that is the winner. that's the ugliest by far. maids of milking. an utter. >> utters are gross. >> you're the big winner. >> you're close runner up. >> playing the grinch. >> you know what i get? >> no one gave me anything to wear. i would have wore one. >> every morning win a prize. >> happy holidays. >> we have to go. join us on monday. happy holidays. "squawk on the street" begins right now. good friday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. we put this historic week to bed today. futures paring some earlier losses. s&p has a chance to end in the green despite the carnage yesterday. japan and europe struggled

overnight. bank of japan extending some measures of qe but leaving the monetary base unchanged. oil touched a seven-year low today after that 10% round trip this week to monday's low. the high yield bond fund posing the largest outflow since august of last year. futures lower today but better than expected numbers from lennar and darden. >> apple pay is heading to china but could it take on alibaba's alipay? >> and martin skreli out of bond after being arrested for securities fraud. >> stocks set to open up lower. oil on track for the third consecutive weekly decline. the nikkei down 2% after the doj has measures that are not as bad

as some had thought. >> there's a way to build your economy. japan -- i think they've given her all they got, to quote scotty, because we were talking star trek earlier in the show. seamless transition to ours. >> amazing, that segue. >> this story is oil. you know why the market is going down? people come on cnbc and say they're not one and done. no. it's one for one with oil. you will see every tick that oil has, if it's down, the s&p goes down. if it's up, the s&p is up. a lot of it is because i know oil is only 7% of the s&p. but the market is riddled with master limited partnerships, smaller oil companies that are still being downgraded. this morning's research is filled with companies that downgrade. dan berry resources, hold to

sell. this is 1.92. ultra petroleum, 2 bucks. finally dawning on people with natural gas at these prices and oil at these prices, these companies won't be able to survive in this form. >> looking at another note this morning, upstream mlps and debt reduction taking precedence over distributions which is what we know. your point is well taken, jim, i think. it's not just 7%, it's broader than that. we know the impact in the economy is broader when it gets the industrial economy and any number of companies we've seen lower guidance a bit because they are connected into oil and gas in various ways. hearing more concern out there among people i speak to as they approach next year. maybe that's a good thing, when the consensus turns that negative. between oil, the strong dollar which yesterday had that significant move. worries about emerging market economies, some of which are

energy producers, even those who are not who have dollar denominated debt, it's certainly not that positive a tone. >> disconcerting. i spent a lot of time looking at the oil patch. natural gas is still well above where it could go to. we have a lot of natural gas in the country, not a lot of storage. lots of places where a dollar btus is break-even cost. stay on top of this sector. this sector has huge stress. i think jim stewart's piece this morning in the new york times is remarkable for being -- listen, there is no second or third avenue disaster coming. but this is not what i'm talking about. i'm saying when you see these $2 stocks, $1 stocks -- when you look at freeport, chesapeake. these stocks are at levels where you have to be careful.

you may not be buying a stock, you may be buying a reorganization. sunedison came back to life. >> with all the solar. >> do you blame the fed for keeping rates low long enough for there to be an overshoot on production? >> no. no. i blame the saudis. no one thought -- the saudis are being uneconomical. running a war. spending a fortune on armorments. spending a fortune. a hot war in yemen. a lot of tension there. and the saudis are not acting rationally as you would think they would. but you know what? they have a lot of cash reserves. saudi arabia is in charge of our energy structure. we didn't think that was the case. there are some companies who will benefit from the export. the west texas intermediate and ours collapsed. so it's too expensive to export oil. when you tack on the tagger, the

reason no one is excited about it because oil got more expensive then brent. the market was rationale there, but irrational when it comes to the saudis. 45 is where most of the oil is break even. look where we are. >> you're saying nobody was counting on them being so stubborn. >> we didn't think they would be financial suicide. a lot of people are saying this is their way to wipe out isis, dash. this is the way to wipe them out. that's what they need is this money. it's better than sending a million dollar missile to destroy 55,000 gallons of oil, which is a truck. it's a faster way to destroy isis. saudi arabia wants that to happen. i think there's -- i can't tell you how many smart people in the oil patch told me they can't pump 11 million and they can't pump it forever. they are pumping 11 million and sure looks like it's forever. that's the story of the market. it's not the fed. janet yellen is not saying --

even mr. sanguine. >> don't you think there's a broader theme here that started to pop up more frequently which is that the fed is raising into a moderating economy? look at retail. >> i'm game with that. >> the stronger dollar going to have an impact. >> car max. >> a potentially moderating economy where we may see more increases, that's not necessarily good a lot of people think the ten-year will fall back below 2%. >> i believe it is. two things janet yellen is not in charge of, she's not in charge of saudi arabia and the weather. i had david jaffey from "the scene" that's anne, loft, justice, maurice, lane bryant, the old dress barn. he said -- he brought sweaters on the set. i was like get those away from me! a sweater! the indignity. he a sweater. >> did you see joe, andrew and becky before they came to us?

>> you actually have a beautiful sweater, which i like. >> that kashmir? >> it is. >> we're finally getting cold weather this weekend. >> are we? >> it's going to last 48 hours and be 65 on christmas. >> jaffey said he has never seen promotions like this ever. >> time go, buy a coat. >> i'm going to buy the wife some sorrel -- >> sorrel, rhymes with terrell. >> that's helpful. >> isn't it. >> people say promotions could be 50%, 60% off on monday. >> i got the e-mails. saks is sending them out. >> he does shop. >> once a year when it's 60% off. >> wow. frugal. the weather -- weather is counter acting gasoline. not with darden, because even though it's warm out, darden is the first one that basically is saying, listen, there's a benefit here.

there's a benefit. >> we will get to darden and lennar and some other ones. first, farm first, martin skreli's has been released on bond after being arrested for security fraud. meg tirrell has more. >> reporter: he was saying in a tweet late last night he's glade to be home, thanks for the support. yesterday he was arrested early morning at his residence in manhattan by the fbi. he was arraigned in the afternoon in brooklyn federal court. he is facing what the s.e.c. suit and an indictment from the department of justice. they are charging him with seven counts, securities fraud, securities fraud conspiracy, wire fraud conspiracy saying he organized a ponzi like scheme with his hedge funds and his former biotech company,

retrophin. a representative for mr. skrelli said he is confident he will be cleared of all charges. he also noted his haven't notoriety as playing a role in his arrest saying it is no coincidence that these charges, the resulting investigations have been filed at the same dime of shkreli's high profile, controversial and yet unrelated activities. his next court date is january 20th. he is out now on a $5 million bail. we'll bring you more news as we get it today. back over to you. >> thank you very much, meg tirrell. we'll watch it closely. >> fascinating story. >> yep. making big, broad general media

headlines today. all the morning shows focusing on something that was a business story earlier on. >> i think a lot of people are offended by what he did with drug pricing. they feel -- they would like to know if this is related. i believe this investigation has been going on for some time. after listening to the fabulous u.s. attorney talking about the lent of the investigation, that's not something they just put together. >> the investigation began before he became notorious for having raised the price of daraprim 700%. >> if you're in a hedge fund, it's clear, this is the scam. well, alleged scam. about how you could not know what's going on in a hedge fund. i think a lot of people may not know what was going on in third avenue, a mutual fund. >> he a tiny hedge fund. it was 30 million bucks. 8 investors, 10 investors. >> i'm saying as an analog, it was incredible how easy it was to fool investors. wow. this thing was very little do with actual profit and loss.

