2015 and squawk box begins right now. ♪ >> live from new york where business never sleeps, this is squawk box. good morning, everybody. welcome to squawk box here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. pope francis will arrive in the u.s. today. the pontiff will visit three cities, washington, new york and philadelphia. as you would expect security will be tight and traffic incredibly difficult. in addition some apple iphone customers could be impacted. >> but first, yesterday saw gains with the dow up by a125 points. this morning there are red ar

sows. the dow is indicated to open lower by 187 points. s&p futures down by 24 and nasdaq down by 61. >> chinese president has arrived in the united states. he's going to begin in seattle to meet business leaders including tim cook, bill gates and bob iger. and then to washington with an official state visit. he is defending the leadership of the chinese economy. he promises that slowing growth and market swings won't stop needed reforms. meanwhile, he is calling on china to keep it's economic commitments. he says beijing should set it's sights on policies that will further it's reform agenda such as targeted agenda and they should be subject to upward

pressure that would drive the currency up and not just down. we'll see what he says out in seattle to the ceos and what they're looking for and then of course what the president says to him when he arrives in washington. >> they're not, the pope and the chinese guy -- >> everybody hanging since they're in the same place. a little cocktail party. >> pope does love communists, too. i don't know, they're here at the same time. seems like they might run into each other. >> this is some incredible ignorance. in cuba they practice communism but there's a lot of religious people there. >> now but for a long time it had to be an undercurrent. >> i thought that was the basics of communism. >> it will be interesting. a lot of traffic. the pope will be here at st. patrick's -- >> thursday. >> which is right over there.

>> a couple of blocks that way. good luck getting here on thursday and friday guys. >> i'll go that way. >> but you have to come this way at some point. >> 4:00 in the morning should be okay. >> they're closing starting at 3:00 a.m. >> what! >> do what i'm going to do. come to my place in the morning and we can both city bike over here. >> there's a city bike stand over here. >> tandem. >> would you go in the side car? could we do a little side car? >> i'm willing to pedal. >> in corporate news, thankfully volkswagen. >> becky is invited. she's coming. we're biking. >> i'm going to watch. >> i'm afraid to go on the subway with pictures i've seen. anyway, apologizing after the german auto maker was caught cheating on u. s. emission

tests. >> our company was dishonest with the epa and the california air resources board and with all of you. and in my german words we have totally screwed up. you can be sure that we will continue not only to correct this issue and to straighten things out and to pay what we have to pay but we will continue to work very hard to make our story here in the u.s. for the kmusers and employees a success story. >> okay. the ceo of volkswagen group of america making comments last night. the u.s. justice department has begun a criminal prone into the auto makers actions. they could face penalties of up to $18 billion. no one thinks it will be that much but south korea said it's going to investigate three of the diesel models.

volkswagen just issued a statement saying 11 million vehicles worldwide are involved ant it will said aside $7.25 billion to cover that issue. >> that hardly seems like enough. the recall and then fines levied for a situation like this and the more you fine out about the situation the worse it is. the epa was pressuring them for a year. they were saying it was a coincidence. >> it's pretty. >> it's 2019. >> tesla did it but it's a significant barrier to entry. >> we don't know. >> would you buy tesla or portia? did you see the portia electric

cars? you just wonder with apple, you know, you've seen tech companies go into places where they haven't been and it's like a money pit and google finally decided it's such a money pit some of these crazy ideas that we're going to separate them out so that shareholders don't have to deal with our whims of investing in this creigh sy stuff but a car by 2019 from apple, they make phones. >> but are they going to manufacture the cars themselves? >> it's more than a branded car though. it's a heavy branded apple engineered car. >> i know the truth. >> i do know the truth. it hasn't worked. >> not for me yet. >> or for you i don't think. >> it's just where it is.

i don't know what the date is. i think it's the 22nd. is it the 22nd? oh my god, that's so weird. that's just -- >> broken watch. >> it's once a month. >> you just wear it as jewelry. >> no, i only wear it -- i don't wear it that much when it's self-winding and wrote sit there -- i got tired of -- its weird when you're sitting there like that all the time. >> let's talk about stocks to watch today. bank of america is going to be holding a shareholder vote on whether he can keep the chairman and ceo roles. the decision looks to be inkred bring close. check it out, that stock as always stocks this morning look like they're indicated weaker. that one is down by 1.5% but that vote takes place at 10:00 a.m. today. the fertilizer company is lowering it's outlook for sales. they're citing delayed purchases. also the drug distributor

announcing a $2.4 billion share buy back. this is done from the warrants issued in 2013 and red hat posting better than expected earnings and revenue. the distributor of tlinux operating system, that stock is one of the few indicated higher this morning. red hat ceo will be joining us live at 6:40 eastern time this morning. jack-in-the-box shares rising in extended trading. announcing a $200 million share repurchase programming and a secondary offering of more than 8 million common shares of stock. that stock is down by about 1.75%. >> we are going to tell you what we have been talking about with the apple car because apple accelerating it's work on a project to build an electric

car. the wall street journal is reporting that the tech giant set an internal timetable with a ship date of 2019. that could simply be a target though for engineers to okay a design rather than the date that a car would be available for sale. apple has been hiring experts in automotive and battery technology for quite sometime. the company though of course not commenting on the wall street journal report. >> we don't know if they're going to skip the part where people drive the car. >> self-driving isn't it? we're going to skip that part. >> they weren't sure. >> okay. seems like it's a story that -- put a lot more meat on the bones. >> part of the reason is that every auto company is trying to reach out and work more of the electronics into the car and the big debate is whether auto makers would be in charge of seeing how that goes or whether they'd hand over more torte to companies like apple that they have been trying to partner

with. gm has the right to say we're not using you. you're going somewhere else so this is probably the push back to say fine if you're not going to let us have autonomy and run things the way we want. >> you think it's a pressure tactic. >> they're putting a lot of money in this but the reason they have to be doing this is that is an issue. ford opened up an engineering center. the big battle is who is going to control it. talk to any of the guys that run the car companies and they say we're controlling it. but can you imagine them saying we'll let you call the shots on this? probably not. my guess is they're really working on it. they have over 600 people and they're talking about ramping it up but could be something that goes away if you get a partnership. >> surprising how good some testiof the systems are in legacy auto makers or something like this, i

don't know. >> i'm sure they'd love to have apple branded stuff inside their cars but whether or not apple would let go of control is a huge idea too. >> it's a good idea. they have to get siri. when try to use siri it hears things that it's like no one would say that. can't you see that no one would say what you just thought i said? so if you're in the car -- if you're in the car it would be good if you didn't have to go down like this a lot. >> looking at the desk. >> like that. it would be good if it was -- self-driving. >> maybe you can self-drive for awhile while you're doing that and then come back to. i don't know. >> the two worlds are merging and the question is who is going to be in control. >> i'm going to start writing down some of the stuff she comes up with. >> who. >> siri. >> things that i've said and i look and i go that's rich. it's ridiculous words she puts together. >> even spell check still has issue. apparently nyse on any of the am phones it retypes it as nude.

so any type they say can you fill in at the nyse, it's nude. >> it was so far. anyway let's get a check on the markets this morning. the futures are under pressure this morning and this comes after green ar rows for the markets yesterday. the dow futures are down by almost 200 points. we'll keep an eye on this. s&p futures down by 25 and the nasdaq down by 27. take a look at what's happening. it's a similar reflection there. the cac is down by 3%. the ftse is down by 2.25%. also check out asia. you'll see at this point, in the closes overnight, the nikkei was closed because japan has a public holiday today but the shanghai composite was up by 1%. in korea kospi was up and hang sang was higher as well.

wti giving up a little bit of ground down to 45.63. let's check out the bond market and see where the ten year note stands yielding 2.158%. also take a look at currency. at this point dollar is up against the euro at 11170. it's down against the yen at 11978. a final look at gold prices shows us that they barely budged as well. 1,131 an ounce. >> the lower ticker yesterday was crazy in materials of every drug or specialty form or bio tech stock going down by 8 points. i was watching at home going whoa. hillary clinton vowing to take on the rising cost of prescription drugs after a report yesterday found prices for a drug used to treat life threatening infections skyrocketed. this move setting it up to cost a couple of hundred thousand a

year. the former secretary of state swe tweeted price gouging is ridiculous. tomorrow i'll layout a plan to take it it. it sent the stock down on fears that a clinton presidency would cool the sector but it's been on a role. it doesn't take much at this point and i don't think that you can somehow extrapolate that she's going to be president and this is going to happen necessarily. it's just a industry that has had the most believable -- even janet yellen decided bio tech was overvalued. it's made people a lot of money. >> it's been rising for so long people are jittery and we saw that yesterday. >> one foot out the door. so to recap quickly what

happened is you mentioned this was a small company. run by a former hedge fund manager that bought a drug for this rare infection. raised the price of the drug from $13.50 a pill to $750 a pill overnight. that 5,000 plus increase. we had the ceo on with us yesterday. take a listen to what he said. >> we also feel that this is the more appropriate price. at this price it's still actually on the low end of what orphan drugs cost and we're not the first company to raise drug prices. we planned on raising the price. we paid a large amount to buy an unprofitable medicine. we can't continue to lose money on the drug at that price. so we took it to a price where we can make a comfortable profit. >> so this drug was approved in 1953. the argument here that they can't continue to lose money on this drug. >> the argument that they can't afford to lose money on this drug because he paid a lot to

buy it. if he hasn't paid a lot to buy it he wouldn't be in the position of losing money on the drug. >> quite a few issues there. hillary clinton saying she was going to layout her plan to combat what she calls price gouging. that plan has been laid out overnight and we'll get more details today. she would allow medicare to negotiate on drug prices. she would incentivize research and development over marketing. allow importation of cheaper drugs from countries like canada and expedite the process for generic version. now she wants to shorten it to 7 years and it's been an on going argument. >> none of those things, the importing drugs from places are price controls is probably not a great idea. >> it seems like a work around.

>> but it gives them leverage. i assume that the reason that you put that in there and negotiating -- >> we will go this route. >> then they already have some pressure. otherwise, the market is rigged because nobody can negotiate. >> you know that there's -- are you just on the generic approval process right now? it used to cost a million dollars for an application. >> it costs more. >> this looks hike a failure of the free market allowing this to happen to go up 5,000% when in fact, no one is going to pay $10 million to introduce a lower cost generic version because of the government's role in making it so expensive to introduce a generic. it looks like a free market issue but it's not. it's a screwed up regulatory

issue that allows a hedge fund guy to exploit a situation for property. >> and one of the things that hillary clinton wants to do is clear the backlog of the fda's generic division and enable them to be fully funded and work on these more quickly but you're seeing this consolidation as well and that's leading to prices of even generic drugs rising. >> right. another article in the journal about there's going to be three health care companies left. probably be insurance, drugs, one stop shopping. >> if the government will negotiate. >> he was on nightly business report last night and he said allowing medicare the ability to negotiate drug prices can drive prices up for people privately ensured. other folks argued that's not the case. >> why drive prices up for people privately ensured.

