rebounding again today on tuesday, december 15th, 2015. 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 with joe concerner and andrew roconcer concernconcer concerner -- kernen. high yield issuers now posted at least $1.5 billion in defaults every month for 13 straight months. you want to put that in context it's one month short of the streak at the peak of the 2008 financial crisis. the high yield corporate bond etf is now down 12% on the year. among our special guests this

morning we have wilbur ross. he's no stranger to distress debt. we'll talk to him about that and what he thinks for the interest rates over the longer haul. right now let's get a check over the broader markets. things are look better. you can look at the dow jones industrial average. the futures up by triple digits again. a gain of 115 point ifs we were to open right here. s&p futures up by 12.5 points and by the way if the s&p were closed up today this would be the first time that it's put together back to back gains in over a month. you have to go back to december 2nd and 3rd. nasdaq is indicated up by 30 points. also take a look at oil prices. joe you saw this yesterday. as crude went so would the markets go. >> i would buy -- i'll store some in my backyard at 34. >> for delivering in january. >> yeah, i don't care. i don't have to -- i'll ensure it maybe but it's not going to go bad. i'm going to put it out there. i'm going to line it up.

i've got some room -- >> you ever read those, that article by the woman that trying to get barrels of oil. >> what happened? >> it's amazing how difficult it actually was. >> you know what, you're going to regret your urban lifestyle. no way you're getting it up on the fourth floor. >> no storage. >> i have room out near the trampoline and swing set. >> your neighbors will love you. >> i don't care. >> 34. it's worth something. >> apparently other people in the market thought -- >> not going to negative. it's not going to be hike interest rates. >> this morning wti turning back above $36. 36.88. it's up 1.6% already this morning after the gain wes saw yesterday. >> in the whole junk bond, you know, what really got scary yesterday it has a lot of people thinking what is this indicating in terms of just business? are all of these company gogs to default and then it comes down

to oil in that sector of the economy which is leveraged dependent on what. >> people thought it might spread to other areas. people are selling and selling other things to pay for what they're losing there. i'll not sure that the other companies that are low rated in completely other areas like hospitals, i'm not sure that it's all -- it seems like it's energy. >> usually it's an indicator of a recession. this particular sector that it's facing. >> but more than ever. now oil is down again and the markets are going down. why it should be good. it became very clear in the last couple of weeks why the markets go down on oil going down. so now i'm fully, whatever oil does i figure the equity markets. >> something like 20% in the s&p 500. >> but know i understand that we worry about all of this junk and worrying about financial crisis 2.0. if oil can stabilize even in the

mid 30s, 37 or 38, something like that that might allow the fed to do what it needs to do and maybe it's not the end of the world this time. >> it isn't the end of the world. >> they scare me. >> banks don't earn enough of this stuff. we got to that yesterday. it's not new. >> and thank you. >> let's continue. >> yes. >> an oldie but goodie. let's talk about the sell off in junk bonds putting pressure on asset managers in trouble. the wall street journal reporting that a lot of refinancials suffered the largest outflows of any junk bond fund this year. shares dropping nearly 8% this year. down sharply. it runs a $5.8 billion high income fund. the chairman and ceo joins us at 7:30 eastern time. he has views on the etf market and how it may or may not be related.

another user yesterday. affiliated managers group. it's a major investor in third avenue management. black rock and eaton vance also under pressure so there's outflows across the board which raises the questions about the financial piece of this which is how sticky are the assets and how do you value these firms? >> oil is sticky. that's what she is worried about. a leak. >> oil is sticky. the question is whether money in these funds is sticky and clearly it isn't. >> the underlying value is based on whether these companies pay back their debt or are able to roll it over. unless the default rates go up and these are -- the supply and demand dynamic when there's no bids to go down, the inherent

value may not have changed on the prospects. >> but here's the thing and i think peter krauss will speak to this, the idea and how does an etf, right, today, you're effectively valuing the underlying bond, right? but if you can't value the underlying bond, how do you value the etf. >> right. >> right. >> that's happening right now, every day. >> but if in the back of your mind you think that they're going to make good on most of their -- >> except the etf is a mark market product. >> it reminds me of the crappy closed in funds when i was a broker. the price traded every day on an exchange based on who wanted to buy it that day and who wanted to sell it and it had nothing to do -- >> they always sold at a discount to the asset value of what was in front. it was very frustrating and it

would always be like 20% below what it was actually worth because people weren't buying it. we got a little bit in over our skis on these things. and don't you like whenever we have a black rock person on? it's like oh no, it's not our eetf. >> but peter brought up a good point. part of it is liquidity. you have a massive number that they have seen on that friday. and that's the number. >> we should keep, instead of the countdown to the fed we should just keep the oil. keep crude on there. tick by tick. because that's what everything is off of. regulators are looking at third avenue management as we have been discussing. the firm moved to liquidate it's high yield firm by barring shareholders from making

redemptions from it. meantime massachusetts is launching it's own investigation into the funds closure state regulator galvin. looking on information on timing of of asking if the investors knew before others and galvin is going to appear on power lunch this afternoon and as we just eluded to hedge fund manager mark lazry is backing a junk fund at its capital group hit by redemptions, the $884 million credit strategies fund is run by the same portfolio manager that helped launch the now failed third avenue focus credit fund in 2009 and in an interview with reuters, he grew distinctions between the fund saying his fund is diversified with liquid assets. he suggested overall redemptions

are going to slow down at some point. i think so too. but arguing if people are going to start putting money back into the market at some point and this is interesting because we can watch these -- we'll watch the etfs and some of the other ones, they did not close on the lows yesterday and he'll be a guest on our show on friday. >> when we say he's backing it we mean he's putting his own money. >> so people can get the redemptions. >> he's all over the place. >> i can see him not wanting to sell it. >> no, i mean, he put his money into the milwaukee bucks. do you know what they did the other day. >> played in a basketball game. >> yes. >> they beat the warriors. >> it was actually in overtime. >> our viewers think that we really don't know.

>> it's not just the viewers that think you really don't know and i guess i'm viewing the show. that was very exciting. this guy is like michael jordan. he really is. i'm going to start -- it's amazing what one person can do for an entire league. >> yeah. >> steph curry. meanwhile, my buddy. >> pete rose is -- i read that this morning. i read back through a lot of it and not remembering the details i understand. >> i know. he's just -- he's a great hitter. he was such a great -- he's always been a little bit rough around the edges but, you know, he's telling the guy, are you still betting? yeah i love betting on baseball. i'm still betting on baseball. do you remember as a player betting on baseball? >> i don't have any recollection of that when they have all of the betting slips. i remember '87 when i was a

manager. >> and then he didn't come clean in '89. until he wrote his book in 2004 or 2005. >> pains me. >> and the commissioner said he's all about pete rose. he's not about helping the game. >> it's always been like that. all right but we digress. >> we took a look at the u.s. equity futures. the dow futures would be up by triple digits this morning. you can see in europe these are similar gains. the dax is up by 2%. the cac in france is up by 2.1%. in italy stocks are up by 2.3%. in asia overnight it was a little bit of a rougher ride. the nikkei closed down by 1.7% and stocks were down in the hang seng and shanghai composite. you'll see the ten year is now indicating at 2.245%. so the yield kicked up a little bit. also the dollar, at this point, the dollar is down against euro which is trading at 110.

it's up against the yen which is at 121. gold prices looked barely changed. >> when you write this it says let the countdown officially begin. we're going to do it. we're going to play that awful song. when they write that for me, they must know that we're going to have -- >> did you see that is on the geico commercial now. >> yeah. do you see the lady at the end? and you know why they're singing there, the guy is cooking something in the microwave. he's waiting for lunch. so i guess we now have a countdown to the fed decision so we're going to start playing this again. sorry. two day policy meet as good upon us. we'll have to wait until 2:00 p.m. eastern tomorrow for the decision on interest rates. the consensus still calling for a hike. i don't know why not.

>> we're less than 48 hours away from the fed decision which i'm almost certain is going to be a rate hike. but i think it's going to be a rate hike that's going to be wrapped in a very stovish christmas package if you will. that i think could encourage the market. >> and joining us now is the chief investment strategy. and have you seen this that the finale is last night. the murders in laverne. do you know where it is? >> yes. >> you've been to laverne. >> of course. >> must be near dakotas, yeah? >> well, it's east. >> okay. >> you think before -- we also have david, the global market strategist at jp morgan funds that speaks normally but you think this is going to be wrapped in dovish language, right? and it might be positive for equities? >> we said this is not about the

actual basis point move. >> this is about how they talk. >> well if they talk like you we have problems. >> well they do. we think that the fed is going to raise by 25 basis points. it will be lathered in terms of dovish speech. >> dripping. that's the way a scared fed would do something they're not sure of. >> we think they should have raised in september. >> a year ago they should have raised when the conditions were better. >> 2014 shame on you, 2015, shame on me. i think they have to raise now to rebuild credibility. they raise super dovish, market rallies. we're still at 22-50 for year end. we're going to close at 2250 and closer than most people think but we'll start believing in goldie locks the first part of the year. market rallies. redistribution of assets into

equities and rhetoric that's going to be changing because growth will be better than everybody expects. when we travel around the world and talk about 2016, 99 out of 100 portfolio managers believe we're heading into a industrial recession. and we have lower oil prices for almost a year now. we're starting to see the behavior change that usually takes four quarters for the consumer and manufacturing sector to take that oil and gas and do something with it. we do believe that fourth quarter earnings will be stronger than everybody thinks and gdp will be stronger as well. >> we would agree with a lot of that. i think the most important thing we mention is the trajectory of interest rate increases. the market seems to be pricing in the fact that the fed is going to move tomorrow if you look at the reaction to the november payrolls report. good news is good news which is always a reassuring sign heading into the decision. as we look ahead to 2016 the

rate increases doesn't matter because that's what is going to effect the strength of the dollar. that's the one thing keeping the current environment. it's dragging on economic growth and doing a lot of tightening for the fed and watching whether it's three, four, or five rate hikes for the year. >> you guys understand news cycles. you know what were currently in the junk bond sell off cycle. news cycle. so do either of you think that this gets out of hand and unravels and spreads the junk bond. >> i want to thank andrew for saying this is not 2008. 2007 was a record year for profits on wall street. 2008 is when we start to make money in the credit in 2008. for the last 12 or 18 months and we see a pull back with respect to business there.

