♪ good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla, with jim cramer, carl faber at the new york stock exchange. final day of september, final day of q3, the pre market is higher. we had good action in asia over night, despite weak industrial output. europe is higher by 2%. watch oil, it is lower. a reminder to keep your eye on any opening rally. our road map begins with a retail legend stepping down as the house bearing his name. but an unexpected casualty is a rival clothing company. >> and costco earnings beating estimates but a strong dollar is not helping when it comes to revenue. >> and tesla rolling out its fully electric suv. if you're in the market it will cost you. potentially elon musk also. futures are up sharply. helped in part by a report from

adp showing private sector jobs up by 200,000 in september, that beats forecasts. so far in q3 the dow and s&p are down almost 9%. the nasdaq has fallen about 9.25%. i'm sure you have seen the global market cap at two-year lows, below 60 trillion. >> 11 trillion lost money. i think it's important to point out that there were some huge orders from some large mutual funds at the close yesterday, fiscal year does end for a lot of mutual funds. september 30th, gives you a fuel three months to figure out what to do with the money that you get that they take from capital gains. i think they were a huge part of the problem in the last few days, getting out of strongs. i think a lot of the fund managers have turned bearish. i think you get a bounce because the fiscal year is over today and they're not selling. that's more important than any piece of data. >> a lot of discussion about the

cash balances being low. as people wanted to exit they had to sell. >> right. i think it's important. this is a flow of fund story whether it's for mlps, some big growth stocks. i know it seems hard to believe for people who trade in 100 lots, 200 lots, 300 lots, we don't have the liquidity that we used to have. a big fund comes in to goldman or something with a sell order, there's no other side. we used to call it principling. no one says i'll buy your first 500 million and work the order. here, everybody walks away. you saw it in a lot of the big growth stock names yesterday. there were no bids. >> no. hedge funds getting in on the act, not to say the least. in fact, some of the losses are significant. i think a lot of guys will get in on the growth names, certainly in health care which we saw so many pile in to favorite names, whether it's a valiant, allergen, roll ups, growth stories, momentum stories, and it turns and think

say i'm not sure i know what i open and i'm out. they look for a source of funds. so many of these charts are straight down. >> i'm so glad you mentioned the charts. we do a lot of work with the charts on mad money. the number of broken stocks to unbroken stocks, 80% broken, 20% not. you get a bounce today. the bull/bear ratio -- >> what represents a broken stock? >> through the 50 day, through the 200 day, nothing underneath. wow, where can the next level of support be found? let's talk about mlps. that's been the most decimated. a lot of funds borrow money at very cheap prices in order to capture that yield, which is 6 1/2 to 7%. never expect the companies to lose a lot of value. there was a market on sell order for a billion dollars yesterday. billion dollars.

there's no natural buyers. you can't sell a billion dollars in mlps, that wrecked the whole trade. i urge people to recognize when natural gas comes down, it's bullish for those who don't have commodities. but who cares, selling is unabated. started midday. >> we're waiting for a jobs number on friday, assuming the government doesn't shut down. adp on track, 200,000 in line. they trim august a bit. but you expecting any surprises on friday? >> look, the people who come on -- i think bullard speaks today. he's pretty sanguine guy. they look at these numbers, it's what they care about. they don't care about deflation. the commodity of deflation in this quarter is mind boggling. it's not rebounded to the consumer at all. with the exception of gasoline pumped at $1.80 this weekend.

>> we're seeing some acceleration in the miles driven by americans. >> so important. auto zone said that, talking about 1% to 2%. advanced auto parts has an activist involved. they haven't done as well as the others. i think people should recognize this advanced auto parts two years ago was 80, today it's 170671 170. >> as somebody said, they finally have come to give those shareholders some relief. >> we'll look at activists later. they have been taking it on the shin, given the size of some of their positions and the fact that they headed the other way. you think the platform companies have eclipsed, that's where i give you a check for a billion dollars, you go, lever up and buy whatever you want? >> it may have hit its apex. yeah. >> apex. acme? >> acme. headed towards its nader? >> kind of. >> not ralph. >> kind of him jumping off a

climb. >> we have good news, too. >> this polo news is big. ralph lauren announcing he is stepping down as ceo of the company that bears his name. he will be succeeded in november by stephane larsen, the president of gap, successful old navy division. lauren who founded the company in '67 will continue to serve as executive chairman and chief creative officer. old navy, where it was the sweet spot for gap, 15 years at h & m. art peck said he is not worried at all, already the downgrades for gap are in play. >> h & m is doing well. what works at old navy does it work at ralph lauren? i regard those as different brands. a lot of people felt that as great as ralph is, that maybe it's time and new leadership --

the stock has been down so much. i think it's a reason to get behind the stock. should gap be down this much? i don't know gap's numbers are not that great. >> always interesting to see a founder/ceo who controls 81% of the company make a decision like that mr. lauren is 76, obviously in good health. it's interesting. he did say it's a public company, even though he controls it. and going with a young guy. in his early 40s. >> people looked at the numbers and kind of thought what the heck is happening. this is the worst acme apparel company. vf corp has come on strong. there were some good people in there for a while. >> roger vera. >> i know when i bumped into ralph at a restaurant in brooklyn a few years ago i said

that vera was doing a good job. ralph reminded me who really runs it. it was like i was with my wife. wait a second, let me go over with you who runs this company. and he said, that's great. let me go over who runs the company. awkward. >> as jim said, stocks down 43%. you got to love the guy. he changed the way people dress. good luck to him. >> yes. >> another retail story, costco quarterly earnings of $1.73 a share, revenue below. lower gas prices and the stronger dollar. >> we think of costco as a domestic company. people love the model, numbers were up in terms of membership, yet they back out the gasoline, you're getting a 6% comp. that's highly unusually great in this market -- i want to buy

costco. i will say that. i think costco is good. this market, i don't know what it takes to please sometimes. those were very good numbers. very good. >> yeah. >> then there's chesapeake today with layoffs, plans to reduce 15% of the work force in the wake of lower crude and natural gas prices in this regulatory filing the company expects to post third quarter charges of 55.5 million as a result of that move. as we get into year-end and some of this corporate budget comes due for the year, the calendar year, we might see more of these. >> you have to recognize these are controlled by banks and bond people. the credit advanced to an oil company has come down dramatically as they readjust the credit lines. $11 billion in debt at chesapeake. natural gas at a 12-year low. oil the worst performing commodity this quarter. chesapeake, a carl icahn name in

many ways is perhaps the most challenged. >> yeah. on that note, first, we can expect restructurings. they are in process. they will continue at a rapid pace. that's happening. the bankers that i speak to are saying, yes, we're seeing it. we're involved. we'll see more basic restructurings. where you're swapping debt for equity, changing the whole capital structure. something i did say specifically about mr. icahn yesterday. i said something incorrect. of course i should have checked with a few more people, yesterday i was trying to express how much he's down from his highs, i used the $7 billion number that is not a correct number. while he is down from the highs that they had and has certainly suffered losses in energy, they are not anywhere near 7 billion.