>> they pay less and then so in return -- >> because it used to be the uninsured that would pay the out of control prices because they didn't have anything. >> they couldn't pay them. >> but the private insurers, i get that. >> proponents of where drug prices are now are at least not changing the system too much say there is a system in place that private insurers and benefits managers should be in control of the price of drugs. so that's the argument. >> we've made a lot of progress. we had like to make more obviously but we certainly have some on the horizon some big chronic diseases that we need to be careful that the innovation never gets curtailed by well intentioned government action which takes capital away. we always do it. we always screw it up. something happens somehow that

messes up the innovation and we have alzheimer's to deal with and diabetes and obesity and all of these things. end of life. all stuff that we -- cancer. so we have all of these things and we're the best at this point. i sounded like the donald there. we have a huge advantage. anyway, we're the best. we are. the best at innovating. we don't want to end up like -- you agree with that, right? >> i'll agree. coming up the market story of the morning, futures getting hit pretty hard. we'll look at reasons why next. but first as we head to the break we'll take a look at this day back in history. ♪

a market alert for you if you're just waking up this morning. if you're seeing red this morning across the board take a look at the dow futures. they are down by 200 points this morning. s&p futures look like they will open up down by 25 points and the nasdaq off by 70. at this point there's no obvious catalyst for the drop but the fed chatter is still out there. on squawk box yesterday st. louis fed president jim bullard offered his take on the september rate decision. >> i argued against this

decision. i thought it was time to move and i actually would have descented on this decision. >> it's inappropriate to react to financial market turmoil, you know -- >> in china? >> in china. these things can go down but then they can rally back a couple of weeks later and people say well are you going to now change your policy again. >> joining us now is the u.s. equity and derivative strategist at ubs and jim is global fixed income portfolio manager at morgan stanley investment management which has $400 billion in assets under management. what do you think is happening this morning. w we're still seeing a lot of volatility. >> it's something that we should expect to see going forward. if you look at it back to august the chinese move to devalue the currency is the start of heightened uncertainty and part of that precipitated what we saw from the fed last week.

so we think that the calm has shifted but it doesn't mean that fwul market ended by any stretch. >> you think that the fed was right to stay the course at this point? >> i do. i think one of the things that bullard maybe isn't weighing enough is the severe tightening of financial conditions we got with the china devaluations. we had the big move in the equity markets, credit spreads widened that tightening of financial conditions rivalled periods in 2012 in terms of the monetary conditions in the market. the issue with financial conditions, it's a term in a janet yellen used quite a bit in her press conference. that's not just some economic term. that's a calculated measure of how monitory conditions are being effected by market variables like the equity markets and things like that. >> maybe we should point out tighter monetary conditions isn't a bad thing when you realize how much liquidity has

been flooded into the market over the last six or seven years. >> but the severity was significantly tighter and the question then is what kind of knock on effects does that have into the next quarter. we have a big tightening today. is there something more sinister beneath the surface. does that lead into confidence and consumption and things like that? i think that's what janet yellen was entering into the calculus. they were cautious. >> is that the market just getting ready for the fed raising rates and wouldn't that happen at any point if they're going to raise rates? how do you do it without having more tightening in the markets. >> well, look, if the markets were in good shape and you had a 3% devaluations in the chinese currency. it's not a big number in term of gdp or pressures at all yet you wouldn't know it by looking at

the markets. that's what the disconnect was and the fed and janet yellen said we can't explain why the markets reacted so much to something we thought was innocuous and is there something else going on. >> if you're trying to figure out the psychology of the markets you could try this your whole life and not figure it out. where do you think the fed stands? does it matter what happens or when they raise? >> it does matter but whether it's december or march or in between. >> you're pushing back into next year. >> another issue that hasn't been discussed and will be discussed very shortly is the fact that you have a funding issue in washington that has to get settled first by october 1st and then the potential for a debt ceiling debate in december which could provide more uncertainty. and i think as we saw by remarks from candidate clinton yesterday, politics injects

uncertainty to the markets at this point. >> are you nervous in all of these things we're talking about are all things that cause anxiety. is that a reason to stop buying stocks? >> the first thing to do is to try to minimize obsession with the day-to-day swings. this is a more volatile environment. it's going to be a more volatile environment but the underlying facts are that the economy remains strong. a 2.2% dividend yield when the 10 year is yielding around 2.2% we expect an earnings recovery to materialize in 2016. >> thank you. >> now we're down more than 200 points and -- >> talking us down. >> no but i remember the days we had about six months of this year where it was like this and absolutely nothing was going on. i guess if it ends up in the same place versus a narrow band we get much bigger ratings so

not that bad. coming up scat walker drops out of the presidential race. will other candidates follow him? not if they have money because hope springs eternal, doesn't it? that story next. first as we head to break a look at yesterday's s&p 500 winners and losers. ♪

big day? ah, the usual. moved some new cars. hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac. see you tomorrow, sam. just another day at norfolk southern. but it is not the device that is mobile, it is you.

real madrid have about 450 million fans. we're trying to give them all the feeling of being at the stadium. the microsoft cloud gives us the scalability to communicate exactly the content that people want to see. it will help people connect to their passion of living real madrid. (vo) wit runs on optimism.un on? it's what sparks ideas. moves the world forward. invest with those who see the world as unstoppable. who have the curiosity to look beyond the expected and the conviction to be in it for the long term. oppenheimerfunds believes that's the right way to invest... ...in this big, bold, beautiful world.

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.

>> my name is nick and i'm lazy please don't take a walk with me i'd rather stay here at home in stead. i want to lie back down in my nice warm bed. my name's nick and you're going to have to carry me. >> that was carly fiornia on jimmy fallon last night. meantime, wisconsin governor scott walker ended his campaign for the republican presidential nomination and here's his call to fellow republicans still running. >> i encourage other republican presidential candidates to consider doing the same so the voters can focus on a limited number of candidates that can offer a positive conservative alternative to the current front runner. >> but as we said people can remember jimmy carter, people remember bill clinton came out of nowhere. people can also remember, maybe

there was howard dean. >> president obama came out of nowhere. >> and then they went back and said the mccain year started out the republicans looked at a couple of other people and then mccain fell out of favor and came back. >> it is early. >> you never know. >> so hope springs eternal but if you're 1%. >> according to the most recent poll he was less than 1% and having problems getting financial donors to come back to the table. >> remember the correspondent dinner a couple of years ago and kim kardashian was there and when rick santorum came over it was a huge event.

>> who was he then? >> he's running now. >> you get to have that in there that you ran for president. >> spend other people's money. >> unless you're donald. >> in which case it is your own dime. >> real quick because we showed carly on the show i spent the past week trying to write a column about her time. so much attention has been on her tile at hp and she wasn't the ceo so it's hard to -- its hard to make a judgment would be way or the other whether to credit her or blame her for the success and failure. she ran three different divisions at the company. it all ended relatively in tears. a company worth $258 billion. >> even your column points out that it ended in much better position than a lot of the other suppliers. >> absolutely.

>> and even with hp there's the overall environment that you're operating in, right? the demise of the personal computer killed compaq, hurt dell, hurt ibm. >> but she doubled down. >> as she said at the time you'll either be acquired or someone is going to acquire you and they got all the way back to the mid 50s. >> the question, there stood three questions on lucent. there was a major accounting fraud which they settled. $1.1 billion. it happened after she had left. having said that, she was very much part of the culture that helped boost some of the people that did later become responsible for those things. it's a very mixed picture. there was a company called asend

communications for $22 billion. one of the worst mergers of all time. was she the ceo when they did it no. did she say it was a good idea? yes. when you're trying to give a layered picture of who she is and what her management style was. look she was an amazing manager. no question. >> and the whole picture is that she rose from a secretary with earned success to rise to the highest levels at a couple of organizations accrue, 60, $70 million? >> given what happened to the company. >> she was a very successful woman. obviously she has things going on pretty impressive. >> absolutely and i'm very impressed with her in terms of what she has been able to do. she walks around and talks about her business record and wants to

run the country as if she was running these companies. if you ran the country like you ran these companies in total fairness if modelled the same way, both would have been run into the ground. >> i think that's a conclusion. ceos make thousands of decisions and there's the backdrop of what's happening in the entire industry at the time. >> look, she ran -- she had a tough time. i said it in the column. she was in put in charge of the consumer business which is and that the hand set business. she ended up merging it with phillips in a deal that was probably even worse. as you look at all of these decisions there's things she did that were good and she had a career that skyrocketed. by the way, there's a fellow in the piece that makes a good point which is to say there's no way in fairness to her that she would have become the ceo of hp had people appreciated what was really happening at lucent at

the time. >> and you can also -- i can give you a list of ceos that might -- great guy, great ceo, handed a company at 60 times earnings that jack welch had run a certain way. at this point, there are people that say he's the worst ceo in history because of what happened in the stock price in ge. >> and if he was running for president people would write about what happened on his watch. >> but you'd say what a great manager and people person. >> he took over on september 11th. >> and you can say those things about carly. there were people that were loyal to her. >> and then you got everybody else that was a professional politician. some of them in the senate and never had a single accomplishment in their entire life. so which would you rather have? someone that you have a grey area in terms of some decisions

as a ceo but who made tough decisions or someone that coasted along? >> that's what the voters have to decide. at least you have someone that was up to the plate and took so swings. instead of someone just coasting along in the senate giving speeches. >> we'll talk to someone else also up at-bat every day. the ceo of red hat on how his company is hiving larliving lar cloud. we all know about that. when we come back. can it make a dentist appointment when my teeth are ready? ♪ can it tell the doctor how long you have to wear this thing? ♪ can it tell the flight attendant to please not wake me this time?

