"titanic" and "jurassic park" with "avitar" now in its sites. it's monday, january 4th, 2016, and "squawk box" continues right now. live from new york where business never sleeps, this is "squawk box." good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. breaking overnight, a global market selloff. chinese stocks plunging dropping so much that trading was halted and ended up closing early for the day. you can see the hang high composite was down by almost 7%. the hang seng off by 2.7% and the nikkei even down by 3%. that's a decline of 580 points in japan. among the reasons there was weak manufacturing data that showed

china's factory activity contracted for a fifth straight month in december. the rest of asia also posting losses as you can see. the nikkei opening the year with its biggest one day slide in three months. same story in europe if you look at some of the rough action there. take a look at what's been happening. you'll see that right now the dax is off by 3.5%. the cac down by 2.25%. in italy stocks down by 2.5% and ftse down by 2 perfection percent. the ftse, by the way, coming off the worst yearly performance since 2011 dropping for a second straight year. take a look at what's happening with the u.s. equities futures this morning. the dow futures are down by 250 points. believe it or not, those are not the worst levels of the morning. s&p levels down by 30 points. we've seen the futures down by 300 points for the dow. nasdaq futures down by 75 points. all of these red arrows follow a rough end to 2015. here's the final report for 2015. the dow down by more than 2%.

ending a six-year winning streak. the s&p turned in its worst yearly performance since 2008. the dow transports were down by 18% if you weren't paying attention. >> we just heard last week that flat -- on flat years followed by an up year, we just heard that. >> we also heard the u.s. was independent of the rest of the world and we were doing so great. >> i like this. this is the journal. throw away everything else in the papers this morning because it's all old news. i started trying to read the ten point in the journal. we need to talk about what's happening. >> this doesn't matter. >> what scares me, that selloff we had here in august was totally related to what started in shanghai, too. here we go again. then you've got, we say this every year, we get to do this, like an annuity, as the first trading day of the year, so goes the first week. >> so goes the first month, so goes the year. >> yeah. that doesn't -- you know, there's no -- none of these things work all the time. this is not what we're looking

for. what happened to the abatement of the selling prush our and we get a lift the first week. >> the rest of the world is much more sick than we are. maybe it will be one and down. >> or the other way. >> we're getting ahead of ourselves. if you did the 3.5% in germany and put it on our average, it's like 550 points. >> i'm not entirely sure why people were so surprised that december factory numbers for china were relatively lousy. you add that to the turmoil in the middle east and what's happening with iran and saudi arabia, what that's going to do with oil prices, you're going to see a lot of chaos working through the markets. >> i don't think this kind of gain in oil prices is what we were looking for. >> right. >> to help the market.

>> not because of demand. >> let's tell people more about what's going on with oil prices. >> it is among the other top stories at this moment. the story is that oil prices are rising this morning. they're doing so i don't want to say in a big way. up 1% this day and age. wti crude, 37.43. deteriorating talks with saudi arabia and iran. they were stormed by protestors. that attack came after riyadh executed 47 people convicted of terrorism charges, including a prominent opposition shiite cleric. they've given iranian diplomats 489 hou 48 hours to leave the kingdom. also developing story out of india this morning, at least six people are dead and 50 injured after an earthquake hit the country's remote northeast region. powerful 6.8 magnitude quake struck. some buildings collapsed.

the casual at this toll though is expected to rise. >> earthquake in new jersey yesterday. becky, did you feel? >> no. >> the jets -- >> no, no, they really -- >> the jets -- >> honestly. >> i felt the last one in virginia. that was five years ago. >> in ringwood. wherever that is? i thought it was ridge wood. >> no, ringwood is a little further. >> ringwood sounds like something you get and get treated for, doesn't it? anyway, let's get back to the markets. this morning's selloff and once again check out the dow, which we just heard is down. becky indicated as much as 300 at one point. at this point, you know, look for -- it's illiquid. when we see that, it doesn't immediately go up there. sometimes it's when the markets are in earnest. we're going to take a look at germany in a second. look at the ten year. a lot of times you see a flight

to quality. seeing a little bit of that today. weren't we almost at 230 at the end be of 2015. the dollar though you wonder whether the dollar gets stronger as there's a flight due to some safety there. in this case you have the euro, 1.09. take a quick look at gold. maybe this will be the year for gold. maybe not. it is up 11 though. for more on the selloff in asia, let's bring in sri. he is in singapore. you guys are definitely -- we're the tail and we're getting wagged by asia this morning, sri. >> oh, boy, joe, what a hangover we've got. pass the alka-seltzer. take a look at these markets. what an absolute mess. what a deeply inauspicious way to kick off the first trading day of 2016. it's almost as if the volatility in the china markets hasn't really gone in a way. it's almost back with a vengeance. the irony of the circuit breaker is it's contained volatility.

on day one of the implementation it was self-defeating. it was a softer china pmi. the factory data that really lit the fuse here. let me just take you through what happened. so bear with me. csi 300, this is the blue chip index for china. that was down at quarter past 1:00 singapore/hong kong time. bang, that triggered the first circuit breaker. froze the market 15 minutes. resumed trading. five minutes later trading weakness just snow bald. we were down by 7%. so, bang, that triggered the next circuit breaker. essentially froze trading for the rest of the session. i would argue there was an element of shouting, proverbial fire in the crowded movie theater. everyone knew the circuit breakers had been implemented as the selling really gave momentum. a lot of people rushed for the exits and tried to get out. that amplified the selloffs. people did panic essentially.

let me just pop this selloff in perspective. 7% for the csi 300. that essentially raises the bulk of the gains that we made in 2015 in one session. staggering statistic for you. it ain't over yet in my opinion because we've still got a lot of data to digest from china. at the end of the week we get the trade balance for the month of december. that will provide us with the next key test of sentiment and how it's holding up in the china markets. back to you now. >> thanks for that, sri. we appreciate it. now let's get more on the global market selloff and the stocks and volatility. joining us, steven wood, chief investment strategist at russell investments. on crude, partner at again capital and cnbc contributor. we are seeing him again amidst all of this turmoil. i'm going to go to you first with what happened and the implications for oil. they're rising but what do you think is going to happen?

>> i think first of all it speaks volumes about how much of a cushion there is and how big of a glued there is that we can only manage 30 cents a barrel on such an historic round between saudi arabia and iran, two of the world's largest oil producers. this was an amazing if not scary development between these two. we know they've been in a proxy war with each other for several years now, whether it's in yemen or syria. this is why when i was here last year and we talked about the opec meeting i said they wouldn't be able to get together on anything. they're at each other's throats. we're seeing that. this while it was a scary headline, if it happened during a trading day you would have went through the roof for a few hours, at least. given the calm over the weekend and time to digest, it's letting you know that opec maybe as we know it is over because these two are not going to be coming together any time soon on modifying or moderating production. >> and you look at 12 months though, just give us sort of a

sense on 2016. >> my range for 2016, i think you're going to get as low as 18, maybe as high as 48. >> as low as 18? >> as low as 18. it's going to get really ugly. the iranians double down again if that's even possible. they could put 500,000 more barrels on the market within weeks after the sanctions. >> what about -- just in terms of the global production and what saudi arabia is responsible for, what we see from other sources. >> they're producing about 30 million altogether in opec. this is obviously another half a percent. the market's already oversupplied by about 2 million barrels a day. this should be another 500,000 barrels on top of that. potentially going as high as three if the iranians are true and able to put on a full another million. >> during arab spring, the saudis, people worried about saudi arabia as well, at least people in power in saudi arabia. they've always been able to keep the disruptions under control by bribing young men that don't

have jobs now, right? do they have enough money to keep things -- to keep the royal family in power? isn't that something we need to worry about, whether the grip on that country is more tenuous now? >> i think certainly the iranians and other shiite and iraq -- >> that's why they executed the gentlemen, right? >> some of the outer districts more towards iraq and other parts of the country where this has been happening around the cleric that got killed is situated, yes, they're in danger of losing that. they're going to be, you know, maybe -- >> if you don't have oil revenue to keep everybody happy -- >> we saw the budget came out at the end of the year here. we know, joe, they're tapping the debt capital markets and they have cut back on some things but they are hunkering down and are going to go forward and keep things going. i think they have a lot of runway to go to answer your question. i think they have at least two to three years they could last

before things got tight for them fiscally. >> steven, let's talk about china. the overall market but you add what's going on, what he's talking about in china and this idea and i read a couple of reports, ben white had quoted a couple of economists this morning saying we're all going to be fine. the u.s. somehow doing spectacularly. we won't have to deal with all these other issues but at least we are. >> i wouldn't go that far. the united states is clearly that independent. our base case is we don't have a recession in the united states. we chug along in the low to mid 2.3, 2.5% real gdp. i think it's going to come down to, you know, how the fed reacts in the face of that. i think what we saw in august and july is that the fed really responded to global events. that really i think dictated policy. >> does that mean no more hikes? i think joe was sort of joking but maybe not really joking and turn it around the opposite way? >> that's premature. the fed is going to be looking at four rate hikes. they want to be at 1.25 by the end of next year.