now, madoff was very little to do, that's a different kind of scam. this was -- this wasn't really a hedge fund. >> somebody said he definitely lowered the price of shott shottenfreud to nothing. >> who said that? mark twain? >> but he a hoodie. >> he did. >> see? hoodies. the richer you are, you have a hoodie. >> i don't know. he seems to me to be an unbalanced individual. i think i can say that safely. >> unbalanced. how long did it take to you come up with that term? he tweeted the moment he got out. >> suboptimal. >> that's my term. i think his lawyers have quite a challenge, not on the framework of the case but as a client. when we come back, apple getting ready to take on alibaba when it comes to mobile payments in china. (politely) wait, wait, wait! you can't put it in like that,

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apple announcing it will launch apple pay in china as soon as early next year. the rollout will be in partnership with chinese bank and payment firm union pay. sam shu this will pit apple against the likes of alibaba. we have the china news, cook,

and johnny ibe on 60 minutes this weekend with charlie rose. >> i think there's a great misconception about what's going on in the company. i will use a term that i don't mean to say, it's overowned. we got lots of calls on "mad money" about apple, it had a death cross, in case you're speaking technically. >> thank you for that. >> i think the main problem with it, the sales are good in china. i don't think the watch is selling well. i know you have breitling on earlier. the watch shouldn't be a turning point, but the watch is emblematic is can they diversify away from the phone? do they have more things in the pipeline? there's been -- almost every analyst this week is cutting them. that's what is reflected.

that's what happens. they all cut numbers. the stock is in a down trend that cuts numbers. do you sell it? a lot of companies have had to cut companies, analysts cut n numbers. i think it's an inexpensive stock. >> analysts worried about deceleration in the march quarter say in a few months we'll all be talking about the iphone 7 and that cycle will be strong enough to offset this near-term weakness. >> almost every time we thought this company would be counted out, they come right back with something else. but they get counted out over and over again. >> doesn't get a multiple therefore. >> right. salesforce.com has it at 77. >> when we talk about apple pay and ali pay. people forget ali pay, a separate company from alibaba, but alibaba gets 37% of the profits from ali pay.

>> how much? >> 37.5%. >> really. >> i believe so. >> ali pay is expected to go public at some point. there's a lot of equity for alibaba in ali pay. it could be worth a great deal, ali pay. of course ma and alibaba. >> i'm waiting for apple pay. >> he transferred the interests. people forget about that. it's a giant in the banking industry in china, ali pay, because it intermediated so many existing bank there's in terms of payments. >> that's what we thought would happen here to ma. i know mastercard and visa always try to have good relationships with apple. it's a quest to find a stream of revenue that's not the iphone. people want to do it in cars. they want to say that. apple can own the car. it can own the brand in the car. it has to do that. it has to make it so as soon as you put your iphone in the car,

all the systems are controlled by the iphone. when people do that they will not be paying 9 times 10 times earnings. it will be 50. >> now you're rolling out why sirius is vulnerable. >> i think the guts of a car when i get in my car, i want to put it in the cup holder, everything is controlled by my apple. why shouldn't i? honestly. i don't want to talk on the phone while i'm driving. i don't do that stuff. but i'm saying it should be the brains of the car. the moment he does that, what happens is lexus, bmw do it, then we all have to do it. >> quick clarification from me, ali pay is part of ant financial services which is the entity that controls alibaba pay in

china, which will be competing against apple and apple pay. >> tim, you got to do that. you have to make it so this guy can control my car with my watch. slow down! slow down! >> we'll get cramer's mad dash and count down to the opening bell. session lows in the premarket for the dow, down 160. claug its way back. . but a few might shape the future.wing its . ...new technology for capturing co2 emissions... ...and cars twice as efficient as the average car today. ideas exxonmobil scientists are working on to make energy go further... ...no matter how many tries it takes. energy lives here. when you do business everywhere, the challenges of keeping everyone working together can quickly become the only thing you think about.

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carnival cruise line out with numbers this morning. they did earn 50 cents a share. that beat by 9 cents. they saw a negative impact from the strong dollar, obviously benefiting strongly from lower fuel prices. nobody likes low oil prices like the cruise lines. >> there are big runs, bunker

fuel, the largest variable cost. carnival is incredibly well run. that's a stand out, one of many we had the last 24 hours that nobody cares about. >> about seven minutes before the opening bell. let's get to a mad dash for friday. last one of the week. >> two stand out numbers, redhat last night. a clout-based company. jim whitehurst will be on "mad money" tonight. a dramatic gainer. like adobe, they are cloud subscription based, along with microsoft which heather bolleni upgraded to say we were wrong in the headlines, sell to pull. >> sell to neutral. >> she said we were wrong. >> okay. >> like the fugitive. >> i don't care. >> but you said you didn't care! i was wrong. now, let's keep it positive. everyone is so negative. lennar. lennar.

>> all right. we got him coming on tonight. we see that. frank calderon coming on tonight? >> yeah. frank used to be at scisco. >> lennar. >> lennar is conservative on the conference call. i've seen the stock reverse. so don't go crazy until we hear the conference call. talking about some good double digit stuff. double digit orders, double digit completions for when you're done a house. they sell it. and i got to tell you, it's a look for it furiously, that lennar is the best of the home builders, they tell a very, very positive story. 1.21 verses 1.11. 10% increase in orders. margins not perfect, but people looking for much lower margins.

therefore if you want to watch -- david, if you want to know the key to the market -- >> yes. >> it's lennar, not carnival, not redhat, not delta. lennar. stu -- >> stu miller. >> he says we're fine with the fed rate hike. we're fine. >> he knows already after two days? >> yes. >> just want to mention heather bolenni did a sell to hold upgrade in microsoft where she said she was wrong. >> yes. i don't care! >> richard! richard! >> we'll keep an eye on microsoft shares. not sure that will have an impact but other things are announcer: sunday's your last chance to save big during sleep train's triple choice sale.