this is not a contagion. in 2008 and 2009 the world was coming to an end with the most important sector of all. >> let's not put it in the 2008 context. let's just say is this something that spreads from here? we've had people that have said where there's one cockroach there's a lot of others. >> think about where the defaults are coming from. let's go the work, right? you look at some of these very small cap, low quality, high debt ridden companies anyway and we think too that we -- to answer to joe's questions, we do think oil is in the bottoming process. whether or not that's 35 to 55 or 40 to 60 we believe that will be the range for the next several years. >> if it's not though 2008 is it 1998? is the long-term capital, is there some other unwind that doesn't look like a, you know, nationwide systemic event but does have a systemic nature to it in terms of the markets? >> it feels a little bit uncomfortable but to your point

earlier, the banks don't own as much of this stuff as in prior instances and that's where rubber meets the road is who is left holding all of this stuff at the end of the day? if it's a hedge fund they took a risk. didn't workout. their money is gone. if it's a bank it's a completely different story so i think that -- >> the other question is how broad is the trade. is it really one fund or are we really talking about dozens of funds and everybody made the same trade. >> this is why we have been of the view that quality is so important. if you're a retail investor you shouldn't be overreaching into the lowest rated stuff in the high yield market. it's just inappropriate. >> where do you come out on the etf issue? that's exposed a larger group of retail customers to all of this. >> that's the biggest risk. doesn't look like it could have the financial contagion but could have a contagion to sentiment and if credit starts to lockup and people get nervous that's where i see this causing

problems but to your point when you do the work it doesn't look like it has the ability. >> take a look at the credit crisis it's a big tree with lots of branches and leaves. we didn't know how to count the leaves. i remember in 2008 trying to do some of the work. right now with respect to what's happening in the high yield market in terms of oil, it's a branch. it's a branch only. >> so okay. so we're going to go now. have you watched this season's fargo. >> it's one of my things i'm going to do over the break. >> you haven't either, have you? >> i need to. i'm told the second season is better than the first. >> i like both because bill by bob thornton was great in the first season. it's really cool. organized crime in the midwest which i wasn't aware of and there's some people in cincinnati apparently that back in the late 70s were -- i don't know if it's true but kansas city, kansas city they come up to try to take over but i have the subtitles on. i do.

so i can understand -- you would not need those. >> you had that book i brought you 15 years. how to speak minnesota. >> he can speak minnesota. he's not a bad actor. thank you. have you got anything we can work with. >> not from the midwest. >> do you know what we're going to get you on, you're a millennial. >> i am. see we're not all bad, right. >> i don't know. i ask questions later. >> it's working so far. >> are you shallow? are you on electronics device all the time. >> that's the one thing -- >> do you want christmas gifts are you asking for -- >> no but i see that trend. why buy something when you can go do something and post it on instagram. >> but millennials spend money and they buy equities. >> there you go. fingers crossed. >> i want to like this large group of people. i do. >> you should. there's a lot of them.

>> i want to. i want to. >> we would like them to like you. >> i'm making it hard for them. >> thanks guys, we're going to go to china now. a lot to talk about. the fed could be about to raise interest rates. but not everybody happy about that. chinese official versus been urging the u.s. central bank to hae hold off. eunice joins us with that now. >> chinese policy makers are bracing themselves for the fed's next move. a couple of weeks ago the finance minister was arguing against a u.s. rate hike saying it could be damaging for the economy and that the world wasn't ready for it. in the past couple of days officials have been playing down the comments but the main message is that china is worried about a fed rate hike. first of all as the finance minister suggested there's concern that a rate hike could actually damage any type of recovery and hence weaken demand

and this is a time when china's economy is already struggling. secondly a fed rate hike could increase pressure on the y aurks n to depreciate. already we're seeing the currency at a four year low and even though in theory that's a positive for the experts here because it makes it much more competitive at the same time policy makers like control. they want to be able to manage the currency and make sure that they don't see destabilizing swings in the currency. thirdly the officials here have been expressing concern about capital outflows, especially after we saw a record in november. so overall, the fed rate hike could complicate policy makers in this side of the world. >> thank you for that report. we look forward to seeing you again and we'll see what the chinese officials say when we do get the official word. when we return, republican presidential hopefuls are set to square off tonight in their

fifth debate. the final show down of the year. donald trump is still the front runner but some opponents are quickly gaining ground. john harwood will join us to talk about it. plus the force awakens. the world premiere in hollywood last night and cnbc was there and it was over the top. as we head to a break, here's a special message from anthony daniels. >> to all the viewers of cnbc, i have an important message from a galaxy far, far away, may the force be with you, always. make healthcare more personal with patient-centric, digital innovations; from self-monitoring devices that can interpret personal data and enable targeted care, to cloud platforms that invite providers to collaborate with the patients they serve. that's why over 90% of the top 25 global pharmaceutical companies are turning to cognizant. our domain experts, technologists, digital and data specialists,

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welcome back to squawk box. the results of our quarterly survey of the global council. they represent some of the largest companies in the world and manage more than $2 trillion in market capitalization. on the economic front here's what is going on. it's in lock step with most of wall street. 92% said a hate hike will be tomorrow. the majority of members see marco rubio taking the nod. for full results head to cfo council.cnbc.com. he will be squaring off in the

last of their calendar year. >> this is going to be fascinating. the last one before the campaign slows down for the holidays. now we have seen throughout the republican race that donald trump has been the center of the action and remained so last week but this is the first debate with more clarity about who might be the not trump in this race and that's ted cruz. he hugged tight to donald trump and refused to criticize him and hoping to pick up his voters later on. now we're seeing he has risen to number two. five points behind trump with room to grow. and what we have seen now is ted cruise is going to be an increasing focus of attention. marco rubio has gone after him. he's not as hawkish on surveillance or intelligence

collection. trump edged up to a full out fight with fed cruise. we have seen that donald trump reacts when somebody passes him in the polls so this is going to be interesting as we get ready for the holidays and a four week sprint to iowa. >> do they disappear? does everything go away? or take advantage of a moment. >> it is different this year because on the floor the calendar. the last two cycles the iowa caucuses have been on the third of january so you had -- you get up to christmas. you the slow week between christmas and new years and you had the caucuses right then. now we have another month. there's still time for other turns in the race. ted cruz had a huge surge mt. iowa poll. in 2012 rick santorum had it the last three days of the race and that was picked up.

>> do you see a path for jeb bush at this point? >> he has to break through in new hampshire. what you do have is trump with a significant lead and candidates competing to be the next one and second place is a trump. there's a narrow brand. when you look at cruise, rubio, they're all in the 6 to 12 kind of range and can you in a month of campaigning move six points? yes. he has a lot of money but he hasn't shown the ability to move people so far. >> cruise is analogous, i almost wish iowa wasn't the first place because we talk about it so much and i'm going to say it's irrelevant but evangelicals are

big before that mike huckabee was never going to be president i don't think. people remember ted cruise as the guy that did the mr. smith goes to washington presentation and he's at the risk of alienating some of the people that are big cruise fans. any legislation under his belt other than stirring things up and grand standing for his own personal sort of gain? he doesn't seem like a mainstream candidate. he seems like someone that hillary clinton would love to run against because his appeal might be limited to a smaller membership but we're at a point where 30% is a big number. 22% is a big number and if you add up the other 14, and you add

that up it comes to 60%. so i'm still not -- iowa is irritating that we put so much stake in something that might not indicate significant. >> the thing about iowa it doesn't necessarily choose the nominee but it narrows the choices. so we get a smaller number of people and the interesting thing about ted cruiz is people would have said he's crazy and hates mitch mcconnell. calls him a liar on the floor. government shutdown. >> when you put him along side a candidate calling to shutdown the entry of muslims in the united states he starts looking a little bit more acceptable. >> i think the cfo poll shows us more than anything that they're looking for a traditional candidate. who ever that might be. there going to throw their support behind whoever are mainstream candidates they think are in the lead at that point.

>> that's right. they want a mainstream candidate but republicans also want a cain date that can win but to joe's point, the general assessment is ted cruz doesn't have as good of a chance beating hillary clinton. so you'll see a lot of effort i think to move out of iowa into new hampshire by people to see if they can give him a lift. he has to find a place to move through. and cruise has done a lot of work in those and his conservatism has some salability there. >> am i supposed to believe him? i have been conditioned that he is lying for the past six years. i'm conditioned to not believe a single thing he has ever said. am i supposed to believe him now when he says that rubio might

be -- >> when you look at this field, the people with the best chance of beating hillary clinton. >> i can actually believe you. >> yes, jeb bush. >> you know they end up at the end of the nominating process and sometimes they latch on. it happened a couple of times. by default we need this guy. >> yeah, republicans weren't thrilled with john mccain but they thought he had the best chance. >> he was in, he was out. >> john, thank you. >> you bet. >> when we come back this morning, high yield fears. we'll ask if the sell off in the junk bond market is raising red flags. squawk box will be right back.

♪ welcome back to squawk box everybody. if you are just waking up let's bring you up to speed on the market. oil prices have been really significant. that's driving stock prices and you can see after a 2% gain yesterday they're up 1.4% this morning. wti all the way back to 36.81 after falling below $35 yesterday. take a look at what's been happening with the futures after the dow was up yesterday you can see a similar gain in the futures this morning. dow was up by 107 points right now. s&p futures up by 11.5 points and the nasdaq up by 27.5. many of the most influential

voices predicted more carnage is yet to come though. among them carl icahn, bill gross, and our guest wilbur ross that was the chairman and ceo. what do you think is happening in high yield and how do you think it spreads? >> well i think what's happening is several things. the energy bonds have been killed for quite a little while. that in-turn has put pressure on the higher quality things because there are no bids for most of the energy bonds so if you have aly inquiri a liquidit starting to bring down the rest of the market. so starting out with the problems in energy and if somebody will come up with a few million bonds in a jcpenney push down the whole retail sector because the banks no longer are really trading. in general they're pulled back

and a lot of the hedge funds are shutdown for the year. >> it's a liquidity problem more than anything. >> liquidity problem. people forget it's a psychological thing and not a physical thing. there's no less actual liquidity in the world today than there was two weeks ago. >> if some of the oil issues finally default that doesn't mean that the other ones that they're selling, it doesn't mean there's an even actual default in the works for the other areas. >> no, it doesn't. >> does it mean they might have trouble refinancing though? >> that's a real issue because you have a wall of maturities starting in 2018 building up through 2021 or 22. 1.4 trillion comes due because what happened is there was a big wall that was supposed to hit the last few years but the very permissive interest rate markets let them get refinanced. >> so would you mind covering that 1.4 trillion? would you mind writing a check

for that so we don't need to worry about that. >> you talk about 2018 being the beginning of the wall. when does that reflect on the market, though? >> well it really reflects a year or so earlier because to get your bank lines redone and rolled over, you can have big maturities within the next 12 months so it's really a 2017 issue. >> it gives us a year to two years for oil prices. >> because of the pending fed rate increase people are focussing on fixed income focussing on yield and the implications before they were looking just at yield because they were hungry. now they're saying well wait a minute, if rates go up, how are these bonds going to get refinanced. >> you mention the idea that banks are no longer the middleman in this game before and there's long been complaints among people, traditionally on wall street about the

regulations that took them out of this game. are we now going to learn a lesson that we somehow should have had them in this business. >> here's what happens. the risks are the same. the liquidity need is the same but now you have removed a whole big pile of capital from providing the liquidity so the risks have just been transferred to market participants. >> but isn't that better to some degree. >> it's hard to say. there's no less risk in the system. >> if there are liquidity events though that's the type of thing you would look at and say there's potential services through this entire area. >> there's a run on a bank and run on a mutual fund. they're the same. once confidence gets eroded no financial institution can stand it. they all have a fundamental mismatch. they all borrow short and went long. >> does that mean you're looking and buying some things.