in fact, over the last four years, i'm told mr. icahn is still up about a billion dollars on all of his energy investments taken together. i wanted to correct that. some people thought i was talking about a loss, when i wasn't really. i was talking about down from the highs. while it is significant, given chesapeake and freeport, it's nowhere near that number. mr. icahn we will hear on the half time show, as you just saw, talking about his energy positions. not to mention his video the other day. when it comes to energy, the one name i'm watching closely is freeport where he holds 100 million shares. i think there's an expectation on the board of directors and management that he will be coming soon. he hasn't made his intentions known other than saying he intends to have discussions with the management and board. yesterday i had a conversation with somebody who indicated that

has not begun full in earnest but they're waiting. they expect it to begin soon. one would imagine he will have support among shareholders. >> it's interesting, shaneer has been a stock that's been up. >> great profile in the "washington post" of carl. introducing him to a broader audience. he's in the midst of a deal, he pulls an egg out of his pocket and says to the other party this is you. you decide whether or not in this negotiation i'm going to squeeze you. there are stories like that going back 25 years. if he were to become our treasury secretary versus jack lew, would he bring the egg to china? >> he might. that would be a fascinating discussion. carl with the chinese premiere

talking about exchange rates and trade. he's a great negotiator. one of the great investors. his instincts perhaps unparalleled. in energy he's taking a lot of risk but it's all his money. >> for all we know it's the bonds that were hurting and he shorted the bonds. so this would be a hedge. >> he has a lot of hedges in place. when we come back, the next chapter for tesla as the electric car maker delivers that suv. will it put the company over the top in terms of sales goals? and also ahead, christine lagarde on china, the fed, and how they fit into the global market. september is usually a bad month. >> you kept hammering how bad september is. that was a good call.

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tesla made the first delivery of its model x suv. the price tag, $132,000. elon musk says he estimates

tesla has 22,000 preorders for the x, and that would make it 8 to 12 months before anyone received it. one of the most notable features, the doors. >> there's only a few inches separating the side mirrors on each side of the car. we will open the doors where there's barely enough room to squeeze between the two cars. [ cheers ] >> musk talked about how hard he worked to get that right so it doesn't bang into cars in the parking lot. the battery is lower, one of the largest windshields put on a vehicle. extending past the driver's head. >> i'm sorry, tesla is a

terrific car. this is an enviable situation. he has millennials wanting this car. if he has the backlog, the shorts once again have to battle with the master of stock management. that is elon musk. >> and he can generate a lot of g giggawatts. >> it's exciting. 2020 numbers. you can't stop a colt stock. >> to be fair, isn't there a belief that he is advancing technology to a certain extent with the design of these automobiles? >> everyone. he does it without jury-rigging -- without fixing the emissions. >> yes. >> by the way, in terms of not being facetious, a lot of people say it's going his way, this diesel thing is one more example of how it's going his way. i don't get in the way. if you love the stock, buy it.

never get in the way of that. >> we chojoke about the delorea doors, but are you worried about demand of this car, his ability to make the car? >> no. i think he will execute. i think he has great demand. very popular car. worldwide demand. he -- look, there's various ways to look at the financials. you know, the bears looked at it and said it's a gimmick, basically about the federal government. let's put it -- let's give him his due. there are many mutual fund managers, large funds that throw money at him, that is what the secret is. that's why i mentioned he's good at his stock. every time he needs money, he has gotten it. that's a very, very rare thing presiding over something as small as the number of cars he sells. >> still has the believers. >> has the dreamers.

>> if you get one, you'll let us know. >> i was visiting my daughter in new orleans. she has a 2002 volkswagen beetle, she filled up the tank for 20 bucks. she's a senior. said what do you want do when you graduate? drive a tesla. job thing. tesla. >> kids today. >> it's true. we'll get cramer's mad dash and we'll count down to the opening bell in a moment. look at the premarket on this final day of q3. when a moment spontaneously turns romantic, why pause to take a pill? and why stop what you're doing to find a bathroom?

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the street." about seven minutes before the opening bell. let's get to our mad dash now for our hump day here. we will talk chinese investment in u.s.-based corporation. >> we had this comscore deal. i'm focused on western digital. when i heard unisplendor, i said what is this? it's a giant chinese company making a huge investment in a stock that's been horrendous. this is valuing the company at 92.50. they're buying a huge -- buying 15% of the stock. this is a disk drive company. 3.75 billion. that's a gigantic re-evaluation of a company like seagate, like scan disk has been falling apart. the company has great cash flow. it does flash memory, storage. this is an example of when a stock comes down, someone out there has money to take

advantage and it's unisplendor. >> what's the price they're paying? >> 92.506789. >> huge premium to take what will be a 16% stake. i would assume this will also result in some sort of partnership between the two companies. i have not had an opportunity to read it. >> equity investment will facilitate growth. look for seagate to do something similar if they want. everybody has written off companies that have giant cash flows that don't have momentum. when stocks go down, there are some buyers. >> you have a lot of people looking at free cash flow yields which are moving up sharply as stock prices move down. but that's not always indicative that the stock will reverse. >> exactly right. >> but this one today is certainly in reversal mode. >> seagate is what i always hear, maybe that's a good time to cut. >> we have some other stocks to

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. you're watching "squawk on the street," live from the financial capital of the world. the opening bell in over two minutes on this final day of september and q3 might get a bounce today at the open. just to put the quarter and the year to date into some perspective, the dow is now three quarters. we haven't had that since a six-quarter decline since '07/'09. >> let's not blame the fed for everything. there's a commodity glut that caused a lot of people to worry. some people say glenn corp is bottoming. it's a copper company, oil glut. we've not kind of captured any of the upside of the biotech. the fangs, so to speak, the fabled facebooks, the amazons.

