should not be part of your portfolio. >> well, it's been a pleasure having you here today. >> great to be here. thank you. >> and kelly, evans, thank you for being here. >> thank you very having me. make sure you join us tomorrow. "squawk on the street" begins right now. ♪ >> welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. the selling continues as china devalues for a second day as it announces even more economic data. futures are lower but not quite as weak as earlier this morning. the dax down 2%. 5% for the week. ten-year down to 2.11% as expectations for a september hike are fading fast. oil is bucking the trend despite the iea calling for a supply glut through 2016.

alibaba sliding as growth slows to a three of year low. >> macy's volatile ahead of the estimates. we'll have comments from the ceo who was on "squawk box." that's coming up with us. >> and getting ahead of cisco ease first report. first up, futures are down following tuesday's sell off off the lows of the morning. china devaluing the yuan. according to reports china intervened in the final minutes of trading. we got to some interesting levels. fits in with what you've been saying for a long time, jim. these guys know what they're doing and they're doing it systematically. >> they have to. they're an export nation. when they came out -- it's interesting what happened. when they came out, it was like it broke up the chatter even at the club. that's how important this was. people weren't necessarily all

financial guys. then monday is nobody is paying attention? they have to cut. i was waiting for germany to be able to fall. they sell bmw, mercedes. this is a big market. i was shocked. and the germans are still fooling around with greece. this is a delayed reaction there. we're going to have a second day because, i mean, they devalue again. you have to be careful. the second day you start thinking about companies in america that aren't impacted. midday you see general mills be impacted. . >> does it make you think some things are worse than we know? >> the idea that they were a totalitarian country with an economy that was a command economy, what are they commanding? i think that stock market, it's still kind of bothering people that they were trying to prop it occupy because it's so anti-capitalist. they still have a trillion

dollars in treasuries. >> yes, they do. >> we all thought they were going to do infrastructure, fix the roads. their sewage system is very old. >> but they have a lot in infrastructure. if they come here, they laugh because we're laughable when it comes to that. >> they can laugh all the way to the great wall. that country is in a little disarray right now. i do think this is going to help them at the expense of everyone else. japan took it down 30%. they took the yen down 30 %. it helps because it hurts us and we sit there and take it. yesterday secretary kerri came out and said if we don't do the iranian deal, it'll hurt the dollar. >> isn't that good? speaking of china, let's get to alibaba, one of the most important companies, shares are down this morning. this after the company reported what is kind of a mixed second quarter. growth was at its slowest in three years.

they also announced a share buyback. joining us, the ceo of alibaba. we always appreciate their willingness to come on with us. daniel, let me start off with the macro environment which seems to be pressuring your stock price this morning. what are you seeing on the ground in china in terms of the willingness of the chinese consumer to spend money. is there a dim you in addition? >> actually, we do like all other companies do, and we closely monitor the chinese economy and the consumer behaviors. and as we reported this quarter, we have active buyers of 360 million, and when we further analyzed the consumer's behavior, we observed that people, averagely speaking, buy

more than 50 times a year on a platform. basically, what they buy covers a large variety of things, and they buy all these things for their daily lyes and most importantly, they come to our platform not necessarily for the specific purpose but more like a lifestyle. so our company has very clear long term growth strategy, and we believe the short term movement won't affect your long term strategy. >> and to those who look at the devaluation of the chinese currency over the last couple of days and says it makes goods more expensive for customers of yours on t mall. is that going to be the case and do you believe that will have negative consequences for your ability to grow sales? >> as i said before, we are confident for long-term growth, but at the same time we'll

closely monitor the consumer behavior and chinese economy as a whole. >> well, the gmv was below some estimates of the analysts who follow you, the many analysts. some are wondering whether that was due to your continued crack down on counterfeit goods. is that the case? >> actually, we reported a strong gross, and our gme gross was 30% year over year. if we dr off the suspension of the lottery sales, our gme would have grown by 36%. on the other hand, we continue our ongoing attack on counterfeit. we believe this is for the long term of our long term benefit of our consumers. and we want to build up a continued gross and to maintain

high quality marketplaces. >> there is always an interest among your investors in your so-called take rate. as the business migrates more and more to mobile, can you tell us at least what your expectations are in terms of the take rate on mobile and what that will mean overall? >> for this quarter, we are observed an increasing rate to mobile. we made progress in the mobile transition. in this indicator yarquarter wer retail marketplace was from mobile and the 51% of revenue are from mobile. so -- but today if you look at the take rate on mobile side, we have made very big progress in

the mobile tech rate but it has a cap. but we are confident that mobile tech rate will continue to grow. i was not surprised at the end of the mobile tech rate came close to pc tech rate. >> okay. >> we're keeping track of the various economic numbers that have been amiss this week that have not been as big as expected. exports, auto sales, retail sales now. industrial production and fixed asset investment. are you arguing that you're not seeing any of that weakness reflected in your business? >> as i said before, we closely monitor the chinese economy and the impact on our chinese consumer's behavior, but what we observed, consumers are still coming to our retail platforms to do their shopping because of the lifestyle change. so we are confident for our

long-term growth. >> there's a growing concern that perhaps the chinese communist party has lost a bit of control over its own economy. i know it's difficult to assess what the party has going and what it doesn't. but when you see devaluation and propping up of the stock market, we begin to worry the government may not have as close a handle on the chinese economy. you're very heavily levered to the chinese economy. are you concerned things are in a little more disarray than we think? >> well, we have a very clear strategy for the long-term growth, and we try to keep the creative value for our customers and merchants and to build up a robust eco system, and we believe this certain movement in the stock market and in the currency market won't affect our

long-term strategy. >> daniel, the stock price today is going to hit its lowest level since it went public right here at the new york stock exchange. is that upsetting to you? >> as we always said, we don't manage our business by share price, and we manage our business for the long-term, and we are confident for the lon long-term growth. >> you announced a deal earlier this week, one of the larger retailers, sort of the best buy, to put in perspective for u.s. viewers, buying 9% and it turns around and buying a small percentage of alibaba as well. you have a sharing agreement. why did you do that deal? >> the deal marks our commitment to chinese strategy. together with them, we want to

render our consumers an integrated online offline experiences, and after this investment, that company will first open their store in our retail platforms, and they have very good expertise in consumer electronics and home appliance. and they will bring a lot of selections to our retail platforms. i think our consumers will benefit from this. on the other hand, over years, they built up an expensive network. now they will open their network to our her chanmerchants, and w work with them to get services, including two-hour fast deliveries to the consumers in a lot of cities. and they have over 5,000 after sales, a service station all over the country. and what we want to do is to