>> we are. energy bonds. >> aren't we a little bit jumpy now? we all saw 2007-2008. so that's the kind of sentiment that we still have that's probably fairly bullish because we think every single time we're asking is it going to happen again? and it only happened once in how many decades? so right now we're quick to rush to the notion that this is going to be much worse rather than saying it's not going to be as bad. people are jumpy, aren't they? >> i don't think the fundamentals are as scary now as they were in 2007-8. >> we didn't know though before that. we didn't have a 2007 or 8 before it. so we were clueless going into it. not cnbc. >> it just took old people like me to remember the last time we had one. >> right. but this time i don't know, twice and then there's the people -- twice in four years or six years would be weird but then there's people that say we didn't fix it really last tile and that we didn't flush the toilet and clear the system

enough. we had the fed save everybody and there wasn't enough pain and maybe there's the ultimate reconning still to come. >> well i think we are in for a period of greater volatility than we had before. it translates into volatility. >> what about low growth probably. >> we had low growth before. it's just that now it's an endemic think and now it's low growth. china and the emerging markets helped bring it up. >> now they're admitting they made up the numbers. >> yeah. but as you know, we haven't felt there was 7% growth for years because if you look at physical indicators rail card loadings, electricity consumption, things of that sort that the government cannot fake, they haven't been consistent at 7% in a long time

and to the degree there's 4% it's coming from the service sector. >> which part of industry do you like? it's not all created equal. what part -- >> we have been buying the busted bonds of some of the smaller exploration production. >> the shale people. >> really? okay. because they can turn it on and turn it off. >> not necessarily equipment and stuff like that. >> no but i think that's later. >> farther down. >> so e and p. >> it's going to be down for quite awhile. >> wilbur it's always great to see you. thank you for coming in. >> thank you. >> come back soon, okay. >> i hope so. merry christmas all. >> absolutely. >> you represent three or four millennials. >> all in one package. >> all in one package so we get a consensus and i'm two or three or -- well, i may be -- anyway, coming up, why well-known market

watcher says oil hit it's bottom for the year. must have been watching yesterday. anyway, first as we head -- i'm ready to buy. put it in my backyard. quick check of what's happening in the european markets right now. stay tuned you're watching squawk box on cnbc. first in business worldwide. when you do business everywhere, the challenges of keeping everyone working together can quickly become the only thing you think about. that's where at&t can help.

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welcome back, a six session losing streak, rebounding from lows under $35 a barrel. has oil found the bottom? the next guest says yes, and we are partner at again capital, and, of course, a cnbc crick contributor, and said you saw a handle that starts with a 2 at some point? >> yeah. >> that's over for you? >> well, for now it is for sure i think. >> for now. until next week or what? >> no, no. not until late february. the next refinery maintenance season when they retool for the gasoline season.

like we went through recently to retool to make the winter fuel. that causes a backup of crude oil in the system and there's substantial bills in invenn stories, so i think we won't be able to challenge these lows we just saw until then, and maybe not even not then. by then, weevil have a sense of production finally, but the selling on friday looked exhausting, but when i was here yesterday, i was almost ready to say that friday looked like it, but that initial whoosh we got yesterday. >> you could feel it. >> i would have wished yesterday had a higher high than yesterday because then we would have had a full on outside day, it's called, a key reversal for technicians. we didn't get that, but the k s exhaust selling yesterday put an exclamation. >> i sold all the live cattle i had in the backyard. remember, i used to want to own cattle. now it's gold or oil. you can milk them, make handbags from them. >> only one, though.

>> you can make steak. >> sheep, you can do more than once. >> right. >> storing oil. sticky barrel of oils there in the swing set. $34, huh? >> put it in the pool. >> any chance we get back to 40? >> yes. interesting overnight, broke above 37 a barrel. we failed at that last week, but i think very shortly, i think it's going to be a -- there's a lot -- >> hang -- which, by the way, begin anxiety could stabilize things. >> that's the idea. >> in a record short position in the crude oil futures market too. that's an another box to check in the situation like this so now there's late comers, weak conviction buy back in here. >> high yield off the lows yesterday. if you look the the chart, right, with oil in the last hour or so, they had jnk, hyj, they were off the lows.

>> the other sign in the market too, andrew, gasoline markets are strong, and crude goes down, gasoline rallied 10 cents a gallon on the imx, a sign of strength here and strong gasoline demand out there. another factor, i think, that can argue for about the bottom. it's littered with folks all year who called this and got kill. i may be one of them. >> explain february all over again. as you i understand, we go back again? >> twice a year, refineries retool. >> of course. >> on february, we see them then shut in and take their units offline to retool. >> creating a glut. >> making gasoline, causing crude to back up, and there's weeks of big bills, weekly reports we get. >> why doesn't the market see through that, then? >> because there's so much crude again, it's just going to attract investors who see, again, a building glut that it'll reinvite some selling.

>> okay. tom, thank you. >> thank you, guys. >> did you see the quotes for trump, though? how do you find a doctor that speaks your language? he had the doctor for, like, 20 years. >> lawyer speaks the same language too. >> the health is not just good, but aston ishingly excellent, and the doctor says, if elected, mr. trump, i can state without question that he would be the healthiest individual ever elected to the presidency. i want to doctor that, you know, if i need him to talk me up -- >> yes. >> trump's doctor since 1980. >> same doctor working with charlie sheen, a crazy doctor. >> he's not the same guy. >> there's an article about obama -- >> president obama. >> president obama, sorry. >> no segue from this topic to this topic. it's hard to find time to keep up on my shows.

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markets on the move, could fear factors derail a rate hike or janet yellen and company prepare for liftoff despite volatility? new insight from our exclusive fed survey. >> fears rise of a meltdown in the junk bond market that could trigger a crisis in etfs. peter from ab, formally alliance, sounding alarms on etfs. >> the hottest gifts, experienced gifting is on the rise, restaurants, con seconverd

trips. we have that as the second hour of "squawk box" begins right now. ♪ live from the heart of new york city, this is "squawk box." welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe with becky and andrew, and u.s. equity futures ahead of fed decision were improved now, up almost 13 and nasdaq and watching all the markets, dollar in a seven week low against a basket of currencies overnight. interesting given that it's sell on the new -- by on the new issue sell on the -- whatever,

probably will happen tomorrow. we knew that. the euro back to 1.10. price of crude which now you just have to say, if you are bullish on equities, you actually want oil to go up. it's been that way for a while, but it's been clearer than ever with this junk bond situation that when oil rallies, markets feel healthier, right? >> we hope so. >> we don't really -- >> we hope so. >> we're agnostic. >> we love a good story. >> love a good story. right. one of the big stories this morning, whether it's good or not, depends on what side you are on. the selloff continues in the global market ripple effects, people feeling it. ratings reporting that high yield issues are in default every month for 13 straight months. to put it in context, it's one

month short of the streak at the peak of 2008 financial crisis. i'm not sure we need to get there yet, but there are some similarities. >> mostly energy, though. >> not connected to the banking business, and that's why we're not -- it's not clear it's system ig in the same way, but as ross talked about, although a lot happens in the energy space, the only way to sell some of the space is make sure you sell everything else. >> and when it comes to the fed raising rates, it's bringing into question whether they refinance loans already existing out there. >> in 2018 -- >> anything below quality. hospital stocks crushed yesterday. >> retail stocks too. >> the ishares ibox high yield corporate bond etf down now 12% on the year, and asset managers are feeling pressure. the financial suffered largest outflows of any junk bond fund this year, and shares of that fund dropping 8%. yesterday, people had questions

how to value firms like this when you don't know if assets are sticky or not. they are down sharply with a high income fund talking to the ceo of that company in just a little bit. >> did junk etfs all bid higher today, hyg close at 79, and jnk a higher. the one you showed was up 70 cents too. >> you saw the picture, peter kraus, is on at 7:30 to talk about this. backing a junk bond fund at avenue capital group hit by heavy redemptions. the credit strategies fund run by the same portfolio manager who launched the new failed third avenue credit fund in 2009. in app interview, he drew distinctions between the two funds saying his fund is

diversified with liquid assets in single digits and says reacceptir redemptions will slow down saying he's not sure if it's today or next week e, but arguing people will start putting money back into the market at some point, and as i mentioned, a quick programming note, that mark is going to be our guest host on this very program on friday. we can talk to him all about this and more. >> the fed gathering today for one of the most yearly anticipated meetings of the last decade. steve joinings now with the exclusive results of the cnbc fed survey, and, steve, you teased us yesterday. go ahead. >> just an important survey, becky, the first one where we start to look through this coming rate hike. let me dispense what the news is. first off, 90% of the 42 respondents expect an increase. what happens next? let's start right away with the big question. how many rate hikes next year? what you sigh from the chart is there's not a will the of consensus.

will there be one, two, three, four, or five hikes? 29% say two. 29% say four. 21% say three. you got people on the one and five camp making the wednesday's statement so important. we look for whatever guidance and, of course, the press conference, whatever guidance we get from the chair about what happens next year. our medium is three. it's the beginning. see how it changes overtime from the guidance and as the economic data comes in. let's look at the timeline and see how that's changed. come over here, december in the prior survey, looking for rate hikes in december, that's not changed. of course, now, the most important question, when is the next rate hike? new answer here, that is expected in march on average for the 42 respondents. balance sheet declines were november 169, pushed ahead to december 16. that moves around the area here, a year out now that the $4 trillion balance sheet should begin to decline.