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you're watching cnbc "squawk on the street," live from the financial capital of the world. the opening bell set to ring in under two minutes time. it's the final quadruple witch of 2015. expect some volatility. oil hit the seven-year low around $34. gold recovering from the biggest loss in five months. still down 11% this year, jim. >> gold is good insurance, but it's not the right thing do. it doesn't give you the

interest. i do think that yesterday was so hor re horrendous that it bothered people. people say the carnival conference call with the darden statements will make you feel a little more bullish. it is nice to hear two companies talk about lower gasoline does matter, it does matter. >> darden a nice beat, beat by 54 cents. raised for the full year. comps up on all the brands. that was hard to come by. this guy, gene lee, doing a remarkable job. and they got the real estate investment trust in before the window closed. >> they did. the budget revokes that tax break. >> let's get the opening bell.

the s&p at the bottom of the screen. as we said, s&p could potentia potentially close higher for the week, but it could still be lower than it was when it started five weeks ago. at the big board today celebrating its ipo, irendai. and at the nasdaq, intl-fcstone, a diversified financial services firm. car max was the blot on the earnings picture today. was disappointed there. when you see it in the conference call or the statement, we have a challenging sales quarter. that's suboptimal situation. he was looking for 68 cents. they come in 5at 63 this is the sale of not new cars, but used cars. you feel that -- this is a company that was up 14% last

year, 3.2% this time. it's a deceleration of sales. that's a very fine company. so people are a little bit saying peak auto. that's a peak auto. that's what i'm saying. now it's used, you can't correlate, but i defer to phil lebeau. if he says 19, i'm changing my tune, but car max disappointing. >> indeed. they did mention some higher ad expense, overall called it a challenging quarter. >> yeah. it's funny yesterday's challenging quarter was general mills. you do some work, you'll come back and there was a special we had on this network called "the age of walmart." it's getting to be the age of walmart again, because walmart put the screws to them. that's one of the reasons they did poorly. >> really? >> yeah. >> it's not as though walmart

does not have incredible market power, it still does. >> thank you. according to release from the ceo, ken powell, the other factor driving lower merchandising was a broad based reduction in display across customer base, particularly acute at a large customer. wal-mart and apple are two companies you can never mention. you just can't mention them, right? a large customer. that's code if you're a supplier, walmart. and it's code if you're a supplier, apple. they don't like to hear it. but walmart really hurt them. >> yeah. >> that can happen. frequently does if they make their decisions. they're selling $450 billion worth of stuff every -- whatever the number is. >> i was going to shop there last weekend, my wife said we have go small business.

so we went small business, small business, small business. you know, the weather is bad for them. just too warm. too warm for them, too. >> some cheering going on. >> they're cheering for you. not cheering for you. a lot of that when i visited walmart in china many years ago i was there twice for two different documentaries, a lot of clearing. >> really? something you don't hear in any philadelphia stadiums. >> some cultural differences when the chinese get together in business -- ever been in a press scrum in beijing? you think you get pushed around here. it gets physical. >> it does. >> you guys have the edge on me. >> or in line at walmart. i remember a fight broke out. >> china? >> yeah. i don't know if you've been picking this up, it's not going to be a good year for hedge funds. i think it's worth mentioning as

this year winds down through its final days. i'm hearing more double digit declines. >> double digit declines! >> double digit declines. many of them have gone over. some haven't. i have not confirmed everything, i don't want to share the names, but broadly speaking, why? why? this was supposed to be a stock picker's year. the s&p down 1% for the year. >> a lot of bad timing. >> this was to be the year they rise to the top. paying a manager to -- >> i'll tell you why. right. but we delivered alpha. remember the delivering alpha conference? i asked bill ackman, hedge fund billionaire, tighttan, fantasti greatest ever since da vinci. fannie mae was 2.40. went to 2.50. today 1.70. fannie mae.

if you owned fannie mae or bought it that day after it spiked delivering alpha, that's an example of which what hedge funds did. using as a metaphor. >> another is macy's. spiked on the day that we had jeff smith on. >> it's turned into gimbel's. >> the stock is down more than half, i think, since that day. >> there's a split. >> without the actual split. >> do they get to the point where the underlying value of the real estate exceeds the market cap of the business? that building in herald square alone 3 billion, $4 billion. are they going to sell that now? >> no. can't even do it, well, you can do it but you don't get the tax break. asked david jaffey how mac macy's is doing, just as bad as everybody else.

not worse than everybody else, but just as bad. i will go there this weekend and try to help their sales. >> you will? >> yes. >> what you are in the market for? >> the boots. >> the boots. >> she just sent me the size, 8 1/2. no she's not watching the show because i asked her the size. >> by the way, i have to tell you, carl, my wife, i told her you had a show. she might put it on. >> that might do the trick. >> crazy about him. who isn't? >> the ft has a piece about funds moving to a 1-15 structure today. some other surveys say in the third quarter, 257 hedge funds liquidated. up from 200 in the prior three months. >> that's like 87. i started my hedge fund in '87, struck out from goldman. that may almost be the year 2008. >> what seems to happen, the smaller guys, the guys who can deliver more alphas may not get

the momentum. they close, but the big guys who really just deliver pedestrian returns are not in the business of taking that much risk, just keep taking the money in. interesting what goes on in the hedge fund business. it passed $3 trillion in assets this year. >> the hedge funds, i've been in the presentations, you have to make them. maybe somebody is coming in saying we're part of your losing allocation. you have a lot of winners, you want to offset those with us. what is the sales pitch for a guy down 18%? what is the sales pitch? >> tax loss carries forward. >> next year, we'll have good drafts, moving up in the draft. there's no draft. playoffs! >> as expected, we are getting the house vote on the $1.1 trillion spending bill. eamon javers has that. we just passed the 218 threshold needed to pass the $1.1 trillion spending bill in the house of representatives. there was some pins and needles going into the vote because nancy pelosi said she didn't

necessarily have the democratic votes they would need to pass this. looks like she came up with it. some of the gamesmanship in the voting, they went over the allotted amount of time here. right now the vote is 122 republicans, 119 democrats voting for this. so very even bipartisan support for it. just since that 218 threshold has been passed, i would expect you will see a lot of those no votes come in. it's immaterial now, but what happens with the leaders, they often hold back some of those people who will vote no and say you have to vote yes unless i release you. if i release you, you can vote no as you want to do. they might be about to release a whole bunch of no votes now that we went over the 218 vote threshold. that clears the path in the house of representatives, now to the senate where it is expected to pass and the president's signature before he likely leaves for hawaii this afternoon. >> thank you very much, eamon javers. dow down 136, adding to

yesterday's loss. let's get to bob pisani. >> all ten sectors are down. nothing down big at all. just generically market is down. energy, materials not down quite as much. consumer staples, healthcare, telecom, these defensive names weaker. that's an interesting play. cyclicals down, not as much here. we're still slaves to oil. we have an expiration on the oil futures next week. we are still very much slaves to the oil market. if you look at the energy stocks versus oil for the week, the xle, you can see we're moving in tandem. the overall stock market, the white is oil, the tan is the energy sector, stock sector. even the overall market moves in relation to that.

monday and tuesday oil rallied, market rallied. wednesday and thursday, the market fell. the broad theme here now is the lore for longer idea is continuing into 2016. the idea that commodity prices will stay low into 2016. oil, natural gas, steel, copper will stay low. deutsche bank call was big yesterday on steel. arguing that steel prices will stay lower into next year. this lower for longer idea is out there. the hard part is looking at commodities this year. you would say how much longer can this go on with oil and natural gas down 30%? copper down 25. aluminum down 17. gold, pressures metals down 10%. but that is really weighing on the markets dramatically lower for longer in general. let's talk about some earnings. fedex is weighing a bit on the transports, which are down close to 100 points there.