share this capability in the service stations that consumers in t ma-mall, they can enjoy th sales in the service stations on the ground. having said that, we can do a lot to lempverage the expertisef each other. >> daniel, i've spoken to a couple of your investors this morning. some raising a question as to why you instituted a $4 billion share buyback. it's not something we see that often for a growth company like yours. why do a share buyback? >> the share buyback program is for the purpose of anti-delusion. for example, for an incentive program. >> okay. and finally, mr. evans, michael evans, announced as part of a global initiative that you have

to, well, continue to try and move across other borders, what exactly is his responsibility at the company and what are your ambitions when it comes to your business outside of china? >> well, michael evans as a proven leader with extensive international experience. it marks our commitment to the global strategy, which is the most important strategy in the coming decades. as president of alibaba group, he'll lead the execution of international strategy. and also help alibaba to expand their business outside china. >> daniel, we have to leave it there. we always appreciate your willing toness to come on. dani

daniel zhang is the ceo of alibaba. >> it's hard to now how much is on message and how much is lost in translation. he's not talking his native language. >> he's not, although he's a good english speaker. >> when terri comes on and says my sales are disappointing, it's more straightforward. i heard long-term. >> that's what they want us to focus on. the stock is going to hit a new low today since the ipo as a result, i would argue more because of the macro than a micro. you can look at the take that didn't hit the estimates. the business is moving to mobile, over 50% now, but it is the great pure play on consumer demand in china and if you start to question that -- >> yeah, and i think that the idea that -- see, i think no one wants to come on and just say all is not well in china. >> right. >> and yet, all is not well in

china. it's great. he said stock market short term, don't worry about it. the long-term is very much in the case. but the destruction in wealth here is extraordinary. >> a lot of viewers frustrated at the interview saying should have gotten ma. nothing more than i knew ten minutes ago. >> jack ma when i sit with him is more open than virtually any ceo or chairman i've ever interviewed. >> tell me. >> you know that's true. you've seen the interviews. you can talk to him about the mood and how he's feeling. that was not the case. >> no. it was a press release in the form of an interview. it was better than nixon. >> it was fascinating to watch, if nothing else. >> operation total victory in vietnam. that's it. >> when we come back, macy's posting an earnings miss and a cut to guidance. terri lund grun calling that a

close quarter. and take another look at the futures. this would be a third day, today, maybe, of a 2 00-point move on the dow. number of times we've done that since the crisis? zero. more "squawk on the street" in a minute.

>> macy's missing on earnings and revenue comps down 2.1. the department store lowering their guidance. the ceo earlier this morning on "squawk box," here. >> it's a tough one. there's no question about it. we're seeing that the consumer didn't shop in our categories to the degree that we thought the consumer would. there are a number of reasons. we're against our best quarter last year. the european chinese tourist, the brazilian tourists around the world, they're just not coming to the country, and when they're here, they're not spending in our category. >> the third miss in five quarters. the largest. even though they guide lower on comps, they're affirming on the fear. >> terry lundgren is the polar opposite of daniel zhang. his critical of his own

merchandise. and this harold square, some people think it's one fifth or one sixth of their sales. we know tourists aren't staying away but they've been hurt very much by the strong dollar. i also felt referencing david of the starboard interview we did at delivering alpha, he's not embracing for rejecting the idea of monetizing the sale of real estate of vacant real estate that didn't matter in brooklyn. >> they did, and they will help the stock price this morning. they indicated they have retained specialized real estate advisers to study their portfolio and find out where further opportunities exist. it's not as though they're going to say we're going down that road but they're not saying no. they're saying we're going to look at it and they may attack advantage in certain instances. do i think they're going to turn around and sell harold square or

anything else of that nature? no. and we should point out after that runup after delivering alpha an mr. smith's comments and analysis, the stock is lower, i think than when it began. once again, we're not delivering that alpha anymore. >> it was $67.50. went up to $72.50. now it's back to slightly below where it was for delivering alpha. it's important to recognize that the kinds of things they're selling, let's say it's perfume. that's the biggest gross margin. they're not selling that. and then we'll talk about way fair. they buy it through the letter w, not the letter m. >> when we come back, we'll get to cramer. more "squawk on the street" from the nyse is straight ahead.

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man, we have so many things to cover. we have a mad dash for this hump day. >> there's so many ways to spin retail. zhang could have told a story that things were good. terry lundgren talks about how it's disappointing. fossil looks fabulous but it's not fabulous. and a lot of this is because they have multiple overhangs. a lot of different lines not selling but they were the first people who addressed the idea that the apple entry has disrupted the watch business which is fossil. this is very big. people have basically said listen, the watch isn't doing well for apple. if it's not doing well, why is it being referenced by one of

the largest watch sellers in the world. i know everyone has decided that apple is now just dead as a door nail, like a fish that you bring in and hit it over the head and it's floching arouapping aroundt stops. but this is a reminder that you may count the watch out but fossil doesn't. >> so it's fossil nokia? remember, nokia during the early days of the iphone was like, what, us, worry? >> fossil addresses it directly. you're right. i was thinking about nokia. i was thinking about steve balmer and that great buy. >> that was one of the great purchases. >> put that in with snapple and aol, nokia buy. they had to write off more than they paid. >> almost. we haven't gtotten started on "squawk on the street." we're going to talk oil and gas and we're going to visit a lot of names that are down. some pain out there. we're back after this.

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you're watching "squawk on the street" live from the financial capital of the world. the opening bell in about a minute on another day where the selling will continue in stocks. the devaluation continues in china. the gold is catching a bit. oil, actually, jim, despite the worries about a supply glut continuing into next year. >> the big report, the iea said negative things. i usually hate the set up these days. the dollar is strong versus the euro. oil is not getting killed. i'm not going to say i love the market. we just had an interview with macy's, one of the largest retailers in china. it's not bullish. not everything is wrong today. not everything is wrong. that's important. >> we have the greece deal done. is that the bright side? >> well, i think that germany, to get them to stop trying to

kill the euro, which is what they've been doing, is a major win for the united states. and the rates are down again. so i like that general mills -- i'm a buyer of general mills. they've taken out the artificial flavors. tricks are trix are no longer for kids in i think general mills rallies today. down $0.43 on the buyer. >> there's the s&p and the opening bell at the big board, it's fis, a banking and finance company. we're going to talk to the ceo later on in squawk alley. over at the nasdaq, concordia health care doing the honors as well. europe, there's a lot of talk about what this means to the u.s. china exports 1 % of economic growth but for the dax and the kak, now 5% in two days.