♪ the answer is yes, it can. so, the question your customers are really asking is, can your business deliver?

software distributor red hat raising it's guidance for the full year. jim is the company's ceo. in general does it feel like a

2% backdrop economy for -- in your business, jim? or something better than that? >> well, our business probably isn't a good indicator of the overall economy in that people often use our products to either save money so when economic times are tough we actually do quite well or for their next generation cloud type infrastructures. i would say in technology overall it feels a little better than a 2% economy but it certainly wouldn't be at a 2.5. >> and as far as domestic versus international, how is the break down with your company? >> well, this quarter it was higher toward domestic. a lot of that is driven by weakness in the euro and the yen. typically the americas represents about 52 to 55%. but with weakness in currencies that's moved a little bit. in terms of an overall feel we

haven't noticed a big difference between europe and the u.s. china is a little weak but china is a pretty small software buyer so the core economy certainly in europe and the u.s. feel similar. maybe a little better in the u.s. but pretty similar across both areas. >> before the cloud i mean, we used to interview red hat five, six, seven years ago so you had to move with technology as well, correct? and now this is -- how much of your niche is cloud based now? >> our cloud revenue is a combination of our kind of emerging product segment as well as a lot of linux runs in the cloud. so how people use it is hard to say. our business is about 20% of our revenues. it's growing, the last quarter 48% in the currency basis year over year so our emerging markets are growing very fast.

our core business grew 17% in constant cu consta constant currency but we still have a core business of taking share from the big established enterprise software players. >> it's still enterprise software based, are there trends in technology that favor red hat in the future that you can point to? >> certainly. it's hard to break out cloud from mobile. you have a mobile device and you have applications there. that's the presentation layer. often the data and compute is running somewhere else which is why you have to have connectivity on your phone. that's driving, when we think about cloud computing, for a lot of people that's really the other side of where your mobile applications are running so the continuing growth of mobile drives demand for cloud.

the vast majority of cloud runs open source and therefore our software. we did a deal or announced a deal last quarter with samsung where we're working with samsung to deliver enterprise applications that can run on any mobile platform. samsung is trying to drive their own platforms. that not only drives business for us in term of hand set applications written to go on the hand set but the infrastructure in the clouds as well. >> all right. did you hear him? even for him it's difficult to see how clients use linux. we're just feeling our way around but i'm glad that you admit that it's hard to understand how clients actually use it. >> for your audience so every major stock exchange in the

world runs on linux so building systems and trading platforms are all that. >> beautiful, that helps. thank you, appreciate it. good quarter, thanks. >> coming up when we return, put away your wallet. mobile payments becoming a booming business and a company looking to take a bigger piece of the pie when you go a restaurant. they'll join us next but first we head to a break. heres today's squawk planner. quarterly results from congara -- we have music going and this. richmonday fed survey at 10:00 a.m. eastern and china president is going to be visiting with business leaders in seattle ahead of going to washington. squawk box returns in a moment. ♪jake reese, "day to feel alive"♪

♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ hey! hi! our cloud - it's a platform based on awesome-ization! really?

can it keep our data where it needs to be no matter what country we're in? integrate with our systems to help keep transactions secure? combine customer data with likes, tweets, the weather, to predict trends? that would be awesome. tote? now there's a cloud that understands business. now there's the ibm cloud. you forgot the milk! that's lactaid. right. 100% real milk, just without the lactose. so you can drink all you want... ...with no discomfort? exactly. here, try some... mmm, it is real milk. see? delicious. hoof bump! oh. right here girl, boom. lactaid®. 100% real milk.

no discomfort. and for a creamy and delicious treat, try lactaid® ice cream. when you're not confident your company's data is secure, the possibility of a breach can quickly become the only thing you think about. that's where at&t can help. at at&t we monitor our network traffic so we can see things others can't. mitigating risks across your business. leaving you free to focus on what matters most.

welcome back, everybody, attention, iphone customers, if you've been waiting for that new iphone6, get this, might not get it in time, and it may be because of devine intervention, but shipments could be delayed because of iphone launches, and it has for a long time, and warning of delays in new york city and philadelphia that coincide with the papal visit this week. the new iphone scheduled to arrive on friday, but thursday

and friday are busy days in new york first, and then in philadelphia, so if you are on the wait for that just be on the lookout. it could be late. >> talking about tech news. the world has been a hash list, and mobile payment platform, velocity, is trying to create an experience at the best restaurants in the world. we have the cofounder and co-ceo of velocity, the final mobile dining plat firm making its first acquisition in new york. you walk into a restaurant and i say i'm using your service and then i walk out and it's paid for? >> absolutely. that's put very well. you walk into one of hundreds now of great restaurants in new york, l.a., san francisco, london, and it's growing all the time, tell your server i'm on velocity. you give them your name, and at

the enof the experience rather than messing with the check and having to split the bill, whatever it might be, we turn the end of the experience into an interaction. >> you don't have to wait for the bill? i don't have to deal -- i can just leave. >> you leave. >> i thought that was a great stat, we spend a month of our lives, 13 months of the life waiting for a bill. >> when you tally it up, absolutely. people like you spend more than that because you dine out more than the average person. >> what are the tipping experience? how does that work? >> the tipping experience is seamless as well. in the united states, obviously, it varies by geographic custom. in the u.k., we have service; and in the u.s., it's gratuity. set your preferred gratuity, and at the end of the experience, you can flex it up or down. >> is that a single digit gratuity? >> he's trying to suggest that -- >> well, it's interesting you ask that. what the app is doing is helping

great customers and hospitality around the world build a profile through the use of mobile services and serve as a priority access. >> this guy's a tipper and you tell that based on -- >> average spend. >> not a cheapskate? >> it doesn't tell them that. >> what this does is solve information. i'm sure people like you guys have been there. i've certainly been there when i go to restaurants all the time in london. i have a great customer of hospitality, and i remember the first time in los angeles i couldn't get a reservation anywhere my friends told me to go. i got a reservation eventually after a long wait, an consolation with a lot of people, but what the app is doing is solving information of symmetry. we want access to the best restaurants in the world and best restaurants in the world want to give capacity to the

customers in the world. right now, the average customer spends 14% more. >> you can reserve through the app as well? >> that's right. >> how does open table doesn't do what you do? >> great. open table is a terrific company, quarter billion dollars of revenue last year, 21% in the margins. they are trialing payments in the united states, but, look, we actually don't compete directly with open table. you know, what we're doing is getting you that prime time reservation at cabot and that's where -- those generally don't go on, that 8:00 and 9:00 p.m. reservation is not always going on. >> you're not charging for the reservation? >> no. >> because there are services doing that as well. >> yes. this is really important. we believe that trying to charge somebody for the privilege of walking into a terrific restaurant is not ethical to the notion of hospitality. >> thank you. >> thank you very much. coming up, china's president on the way to washington for a state visit, first, though, seattle to meet with business leaders today about formats and

meeting with chinese representatives ahead of that. he'll join us on set. big day? ah, the usual. moved some new cars. hauled a bunch of steel. kept the supermarket shelves stocked. made sure everyone got their latest gadgets. what's up for the next shift? ah, nothing much. just keeping the lights on. (laugh) nice. doing the big things that move an economy. see you tomorrow, mac.

see you tomorrow, sam. just another day at norfolk southern. it's more than a nit's reliable uptime. and multi-layered security. it's how you stay connected to each other and to your customers. with centurylink you get advanced technology solutions, including an industry leading broadband network, and cloud and hosting services - all with dedicated, responsive support. with centurylink as your trusted technology partner, you're free to focus on growing your business. centurylink. your link to what's next. 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.

zplmplg china's president pledging reforms, and bob hormatz met with the team and what to expect. the gop field got smaller. governor scott walker dropped out and urging backers to rally against donald trump. we'll talk to the gop candidate, mike huckabee straight ahead. talking with the volkswagen's ceo. >> we were dishonest with the epa and resources board and with all of you, and in my german words, we totally screwed up.

>> fallout from the cheating scandal as the second hour of "squawk box" continues right now. ♪ live from the beating heart of business, new york city, this is "squawk box." >> welcome back to "squawk box," everybody, first in business worldwide, cnbc. i'm becky and our guest host for the hour is former wells fargo chicago, and thank you for being here, here to talk about the fed, economic growth, and banking industry over the next 20 years, first, though, andrew has this morning's top stories. starting with the markets, a negative start this morning, red arrows now officially across the board. you can see what's going on. u.s. equity futures at this hour are down as well. by the way, the dax over 2.5%,

and u.s. futures opening down 180 points off, and s&p down, and nasdaq down about 59 points. in political news, wisconsin governor walker is now bowing out of the race for the gop presidential nomination. walker's support fell 10% in july, less than 1% by september. here's the message to the other candidates after he announced his suspension of the campaign. >> i encourage other republican presidential candidates to consider doing the same so that the voters can focus on a limited number of candidates who can offer a positive conservative alternative to the current front runner. >> walker did not say who he wanted to rally around, just that the party should rally against front runner donald trump. we'll talk to gop presidential candidate mike huckabee later this hour. in corporate news this morning, volkswagen set aside

$7.3 billion in the third quarter following regulations that it misled u.s. authorities over emissions of diesel cars, and shares of volkswagen down 17.5% now. the north american ceo makes a candid apology saying the company, quote, totally screwed up. that video later this hour. and president of china is expected to touch down in the u.s. at 12: 30 eastern time today as part of the seven day tour of the country. the visit begins in seattle, meeting with corporate leaders from around the country, and later tonight, a major economic policy address with topics ranging from cyber security all the way to trade. and key among them is china's economic stability, and joining us now, bob hormatz, a former goldman sachs international vice chairman and former state department under secretary, recently met with members of the chinese president's team, and our guest host for the next hour, dick, former chairman and ceo of wells fargo, and, bob,

thinking about all the guests we have, and i think of some as real china -- not cheer leaders necessarily, but bullish and enablers of china and others are consistently negative. i don't think of you as necessarily either one, but with a bit of a positive vibe for the prospects of the country in the future. >> fair analysis. i'm positive, but they have serious issues that they themselves understand and need to deal with. >> they've made great strides in, obviously, can't have a great economy without emphasis on markets. doesn't work. >> absolutely. >> they've been able to move quickly towards that, and if there is a day of reckoning, is it coming fast enough in. >> the problem is they want to move rapidly, but they are wide invested in china, they don't want to move as rapidly as the leadership. there's a lot of big companies there resisting quick moves to the market.

there's a lot of powerful forces there. they employ a lot of people. they are powerful party leaders who support a lot of these big companies, so whereas i believe the government does want to move to make the economy efficient, utilize work e eers efficiently produce higher products to invest less on consumption, services, manufacturing, and all the things are underway, but their resistance in china is becoming more difficult. >> tough to get what's happening there? >> it is. >> it's impossible. >> it's impossible. if you go there and talk to people, it's not as transparent as many countries as you well know. >> right. >> but there's a number of chinese, particularly private sector chinese, younger chinese, who want to move towards greater e engagement in the area, they want a treaty with the united states and currency to play a greater role in capital markets, they want greater currency

convertibility in the decline of capital controls, all of which enable them to be more efficient as an economy and move in the global economy. they want to work with the u.s. there's a strong desire on their part to work with the united states on a variety of issues. they will be headed the group of 20 next year, first time ever, they want to work with us because they know we're still the most powerful country there to make thing happen in order to deal with some of the volatility in the global economy, but -- >> is it fair to characterize the last five years as it's been mostly a continuing deceleration, right? >> yeah. in fact, that's correct. the rates -- >> sorry. do we have enough to go on for a westerner to be able to discern the second derivative or determine when it stops in. >> part of the adjustment process. >> are we there?