are there enough data to knock them off that policy path? we'll wait and see. i think 1% is a reasonable expectation, maybe 1.25 up from the fed. we're not expecting great shakes out of the markets this year. it's active. >> is there anything to be said about an election year in terms of the way the markets play? >> yeah, there's a lot of people who subscribe to that. to some degree it's numerology but there is an aspect when you get into an election cycle there's stimulus. we've gotten that. we got the budget agreement last fall. i don't know that president obama has the leverage or inclination to add to that for next fall. i think that the federal government in the u.s. will be adding to gdp forth first time in half a decade. that will give us a little bit of a cushion. i wouldn't expect great shakes going to drive the market. >> i was thinking about it negatively. i was thinking of it in the -- >> more fiscal cliff? >> no. the people sitting around on their hands waiting to see what happens. if you were going to make a capital investment, you thought

the tax policy was going to change or the regulatory environment was going to change, you wouldn't make the investment today because you'd want to see what was going to happen later. >> i think that's sound reasoning. we advise clients when you look at the gridlock in washington, you won't get a lot of policy changes. we can take the man hours and energy and focus on earnings, economy, rates. i don't think there's going to be huge policy shifts. i don't think we're going to get a huge agreement on taxes. all of those won't change in a significant way. we have to go back to doing what we do and worry about markets. >> what do you like best in terms of sectors or areas or even stocks that you think are the most likely to succeed? i mean, we just looked at the transports down 18% for the year last year. >> we think quality of earnings, perhaps a bit more defensive. u.s.-based investors looking into 2016. it's probably going to be a tough year between equities and fixed. not a big call there. equities side, we still like

europe. that's the more significant overweight. it has been since 2014. the last year continue to be -- second would be japan in equities space. very distant third would be u.s. we see the u.s. being flattish. i think this is going to be a very, like i said, security specific opportunity but that said, you want to be very, very disciplined. there's going to be a lot of -- >> china's far away, right? 12 hours? so that puts it on the other -- >> no, i mean the time change is 12 hours. see quickly deduce that's all the way around the other side of the world. if it's not a big deal, why is germany down 2.5% and why are we down 260 points? >> i think china is a big deal. i'm not saying it's not. it's driving a lot of the commodity space and demand. >> what's it say about the prospects for 2016 to start out like this with china which is what hit us in august. when it starts like this, you're not -- you're just saying, ah, mid to high single -- you're still sticking with that story

that this doesn't change anything with what you're seeing today? >> i think in the face of that, in the face of the fed which is going to be tightening a bit we think in 2016. >> we'll see. >> we'll see. in the face of china which is -- china is a 6ish% grower. it's going to be a 6ish percent grower. transitioning -- >> you're talking about their economy and whether it shows that something is manufactured. what about the markets? what if the markets in china unravel and then here we are over here trying to tighten at the same time which there's no guarantee we can exit cleanly. that's what we're going to talk to jim graham about. there's a lot of things lining thaup might not be that great. >> that leaves the volatility for 2016. chinese markets are going to be very, very volatile especially compared to europe and the united states. we expect that. we tend to look at the economy, implications for other markets and other economies and look at

the volatility in china as not a secondary observation. we understand there's going to be a lot more volatility, less mature, less developed markets compared to the west. demand in -- aggregate demand in europe and the u.s. look okay. >> there's a lot of average chinese investing in that market that could damage them. >> nothing to see here. nothing to see here. nothing going on. >> buying it up, buying it up. >> put the breakers on the market. they tried to stop the markets from deteriorating too much. now they're on the ore side of that. >> but why were transports down 18% if it's not for the demand picture particularly when oil is down. >> diesel demand has been down double digits for the past couple of months now in the weekly reports. i can't figure it out with the economy doing so well and consumer spending why that's been down has been a mystery to the market. >> leave it there, steven. thank you for kofrming in. >> john, we'll see you again. >> happy new year, everybody. best of luck.

>> the whole idea that it's all supply. it's all supply. i don't know. makes you wonder. more on the rising tensions in the middle east. news just out that bahrain has joined saudi arabia in cutting diplomatic ties with iran. didn't we just sign some big deal -- anyway, nbc's a man mow had a dean has the latest. david gord dan from the eurasia group will tell us how that will play out. we'll have more of that when we return.

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saudi arabia's embassy was bombed. eamon joins us with an update. eamon, good morning. >> reporter: good morning, becky. this is following the sudden execution of nimr al nimr, a prominent cleric. that take place on saturday, january the 2nd. it went along with the execution of about 46 other according to

saudi arabia terrorists. it triggered a wave of angry protests, no the only in iran but also in some neighboring countries as well. by saturday evening protestors had gathered at the saudi arabian embassy in tehran ultimately breaking through the barricade that was there setting the embassy on fire. now as a result of that saudi arabia has severed ties with iran calling all of its diplomats back to the saudi arabian kingdom and giving iranian diplomats 48 hours to leave saudi arabia. obviously this can heighten tensions. the leadership has strongly condemned the execution of the supreme leader saying that saudi arabia will feign devine vengeance as a result of what they did with the execution of nimr al nimr. this prominent cleric was an individual that saudi arabia accused of being involved in a plot to overthrow the government in destabilizing the kingdom

from the perspective of the iranian government, he was advocating for greater equal rights in the kingdom for the shia minority group in the eastern part of the country. he was arrested back in 2012 just after the arab spring broke out. put on trial. was executed on january the 2nd. guys? >> ayman, what does this mean in terms of broader implications for what's been happening in the region for the past several years? >> reporter: it's going to polarize the region further. saudi arabia and iran have been at it in the major conflicts in the region including in syria and lebanon. there are two key negotiations taking place, one involving yemen and one involving syria. it's syria's inclination that there's no movement to resolve the conflict in syria, to resolve the conflict in yemen so long as the two countries remain

without any diplomatic ties and that's all -- that's what all the indications suggest, that they're going to continue to be polarized and divisive in terms of how the region continues to play out. >> in terms of syria, how realistic was it to think that these two will be on the same side when you have iran backing the regime there and saudi arabia completely opposed to that? i realize that it doesn't look very good at this point, but what did it look like a week ago? >> certainly a week ago it looked a lot better because you were going to get saudi arabia to sit around the table for the first time since this conflict really began. a lot of that was because of u.s. pressure. secretary of state john kerry was trying to get both iran and saudi arabia, two of the key backers of opposing sides as you mentioned, to sit around the table and see if they can come up with a solution. now that is less likely going to happen if these two countries are not even going to have diplomatic relations. you're right. there was no chance they were going to resolve the syrian

conflict without the key backers including russia and the united states as well as turkey. really on the ground in terms of boots on the ground fighting the iranians have been among the biggest supporters of the syrian regime. they have advisers there. they've been sending money there. they really needed to be on that negotiating table with the saudis and ultimately it does not look like those talks now are going to go as planned. still scheduled to happen but not going to produce the results that everyone thought they would just a week ago. >> i've read that this in terms of saudi arabia internally was done to apiece some c constituencies there. what does that tell us about how things go with the new ruler? saudi arabia? >> they're under tremendous pressure. they are facing economic challenges. they certainly have a budget deficit. they also have isis that has now pushed saudi arabia in their sights. the execution of 47 alleged terrorists according to the saudi monarchy was because they are facing some internal

security measures that they say iran was behind in addition to the islamic state out of syria and iraq. their execution of nimr al nimr was considered to be somewhat of a surprise, although he is a very prominent shiite cleric, many felt that he was not given a fair trial. human rights organizations certainly criticized the judicial process. the remaining 46 individuals that were executed, some included hard-lined terrorists, particularly radical jihadists, not shia protestors, not shia clerics like nimr al nimr. some have said that saudi arabia to show that it is applying the law equally and not just targeting radical islamists to appease its own constituents carried that out. >> ayman, thank you so much. >> you're welcome. we have a run down in this morning's big market movers in asia and europe and here at

home. we'll talk to mark graham. he'll join us in a few minutes. as we head to break, take a look at last year's s&p 500 winners and losers. ♪ ♪

welcome back to "squawk box", everybody. this is cnbc. if you are just waking up, the global markets selling off overnight. wilford frost joins us right now with an update. wilford, you sure know how to pick the days of when to start a

new show. >> what a dreadful start to market sentiment for the year but an exciting day to be here and to be covering it, becky. as you said, very, very soft start. it all stems from china. we have some pmi data out. the miss was a big surprise. last week we had official data that was pretty solid. we also got a bigger yuan devaluation than expected. crossed through 6.5 against the u.s. dollar for the first time since 2011. following a 5% devaluation last year. that's really weighing on the index. we've seen the shanghai index down some 7%. sri went through earlier how the circuit breakers, the much reported circuit breakers kicked in earlier today. it just highlights how trying to manage the stock market just hasn't worked, didn't work last summer and it doesn't seem to be working at the start of 2016. that decline that we've seen is partly sparked by the pmi and

the yuan across the region. the yen has acted as a safe haven. that also, therefore, weighed on the nikkei which is down 3%. similar big moves in european trade. got more than 2% declines across all of the main forces. just have a look at the dax in germany. down 3.7%. massive move. a couple of reasons why they're bigger in the markets. almost up 10% last year. also because it was closed on the 31st of december where european markets were down 1%. a little bit of catchup from the dax. nonetheless, what's really highlighted here is the way that the chinese markets, big moves, volatility can affect global markets. whether this is in the short term or a sign of things to come, we'll have to wait and see. big moves across the globe. >> wilford, earlier when i was on with you, i'm so glad that

you're doing this. i'm looking at thank god you're here to do it. great day to start. you started trying to sort of inculcate yourself with the nfl. i need to ask you, you know, doubt t douton abby started. you've seen the final season, have you not? >> i've seen parts of it. they have the final christmas special on. >> that's too much. >> i'm not going to tell you what happened. >> that's a spoiler. so there is a christmas -- there is a christmas -- they have christmas again? >> well, i have to say i find it insufferably dull, that program. there we go. i know you guys love it out here. dragged on too many seasons. >> i love the way you said it, too. just like a britt. insufferably dull. >> it is. there we go, joe.