>> that makes sense to me. they've been the guys who really took advantage of china's luxury market. and their business hasn't been on fire, and germany's been a great place to invest. and i'm now saying to myself, you know what? why have we been hit harder than them and now that's not the case. this market is making some sense to me. remember apple, yes. i mentioned apple watch. but apple has a lot of exposure. remember 18 months ago they were saying to tim cook, why aren't you bigger than apple, and then he answers it. i do think that not everything is as bad here as it is there, provided that stanley fish who are understood the contagion in malaysia and korea 1977 and 199 stands up in ses you know what, this contagion must be stopped. we're not going to raise rates. and then you have a rally. and oil, let's watch inventories. you see a draw down in refining

and crude. >> right. >> by the way, natural gas, how about that being up 3% while oil is down 30%. >> although, that hasn't stopped the slaughter in a lot of the oil and gas names. >> i mention it because the pipeline natural gas business is doing better than the pipeline crude business. >> understood but when you take a look at, for example, chesapeake -- >> yeah. >> and by the way, we can show you some of the equity but the real story in energy is in the high yield market where spreads have been just blowing out and where there's now a question again being revisited. we talked about at the beginning of the year -- and late last year when it began that slide, which is who are the survivors? what gets really stressed here? we talked about private equity portfolios, sampleson energy, a huge deal down. an american energy partner with

billions raised there in the debt market but no equity. this is a big story that i think bears revisiting yet again. >> this time, actually, it does. the first time it was a t bhe b who cried wolf. oil went to 60, and some sold when they could. it didn't develop into a dire situation. >> now it is, isn't it? >> it kind of feels like it. energy is a huge part of the high-yield market, although lesser as a dollar amount because the value of the bonds has come down so much. you look at chk or iet, like a look at intercon. he owns a lot of chesapeake. >> he's going to be the chief negotiate or the with china according to trump. >> he is? >> yeah. that's one clip i've seen. if we're not focussed on the smaller oils, i see, sanchez,

stevens comes out and says -- i'm not just mentioning him because i'm thinking about geno smith. i'm saying this is the kind of company i'm concerned about. they spent a lot of money at a high price. >> fcx, i haven't looked. it was down 12% yesterday. how much more could it be down? it's a $10-stock. >> some of the others not doing too bad. >> and a reverse yesterday. l, i think it's cheep to sell at $51. i see things, that's why i say, i don't want to be as negative. i want to see the inventory numbers. the inventory numbers have impacted oil. >> we'll get those later today. you got to fossil at the board. the second worse performer is yahoo who had a chance to sell

alibaba. they didn't want to because of taxes and since then it's down 40 %. >> i think that would have covered their taxes and then some. >> never be afraid to pay the tax man when you have a gain. >> yeah. they are going through a lengthy process of putting it in a separate company that will represent that roughly percentage of alibaba. alibaba is down 7.5%. they're down since they went public in september. >> that day many people are going to look back and see of the peak in the power of the china story. even though it peaked much earlier. this is the alibaba was the tipping point, so to speak. >> we did ask the ceo of alibaba a number of times earlier this morning about the health of the chinese economy and the chinese consumer. here's what he had to say. >> we observed that people, they

buy more than 50 times a year on a platform. basically what they buy covers a large variety of product assortme assortment. and they come to our platform not necessarily for the specific shopping purpose but more like a lifestyle. so our economy has clear long-term growth strategy and we we've the short-term movement won't affect our long-term strategy. >> we don't want to be too critical in the sense that china was a great growth market. it could come back. it's just that i keep thinking about the people who bought the stock at singles day. and they have double digit losses if they bought on singles day. >> they have an enormous amount of shares that come out under the lockup. many of those are not expected to be sellers. yahoo, we know what they're

doing with their stock, but at least it's worth watching. on the call, i think they said jack ma is not going to be a seller at all exemcept for tiny amounts for his charity. >> what do you think about mobile? i would have talked that up a little more. >> yeah. >> that's important. i don't feel like -- i don't want to justify buying the stock. i'm not doing that. it's just that there were positives that were -- that should have been stressed more than the long term, but i think everyone is trying to catch their breath about what's going on in china. >> macy's is on the call. the cfo saying bloomingdale's also had a disappointing quarter. the pressure is on tomorrow for the states. >> if you're the fed, you're trying to say other than raw stores, the only retailer hit for the 52-week high, now you're

kind of stunned. way fair up today. it's discounted. there's rdisarray in retail. i know that there's always going to be a story that people are going to want to go to the macy's, the physical store, but we are this e-commerce is turning everything again. when you look at way fair, all right w, i had them on. this is how you buy furniture these days. you go, what's the matter, josz and main? i buy the furniture. >> you buy a lot of things. the pulse of the consumer is right here. sorry. that's apple watch. >> that's a mulligan. you're allowed one. >> i'll give you an example. my daughter gets an apartment. you used to go to macy's or target. now you go to way fair. it comes right to you. this is the way they have 7

million shop keeping units because they don't really have the inventory and macy's was a great furniture seller. this is anecdotal. the way people shop has changed. and this is something we have to acknowledge is that bricks and mortar is not so hot. the mall is not that hot. >> i did want to mention at&t. shares of which are down. the company are holding an analyst meeting today. this a few weeks after it closed the deal to acquire direct tv. it continues to expect 2.5 billion or better annual rain rate synergies from that transaction. they say it does not include other various synergy opportunities. but it doesn't appear that at least investors this morning are particularly taken with what is now an adjusted eps in the range of 268 for this year.

double digit consolidated revenue growth they say expected. they say it's an improving free cash flow dividend. that was one of the key expectations of the direct deal, free cash flow, making the dividend more secure. >> and people aren't regarding it like this. >> no. >> it's a high pay out. >> it's not being taken particularly well this morning. again, they are just beginning what is going to be a long presentation. 9:00, it actually began, the analysts day. >> stay focussed on the stave havens, verizon yesterday. >> all the components are in the run. >> dividend yield of 5.6% yesterday on at&t. why isn't that a safe haven? >> people don't like the payout. i like verizon and at&t. >> some people question the strategy. you're buying a company direct.

broad band is the key product and how much does it help you with that? >> but let the market come in. with china, alibaba news was very disconcerting. so let the market come in. let stocks come down. accept the fact that it's not a great moment, but i still don't see. the question is do you see systemic risk from china. a lot of people do. i think there's positives. you have to wait until the s&p takes everything down and then to begin to look at the companies that are largely domestic. i know that's not a giant group, but it does work. it's not polly anna. >> well, with all of that, dow is down 170. apple is getting near 110. bob is here this morning. >> across the board weakness. i want to point out what's going on in emerging markets. the currency has weakened over there and a lot of concerns about the competitive position against china.