they have cooled. they have taken everything down. if you saw the dollar get weaker and you have earnings coming up, you can make a case there's some buys here. i said 600 stocks of the s&p are down 25%. don't want to be characterized as a bull. we are the most oversold since september and we have the fewest number of bulls in the investor index. we can get more oversold, we will. i can understand why people might want to pick it. >> because of where sentiment is now. >> endless declines. it's a new quarter. those flow of funds should diminish. the panic in the mutual fund and hedge fund community might abate, not unlike in 1998 when they abated in the first week of october after a horrendous third quarter. nice analogy. 1998 third quarter. >> biotech down 28% in eight days. if the nasdaq is down today,

that's a seven-day loss. we have not seen that since 2001. >> it's a wholesale re-evaluation and a run from risk like i haven't seen in ages. companies like clorox. >> ringing the bell today, doing the onners. >> rentrak, a provieweder of tv and viewer much at the nasdaq. >> we have the number one performing consumer goods company and a company with a takeover bid. hope springs eternal. >> yes, it does. we're off to a strong start in the broader market after a mixed session yesterday, if you will, with the s&p at least at the get go up, as you saw, largely green back at hq. >> ralph lauren is one of the biggest gainers today. ralph lauren up 7%. on the flip side of that, gap is the biggest loser, down about

the same amount percentage-wise. >> when i was fishing in mexico, i caught a barracuda. people are throwing back cuda today. have negative things to say about the industry, they decided to extrapolate it to cuda. on the other side, enterprise software, it's enterprise hardware and its security, those are themes of what was doing well in the nasdaq that are now coming back down. i'm seeing consumer stocks trying to make a stand. restaurants trying to make a stand. industrials trying to make a stand. i don't know how long it will last. we need to see the dollar weak. >> we have an official hurricane on the way. joaquin is a cat 1. 200 miles east of the bahamas. expected to take a hard right north and expected to make landfall between the carolinas and baltimore. the consensus is growing where that might happen. you might watch a home depot over the next few days. >> home depot is doing well.

that also got pulled down in the final quarter. i think home depot is not just a survivor, it's after thriver. remains the number one retailer. it's interesting that costco was down, in the premarket coming back. 6% comparable stores. you do not sneeze at that. you have to do the interpretation. get rid of gasoline. that's not fair as a comp apples to apples. home depot doing terrific. >> pfizer updated its financial guidance for 2015. lowered it by, let's call it, i did lawsudiluted eps by 9%. more than offset by anticipation of associated purchase accounting adjustments. the stock is up. investors not focused on earnings gins in terms of these changes as they are on the idea of mma and future for this

company. every time evan reid is asked about it, he speaks about it openly. i'm looking at notes from one of the more well respected analysts who met with him and talked with him about inversions. they're waiting on the highway bill at pfizer to see if it includes a provision for repatriatization of overseas cash. the company does not believe the congress will alter current inversion laws, that leaves it harder to predict what a new congress would do in 2017. he believes the established products business no longer needs major mma. he is willing to give up his job. he said he would not block a transaction for social reasons. the name that comes up time and

again is allergen. not saying there's anything going on between these two. but wanted to share that in light of the earnings guidance. so much chatter among the hedge fund crowd about that possibility. >> i don't think that's going to happen. normally you would say you own it -- >> please. >> brent saunders is too young. >> though he could take over the combined company as ceo. >> that's right. company, if they finish that deal with teva, a pristine balance sheet. >> the splits would fall into the window for inversions so it could be beneficial. you need at least 40% of the ownership to be by the company being acquired that would be in a pfizer/allergen deal. am i changing your thoughts? >> yeah. brent has been a regular "mad money" guest. he has broad ambitions.

i'm only holding from that. i don't want it to be like if something falls through, that's it, man. >> i want to share that. it is constant conversation among -- >> balance sheet is so much different valiant versus allergen. allergen is getting so much money from the generic business. >> valiant has a leverage trade of five times. allergen -- >> whistle clean balance sheet. 40 billion coming in. >> yeah. who knows, it could go the other way. >> brent saunders, money maker. >> need access to capital. >> pfizer could be a classic credit. >> investment grade has not been affected. that's why ab inbev will have no

problem borrowing what it needs to buy s.a.b. >> you're close to the phone companies. i had paul reigns on from game stop. he said at&t/directv sales much better than expected. we got a note about at&t getting better pricing. directv this could be a game changer for those of us who have directv because of the football practice, paul raines says this is selling like hot cakes. game stop has a deal. at&t may be the cheap one here. >> interesting. >> goldman cuts american airlines, target now 44 even as they raise their view on the rails. >> i thought -- >> cp to a buy. >> i was astonished at that call. some of my good friends are saying remember we're about to annualize the bad call numbers. union pacific would be my favorite. again, they say they're early.

they say they're early. they say they're rate of decline has slowed. i don't want to say go by the rails. that was an amazing call to see them bullish. >> interesting to watch. 1% gains here with the dow up 233. pisani is on the floor. >> good morning. glad to be back here. been away for a couple days. dow up over 200 points. major gains in all sectors. half of the ten are up more than 1%. the biggest problem right now is there's virtually no leadership. health care was big leader going into september. that's been eviscerated in the last two weeks. you want to know what market leadership looks like? let me show you the stocks with the biggest gainers in september. campbell, kroger, hershey's and clorox. these are consumer staples. when you're down to utilities and a few consumer staples as market leadership, you know the market has problems. the big problem is the loss of leadership for the financials.

for the returns in q3, it's simple. bonds have outperformed stocks. look at the ten-year treasury, total yield, total return, small caps are dramatically underperforming, even big caps, the s&p 500 down 9%. is there any good news here? i struggle to find it. the guidance has not been that bad for q3. this makes me think it should be positive for earnings guidance. 76 companies have guided negative so far. that's the lowest since the second quarter of 2012. they should have been guiding by now. we're going into the quarter. this is when everybody gets it done. positive 32. that's average. that's a help. that will put us into positive territory. here's the problem, there's not many companies, not many sectors contributing to earning growth. look here. in terms of what sectors really matter for the quarter, it's really financials, consumer discretionary and health care. we talked about consumer

discretionary. outs to will do well. home builders will do well. health care was the one that had fallen apart in the last couple of weeks. we're expecting major contributions from there as well as financials. that's hope on banks, loan growth and higher interest rates. industrials are not helping. they're negative contributors. we know what energy is. that's negative as well. look what's happened to health care in the last couple of weeks largely on comments from hillary clinton, boehner resigning, it's collapsed in the last week. these are concerns over future earnings path and troubles ahead on that one. the other major sector is the finals this is why bank of america is important. they're the biggest single company contributing to earnings growth in the q3. 35 cents. this company has 10 billion shares outstanding. they're expecting big earnings growth from them. bottom line is their comments yesterday indicating they're cutting back is a warning sign. bank of america down about 8% in line with the rest of the

sector. ralph lauren, they're getting the old navy ceo. you see what's going on with gap. they are down. old navy was the major sort of growth engine at gap. the loss of that ceo a big problem for gap. guys, back to you. >> thank you very much. let's get to the bond pits and check in with rick santelli. >> a lot has changed today with interest rates moving upwards for a change. look at a one-day of ten-year note yields, what has changed the equity markets a two-day puts better perspective. rates rising a bit today. still within the range of yesterday. now, if you open the chart up to the 17th of september. we'll keep every chart after this, that's the day the fed did not normalize rates. it was n many ways, a turning point. not in terms of the direction of markets or the trends, but in terms of enhancing them. look at bunds from 9/17, a drop.