you can see down 1.6%, united parcel down 2%. fedex earnings out then. i was impressed with darden's number. darden is one of the few winners in the full service restaurant space. everything else, denny's, buffalo wild wings, they're down. darden is good. they've been doing shareholder friendly things. this is an activist target. 500 million share buyback, that's 7% of the market cap of the company. that's huge. they increased the dividend 14%. they commented on hourly wages, they will be up 1.2%, company wide across the states. numbers, same-store sales, longhorn did well, capital grille, olive garden. they raised the same-store sales estimate for 2016 from 2% to 2.5% to 2.5% to 3.5%. those are fairly healthy

restaurant numbers. finally we have an ipo. two weeks ago i declared the ipo season was over. this dropped this on us out of nowhere here. there was -- the name of the company is yirendai, it's a p2p lender in china. 7.5 million shares. a great story to use as a spring board to talk about the chinese consumer, we just don't have a lot of information on the company. this is the way the ipo market is now, carl. particularly with the jobs act. you can drop an ipo with one week notice which is what we had here on this. and a week later you're essentially public. good news and sort of bad news because we don't have time to prepare for it. that's wait it is. dow down 132 points. ca carl, have a good weekend. >> bob pisani, thank you very much. >> let's get to the bond pits

and check in with rick santelli. >> good morning, carl. there's a lot of moving parts in the market with regard to central banks. whether it's japan, europe, or of course our central bank. there's a lot of divergence, a lot of comparisons, and investors have to not only look at what is currently going on with things like qe in japan, but have to factor in the trends and how those trends and future policy issues are affected by our fed. it's getting messy. if you look at a one and two-day of tens, there's one notion that jumps out simply. we're drifting lower in yield. much of that, according to traders i talked to, is due to the behavior of other markets like the stock market. if you look at a month to date chart, it's revealing. we're a bit higher, but you can see it's more the resistance the low to mid 230s, and just to put it in perspective as we hover at 220, we settled last week at 213. two day of bunds, similar move. the charts getting the most

attention today are the doll dollar/yen. as you look at a 24-hour of dollar, you can see we got hit a bit on the dollar side. if you look at a two-day of the dollar index, what should jump out at you is, "a," we have not taken over that 100 again. "b," yesterday's range is wider than today's range, even given the yen move, which doesn't have as big an impact as the euro. on a friday, in front of the holidays, watch the previous range. and also at 10:30 eastern, another voice, all the issues i just described, jean-claude trichet, former head of the ecb. don't miss that one. >> look forward to that, rick. keep your eye on crude as well. rebounding from earlier session lows. jackie is at nymex.

>> good morning to you. that's right. right now the flat line just hanging around the $35 mark. impressive range today. 34.39 was the intraday low. the intraday high, 35.14. this theme of volatility is here to stay. as bob mentioned, the expiration for the january contract of wtis on monday, that adds to volatility. also probably short covering mixed in. opec was out with the world outlook this morning saying that oil prices will remain under 100 in the long-term, but should bounce back from the current levels. opec saying it expects demand to improve next year. slightly positive there. take it with a grain of salt because of where it's coming from. having said that the bearish factors remain in the marketplace. a lot of people think oil will go lower from here. we are potentially will touch the 20s. that could happen quite soon. the dollar will be a big part of the story as well, carl. back to you. >> jackie, thank you. when we come back, pulitzer prize winner jim stewart with

eye-opening comments about high yield. the junk bond route that wasn't. and later, blackberry with better than expected results hoping its new android based device will return the smartphonemaker to profitability next year. 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. when a moment spontaneously turns romantic, why pause to take a pill? and why stop what you're doing to find a bathroom? cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms

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reuters reporting that the nation's forth largest retailer is developing its own mobile wallet. this would come on the heels of news that walmart has launched its own mobile wallet, walmart pay and apple pay. details are sketchy because target has not made a complete commitment to the wallet. it could launch sometime next year. the company reached out to a couple credit card companies. what something like this does is raise the question about the future of the merchant customer exchange and the mobile wallet that they are developing for their members, which include both wal-mart and target. would this be a competitor to it? so, again, in the wake of

walmart launching its own mobile wallet, we have target developing one. whether or not it launches next year, that, according to reuters s a possibility. we'll have to wait and see. >> all the rage, mary. thank you very much. mary thompson. amazon reportedly negotiating to lease 20 boeing 626s for its open air delivery. that's according to "seattle times." amazon wants to build out its own cargo operations to avoid delays from package delivery operations. at some point, you say we'll do this ourselves. >> that's an important story. boeing down badly on a downgrade today that we got. people worried about the glut. there is a glut in wide bodied jets. those are lucrative for boeing. the 730 is fantastic. delta came out. delta is the guy bashing the planes. >> huge dispute about whether that's the case. >> my. the tech nenicians are telling death cross.

i know david is a closet technician. that's a joke, people. boeing has been a big ping up-p of the year, up four, down four. people should not be selling. boeing will get a lot of orders. but delta basically said put a sale on boeing yesterday. they could be wrong, but delta just bashed the industry. i urge people to read through the analyst statement. they think there's too many planes out there. >> what's a good story about amazon leasing cargo planes and took it to boeing and delta. >> that's why they pay me the big bucks. >> huge. >> giant. >> take the giants against the panthers. >> really. >> getting 4 1/2. >> i don't -- are you serious with that call. >> i'm not allowed to do that. but that, i think, a lock.

lock of the week on that one! i'm not allowed to bet, but i look at lines and say that's a trap game for the panthers. they're already in. trap game. >> all right. we'll get stop trading with jim in a moment. what's the savings there? suppl, so should we go with the 467 horsepower? ...or is a 423 enough? good question. you ask a lot of good questions... i think we should move you into our new fund. sure... ok. but are you asking enough about how your wealth is managed? wealth management at charles schwab. every auto insurance policy has a number. but not every insurance company understands the life behind it. ♪ those who have served our nation have earned the very best service in return. ♪ usaa. we know what it means to serve. get an auto insurance quote and

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it looks like another one of those mornings when crude was at 34 and change but it's gone green as you were pointing out during the commercial break. >> hard to be negative when crude goes green. they take the palo altos of the world, the amazons, then they back up and start taking the j & js, the lillys. >> that all algorithms? why would i buy amazon when oil goes up? >> for the same reason when you buy a bike about the lucitania being sunk, they send you something about the titanic. it's an algorithm. it's the same thing with amazon. we ought to have it -- amazon should just create the stock market. oh, we'd like you to sell -- sell an etf.

>> others bought this. >> i'm sure they're working on it. >> you know amazon better than anybody. >> that's where bezos started. wouldn't that make life easier? >> would. >> would you consider buying puts on this stock? >> we rolled the stop trading animation what you are watching? >> kroger and cvs. >> and what's on mad tonight. >> we have redhat. and then very important, dr. stanley crooke coming on, the ceo of isis -- no, they changd the name this morning at 9:30 to ionis. do you own this? ionis. that would be a great amazon story. other people who own this buy ionis. it's an amazon story.