all over the world no matter where you go, you can look all over. everything was pretty much down 1 to 3%. vietnam was a little bit of an anomaly there. here in the united states, all ten sectors, carl is right. all ten sectors opened to the downside. there was a special weakness in consumer discretionary and technology. the retail sales numbers, you think you can't blame everything in the world on china but people try. it's remarkable. macy's obviously disappointing and lowered the overall guidance for the year. they had a sale to one of their stores in brooklyn. if you take that out, it's down. macy's gets 100% of its sales in the u.s. not canada, not brazil or china or europe. you think you can you blame the chinese for macy's, but terry lundgren made a comment talking about ternings saying the strong

u.s. dollar has led to lower international tourist spending. he claimed it was a factor in why they were having problems. obviously lower apparel sales in general was the major problem for them. let's talk about what was going on elsewhere. if you look at what the department store here's, you can see the impact on macy's informal everything is down roughly 2 %. the other thing i think is interesting is what fossil said last night and the important thing is their sales were short of expectations. they notably lowered the numbers and here you can't blame china. their sales are there relatively small. really it's u.s. and germany that makes us the majority of their sales. the problem with fossil was a big slow down in urine. germany was flat on sales. that was a surprise. we're supposed to be getting a discovery in europe.

we're questioning whether the european recovery isn't that strong at this point. here's a classic example where you should see it. the other one, and i hope you're listening to jim's comment about the impact of the apple watch. he's right. look what they did. i'm putting it in constant dollars. that's what you want to look at. watch sales were flat for them. leathers were up 9% and jewelry was up 11%. those are nice moves up, and the flat watch has something to do with apple. they didn't break it out specifically. and even though people were saying sales of the apple watch are disappointing, it's impacting other watches and watch companies. the other thing that matters is the strong dollar. we've been harping about this for months. it's killing these company. the revenues were down 4%. but if you take out the effect of the currency and put it in constant dollars, revenues were up 2%. that's amazing. carl, that's a 6% point difference in revenues just on the dollar here.

look what you've got here. you've got very uncertain consumer demand and uncertain growth in china and the impact of a strong dollar. it's little wonder that most of the retail companies have a hard time forecasting any kind of earnings right now. back to you. >> bob, thank you for that. we'll watch all of that. bob on the floor. ten-year just have a shade below this morning. >> reporter: we are hovering just below the boiling temperature. 2.11 yield. let's go to may and look at that ten-year note. you could really see how we are putting what is arguably a very solid top on the market. how much further into 2% or sub 2% territory? hard to say, but i will tell you one indicator you should pay very close attention to. 30-year bond yields. the only part of the curve whose yield is above, whose prices are below where they settled last year, exempt for look at the

two-day chart. everything i said was on a closing basis. on an intraday basis, we not only traded at 2.75. we traded around 272 basis points for the third year. it popped back up but you want to pay attention to 2 .75 on a closing basis. let's go to the short end. let's go to the european two-year note. take a look at that chart. it's a one-year chart minus 21 basis points. many are looking at that and pairing it up with our two-year note and continually assessing whether we're going to get a close that has more than 100 basis points of difference between those two maturities. if we continue the theme of europe, let's look at a two-day of the bunds. they dabbled under 50 and came back. it's the short end that's getting most of the eyeballs in europe today. let's look at ten-year u.s. minus bunds in europe. the only reason i bring it up is

it's testing the bottom of range. it's an unusual charmt. we continued to be tied at the hip. we need to watch the trends. they cross fertilize each other a on the moves. and i find no better chart than the dax. look at the dax. looks like we're flirting with 11,000. we haven't settled there since the ninth of july. last chart dollar index. a real reversal today. there's a lot of recalibrating going on. the markets have a lot to sort out. back to you. >> rick santelli in chicago. as jim said, we'll get inventories later today. jackie is here. >> reporter: oil prices right now seeing a little bit of a rebound after hitting a six-year low. up about $0.58 at this point. wta trading at $43.66. we had a slight draw down of

inventories. also supportive the decline in the dollar. this is a little bit of a two-fold story. you have china and the fed bringing the dollar down. and the lack of demand or the perceived lack of demand that traders are worried about. we got monthly reports out from all the agencies conflicting nuggets here regarding crude. opec raising its 2015 demand forecast lightly but then you have the eia cutting theirs. at the same time the iea came out with numbers saying they think the oil glut is going to persist despite the fact that they think demand will be stronger. traders looking at it and saying nobody knows what's going to happen with crude. i also want to mention the products that are strong. also sportive of crude prices. >> when we come back, more on the fallout from china's devaluation of the yuan. we'll talk with the president of the council on foreign relations. back in just a couple of minutes.

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>> we are managing to get chevron barely in the green but for the most part decisive weakness and weak breadth on the dow. we're going to get inventories on oil and then cisco later on. you're going to talk to chuck robins. >> yeah. first time he'll be the full-time ceo. i think it's important. they have a lot of worldwide business. the yield is 3. when i see that, i'm telling you with the treasuries where they are, i hesitate. could the stock go down? i just really want to everyonetize watch yield. watch yield. general mills at 3% right today. i trust general mills' di denvi. if you don't get negative, you

get negative on monday. >> we'll get to stop trading with jim in just a moment.

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>> cybr had an amazing revenue

growth. they had fabulous earnings. some say they didn't guide up enough. fire eye, if you take a look at what the u.s. attorney from new jersey did in terms of cracking the case and getting the numbers ahead of time. the ukrainian scandal, fire eye was in there. fire eye did the forensics. i know everyone is giving up on ski cyber security. this is a great long-term theme. watch that one. i'm not calling the bottom. but i'm saying they're doing well in a bad day. >> what else do you have tonight? >> i have novavax, and then i have a company, fresh pet down whofully today, and richard thompson is not going to come on. i like a guy who is cut down and

he still wants to come on. >> operation total victory. >> yeah. just go with it. >> we'll see you tonight. when we come back, a lot more on the selloff this morning and the china effect with the dow down 188. don't go away. of the campus on . but you're armed with a roomy new jansport backpack, a powerful new dell 2-in-1 laptop, and durable new stellar notebooks, so you're walking the halls with varsity level swagger. that's what we call that new gear feeling. you left this on the bus... get it at the place with the experts to get you the right gear. office depot officemax. gear up for school. gear up for great.