terminal rate was the third quarter of '18, pushing it in closer, rate down to 2 .58, seen as a shallow rate hike cycle over the next couple years here. last thing to show you here is the path of the funds rate, and what's important about the chart is look where we started with the 2018, that the expectation ends the year as high as 1.8%. look where we are now. 2016, .9%, and now our first entry for 2017, 1.61%. for anotherchart, this really gets in the thing that joe brought up continually, is how to people think it ends? it can't possibly end well. well, this is the survey. we asked, do you think this normalization process, rate h e hike, end well or badly? 38% believe badly, 44% neutral, and 13% think it ends well.

people side with joe on this than me. >> steve, not a single person said that they'll raise tomorrow and then go back down to zero in march, and there are -- >> no, i did not provide that answer. >> why not? i think the world and the economy -- we're going to have him on later -- fed raises, a mistake, and likely reversed in the near future. that should have been -- >> i can actually test for that, joe, if there's anybody in there that put a rate hike in december, but had a zero or small funds rate next year. i'll check it out. >> disturbing nobody said that. >> faas far as we know. >> as far as we know, okay. i don't think that's going to happen. >> i don't think it's going to happen. look rs t

look, the question is, is it a rate hike or is it a rate hike? do if for a quarter, hang out r or truly a normalization process? >> everybody else did it too early, but we waited too much. >> japan, europe also turned tail. >> exactly. all right. >> steve, thank you. >> pleasure. obviously, we're still asking ourselves around here, could the shakeup in oil, stocks, and high yield space give fed a pause in making the move tomorrow? gary stern joining us right now, former president of the federal reserve bank of minneapolis. also, tom forselli. gary, you've been in the position, you've. in the room, you know how this works. 95% of the people steve surveyed think this is coming tomorrow. are you in that camp? >> yes. i'm firmly convinced it's coming tomorrow. there certainly has been a lot of turmoil in a number of financial markets. there's been some

disappointments in economic performance abroad. a federal reserve policy depends on what's going on in the united states, and here the economy continued to move ahead quite nicely, especially if you look at the labor market data, some associated spending number, and so forth, and i think the fed is in a position now where they, in a way, claim victory. the dual mandate seems to be secure, and the way to conduct policy, in my view at this stage, is to just try to prereceiver the course we're on. >> and not to mention the credibility factor when it's been widely telegraphed, if they were to not rise rates tomorrow, that's a situation much worse than the last time around. >> well, i think they'd have to have a compelling reason that they could tell us all about why they chose not to act, and i don't think there is that reason. it's not enough to say, well, the markets have been disrupted here or there because, you know, market volatility comes and

goes. we all experienced a lot of that over the years. you can't make policy on that basis unless you're really, really convinced that you're in the midst of a collapse. >> tom, you're nodding. do you agree? >> i do. i think what's happening in the space to really have material impacts on fed thinking, where's -- tomorrow ea's happen. does that impact the pace of hikes? the way to think about that is if what's happening in energy bleeds out, and you are seeing some of that. energy bled out to the broader commodity complex, and from there, bleeding out to the industrials getting hit by that. it needs to be much more broad. clearly, i think, one of the big sectors that the fed will pay attention to and worry if it actually did become systemic is if it bled in the banking

system, and reality is that most of the banks have really limited exposure to energy in general. >> let's talk about what you expect from rate hikes beyond that. you're right. that is the question. we assume they raise rates tomorrow. how many rate hikes do you see next year? >> i'll tell you a number that sounds wildly outside of consensus. we think end of next year, 150 basis points. >> six hikes, essentially? >> consistent with the fed, and, of course, so, tomorrow, plus four next year. now, here's another idea that i think people should probably start to get comfortable with. here's what's going to happen next year. say $50 crude by the end of december is reasonable, which, actually, i think it does. if you're at 50 -- >> $50 next year. >> a long time from now, right? a low hurdle to get there. if you're at 50, you're at 2%

middle of the year and 2.5% by the end of the year. you're at 5% right now, and middle of the year, at 4.5%. >> you think the fed's hand is forced by inflation forces picking up. gary, you agree with that? >> not entirely, no. i expect to see more increases next year, but i put the number slightly lower, maybe three more increases next year. as far as inflation is concerned, i think there's a lot of inner sha in the inflation process, means when inflation is running low, it continues to run low, and, obviously, other side of the coin is if it accelerates, then that's another matter. i think the inertia of low inflation prevails. i think the fed is in a way in an enviable position. it's not urgent they do anything. >> like what happened with fracking. >> nothing urgent. take time and proceed.

i expect that chair yellen, that's the message i think she'll try to deliver. >> actually, i totally agree with that. i think that's the way most fed officials are actually thinking about this. that's why i say, if you think about the hurdles to get to the numbers of i highlighted are strikingly low. i think the conversation could potentially shift in the middle of the year towards, wow, maybe we, the market, maybe we're wrong. maybe the fed will start the acceleration of hikes, and to the point, i agree, there are initial qualities associated with headlines in particular, but it's just a technical element. base effects alone get you to the higher run rates from inflation perspective, and, by the way, i hate headline inflation, worse measure of inflation out there, but core measures of inflation will continue -- they are already near the fed's target, already near 2%. build in some health care price increases, which we know are coming because of the budget deal, and build in additional

shelter price increases, and you're north of 2% from a core inflation perspective. they are ideas that the market has yet to embrace. >> 1.5 next year? >> 2.5. >> no, for the fed. >> yes, yes. >> how does one tomorrow and four tomorrow equal 1.5. that's why economies are messed up. isn't that 1.25? i was able to quickly -- >> yeah, yeah. >> did you see that? that's why you guys have problems. the slightest forecast. if you can't get to -- huh? >> we are -- >> you can say one -- >> communication is always a challenge. >> we're saying that you're 0-a quarter now, so say you're at a quarter right now. you're not at zero, right? think about it, you're in the middle. >> the funds trade at 13 or 15 basis points. in round numbers. >> thank you, gentlemen.

>> thank you for the math lesson. >> i can add and subtract, i can revolutionize the deal. >> science no less. new trends in gift giving. it's about what you do than what you have. why people are giving experiences this year. joe, this is into your whole millennial conversation. fears of a meltdown -- >> don't play into that. >> peter kraus, he's joining us, sounding alarm for more than a year. joining us at 7:30 eastern time, and tomorrow's rate hike affecting investment by the super rich. robert frank has details at the bottom of the hourment don't miss it. wac back in a moment. 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.

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it's gotten thinner. even curvier. but what's next? for all binge watchers. movie geeks. sports freaks. x1 from xfinity will change the way you experience tv. consumers are spending more money -- you were ready to do this all along? >> all along. >> on experiences. these are millennials, experiences over stuff -- they want the sorken experience? >> what's that? >> i have it every day. >> you luck out. >> courtney reagan, that may be something. >> add it to the list. >> we should. >> wow. >> that's going to cost more, though. that's not all --

>> what do you get for that? >> it's not all in one day, either, spread it out. >> over years, years. >> over years. >> eight hours every morning. >> right. >> well, let's have this experience right now. >> here we go. >> on the show. while the u.s. is a consumer nation, it looks as if americans are less into stuff and more into experiences than in year's past, holiday season and beyond. mastercard reveals data they prioritize experience spending with restaurants, travel, and lodging. fur tu furniture, too, but that's an association with the home. on demand private jet charter company says experience travel for personal and corporate outings is increasing 10-15% each year, steadily climbing over the last eight years. groupon saw a tremendous appetite for local experiences for the first time ever over the black friday weekend with more than one in every four purchases going to the restaurant, salon,

spa, or similar merchant. the economic survey shows if costs were equal issue 25% of the adults prefer experiences over a gift this year. more than a third, though, of millennial adults hope for the experience gift this season. surveys show 80% of the group chooses to spend their own money over a experience than a good saying more than half spend more on events than they have ever before. now, it's good news for the overall health of consumer sp d spending, but not retailers. we heard on this program and other places, we sell things, but not what the consumers are wanting to buy right now. >> is this something that you think is a shift that's going to continue to hurt the traditional retailers? we've been waiting for the bump to show up with the lower gasoline prices. >> i very much do. it all goes back, i believe, in some ways to the financial crisis, and i think that that's sort of shook us to our core.

whether we realize it or not, it changed the way we value spending and made us look at the closets harder. do we need the extra coat, extra pair of pants? i realized i have bought less clothing in the past, even though even everything else pretty much stayed equal. i still had a job throughout all of it. >> you don't argue just fashion is terrible right now? >> it's part of it. it's part of it. >> it's nothing new. >> we talk about weather, but still, clothes wear out. you have to replace things. there are styles that change. >> right. >> the commerce spenting department says it's trending lower. >> we watched the millennials and know they are living in urban areas, living in apartments. you don't have space. >> no space. >> huge part of the deagain graphic. >> so many factors going into it. that's when we talk about consumer spending and say the consumer's healthy. they are spending. it's harder to see where they are spending, but we can see a

trend towards making memories rather than buying stuff. >> thank you. >> thanks. all right. i'm going to -- >> joe's -- >> is driving a nice car an experience sm. >> yes. >> really cool ferrari. is that experience? >> yes, it is. >> okay. i understand. it's not all fleeting. >> no. >> if you take a selfie, it's not fleeting. that's what a millennial would do, right? do the experience, take a picture. then they have the moment. >> i guess. okay. unless it's on snapchat next to the naked shots they send each other all the time. >> i just figured it out. you're jealous. you want to be a millennial. >> we're great. >> as people get older, they are jealous of people that are young? how did you figure that out? a roundup of today's top tech stories including the new national drone registry. wasted on the young.

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big steps in drone

regulation. those between half a pound and 50 pounds have to be registered by february 199th of next year, by birthday, by the way. anyone flying without credent l credentials face fines up to $250,000 and three years in jail. maybe we won't be seeing as many drones, or maybe with registrations there's more in the air. >> the flying fa gnnat the air. >> the flying fa gnnaics saying it's government in the way. >> i'm happy. >> yeah, but what -- i was watching last night on a news program -- >> it was nightly. >> no, it wasn't. >> no. >> watching where there's two or three together, but it scares me. just looking at them. it looks evil. sort of, like, wasps or something, and -- >> you don't know where -- >> what world will it be if they are everywhere? huh. >> creepy. >> it is creepy. >> when we come back this morning, fears of a meltdown in the high yield market rises ahead of tomorrow's fedization.

peter kraus is here, warning about the risks of destressed debt and lack of liquidity over a year. he's next.

welcome back to "squawk box" here on cnbc, first in business worldwide, among the stories front and center this hour, shares of lumber liquidators, says the company is sloppy and nai naive, but not evil. they talk about chinese made flooring with high levels of formaldehyde. stocks plummeted after that, but now they believe they were fwawe of the problem, and covered short position on the company yesterday. flash sales start up gilt group could be ready to sell for a traction of the old valuation according to the wall street journal this morning. the owner, hudson bay, nearing a

deal to buy gilt. they were valued near $1 billion. joe? >> good news for howard stern fans this morning. the host is staying on on sirius xm, a new five year company with the satellite radio company that was set to expire. he announced the new contract just minutes ago. >> do we know the price tag? he was getting $80 million a year in the old deal. hopefully, for his sake, he's got a little raise, maybe, i don't know. >> he likes a lot of people to hear him, you know, and he actually agreed to do this -- nbc too, and so he -- >> i think he likes people to know and listen to everything, but i would, for $80 million, i would do that. i would go in for four, five hours a day? four hours a day. they -- used to be early in the morning.