>> obvious marketing move on that part. >> i feel about that giants thing. i want the giants to win. sunday night football, snf, philadelphia. >> let's do this, national audience. >> you bet. >> saturday night against the cowboys. >> they flexed me. they flexed me, what am i? conner barwin. conner barwin, if you don't like general mills, sell kellogg. he's a ball hawk. >> yes. >> "mad money" tonight at 6:00 p.m. when we come back, pulitzer prize winner jim stewart on the junk bond rout that wasn't. [vet] two yearly physicals down.

martha and mildred are good to go. here's your invoice, ladies. a few stops later, and it looks like big ollie is on the mend. it might not seem that glamorous having an old pickup truck for an office... or filling your days looking down the south end of a heifer, but...i wouldn't have it any other way. look at that, i had my best month ever. and earned a shiny new office upgrade. i run on quickbooks. that's how i own it.

welcome back to "squawk on the street" for a friday morning. i'm carl quintanilla with sara eisen, simon hobbs and david faber. the selling continues. the dow down 129 despite oil making its way back to the flat line. we'll watch that as the session keeps going. >> let's get to the road map for the hour. stocks selling off for the second day in a row.

but the major averages are still higher for the week. find out what is ahead for the economy and for oil prices. and former ecb president john paul triche joins us live later on. we'll get his take on the fed and the global economy. and cigar aficionado revealing its number one cigar of the year. they'll unveil it here at post nine in less than an hour. so two weeks to trade until the end of the year and oil is front and center. for the moment, the price of crude has stabilized at $35 a barrel. still down a whopping 16%. 16% since the start of this month. a huge weight on the equity market. francisco blanche is from bank of america/merrill lynch, and drew mattis joins us from ubs. francisco what is happening in the market at the moment? is this people saying i can't take the pain of this anymore? be it the price of oil, holding

oil, or energy stocks? or is it simply the shorts keep banging in for a trade that for the moment is working? >> we have an opec meeting this year that was in some way similar to last year's. we saw a high degree of acrimony across various members. so i think speculators just came out of the meeting and said let's short the market. opec is not going to come in and cut production. the market is oversupplied. so the risk of an opec surprise cut is minimal for the next few weeks. let's push the market down. that's going on in the last month. does it represent a fundamental valuation of the market or are we in flux with trades? >> i think everyone's assumption heading into the first quarter of next year was that there was going to be some degree of agreement on how to accommodate iranian barrels if iranian barrels come to the market and the saudis keep producing like

they have in havenrecent quarte the market are go down again. so the speculative community is trying to anticipate that potential pull back in priceses in the first quarter. that's what is going on. the saudis are stubborn in terms of their strategy at this point. seems like nothing will change their mind regardless of how many iranian barrels we get in in january and february. >> midst of this, this week house speaker ryan appears to have brokered a deal to end the oil export ban in this country for the first time in 40 years this is what john hess had to say on "squawk box" earlier today. take a listen, guys. >> there's only 2% excess production capacity in the world. we have a glut up front in the market. >> right. >> but if you had a supplies supply disruption in the mideast or russia, we could be a

stabilizing force. >> what will strike many people there is the assertion that there's only a 2% mismatch in the market which comes back to that fundamental question as to whether one day we'll wake up and somebody has done something, the saudis, conflict in the middle east, those shorts will cover and rapidly retrace where we are. >> that's very possible, simon. but remember, we've had a lot of geopolitical disruptionses in the last few years. we had libya. we had iran, syria, yemen. there's a ton of problems in the oil market now from a geopolitical standpoint. i'm not sure that betting on more geopolitical trouble is necessarily the right way to look at market. i think -- look, we are about to recover some iranian barrels. there's also some potential progress being made in libya. so, i don't know. i think right now we have a high level of disruptions. i'm not sure it's the right way to look at it one thing you can say, the saudis, by increasing

production the way they have, they are at a point where they have spare limited capacity. if something happens, it is true, the market will recover quickly. then again, you have inventories at high levels. you have a lot of buffer to deal with disruption. >> there is the energy back drop of this conversation. i know you're an economist, the triple digit declines yesterday and resuming today, do you attribute that to what's happening in oil prices or uncertainty after the fed decision? >> i don't think it has a lot to do with the fed. we were seeing this before the fed. i think this is -- has do with more global market concerns, concerns about the overall health of the global economy. i think it's much less to do with the united states or the fed decision. >> you don't think there's uncertainty surrounding the path of interest rates, how aggressive this tightening cycle will be next year, whether there's consensus on the part of the fed and whether the data will back it up letting them

hike interest rates again? >> the fed has been consistent in saying they'll go four times, and the market has been consistent saying they'll go less. until someone blinks, there shouldn't be disruption. people will go blindingly along their path in whatever view they think they have and thinking that's the way the world will work out. the disruption will come when someone has to adjust to the other person's way of thinking. >> drew, let me take you back to this conversation about oil. the value of oil, the cost of oil has now fallen by two-thirds in about 18 months. what are the ramification force that for you as an economist in 2016? those are tectonic plates that are shifting here, aren't they? the classic thing, well, people will have more money in their pockets because of gasoline. where does the argument go in 2016 if we remain at these levels or fall further? >> i think we've already -- most people have taken down their cap

x estimates. so since we've done that, the next material point would then be u.s. consumer behavior related to it. perhaps we will jump the gun on the consumer. perhaps the consumer would rather save for retirement than spend in a zero rate environment. with rates going higher and oil prices low or falling still, i think we have to really focus on what that means for the consumer, the good things that means for the consumer rather than assuming we will get continued cap x declines in the united states which seems unlikely given the low level of cap x in the energy sector. >> we leave you both, what is your basic advice to investors? how do people make money here in your view? >> i think you have to stay probably quite cautious for the next couple months as the iranian barrels come in. then i think we'll have a big rally in march and april, heading into the gasoline

season. once we move into the u.s. driving season, gasoline will rally. i think it will drag crude oil prices with it. it's going to be a seasonal trade between march and april and june. so that will surprise the market a bit. don't take it as a permanent rally. it will be a temporary relief rally on the back of what's likely to be a tight gasoline market next summer. >> okay. it's great to talk to you both. have a great weekend. francisco blanch and dre dredrew matis. when third avenue said they would liquidate their junk bonds, many thought it was a crisis. james stewart will talk about that.