>> wilford, is the show not as beloved in the u.k. as it is here? >> no, it is still adored there, i just think it's gone on a little bit too long. >> you're crazy. >> my parents love watching it. >> yeah, me. you know what, going on too long. if maggie smith were ten years longer it could go on another ten years. mrs. hughes showed up to intro a screening down in virginia or something and the place went -- it was like seeing, you know -- it was like the second coming. it's big here, okay? >> he did say it's big in the right demographic. >> i agree with that. >> wilford, just because you grew up with an upstairs and a downstairs, not all of us did. we like to see the way that that -- >> not true. not true. >> they don't portray the servants like they do here. >> wilford, we are very glad you're on this side of things. we are thrilled to see you in the morning. thank you for joining us. >> great to see you. >> unbelievable.

we have a couple of other stock stories. is this what your home was like? you like this show because it reminds you of your home? >> believe me, you knew where i grew up. >> i'm talking about the manor house now. >> oh. >> let's talk about other news this morning. tesla meeting its lower fourth quarter guidance for deliveries handing over 17,000 vehicles during the final three months of the year but of course there was a little bit of consternation because of the new suvs. they're not sure they're going to get enough of those out. also, joseph pronunciation here, hyundai. >> not hyundai. >> hyundai. >> see, you got -- >> rhymes with sunday. >> sales rising 1.5%. that's short of industry estimates. they missed the 2015 target for the first time since the 2008 financial crisis. fidelity is dropping credit card partner american express and bank of america ending a 12 year relationship. they will team up with u.s. bank

and visa. it is media news. it is official. "star wars" winning the box office for a third straight week bringing its domestic growth to north of 740 million and that topped "titanic" and "jurassic world." it's expected to move past "avitar's" record of 765 million possibly today. "avitar" is still the top grossing movie with 2.75 billion. "star wars" is aiming for that crown. could get a major boost when it opens in china this coming saturday. >> second largest movie market in the world. >> right. >> yeah. when we come back this morning, mark grant from hilltop securities joins us to break down the selloff. keep an eye on the german dax. down more than 3.5%. we'll get you caught up. wow, 3.9% declines. "squawk box" will be right back.

welcome back. u.s. equity futures at this hour are bad, lower, ugly, hideous. down 315 in the dow right now. that's just for starters before anyone even gets to act on their intentions this morning. who knows? a lot of times maybe you wash out some of the early selling and maybe there is a rebound, but given what's happening over at the dax and in europe, let's see if the dow right now is at, what are we, about 17 or so? if you multiply 17 times four, 4 times 100 is 400. 4 times 7 is 280. is that 680?

>> i wasn't paying attention. what did you just do? >> are you trying to figure out how many points that is for germany? >> if you took 4% off the u.s. market it's over 600. >> yeah. >> i was doing it really slowly but -- >> yeah. >> -- not slow enough. >> i wasn't listening. >> what else? joining us now from global markets selloff, mark grant. i blame him for this. the stuff you've been writing, grant, god almighty. man oh, man, you're supposed to go into the new year, you know, with some resolutions and some optimism and in a joyous way and i can't because i read your stuff over the weekend. nothing is going well as far as you're concerned. >> that's not true, but you can blame me if you want. >> i did. >> you have for years. >> some of the recent stuff you've written though is pretty frightening in terms of at least if you're long equities pretty

much everywhere, right? you do not think that things are set up for appreciation in equities? >> that's correct. there are -- and i want to say this, there are some parts of the markets that i think highly of and they've performed well last year. i think they're going to perform well this year, which are municipal bonds, taxable municipal bonds, some of the closed-end funds that are paying 8 to 10%, but equities, i look at s&p earnings are going to be down in my opinion. the real growth in china's, in my view, looking at the real numbers, not what the government puts out, is about 2%. oil because of technology and what's taking place. >> 2%? >> 2%. 2. >> wow. if that's the case, the market still has a long way to catch up with reality. >> i agree with you. i agree with that. you're saying the devaluation of the yuan, and i think there are going to be many, many more coming up.

i just think that equities are not the greatest place to be and they certainly weren't last year, joe, you have to admit that. flat lined out at nothing. do you disagree? >> no, but what i'm -- is the exit that we're trying to orchestrate here, this nice neat little we save the world in 2008, 2009, we go up, you know, from 800 million to, i don't know, a gazillion on the fed balance sheet. it's going to be an easy exit. all simple, neat, everything is fine, 3% growth. that's what i'm worried about is that, you know, using monetary policy to make everything appear better, that that catchup with the underlying economy never really did happen? just creating a wealth effect if it's not commensurate with actual fundamentals means it's not coming back down when there isn't any fed accommodation. >> i think that's exactly right, joe. let's go through this really

simple. the markets rose when the fed was putting in all the money just like you said. then we're flat lining with the fed having about a 4.8 trillion balance sheet and no new money coming in. now the fed is taking money out and raising interest rates and so we're going to go, in my opinion, the other way, which means equity markets down. we flat lined in treasuries. there's still some good parts of the market to put your money in, but you're right, joe. on the equity market i am not optimistic. i'd like to think i was realistic. i'm not calling for the world to go to held, but i am saying that with what the fed is doing now and what's going on in the rest of the world with what the ecb is going in the opposite direction, huge problems in china. america's not an island sitting there by itself. >> right. >> it's going to be difficult. >> mark, can i just -- i'm appreciating that all these

other things are happening around the world. why are we holding the fed at this point accountable for all of that? >> i'm not holding the fed accountable for all of that. what i'm holding the fed accountable for is that miss yellen, in my opinion, is using very poor timing to try to raise interest rates when the ecb, the bank of japan, central bank of china is all going the other way. it's like we're trying to swim upstream and i think that it's a following. i think the fed has made a huge mistake. >> mark, do you think that -- we were trying to figure out why the transports were down, 18% last year. do you think that is a reflection of this lower than reported demand that you say you see in china? >> yes. not only that, if you look -- becky, if you look at the dry index which was another indicator in transportation, you begin to look and get some real numbers in my opinion and not just these fanciful numbers

especially. >> what do you do if you have a problem with the fed going to 5 trillion on the balance sheet. do you have a problem not going more? >> no, joe. i think the fed should have done was started to reduce their balance sheet to provide normality instead of trying to raise interest rates. if you look at it, why is the fed keeping almost $5 trillion on their balance sheet? they say, well, it's controlling the market, normality. you know, they have no business doing that. the first move should have been to shrink the balance sheet and then you can talk about raising rails but remember to go back to '08, '09 when we had the calamity, we had every central bank going in every direction. the whole world got stabilized. now we have all the central banks in the world except for the fed going one way and we're going another. >> all right. thanks, mark. thanks for coming on on short notice. we'll talk to you. >> thank you, joe.

>> okay. coming up when we return, tensions rising in the middle east. saudi arabia cutting ties with iran and bahrain following the lead. we'll have the eurasia group's david gordon in just a moment when "squawk" returns. s a fact. s a fact. kind of like ordering wine equals pretending to know wine. pinot noir, which means peanut of the night.

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rising tensions in the

middle east after an attack on the embassy in tehran. it's good to see you. >> great to be here, joe. >> if you look and connect a lot of dots, i talked earlier about with oil revenue down as much as it is and just with saudi arabia sort of -- i thought they sort of had gotten past the whole movement with arab spring. does this make it more likely that there's some type of social upheaval that is going to happen over the next couple of years or are they going to get a grip on all this? >> so i don't think that the key challenge coming out of this is instability in saudi arabia. this is really another step in this escalation of sectarian tensions between shia and sunni

sects and with sunni power, saudi arabia and shia power iran coming increasingly into conflict. saudi arabia is between 85% and 90% sunni and the regime actually part of what this is about is the regime using tensions with the shia to bolster its political base and the iranians are doing the same thing vis-a-vis the saudis. i don't think internal instability is going to be the main impact of this. it's much more likely to play out with continued unrest in syria, in yemen, in bahrain, as sectarian tensions play out elsewhere in the region. >> we're aware of all of the enemy of my enemy and all of the difficulty of trying to figure out how to approach the conflict in syria and what the united states should do and i don't

know if anyone has the answer. did this make it worse or it's just a symptom of more of the same? >> i think it does make it worse. actually, the u.s. and russia and the europeans had begun to forge together at the end of last year a bit of a diplomatic process on this. there was a resolution in the security council of the united nations back in december. all of this becomes harder to implement. so these efforts both by the u.s. to ease tensions with iran, efforts by russia to ease their tensions with saudi are likely to become a victim of this. so i think the small shoots of hope that we had at the end of the year that we might be able to put something together in syria, that's going to go away i suspect. >> the obama administration i

can't figure out a lot of things. are we better allies now with -- we're better allies with the saudis than iranians. are we? i guess. >> so that's a great and a tough question. i think that the u.s. in this shia versus sunni tension can't really come out definitively on either side. on the other hand, most of the arabs in the middle east overwhelmingly are sunni. i think we're still better off with good relations with our traditional allies in that part of the world, but part of what we're trying to do is to put some kind of a ceiling on these sectarian tensions because if they continue to play out, the middle east is going to become even more of a problem.

that means more refugees in europe. isis will continue their transition toward becoming more of a traditional terrorist organization rather than an organization that tries to run its own caliphate in iraq and in syria. so there's no clear, good pathway here for the united states and i think this is going to create greater tensions in the middle east. >> and how long are we going to put those sanctions on those companies? was it like 90 minutes we decided we were going to do it? did you watch that? how does anyone -- >> this is a little weird. my assumption here is that there's some kind of backroom

negotiation going on with the iranians now to see if they will back off some of their ballistic missile development activities. reminded me of a month or two when we talked about sanctioning chinese entities for cyb cyber espionage and then we got a deal with the chinese instead. my assumption is that we're using the threat of sanctions as a stick to see if we can get some kind of a deal with the iranians, but i agree timing was unusual to say the least. >> they don't even try to make it look like we're -- i don't know. david gordon, i appreciate it. thank you. >> great to be here. >> coming up, reaction to the global market sell-off when we return. sure, tv has evolved over the years.