>> maybe other things. >> used to be earlier in the morning, but they gave him an extra hour. >> you do this for free. >> for free. >> just to hang with you. >> and becky, of course. >> for the experience. it's experience. you know what i'm saying. >> yes. i think he misses mainstream when everybody could hear him. i have not heard him since he left. >> you haven't? >> no. >> he would do it in a vacuum. there's enough money, and i'm ready to. okay. >> all right. talk about some of the liquidity fears in the high yield market. they have been spiking ahead of tomorrow's fed decision. dom joining us now to explain, and, dom, good morning. >> i would say right now, good morning to you guy, and i would work a full eight hours in the cave for $80 million a year. anyway, if we talk about the idea it's under performing, that's an understatement. the white line is the

performance of that -- at least that junk bond, hyg, biggest pun that tracks them. orange is the higher grade investment grade corporate bonds here. again, just a sharp underperformance. these are etfs, and they were a big focus, and for a lot of investors, that's how they get exposure. they do not buy the individual bonds themselves. black rock yesterday said there are a number of reasons why they think the etf focus and etf structure works well. first of all, record trading volumes last week, both on friday, 4.3 billion because of the high yield funding, hyg, the tickers, almost $10 billion last week, but out of the selling pressure, there was only $560 million worth of bonds sold for net reredemption. matching the buyers and sellers, and a lot say that's a good sign

that things do work. now, market weidman joined us yesterday to talk about the dynamics and what he sees in the market, and, perhaps, one the reasons why investors need more faith, and this is what he had to say. >> right now, it's about 12% of energy, and another 3.5% of metals. both under price pressure. there's been a repricing in there with very, very wide yields on underlying bonds, what's driving up the price, driving down the price of hyg and the spread up. liquidity? yeah, a little more challenge, but overall, broader high yield market, we're seeing to be relatively healthy, given that there is a fair bit of money wanting to move in one direction. >> now, obviously, guys, mark runs the etf business at black rock with an ax to grind here, but says the liquidity's there and things work properly. of course; opponents of the etf market say it's a matter of time before we do see mass

liquidations, causing strain, joe, on what happens to the assets. back to you. >> well -- hello? can you hear me? all right. i don't know. >> i can hear you, joe. >> okay. stay with us. >> i'm going to stay right here. >> joining us now is peter kraus, ceo and chairman of the board, ab, outspoken critic of high yield etfs and very thoughtful, and i learned a lot just looking at some of your comments on here and learn about matching the watch with my tie and the perfect beard, everything. >> did you get the watch waand e to match? >> no, gold and silver. >> not a great idea from the start, and what you're seeing here is when you invest in high yield, it's not about what you own, like an equity mutual fund. you want to own all good

performances, but what you doepd own. you don't want to own things that blow up. it's totally different rationale that could be a one off, and this is just his tear why for someone who shouldn't have done this in the first place. >> well, look, third avenue example is an anomaly. we don't see many managers owning triple c and below bonds in daily liquid vehicles. >> people can get out. highly concentrated in the totally ill-liquid investments. >> that is a major issue. that clearly caused a surprise in the market. for good reason, owning bonds that shouldn't have been owned in a vehicle that was that liquid. i think that it's been limited to that, quite frankly. it's true that there has been a fair bit of trading volume in etfs, which is a good thing, and there's trading volume in mutual funds. that's been a good thing. the issue that i have had with etfs and continue to have with

etfs is really the warning label issue, which is what's the cost that the invester bears for that? so if you save for college or you save for retirement, saving to buy a car, why do you want to own an etf where the performance of the etf, yield that you own, is materially worse than the yield that you would get owning mutual funds? that's the big difference. i mean, it's good that it trades frequently, but that does not go to the value. that doesn't go to the conveying of the investor and purpose of which the invester invests in security. etfs are securities, not the bonds. they are derivative contracts. >> raising the question, by the way, which is, if something's not trading, and i know the argument of those who have been here made they are traded, but some of the energy high yield issues, they are not trading. how do they actually then create derivative prices on etfs? >> there's buyers and sellers pricing the basket of securities at a value.

they are estimating that value. there's a willing buyer. there's a willing seller. they are trading. when you set back and you compare what results -- >> not trading, the estimate is a fallacy. >> if bonds are not trading, it's an estimate, not fallacy because it's an estimate. there's where the bond trades and representation of where the bond trades in the etf. you know, look at that performance over time, and just for this year alone, for this year alone, the ab actively managed fund is down 5% this year, and both of the indexes are down 2.6% worse and 3% worse. so that's 66% worse. that means you're spending an extra three-plus percent to actually own the etf. i just don't know any saver, person looking to buy a house, a car that wants to save for retirement, believes by owning efts, they out trade that 3%.

>> part of it, though, is liquidity issue. if you're in a position and you want to get out, the concern has been, well, something like third avenue, you're stuck. >> the question the investor has -- these are investors, not traders. they are looking to save for a purpose. they don't need liquidity in the middle of the day, but if they want liquidity in the mid of the of the day, the price is 3%. you need to be able to actually earn the 3% and then some because, by the way, if you don't earn the 3%, that's a real risk. you need to be able to over earn that, meaning earn more than that. i find that mysterious. >> an issue like this throws people way off. what we saw in 2009 with the situations with fund that were gaiting, not letting people take money out, that's a massive panic. >> 2009, it was limited to hedge funds. >> yeah. >> not mutual funds. >> right. >> rarely see mutual funds gape, and in this particular case that joe pointed out, it is a mutual

fund. they gated. they own highly ill-liquid securities. argue whether people should have known that or didn't know that or should have been more knowledgeable about it, but they own highly ill-liquid securities, and we talked about it before on the show saying we have a maturity transformation taking place where you have daily liquidity, and the underlying asset is not always daily sellable. that's a risk. you know, we have change the the way we trade over the last three or four years to actually improve liquidity to be a market maker opposed to a market taker, and to make sure that we feel that we can actually deliver the liquidity that we're guaranteeing effectively, you know, investors. >> you mentioned an actively managed fund a moment ago. there's a big debate still going on, i think especially in this environment, whether you want to be in an actively managed fund versus passive fund, right? warren buffet said passive funds, that's the better way out. i would have thought that you would actually be in a category of saying actively managed is

better begin what you do, but i'm not sure that's where you are right now. >> no. i would say that warren buffet is a great inactive investor. last i check. he does not run berkshire on an active basis. the junk bond world makes it clear. if you run an etf, you own 15% of the representation of the yield in the energy space, and the mining space, and you've had numerous people on the show talking about the real risk in the high yield market today is in that energy and money space. well, if you're an active manager, you're not required to open names. you can own far less or zero. that's what creates value. that's where the investor gets something from the portfolio manager opposed to being required to own a series under pressure and are being -- >> default rate is higher on energy and mining than

historical averages, but the question is that everybody needs to know is there something that we're not seeing in the world that would imply that everything that's low rated has a higher rating? any reason? people sell the things because they got to raise money, whatever. any reason to believe the default rate goes up in high yield? >> there's not. talk about the fundamentals. we're going to hear today the fed's decision with regard to rates. expectations are they raise rates. watch unemployment rates come down to healthy rates in two years, and someone on earlier said rates could go to 4%, meaning unemployment. it looks to me that we have fundamentally a strong economy, and a growing economy. we have very low oil prices that's bad for the energy sector, but good for the other 85% of the companies out there that are issuers. it's hard to argue that there's actually a recession coming in 2016 or perhaps not even in 2017. we have a stronger economy, a growing economy, and that would

argue that default rates are likely to be modest. now, we know in the energy sector because oil is so low and there's a large amount of issueance, that's causing a program likely to see elevated default rates in that space. again, that's why the active management is more interesting today. >> i bet there's a lot of guys that are licking chops how to refinance on energy. there's value in all issues and companies, energy companies are not going away. they need restructured terms, right? >> well, some are going to be challenged because -- >> completely gone? done? >> what's the recovery rate? you know, at the end of the day, it costs you more to take the ground than what you sell it for, that's a problem. there's not value left. many companies have value and will get restructured, and there will be an opportunity. >> all right. peter kraus, thanks. 3m, it's down a little.

the company is doing -- having some type of analyst conference call, lowering guidance for this year, 2015, seeing organic growth of 1% versus prior to growth of 1.5% to 2%. shares estimated to be 755, and the street's at 7, and a little below that. for next year, and i don't know whether these are new or whether -- how they relate to what they were looking for, but they are looking for 810, 845, increase of 7-12% organic sales growth. >> high end of 840. >> all right. okay. so then that's a low end now. that stock is now down, what, under 2%. peter, thanks, though. >> thanks. when we return, pique sorting day for dhl, u.s. ceo

joining us next with a look at the holiday rush for shippers. back in a moment. yeah, a little. you're making money now, are you investing? well, i've been doing some research. let me introduce you to our broker. how much does he charge? i don't know. okay. uh, do you get your fees back if you're not happy? (dad laughs) wow, you're laughing. that's not the way the world works. well, the world's changing. are you asking enough questions about the way your wealth is managed? wealth management, at charles schwab.

welcome back, a study showing holiday online voters take longer to be delivered these days.