the mexican stock market, the spanish stock market, they all look the same. look what it did to their currency. down, but short recovery pushing the euro up every now and again. if you look at what's going on with the hyg, this is really a risk credit anomaly that continues go on. four-year lows on the hyg. that's the behavior from the last fed meeting. david faber, back to you. >> we did mention activism earlier in the program. there is some activity there, mainly in the name of starboard, that active fund that is activist in nature. taking a 3.7% position in advanced auto parts indicating the company's margins could be far better. spoke to jeff smith, the man who runs aap earlier, and that is where he comes out in terms of

the focus, the slide presentation he will present later today. this is a retailer and commercial distribution company. they also supply garages with auto parts it comes down to this idea, they claim that the company can be better in terms of margins versus the two key competitors. auto zone and o'riley automotive have higher ebit margins. can it happen? it is something that he has yet to bring to bear. management turned over a few years ago. he said this is a logistics and distribution business, things like root density play a great role, and so he wants to see them improve on that front. putting some pressure on them do so. brings me to the larger issue of activism. a lot of the shellacking they

have taken. he took a big position in macy's and the value of the real estate. the stock, you see what's happened. it went straight down. it's around 50 bucks. i spoke to mr. smith again and he said he thinks macies is considering doing that. they hired some experts on it. it's far from clear what road they'll go down. he seems encouraged by it. still owns that stake in the company despite the fact it has lost a great deal of value. that's the danger in activism, you take large positions, if things turn against you, it can impact the overall performance of your fund. some other names we know well. no particular order. whether it's korvex, what a shellacking it's taken in williams which it owns a large stake in. got to get that deal done with

ete, the stock is up today but we're talking 41 million shares. stock down 38% over the last year. that's not helping things there. jana, qualcomm, remember that battle. still considering the split of the company. 29 million shares. stock down 30%. >> my. >> pershing and value act. one name there, vrx, valiant, which as our viewers know is down 20% at least over the last month. you can see what it's done recently with those significant stakes for both of those activist funds it will not be a good year for pershing. and finally, the larger issue as well, what about when you win? look at hess and elliott. remember that battle? >> sure. >> they got them to get rid of the gas stations. got them to change the composition of the company. it's been straight down as a

result of the price of oil ever since. you do wonder sometimes whether the apex has been seen in activism. >> i think one thing that happened is -- in the case of macy's, the business tailed off. i will give these guys their due. darden has been good. that's a success. these are not people who are idi' idle and what they're doing. the tide is definitely turning. >> we're about to start to get the slew of manufacturing indexes. let's get to santelli. rick? >> keep in mind, this is september read on chicago pmi. a 50/50 number. above 50. four out of the eight reads above, four below. this breaks the tie. this is five below. 48.7. we're looking for a number of 52. 53, 54, up in that zone. 54.4 was last month.

we lose in terms of expectations, and this was the weakest read since may, since may of this year. the strongest read was 52 -- it was january. a lot like the confidence number yesterday. seems like january is when a lot of strength showed up in many of the series of numbers. we'll continue to monitor this in light of adp came in heavy on -- which is a good thing -- did get an adjustment. all in all, still looking at equities kind of the driving force. we've been unable in the equity weakness and all the quarters that carl pointed out regarding nasdaq, we can't get below the 2%. carl? >> rick, thank you very much. when we come back, a live interview with imf managing director christine lagarde. we'll get her take on global growth challenges, the fed hike debate. the dow is coming off session highs after that pmi number. can a business have a mind?

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look at the dow 30, just about every component in the green as we see some quarter end buying. we'll see if this continues. we got chicago pmi, it's not the last big number we'll see for the week. tomorrow brings auto sales, manufacturing pmi, we'll hear from yellen this afternoon in

st. louis. then the jobs number on friday. >> i think i've been listening to yellen. it's clear what she's been saying. we might tighten, but then we might not. so it's really clear. again, not being facetious. that's what she's been saying. i will point out the selling has abated. it's not like the buying has come in. from the work i've done, it's not like you're seeing those giant sell orders repeat. because the fiscal year is over. people may think all year, copper is up which helps glenn corp. vw, the justice department may not go after them. >> possible loophole. >> the justice department does whatever it wants. >> they can probably build a criminal fraud case. >> the justice department? law of the land. >> health care is bouncing nicely. broadly speaking. biotechs.

>> you think the baxter helps? their point, increased stake? people feel -- >> possibly. >> value. the allergen thing you mentioned. trying to get ahold of brent saunders. >> that's -- we'll have time. >> put him on the show tonight. >> listen to him muttering. >> you astounded me on that. i've been sitting here, i have to do a report on how i did this quarter, the worst one is allergen! >> a lot of selling. not today. >> who has been selling? >> you! you! you! >> that's got me far in this world. >> we will get stock trading with jim. dow up 2%. ect capital long term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform.

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time for cramer and stop trading. >> let's watch brmn. they had a big win in the patent office, it has a horrible chart. we talked about the charts earlier today. but biomarin can be a reason to get behind it. these are politcmril political

too. >> the teva ceo saying the industry has to be responsible in its own way. >> cramer berkowitz succeeded me, and was hired full time by them. i don't know him well. he galvanized bernie sanders, hillary clinton, and becky was speaking eloquently about him. that has to die down. brent saunders said that when he was on tv, listen, there's some good actors. >> it's a long way from the conversation coming into any sort of legislation later. >> there are plenty of examples. milan and the epipen. they have contributed greatly to the profitability of these companies. >> it's important to point out there are good actors and bad actors. >> what's on mad tonight?