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markets selling off. stocks in china plunging, europe sharply lower and u.s. futures dropping as well. a look at what's moving markets around the world and how you should set yourself up for 2016. rising tension in the middle east. saudi arabia cutting diplomatic ties with iran after its embassy was stormed in tehran. could this war of words boil over into something bigger? we'll break it down straight ahead. hedge funds with a hangover. some of the biggest names in the game finishing 2015 with a thud. we'll go inside the numbers and see how they plan to turn things around. the second hour of "squawk box" returns right now.

welcome back to "squawk box" here on cnbc, first in business worldwide. i'm becky quick along with joe kernen and andrew ross sorkin. check this out. there is a global market alert this morning. started with chinese stocks getting slammed overnight. concerns about growth in china and that's been rattling markets across the globe. you can see shanghai composite was down by about 7%. things were actually halted there. the session ended early but it bled out through the nikkei down by 3%. hang seng off by 2.7%. this is playing out not only here with markets but also in europe. take a look at the early trading in european markets and the dax at this point down by 4.3%. you also have declines for the cac in france off by 2.8%. in italy, stocks are down by

almost 3%. right here in the united states, if you are just waking up, u.s. futures point to a sharp slide ahead of the opening bell on wall street. the first trading session of the new year we're looking at the dow futures down by over 300 points. s&p futures off by 38 points right now and nasdaq down by 94. more on this rough start to the new year in just a couple minutes. >> let's tell you about other stories that we're following at this hour. saudi arabia has now cut diplomatic ties with iran. that follows attacks on the saudi embassy in iran after the saudis executed a prominent shiite cleric and 36 others and fidelity investments dropping american express and bank of america. fidelity struck new partnership with u.s. bank corps and visa. and the first economic reports of the new year set for 10:00 eastern time this morning. investors will get a look at the december ism manufacturing index

and the november construction spending. >> back to the global market sell-off this morning. we are joined now by dom. >> as we talk about what's happening with ripple effects overall on markets here, we start off the new year everything focused on asia at least to start here. if you look first of all at what's happening with european markets, we can kind of see that move happening right now. german dax having the worst day in just about a month here. the france cac down 2%. some of those peripheral european economies down about 2.5% there as well. if you talk about where else this is manifesting itself right now, you look first of all at some of the other spaces around the world. perhaps it's like what's happening in korea and also what's happening with japan nikkei. that's playing with markets here. if you look at where things are trying to work a little bit

here, you take a look at treasuries. that's one big part of a focus for traders today. treasuries are taking a bid here as people look for that safety trade and gold despite that you may not think that gold is a safety play in this kind of environment, that will play out as well. if you look at what's happening with asian markets, shanghai, nikkei and kospi setting the tone for the day. as you look at movers in the u.s., that's going to be a focus for a lot of traders here. look at u.s. steel, alcoa, freeport mcmoran. i will just point this out here. this is all on very light volume. maybe just a few thousand shares. still it gives you an idea of perhaps where things could at least escalate in the early part of trading. that's going to be a real key and of course we're always going to keep an eye on what's happening with all of these etfs. we know how much they're a part of the overall market structure.

a big focus today as well as other commodity related etfs. >> it's going to be an interesting day for getting back to work for the markets. thank you very much. for more on what's happening with the markets right now, we're joined by david. global head of management investments of citi private bank. he manages about $65 billion in assets. david, thanks for coming in today. >> pleasure. >> we have been looking at what's been happening for the last five or six months and get a feel for whether this is an oversupply issue when you look at energy prices or a weak demand picture and today it seems like the market thinks this is a weak demand picture if you look at china and how it affects the rest of the globe. >> we're concerned very much about what's happening in the oil market in general and also obviously with what's happening with china. when you take a step back from today and this is not a pretty day to start the year, the fact is that there are places to be. places that one would want to

invest in this circumstance. >> a weakening overall global economy? >> and where we think supply and demand balance remain in oil. we don't think so. we think clients should put money to work in the energy sector over the next three to six months at these prices because clearly the strategy in play in the market today is one that's designed to damage the high cost sectors of the energy production market worldwide. we don't think that's a sustainable view. >> we had a guest on in the last half hour who says he thinks growth in china, real growth in china, is closer to 2%. if that's the case, you do have a lot of distance between where markets stand right now and reality of things that have to shake off. he points to the baltic dry index. that's been horrific. transports down 18% for 2015. those are type of signals that generally are telling you there is a serious slowdown in demand. >> i think there are slowdowns

clearly in the markets today. when you look at company fundamentals, if you start to look at different sectors in the market, specifically in japan or specifically in europe and you start to look at the consumer durable sectors or health care sectors or banking sectors that we like, you can see real earnings growth this coming year. you can see relative evaluations more attractive than in the united states and with the dollar doing what it's going to do potentially good places to invest. it's discernment that we have to talk about. it's not as if everything is bleak. if you look at the interest rate sector and you look at the muni market in the united states. it's a great way to make money and preserve capital. you have to like real estate in this market environment which is going to give you a real return relative to what the cost of capital is. we like energy for the long-term and not right now. there are going to be opportunities in the markets and to outright buy assets at lower prices.

>> where do you like real estate? >> in major global cities where demographics are strong. >> earnings are going down. you look at a city like new york which is dependent on you making money and everybody isn't. you don't think there will be a decline or flat line on that? >> we don't. the issue if you're a wealthy investor you care about capital preservation. fundamentally we believe supply and demand economics of real estate in major cities will be positive. >> i thought last week citigroup echoed what goldman said about crude and was headed lower. you talk about equities? >> that's right. the current view for 2016 is not great. when we look at where we want to be, buyers of assets when things are bad, this is a year to acquire energy assets. >> we manage 65 billion. closer to 62 this morning. >> 3% less supposedly.

it's probably half fixed income. i won't do the calculation for you. we're down today. >> the price is right. okay. i see why you're nervous. 65 billion is a lot -- you have other people helping, don't you? >> there's a lot of people at citi global. >> i would be afraid to leave my house. >> that's not how it is. the opportunity that we have is to reposition client portfolios. when we talk to clients today, what equities they own and what bonds they own and how they change their global mix. te that's what's taking place. those conversations with clients. if you look at what we're recommending clients do right now, we're still overweight equities. we've changed what equities they own to focus on safer parts of the market. >> how much tougher of those conversations when you see futures down more than 300 points? >> interesting conversations today.

they have been over the course of the last six months. volatility in the market has created the need to communicate with clients and act on advice we give them. there have been more conversations. last year we saw increased volatility. this year you can count on it. you can profit from it in certain areas as well. >> when you talk about increased volatility, you think the market goes up. >> in the hedge fund sector which had a very difficult 2015, there are specific funds that will benefit from volatility and those are worth buying now as well. >> when you started talking about this, you said the next couple of years are going to be difficult. you don't see a clear economic growth path over the next few years? >> for the next 12 to 18 months we believe we'll have not positive sailing but upward trend. positive equity returns in developed markets and things like that. ultimately the issue is going to be when things do slow down, 18 months or beyond, what type of slowdown do we have?

that's what this market is trying to gauge when you look at what's happening in china and incredible sensitivity the market has to what's happening with the currency and people's confidence in china. >> when you think about volatility in the market, are you a believer that etfs are exacerbating the problem? >> not necessarily. i think that the dominance they have in the market clearly is affecting how they trade but not necessarily adding to volatility. it just reflects it. >> you said that the sensitivity to the currency fluctuation, you talk about the big devaluation today with the yuan. >> that's major risk for the markets in 2016 and beyond. in the event this becomes part of policy and they were to continue actually devalue, that would be a negative factor for the markets. >> you have other major central banks who are weakening their

own currencies. we talked about effects on the dollar and thought that we've seen the worst of the headwinds. that may not be the case? >> i think from a dollar perspective and what you were talking about earlier regarding the fed being a very different animal than other central banks. the dollar can continue to rise in this environment and u.s. market can be a safe haven as a result of that. there are knockdown effects of the rest of the market that are negative. >> of concerns that we just talked about, which is your biggest concern? >> the most significant would be major changes in chinese data. >> meaning that things are much weaker? >> if you look at the market in china last year and how volatile it was and where it ended up, it was a difficult year in that market for the entire time. the question is what does real data look like? citi's few is it's not 2%. it's 4% or 5%. that's a significant difference in view that we have. >> okay. david, thank you for coming in. great to see you. >> thanks for having me.

>> a quick look at the oil boards right now. wti crude coming off problems in the middle east over the weekend. now at 37.27. volatile trading amid saudi arabia and iran. later in the broadcast, frances townsend will join us. early 2015 results from some of the most noted hedge funds sure to sour investors. we'll be joined by numbers as we come back and as we head to break, another look at markets around the world. red arrows across the board with things looking down. nikkei down over 3% right now. we're back in just a moment.

in the frenzy pace of m&a active continue in 2016? 4.9 trillion in corporate tie-ups were done last year. highest number of all-time in the u.s. alone. pfizer obtained alerilergan.

and dell buying emc. >> the year that many hedge fund managers would like to forget. we look at some of the big winners and losers for 2016. i suspect more losers than winners on that list. >> if you look at the sort of top and bottom of the year, hsb puts out this hedge fund report. it's unrecognizable names. china funds. more tailored strategies and some household names. look at just a smattering of early results i got my hands on. average hedge under up 3% for the year based on early calculations. we'll get a better estimate in a week or two. pershing square is down 20%. greenlight capital down 20%. not enough to cause meaningful

turnaround from their downturn. third point down about 1%. they lost a little bit of ground in december. and then s&p about a point. big disappointment especially pershing square. that's mostly in the long-short category. we'll get more details on macro and other types of strategies as the days wear on and they calcula calculate. i would say that a lot of funds are not seeing redemptions even with this negative performance because people don't want to lock in losses. they might be more likely to take money off the table in a good year. this happened to john paulson in 2008. it happened last year after the big up year. it's discouraging. >> who is the winner in this? who will get major inflows

because they had a successful year? >> there's a fund called element capital which made news in the third or fourth quarter for buying a lot of treasuries. a respected fixed income trader who did pretty well. pa passport capital, they have a special opportunities fund. they lost ground the last couple months of the year so they're not in the best of zone right now. they had a solid year. i think it's going to depend on performance obviously but do you know your niche of the market? have you been able to make wise choices despite an unpredictable environment? by the way, i talked to hedgeies yesterday who said we don't have a vibe on 2016. they're going to come in and see what's going on. think about maybe distressed energy and one guy was telling me that yesterday. there is debate about whether we've hit bottom yet. >> you would think it would be hay days for the hedge funds.