welcome back to "squawk on the street." we are at the new york stock exchange. dow is down almost 200. that makes it two days in a row of that kind of move. something we've not done all the way to the financial crisis. china's devaluation continues. crude holding up and we'll get inventories in about a half hour. >> alibaba down sharply today as the company's growth slows. hear with the ceo had to say ant the quarter and the increasing shift to mobile. >> macy's is one of the biggest losers today after missing expectations. can they bounce back from here? >> and it has been a record year for deal making in the u.s. already. so how much more is coming? morgan stanley's vice chairman and global head of m&a joins live to talk about it at post

nine. >> chinese authorities ordered intervention to put heavy losses in the yuan. the order to sell dollars and buy back yuan, the dollar is up almost 3% in just two trading sessions and there's talk chat chinese might be prepared to guide toward a 10% move in order to help their and ailing exporters. joining us now, head of u.s. economics, and a chief investment strategist. mark, i think and we'll talk about what's happening with the fed. we'll talk about the impact on this economy. but i think we should point out what the eye of the storm is here. and that of the asian competitive nations who are either selling stuff into china or competing if w theith their

factories abroad. countries down 7% in stock market terms in just two days in the dollar. how concerned should we be about that area of the world now, mark? >> well, i think it is a legitimate concern. i mean, after all i don't recollect you're talking about the fact that china is the engine for emerging market activity at large and emerging markets represent about 50% of gdp. taking a test of what's happening in china as repercussions around the world. and so right now the big concern is are they pulling on all of the levers sufficiently to be able to drive economic growth and reflat activity to where investors are get out. >> just as we move on, these southeast asian nations are not systemic risks as far as you're concerned? >> in the agate, yes, they are. the fact is what is likely to lead to is a currency skirmish

as others have to devalue. >> let's cut to this economy and what's likely to happen here. let's say they go for a 10% moveover all and that's debatable and they've not said that. what would that mean for this country? >> not much. you don't go to a barber in beijing. at the end of the day, the u.s. inflation landscape is pushed by things that are firming. during the time we've been talking about this, i think what's gone unnoticed is the fact that core inflation is accelerating in the u.s. this year. we went into the year with a downside risk -- >> is market is not telling you. i get that argument. you're getting the opposite message from the market. for those who say china doesn't

effect us, look at commodities. there are spillover effects, even a company like macy's is feeling the impact globally. >> and consumers just blew out auto sales. i mean, i think oftentimes in financial markets, short-term developments come at the expense of longer-run thinking. i think that's happening again now. at the end of the day, the fed, you know, you get into ping-pong games with the financial markets. the fact the fed hasn't tightened has probably forced china to do what they've done. i think you get into these circular feedback loops. i think that's going to end badly for the fed if they get cornered by the market. i don't think it's going to happen. >> you're saying something strong and powerful. and there can still be a rate rise in december? >> i think if you saw janet yellen on the street and you asked her is september still on the table, she would probably

tell you it's a 50/50 proposition. and i think that should be the case. >> so if you saw every couple of days, the u.s. dollar appreciate 3% against the yuan, you'd still believe in a september hike? >> not if it happens every couple of days but as i say, we've seen a 10 to 15% in the real traded dollar and core inflation in the u.s. has accelerated. so, again, you have to look at the financial markets don't represent actual data. they represent expectations of what people think may happen. actual data is not confirming with the financial markets are saying. that could happen. but i don't think that should be the baseline scenario. that means a lot of the moves we're seeing are going to be short-lived. >> mark, your reaction? >> i would urge a little caution in here. i mean, we're of the view that this isn't necessarily enough to derail the bull market that we think remains in intact. nonetheless, on a near-term

basis we're finaling seeing the indices reflect the broader market. about 60% of the stocks in rustle 3,000 are down 10% from highs. i think we need to digest cross currents, including facing what the fed is about to do, and i agree in terms of a september lift off. i think that's going to cause further consternation for kwoilkwoil equities on a short-term basis. >> thank you for your time. >> let's go to rick santelli in chicago. details on breaking the key jobs figure. >> absolutely. don't you love jolts? what a cool name. the openings remained at 3.6 %. they've hovered there for three straight months. it dipped a bit from historic levels. we haven't seen it since this data was created in early 2000. last look was slightly revised.

we're at 5 million, 250,000. separations up 3.5. kwids 1.9. all the day is steady but it's showing us no matter your assessment of the economy or the large pool of unemployed that aren't counted, these numbers are hard to reconcile and square with zero interest rate policy which makes the fed's job in september and december that much complicated. why? just look at the board. think china and recalibration and volatility. carl, back to you. >> thank you very much. let's go to dominique and get a update. >> a settlement with u.s. regulators over charges over a secret trading desk that used confidential information. the sec said they've agreed to pay and admit wrong doing as part of the deal. the activity shares around off

exchange dark pools operated by broker dealers. in this case, they found that itg operated a proprietary trading desk that accessed confidential order and trade information for trading against its own clients. they say the $18 million penalty portion of the settle remits the biggest one against an alternative trading system. they said it was not our finest hour. we've brought the legacy issues to a close. it says it's going to work to regain the trust of clients but still a big deal for those people who trade equities on the institutional side. itg settles with the sec for over $20 million. >> and they got rid of their ceo as well when this was first announced. itg shares are down, about 6%. shares down today, alibaba has paired the losses. at one point it was down over

7%. now down 5.5%. this after reporting earnings. there was give and take in terms of the take on the numbers. and alibaba may be suffering from the simple perception of the slowing of the chinese economy and what that means for demand amongst consumers for the various items on the t mall and other websites that it controlled. we spoke to ceo, daniel zhang earlier on the show. here's what he had to say about the chinese economy. >> we closely monitor the chinese economy and the impact on our chinese consumer's behavior, but what we observed that consumers still coming to our retail platforms to do their shopping because of the lifestyle change. so we are confident for our long-term growth. >> continue to say, of course, there was confident there, perhaps less so among the investment company. they put in a buyback.

earlier this week they announced the deal with a large retailer in china for -- similar to best buy. mobile as we know from monitoring companies in the u.s. that are focussed on e-commerce is the critical way that people access so much of their buying. no no difference in china. mobile has taken over from desk top in terms of the majority of purchases. >> this quarter we observed an increasing shift to mobile, and we make big progress in the mobile transition, and in this quarter, we reported a 55% of gnv of our china mobile marketplace was from mobile. and 51% of revenue are from mobile. so but today if you look at the take rate on mobile side, we

have made progress in the tech rate but still has a small gap between pc, but we are confident that it will continue to grow, and i was not surprised at the end of the day, mobile tech rate came close to pc or even pc tech rate. >> that's an important point for investors who look at that as a key gauge of success of the overall platform of t mall and the like. alibaba down and yahoo follows suit in the plan to send it out to shareholders in the form of an independent company. >> couldn't get him to predict where the chinese yuan would end the year? >> couldn't get much on the reflection of the chinese economy. >> awfully close to the ipo price. >> down 23% from the first-day close. >> if you think about who gets hurt from the chinese currency actually weakening, it's those

like alalibaba? we asked that question and the expectations. all he would say was they're focussed on the long term. >> macy's shares dropping on earnings but what habit the retailer's new venture into e-commerce. a new season brings a new look. a chance to try something different. this summer, challenge your preconceptions and experience a cadillac for yourself. ♪ the 2015 cadillac srx. lease this from around $339 per month, or purchase with 0% apr financing.