>> we don't know whether we're there. >> we don't know. >> i think what happened in the last five years, which you say is correct, it's not grown as rapidly. >> will we know when it's ready to start? >> it'll be hard to tell because it's not as transparent at other countries countries, but they are doing the right thing. they really are. they want to move towards a greater use of market forces. the problem is this. if you move from a very, very investment-driven economy with a lot of over capacity to one where you depend on services, it takes time to reduce that excess. >> there's been a misallocation of capital because the state doesn't know how tuesday things as well as the market. >> yes. they recognize that. the question is how quickly they can do this, and when does private sector and consumer demand increase to the point it drives up some of the slack in the manufacturing sector of the economy. >> you have all the answers on this, or are you learning from hormatz here? >> i'm learning from bob.

he's the best, but i'm wonder if the problem isn't the state-owned enterprises. you say pulling back, it's usually those people that are not moving according to the market place and so forth, but what i don't understand is why they don't go to privatization. if that's what they want to have happen, and i'm not saying took every soe, but if you start the proce process, you may scare incumbents and they may move, but if you let just competitors cause the change, that's a slow process. they have great competitive advantages, they get more credit, less cost, et cetera, and they are so entrenched in that. i would think they should start doing privatization. >> some of the big state enterprises are partly owned as you know and privatize in the u.s. and at home as well, but the problem is they annoy a lot

of people. they have not only support from a party, but governors who say you can't cut back too quickly on this company because too many people in my province are employed by that company, so it is a problem, but it is also a problem p as you point out in absorbing capital. they take a lot of capital. they are not the most efficient utilizers of capital. put money into the private sector and startup companies, they utilize officially, and the government knows this. they are trying to get the banks to do that, trying to shift the emphasis to the newer, younger private companies. that is important. they also want a more efficient capital market internally in order to do that, to utilize capital, get a higher return on capital. return on capital is not n increasing, but slowing down, move to efficient use, they get more employment, and they get more bang for their rnb. >> a lot of it, the market

turbulence we imported into our equity markets from china, people point to the -- saying that stock market, saying that's irrational and it doesn't make sense because the market hasn't run up so much, but would you say, looking at commodities or if you look at what was happening with creating partners, it's clear that the market maybe was reflecting the end of the line of china's economy. a global slow down inspired by china. >> i think the markets were nervous, but our markets way overreacted to what's beginning on in china. first of all, the china went up a lot. it's still much higher than it was. >> is it indicative of the underlying -- >> it's the uncertainty that's the problem. >> we don't know. >> we don't know whether it's. we don't know what the growth rate of china will be over the next couple of quarters or couple of years. american companies directly don't depend that much on the china market per se if you look

at the portion of the overall revenues, china's not huge. for some companies, though, it is. the problem in part is that china has a big impact on other countries in east asia, and it has a big impact on commodity producers, so china's a marginal buyer of a lot of commodities, and it does have a very broad regional and sectoral impact in commodities. people are looking at it and over exaggerate the currency valuation. it was not much, certainly not as much as the valuation of the euro to the dollar, but it's the uncertainty, and we don't know as much about where the chinese economy is going quantitatively. we have an idea of the policies, but not how quickly they impact and produce a higher rate of growth. >> the implication there is that china is the -- is the growth engine. i don't think that's the case. the reason is china's slow within export countries is the

world is slow, and until they have their domestic economy more domina dominant, they will be simply reacting to the worldwide economy, and everyone says china's slowing. no, the world's economy is. >> it's just a gauge of what's happening? >> exactly. >> it's a little of both. it's part -- it's slowing somewhat, and the world's slow, and the two are impacting negatively on china. we can't depend on china as the growth end gin to solve all problems. >> dick, that makes sense, not something i heard before, and makes you realize that's why the market is reacting as much as it is, not that we're worried about the impact what china does in terms of trade with us, but what it is as an indicator. >> u.s. is doing well, exactly, we're not dependent on exports. it's an economy that can grow without having a worldwide economy, you know, booming. china can't or can't to the same

degree, huge backer until -- >> that's exactly right and why they want to reduce dependence on exports to have more dependence on their own domestic demand, not be as vulnerable. >> ken paulson said that for 20 years. >> right. but they have been very dependent on the -- because they've been doing well in global markets. now they have to make internal adjustments. >> is kissinger -- >> yes, he will. he'll be at the party and event in seattle. in fact, he's the chair of this. >> there's a party for the book written by him next week. >> there could be that too. >> you're not invited to that? >> i may be. i may be. he's going to be out there, but i do think that china wants to -- the china -- one of the things that comes out of this is china really wants to be more engaged in the global economy, has ideas how to improve the global economy. it has a strong interest and a strong american recovery as we have a strong interest in a strong china's recovery, and the

chinese have a strong interest in making the global economy work better because they are still heavily dependent and will be for a period of time on the global economy, and, therefore, there's a lot of opportunity for cooperation between the two countries. that, i think, will be the theme of the visit. >> all right. bob hormatz, thank you. when we return, bank of america shareholders vote today on whether to strip moynihan on his role, and the future guest host joined by the chairman and ceo kelly king, and later, former arkansas governor mike huckabee joining us to talk about his presidential bid and scott walker's exit from the race. at&t and directv are now one.

which means you can watch movies while you're on the move. sitcoms, while you sit on those. and even fargo, in fargo! binge, while you lose weight! and enjoy a good cliffhanger while you hang from a... why am i yelling? the revolution will not only be televised. the revolution will be mobilized. introducing the all in one plan. only from directv and at&t.

welcome back. the futures right now, they are in the red, and they are in the red in a big way. market opening down, dow jones opening off 176 points now, and s&p if opening now would open down by 22 points. the big story of the morning, bank of america shareholders vote today on whether to strip the ceo, moynihan of his ceo title. we are in charlotte this morning with more on the story. good morning. >> reporter: good morning, andrew, the vote is happening today because nearly a year today, the board moved to combine the roles after shareholders themselves voted in 2009 to split them.

back in 2009, it was a close vote then and shaping up to be close today. many shareholders came out to vote against them, and the "new york times" says as many as 30% of investors could automatically side with so-called approximaty advis -- proxy advisers which advised against the roles. there's an aggressive campaign to secure the vote, if lost, is a black eye for a company that's been able to get to the other side of a long list of legal and regulatory troubles over the last few years. the bank said that less than a third of s&p 500 companies actually have these roles split, and the bank also defends moynihan saying and affected a dramatic turn around of the company and returned the bank to profitability, not the notion that warren buffet espoused this month on cnbc. the concern is less about moynihan but the bank broadly appears to be out of touch with

what investors want. if investors, do, in fact,ment the roles split. regardless of how the vote lands, it could add pressure to the bank to revamp the board of directors and reform the way it does corporate governance. we could wait a long time throughout the day to get the results of the vote. we did not get them until later in the business day in 2009. you may remember that vote in 2009 passed by a majority of just 50.3%. we'll have the results for you a little bit later on. for now, andrew, back to you. >> okay, thank you, kayla. our guest host is former wells fargo chairman. i want you to weigh in on this issue. seems to be two issues herement one is whether moynihan should have the two roles, and the other ask a process issue. it's sort of hard, in some cases, to separate them. how do you think about it? >> the process was not handled well, that is for sure. ask anyone, no one would argue

th that. there's an important issue here. that is, when you outsource, they say the investors are upset, but when you outsource your decisions to proxy firms, you are -- the investor's not making the decision. i will bet you that 80% of the no-votes are votes that have been outsourced to iss and they have been religious about this, about splitting. i mean, it makes no difference what company it is, how well it's going, how well the ceo -- >> just check the box. >> just check the box. >> yep. >> if we don't change this system, i go back to this. how many stocks did you own where you do not have confidence in the management? very small number i would say. so what you should do, and the reason they outsource because they don't want to take the time to lack at every issue. well, in my opinion, what you should do, because these are asset managers, not just funds. you should -- the default should

be to agree with management, and then you ask whoever the portfolio manager, say, okay, if you have a stock that you don't like to manage, then you make the decision of how you vote. otherwise you vote with management because why would you own a stock you don't like the management. >> what would you do -- >> so this default problem is a real problem and it looks like the owners are voting the way iss and glass -- >> here's the default question, if you have a portfolio's manager active, they can take an active role in voting, they don't always, but they could. >> yes. >> but so much of the market these days is in indexes. >> exactly. >> function of that, ets or straight up indexes, the companies that oversee the indexes say to themselves, we have hundreds of thousands, if not thousands of companies in these indexes. we don't have the time to actually go through the stuff, so we're going to outsource to someone else because we can't afford to do it otherwise. how should that work?

>> well, my point is i think that's why you have a disconnect because as stated here, investors are holding against. you should have -- the vote should be how much the vote no is from index funds or from people outsourced. how much are really from investors making the decisions? i think you'll find a different pattern. i think that's one of the reasons you have this conflict going on in general, and until we get more data and more transparent about who the no votes are, i think the message is not the correct message, maybe, that is being spread. >> we'll take a good pause, by the way, should he have both jobs, in your mind? >> you know, let me just say this. the board of directors, in my opinion, is the body best suited to make that decision. if you don't think the board can make a good decision on that, you should vote against the board. >> fair enough. thank you. we'll continue the conversation.

dick will stick around a little longer. when we come back, fall out from volkswagen, the ceo making an apology last night. you want to hear what he said, and we'll get to that after that. term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform. because active investment management isn't reactive. it's active. that's the power of active management.

this just in: 50 million customers' data was not compromised this morning in a security breach that didn't happen. wall street. not rattled. at all. no. not at all. not at all. i mean, look at the day. sir. sir. what went right? what went right? everything. thank you. with threat intelligence, behavioral analytics,

and 6000 experts, ibm security will help keep you out of the news. my dad's company wasn't hacked today. cool.