>> paychecks marty mucci had good numbers. they did this without rates going on. they issue checks. i'm a client. stock was up a dollar earlier. this is a remarkable quarter given the fact of what this company is is a way to make money off of fed rates going on. i like it. i like the yield. i like marty me. >> i would like to keep a tally how many tickers we get to in an hour. see you tonight. when we come back, russ koesterich and what he expects from the markets as we head into q 4. for the millions of americans suffering from ringing in their ears, there's no such thing as quiet time. but you can quiet the ringing with lipo-flavonoid,

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welcome back to "squawk on the street." i'm carl quintanilla with simon hobbs, sara is in washington where she will have a live interview with christine lagarde earlier this morning. her road show continues. a bit of buying on the final day of the quarter. the s&p is still on track for two negative quarters in a row. the first time since 2011.

oil hanging in there above 45. >> the road map for the next 60 minutes. with the markets sharply higher this morning on the last day of the quarter, ahead of the jobs report tomorrow. >> with gap shares sinking as ralph lauren scoops up a top executive from its competitor. >> and elon musk unveils the model x. reviews are mostly positive. getting your hands on one will cost you. >> a strong rally as we start the last trading session of september. it's been a tough quarter. today's gains cut the three month losses to about 7%. the s&p is also down about 7% year to date. michael gappen is chief market economist at barclays. art, we used to talk about window dressings at the end of the month, fund managers want to be seen holding certain stocks

when the cut off point occurs. i guess that would be even more true in the wake of a quarter when so many went to cash. is this window dressing? >> i think that's a good point. probably feels like that. we get interesting action at the end of a month and quarter. winners in your portfolio are hard to come by after the month of august and september. i don't know how much of this is window dressing or how much is a reflex rally. you know, if you look at in terms of the trillions of dollars we've taken out of global market cap in the quarter, it's hovering around 12 trillion. there's been enough damage that on days where there's no new bad news we tend to get a reflex rally that could be part of this action. >> the most important question for most people is whether this is a correction in a bull market or whether the next quarter could see substantial declines. what's your view. >> i tell you this. you have to look at this as what are the key drivers to getting people out of the market. it's two things happening, both

happening now. one is when is the fed going to lift rates does it happen this year, and what does that mean for markets, and what does the china economy look like and what does that mean for the global economy. real data on that is the middle of october before we get that. in the interim we will get the volatile markets we've seen. we dance around technical levels, we look at the ibb. my feeling is we'll earn between $120 and $125 in the s&p 500 next year. if you look out 6 to 12 months and put a fair market multiple on that, it gets you between 2,000 and 2,100. not great runs, but not talking about a new bear market. >> you always struck me as somebody who has been bullish of the markets. do you find yourself in an unusual position this time round with the conversation we're having now? >> the unusual position is there are things that are outside of our control.

is the u.s. economy strong enough to lift the global economy that's failing? at the same time if the federal reserve is going to start a significant interest rate increase, it's an unknown. we get the first raise out of the fed. that's behind us. it's not an unnoboknown quantitd we get better numbers out of china. >> next to you, we have the chief economist of barclays. what do you think of those questions that art raises for the market and the rally. do you have answers? >> i would say the fed is guiding you to the end of the year. they don't want to give up on a rate hike before year-end. we have data to see. we think they'll get kicked out into early next year. we think a combination of weak enough global data, soft enough inflation, and a committee that's not quite ready to move given financial market conditions pushes them out to

march. we may not get resolution on that front until early next year. the domestic activity in the u.s. looks quite solid. consumption has been very strong the last four quarters. and then the second and third quarter it's gaining momentum. we think auto sales tomorrow may come in at 18 million units, another recovery surprise to the upside. >> michael, many people are very concerned -- one of the reasons why we're down on markets is arguably because people are worried that the fed has not given itself sufficient ammunition by coming out and raising rates in order to give some slack to lower rates again to have somebody in its quiver of arrows when the economy starts turning down again, which it will. isn't that really problematic for everybody and will question their credibility and whether they're impotent do what they're paid do, which is set monetary

policy correctly for this economy? >> the argument that you want to raise rates now so you can lower them later, that doesn't hold water. you have to get out of this cycle before you can respond to the next one. these things take longer to play out. economic shocks are not neatly packed in six-week increments. and inflation will be soft through the middle of next year. so a reasonable response to that would be to defer rate hikes. the fed had a window between last december and this june to do one or two moves. they chose not to do that. now they're facing a different set of circumstances which we think would lead them to delay. >> okay. art, let me come back to the point that you made, you didn't feel the two major questions would be resolved until the middle of october, which was the fed and china. if michael's correct, and we

still don't have resolution going into next year what does that do for your thesis on where the markets will go. >> the point you're making are correct. if those are the two major overhangs and we have no resolve, we continue here. we test the near-term low at 1867 if that doesn't hold on a test of the double bottom, you are looking at 1755, the previous test low. that's significantly lower. removing the uncertainty of "a" is china going to stimulate their economy and is it working? do we get another announcement for further stimulus, and does the fed get out of our way? is the fed not part of the conversation for a period of time? either one of those things would be a significant tailwind. barring those two, we're in a bad place. >> the ultimate question is where is the opportunity now.

the ultimate opportunity is created for people sitting in crash. i'm concerned when we discussed window dressing at the beginning of the conversation. you said is wasn't immediate obvious. i paraphrased what stocks were winning and what stocks to buy here. where is the opportunity. >> like last october, we got to a period of time where once a group loses momentum they throw everything into the whirlwind of selling. i would say things like software fall into that category. they shouldn't be categorized the same place that some of the sort of valuations that we see in the unicorn world are. the really important and growing the addressable markets and revenue markets. at some point in time we will see we have overdone it, in biotech. i would say first and foremost look at consumer technology and consumer discretionary. right now there are bargains that are being created. you just can't buy this market

because understanding that 40% of the s&p 500 does more than half of its revenuers over seas, it's not a market to buy, it's a time you have to be selected. >> thank you both. >> thank you. congress now appears likelytor nlikely for now to avert a government shut down. how will today play out? hey, eamon. >> they are taking a vote to move a clean cr, the clean bill to continue funding of the government through december 11th. that vote is happening now it will have to get kicked over to the house. to show you the byzantine process that's at work here. i will read you the official name of this thing. it's called the motion to concur in the house amendment to the senate amendment to hr-719 with further amendment to 2869. they'll vote in the house at

some point this afternoon or this evening. the deadline is tonight at midnight. they will hit that deadline tonight by all expectations and continue into december. it looks like kevin mccarthy will be the next speaker of the house, barring unforeseen circumstances. the question is how will kevin mccarthy resolve this funding fight over planned parenthood? there's no clear solution to that fight within the republican conference on the house side. where they go from here is anybody's guess. it's likely we will not see a government shutdown tonight at midnight. >> more fun days ahead as we get past ten weeks. when we come back, the story of two stocks. ralph lauren poaching an executive from gap as its new ceo and investors are voicing their opinion on that move. we'll have dana's take next. and keeping an eye on the rally.

we'll talk to russ koesterich later this hour about that. kid: hey dad, who was that man? dad: he's our broker. he helps looks after all our money. kid: do you pay him? dad: of course. kid: how much? dad: i don't know exactly. kid: what if you're not happy? does he have to pay you back? dad: nope. kid: why not? dad: it doesn't work that way. kid: why not? vo: are you asking enough questions about the way your wealth is managed? wealth management at charles schwab [engine revving] ♪ ♪