macy's missing estimates on

sales and earnings. the ceo was on this morning. and he addressed the quarter. >> it was a tough one. there's no question about it. we are seeing that the consumer didn't shop in our categories to the degree that we thought the consumer would. there are a number of reasons. we're against our best quarter of last year. that's one issue. the european, the chinese tourist, the tourists around the world are not coming to america, and the strength of the dollar is impacting that. and when they are here, they're not spending in our categories. >> back at hq with some of the internals on the quarter. >> reporter: good morning. it was a rough quarter for macy's. for the second quarter they missed expectations of $0.76 per share. revenues also shy of expectations. now, comparable sales fell more than 2% and the retailer cutting guidance for comparable and

total sales. macy's points to a number of reasons. lower tourist spending cutting into comp sales. the absence of the friends and family, and higher medical expenses for employees and a shift in where consumers are spending. it was discussed in a little more detail this morning. >> you're seeing an up tick in consumer spending. a little bit better. it's in automobiles and housing and health care. it's in certain apps that you're down loading, and they're going to get to our at gocategories b they weren't where we expected them to be in the last quarter. >> they are piloting sellingon line in china on an alibaba china. there's been a discussion around the value of macy's real estate. the retailer is selling part of its brooklyn property. macy's often discusses the

constant evaluation of the real estate portfolio and mow itnow further exploring those opportunities. inventory was also higher. the cfo on the conference call said it was to get better set for back to school. she also said the season so far is starting off well. >> coming up on the program, currencies in focus for many people. here you see the way the chinese have engineered an increase in the yuan against the dollar. how low will it go? and why stop what you're doing to find a bathroom? cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex.

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down 233 points on the dow. china's being felt around the markets. let's bring in a strategist with an asian focussed bank. what's going on here, in essence? >> look, there's two points i want to make clear.

number one, i think the change in the fixed mechanism reflects a more market based fixing system. this has been a criticism from imf recently in the stock paper. u.s. treasury has been critical. that's what we've got. it's caused a lot of anxiety and uncertainty. how is this fix now going to be a, calculated and how is it going to affect the on shore market and the other markets more broadly? i think we've seeing a lot of uncertainty. we've only had one data point. the fix came out largely as they described it would. it was going to be driven by the close of the on shore market the night before. plus a little give and take depending -- >> let's get into technical aspects of that. i think the bigger picture, and people are lining up to say china is manipulating the currency.

the bigger picture here is they kept the peg to the u.s. dollar. in this way, that the yuan has appreciated 30% against a basket of currencies. it's a strong currency relative to where the market would let it float to. >> correct. in the context of, you talk about currency wars a lot. china over that period of the last three years has been strong. it's actually been playing the peace keeper? >> yes. >> it doesn't matter. isn't the feeling that everyone is going to have the follow in move and devalue and it's going to cause a spiral effect, even with good intentions? >> you're right. moving to a more market driven, the yuan is weaker, and i think it will stay that way. i think the fix will stay high. the market will calm down in terms of how high the fix is going to get away and where dollar china is going to trade over the next week or so but implications, it is going to put

pressure on asian currencies, that ones that export to china and compete with china. that's going to be the big narrative here. japan, korea, taiwan, obviously, closely linked with china. they're going to feel the pressure. despite thate fact that it's mo market driven. but there's a fallout. >> is the cost the fed has to wait? >> i don't think at this stage this is going to materially impact the fed's decision-making as it stands. we've had a lot of little mini shocks over the course of the summer. greece, for instance, as an example and it hasn't knocked the fed off course that much. the focus is the dmes you can side in the u.s. >> what if it changes? >> if it goes to 10%, it will wipe out the de facto

appreciation that they've allowed. that becomes more destabilizing. >> what does it do to this country if the yuan falls 10% against the dollar? >> it's going to be destabilizing. from an inflation standpoint, the next theory is china will export deflation. it has to be a big number by our estimates for it to really move the needle in terms of inflation in the u.s. >> do you think they're committed to the market-based world that we're talking about or is this simply an opportunity for them? >> well, the it's an opportunity for them. we can argue about whether they're being expedient in terms of the timing of this. i think, personally, it could have telegraphed the change in the fix a little bit better. no one saw it coming. they didn't prepare the markets for it. but this was going to happen. i think we had to go back to 2013 when dollar china, the on

shore rate was below the fix. >> on that point, the view is that this fall is 8% fallen export figure that came out over the weekend prompted this, that they're being hounded in to this. >> or they saw what the rest of the data would be. it's no good. >> i don't think it's purely data driven. it's been poor for some time. it's not a shack and awe moment. i do think it has probably more to do with the imf paper that came out last week calling for we want a more market-driven -- >> the imf came out last night saying it was welcome and they were moving toward market opening. >> the imf gave them the blessing. >> a lot of people wonder why we're making such a big deal when you look at other countries that export to the u.s. and what their countries have done. >> china is a big economy. everyone knows that. i think small change is there.

i think the fear is that this was going to become something, like a maxi devaluation as you were saying. >> to your point is fear is they're going to export inflation. the s&p is down on those fears. you think it's overblown? >> i think so. the amounts we're talking about in terms of a dreeepreciation o the next couple of weeks is small. unless we're talking about an extreme example simon highlighted, 20% devalue. >> why would you start if you didn't want to take it somewhere? we have to leave it there. >> when we come back, markets in the red. not just for today but for the year. we'll talk to art cashin about this 265 point move to the downside. back in a minute.

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>> good morning, everyone. here is your news update this hour. hillary clinton is turning over her personal e-mail server to the justice department. that's something the republicans have been calling for for months. investigators are trying to figure out if she had classified information on an unsecured system. jeb bush calling out the secretary at the reagan presidential library in southern california. he criticized her on iraq and

her record saying she ignored the threat from isis. police outnumbering protesters in ferguson. a crowd of about 100 protesters were mostly calm and peaceful. there were no arrests or injuries. a u.s. military helicopter crash landed injuring seven people on board. officials say the chopper was conducting a training mission at the time. that's the update at this hour. now back to "squawk on the street." >> reporter: thanks for that. we are standing on the floor. the iea out with the report. a draw down in crude inventories. this is in line with expectations. up about a quarter right now. gasoline inventories down

1.3 million barrels. that is supportive of prices as well. ten the distillates seeing a 3 million barrel build. let's look at cushing. inventories were down slightly too. a crude oil trade is losing ground. $43.26 a close under $43 is key today. >> a new six-year low, perhaps. still trading higher. we're looking at stocks here. the dow is down about 250. this is a broad market sell off. we have art cashin here, director of floor operations. and we're looking at the low point of the dow jones industrial average. this is starting to look worry some. is it all the china fears? >> it's 90% china, yeah. there's a secondary concern here. china says all they're trying to do is move the currency to be market moved, to unpeg it, and

there are some who feel that's part of they're trying to get the imf to approve them as a reserve currency. >> why is that so scary? >> i think what's scary here is people are beginning to doubt the sophistication of the chinese officials, whether they are adept enough and clever enough to know where to move. they didn't look very adept when they were trying to save their stock market, and they're in an area here where it can be a little dangerous. you're seeing it's having negative implications to the south asia markets and currencies. they're having trouble and it's spilling over here. we're doing technical changes to the market. we went through the support band that saved us at the end of the july. >> twice this summer we fell foto the 200-day moving average, and we bounced convincingly.