breaking news overnight. south korea says it will investigate three of volkswagen diesel models after the company admitted to cheating on u.s. emissions tests. germany is conducting tests on all models, and phil lebeau is here with much more on the story which we're still digging through and can't believe it. >> it's getting bigger, and within the last hour and a half, they said, look, there's 11 million vehicles impacted worldwide, but they are calling it software deviation, not saying they are cases similar to the united states in terms of being rigged to pass clean air tests. >> software we implanted? >> that's the question at this point. i'm sure that you -- >> when you hook it up, you hook up the emissions test thing or

something, who does does it know when to stop the emissions? >> basically, what happens is there's -- it's called a defeat device, and its software that determines when a vehicle is in test mode for the clean air tests. when you have a clean air test, the testing within -- within the vehicle, it is called, okay, this is a test going on here. the software is designed to lower emissions during the tests and turn off when they are not in test mode. >> you could pass cafe standards like that. >> you would. you could also get busted. >> it's one way to pass. >> volkswagen said, we'll take a $7.2 billion charge in the third quarter. >> you think that's just the beginning? what does the number turn into? as to the extent investors try to assess? >> that's the problem. that's the problem. so the question is, software deviation, is it legitimate in terms of, look, we probably should have done differently with the software or is it like the united states where it's so

brazen that last night the ceo of volkswagen of america, the candor from him at the event here in new york in brooklyn where they up vailed the new passat. hear what he had to said. one says you rarely hear this. >> our company was dishonest with the epa and the california area resources board, and with all of you, and in my german words, we totally screwed up. how often do you hear that? we totally screwed up, and when i talk to people in germany, when i talk to people who work with volkswagen in europe, they say the same thing. this is scramble mode. >> how many heads roll? >> quite a few. >> does he keep his job? >> michael horn's relatively new in the position. i would be surprised if his head rolls. keep in mind he's -- >> we have to find out who knows about this. looks like they've known for it

for a year, wrangling with the epa, and said it was a strange co coincidence. >> right. >> someone wrote the code. this was not an accident. >> absolutely. this is not code -- >> someone knew. >> watch this. >> here's the difference. a few years ago, hyundai and ford had incidence where their vehicles were not getting the miles vehicles advertised. if you look at those incidents, and i remember covering these, it was accidental/we were not as diligent as we should have been. this is clearly -- that device is in there. we have one more sound bite. he doesn't get the numbers, but it's clear, they are going to pay. here's what he has to say. >> you can be sure that we will continue, not only to correct this tdi issue and to straighten

things out and to pay what we have to pay, but we'll continue to work very hard to make our story here in the u.s. for the customers, our dealers, and employees a success story. >> this, they have to pay what they'll have to pay. who knows what the bottom line price will be, but in the united states, the guys have stumbled time and again and never been able to truly get a foothold here in the u.s. this is going to put them way back in terms of doing that. >> you wonder how high it went, though. there was a chain of command where someone wrote the software, insisted -- put it in, you wonder how high it went, and that's what the external investigation is designed to do. >> right. you have a europe -- they are worried here because diesel is a big deal in europe. >> phil, thank you. great to see you. >> good to be here. >> extrord yaordinarextraordina. the other stories front and center. topping revenues short, higher prices boosted the bottom line for them. and darden beating the street,

under pressure from activists star board, star board value. same store sales rise for a sixth straight quarter. fertilizer company, mosaic, cuts production and lowers outlook for sales because of delayed fertilizer purchase, volatility, and lower crop prices. we continue the celebration of the 20th anniversary of "squawk box", in-depth conversations on the banking industry over the next 20 years, and kelly king is joining our guest host, former wells fargo chairman. as we break, take a look at u.s. equity futures. i love you. love you too. ♪ one minute. ♪ hi. hi dad. we need to do this, yes. ♪

you be good. alright. ♪ letting go... don't say a word. it's a little easier when you've saved for college, with state farm.

i wish i was in school. [overlapping chatter] if only i had a math test today. i'll stay after class. i'll clean the chalkboard. i wish i was in school. man: school ends, but free lunches for your kids don't have to. find your local feeding america food bank for help. today's conversation for the next 20 years brings us to the future of banking, and, today, we have the ceo of the most inquisitive super regional bank of this year, kelly king, chairman and ceo of tnc, starting the company in 1972 in, and it was also one of the three

banks that made profit and former wells fargo chairman, dick, covase vick, retired as chairman in 2009, but not before acquiring wachovia in the financial crisis in 2008. welcome to both of you. 20 years out, what is banking looking like in america? interestingly, a lot like it does today. there's a lot of things changing, but starting in 197 2, every week, there's an article in five years, we'll be in a cashless, checkless society, and for 35 years, nothing change. now, it is changing now, but things don't change as fast as sometimes we think, point one. but on the other hand, things

are changing. very quickly. and so when we look forward 20 years, andrew, there could be a lot of changes, largely around three areas. there's a whole question, which we can talk about around disruption and there's the question about data, data science, cyber security, and then there's a whole question of what does the regulatory environment look like in 20 years? >> all right. you spend all this time in california, hear all the silicon valley guys. do you think talking about living in a cashless world, right now, we talk about this, there's branchs on every corner. will people still have bank branchs? will you get a mortgage from a bank or will you get it from the equivalent of the lending clubs of the world or the other outfits that emerged? >> well, i think you'll find thatba banks react to the technology and probably even given -- have a relationship with some technology company as they exist today.

if you remember back in the internet days, bill gate says banks are dinosaurs, and they would be all gone. well, the best internet banks today are from traditional banks, but what are we? a traditional bank or the fact that 15 million of our customers are depositing their checks with digital devices and cell phones and so on, so if you don't adapt to the technology for the customer, you won't exist, but a bank who has successful lly don that in the past and will in the future, but you have to be heads up and you have to give what the customers want. >> how consolidated is the industry 20 years from now? it's a question what makes sense economically but what's allowed in washington? >> well, there's been major consolidation over the last 30 years or so already, but going down 35 years ago from 18,000

banks to 6,000 banks. it happens every day, but you don't see it. looking back on the 35, there's been major consolidation. i think over the next 20 years it continues. i suspect less than half 20 years from now than what we have today, and the larger banks get larger. you'll have, you know, 12 to 20 or so large national or regional institutions controlling 85% of the business. there's still a large number, small institutions with a petite strategy that'll be successful, but the consolidation, generally, is economically driven, and it's consumer driven. given the financial dry sis, though, and what we learned on risk, should we be worried about the consolidation taking place. >> they don't want to be bigger,

but when you put in regulation like dodd-frank, like any industry, it has to get consolidated because of risk of inflation. that's driving consolidation now is the heavy regulatory environment. they have to get there. now, the reason i think we shouldn't worry about that, if you look at all the countries in the world, you know, take canada. six banks. basically 80%. they had to -- they had the safest banking system for 125 years, so -- >> highly regulated banks. >> not as high as ours today. >> really? >> oh, no. i don't know -- well, maybe, you know, third world country, it is staggering, and to me, incomprehensible the level regulation we have today. jamie dimon has 20,000 people in compliance and it's increasing.

stump has 10,000 people in compliance and increasing. kelly, how many do you have? >> we're a small bank, we're in the in those numbers, but we have a lot. >> a lot. i can't imagine what these people are doing because they are not helping customers. they are not finding new technology. if you look at the productivity of the united states, it's at the lowest level in history in the last five years. well, if you have this many people in compliance, obviously, your productivity is going to be negative. >> correct. >> so we have to change the regulatory environment or there's going to be serious issues, and, remember, the whole banking system is 29% of the financial system, so there is 71% out there that are unregulated today. >> so we've -- we maybe have solved for what happened in the past, but you look at the risks ahead, they are what?

>> i think the greatest risk in the industry going forward, frankly, is around payments. the last 20-30 years, we had the round bonds and lending risks. the greatest risk is round. >> what do you mean by that? >> okay. traditionally most payments are in various forms in the banking industry. in the old days there's cash, and then we went to debit cards, but now we have a great obliteration of financial technology companies that are being very active in the paper space, think apple pay, paypal, et cetera, and so that's healthy and there's a lot of innovation going on that's making it good for the consumer to have more venues, but we have to work together in the banking industry and outside is to make sure we have really good firm security, really good firm regulatory standards because the entire payment system is completely integrated. people don't think in terms of it's -- what's in the banks and

what's in the nonbank. they think about if i go to a restaurant and not present my debit card, i want it to be successful. >> you mentioned security. i just want to end with this. i ran into a very senior level kp executive world a week ago. i thought it was crazy. he says every single month he prints out all of his statements and keeps a copy. i said, why? he said, because in this day and age, i want to have proof that i have -- >> is that proof? >> i don't know. >> a lovely statement, dick, do you take this? here's the proof, i have this money in the bank. thank, but that's not what the records show. >> i'm anxious already. >> i thought about the same thing, and i realized it's idiotic, nobody takes it as proof. >> banks invest huge amounts of money in security, and so the good news is, especially for the larger institutions as enormous, millions and millions, plus billions being invested in security in the area, that will continue. >> right. >> i think people can feel safe,

but there are a lot of changes that are required. >> do you applaud the fed's action or inaction last week? >> i was against it. >> against raising or their actions? >> their actions. >> thought they should have raised? >> they should have raised them. we have crisis rates, and we're not in a crisis. >> the fed said to the world that our economy is so fragile that it cannot absorb a quarter percent hike rate. that is ridiculous and the markets reacted. >> again today. >> yeah. you know? they should. they actually think the fed knows what the economy -- that's the biggest problem we have. the fed's been off by 50% in all forecasts over the last six years. you shouldn't believe what the fed says. >> with everything you've done, the economy still sucks. that does not give you a lot of confidence. anyway, governor scott walker is out of the race for the gop presidential nomination.

but it's still crowded. former governor mike huckabee joining us next to talk about his bid.

so you're a small business expert from at&t? yeah, give me a problem and i've got the solution. well, we have 30 years of customer records. our cloud can keep them safe and accessible anywhere. my drivers don't have time to fill out forms. tablets. keep it all digital. we're looking to double our deliveries. our fleet apps will find the fastest route. oh, and your boysenberry apple scones smell about done. ahh, you're good. i like to bake. add new business services

with at&t and get up to $500 in total savings. it's more than it's multi-layered security and flexibility. with centurylink you get advanced technology solutions. including cloud and hosting services - all from a trusted it partner. centurylink. your link to what's next.

and then there were 15. wisconsin governor scott walker dropping out the presidential race narrowing the gop just slightly. our next guest was on the main stage for last week's presidential debate and stands in 8th place overall in the polls. joining us now is presidential candidate mike huckabee, former governor of arkansas, and, governor, thank you so much for being with us today. >> great to be with you, becky, thank you. >> we saw what happened to governor walker, ran out of funding, having a tough time, the latest polls, he was less than 1%. i just wonder, this may be the time where people reassess, you see consolidation, and people really get behind a fewer number of candidates. a big part of that has to do with fund raising. where do you stand with funds

that you're able to bring in? >> becky, we're still on track to stay in for the long haul. what i learned in the past experience is the amount of money you get in the first month or two is not indicative of every month. we've seen it every cycle where they bill huge overhead and can't sustain the burn rate between staffing and operations. it always costs more than you think it's going to cost, and you got to streamline the organization, keep the structure small and nimble. you don't need as many consultants as all consultants tell you you need, and what's killing politics today that candidates are over consulted, and consultants get their money, but ends up the candidates can't sustain the cost of the budget. >> we saw carly fiorina after the last debate, and she performed well and she got a big

bump. how do you see this playing out? this is not a short sprint. when do you think you need to turn things own and get to the top of the polls, and how do you plan on doing that? >> well, you know, we've been everywhere from 3rd to you mentioned 8th. yesterday, we were 6th. you know, it varies, but the real issue still comes down, can you stay on your feet for the long haul? one of the things that is hurting us right now, for example, cnn during the period of august 24th-september 4th, donald trump got 580 minutes of television time then. becky, i got six seconds accumulatively in two weeks, got next to the least amount of time, and governor walker was the animal who h less time than me on the cnn stage. my gosh, i could have said, hey, i'll get a sandwich, text me when you need me and i'll come to the stage. >> is that a cause or symptom of

the reality, governor? >> well, no, it's largely because the media decides who to give attention to. you give that much helium in someone's