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u u unisplendor will be able to announce one member to the board as part of that deal. western digital shares, remember, are at least at a discount, down about 29% so far this year. back over to you. >> thank you very much. elon musk delivering the first model x last night. the first suv from tesla. phil lebeau was there. i hear the doors are everything here, phil. >> i don't know if they're everything, but there's no doubt that the falcon wing doors on the model x are getting the most attention. in part because we've seen gull one doors before the falcon wing doors, people say will this really work? we will show you video that, yes, even in a narrow space these doors will work. here was the scene last night when elon musk at this event here in fremont, california

turned over the keys to the first five buyers of the model x. they bought founder series edition model xs. each of these going for at least $132,000. by the way, they have more than 20,000 model x electric suvs z reservati reservations. if you ordered one, 8 to 12 months to get one. we had a chance to take one out on a limited test drive. production ramp begins right now. but it picks up in the fourth quarter. musk last night was he tasitant say how quickly that ramp up will continue. the challenges on the cost side, he spent time talking about that but also spoke about the fact that he expects half the model x buyers to be women. getting back to that question of the falcon wing doors and whether they will work in a

narrow space, say in a parking garage, watch this demonstration from musk last night. >> there's only about -- a few inch es separating the side mirrors on each side of the car door. we will open the falcon wing doors where there's barely enough room to squeeze between the two cars. [ cheers ] >> were about 4,000 people here last night. some tesla employees along with model x reservation holders. people who are supporters of tesla. they liked what they had to see when the model x was up on scene. the first ones have been delivered. the real question now, that ramp up in production in the fourth quarter. guys, we talked about this for some time. this is one of those make or break quarters in terms of what analysts are expecting and in terms of what tesla can produce when it comes to deliveries this

quarter. >> i'm sorry, phil. i looked to that footage and those doors were coming out a good foot, foot and a half as they came up further in height. >> yes. but simon, i have to tell you, i was skeptical myself. as we go back here, as we close this door. we have seen demonstrations where the door, if there is another car within 10 to 12 inches, when the door opens up, it stops, and then it goes up, then comes over, and goes up. i know -- we won't have time to show you all of it. there are sensors built into the panel of the door. those sensors will allow it to sense how far out it can go and then based on that it will go up. or if you have a low ceiling in your garage, it won't go up and hit the ceiling. >> it's not a single mechanism. it can change the way it moves? >> correct. there's two joints here's.

there's one there and an elbow joint up at the top. >> all right. phil, good to see. fascinating. phil lebeau with the latest from elon musk. let's look at shares of gap. it's lower on talk of stefan larsson stepping down to head up ralph lauren. dana telse is the ceo of telsey advisory group. i think we should kick off by explaining who stefan larsson is and the difference he made after 15 years at h & m. old navy became a star within the gap stable. the last we heard the rest of the gap group were going to copy what he was doing in order to improve their own performance. then you find the guy is skipping ship to go to ralph

lauren. this is not good news for the gap, is it? >> no. stefan larsson's departure is a loss for the gap. he added over $1 billion of sales. he loves creating a clear brand vision. he has sophisticated, repeatable processes, trend analysis that he uses to test and respond to merchandise that's working. even though he comes from a fashion background of h & m, and he doesn't have the wholesale luxury background. his skill set is of value to ralph lauren. >> ralph lauren said he was introduced to mr. larsson through an executive recruiter and the two met face-to-face a while ago. why did the gap not ensure he was tied down and properly remunerated to stay if he's that material to the business? >> i think overall gap wanted him to stay. i would think they would say

they did not want him to leave. the ceo title was such an iconic business like ralph lauren is a path of growth that he was not going to be offered at the gap, given the structure at gap currently. this is a position, and i know what stefan likes. he likes working with leaders and being able to architect strategy. with an iconic brand like ralph and partnering with ralph himself, he'll be able to get some of that ability. >> so, do you have any doubts here, given his area of expertise, it seems to be in a different area, whether it's h & m or old navy verses what ralph focuses on. you think he can transfer what he learned seamlessly to the new company? >> i think so one of the things is the search for executives, executives of talent in retail and bringing things on for the next generation because of channel changes and hows good are consumed because of what's

happening with mobile and online, because of demographics. stefan larsson is 41, he can take the learnings he's had in the past and apply it to the wholesale luxury business and he won't be elope because the infrastructure at ralph, this deep seated challenge and roots there who will help work with him. >> it points to that bigger question of the structural change of luxury goods. ch chanel recruited from the gap. luxury knows it has to change. what do you think of ralph lauren's stock? how high could it go or is this it? >> i think this is only the beginning. there continues to be more opportunity. given that stefan is not starting until november, his influence on the business won't be for another year, year and a half but the wheels are in

motion for more positive change. >> thank you, dana. >> we talked to eamon about that continuing resolution. we have some news on capitol hill. >> as predicted, the senate has enough votes to pass the continuing resolution to keep the u.s. government open and funded just through december 11th. we'll see this fight kick down the road a couple months. this bill will pass in the senate. the votes are 66 yeses to 19 knows. the house of representatives take that up this afternoon and we are expected to beat that deadline of midnight tonight. congress likes to work up to the deadline like college kids, that's what we're seeing here. the question, though, as we talked about earlier, how is the house of representatives going deal with this in september under new leadership? it's expected kevin mccarthy will be the speaker of the house

at that point. interesting controversy about mccarthy erupting this morning about a comment he made in a televised interview suggesting that the bengahzi committee achieved a political goal of damaging hillary clinton's election prospects. mccarthy's comments getting a lot of push back from democrats on capitol hill but it may make him more popular among republicans who are looking for somebody who will fight harder against democrats. where all this plays out is anybody's guess. as of right now they have the votes in the senate. >> the dow up 225 points, eamon. thank you. the credit card industry making a big change in an effort to improve security. will retail and consumers change also? here at td ameritrade, they work hard.

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final day of q3, and the fact that the senate has the thousa house to pass that continuing resolution probably happening. s&p up almost 31 points. when we come back, the deadline for adding chips to credit cards has arrived in a push to add to security. we will talk about what it means to bank, credit card companies and retailers.