our retail consultant found it took seven days for orders to arrive, 20% longer than last year. big box chains and online stores participated in the study. nine years from christmas, and it's peak sorting day for the workers at dhl. joining us from the distribution facility near jfk airport, the ceo of dhl-usa. it's not pique shipping day, but sorting day. what's it mean? >> so, i think that means today it's going to be the busiest day when you combine both delivery operations this morning and the pickup shipments tonight. in about 10-15 minutes, it's a buzz of activity behind me. >> to the extent you are a bell weather of how the holiday season goes from retail perspective, especially psycher retail because so many people

ship things these days, way are you seeing? >> two things. inbound side with a strong u.s. dollar, i'd say more americans are buying goods from overseas. we've seen huge volumes and above forecast on the volume coming inbound to the u.s. i guess conversely on the outbound side, less people in countries like australia are buying u.s. goods because the dollar's so strong, so volume's a little softer on the outbound. >> i got to ask a security question, which is, you know k given everything going on in the world these days, are all the packages x-rayed? what security procedures are? place? on the other side, there's reports, by the way, that more pack captions are stolen every day, not from warehouses like where you are, but once they get delivered. >> from a securities stand appointment it's taken seriously, and, obviously, any package that's brought to our counters from an unknown shipper, we will open, inspect all of those goods, and they are all captured on cctv footage,

and in the hubs and gateways, there's x-ray unites that allow the packages to go through to ensure networks stay safe. i think on the other side around loss and theft, we're a little bit different. we have few customers that we actually allow a delivery to be made without a signature. because of the value of the goods traveling international tend to be a little bit higher, we have not seen that in our network, but, certainly, i've heard those reports and questions. >> okay. greg, appreciate your perspective this morning. we will be getting an update from greg on the company's pique delivery day next week, so, thank you, and see you next week. in the meantime, anticipation of a rate hike affecting the super wealthy. robert frank has that story in florida. he's going to join us right after the break. back in a moment.

low interest rates pushed billions in wealth into vintage cars and diamonds, but as we await a rate hike, markets have showed signs of a sudden slow down, maybe a little crack. robert frank joining us from hillsboro beach, florida. your beach, robert, what do you have? >> reporter: yeah. you know, we talk about a lack of inflation, not in the world that i cover, not in my beat. as you mentioned, joe, we are at the sec most expensive home in america, and these low interest rates for seven years, zero

interest rates plowed billions in hard assets like collectibles and high end real estate. the question is how markets hold up with rising rates and slowing wealth creation overseas. price inflation in the markets seen in the past five yearings. cars up 161%, art up 44%, wine up 40, coins up 92, and jewelry up 71%. look at high end real estate, the number of homes selling for a million or more is more than doubled in the past five years. same thing for home price the at $5 million or more. slight increase in rates they talk about does not hit the rich. they pay cash for this stuff. experts say we are already seeing signs of prices slowing in many of these markets, even before the rate increase, and we've seen very mixed auctions in the fall with art and cars. it's looking high end real estate, 10% of the market is slow and declining for the first time since 2012, but at the fop of the top, we are not seeing

any signs of a slow down, in fact, the opposite. this house, the exhibit a, on market last year for 139 million. they just raised the price to $15 president million, making it the most expensive on the market. this is in hillsboro beach, florida, there's an imax theater, $2 million staircase, $3 million worth of gold inside. this is one the biggest pools that i've seen, and just over my shoulder, there's an entertainment complex part of the house. that's got an ice skating rink and go cart track. guys, if that's not enough, look at this view, almost 500 feet of ocean front in the front, and then you got the intercoastal in the back so it's water to water. we just saw the sunrise over the ocean. i don't know if it's $159 million view, but a great day to start the workday. back to you. >> turn it into a hotel, robert. nobody -- makes no sense to me,

does it? i like it when places have, like, a disco, and it's you and your wife, just, like, you know. hey, we're having fun. this is great. let's watch a movie. >> they're going to have a disco. >> great. i hope they have friends. anyway, maybe they do. >> looks like a green screen, i just want to say. >> looks like a hotel. rent it out. thank you, robert. when we come back this morning, the fed kicking off the two-day policy meeting, and kevin says the central bank needs to hike rates, but austin says that hiking rates now would be a mistake to be reversed later. they will be joining us to debate after this. ♪

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fed in focus, two-day policy meeting starts today. rate hike a done deal, if so, what happens after liftoff? we'll debate that with austin and kevin. >> drama in the junk bond market. investor concerns rising over ability for companies to sell bonds. white box advisers head of event trading joining us to talk about if there's more downside coming. >> plus, lumber liquidators, and

disney's star studded premier. ♪ your watch list of morning movers straight ahead as final hour of "squawk box" begins right now. ♪ live from the most powerful city in the world, new york, this is "squawk box." welcome back to "squawk box" here on cnbc, first in business worldwide. i'm becky quick with joe and andrew, and we are less than 90 minutes away from the opening bell on wall street. watching futures this morning, up by triple digits for dow until we heard from 3m, bringing in guidance for the final quarter of this year and for next year, and that's trimmed some of the gains that we had seen earlier, good for 37 points decline now based on where 3m

stands. gm up 10, and the markets in europe at this hour, still steady begins across the board with the dax up 2.25%. cac up 2%, and ftse up 1.7%. >> they have to watch it. barely. still a dow component, i think. breaking news on valeant. we have the news. >> hi, kbguys, striking a deal with walgreens to distribute their drugs, specifically in dermatology and opt molkg. through the deal, there's a deal to walgreen's of 10%, saying they are going to distribute branded drugs, about 30 or more at generic prices through walgreens, answering questions what to do after ending its

relationship with fill philodar. this saves annual for the health care system, and it's very interesting in terms of the branded drugs, discounts of 5-95% for drugs that have generic competitors. coming in here with a big deal, about 8,000 pharmacies saying it's a 20-year agreement. there's questions about the path forward, but this relationship with walgreen's, biggest drugstore chain in the u.s. potentially giving it, you know, sort of a bode of confidence here. questions about, you know -- >> that's the good news, but the business model totally shifts. >> that's the question. if they have to cut prices by so much, they have to strike discounting deals. can they make up the volume.

there's a hit to the revenue annually. that's the question. of course, they are the subject of a couple federal investigations into their price practices, so -- >> which makes you wonder when they hired a crisis pr firm if they make these cuts because pressure has come on. >> that's right. mike pierson is here later this hour, first appearance since it happened. the stock down 60% in three months. a lot of questions for mike pearson. >> is this jublia? can i get a discount? >> do to walgreen's. >> finally, the toe fungus, god, so much worse from the last time we talked about it. it's coming out of my shoes. >> it's an important product. one of the biggest. >> tell me -- anyone here? >> i don't know, joe. >> that's why people look in people's medicine cabinets. if i find it, i'm out of there, if i'm there for dinner.

people have toe fungus? >> yes. it's a huge problem. >> have you had it? >> i have not, but it's a huge problem. >> kayla? >> i have known relatives who have had it, and they got it from -- they have gotten it from a manicure or pedicure salon where utensils were not sterilized. >> oh, gosh. >> thank you, this is a morning show. >> people are eating breakfast. >> never again, right? >> reintroducing you now under another context. rate hikes and investors in financial hikes see green, but there's a hike on tap for this week, might patience pay off? kayla has that story and stories friends and relatives. >> there's benefit to walk up before the segment starts. >> don't wear open toe ed shoes. it's winter. >> let's talk about rate hikes,

something never talked about before. there's a host of ways, to impact banks, for years now, investors pile into the trade, thanks to lending out or reinvest deposits they get at higher rates. credit card aprs go up, portfolios repriced mostly at a higher price. they dish out higher fees to account managers and more expensive consumer loans would mean they have to save more for defaults, but net-net this is expected to be very beneficial for them, but to different degrees across the board for the universal banks. most banks laid out executives said on the record how 100 basis points increased to the fed funds rate lifts net income. bank of america expects the biggest bump, more than 11%, about $4 billion to that ni. jp morgan increasing 7%, and they citi 4%. morgan stanley's figure comes from an estimate.

wells fargo, biggest consumer bank, has not broke out the number specifically in the regionals tougher to pin down because of the energy exposure moving the stocks in this market, but, of course, any bump from a rate hike, it's not going to happen overnight, but, of course, a gradual hike, and one with the potential to drag on oil and potentially firm the dollar. that's why analysts have taken first quarter earnings for the banks way down. this is going to take a long time to come into effect, and pnc ceo went so far to say at the past quarters earnings a september delay saying, quote, the subsequent dubious statements from various fed governors will at best delay our ability to grow net interest materially in the future. history shows bank trade pays off if you are willing to be patient. according to universal banks sell off in the week during and after rate hike, but six months and a year after the first rate hike after a long time with no

rate hike, they are up immensely. of course, 100 basis points, what we price here, that takes a year to be implemented. you have to wait in the trade if you want to. >> makes sense. >> thank you. >> thank you. >> joining us with their opposing views on what the fed should do with interest rates, austin, former council of economic advisers chairman, and economic professor at the university of chicago blue school of business, and strategic partner of 32 advisers, oh, god, setting it up like a debate. he's against the rate hike, and kevin, former senior economist, federal reserve, director of economic policy studies, you forget what the debate is about by the time i finish this. at the american enterprise institute, in favor had a hike. good morning. austin, starting with you because you were just really down here, just a bad mood magazine. i think the world and even the

u.s. economy are not in a good place. now, you used to be in charge of the economy under this administration. >> i fixed it. i don't know what you did when i left. >> you fixed it. are you mad what you're not there anymore? >> i'm not mad. >> what's wrong? >> we didn't have a depression. 5% unemployment. i think the world and u.s. economy are not in a good place, a quote from you. explain. >> one, brazil is having a meltdown, brazil slowest growth in 40 years. europe? forget about it. in an environment where the storm clouds are coming in, you got water blowing in your face, the fed is out saying they want to break out the sunglasses and put on a bathing suit. it doesn't make sense to me. i'm a traditionalist. the law says they have a dual mandate. full employment and stop inflation. there's absolutely no inflation.