>> no, no, becky, the provision in the fair tax untaxes necessities, and there's a big misunderstanding how fair tax works, but a basic sales tax

without a provision, yeah, it probably would. the people in the bottom third of the economy end up being better off than anybody by about 14%. >> ooem ni'm not talking about governor, but the middle class where they spend massive amounts of the paycheck and not able to save much and set aside. they are worse off than the top 10%, i'd say. >> no, they wouldn't. no, they would not. in fact, they do better. the middle third do 7-8% better, and top does 4-5% better, so in so many ways, there's a big misunderstanding how fair tax works because this applies to everybody, not just the people at the bottom. middle class as well. >> i say the middle class is thin on a lot of thins that are not necessities. is an iphone7 a necessity? going back to school and buying for the kids right now, is there a prebate for that? >> it's not based on what they

buy, but based on the poverty rate. it comes out the same. here's the big point. when they go to purchase something, they take the entire paycheck. most middle class workers have never done that. a guy working eight hours a day in a factory, billing something, and he needs more money. he works 16 hours. he pulls a doubt shift. under the tax code, there's not a double paycheck, but he's put in a new tax bracket so the government gets a chunk of the sect eight hour shift. that's not fair to him. he can't climb the ladder with the government punching him in the gut because he's working twice as hard. we punish productivity and wonder why people don't move up the ladder. that's why. he needs the full paycheck, you work twice as hard, you get double the pay. simple as that. it simplifies the tax code, quits punishing the people being productive, and it stops rewarding people from making

stupid and irresponsible decisions. >> governor, we'd love to have you come back to talk other issues. come back soon. >> i'd love to. i hope to come back soon. >> thank you. great conversation. when we return, we have more from our guest host, and plan to ring in prescription drug costs, talking to dr. scott from aei about it. back in a moment. opportunities aren't always obvious. sometimes they just drop in. 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. pubut to get from theand yoold way to the new,d. you'll need the right it infrastructure. from a partner who knows how to make your enterprise more agile, borderless and secure. hp helps business move on all the possibilities of today. and stay ready for everything that is still to come.

we want to thank the former chairman for joining us for the hour. great seeing you. thank you so much for coming today. we'll talk to you again soon. up soon, though, two noble laureates on the economy and the risks of getting ripped off. robert shiler and george akerlof after the break.

proud of you, son. ge! a manufacturer. well that's why i dug this out for you. it's your grandpappy's hammer and he would have wanted you to have it. it meant a lot to him... yes, ge makes powerful machines. but i'll be writing the code that will allow those machines to share information with each other. i'll be changing the way the world works. (interrupting) you can't pick it up, can you? go ahead. he can't lift the hammer. it's okay though! you're going to change the world. more data means more freedom to do..whatever. that's why at&t is giving you 50% more data. that's 15 gigs of data for the price of 10.

because the more data you have, the better. and right now at at&t get $300 credit for every line you switch when you trade in a smartphone and buy any smartphone on at&t next.

investors on edge, and stocks opening sharply low this morning as they await this afternoon. not one, but two noble laureates sound off on the economy, and yale professor george shiller and george akerlof, and janet yellen'shouse here to share their thoughts. biotech taking it on the chin, the sector hit hard after hillary clinton tweets she'll review a new plan to stop price gouging. the american enterprise institute joining us to talk about rising drug costs and the future of the sector. plus, grapevine's in jeopardy. the $25 billion wine industry threatened by wildfires. we go to the front yards where vineyards scramble to save the vino. the final hour begins right now.

♪ live from the most powerful city in the world, new york, this is "squawk box." welcome back to "squawk box," everyone, this is cnbc, first in business worldwide, i'm becky quick, less than 90 minutes from the opening bell on wall street, futures under pressure this morning. right now, futures are indicated to open up down by 170 points, and s&p futures indicated down by about 21 points, and nasdaq down by 56. check out what's happened in europe, it's been a mirror image of what we've seen here. right now, you're looking at the dax and cac down by 3%. and ftse in london down by 2%. we'll monitor closer to the opening bell. a couple more stories investors are talking about this morning. the chinese president will be in seattle to meet with business

leaders today and bill gates. also, the other big news this morning, volkswagen is setting aside $17.3 billion following the revolutions they misled authorities with the pa test, and there was a candid apology last night. >> our company was dishonest to the epa, the california air resources board, and with all of you, and in my german words, we totally screwed up. >> i think a lot of heads will roll after that. the presidential field is smaller, scott walker dropped out focus on a number of can gats to offer a positive

alternative to the current front runner. >> this morning. we talk to stocks on the move this morning. darden had better than expected revenues, sales raise for a sixth straight quarter, and general mills topped estimates. it was up. restructuring, cost controls helped the company's bottom line. thor under pressure. falling short of estimates, short of sale of rvs. funny how that works. >> sales of rv? >> they're an rv maker. >> usually leads to that. >> makes sense. not because of lower iphones. >> no. that's right. >> good. there you go. thinking again. >> uh-huh. >> the next guests call the fairness of the free markets into question. in the latest book, these two noble laureates examine the pursuit of profits and risks of getting ripped off in a profit

maximizing world. robert shiller is the economics professor and cofounder of the case shiller home price index, and george akerlof is from georgetown university, the husband of janet yellen, their book called "phishing for phools," the book is released today, and thank you for being here. professor shiller, i want to start with you. you are a believer in the free markets, animal spirits and everything happening there, but what you set out with the book was to show that markets not only achieve good, but they also have some inherent ways of achievining bad things as well. lay that out a little. >> well, i would say that our look a free markets for adults. we have to say reality. the realities are that we exist in an e kwquill lib yum that mas

room for manipulation and deception. it becomes a -- unless there's actions taken against it, it's a necessity because businesses operating under tight profit margins have to do what others are doing. it's not intolerable. 80% of what we see in the markets is great, but there's that other 20%. >> talk about what exists. we know that free markets do not exist by themselves, but the reasons you have checks and balances, things like regulators overseeing things, how do you think we're doing in terms of the oversight at this point? >> let me talk about what's in the book. maybe we could come back to how we regulate it or what we do about it later. what the book does is unites two important fields. one is the field of economics. the other is the field of

psychology. the basic fundamental idea in most of sigh koelg is that we're human beings who are fallible machines. sometimes we make errors, we don't do everything right. the fundamental ideas in economics, the fundamental idea that there is that the markets produce an e quill lib yum, and if there's profit to be made, that profit opportunity is taken. markets give us what we want as long as profits can be made, but if it's also going to turn into something we don't want, it's not good for us, then markets do that too. that's the basic proposition of the book, and we manage to unite that to show that markets have both their good side, giving us what we want, and they do that very well, but markets also have

a bad side, and the bad side is if they can tempt us, if they can -- if they find something that's not really useful for us, then -- going to the profit, it can be made, they'll do that too. we've united that. the question is, what do you do about it? well, what to do about it is we spend a lot of time in the book talking about different examples, and all these examples you'll see that what you do about it depends upon the situation, but the examples indicate that we've been too sanguine about the effects of the market, acting there's magic that markets give us what we want. as bob said, we want the adult side of this, that market, free markets also have their flaws, giving us what we don't want, what we can be tempted into buying to. >> i can think of a real life

situation playing out now. professor shiller, the news yesterday about the company, a guy who started a hedge fund now bought a pharmaceutical company, jacked the prices up on one pill that's been up for 62 years by 500% overnight. that's a guess we need oversight and supervision? >> well, there's an issue about government intervening with pricing. i'm not -- just not -- this is not an example -- i have to think about what the optimum policy -- i feel great compassion for the people who suffer these price increases. this is a complicated scheme. our book does not -- it's not really a policy book. that's because academic policy is very subtle.

it has to perceive by experimentation and takes a broader picture, and so the problem we allude to to is building small manipulations that add up to things that change our lives, no matter how our healthy health, our balance sheets, creating fears and anxieties for the next financial crisis or fears of my job. >> professor, i think about smoking. it took awhile, obviously, but it's almost as if -- people were free to smoke, and the government never did prohibit smoking, which, i guess, would have been the most draconian, would have been ridiculous to do that based on how much it cost society, but the free market itself eventually allowed all of the information necessary to make that intelligent decision that came out, and people changed their own behavior based

on -- it took awhile, but sometimes what goes around comes around, professor? yeah. >> i apologize. we have to break. we have news about blankfein, memo just going out saying he -- had a biopsy and has limb foam ma. this came out in a memo sent out moments ago. after weeks of not feeling well, i underwent a series of tests, a by on si last week, and then i was told by the doctors that i have limphoma, it's curable, and high expectations i'll be cured, there's a treatment plan that includes chemotherapy over several months in new york. my doctors advised me in the treatment i can work as normal, but reducing travel. this is just breaking across the

wires, lloyd blankfein, has lymphoma. >> sounds like, hopefully, you know, he has the one that's treated. a lot of these different ones, talking drug stocks, some of the biggest drug successes in recent years at cell gene and others are for foams of lymphoma. hopefully that's what we'll hear. we wish him well. he's friends with all of our associates. that's kind of a shocker, though, when you hear about that, hard to get back to what we were talking about, but, professor, what was your train of thought, do i have to summarize the question? i guess i was saying that sooner or later, a lot of this will out, even in a free market

system, without heavy handed intervention, right? >> okay, so, actually, smoking is a good example, and we talked about that quite a bit in the book. it's actually an example of extraordinary good government policy, so the surgeon general turned out this famous report. this report this -- it is 5,000 pages long, it's very long, almost nobody read it, but it's created a story with smoking being stupid. you can summarize that long volume with three words, and government created the story, and i think the antismoking people for the last 50 years have set off of that story, and it's played a great role in the control of smoking. most are at the time -- at the time of the surgeon general's

report, 42% of the american adults with smoking is now down to 18%, and the amount of smokers smoking per person fell to something, like, 30%. they've been very large changed just by putting forth the official story of smoking. >> thank you, professor. before we let you go, has your wife said anything going on in october? anything coming up? any -- did she say don't make plans? i mean, just curious. >> so i have various plans for october, so i'm going to germany, to give a talk on phishing for phools. but, no comments about that. >> no nod, wink, nothing? >> no comment. >> you got nothing for us. all right. i knew that.