you were doing fine if you put your money in an index and left it alone and didn't touch it. didn't happen last year. now people are starting to question that strategy again. you would think that would be great days for hedge funds. >> you're right. someone drew an analogy to 1994. they were way down that year and ended up closely shortly after that. it was weird. so maybe this year we'll revert to the mean. there's no doubt that it's one of these periods that raises a lot of questions about the two and 20 model. a lot of questions about these sort of well known funds that are thought to be great stock or bond pickers and don't show the returns. >> a lot of times they come back big after a down year. if it's great management and good business and down one year, a lot of times you make it up. i guess i hope they do. some of those guys i don't want them to come back. i'm not sure why. >> they may just change their mantel. we may see some family office conversions where people are in

the markets. i don't have a year end number but at last check up 13%. i think that was through november. i should mention that they were up almost 13% through nevaovemb. high volume momentum driven big books. >> if you are good and you had done the opposite of everything you did, you would be up a lot. no one did. so if you really, really, know what you're doing, you ought to be able to prove it every year. that's why -- >> i want to have a conversation with highly concentrated guys. >> that's a good talk to have another time. >> another time. thank you so much. >> all right. coming up, more on the market carnage around the world and jim grant, founder and editor of grant interest rate observer will join us and then tensions on the rise in the middle east. the latest from the region is

just ahead. "squawk box" will be right back.

we have stocks to watch this morning.

tesla handing over 17 million vehicles in the final three months of the year. tesla says its investigating a fire that destroyed a model s in norway. also airbus selling three jumbo jets to japan nippon airlines. >> when we come back, founder of grant's interest rate observer, jim grant, will be here to talk about the fed's next rate move and state of the economy. if you are just waking up, look out below. futures indicated down by over 314 points right now. s&p futures down by close to 40 points. nasdaq down by 97. all of this coming on concerns about growth out of china and beyond. we're also keeping an eye on oil this morning on "squawk box." take a look. energy prices are higher after unrest in middle east between saudi arabia and iran over the weekend. wti up to 37.29 a barrel.

"squawk box" will be right back. oh remotes, you've had it tough.

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>> let's get straight to it. it's all been sparked by china. we had weak pmi data out this morning but much more focus on the yuan value. there is much talked about circuit breakers kicking in to try to step the volatility and acce accentua tr accentuated it. it has weighed on markets across the board. japan down 3%. if we look at the currencies an added reason why the nikkei is suffering because the yen has acted in the region as a safe haven. that's up 1.16% against the u.s. dollar and that negative correlation between yen and nikkei coming into play.

interesting with the u.s. oil not being a safe haven amidst volatility because euro is gaining by half a percent and move in european equities is stark when you consider it a separate region. here we go. the sea of red behind me on the map. big markets here for us. france down 2.7. u.k. down 2.5. germany off 4%. up 10% last year but ftse is down. german exporters are being hit hard. to bring things back to that yuan move. for every exporting company in china, the benefits from a weaker yuan, another one is

getting hit because it's born in foreign currencies in recent years and market investors are reminded of that today. back to you. >> wilfred, thank you. earlier we had another grant on, mark grant, we're calling all of the grants today, jim. lou grant. i don't know if we'll get him. hugh grant, who knows where he is or what he's doing. let's not get into that. mark grant said it wasn't so much what the fed did last month or the month before, it's what they did last month or the month before too early or bad timing for raising rates. i tried to get him to say you thought everything that they did for five years in terms of going from 800 billion to 5 trillion, that was all fine but they're just getting out too soon. he didn't really say that. you probably don't think that that's the real problem here. it's what they had already done and not what they did recently,

right? >> i think what they are going to do is not what people expect. i think that the shared wisdom is 2016 will bring us to two, three, or four one quarter of 1% rate hikes leaving us at 1% or so in the federal funds rate. seems the fed is more likely not to go to zero than to go to one half of with 1% from here. i think the fed felt that through combination of institutional self-regard and as it read data it felt it had to move. it had been saying it would. it had to and it did. doesn't mean it was right to do so. in the feds own scheme of things. i think the fed will regret the move in december. i think you'll begin hearing speeches from various fed persons saying in the circumstances we might well consider this data are not as friendly as it might be and we

think blah, blah, blah. i think they missed it. >> you're not saying -- they painted themselves into the corner they're in right now. >> let us consider what these ultralow rates do. they pull consumption forward. car sales a prime example. lease terms never easier or cheaper to borrow or easier to arrange a subprime loan. a lot of car sales in 2015, that's great, right? it's great until financial terms tighten and those cars can't be sold. the ultralow rates pull consumption forward and they push into the background business failure or recognition of business failure because everything is so easy to finance. i think what we have in 2016 is a conjunction of weakened consumption for cars and the manifestation of business failure that was masked or shrouded by ultralow rates. the fed has given us a hall of

mirrors. it's changed perceptions. it's changed the timing of cyclical events. and i think that ultimately markets are out. pricing mechanism is revealed to be the better allocator of resources. i think the fed will be forced through necessity to backtrack on this rate hike. >> you say the fed can make things look better but not make things better. they try to engineer a stronger economy by having the wealth effect make people feel better about the overall economy and start spending more. did that not happen? all they did was get the wealth effect and assets were marked up but underlying economy didn't improve? >> the very rich did very well. it's obvious that the overall enterprise, the great american enterprise has been not been helped by this. it's been hindered.

worldwide we're under this regime of pretend. it's like central banks have great new bathroom scale. you step on it and you're ten pounds lighter. that's true. ten pounds lighter than you thought. this magic scale will be yours until such time as it runs out of faith, of belief. and then you're back to where you were. the central bank sponsored bathroom scale is over. >> did it ease some of the horrific layoffs we might have seen? some of the -- i just try to think if we were looking at a situation like the great depression where you were dealing with massive unemployment and where people can't get back on their feet after situations like that. if it eases things for a few years but we're left with slower growth as a result, is it worth it? >> it's a very big question. i think what quantitative easing zero percent rates have postponed the adjustment in real things that needs to happen

eventually to make an economy work more rationally. so if things are mispriced -- for example, we built too many houses. if those houses were mispriced and too much credit was apportioned to the purchase of those houses, those are facts and those facts can be temperized and modulated. we finally have to face the fact that we have too many houses and too much debt. >> there's no argument to be made they have smoothed the line. >> they have smoothed it. at the cost of your 20 something still in your darn basement after six years of so-called prosperity. >> you think that they would be out of the basement had they raised rates prior? >> yes, i think so. i think that as hard as it might have been, it seems to me a market driven recovery with price discovery rather than price administration. >> a couple of years ago when i didn't realize that we were so global, i thought the fed was

definitely orchestrating much lower rates. but then when the rest of the world had lower rates and they all had central bankers, mare they be doing it at the same time. maybe the pricing wasn't that different that the fed orchestrated from what it would have been normally. >> that might have well been. we had very low rates in years past. we had them at the turn of the 20th century. very low rates. we had them in the 1930s and 1940s and '50s. never before the intersection of very low rates and central banks sponsoring rising asset prices. so the russell index is acting great. we ought to be in risky assets in the interest of national prosperity. that was the message. never before have we seen that. never before have we had government sponsored bull market superimposed on a structure of low rates. we get pleasant things. great car sales. we get zero defaults in the junk

bond market and astonishing credit performance in the banking system. that's what we have had. will we continue to have that? i say no. >> i just wonder whether at this point what the scale of the day of reckoning is the german tenure is at 60 basis points. i wonder what the scale of the day of reckoning is. do you have a feel for that? >> i don't know. no one knows. perhaps someone does. i don't. we've had days of reckoning from dawn of capitalism. we always get through it. america is indestructible. we have proven that through our attempts to try to destroy it. we'll be fine. not before things are repriced it seems to me. >> all right. thank you. >> always great to have you on. >> when we return, iran accusing

saudi arabia of stoking tensions in the middle east after saudi arabia executed a top shiite cleric coming at a time when the u.s. treasury department could hit iranian defense companies with fresh sanctions. a look at the latest diplomatic moves in the region and what it means for relations with the u.s. next.

welcome back to "squawk box." futures right now indicated down 302 points. not a good way to start on a new year as the first day so goes the first week as goes the first week so goes for the first month so for the first month so goes the year. hopefully that's not true. we're down 300 for starters. among morning's movers. check out facebook, amazon, netflix and google's alphabet. so all under pressure. netflix is downgraded to neutral. analysts say that risk reward is balanced right now at current levels. but optimistic about the video streaming services long-term prospects.

>> let's talk about what's happened over the weekend and it how it may impact markets today. tensions boiling over. saudi arabia cutting diplomatic ties with iran after the embassy in tehran was stormed by protesters. bahrain announcing its making a similar move. joining us to discuss the latest action in the region and what it means for the u.s. is frances townsend. the former homeland security and counterterrorism adviser to george w. bush. good morning. >> good morning. >> what do you make of this and where does it go and as "wall street journal" asked this morning, who lost the saudis? >> look, the saudis, this goes back -- our relationship with the saudis began to deteriorate after we abandoned mubarak. we were with him until we were not. then we supports supported morse weren't. the saudis absolutely had assurances before the president walked into the rose garden and gave syria red line speech that we were going into syria. they were with us using their air force. they learned when he walked out

and said he was punting to congress for the first time that we weren't doing that. so we have not got a lot of credibility based on just our current history with the saudis. so they feel like they're out there on their own. >> before we even get to what we as the u.s. are supposed to do about this or what role we are supposed to play, what happens next? >> you mentioned bahrain cutting diplomatic ties. we also know this morning the united arab emirates, another saudi neighbor reduced their diplomatic ties and i think you'll see other arab partners that the saudis will put pressure on them to reduce diplomatic ties. i think you're not going to see de-escalation right away. they are looking for support right now. >> there are two sides to this story. saudis say they were taking people who were terrorists and executing them. the iranians say that this was a situation where they executed a cleric because he was outspoken.