the people who have for seven years predicting we're on the cusp of inflation have been totally wrong. the unemployment rate is low, but as you have pointed out many times, joe, that's primarily because there's been some improvements, but a lot of people just left the labor force so until you get down to full employment or see inflation, i just think this is a mistake and they'll probably reverse it. >> when hillary clinton runs on the economic record of the democrats for seven years, we need you on to say how abysmal it is. >> it is not abysmal. >> other times you say, you know, i hear people say, you know, when the president brags about rate, it sounds great. when you talk about it, now you're bringing up, look -- people -- >> exactly the same thing, joe, all along. >> all right. >> you have. >> it's a lot better than years ago. >> you're glum. >> it's not that good. >> glum, glum, glum. we have a four handle, and then,

you know, democrats say that's baby boomers and people who don't want to work, blah, blah, blah, and that's why the participation rate's low. kevin, be more consistent than austin. i can't get -- you know. >> yeah. no. if you look back at the last four tightening cycles, we've basically, on average, started a tightening with up employment rate at 6%. after tight ping began, we tighten for 34 months, and then drop 1.5% after the tightening starts. it's not the end of the world. you know, the thing that bothers me, austin, what you talk about, is we're in a world with 0 interest rates forever, that we have to give up the idea we should move back to normal policy, and if you look at what's beginning on in the junk bond market right now as bonds have suffered because interest rate policy might move back to normal, you know, frankly, we have to normalize and get the government out of price setting everywhere, if any we do that,

the economy, i think is stronger, and that's happened in the last four cycles. >> okay. so, i mean, your grandmother -- did your grandma not tell you it's the holiday time. if wishes and butts and candy, we'd be a happy world. the world is melting down out there. >> that's an exaggeration. >> russia's in meltdown too. with in inflation, unemployment not down to full employment in modern times, or in current times with participation declines, you can't tell me 5% is full employment. there's no wage increases. >> i remember you were in graduate school, and e e-mailed about your dissertation, and i was there, unemployment was 6%. were they wrong then? they lowered it down to 5%. >> no. the unemployment rate of today

is very different than what the unemployment rate was ten years ago, 30 years ago. >> so what is it? three? you think it's three? participation is not about the rate. >> i think it's four or 4.2. until there's wage nrkincreases how can you say we're at full employment? the theory says -- >> what you say there is contrary to everything that the fed always said. i mean, the fed always said as we approach full employment, we have to begin to gradually tighten. you know, tightening from zero does not mean you're tightening. the noose is so loose, slip out of it. >> i hope that's true. i hope that kevin's right. i hope we can do modest tightening. we can't go back to normal. raising the rates over three points in the next year or two, they rapidly have to reverse that because the world simply cannot support that. we're fighting a trend.

the rest of the world is trying to loosen, doing ges, get the economies to grow faster, and we'll be tightening. >> actually, that's not completely true. >> the environment's slow. >> the u.k. -- >> being in a tight -- >> the u.k. is awful strong right now too, and i expect tightening cycles soon from them. i mean, we're not the only ones. now, it is true we're relatively free market although there's price set, and the economy is doing better, but i don't think that's going to change if we lift rates a little bit. you know, the fact is -- >> i hope that's true. >> you said zero interest rates for a long time, and introduce distortions like the junk bond market that are painful to unwind. it's very important to move towards normalcy. twenty-five points won't end the world. >> austin -- >> never gone into tightening with growth this slow. that's the point. this is the traditional fed approach, about full employment and inflation. that's what the law says it should be. >> you know -- >> they are not following it. >> austin, one thing i hope, and

your contention has been that we're not shooting ourselves in the foot for the past seven years with obamacare and regulations and higher taxes, but it's been because the rest of the world is suffering as well that it was out of our control and lack of demand caused by the financial crisis. i just hope that it's not because europe is already socialism land so they will never grow anyway, and we just, in seven years, moved so close to them and where they are, we're stuck at 1.5% growth forever. >> i hope so too, joe. >> i don't blame you for that because you were in charge of everything. >> look, like i said, we had no depression. we won. b, what country do you like? you like australia? you like new zealand? you don't like europe. i know that. australia's in the tank. new zealand doing terrible. >> i used to like this country until you guys got in charge. free markets and american exceptionalism, and not apologizing for everything we do. >> i'm not apologizing.

i just want us to grow. >> all right. i love you. i love both of you. you know, one out of two people apparently have toe fungus, and i'm looking at you, can you tell which one? >> did you make that up? >> i did make that up. i did make that up. my money's on austin. see you guys later. when we come back, more to talk about, jeff is joining us, stick around. 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, the last fed policy meeting starts today, and the ongoing market volatility is par the course, and keeping with the bullish se nar owe, joining us now, jeff, we just had a big conversation where basically it's right or not, everybody thinks the fed raises rates. what's that mean for the markets? >> i think the market has the potential here for a rip your face off type rally. >> really? >> wow. >> it's human nature -- yeah. it's human nature to read into negativi negativity, what happened last friday, but it does not deconstruct the bullish case right here. you've got massively oversold conditions in the equity markets.

you've got a december option expiration in the trillion-plus dollars everyone's worried about. there's a bullish tilt to it. into what brian sullivan termed two years ago, the santa claus rally territory, so i think the setup is good for a rally to the upside that's going to surprise a lot of people. >> when you say "rip your face off rally," what are you talking? is that 5%, 8%? 10%? what do you expect? >> i think it could make new highs by the end of the year, new all-time highs. >> and that's based on the fed simply coming out, raising 25 basis points and saying that it's going to be a slow and steady march? not looking for higher rates any time soon in. >> i think that's exactly what janet yelp's going to do. i think she's a gradualist, steps back, sees the impact on the economy, on the financial markets, on the real estate market before another rate.

>> why do you think stocks are undervalued here? people think they are fairly valued, some people think they are overvalued talking about 18 times earnings. >> well, it's not 18 times earnings if s&p's bottom up operating earnings estimate is near the mark next year, around $ $127, and they are not as cheap as they were, becky, back on august 24 when i said the market's going to bottom today, but they are not all that expensive. the only metric i see that's expensive is the sicklically adjusted pe ratio. i don't have use for the indicator. >> a lot is based on people's concerns about the oil portions of the energy portions of the s&p, that makes up 20% of the earns. oil's been under such pressure, and has not found a bottom at any point that we've expected it to along the way. could that throw off what you're looking for next year in terms of earnings?

>> yeah. i have wrong footedly called the bottom on oil three times. >> a lot of people have. >> most recently -- yeah, most recently last thursday on closing bell, but oil is bottoming, started a bottoming process last february, at 42 a barrel, and i think that the comparisons year over year in the energy stock earnings are going to turn very favorable as we get in to 2016, so that's not a head wind going forward. >> can you explain a modelling question? you, obviously, were right with certain models earlier. you just said your oil model was off. how are those models different? how do they correlate or not? >> well, the correlation, with oil and stocks over the past ten years, has been about 30%. >> model, though. >> recently over -- >> your model. >> my model doesn't really call the oil market. all the model calls is the equity markets, and it is

calling for a rip your face off rally right here. >> got it. okay. >> jeff, great talking to you. >> always a pleasure, becky. >> okay. see you soon. >> you don't think less of julblia? >> i do not. this is the conversation throughout the break. >> mario lopez? >> nope. >> do you think there was toe fungus on the show? >> no. >> the show still on? >> yes, it is. >> on usa and nbc station. >> okay. >> stocks on the move this morning, and then there is or isn't a junk bond bomb shell coming.

welcome back, everybody. a check on some of the stocks to watch this morning. sirius xm shares higher after howard stern announced he'll remain with the operator. his current contract was set to expire at the end of the year. lumber liquidators moving as well. we are covering the short position in the flooring retailer. stock up 26%. they said the stock likely goes to zero. but he's changing his mind right now based on new information indicating that he says management was not aware of for meld high levels in the flooring changing the entire scenario. >> when we return, inflation

data out. cpi numbers next. and my jal pearson is here to talk about the news just breaking in the last half hour. right now, heading to break, look at u.s. equity futures, still positive, but not by gains this morning seeing triple digit gains for the dow. right now, up by 52 points. "squawk box" will be right back. i sold my bike on wallapop, yes i did.

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welcome back to "squawk box." breaking news. november cpi, december, and prior index, and here we go. empire, minus five in a row -- minus 4.59. last time to have minus five in a row was august of 12 through january of '13. that was not as bad as estimates. let's go to november's cpi. goose egg on the headline, unchanged, up .2%, and, yes, we are seeing a two handle on cpi exfood and energy year over year. it is up 2%. let's look at the last time that occurred. last 2% was february of '13.

last time we had a higher number than 2%, was 2.1 in 2012, and we'll monitor how that plays into the first day of the two-day fed meeting that may take abnormal policy and normalize it. we are now up close to triple digits of preopening futures, close to 90 points, hovering at 2.25, and, of course, pay particularly close attention to what's going on. jnk, hyg, and short maturities because two year is getting ever closer to 1%, just printed, 96 basis points. "squawk box" gang, back to you. >> thank you. for more reaction, steve leisman has more. >> i think the fed is going to look at this and see things going their way, essentially, on

the headline, 2% on the core, and the fed's preferred measure of inflation is about -- runs a half a point lower than that. when i look into it, i don't see pressure. a couple decent back-to-back gains in medical care followed by a .4 in the last month. airline fares up, gasoline, down 2.4%, but as tom said in the last hour, the issue of the comps as we go further is on the rise. taking out a quarter point here and there over the next couple months or so or six months or so, it's probably the prudent way to go. >> all right, steve, thank you very much. again, steve leisman. >> my pleasure. >> we are back with the aforementioned special guest. >> ceo of valeant, mike pearson. thank you for joining us. >> thank you for having me on. >> we have big news, before we get to it, we have to ask the

transt transformation of valeant, going through a lot, how much did you know was going top? >> allegations have been made, nothing proven, and i was unaware of any of the allegations. >> did you know, none of the allegations, so what was going on at philador with prescription, changing prescriptions, things reported like that because you guys ended the relationship with them quickly after these things came out. >> ended quickly because if, one, if they were true, that's a real, real problem, we had no evidence they were true, but begin reaction reaction, we wanted to separate and move to another solution which this morning we announced that new solution. >> right. and in terms of -- this is 7% of the revenue. a lot of people are questioning how does something this big of a part of your business not get up

to you? if yo don't know the things going on, what happened? >> oh, i was perfectly aware of the partnership. what i was talking about was that the allegations, which, again, i'll say it again, there's been no proof that these allegations are true. i was unaware of any of the allegations going on. >> does the news with walgreens replace the revenue? they expect it to be the same level of profitability and growth. >> more than replaces because it's two programs. maybe it makes sense for me to talk through the partnership with walgreens. what we're doing is bypassing traditional pharmaceutical distribution system allowing us to save a substantial amount of money in terms of system costs. rather than selling to middlemen, what we do is

directly deliver to walgreens. we don't sell the product to walgreens, but it's on consignment. we pay walgreens distribution and dispensing fee, and then our products are sold directly to payers without the middle mep. >> does that men i can only get your drugs at walgreens? >> no, they are available through traditional channels at other pharmacies, but this allows us to offer cheaper prices and ensure patient access which is really important. >> jublia? >> it is included in the deal? >> yes. it will be available. >> you looked interested. >> tells about the offering, the branded drugs at generic prices and where they are available. >> yes. this is the second part of the program, which is terrific.

