there definitely has been this cloud of some troubles stuff emerging on that total return

fund, but nothing definitive at all. he has always been a very colorful guy. again, another reason i would go to him. he always had something interesting to say. if you read his monthly letters, which i always did, they're almost as widely read as warren buffett's annual letters to shareholders. he has a huge following. they are pretty colorful by money manager standards. they are out there. >> whether it's talking about his cat who died not that long ago or any number of things. very colorful. >> the line between colorful and erratic can be a pretty thin line. we'll have to wait and see. >> we should mention the el-erian situation. he ended up leaving the fund, was supposed to be the successor to him. there's been a lot of bad blood. bill gross replied that out on television, in fairness, in a trillion dollar plus fund owned by allianz.

that's not how the game is played. that's not what the germans in munich expect, frankly. >> not what investors expect. bill gross got away with this because the performance spoke for itself. this is not the preferred style for people who have been entrusted with this much money to manage. >> we asked jack bogle if he felt the run for bonds was over. he said no, but admitted pimco was in the right place at the right time. we have seen a couple of calls in the treasury market bill gross made saying to short treasuries or go long treasuries at what would seem like exactly the wrong time. how much do you think that the performance of some of those certain very public calls played into this, as well? >> i think we have to see exactly what he was doing with that fund as opposed to what he was saying. i think the returns there have not been as good lately. he clearly admitted he had made some mistakes recently. i still think if you look at

longer term, putting aside short term market timing things, which is incredibly difficult for anyone to do, longer term, he's had a good understanding and quite a good track record. >> all those major houses got it wrong. >> don't tell jeff gunlack. >> we should mention the column you have the weekend. calpers saying to ditch the hedge funds. judge, this is a watershed moment. i was stunned to see hedge funds have close to $3 trillion under management. that's bigger than the global money market assets under management. that is huge. in my experience, there is no question when it's that big, returns are going to reduce to an average. that average has been pretty disappointing president then the big issue for calpers and most people in hedge funds is, number one fees, number two fees, number three fees. >> they are from the public

sector and those pensions from the public sector, those teachers will be saying, how can you be supporting this hedge fund manager or this piece of art at this price. >> what calpers people told me to make a difference, they would have to scale up to about $40 billion in hedge funds. with their reduced fees, that's $1.5 billion in fees a year. how do you explain that to retired municipal and state employees? >> do you think the 2/20 model is in danger? >> absolutely it's in danger. my question is why did it take long? you're seeing erosion of the 2/20. we have the so-called liquid alternatives, mutual funds, exchange traded funds offering the strategy of the hedge funds at a mutual fund. >> you're hoping it hasn't. i watched this industry grow and grow. i remember when it was 1/15 and went up to 2/20.

>> is it wishful because you watch these guys get rich? >> let me make clear, if somebody can deliver net of fee, fabulous returns, they deserve every penny they get. i'm criticizing the people producing mediocre returns year over year and hauling in 2% or 3%. >> the job is to protect capital irrespective of what the market does. it's difficult for them to make gains. >> they actually suffer losses anyway. hedges are not there to the extent we think they are. then they have pedestrian returns in bull markets. >> in fairness, they say give us another bad year, not a catastrophic year. >> you need to short and everybody will go back into hedge funds. >> what the bogles and vanguards argue, for much cheaper you can do it with fixed income bonds. that will serve the same in a portfolio. yeah, i'm a skeptic. >> jim, thank you. >> good to see you.

let's go to rick santelli in chicago for the "santelli exchange." >> good morning, simon. one of the hottest topics is will the federal reserve end 0 rate policy and one school of thought is that they may not or they may be slower at it than many think because there is no feedback loop right now that they necessarily should stop what they are doing. meaning inflation expectations. big discussion. welcome my special guest mike memb mebbs. you are an m follower. throughout the m ones two and threes because things that act at money as easily identified and tracked anymore. but you have come up with ways and what trends do you see in the ms that we need to be aware of. >> i think the big thing is that they are flat. they haven't been growing for

almost four years and last six months the fed just released had data on it. hundred billion. they should have grown 400 billion. >> you call all the ms, money stock. >> right. >> where is the deficiency. how much lower is it you envision it ought to be? >> historically in the past fifty years the money stock or the m one two and three have grown at 7 and a half percent. this year they grew at 1 and a half percent. we are almost $3 trillion short. >> stop. there is something magic about 3 trillion. mike, what is it exactly aim trying to think that's roughly 3 trillion. >> all of the quantitative easing on the purchases. >> so the excess reserves. >> yes. >> so let me see if we are really on the same page. you think if all of that was actually in the system, the behavior of the economy would be better. >> behavior of the economy would at least be well above average

right now. >> so let's not get in the discussion of what would that be used for. let's stick with the discussion. do you also believe that hidden with those excess reserves is a lack of velocity and inflation signals? >> absolutely. the lack of velocity, you can trace this all the way as the fed does to the average consumer checking account deposit. normally it is about $2,000. it is almost 6,000 now. we have never seen the consumer at that level in their checking accounts since world war ii. so what does that do? the fed is sitting on 3 trillion of extra money. and if they release it, that is where the inflation could come. they have got to release it very carefully. >> so to the way we came into this discussion, mike, all things being equal, is the strategy working that the fed should keep going until they get a feedback negative signal regarding inflation if the

excess reserve problem doesn't seem to be wanting to clear up? it seems like the strategy is flawed. >> it is very flawed. and some of the things that you and i have discussed a number of times in re poes and euro dollars. >> which disguise themselves as money. >> exactly. but the thing is if you take the 3 trillion they have, you add it to the monetary stock, the ms, we're at where we are supposed to be. the problem is that almost all of that money, 2.5 trillion the banks and credit unions have taken and reinvested back in the fed. >> there you go. we're going to have to stop there. i know everybody is going to keep talking about this to a yaeter extent. >> it will get bumpy. thank you. still ahead, john chen will join sidewalk alley for an exclusive interview following its

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control facility. flight aware says cancellations are now nearing 1,000. and are expected to keep growing causing the inevitable ripple effects around the country. the fire in the basement of the chicago air route traffic control center, which is about 40 miles from downtown chicago was apparently intentionally set by a contract employee, according to police. a man with self inflicted wounds was found in the basement and taken to hospital. cnbc will be right back. when fixed income experts work with equity experts who work with regional experts that's when expertise happens. mfs. because there is no expertise without collaboration. [ female announcer ] we love our smartphones. and now telcos using hp big data solutions are feeling the love, too. by offering things like on-the-spot data upgrades -- an idea that reduced overcharge complaints by 98%.

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good morning, it is 11:00 a.m. at blackberry headquarters in waterloo ontario. squawk alley is live.