i knew that. anyway, professor, thank you. great to see ewe. my pleasure. >> congratulations on the book. when we come back this morning, first vineyards and wineries in california face a drought, now wildfires, preparing for the crop that generates about $24 billion in sales. look at the numbers from the california wine industry. we'll have the story when we come back. (vo) rush hour around here

starts at 6:30 a.m. - on the nose. but for me, it starts with the opening bell. and the rush i get, lasts way more than an hour. (announcer) at scottrade, we share your passion for trading. that's why we've built powerful technology to alert you to your next opportunity. because at scottrade, our passion is to power yours.

welcome back. an announcement coming out from the ceo, lloyd blankfein, diagnosed with limb foe ma, highly curable form, undergoing treatment but expects to have a normal work schedule, just putting out the memo. he got the diagnosis, the final diagnosis yesterday afternoon. had a conversation with management and the board between 4:00 and 7:00 last night, and now it's been put out on their website right now. in the meantime, we will bring in the banking analyst on the

telephone to talk about this. it's always hard to talk about health and also then think about these companies as investors. we all, obviously, wish lloyd well and hope that he does get better, but how do you think about this this morning? >> caller: well, i think it's coming at the wrong time for goldman in the sense that about a year ago after doing a study which had taken a year, goldman saks asked itself what should we do for the next five years, where is the financial industry going? they came up with this memorandum given to the board, and the board put in place a series of major changes as goldman sachs. we see it in the fact that they took the business development corporation public. they are getting involved in more retail activity. they've changed their trading platform, so goldman sachs is right now undergoing massive changes in its structure to fit itself into what, you know, what

banking looks like as you added moments ago, 20 years from now, and, obviously, lloyd blankfein is a key person in executing that, so, you know, he's a genius. i mean, nobody argues that. he's -- he's has great foresight, knows how to execute, and if something were to happen to him, i think it would be negative for the company, but, you know, as you know, this company has got one of the best management teams of any company in the united states. it's got a lot of depths in multiple positions. roy cohn is not a slouch in my measure whatsoever. if the situation goes in the wrong direction, and, of course, as you know, lymphoma is a very aggressive and tough form of cancer, it's going to be a hard thing for the company to handle. >> right. of course, i'm told lloyd is upbeat given the circumstances, told he's curable.

we had a situation a year ago where jamie dimon was diagnosed with a form of cancer that he's gotten over two years ago, warren buffet. all different forms of cancer, invariably we hope they all recover well, but, of course, this raises questions about succession. do you think they have -- what do you think about this succession plans we know about, and when you look at the bench, who do you think could ultimately run the company? >> caller: well, i mean, i think the obvious candidate is the president of the company, and, you know -- >> in garret? >> yes. >> caller: sorry, i said roy before, but the point is most people assume he'll step into place. however, given what i said about changing the structure of the company, the downgrading of trading, perhaps, the bringing forward other businesses that the companiments to get involved in, one has to assume this is

going to be a pretty rigorous discussion at the board level concerning who takes over the company, and i don't think mr. cohn is the shoe-in he would have been two or three years ago. >> dick bove, appreciate you dialing in this morning as we got the news about lloyd's health. we wish our best to mr. blankfein and we hope it is a speedy recovery. when we come back, vineyards in california are feeling the heat, literally, we got that story when we return, and jeb paulson discusses the fed's reasoning for holding off on oo rate hike, plus, the sectors he likes right now. we return in a moment. can protect capital long term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform. because active investment management isn't reactive.

it's active. that's the power of active management. excellent looking below the surface, researching a hunch... and making a decision you are type e*. time for a change of menu. research and invest from any website. with e*trade's browser trading. e*trade. opportunity is everywhere.

(vo) wit runs on optimism.un on? it's what sparks ideas. moves the world forward. invest with those who see the world as unstoppable. who have the curiosity to look beyond the expected and the conviction to be in it for the long term. oppenheimerfunds believes that's the right way to invest... ...in this big, bold, beautiful world.

wildfires in northern california have been threatening some of the drought stricken state's most lucrative wine producing region. jamie wells joins us how wildfires have wine makers scrambling. jane? >> reporter: not just them, but the three morn california -- >> we're having troubles with jane, technical difficulties between here and there. we've seen what's happened with the wildfires, and huge concerns, i'd say, have been spreading throughout the state. we'll try to get her back. when we come back this morning, we'll be talking about biotech stocks, slammed after hillary clinton slammed drug policies.

this comes after outrage after an important tablet skyrocketed. clinton tweeted yesterday, price gouging like this in the specialty drug market is outrageous. tomorrow, i'll lay out a plan to take it on. we'll discuss drug pricing and hillary clinton's possible plan. as we head to break, look at the u.s. futures, dow futures down by 200 points, s&p off by 25. we'll be right back. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or jerry, getting dumped every third tuesday. this happens every third tuesday. we have pattern recognition technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. for all the confidence you need. td ameritrade. you got this.

welcome back, everyone. breaking news. earlier this hour, an announcement from lloyd blankfein, diagnosed with lympho lymphoma, but it's a highly curable form of the disease, undergoing treatment, but expects to gain a substantially normal work schedule during the process. cnbc joining us now on the squawk news line, and, mary, what have you discovered?

>> caller: i wanted to give you a timeline of how this was disclosed to goldman as well as its board. lloyd blankfein received a final diagnosis at noon yesterday, informed the board at 4:00 and told management of goldman sachs at 7:00 yesterday. in between, he was a mastercard event yesterday evening. now, in light of the mr. blankfein's news, gary cohn, president and ceo, is likely to see an enhanced responsibility. again, mr. blaing fine will continue to lead the firm, but a person close to the situation said that cohn, who is very public face of goldman sachs anyway, has responsibility, and they have a very, very deep talent there to step in if need be if mr. blankfein or loid is not able to assume responsibilities in the treatment. again, the lymphoma is seen as curable, and doctors expect he'll continue to lead the firm.

again, when he found out at noon, his final diagnosis, he informed the board at 4:00 and management at 7:00 yesterday. back to you. >> mary, that's a very similar chain of events as to what we saw recently with jamie dimon when he was diagnosed with cancer at chase, and or jp morgan and what we saw happen with warren buffet when he was diagnosed with prostate cancer. a similar situation, inform the board, tell the public some of what's going on, but they have a right to privacy. this may be the most that we hear on some of the details for a while, i assume? >> caller: you're right. i think, you know, not up like others at aig as well. there is an element that you want to have in this element, and the shareholders know and the team and be open with the treatment and outlook as well. that's what we heard today.

>> do we know the timeline for the treatment would be like, and the lymphoma, where it is, localized, things like that? >> caller: no, i asked. i was just given lymphoma, just told lymphoma. i think it's a matter of privacy. i don't know what the treatment options will be right now or the timeline will be. >> all right. thank you for that. wee appreciate it. of course, you're right. ceos have been much more app to disclose things, and really, if you think about why so much of this is disclosed recently, comes after what happened with steve jobs. that's a different situation. >> totally. >> created a discussion -- >> if it hasn't -- >> what everybody knows, and it could have been different. >> the ora of he could walk on water almost for a while. but that was -- they had no idea when he was, you know, surgery that, getting a transplant, didn't know what it was -- he

didn't know he was getting surgery, much less what the surgery was for, so that stock -- i think it was that debate which is actually created that this is now a best practice. >> saying what the shareholders are -- what you'd think is disclosure that needs to be made relevant to the company when you're a key employee. >> right. just an hour before the opening bell, u.s. equity futures right now, take a look at what's beginning on there, red, worse, throughout the broadcast this morning, dow down 200 points, s&p off 25 points, and the nasdaq off 65 points. the question, then, is does the stock market still face downside risk? jim paulsen joining us, and i have a hard time for getting my favorite question, which is, have we hit a bottom? i'll start there, jim?

>> well, who knows, andrew. i kind of suspect we have. i think minimum we go challenge the old loads that we had set on the initial crash. my best guess is we break those and head down to 1800 or that level before we finally scare everyone entirely and maybe finally find a bottom in the correction. i really think, you know, the whole thing about this is just the vulnerabilities of the market that we build over the last few years, a market that was fairly highly valued, they got fairly calm, and the need to reset interest rate, and we're still working through that. i think the things we're going to have to face going forward now that we're full employment and have interest rate and maybe inflation pressures, i think we're going to need a lower valuation and a more cautious sentiments among investors. i don't know we're there yet. my guess is that we got a limit

lower to go before we find the low. >> and what's going to drive that? is it the debate around when and if we hike? is there something you're expecting to happen in october or december or even further out, and is that the sign, one way or the other, that they'll push us up or down? >> well, i think it's part of it, i think, you know, we have a number of vulnerabilities in the market, a mature single showing earnings slowly, hard to support a slower growing earnings at 19 times earnings, but maybe at 15 to 16 we can. we can do 19 times earnings, andrew, if interest rates are 0, but if they go up, we'll have a lower multiple. we can support 19 times earnings if there's no wage or pricing pressures or market erosion, but maybe less than that if you do, and we're headed into all those things. the uncertainty around the fed does not help, but the real

thing is, you know, are we going to start to see pressures that make the fed's decisions for them? if we get a hot wage number one of these times, cpi picks up over two, you know, the fed's decision is not going to be relevant. it's going to be made for them, and i think that's what we're facing here over the next several months into the next year. >> it's unfortunate they are not trying to get ahead of it, but in your view, andrew, we talked about the dual -- they have ten mandates with the chinese stock market, you know, the dollar, where it is versus the yen, but if you just do focus on the dual mandate, if your view, you know, there's questions that we're really 5-1, and some say we're higher, and there's part-time, blah, blah, blah, they participate, but then the inflation rate is 0. to you, both satisfy? inflation is close as you need to be to do it, and the unemployment rate is as close as

you need it to 4 to do it, right? >> i think so, joe. the unemployment rate has been around since 1994, and we don't know what it was before then, but if you did back, we tightened the january in 1994, and the u 6 at that time was 11 preponderate 4%, and it's 10.3% today, less than when was when we started in 2004. in 2004 when we tightened, it w was 9.6, not much different than today, and the definition, 5.1 today, and 6.6 in 1994 when we started tightens. i don't get the excess labor slack argument. >> what about inflation? >> the inflation argument, they've changed what they use as their guide to the pc deflator, which is 1.2 in poor terms. look at the old core cp ii it's 1.8% year on year, rising a