at what point do you say it's not held? the fact we breakthrough it on itself is significant, but is it lost? >> no. not completely. you have to watch on your rally attempt. now, that broken support becomes resistance. so if you rally back to that level and can't get through. 20.74. if you rally back and can't get above that, that will tell you that's a conclusive break. >> everybody loves reading stuff at sock jen. he's been bearish for a long time. he looks at the china news. he says we're one misstep away from depolice station in tflati. are you going that far? >> i'm cautious. you only survive 50 years in this game by looking for an exit sign when you enter a room. i would say he's probably not

too far off. i think we're reasonably close to that. you guys had a debate around here and the service economies and whatever with inflationary pressures but clearly commodities and other things are near or at multiple lows. the crb index is at a major low. that's why i say people are nervous about how adept the chinese will be. >> many are convinced the fed is still going to move in september. those economists believe the fed is still going to move even now. >> i find that hard to believe. >> but there's a credibility issue, right? i mean, they have to move on the u.s. labor market and u.s. inflation. and if the labor, dt unemployment rate continues to fall, don't they face credibility issues if they don't move? >> that's why fischer gave himself a way out the other day.

>> and the rest is temporary. >> right. and they're going to be data driven. now, you know my argument. the imf and the world bank have said to them, don't do it this year. if they do it in september and something happens, they're going to lose all credible. >> do you think anybody cares? they don't care what the world bank says. in central bank circles, those are minor organizations. if you're the chairman of the federal reserve, this world bank imf thing is getting out of hand. they're not that wbig. they're not brazil or south korea. >> that would indicate that the fed agrees with you and they're rather presumptive and say we don't have to listen to you and if something goes wrong, they'll lose credibility. >> if most people had to put their money on one or the other, i know where most people would go. >> i understand fully what

you're saying but i'm saying if they go ahead and something goes wrong, their credibility will suffer greatly because people will say you were warned. why did you do that? you saw what was going on around you. how credible is your leadership? >> and that's a very dierngs thing. >> you can't do that is what you're saying. >> the biggest losers in the s&p, the tiffany's, there is a theme here. anything with china exposure, commodity exposure, stay away from. any other tips? >> the big exporters are suffering. even in europe you're seeing the same thing. you'll see it in the auto section, particularly being hit by concerns about the currency and automobile sales in china have slowed. it's going to be an interesting three weeks. >> yeah. we saw that ugly number yesterday. thank you for joining us. art cashin from ubs. >> up next on the program, morgan stanley's vice chairman

and head of m&a. he will be live to talk about a record-breaking year in deal making. will things continue and will it support the market? "squawk on the street" will be right back. ♪ no student's ever been the king of the campus on day one. but you're armed with a roomy new jansport backpack, a powerful new dell 2-in-1 laptop, and durable new stellar notebooks, so you're walking the halls with varsity level swagger. that's what we call that new gear feeling. you left this on the bus... get it at the place with the experts to get you the right gear. office depot officemax. gear up for school. gear up for great.

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if you're looking for earnings growth, maybe you should go shopping for retail stocks. we'll check them out on trading nation. more "squawk on the street" coming up now.

welcome back. the cast parts deal earlier this week, global m&a activity now on pace for the highest level on record. beating the record set in 2007.

how likely are we to reach those levels. we have rob kindler for more on this. good to have you back. a market like this and yesterday always can give pause to a deal, especially if you're trying to negotiate a price or a ratio. how many days like this do we have to see before you get word we won't hit the records? >> it's not great. the fact is we were on the pace to be higher than 2007. mostly driven in the u.s. we would probably be on pace to do over 2 trillion in the u.s. that's the highest ever, but if you have a down draft or volatili volatility, it could effect. haven't seen it yet. >> will you know it when you see it? >> that's the thing with m&a. it's always a good time for m&a until it's not. i think the conversations have been active. it's a cyclical business. if something happens, a market

break, we can see it shutting down. we have not seen that yet. >> and. i hear the opposite in speaking to people like yourself. you have no peer, but someone who would be your peers indicate there's just stuff coming in and, frankly, as big as you might imagine it could be. is that what you're seeing? >> all driven by strategic deals. if you look at the flow for this year, i think over 40 % of the volume are deals over 40 billion. these are large deals happening. >> and you're seeing more coming in that haven't been announced? >> yes. there's a good flow coming out. what's been driving it has been a lot of things. what's primarily driving it is that people see they can't get growth in their business but more importantly, the market has really liked deals. they asquare a stock that's up -- when we look back at this time, i think we'll see a lot of deals paid much too high a

price. i think there is a bit of a deal frenzy now and people need to step back. when i talk to boards and managements and say the stock price might return well or not, it all comes down to equity and intrinsic value, and the multiples people are paying is hard to justify. >> i had someone on last week signing a note of caution because of the same feature and wondering if we're getting at the end, if this is the big blow off and then things are going to quiet substantially? >> it could be, although the basic drivers, which is black and organic growth, very low inflationary environments, and low interest rates continue to be there. >> they do but they've been in place for a long time. how much of it does come back to this gold old ceo confidence that we hear about? >> it's true. also the other thing is that people are finally figuring out

that stock buy backs are not a cure for everything. they have their place, but i think institutions now, and you saw black rock coming out and saying it. institutions see that m&a or investing capital is a better way than buyback. not always the case, but that is also driving a lot of activity. >> we have talked for years about hostile deals and you've schooled certain people on how difficult they are to accomplish. not to mention cross border, but we have a bunch out there. monsanto san jen a. >> we're involved in that. >> a hand full of others that don't seem to be any near tore g -- nearer to getting done. any lessons here? >> i think if people believe it's a dream deal, it may be the only way to accomplish id. we're involved in all of these.