welcome back to "squawk on the street." transports trading lower today. down over 1%. one industry group that's selling off is trucking. knight transportation lowering its fourth quarter guidance after the bell yesterday. saying lower than expected rates and higher transport costs. that is sending ryder, werner, swift and jb hunt down today. knight transportation down about 8. the overall market picking up steam. the dow down 200 points. the beige book is out. results are gloomy. the survey of more than 2,000 firms across the country shows weakness in chinese manufacturing, services and

profits. everyone is talking about this report today. you are seeing something different than the official data is telling us, leland. >> we are. we usually do. we've been seeing a slowdown for years. this summer there was less of a crisis environment. we were talk about the same slowdown over the summer, continued forward. in q4 we saw an intensification of some weakness that we've been seeing recently. including some fundamentals underlying the economy. >> you said that the profit reading is "particularly disturbing." >> one thing we've seen is remarkable stability in the profit picture. a decelerating economy, profits have been relatively stable which has led the chinese not to need big time stimulus this quarter we saw a one-time drop in profits, leading to the lowest level profits we have

seen. >> why isn't the stimulus working? you mentioned six interest rate cuts since the end of 2014. they have imposed all sorts of new rules to try to calm down the markets which may or may not be working. why isn't it filtering through to the economy? >> if people don't want to borrow and spend, stimulus won't work. fluke at t if you look at the loan demand levels they have hit the lowest levels we've seen. cap x levels are as low as we've seen. >> people still point out relatively bullish metrics in china. box office, web traffic. what do you make of those? is that grasping at straws? >> it's looking at tiny pieces of the puzzle instead of the big picture. the china beige book was developed to give a panorama of

the economy. people say how can bad things happen? alibaba is reporting great earnings. some sectors might do well, but if the economy is hurting and the credit environment is hurting, then you have a problem. >> you're not talking about recession, you're talking about going from 7% to 5%? >> we are talk about slowing growth, not outright contraction. i expect 4.5%, but we stay away from the gd number. we try to track the trajectory of the numbers. >> the fed raised this week, and the big story of the year is the dollar. the chinese are saying we won't peg ourselves to the dollar anymore, thank you very much. we'll look at a basket of currencies. there's a report out this morning they will intervene if the yuan develops between 3% to 5% against the dollar. apparently the market expectation is that the yuan would drop up to 7% next year against the u.s. dollar. what does that mean for people

in the country? what does that mean for profitability? imports, deflationary pressure. >> it's hard to argue the difference between 5% and 7%, the key dynamic is the chinese want the currency stronger. chinese like to juice exports, reignite growth by deval ewing the currency. those days are mostly over. they would like to keep the currency stronger. >> give me for interrupting you, aren't we talking about a 7% decline in the chinese currency against the u.s. dollar? >> it's already at a 4.5 -- >> just for this country and people watching now. what does that mean? a 7% move would be gigantic. >> i don't suspect that would happen. it could be more moderate than that. it could happen if the dollar explodes this areas, but this is mostly a dollar story. it's a problem with being pegged to a currency that's exploding out the window. if china's currency -- they will

not stay pegged to the dollar if it explodes up, but they want to keep it stronger than the rest of the world. >> how you are getting access to chinese businesses? how do you do this survey from the ground. >> we spent two years putting together a survey network that allowed us to survey the entire economy across regions, sectors. we ignored gdp, we look at growth metrics but also labor market, credit environment, shadow finance. >> how large is the consumer as a portion of gdp in china? where are we? they want to have the percentage go up. >> i wish i had an answer. it's hard do anything as a basis of gdp, because we don't believe the gdp information. >> understood. >> people are reading this is terrible data coming out of china beige book, it's weak data, but retail did okay. property did okay. we're not seeing a crisis environment yet. it's one quarter, not yet a trend. because of these underlying problems in terms of inflation,

weakening labor market, it's something to keep your eye on. it's different than in previous quarters. >> how much stimulus do you think we'll get, if any, next year? >> i think there will continue to be a moderate less than people expect amount of stimulus. they realize it doesn't work. >> monetary orifice ca fiscal. >> monetary doesn't work. fiscal didn't register an uptick. stimulus doesn't work like people think it does. i think the chinese realize that and they're less apt to push the go button. >> thanks for sharing the new results. leland miller, thank. news out of rich greenfield, cutting disney to a sell with a $90 price target. still haven't read the report, the top line is even the force cannot protect espn. we're going to try to talk with rich later on today. >> i think, carl, a lot comes back to the thesis that some

believe that they overpaid for the sports rights. they wrapped up so many of them, you have to monetize it over a shrinking subscriber base of espn subscribers. that's a basic thesis that some have adopted. >> bold on the weekend of the "star wars" premiere. >> yes, it is. when we come back, jean-claude trichet joins us live to weigh in on the big fed decision.

investors pulling nearly 4 billion from u.s. high yield bond funds this week, the biggest withdrawal since august

of 2014. bigger fears have eased since 3rd avenue froze the credit fund. has the junk bond market passed a test? joining us today is jim stewart. j jim, good to have you back. >> thank you. >> little early to go out on a limb, isn't it? >> a little bit, but everybody i talk to about this, they all agreed that this is not the next bear stearns, this is not the next long-term capital ma manageme management, this is not the next reserve fund. there's two reasons for that, there's no leverage in these funds, so there are no counterparties at risk. and number two, this is a huge market, liquid market this was an outlyer fund. you can hardly call it a junk

bond fund it had highly risk tolerant investors. this is not like the reserve fund which also had no leverage but everybody had their savings in there, day-to-day liquid think. they thought it was as safe as treasuries. that is not the case. >> what would need to go wrong now for you to actually worry this was a bigger fundamental systemic problem? >> i really -- oil for longer? >> no, not in these big liquid transparent markets. i think you can make the case, as many have, the junk bonds were overvalued. but you see a correction like that. this is healthy. that means they're not as overvalued no. this is what markets should do. i don't see it happening here. the shock in mortgage-backed securities was that nobody knew about this. nobody knew this mountain had been built on top of subprime loans. that was a shock and revelation. i'm not saying there won't be a shock but it's not something where we're all staring saying

is this the next bubble? bubbles are not visible until they break. >> is concern that it spread beyond the junk bond market. in the outflow data, lipper says that investment grade bond funds saw a record amount of outflows last week as well. did that surprise you? we have seen so much corporate borrowing to fund dividends, buy backs, acquisitions over the past few years. will investors give that up? >> the super easy money here is coming to an end. even though for those of us sitting around here this would hardly be called a surprise. i know people don't pay that much attention, then suddenly it's the coverage of the fed is raising rates, and they think it's time do something. then there's more sophisticated investors exploring what are the long-term implications here. those are interesting. people said to me, when maturities came up and they couldn't make the payments they just rolled it over. that's why there's been no

defaults. that's probably not going to be happening over the next couple of years. we'll see default rates rise. that's not cause for panic. that's cause for a market readjustment and reappraisal. across fixed income you are seeing some of that last week. >> in particular, jim, it seems this was caused by illiquidity, the key for investors over credit quality now. did anybody in your travels mention dodd-frank and the volcker rule and the contribution that's had to a lack of liquidity because the brokers are not in there making money the way they used to. >> you're right, they all pretty much mentioned it. the people at the big firms are more vocal about it. goldman sachs made the point we can't step up into the buying opportunities like we once did under the dodd-frank regulations. that's something regulators have