what's the truth? >> it's incredible that iranians have the moxy to make this argument. so last year the saudis executed about 159 people. that's 10% of what iranians executed themselves for people who were outspoken against the iranian regime. this is a little bit of the pot calling the kettle black. these are legal systems based on islamic law. not anything we would recognize as due process. it is their legal system. am i surprised that iranians are trying to take advantage of the execution of this cleric to sort of inflame the situation? no. but it's not going to get -- i don't think to andrew's question, we should expect to see it get better quickly. >> john kerry criticized saudi arabia for the judicial process there. we've not heard him speak out about what iran has done. >> judicial process in saudi arabia has been the same for hundreds of years as it has been

in iran. we tend to be very sort of episodic when we care about this. will it have an effect? we have conflicts in syria, yemen, will it have an effect on conflicts there? these have become proxy wars between kingdom of saudi arabia and iran. >> what kind of conversations are happening behind the scenes? kerry hasn't come out publicly. what calls do you think he's made over the weekend? >> i don't doubt that just as saudis call all of their arab partners looking for people to support them, john kerry is calling all of our allies in gulf region not to get involved and not to put themselves in the middle of the conflict. >> what are you smiling for? >> i don't recognize this foreign policy as being what the united states has pursued for 50 years. i don't know. it's a bizarre world where iran

is suddenly our ally in saudi arabia or israel or not. >> it's a very dangerous world. when the united states sort of retreats from a position of real influence and we saw russians step up and offer to mediate the dispute between saudis and iranians, it's incredible and a very dangerous world. >> nice to disengage because you keep all of the guys here and nobody gets maimed and there's no casualties unless two or three years later the next guy has to send over two or three times as many guys to get maimed and killed from total lack of understanding of a situation. >> that's exactly right. >> is that exactly right? >> it is exactly right. this is not only going to deescalate any time soon. this is a very unstable region. the saudis have been unhappy about the iran nuclear deal. we should have imposed the sanctions that the president was going to impose on iranians because of the missiles. >> we were going to for about an hour. they don't care how stupid --

they can't surprise anyone at this point. nothing causes any -- it's just them. it's just john kerry. >> it's the inconsistency that sends the region into this sort of sense that nobody knows who their friends are and who they can rely on. for 50 years, we have been the saudis biggest military ally. >> you mentioned russia. what does this do? >> russia, putin himself is made clear over the weekend he announced that united states is a major threat to russia. he's asserted himself as a sphere of influence in syria by deploying his air assets and some ground forces and so putin sees an opportunity, right? as we pull back, there's a power vacuum and he's decided he's going to fill it. >> i don't know why that caught so many people by surprise. we've called russia a huge threat to our security for quite a while. >> that's right. i think it takes on an added significance because he's got this sort of expansionist

ambition that he's clearly shown, which is new outside of his own region. >> what a way to start the year. thank you for coming in and helping us to sort this out. good to see you. when we come back, a list of stocks on the move this morning. plus a check on how europe is handling this global market sell-off. check out futures once again. you see dow futures are down by almost 300 points. they've been down by more than 300 points many times this morning. s&p futures off by 37. nasdaq down by 91. all on concerns about growth out of china. "squawk box" will be right back. oh remotes, you've had it tough.

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the x1 voice remote is here. upgrades and downgrades to tell you about. food stocks the theme of the day. mcdonald's unfavorable sales. wendy's getting a buy rating. the firm increasing same store sales forecast and chipotle's e. coli outbreak prompting another downgrade saying earnings well below street estimates for the next two years. >> stocks to watch this morning. markets we're watching. one is in advanced talks to be bought for up to $32 billion in cash and stock. baxalta previously rejected an all stock offer.

and final approval from the french government for nokia. and pandora was downgraded to neutral at sun trust saying increasing investment will weigh on the online music results. it is the subject of a negative article in barron's. it says the online radio service is facing increased competition from companies like apple, spotify and amazon. the final week of the nfl season are in the books and playoff matchups are set but still a few things to be undecided. on sunday, denver broncos got help from peyton manning. most people saw this coming off the bench in the second half. suddenly a running game and a passing game. that ended up being bad news for the san diego chargers. the first game since november 15th and wasn't even sure

whether he would be the guy and now no doubt he'll be starting the playoffs. manning leading broncos on two scoring drives. denver hangs onto win and secure home field advantage throughout the playoffs. in lambeau field in green bay where packers battled it out with division rivals, minnesota vikings on sunday night. came down to the final play. packers quarterback aaron rodgers heaving a hail mary to the end zone. vikings win and take nfc north. here's the schedule for next week. on saturday, cincinnati will host the pittsburgh steelers. it's in cincinnati. the steelers only made it because jets couldn't beat buffalo and yet cincinnati is an underdog. at home. at the should be. i said -- >> will you watch? >> i'm going to watch. the only way bengals get to second round is if they had a

bye in the first round. if i keep saying this -- >> i think you rooting against -- >> reverse psychology. it's helped them. and houston texans take on the kansas city chiefs. did you know that the chiefs were 1-5 and ended up 11-5. that's manly. >> it is. >> that is manly. on sunday vikings host seattle seahawks. they are peaking. if you watched any of that yesterday. i thought the cardinals were great and seahawks just trampled them and packers head to washington to take on the redskins, which even in "the washington post" they still call them the redskins. >> that's their name. >> i can't believe they do. >> what do you think they're supposed to do? >> i guess they have to call them the redskins. they could call them the skins. this is, like, your paper.

>> what do you think obama calls him inside the white house? >> i don't know. >> coming up, global market sell-off under way for the first trading day of the new year. we'll speak to two heavyweights. dick kovacevich joins us and then later, morgan stanley investor will join us. "squawk box" will be right back after a quick break.

a shock wave through global markets. tensions boiling over in the middle east. two superpowers at odds and oil prices get caught up in the storm. switching gears. tesla hits the finish line for 2015 but did elon musk deliver

on his goals? the third hour of "squawk box" begins right now. welcome back to "squawk box" here on cnbc first in business worldwide. we're less than 90 minutes away from the opening bell on wall street. the new year is starting off with a global market alert. there it is right there. as you can see, the one to really look at is that 6.86% drop in shanghai, which i don't think -- did it reopen after circuit breakers went on? >> i don't think so. >> that shows you the problem. you don't know where it's going tomorrow and everybody gets nervous globally. that happened overnight with the chinese stock market plunging. and as i said, dropping so much

that trading was halted down nearly 7% and then weak manufacturing data showing that china's factory activity contracted for a fifth straight month. the sell-off in asia moved to europe and then from there and spread over into our markets here where we've been down more than 300 on the dow for most of the morning. right now in europe we'll see if it's down over 4%. everything down between 2% and 3%. and did you know it was a leap year? i think it is. which means we have an extra day of this theory. >> rising tensions in the middle east. saudi arabia cutting diplomatic ties with iran after the embassy in tehran was stormed by

protesters. bahrain following suit cutting ties with iran. that attack came after 42 people were executed on terrorist charges. saudi arabia has given iran diplomats 48 hours to leave the kingdom. the price of crude up as much as a dollar but has such retreated. now at 37.48. >> currency market this morning is showing that the dollar has been at least to this point down across the board. euro at 109 right now. the dollar is down against the pound as well. also take a look at what's been happening in the bond market. right now the ten-year note is yielding 2.27%. a little lower than the yields we've been seeing last year on concerns about global growth. gold prices have been higher this morning. right now up by just over $10 to $1,070 an ounce. for more, let's check in with

scott nations. we know there are concerns about growth in china. a fifth month of declines in what we assume their output is. how much of this is something that we should take to heart? is this indicative of an overall global slowdown? >> i don't think the size of this decline this morning is -- faculty data was poor but not disturbing. what we saw was that brand new poorly understood circuit breakers kicked in. the 5% threshold could have kicked in 20 times last summer alone and brand new circuit breakers poorly understood. at 5% they stopped for 15 minutes and everyone put in sell order. joe talked about how these don't always work like we would expect. i think that's what's going on over in china. brand new circuit breakers they don't understand. poor but not horrible factory data and they lowered the band for the yuan and all three of those are real trouble right now.

>> understood that these circuit breakers are new and they don't always have the impact that you would hope or the market regulators would hope in these situations. last summer was the beginning of a very concerning trend with what we're seeing in terms of chinese growth. how much of this do you think is real. how much of this do you think bleeds over into other markets as well, scott? >> well, i think much of it is real. we're worried about china growth in general and factory growth in particular for quite a while. it's never good when you expect that economy to continue to grow at 7%. how is it going to affect everybody else? it will be a blip. we came back from that august 24th sell-off really, really well. s&p unchanged. much higher than where we were the end of august. the developing economies around the world are the ones that will have a tough time because it's obvious that their market structures aren't up to volumes

that we'll see when they have this kind of volatility. i think that's the real problem. i think all in all, we're in pretty good shape. for the s&p the important number is 2005 because that was the low on december 18th. we're going to be below all of the important moving averages by just a little bit. we'll open now above that 2005 level in the s&p and for us i think that's the important level. >> all right, scott. thank you. >> thanks, becky. >> first trading day of the 2016 so far. the new year starting on a down note. joining us with predictions for the year is richard kovacevich. dick, we have china. looks like we're not really sure how slow it might really be over there. we have the fed, no longer accommodative but in raising mode and profits in the united states, profit margins to some extent at risk. full valuations in the stock market and another 8,000 or 9,000 regulations headed our way

courtesy of president obama. is there anything -- any reason to be optimistic? >> no. i don't think there is. as you know from our previous discussions, i felt that the stock market was fully valued a year and a half ago. it was basically flat this past year. and i think as long as we have relatively slow economic growth in the 2% to 2.5%, i don't see any reason for the market to increase much if at all. somewhere between 0% and 5%. we continue to have extraordinary intervention throughout the world by central banks and governments. there's no price discovery. as long as we have monetary and fiscal policy continuing the way it's been in the past, why would you expect the future to be any different? >> you like this quote.