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welcome back to "squawk on the street." waiting on the eia weekly status report. we did get a big build from the api last night. this week 4 million barrels, a build from the eia. that typically is a bearish number. we started the session bearish, we popped up when equities opened. this number sending us back and forth between positive and negative territory. we are hugging that $45 range. key technical and psychological level. what else is impacting oil prices here's today? obviously hurricane joaquin two schools of thoughts, it will hit the east coast and the refine

refineries there, that could be bullish, if it does not hit the refineries, people will be staying home and that could be bearish. 45.20 is where we stand at the moment. sue herera over to you. >> thank you. here's your cnbc news update. russia carrying out air strikes inside war-torn syria and telling the u.s. to clear that country's airspace. the offensive comes hours after russian lawmakers gave president vladimir putin a unanimous green light to use military force. the vatican confirmed that kim davis met with pope francis last week. lawyers who the kentucky county clerk said the meeting took place in d.c. davis said pope francis spent 15 minutes with davis and her husband at the vatican embassy. 14 patients at detroit's henry ford hospital contracted

salmonella. the hospital says there's no evidence that food is the cause and those affected are being kept in isolation. no new cases have been reported. authorities are working on identifying the source. and one southern california surfer caught more than just waves. darren case was off the coast of corronado when that 20-foot whale appeared. back to you, sara. i think i would be terrified. carl, rather, even though they're supposed to be gentle animals. >> sue, thank you very much. sara is in washington, where legarde is set to start speaking at any moment. she'll sit down with legarde later this morning but we do have some headlines. >> we do. she will give a downbeat speech on the state of the global economy. the managing director of the imf

saying she's concerned about the state of global affairs. she will begin by talking about the refugee crisis across europe. she talks about climate change and the impact of el nino and what that could do to economies around the world but focusing on this concept that global growth is slowing. she will say there's a sharp deceleration in the global growth and global trade. certainly certainly we are at a difficult and complex juncture at the global economy and indicating global growth will be weaker this year than last year with only a modest acceleration expected in 2016. repeating what she's been warning about, slower global growth. the official forecast comes out next tuesday when the central bankers and the imf kicks off. she says the not so good news is that emerging market economies

are likely to see their fifth consecutive year of declining growth rates. she talks about china. she's more upbeat. she said they're in the middle of a fundamental and welcomed transformation but as a result she does see a prolonged period of low commodity prices. the imf has come out front saying the fed should wait until next year to avoid the spillover affects, she says the fed needs to normalize interest rates while minimizing the risk of financial disruption. one risk is currency mismatches leading to corporate defaults. a lot of risks being highlighted in the speech, specifically on the slowdown on emerging markets. a lot of fodder for our discussion in "squawk alley."

>> we look forward to hearing her expand on that in a few hours. it's a big moment for the payments industry. starting tomorrow merchantses will be held liable for any losses due to credit card fraud if they are not able to process the new more secure chip cards. 60% of americans still have the old versions and only about 30% of merchants have the new machines. i ran into this for the first time last weekend. it's no longer just a swipe, right? >> correct. >> how is it different? >> depends on what card you have hopefully you have a chip card issued by the bank. the chip look like this it's a little microchip on the card. every time you use tshit, it creates a unique number sent to the merchant counter. it's no longer a swipe. you take the terminal, insert

the card into the slot into the bottom, you hold it there. the lights will flash and you will get a message that your transaction was authorized. you pull it out, transaction is completed. >> why does it take longer? >> it's the matter of the chip generating the unique number. there's an ail lgorithm that go with it. >> at what point do 100% of retailers have this. does it ever happen? >> whether you're a consumer or mercha merchant, october 1st is not a deadline. it's the beginning of getting issuers and merchants to start using this technology. if you have not received a card from your bank yet with your chip on it, or you have received it and haven't activated it, you can continue to use it and swipe it. it's a process. we estimate by the end of 2016 we'll have 98% of the cards in

the market fully chipped. >> if you're running a restaurant, grocery store, liquor store where the fraud takes place, this is a worrying period. you're no longer saying you'll cover the liability that occurs in the stores if they have not spent the money to switch over to technology. this puts them in a difficult position. how much does it cost to convert? >> a terminal can cost from $200 to $1,000. >> i saw $2,000. there's back office expenses. we are trying to put in the final incentives to make it worth while to get on board with the rest of the world who have adopted this idea. >> should i no longer use merchants that will no longer use the chip on my card for fear that he are liable for any fraud and therefore i may be liable for fraud or will you keep me completely out of it? >> most financial institutions, all of them, protect you the consumer from fraudulent transactions. >> i won't get any bills.

you'll sort it out amongst your selves. >> consumers are held harmless from the fraud. which has been standard for some time. >> international visitors here will marvel at the fact that the u.s. is so far behind. six years in delay you are coming through with just the chip and only 80% of merchants are capable of handling it. why is the progress so slow in this country? is it that people won't invest? is it that the fraud is not great enough? why is it slow? >> took a long time because the fraud rates in this country have been historically low. financial institutions put into place their own fraud monitoring tools and kept fraud rates low. we had a series of data breaches with sophisticated cyberhackers which targeted home depot, home goods, and it's starting to get traction in this country.

the fraud rates are high enough, the consumer disruption is high enough that we're moving into this space. >> who makes the chips? >> there's a number of manufacturers around the world. >> is the cost material? >> it's -- you know, it can be $1, $2 per card. >> does any of this have anything to do with what you're able to charge? >> from a network transaction, no. the amounts are still the same. >> something we all got to get used to. >> people will find this familiar not long from now. chris mcwilten, thank you very much. in john harwood's latest speak easy interview he sits down with donald trump. john joins us now with a preview. it seems to revolve around wealth and what forbes has been saying about how much mr. trump is worth. >> forks came out with a new

estimate in an article yesterday saying donald trump who said his worth is well in excess of $10 billion, forbes says it is $4.5 billion. donald trump told me they don't know what they're talking about. >> i read this morning you're a $4.5 billion man. >> okay. fine. where? >> in forbes. oh. >> what do you think of their list? >> i think their list -- number one, i'm a private company. they don't really know my assets well. i think that they're very good people. i like the people at forbes. they don't know a lot of the things i own. i don't think they give me value for brand, my brand is valuable. i'm doing deals now -- in fact, when i leave you, i'm signing a branding deal that's a tremendous hundreds of millions of dollars in value because of my brand. they give you no value for brand, which i think is fine. >> you think they're wrong. >> i have assets i have that they don't even know i have because i'm private if they value me at 4$4.5 billion --

>> to a normal person 4.5 billion is more than anyone could deal with. but if you spend $100 million on your campaign, that's a third of your cash. >> they're wrong. i have hundreds of millions of dollars of cash. >> they said you have 800 million, and you have 300 million. >> do you agree it's a lot? >> yes. >> we'll talk about how he's using money on his campaign tomorrow. >> can't wait for that, john harwood joining us today in new york. when we come back, stocks are jumping this morning close to session highs. we'll talk to danielle

dimartino. and then christina lagarde. is almost as exciting as the thrill of the find. (announcer) at scottrade, we share your passion for trading. that's why we rebuilt scottrade elite from the ground up - including a proprietary momentum indicator that makes researching sectors and industries even easier. because at scottrade, our passion is to power yours.