to pay attention to. the liquidity issue is out there. a healthy thing coming out of this, investors and regulators are looking to see if these funds can meet that promise r there mismatches here that could be going on? >> janet yellen was dismissive as far as regulators go, as you mentioned in the column at the news conference, no? >> she basically stepped right over 3rd avenue and said it is an extreme outlyer. it's an unusual thing. the fcc will be looking into this. which it is. i did some preliminary investigation to see who else has a lot of illiquid securities in there. i didn't come up with much. i can't say i was exhaustive about it. a few funds have gotten publicity, but i don't think it's a widespread problem. >> cramer said it's a fund in which you think you will get your money back, and they ran it

like a hedge fund. there was a mismatch there, will you agree? >> yes. there was certainly a mismatch. this is a reminder of some of the dark days of the financial crisis. remember those adjustable rate municipal things that were suddenly not liquid? people don't think of liquidity day-to-day, i can get it out when i want it. when you can't, it's a pretty scary experience. i think people were like, my god, are we back? we are all still skittish. we went through 2007 and 2008. we went through 2001. nobody wants go through it again. maybe we're still hyper sensitive. >> there are less one-way bets to continue to pump money into the economy. >> i think so. we don't have the high leverage in these things. we don't have the government stopping these things. i think we're living in a safer world from the panic that triggered those crisis. >> good to see you, jim.

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. good morning.

i'm s i'm sue herera. by a 316 to 113 vote, the house approved the spending bill to fund government agencies through september of 2016. the bill lifts the ban on u.s. crude oil exports. it goes to the senate where it is expected to be passed this afternoon. iraq releasing video alleged i will showing isis positions in ramadi being attacked by government forces. the footage shows a series of air strikes hitting numerous targets in anbar province. ash carter arriving in afghanistan to assess the fragility of the country. and back at home, isis pharmaceuticals announcing it will change its name to ionis pharmaceuticals. the company shares which trade under the ticker symbol isis

will now trade under ionis. the company did not mention the islamic state but said its goal is to create medicines that save peoples lives. back to you guys. >> thank you very much, sue herera. let's hop over to the cme and get the santelli exchange. good morning, rick. >> good morning, carl. i'd like to welcome our special guest, jean-claude trichet. thank you for taking the time. >> it's a pleasure. >> listen, we have a bit of a delay, i will give you a precursor here to the conversation. mario draghi ended up walking back part of his statement and press conference last time we saw him. we see that the u.s. central bank has begun the great divergence, breaking ranks with

all the easing policies and quantitative easing that has been going on between all the major economies central banks and yesterday, last night, the bank of japan, even though they didn't tweak qe, the result of some things they have done have caused the yen to move higher, the exact opposite that happens when you use bigger qe type policies. my question is simple. the great divergence was supposed to have a strong dollar, but investors seem to now look at the breaki ining of ranks of our fed and questioning the efficacy, durability and the sustainability of programs in europe and japan. your thoughts, sir? >> first of all, i would say that it is very normal that we have divergences in monetary policy because the value countries and economies concerned are in a different

position in regards to cycle. the u.s. is in advance for very good reason. europe is unfortunately a little late in the cycle because we had to cope with this dramatic sovereign risk crisis what is important, on top of these divergences, we are fully justified by the situation in which each particular economy is. on top of that, you have the same goal, the definition of price stability is the same in the u.s., 2%. in japan, 2%. and in europe, less than 2, but close to 2. so there is common will in the ne medium run to reach price stability. and it seems to me that explains why there are divergences, and why those divergences are fully justifie

justified. >> mr. trichet, here's my problem. that sounds good theoretically, okay? everything you're saying sounds good. but small groups of people in these countries tinkering have caused very giant-sized markets to question the notion that we're proceeding in the same type of fashion as japan. china is tinkering with their currency, so they will export deflation. it seems to me that what seems logical to you is going to be confusing for the markets. as we've learned by our central bank, it's all about the market. >> yeah. first of all, i agree with you. the market is the judge. not on a day-to-day or half day basis. i never commented on small short time moves of the market, because they are self-correcting themselves. i will not dramatize what has happened in the recent days in

europe or what happened in japan. the market reflects, meditates a bit what has happened, makes judgment over time. so, again, it seems to me at least in regards to japan, the uk, u.s. and europe, it's very important that the same definition of price stability has been adopted. by the way, in my own understanding, it is one of the lessons on the road to the crisis that we have converged on the definition. with regards to china, we are in a different universe. we will see exactly what is the road to full, i would say, statute of full convertible reserve currency. there is some way to go. then we are not exactly in the same category of currencies. but of course what happens to

china is of extreme importance. i have confidence in the way the peoples central bank will behave. i know them. i could appreciate their professionalism. >> mr. trichet, we're out of time. thank you very much for your opinions. with regard to the pboc and what is going on in china, you seem to have more confidence in that committee's outcome than many in the market have. hope you have happy holidays. simon hobbs, back to you. >> the wait is over. "star wars: the force awakens" is in cheertheaters around the and in this nation. julia boorstin, take it away. >> showings started here at 7:00 p.m. last night. every showing between 7:00 and 5:00 a.m. this morning has been sold out. there are showings now about

every half hour or 15 minutes at the 13 theaters here. early reports have opening night box office at over $50 million, beating the record 43.5 million set by harry potter and the deathly hallows part 2 in july of 2011. how big will this film be? as of tuesday, "star wars: the force awakens" had sold more than $100 million in presales. that massive record and universally positive reviews making for some bullish analyst reports. goldman sachs saying they will have 1.95 billion worldwide that would be after avatar and titanic, after 2.8 billion and 2.2 billion. nomura puts the film's total problems office gross at $3 million. btig projects $2.6 billion in global box office, but it still

downgraded disney to sell from neutral on weakness from espn. many folkses we talked to here say seeing "star wars: the force awakens" once is just not enough. >> they'll see it again tonight. we have tickets for another showing. just to make sure it's a good movie, i will watch it twice. >> we're thinking maybe breakfast and another showing, then lunch and maybe another. >> still despite the enthusiasm, disney shares are down about 3%. we're awaiting some official box office numbers from disney for the performance last night as well as perhaps some numbers from imax which has the film playing in every one of its theaters. >> that's crazy to see a movie after breakfast. julia, the fans are out. julia boorstin live in l.a. rich greenfield just downgraded disney's stock to a sell. the stock down 3% right now rich will join us after the break

with this bold call. tune in this weekend for a new prime time documentary on cnbc, "gunfight: remington under fire." i sold my bike on wallapop, yes i did. (announcer) download wallapop. take a pic, list it. sell the stuff you just don't use to someone close by. make some extra cash and find great deals. download the free app. if you don't use it, wallapop it. (horse whinny)

you expl"super food?" is that recommend sya real thing?cedar? it's a great school, but is it the right one for her? is this really any better than the one you got last year? if we consolidate suppliers, what's the savings there? so should we go with the 467 horsepower? ...or is a 423 enough? good question. you ask a lot of good questions... i think we should move you into our new fund. sure... ok. but are you asking enough about how your wealth is managed? wealth management at charles schwab. every insurance policy has a number. but not every insurance company

understands the life behind it. for those who've served and the families who've supported them, we offer our best service in return. ♪ usaa. we know what it means to serve. get an insurance quote and see why 92% of our members plan to stay for life. ♪ btig downgrading disney to a sell today. a price target of 90. shareses of disney down nearly 3%, that has added to some losses on the dow. joining thus morning, btig's rich greenfield with us from midtown manhattan. good morning to you. >> thanks for having me. >> i promised i would start by saying we find your lack of faith disturbing. walk us through this it centers around espn, right? >> yeah.