limit, and the core ppi is up over 2%. it's up this year to rising a little bit, and core services, inflation has been rock solid over 2% over the last couple years, and wages at 2.2. i just think it doesn't take much ofnumber me. we get wages at 2.5, a small higher than where we are today. suddenly, that chart looks to be accelerating, and a lot of the other data is already pretty tight. i wish the fed e would have gone earlier, but in reality, at the end of the day, i think they are going to wait until there's a panic exit when they are forced to exit. that's what it looks like to me. >> given the picture you painted, what are you doing with your money? >> well, i think one of the big thing going on under the surface of the correction, andrew, i believe, is a leadership change. what we had over several years, we had consumer prices much stronger than the lower stage

industry prices, leading to consumer sort of an economy doing well. because the u.s. is a consumer centric economy, it's been dominating relative to the rest of the globe, and the leadership has been consumer based companies, discretionary, health care, and the like. i think we're headed to an industrial capital goods pricing will start to do better than consumer pricing, and that's going to change leadership in the u.s. to foreign investors, if you will, and also going to change from consumer companies to industrial-type companies. >> okay. jim, we have to go. just quick, the 20 second answer, what about the money? >> well, i would be overweight, overseas, andrew, cash in here if we break in the 18 00s. start deploying that cash in industrial, materials, energy, technology, and financials. >> okay. great to see you. thank you, jim. >> thank you. up next, a biotech plan after hillary clinton revealed she'll unveil a plan today to

try to take on drug crisis. former fda commissioner will join us after the break to discuss and keep up this morning. we're live from the tech crunch conference, two great guests headed your way. the ceo of pandora and the andre iguodala, golden state warriors. he's on here. that is at 11:00 a.m. eastern. we return after the break. d netk and cloud and hosting services. centurylink. your link to what's next.

it's more than it's multi-layered security and flexibility. with centurylink you get advanced technology solutions. including cloud and hosting services - all from a trusted it partner. centurylink. your link to what's next.

welcome back to "squawk box," everyone, breaking news this hour, lloyd blankfein diagnosed with lymphoma, saying it's a highly curable form of the disease. we are joined on the "squawk" newsline, meg? >> caller: we don't know exactly what kind of lymphoma mr. blankfein has, however, stats are good for hojkins, and nhl is a common one with 70,000 new cases diagnosed last year compared to 9,000 new cases of hodgekins last year in the u.s. as for survival rates, both are high. the five year relative survival rate is 94% for folks under 45, and 88% for all ages, and for

nhl, 98%. it's high. he's having therapy and expects to cure this and keep working. right now, the rates are good. >> all right, meg, thank you. appreciate that, and those are -- those numbers over the years have gotten much boetter and plays in to what we'll talk about now. joining us, the resident fellow at the american enterprise institute. scott also advisers in biopharma companies, and, doctor, we spoke to you yesterday about the -- that the drug with the big price increase, and then candidate clinton tweet and subsequent program to unveil. that's why you're here today with us, but you are, i think, and you probably know, at least as far as we know, you know more about lymphoma.

you heard meg's comments about survival rates. when someone says "chemo," doctor, are they talking about -- what are the new drugs developed or talking about old forms of chemom? >> well, both, hard to speculate, but given lloyd's age and the common forms of lymphoma, you suspect large b form lymphoma, and what andrew said earlier lead me to that conclusion or suspect that is the case. andrew mentioned he's going to have three months of chemotherapy. typically you treat that with three cycles with old line chemotherapy agent. it's a highly curable form of lymphoma and constitutes about 85% roughly of all forms of nonhodgekins. this is just speculation, but given the forms, his age, and what andrew mentioned, that leads you to think that's the

case. also, this is a type of lymphoma that once diagnosed you treat quickly because it can progress, and andrew mentioned he was going to start therapy right away. >> that's a 90%, isn't it, in terms of cure rates, five years? >> cure rates are very high. i mean, ll above 75% cure rate, and, you know, if caught early, depending on the kind of cancers is where you get the treatment, the kind of treatment you undergo, they are higher. sometimes doctors will substitute some of the therapeutic agents, but it's a well understood form of cancer. >> okay. let's switch gears quickly to the story that was yesterday. i would assume that there are people la would like to exploit anything, drugs, whatever the market will bear, you will see profit-minded individuals try to do that in a free market system. usually, that does not explain it all, and people just can't buy a drug and mark it up 5,000%

unless there's factors, why not just undercut the price? there's a reason why they can't, right? >> right. in this case, this is a generic drug, and a speculator acquired the drug and jacked up the price. he did that because there's no other competition. i think this is really emblematic of a regulatory failure. fda regulated the cost of generic drugs brought to the market because there's less competition. there's cases with temporary monopolies on drugs that are old drugs where patents expired that are generic because manufacturers spend a lot of money now to file generic drug applications. >> why? >> well, because, fda increased requirement status for generics, increasing requirements placed on drug manufacturers, and you can debate that, but the bottom line is that the product cost a million dollars to file app application to bring a new generic drug to the market, and

now well over $10 million, and it's not generic until it reaches $15 million in revenue. now can could be higher. you have these cases where there are these temporary mo notary public ploys because it's hard for the big companies to bring all applications to the market. there's a big backlog at the fda. i suspect there's generic drug applications in the backlog bringing generic competition to the particular drug, and it's just not been approved. >> this guy, i mean, i don't know for sure, but i think he's -- he picked this drug and knew this was possible to exploit this situation. >> right. >> it was premeditated almost, right? >> right. we've seen speculators doing that, and these monopolies do not last long. one of the big things drug companies can do when they outlicense these drugs to individuals, they put in the contract stipulations that the prices can'tinordina

inordinately. >> he pointed out that, look, he has to charge a lot because he paid a lot of money for it. it's a loophole here's exploing that could be closed easily. >> right. it's not government price criminals per the announcementc just bring competition to the drugs. there's no reason there shouldn't be a lot of competition for the particular drug. this, as you said, an old drug of 63 years old. there should be other generic forms on the market. >> how much is the government not negotiating over these prices? how much is that really the rationale for why we got to this point? >> well, look, i think if the government negotiates drug prices, they'll do it wrong. to distinguish between drugs priced high, substantial value to patients, because people have taken substantial risk bringing the drugs to market, and in situations like this, if someone is just taking advantage of a

regulatory failure. we can deal with this. >> scott, i thought, maybe i read it wrong, but reading the candidate clinton's proposal, i thought she could have been more egregious. what was the most -- the drugs, that's not going to help because you import price controls, but what was the other stuff. you just said essentially price control. what part of the plan is actual de facto price control? >> taking away patents, c exc n exclusivitie exclusivities, and it's not just clinton's proposal, i have not seen the actual plan yet, but look at what the center of american progress put out, that's a guide on what to do, a lot of advisers working there, and there were proposals for explicit price controls on drugs where the government of certified bodies set price targets, and companies that price the drugs above the targets. i think there's good ideas of what to do if elected. >> do you have any doubt there

are certain well intentioned progressive answers here that would hurt innovation? i mean, it's -- we can definitely go too far and kill the goose that laid the golden egg, couldn't there's a lot of this morning dismissing clinton's proposal and saying government price controls are going to come to pass. i think there's a lot of change going on in washington, where even you see politicians on the right talking about these issues. >> and we know where the path can lead. thank you, we appreciate it. >> and when we return, gym cramer will join us

can it make a dentist appointment when my teeth are ready? ♪ can it tell the doctor how long you have to wear this thing? ♪ can it tell the flight attendant to please not wake me this time? ♪ the answer is yes, it can. so, the question your customers are really asking is, can your business deliver? they speak louder. we like that. not just because we're doers. because we're changing. big things. small things. spur of the moment things.

changes you'll notice. wherever you are in the world. sheraton.

. let's get down to the new york stock exchange where jim cramer joins us right now. two unrelated stories. we have a friend of both of ours and i was going to before that i wanted to talk to you about drug pricing and it's strange.

it's like saren dipitous because rotuxin is a game changer. it was the same day we were talking about how do we make sure we don't hurt innovation and now we have an associate with lymphoma. weird. >> i wish lloyd well, known him for a very long time. he's a tough guy, he'll beat this. as far as the drug companies and hillary clinton, if there's a gouger out there, have the person stop. but we know our country is by far the leader because it's able to do what it has to do. many of the drugs that are expensive are much cheaper than if we had managed care and it's a blessed industry. anybody who thinks it isn't,

this is the invy. this is the kind of thing that is poppialism and joe, this is the industry that we're best in the world and we have to defend it. >> right. be very careful and obviously, you got to take each situation on individual base but you don't want to necessarily do something with well intentions that ends up hurting people. >> we are curing diseases in this country. >> and thanks, jim, we'll see you in a couple minutes. when we return, the scramble to save the grapes are on.

it's intelligent enough to warn of danger from virtually anywhere. it's been smashed, dropped and driven. it's perceptive enough to detect other vehicles on the road. it's been shaken, rattled and pummeled.

it's innovative enough to brake by itself, park itself and help you steer. it's been in the rain... the cold... and dragged through the mud. introducing the all-new mercedes-benz gle. it's where brains meet brawn. ♪ ♪ (under loud music) this is the place. ♪ ♪ sustainable tea tree eir boil and kale...ade from you, my friend, recognize when a trend has reached critical mass. yes, when others focus on one thing, you see what's coming next. you see opportunity. that's what a type e* does. and so it begins. with e*trade's investing insights center, you can spot trends before they become trendy. e*trade. opportunity is everywhere. awe believe active management can protect capital long term. active management can tap global insights. active management can take calculated risks.

active management can seek to outperform. because active investment management isn't reactive. it's active. that's the power of active management. welcome back to squawk box. the three california fires burning have taken six lives. and we're east of napa where wine is money. and hurt by the fire just as the harvest was beginning. >> ready?

sweet. >> very sweet. like a raisen. >> reporter: all right. that is with me of the lake county winery association looking at the damage. even vineyards that weren't burn were hurt. miraculously, most vineyards are okay. and flames came within feet of the vines. >> we've had the grapes tested and there's minimal to no smoke damage. >> we had the office over here -- >> reporter: mean time adjusters for insurance companies dealing with the 1,000 claims just for farmers alone. we'll have more on that later, the impact on the insurers and we're going to talk to a winery that didn't lose most of its wine, just the best stuff. >> thank you for that report.

the markets, we should say, by the way, are looking really quite down. we'll show the future right now if we can. and it looks like the dow down and the s & p 500 down about six points. make sure to join us tomorrow. ♪ good tuesday morning, welcome to squawk on the street. it is a challenging set up this morning, futures down decisively. europe's in the middle of a broad sell off, made worse by this crisis by volkswagen. some health concerns. and not a lot of data for bonds to react to, although lock heart speaks again tonight and the pope arrives on u.s. soi