perrigo, m perrigo, monsanto. if you look at our record this year, we did succeed at xr and pinnacle and many others. >> you did. >> i guess we've had a pretty good track record. >> you have but in shire i'm struggling to understand the path. are you personally involved with that in. >> i'm not personally involved but the firm is doing that. >> you can walk away from that one? >> never. >> activism continues to be, we saw mondelez. what was your reaction to that. $5.5 billion? >> ackman has been super smart, but i think it shows that the opportunities are getting more limited in activism. i think the sector has much too many assets in it. over 150 billion. if i could short that asset class, the activist asset class,

i would short it in a second. >> why? >> too much money chasing too few opportunities? inefficient capital structure, fortune brand type companies where you can spin everything off, a lot of that has happened. i think it's less and less on the opportunity side, but we'll see. the other thing on activism is it's getting to the point where generally these things are being resolved pretty early on. we just brought this guy on, david rose water. he was one of the key guys who was advising activists over the years. he has a unique perspective. in a world where people are resolving these things earlier, a lot because the activists are putting up good directors, having that kind of perspective is helpful. >> as we move into the last four months of this year, possibly a record year. any particular sectors? surprise me with something i haven't heard. are we going to see an energy where we haven't seen any or is

it going to keep health care and technology? >> we've had a lot of utility deals. we've had lots of insurance deals including the advising of chase in the hub deal. we did a cross boarder deal. a lot in the insurance deal. there's a lot in insurance. a lot in power utilities. but there is a big, big focus in health care. i think there will be more of that. >> you do? >> yeah. >> glad to have you. head after global m&a. >> google wants to bring low cost internet to cuba but the cuban government isn't keen on the idea right now. before the break, a look at the market sell off. the dow is 234 poibnts. the s&p is down 1.3% and just went negative for the year. s&p down 27.

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en friday, the u.s. flag will be raised in the front of the u.s. embassy in havana for the first time in 50 years. one of the companies watching

closely, google. our chief international correspondent michelle caruso-cabrera is live in havana with that and more. >> yeah, cuba is one of the least-connected places in the world and the people of cuba are desperate to get on the internet. up until last month there wasn't any legal way for most of the population to actually access wi-fi. then on july 3, 35 wi-fi hot spots went up across the country. like this one in havana. which is constantly busy with cubans eager to gets on the internet. even though it costs $2.50 an hour, which is a lot of money when most people only make $20 a month. >> i'm here trying to connect via wi-fi with my children this is one of the places in havana where the connection is good. it's the possibility to have the connection. >> overhead, you can see the routers for the traffic, they are chinese-made wal-way devices and therein lies the big

challenge for american tech companies that want to be here. one of those companies, google, their executives have been to the country at least twice. eric schmidt himself came here last year. and according to those who have seen the document. google has offered some kind of big expansion of the internet here in cuba at very little cost to the cuban government it could perhaps even be free. so far the signals coming from the cuban government are not positive. for example, this was leaked last month. this is what appears to be a copy of the cuban government's plan for expansion of the internet here in cuba. it uses chinese-made devices and it would offer 260,000 homes access to the internet by 2017. keep in mind there's 11 million people in this country. the second blow against cuba say the locals, is an interview that appeared in the local cuban newspaper last month as well. that quotes a cuban government official. listen to whey says. he says there exists people who want to give us the internet for free. but they aren't doing it with

the goal of allowing the cuban people to communicate. rather, with the purpose of penetrating us, to use it as one more way to destroy the revolution. >> not clear if that's the final nail in the coffin for google or just maybe a volley in the negotiation. google declined to participate in the story in any way. you can read more on the internet, if you can access it back there in the united states. back to you, sara. >> thank you very much, live in havana where john kerry is there to raise the u.s. flag. let's get to chicago to the cme group, rick santelli has the santelli exchange. >> i would like to welcome my special guest, lacy hunt. thanks for taking the time this wednesday morning. >> glad to be with you. >> i'm going to ask you a question that has nothing do do with markets. if you have a roof that needs repair and avoid it when do you address it? what conditions of weather

probably would occur for to you address fixing that bad roof? >> well they need to be addressed immediately rather than postponed. and the reason that choicen is in problem and the u.s. is that we have too much debt, too much of the wrong type of debt. the action by the chib he's is that their debt-induced policies are faltering. now they've taken the risky maneuver of deesh appreciating their currency. which is not a wholesome development. >> i'm right with you. i think that the argument of liberalization may have many grains of truth in it like in our roof analogy. it's important when you take action. when it starts to rain and your roof starts to leak. so i think as much as liberalization may figure into this. the real issue is the timing as you've described. listen, the big story is that we don't import enough from china to leverage up the several percent-plus which may grow in terms of lower prices, but i count that. what about trade, global trade?

what about vietnam? what about south korea? what about india? china of course. recalibrating trade, not to mention the eurozone. that's the dynamic to pay attention to, isn't not, lacy. >> absolutely. what will happen is is it force others to depreciate their currencies. it's a way of stealing gains and economic activity from others. we call it will race to the bottom. it's very destabilizing. and it also perpetuates a deflationary process. >> now, the deflationary process this is just such a tough issue for many to wrap their arms around. but the actions of central planners and central banks have created a dynamic where in their medicine, they do things like china, with regard to their currency, which forced prices lower to artificially create growth. and the aftermath of that is more lower prices, is this spiral going to continue, sir? >> there's nothing to stop it

the, china public and private debt is four times greater now than it was at the time of the lehman crisis. the world probably has on the order of 55, $60 trillion more debt now than at the time of the lehman crisis, the debt is inflationary. >> in the final 20 seconds that you have, sir. what would you tell investors? i know many are looking at the equity markets and saying, this is it, we're running right into the last chapter of the book. i don't think that's the case. i think this could drag on for years and years. your final thoughts? >> it already has dragged on for years and years and what happens in these circumstances is that economies grind lower, standard of living stagnates and growth does very poorly. it leaves us all very unsatisfied. >> excellent, lacy, not a pretty picture. but in my opinion, it's an accurate one. thank you, sir. simon hobbs, back to you. >> thank you very much. let's find out more about the show that does always satisfy. "squawk alley" and jon fortt.

>> quite a show coming up. we're watching china and the reaction, u.s. markets, the nasdaq down 1.75%. and alibaba, revenues disappoint. we'll dive into that and why, apple down again. all of that and more coming up on "squawk alley."them so diffe? did you hear that sound? of course you didn't. you're not using ge software like the rig on the right. it's listening and learning how to prevent equipment failures, predict maintenance needs, and avoid problems before they happen. you don't even need a cerebral cortex to understand which is better. now, two things that are exactly the same have never been more different. ge software. get connected. get insights. get optimized.

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good morning, it is 11:00 p.m. at alibaba headquarters in china. 11:00 a.m. on wall street and "squawk alley" is live. ♪ ♪ good wednesday morning, joining us as always, jon fortt, kayla tausche at post 9 that was an interesting cold open on a day where we, the focus should be on the markets, the dow is down 237, stocks selling on major concerns about the economy in china. the s&p turning negative for the year. bob pisani is going to join us in a little bit. but ben willis joins us here at post 9 to make sense on whether or not this is about china no longer being the marginal taker of