the reason to fade the force is really because espn is challenged. we believe that disney's earnings expectations are too high. 5% below the street for 2017, 8% below the street for '18. numbers for disney have beat for a long time. we believe number also start missing as you move into '17 and '18. as you said, it's squarely because of espn and the cable network division. everyone is excited about "star wars." we believe "star wars" will do 2.6 billion in global box office this is all about cable networks which is 45% of disney's operating costs. >> you say you do not believe espn is prepared to go over the top today. iger told us they could do it with relative ease and pretty soon. why don't you believe him. >> we simply don't believe there are enough consumers who would pay espn at price they need to pay it we believe most of the basic cable network channels

have been overearning for a long time. they've all been part of this bundle of channels. and i think as you start to go direct to consumer, it's not just you, carl, me, rich, deciding to pay for espn and the price that espn will charge, but also you have to subscribe for the full year. let's say, for instance, you're a big football fan. do you need to subscribe to espn for more than 17 weeks during the football season for monday night football? just like with hbo now, i think they're learning that it's a lot harder to go direct to consumer because you have the fact that "game of thrones" ends and the consumer can instantly cancel. that's why netflix is launching so much programming throughout the year. "narcos" was in late august. they need to give you a reason not to cancel. cable networks are niche, and niche does not lend itself to continuity across the year.

that's why we believe bob iger is not being truthful about the ability for espn go direct. >> you bring up a report in your report that i've been trying to make on our air, which gets back to when they were negotiating with the disneys and free espn, and accepting a lower level of protection in the bundle. you can explain to viewers why it's important and why you mention it in your report? >> the bottom line is we're at a price point where the price value of the multi channel bundle -- we start started #goodluckbundle. the price value of the multi channel bundle has gotten too expensive relative to a netflix at 9.99. when you think about hours of content consumed. so what you're seeing is consumers push back on that. you're seeing them take smaller bundles of content. smaller bundles of content are easier do without espn. espn has looked for rates over

distribution. so that an mvpd can say we'll distribute espn, like a comcast or charter, we'll distribute espn in only 80% of households versus other channels, the minimum might be -- >> minimum is 90% or more so they'll get less money overall. >> correct. >> as a result of cord shaving, fewer people can take that because they went for price as opposed to having it fully distributed among the subscriber base. >> absolutely. >> this environment, aren't the people who peel away at the beginning, aren't they most likely not to be the espn devot devotees? surely live sports is the most powerful thing in television as people peel away to watch content in different ways. that's why you see comcast bidding as it has been recently, our parent company, to be in the game as well. >> absolutely. >> as you move forward, the

power inherent in what espn is, they could actually take greater subsidies, you could argue in the negotiation as everyone else panics to keep bundles together. no? >> look, from a "sportscenter" standpoint it feels like the new trl. you already note sports scores before "sportscenter" comes on. you're talking about the live sports events that are critical. but the question is do you to pay for espn for the entire year or a bundle. look at sling. you can sign up for sling for three weeks of the year, if you care about the ncaa tournament. >> rich, you already said they're not going to do that. you started by saying we don't believe they'll go over the top. they're not -- >> no, no, they already are -- they already are over the top in smaller bundles. like a sling, you can get espn with other channels like the turner networks for $20. you don't have to sign up for that. canceling cable service is a

grueling, almost impossible process. you get left on hold. it's mind numbing to try to cancel cable service. compare that to canceling netflix or sling tv which is echostar's service, dish's service, it's on and off. hbo now, on and off. the simplicity of going on and off of these digital platforms makes it easy to choose to subscribe to only parts of the year. >> seems like there are few big risks to your downgrades we are already seeing the excitement in the numbers come out of "star wars," good. we'll see what happens with merchandise. the launch of shanghai's disneyland next year, aren't those big risks? >> absolutely. on the flip side, "frozen" merchandise has fallen sharply. that was a significant profit driver for disney over the past couple of years. that's falling. star wars is exploding. we have massive growth. if you look at our numbers, we

have strong growth coming out of the studio division and out of consumer products over the course of 2016. we're actually above the street. so the street is at 5.63, we're at >> we thought that as of march

it got to being near fully valued. it was at $106. the stock has continued. it fell a little bit in august, but the stock literally sitting here at kind of $111, $112 this morning and having massively outperformed every other media stock over the course of the last year. look, it's a great company. they've got great content. you're talking about star wars. it just feels too expensive given the fact that there is a challenge to cable networks. disney is not just a consumer brand company. disney is a cable network company first and foremost, and its cable network franchise looks challenged because of the investment and the sports rights. what david mentioned in terms of minimums, going for price over volume does look like a fundamental management mistake that investors are not tagging them for yet. >> rich, appreciate you coming on the air so soon. >> thank you for having us. the selloff in the market accelerating. don't forget that today is a big options expiring day.

things could get quite tricky. it isn't energy stocks that are falling today. actually, they are the least worse performing sector. it's an unwinding of the gains you had in financial, and utilities earlier in the week. more on that after this break.

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>> there were several billion per balance. i believe that's what you are digesting here. a little earlier oil was weak again. that helped take us down. that has now restabilized. you will begin to see these losses abate a little bit. viewers should watch the area in the s&p around 2015, 2018. they've stopped around 2018 earlier this morning. if they were to break that, then 2000 could be in jeopardy. >> i was saying just before the break that if you look at what's hurting the market, the utility stocks, the financial stocks, it's those areas of the market that actually have done well earlier in the week. what does that tell us about in

the context of a fed week when they raised interest rates? what conclusions do we draw from that, if any? >> i don't think you draw much of one other than people saying you made a bad bet here. given where things were going, this is the industry that we profit and now they don't look quite as profitable. >> you have the euro strengthening, which the stock market does not like. that weaker dollar. crazy move in japanese stocks overnight. >> it was a borderline -- they worded the thing so badly they said they were going to expand, and they met the instruments that they were buying. the type of instruments, and the markets took it that they were going to expand the qe and make it larger. >> are you worried about the

close and the expiration of the auctions? >> yeah. well, you did close to 350 million shares on the opening. may see some of that size on the close. what's happened is the markets by being as volatile as they've been, they've introduced new strike prices. in other words, they look like it was going to close here. everybody set up positions. it looks like it's going to close here. people are moving in. i would look for continued volatility and for pretty big volume right on the dollar. >> the dow down 212. after the break squawk alley coming up. at baird, we approach your wealth management strategy the same way to create a financial plan built to last from generation to generation. we'll listen. we'll talk. we'll plan. baird.

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>> good morning. 8:00 a.m. in burbank, california. 11:00 a.m. on wall street, and "squawk alley" is live.