bubbles in the markets. like bonds, commercial real estate and certain parts of the stock market will get resolved one way or another in 2016. correct me if i'm wrong, usually they don't go higher -- what does resolve mean? they get popped, don't they? they lose some air. >> exactly. that's what happened in the high yield market and that's the problem with the fed intervention is it creates bubbles and it does not allow the markets to act in a way that changes the -- when bubbles occur, the market reacts before it gets too high. we need the fed to not reinvest anymore in its portfolio. let the market work. seven years after the recession. and then i think people will have a sustainable -- will make

decisions on a sustainable basis instead of trying to determine where the fed is going. >> one of the points you make is that i don't -- i thought price stability is what the fed was interested in. obviously they have to worry about unemployment, too. price stability if inflation is low, it's kind of weird to have your mandate to actually try to raise inflation and instead of if it's stable at 1% inflation, that would seem to be -- you achieved your goal. that's something that you point out. it's a warped view to try -- especially anyone that lived through the '70s. >> i just don't understand it, joe. wages are only going up about 2.2%, half of what happens usually after when you're in a recovery. if the fed's goal of 2% inflation had occurred, there would be no personal income increases in america. that would reduce our gdp.

the reason why our country is doing pretty well relative to other countries is because of low inflation even though we have low wages. we have a positive personal income growth of about 2% with zero inflation and that's been good for us. and i cannot understand already there's no investment income from middle income and low income people because there's zero interest rate on savings. why is that good for economic growth? i don't understand the central bank. >> central bank can only do so much and then you have to get -- i mean, the entrepreneurial engine that is the united states needs to be unincumbered. that's not going to happen. it hasn't happened. that's the only cure for any of this. >> absolutely right. we also have to get to normalization of the federal funds rate, too. if you think that the rate for

fed funds is probably between 3% and 4%, we need to get the fed funds rate around 2% over the next year and a half so that if the economy is too hot, they don't have that far to go to get to the 3% to 4%. too slow, they have room to reduce interest rates. normizatialization is what shou happening. they're too slow with that. they made one step. they have to get out of reinvesting their $4 trillion portfolio and gradually increase interest rates and hopefully about four times this year and eventually get to 2% by sometime in the middle of next year. >> can we talk politics? i know you're a jeb bush supporter. curious how you see his fate working in all of this and how you think the election is going to end up. >> well, obviously i'm disappointed in the polls relative to jeb. i think he's come out with some great policies. this does not seem to be a

policy political race at the moment. it's all about -- i don't even know how to describe it with the actions that are being taken by the leaders of the polls at the moment. whether you get into the voting booth and change your votes or at least your proposed votes to a more sane policy, i don't know. we'll see pretty soon with iowa and particularly in new hampshire. it's not looking too good for jeb bush at the moment. >> let's say that hillary clinton -- let's say republicans screw it up somehow. hard to imagine. let's say they do screw it up somehow and she gets in. do you expect her to be more business friendly than the obama administration has been over the past seven years? do you think bill clinton would

have any -- would he have any say in any of the way policy is conducted? would it definitely be a third obama term or is it possible it could be a third bill clinton term? >> well, it's really strange, you know, if you remember the speech that bill clinton made with the second term of obama at the convention, they talked about the great economic years in the bill clinton administration. what hillary clinton is talking about today or through this election is the opposite of what happened in the bill clinton administration. i don't know how they reconcile the great economic performance in the last -- democratic administration of bill clinton with her policies today. so maybe she will flip back to a more central policy.

at the moment it sort of feels like and it seems to me it is a third term of obama, which would be an absolute economic disaster. there's already an economic disaster but even worse if we go through this for another four years and possibly eight years. >> you are on the board. we haven't had an opportunity to talk to you about this. curious your reaction both to "the wall street journal" two months ago and whether you believe the company misrepresented how it was doing some of its testing. >> i don't think it misrepresented at all. it's very unfortunate what's happening. i think it's very unfair. i believe in elizabeth and what she's doing. it's a new technology. there's obviously changes that are going on all of the time. i have all of the confidence in the world with elizabeth and what she's doing and i think time will tell that it truly is

revolutionizing the diagnostic business. >> one, they haven't been public with information and whether they should be and the other has to do with the board which is to say that while the board has lots of impressive people, including yourself on it, most of them are not scientists. >> well, that's true. but i think most boards don't have scientists on them. scientists are internal and outside consultants. on a board you want people of a broader nature. although we have three people that are in the medical profession for a long time. one was head of central disease control so we have people on the board but we have other advisers and medical board that advises elizabeth so i think that we do have the talent in house and in

advisory members to look at the technology and what's happening and advising the company on what they should be doing. >> all right. great. dick kovacevich, thank you for responding to those. people don't like to talk about boards. we appreciate your frankness on that as well. and we'll see. we'll talk to you again as this year plays out. not a good way to start. families, right, love, things like that are still good, right, dick? >> everything is good. thanks, joe. >> everything is good. >> happy new year to you. thank you for coming on and talking about those things. when we come back, warnings about china's growth and huge consequences for opec as saudi arabia and iran sever ties. we have that coming up this morning. and tesla shares managed to finish 2015 higher but not after a few twists and turns. find out how the orders stacked up to end of the year. did elon musk hit his goals?

we'll tell when you "squawk box" returns in just a moment.

welcome back. it's time for this morning's executive edge. some of the stories and themes

dominating the morning headlines in the markets. we'll start with china's growth prospects giving the rest of the world plenty to worry about this morning. earlier in the show mark grant painted a gloomy picture for the markets and for china's growth. >> the real growth looking at the real numbers and not what government puts out is 2%. oil because of technology and what's taking place. >> 2%? >> 2%. >> so much for 7% growth. there are other people who joined us this morning who say that citigroup is looking more at 5% to 5.5% for what real growth there. mark grant is the lowest i heard at 2%. if that's the case, there's a lot of room for catchup between where the markets are and where the actual correction space should be. >> china is dicey. what happens with the yuan, foreign reserves going down and bad enough if the economy is bad

because it affects economies and oil and growth and emerging markets and everything else. then you think about what if that stock market with these individuals that didn't know what they were doing really getting into it. last time we worried about it. >> you talk about what happened over the summer. >> what happened over the summer. down 6% today. 7%. and then halted on the close. so you can have combination of the economy and just financial markets wherever they are they can -- that nervousness can spread. it spread to europe today. we're getting the end of it here. down 300. january 3rd down 300. how do you do first day -- >> maybe the market bottomed. >> i give you optimistic take. we hit the bottom for the year. >> maybe. and then on top of that we have the fed in tightening mode. during the last hour of "squawk box," jim grant founder and editor of grant's interest rate

observer gave us his take on the fed's interest rate path. >> it's like central banks have a great new bathroom scale. you step on it and you're ten pounds lighter. that's true. ten pounds lighter than you thought. this magic scale will be you until such time as it runs out of faith and belief. and then you're back to where you were. i think the central bank sponsored bathroom scale is over. >> i love that. new year. everyone is jumping on the scale. going to the gym. >> no carbs. started yesterday. it started after i had bagels with cream cheese and by 5:00, i can't do this. i was in a bad mood. >> your magic scale doesn't work? >> that drove home what he is saying. it would be great to get on something and go, wow, you know. everything is better. and i do that with age.

wikipedia. for a while it had my wrong birth date. i was going to go with it. that's my story and i'm sticking to it. i would have been a year or two younger. >> what happened? >> someone fixed it. >> age is a mentality. >> weight is not. and that was a good way to drive it home. the fed can say, look, everything is better. it can make things look better but you're still fat. >> one final segment to tell you about. unusual blizzard in texas and new mexico last week could cause a dairy shortage and spike in milk prices. the storm killed more than 30,000 cows. most that survived expected to produce less milk in addition closed roads kept trucks from reaching farms and thousands of gallons of milk were wasted. >> can you get in there quick and -- >> get in there quick? they're dead. can you get in there quick and

get some of the -- >> i love the way you think. it didn't even occur to me. >> you thought losing milk. >> i was crying over spilled milk. exactly. >> when we come back, tesla making news in the new year. we'll find out how many cars elon musk pumped out at the end of 2015 and if the company hit its goals. as we head to a break right now, check out the action in the dollar this morning. dollar has been down across the board. euro at 1.0886. more on the sell-off in just a moment. so you're a small business expert from at&t? yeah, give me a problem and i've got the solution. well, we have 30 years of customer records. our cloud can keep them safe and accessible anywhere. my drivers don't have time to fill out forms. tablets. keep it all digital. we're looking to double our deliveries. our fleet apps will find the fastest route.

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tesla is out with delivery figures for 2015. phil lebeau joins us now. >> we're here for the consumer electronics show keeping us busy over the next couple days. over the last couple days, we analyzed the latest delivery numbers from tesla for the last quarter and all of 2015 and tesla did hit revised guidance for all of 2015. take a look at their annual deliveries over the last four years. that estimate of 70,000 vehicles delivered for 2016, that's

according to analysts. we've not seen the official report from tesla just yet. most sales were model s sedans as they were getting ready. just 208 were the model x, the electric suv which theyying at third quarter. when you lock at the quarterly cadence of deliveries, you see the new 17,400 for the fourth quarter. we'll see if they keep it at that pace for all of 2016. we've not received guidance from tesla yet. as you look at shares of tesla, one story getting attention was a fire at a supercharger station in norway. no injuries reported in that fire. local authorities still investigating. was it the recharging station or the model s that sparked the fire. as they look into that, tesla

told us they're undergoing a full investigation and will share findings as soon as possible. interesting to see whether shares of tesla move on that news or on the delivery news. tesla did hit revised guidance of delivering between 50,000 and 52,000 vehicles for all of 2015. guys, back to you. >> a couple times we saw tesla switching gears. that made me think it's reverse. there's no gearbox in a tesla. does it go straight up? instant torque. >> those that have it love it. >> it never shifts. neutral, which is not a gear, reverse and drive. that's it. >> it's reverse and drive. that's it. >> that's weird. it's weird. i know people love it. thanks. i'm sorry wilfred asked you

about your gambling. what you do in vegas is your own business. it stays in vegas. >> 6-8, joe. 6-8 at the crap's table. 6-8. that's the numbers to play. >> very good. thanks. >> i'm not talking about gambling. we're in vegas. >> coming up, worries about china. conflict between opec members and a jobs report on the way. the jobs report is friday. are you kidding me? we'll pick apart the economy as if anyone needs to do that with what's happening and then we have some upgrades and downgrades from netflix to some of the biggest names in fast food as we head to break look at u.s. equity futures down 300. right now 33 on the s&p and almost 90 on the nasdaq.