. if the trouble is outside the world, why are the domestic small cap stocks underperforming the market? going to trading nation to find out. kid: hey dad, who was that man? dad: he's our broker. he helps looks after all our money. kid: do you pay him? dad: of course. kid: how much? dad: i don't know exactly. kid: what if you're not happy? does he have to pay you back? dad: nope. kid: why not? dad: it doesn't work that way. kid: why not? vo: are you asking enough questions about the way your wealth is managed? wealth management at charles schwab ♪jake reese, "day to feel alive"♪

♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ welcome back to "squawk on the street." shares of touchscreen technology and fingerprint sensor synaptics are spiking on news that they rejected a $110 per share offer. they also point out in the story that some sources say they could be holding out for as much as $125 per share. it could value the company at around $4 billion. those shares moving but off the

best levels today. >> 125. boy. strong rally here, 130 points on the dow. let's send it over to rick santelli in chicago. >> thanks, simon. would like to welcome my special guest this morning, formerly from the dallas fed, daniel dimartino booth. thanks for taking the time. >> thanks for having me, rick. how are you? >> good. you must be reading a lot of history books because you wrote a piece entitled tiny bubbles, a don hoh song. it's harder for tiny bubbles to give the heave hoe to the economy. >> back in the days of the dotcom boom we had a unitary culprit. we knew what the problem was. back in the days of the housing boom, the lending was being done

with abandon. we had a singslar identifiable bubble that was inflating in front of our eyes. today the fact that we have a preponderance of little bubbles i think gives investors reason to be as complacent as they are. there's not -- there's nothing unitary about what we're seeing in the markets today. you can rattle off a list of markets that are exhibiting some very troublesome behavior, but we're not just talking about one here. >> well, doesn't it make perfect sense, i'll go back to my analogy from 2009, 2010 where the fed and all the central banks and central panels of the world have these monster fire hose of liquidity trying to wet geraniums a quarter mile down the road. everything gets wet. that's your tiny bubbles. if i get a coca-cola with the top on and shake shake shake, those tiny bubbles erupt.

what's the issue? it will take longer? >> i think it will take longer to play out that means risk will continue to build in the background. you see the downgrade of petroboss. this did not ripple through debt markets like you think something of that size would have. then you look at more recent developments such as that at glenn corp, it makes you zero in on the debt markets. these are investment grade companies. glenn corp has not been downgraded yet. but you look at the magnitude of the debt placed on these company balance sheets, and the fact that most investors have been fine with it and it makes you wonder where the next bomb might be in the markets. that's just one example. it's being driven by the unwinding of the commodity super cycle. you could throw the same thing out there for leverage loans or commercial real estate or the stock market for that matter. >> you know, in the final few seconds that we v tshgs have, t

bubbles may be dispersed and not cohesive in nature. those who benefited from the production of these certainly is at the apex of the final pyramid. your final comment. >> you know, rick, i have to agree with you. but the beneficiaries this time around are the same as the beneficiaries in prior episodes but they have been more diverse in spreading out where the tiny bubbles are forming. that gives them cover for now. >> excellent. danielle, always a pleasure. look forward to reading your next piece. simon hobbs, back to you. last day of september, last day of the quarter and the market is rallying strongly. up 237 points on the dow. black rock's chief global strategist russ koesterich will be with us next. you pay your car insurance

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it may be window dress, but markets are in the green as the dow jumps more than 200 points. where should investors be focussing now on this final trading day? not just the month, of course, but the quarter. russ is global chief investment

strategist at black rock, and he kindly joins us now. russ, what's the smart thing to do here? >> well, right now i think the smart thing, first of all, is to accept that the volatility regime has shifted. this is going to become more normal going into the end of the week. that said, i think the selling of risk where i assets has gotten a bit extreme. particularly in some of the markets outside of the united states with the big selloff in japan earlier in the week. valuations have come down. international developed market is one of the strategies we would be looking to deploy. >> so often we hear people saying no, no, no, no, stick to some of the u.s. centric names. those are powerful aurg umts. >> first of all, the dollar -- it gives you exposure to europe and japan. the issue is more nuanced. yes, the u.s. is growing faster

than europe or japan, but the reality is the u.s. market is facing several headwinds that are idiocincratic. the stronger dollar is a head wind. we've had a profit recession among u.s. large caps right now. second of all, you already have u.s. companies. . >> margins are close to a record high. it's going to be difficult for them to grow their earnings through expansion and profit margins. it will be easier for companies in europe and japan to do that over the next one to two years. we'll hear christine lagarde from the imf. she's going to make a big thing about how tenuous things are in the emerging markets. interest rates on emerging markets, of course, have come back up to level that is we've not seen for a while. you read all the time of huge outflow from emerging markets. where are the bright shiny things that we should head for beyond just not wanting to be

here? >> this is a good point, and it's one theme that we want to consider which is the entire label for emerging markets is probably much less relevant than a few years ago. you think about different dimensions in em. you talk about commodity producers versus commodity importers. the collapse in the commodity super cycles influence countries in very different ways. you've got reformer wrshz companies that benefit from the pullback in commodities, and, second of all, are actually implementing structural reforms. we look for the intersection of those two. a couple of examples. india would be one. a company that imports 85% of their oil, and actually is benefitted within a current account perspective and fiscal perspective from this pullback in oil prices. >> i just -- if india is the best thing we can come up with, russ, something has gone horribly wrong, hasn't it? >> well, it's not the only thing you can come up with, but, again, as you say, looking for the bright spots and realizing that em has underperformed for

four or five years, valuations at least on a price basis are at the cheapest compared to developed markets in 12 to 13 years. i don't think it's a broad category buy, but sifting through the rubble, looking for places like india, to some extent mexico, and even parts of the chinese market, there are some bargains to be had. what separates these markets out, is unlike we see still in the u.s., prices have come down quite a bit in valuations are reasonable. >> we get the message. thank you for the analysis. meantime, let's send it over to john and see what's on deck for the next hour on cnbc? hi, john. >> hey, simon. well, the free period for apple music is over. if you signed up the first day, you've got one of the exec from spotify here to assess what the landscape looks like now. also, walt joipgs. of course, imf managing director

christine lagarde will join sarah eisen. all that and more coming up in "squawk alley."

>> 8:00 a.m. at apple headquarters in cuppertino, and

"squawk alley" is live. >> welcome this morning. shelly palmer, managing partner with landmark ventures. joining us as always john and calla. the markets are trying to rally. rallying ever since the open. currently up 213 on the dour. we would have to gain an additional 1,600 points to break even. bob pasani is on the floor. >> the important thing about today is it's another one of those