we have a number of brands generic, going in a pharmacy today, pick up a generic, it's unlikely to get our product, right? >> that happened to me. i was prescribed your eye drops, and i had to pay, like, eight million times as much. >> now you can get them at generic prices. in fact, when you go to walgreens, you are guaranteed to get our branded products rather than a generic. at least for some doctors and some patients that's important. >> you say the entire savings, cost savings comes from strips out the middlemen? it's not taking any impact to your bottom line? >> well, we've walk grooens and i and valeant benefit, we return money to the system, and in terms of the lower prices and generic prices on average drop

50%. >> i guess i'm trying to understand. it sounds like the increases we see, the big prices people pay for drugs is coming from the middlemen in the system and it's not going to affect your earnings in any way, shape, or form? it actually makings money for you? >> this program helps us make money. pricing in the drug industry is very, very complicated. but manufacturers take price increases, but little applies to the pharmaceutical companies. >> if you were still dealing with fillador, this is the same situation. money goes back to the bottom line? when you say it helps you make more money? >> drivings growth. this is going to drive growth. right now, look at the branded products, for example, that have generic competitors, we have minuscule share. >> driving growth from increased

growth from volumes? yes. >> major shift in the way you approach this. >> well, we've always had strong growth but this turns it all the way. >> you know, ones that are sort of, you know, it's sort of these days, good citizens, good corporate citizens, and they impugn your business pod e in terms of being a rollup, and, you know, cutting, you know, the cost cutting, no -- not as much spent on research and development. do you think it's enough for a pharmaceutical company to just deliver value to its shareholder and to its customers, or do you think there's a societal responsibility to plow it back in research and development at the same rate others do to further man kinds's well being? >> all companies have a social responsibility, and we take ours very seriously. i think why people challenge what we're doing is because we do things differently.

people tend to criticize. over time, we will see that our model works and is sustainable. we spend money on research and development, and if you look at a percent of pharmaceutical sales, and generics, it's like 7-8%, which is not the 15%, but it's half, and it's if you look at outlook, look at the products we launched, jublia, for one, started in-house the whole way, and we have four or five pharmaceutical product approved by the fda last year, we are expecting to have three more approved next year, so i think if you look at the evidence, if you look at the facts, you'll see that we are growing through development of new products and not just through acquisitions. >> to the extent that your model relies, at some level, i think

we'd agree on acquisitions, gwen what happened in several mornmo difficult is it to pursue and finance acquisitions in the same way before? >> so our model does not depend on acquisitions, but it was enhanced by acquisitionings. we were able to grow more quickly because of it, but our base business comets to grow. next year, we're going to spend most of the year just buying down the debt. we'll see next year. >> others talked about it being a platform company. a platform company is an acquisition vehicle, right? the reason why it works, if it works, is because you're buying businesses and putting them together. >> look, i love bill, but i never talked about a platform company, but a company that grows organically, grows organically with or without acquisitions and will continue to grow organically with or without.

will we get back to acquisitions? yes, but not next year. >> one other thing. companies like touring or your own, where you have drugs that were priced at a certain numbers and expo rise, what's your view? >> it's a single product company. vef 22,000 employees around the world. we have thousands of products. we have largest manufacturing sites in the u.s. alone, and we are -- we are pretty large company, and we have thousands of products, and we take -- that one's isolated on a couple products, price increases were taken, and most of the products, we have negative price. >> so you are being lumped in with turing in terms of the price increases by congress. i mean, you're the subject of several federal investigations, and those things seem like an overhang, although, today's news is giving people confidence in replacing, and a new model, but there's a lot to contend with

over the next year. >> yeah. the last three months have been pretty busy, but i've spent a fair amount of time in washington, and we are getting to know and talking to a number of people and explaining our company, and people have been receptive in terms of understanding the difference between a single product company that increased price versus a broad portfolio of products and if you look at the fa pharmaceutical industry, all the data, all large companies are taking price increases as well. >> how would your relationship with bill ackman change over this period? he raised privately in terms of e-mails reported in the "wall street journal," credibility issues with you. >> he's a very direct perp. obviously, when we were working together on the situation, we interacted quite a bit. i'd say our relationship's still

cordial. >> we could ask questions all day. >> thank you. >> lopez, they get along, the jublia thing? >> less than seven figures. >> okay. >> he's looking for a deal. >> don't leave yet, you have your microphone on. >> can we do that? >> probably not. >> darn it. anyway, when we return -- oh -- when we return, can junk bond -- can they get any junkier? concerns over liquidity with investor, and feared that's what feeding the fear in the trading session, a fear down sooids asi coming? futures are up 89 again, and 50 points of 3m. we'll be right back.

welcome back to "squawk box." our next guest made a big bet in 2006 that led to huge gains for his fund and featured in "the big short", and now soon to be a movie, already a movie. joining us now with thoughts, though, paul, the partner and global head of event trading at a $4 trillion hedge fund, white box. good morning. >> morning. >> help us understand whether we should be thinking what happened in 2008 as any correlation to what's going on right now in the high yield business?

>> it has very little correlation to what's going on right now in the high yield business. there were a lot of fundamental distortions in the credit markets that were -- everything was too rich going into 2007. there were probably too rich in 2015, and what we have now is we have generally white box, we don't make too many general predictions in the credit markets, but what we have, we think, generally, we have a severe technical selloff of liquidity back selloffs r and if that's the case, that provides great opportunities in the market from a general perspective to invest in high yield. if it's a fundamental selloff, that bodes poorly. either markets are too cheep or markets are too rich. >> is systemic about this? we talked about it being a problem in the energy sector. he talks about it being a liquidity problem, and everyone

else sells everything else because they can't sell the energy sector. >> right. there's a market situation and that potentially could happen, but general liquidity of the markets is it doesn't work anymore like it used to. normal liquidity providers are not there. you could have a case in mutual funds or etfs if there are significant withdrawals, liquidity won't be there. impossible to predict if it will happen. the potential's there. again, we think it'll be liquidity. it won't be a fundamental selloff, but liquidity, creating great opportunities. >> therefore, you were doing what right now? >> since we don't like -- white box, we don't like specific predictions, general predictions, but specific presixpr dictions and say without a doubt at all, there's selloffs in the corporate bond market that are

far over done, that -- there's specific companies we can invest in their debt or there are very little doubt we get -- >> tell us about the companies. >> we can't speak on it. we can't talk about specific investments. >> then just is it the industries that are at least oversold at this point? >> many segments of the energy sector, but it's very digital because there's many bonds in the energy sector we think are far too rich still, but they are specific situations in the energy sector where things have been thrown out, and so what's definitely the baby thrown out with the bath water, and it's the best opportunities seen in several years. >> all in energy? it's not -- >> no. it's filtered into other -- it's filtered into other markets that are not in the energy market as well. >> why? >> i just -- when there's forced selling, when funds are forced to sell and there's not liquidity, you get the opportunity to provide liquidity at pricing, at prices that just create great opportunities in the market. >> but that sounds like for

somebody with a longer term horizon, you need good pricing potentially, a good opportunity. >> yes. >> right. >> you need to have --leverage, calls observe capital. if you can do this long-term, you will have good returns. >> paul, thank you for coming in. >> thank you for having me. when we return, jim cramer from the new york stock exchange. here are the futures right now which have kicked into high gear again. if you add the 50 3m has taken off we're well over 100. yeah! okay... guys, i'll be writing a new language for machines so planes, trains, even hospitals can work better. oh! sorry, i was trying to put it away... got it on the cake. so you're going to work on a train? not on a train...on "trains"! you're not gonna develop stuff anymore? no i am... do you know what ge is?

ashley bryant, you are a teacher of small children. that's right. i have read it is the hardest job in the world. that's why i'm here. can you... i can offer advice from the accumulated knowledge of other educators... that's wonderful but... i can tailor a curriculum for each student by cross-referencing aptitude, development, geography... sorry to interrupt. but i just have one question: how do i keep them quiet? (pause) watson? there is no known solution. ♪ (train horn) vo: wherever our trains go, the economy comes to life. norfolk southern. one line, infinite possibilities.

let's get down to the new york stock exchange. jim cramer joins us now. you had a theory oil markets would rebound, recover. would you buy some and put it in your backyard in barrels? you have some room. i'm ready to buy some for 34. don't you think we'll make money on that? >> it's hard to think there will be a further decline with european registration for autos up 14%, seeing decent numbers for the first time out of china. the demand side is a bit better.

look, the saudis control it. if they want to take it lower, they could. it doesn't want to go to the 20s, but it's tricky. we got dramatically oversold. ahead of the fed. now the fed comes out -- we have the cpi, very, very positive. maybe people just say bring it on. get it over with, as long as you give us the right statement. then we can have a couple months of freedom. unfortunately companies are reporting numbers today like canon metal, 3m, which wasn't as bad in terms of the slowdown. boeing gave you a nice dividend boost. there's enough to be able to like that i think we could have a couple-day rally. >> what is 3m now? what is that? what should i think? >> conservative. he knew the world was slowing down. >> what sector are they -- is their bread and butter now? just overall industrial stuff? >> yeah. safety, fire protection.

just kind of -- just the basics of building blocks of a lot of different kinds of enterprises. if you go to their website, they invented so many new products that are household products they will do well. they have a lot of exposure to east asia, a lot of exposure to the generic product you use every day. they invent band-aids, post-its. we want to buy 3m in this weakness. it's not a shock. >> okay. okay, jim. >> okay. >> oversold, maybe we'll go in to the fed meeting not in a sell mode and who knows what happens after that. we just heard jeff say it's going to explode higher. we'll see. >> right statement, we go higher. >> all right. great. thanks, jim. when we return, disney's bob iger awakening the force last night in hollywood.

we'll hear from some of the stars and the disney ceo next.

the power of the force on

display in hollywood for the world premiere of the latest star wars film. the cast and creative minds to a return to a galaxy far, far away were in awe. >> surreal. it's pinch me time from the moment they said they were going to do it, it's hard to believe. it's hard to believe tonight that we're here. >> tonight i'm genuinely saying this, i feel as a fan, and i will get the full whammy. >> heading here for three years now, and doing things that people never thought of, things they like, all the things they don't like. this is the most exciting part. >> the first couple were luke and cp30. >> luke turned into william h. macy. >> looks a little -- >> i didn't know that's the same guy. >> "star wars: the force

awakens" opens on december 18th. bob iger says he expects big things from the new lucas film. >> when we bought lucas film, i knew there were global interests in star wars movie. there had not been a film out in ten years is while we had strong instincts about level of interest and what it might do, we had no idea -- i will say to you in all honesty standing here tonight, interest in this film worldwide has exceeded expectations by a lot. >> that does it for us. join us tomorrow. "squawk on the street" begins now. ♪ good tuesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. it is fed day. the start of a two-day meeting. the pre-market rallying here after a recovery yesterday that warning from 3m taking some of