okay. welcome back to "squawk box." just looking that someone wrote in for usda regulations require an animal to be alive for it to be slaughtered for meat. >> that makes sense. >> the cows, 30,000 dead cows -- >> what about leather? i'm not thinking like that. a pair of shoes. >> you would hope -- >> handbag. >> you would hope that something can be salvaged from what is a real tragedy to lose 30,000 head of -- i'm not sure if milk cows different in terms of whether you slaughter them for meat. i don't like thinking about it. stocks on the move today.

mexican grill downgraded at oppenheim oppenheimer. how long at out perform at oppenheimer and what is it that they see happening at the company now to cause them to downgrade it? and apparently thinks the restaurant's chains earnings will be below street estimates this year and next and then netflix was cut to neutral from outperform at baird. it's optimistic about netflix long-term but the stock where it is right now is priced appropriately. and lululemon shares upgraded to buy from hold at jeffries. the fundamentals are strong and sustainable. >> let's check on markets this morning once again and you'll see steep red arrows across the board. look at futures in the u.s. dow futures down by 278 points. that's off the worst levels of the day. down by over 300 points at many moments this morning.

s&p futures down by 33. nasdaq off by 87. all of this started overnight in asia. things got off to a rough start. if you looked at what was happening at the shanghai composite, it was down by close to 7%. the circuit breakers kicked in halting trading. that session ended early. the shenzhen off by 8%. all of that bled over into the hang seng index down by 2.7%. nikkei off by 3% and this is how early trading is going in european markets. in germany, dax down by better than 4% for much of the session. right now down by 3.9%. ftse is off and in spain down just over 2%. >> breaking ride sharing news. general motors investing $500 million in ride sharing services lyft that is valued at $5.5 billion. a japanese retailer and saudi

arabia's kingdom holdings put new funds into lyft making it interesting to have that in there. we questioned whether there could be two or three or how many? we saw side car effectively go bankrupt and out of business. now you have uber and gm helps lyft that they are trying to look at autonomous vehicles in the future. it helps lyft. >> what is gm interested for? everyone has their own car, these lyft people? >> to the extent they can offer different deals. i don't know what's happening right now. >> it could be huge for lyft and you have uber right now investing a huge amount of money where they are doing signs on autonomous vehicles. big week for economic reports leading up to friday's jobs data.

steve liesman kicking off the new year at the american economic association's annual meeting in san francisco. good morning to you, steve. >> hey, andrew. happy new year to you. thousands of economists gathered here. academic economists who are giving the united states a passing grade but basically in a class of underachievers. the big challenges here are seen coming from overseas especially china. a lot of discussion yesterday about china. we'll get to that in a second. this is what fed officials who were here said yesterday. stan fisher, vice chairman for federal reserve sees rates remaining lower for longer than ultimately when rates settle down they'll remain lower than otherwise would have been because of the drags around the global economy and in the u.s. loretta mesays she's comfortabl with the forecast that says rate hikes are likely and john williams did a research paper, san francisco fed president,

saying the real rate is probably likely at zero. a lot of talk about china. yesterday it was pointed out there is so much uncertainty about china that only 35 economists are even estimating chinese growth down by 75 because of concerns about the data coming from china and beijing. we have a bit of data coming. friday jobs report. again, looking for strong 200,000 growth in the month of december. that would be down just a little bit from 217. and it's far above what we're hearing here the economy should produce to keep the economic rate steady in the 100,000 to 125,000 range. wages at 0.2%. we're going to get into all of these issues of china later on this morning on "squawk on the street." we'll have a live interview with john williams. >> okay. thank you for that.

we appreciate it. look forward to that interview as well. >> steve, stick around. we're going to talk more about the prospects for growth in the fed's path in 2016. vincent reinhart is visiting scholar and chief u.s. economist for morgan stanley. vince, great to see you this morning. thank you for being here on a day -- >> thanks for having me. happy new year. >> happy new year unless you're somebody who was bull walking back into this market. a rough ride this morning. we can think numbers out of china for that. we're looking at the fifth month in a row that we've seen weaker factory output there. i wonder how much that concerns you. >> look, we're the best house on a bad block in the united states. we're going to have to wrap our head around the idea that 2% growth is a pretty good outcome and probably we'll see some downshifting in jobs. 200,000 net job creation will be

optimistic outcome. we just have to get used to that. and the fed will be tightening monetary policy for a while to come. >> why do you think that things are lumbering along when it comes to the economy here? >> part of it is when you come out of a severe financial crisis that the economy is encumbered. financial institutions have adjustments to do. part of it is enormous amount of regulation. the cost of intermediatation is much higher than it ever was. there is a lot of mitigation risk associated with being a bank and if costs are higher, they get passed through to consumers. the most important message is the part about us being the best house on a bad block. the global economy is challenged. europe is still going through its own financial crisis. japan hasn't figured out how to grow. and the chinese economy looks less miraculous today than it did in the previous decade. >> as a result, we did see china

devalue the yuan once again and central banks around the globe taking the opposite tact of what the federal reserve here is trying. that has people wondering if the federal reserve can continue to tighten this year or if at some point they have to put the brakes on or reverse themselves. what do you think? >> i think there are two messages about that. the most important is global economy is sitting on a table with four legs. only one is lengthening federal reserve. bank of japan. ecb and people's bank of china are all in position to have to have easier policy. that has big implications for the dollar. in terms of markets, markets don't think the fed can tighten nearly as much as most fed officials and that's probably because everybody is pricing in some dollar appreciation, which tightens financial conditions here. ie, the fed isn't going to get to a 3.5, 4% nominal funds rate

because the tightening and financial conditions that come from a stronger dollar and weaker equity prices will do it for the fed. remember this. even if president williams is right and the real federal funds rate is 0%, the fed could tighten a quarter point every other meeting for the next year and a half and still have policy that is accommodative because they are starting from such a low level. >> you don't see them all of a sudden thinking maybe we want to pause. maybe the data doesn't look as strong as we had. you described it as a table being held up by just one leg. that's not a very steady or stable table and there's a real question if the entire table collapses. >> sure. there are real risks and federal reserve officials in every statement eight times this year are going to say all decisions are data dependent and made meeting by meeting. if financial conditions were to have tightened going into a

meeting or a run of bad data, they would be willing to pause. because they are starting from such a low level, ie starting from a zero nominal funds rate before the december policy action, there's a certain momentum where they can tighten and janet yellen can establish she's willing to tighten and convince hawkish colleagues on the same page, and still keep policy accommodative. so that forward momentum will keep them going for a little bit at least. >> steve, what do you think? >> i was just going to add, i think that's right. i think they're going to be meeting to meeting. what i want to throw at vince is this idea. you all remember i think the fed feels burned by how it acted in august that it overreacted to the news from china and it was criticized for that for taking international affairs too much into account. i'm interested in vince's thoughts on this.

the bar is higher for china to keep the fed off track from hiking rates. i think it's going to look at it and kind of put it aside and say, you know what? >> looks like we just lost steve there. he brings up a good point. >> i can finish his thought which is basically right. the fed had a missed opportunity in august and particularly with the september meeting when market participants were expectiexpect ing them to tighten and they seemed to be worried about the global economy. the thing to remember is a federal reserve policy action is a package of information. sure, they raise the federal funds rate but they also convey the information they thought the economy was strong enough to withstand a tightening in monetary policy and they're going to worry about the signal that is sent where they just stop the policy tightening process. >> vince, great to see you. happy new year. coming up, the portfolio for

2016. four stock picks with a couple tech names for the new year and as we head to a break, check out futures right now. they are down in a big way across the board with dow looking it would open down 285 points. s&p 500 would open down around 35 points and nasdaq off 91 points. "squawk" returns in just a moment. t a real thing? 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.

welcome back. it's a brand new year and each

member will make four stock picks in the portfolio and manage a cash position. here to give us his picks for 2016, is the top tech investor back with us for a second year. good morning to you, paul. >> good morning, sir. >> so let's go through them. you have four now. you have some cash to hold onto as well. >> the first thing is i don't think it's really prudent to try to manage cash so i'm going to -- unless it's a remarkable condition, i would like to probably just stay fully invested. i'll go with four stocks, 30% each in three and 10% in speculative position for the final. >> let's go through the list here. >> sure. on the speculative side of the house, only 10% position that i'm allocating, is america's number one public thrift. it's a company called bank of the internet. ticker symbol bofi.

only branch is in san diego. with that model, very, very high returns on equity and returns on assets. returns on equity of close to 20%, which is extraordinary for a bank and return on assets of close to 2%. now, the rub on this stock is last fall an internal auditor who i think was a fairly low level employee left the firm disgruntled and fired a whistle-blower lawsuit. i hope that when the company reports their earnings on january 28th, some of that mystery will be cleared up because right now there's a very large short position. it's a fairly small market cap. 1.3 billion. there is that issue and first and foremost i'm a tech investor. i do like this small exposure in financials. >> let's go to facebook. that's on your list. >> facebook is a stock that did very well for me in the competition last year.

i continue to like it. the stock is here at 50-day moving average support. and as we all know, the world has gone from the desktop to the laptop to the tablet to the smartphone and with smartphone. with digital advertising, particularly on the mobile platform, video and messaging, it's a game between google and facebook. facebook is gaining the most share. >> final stock, we have a couple hire. micron is on the list. i want to talk about blackrock. why do you like blackrock? >> i like blackrock, i want to be more exposed going into '16 in financials. in my opinion i've been at this since the 1980s, it's the best managed financial services company that the world is going away from. these managers don't typically outperform and they charge fees for that. i like what they're doing on the passive side. complimenting the business by an active management product, particularly strong on the fixed income side. i think larry fink does a nice

job. the stock rebounded off its bottom and there's plenty of upside. >> paul, thank you. you can go to cnbc.com for the latest on all the latest portfolio fors for additional analysis from our managers. next on "squawk box," starting off with a big downdraft, jim cramer gets his chance to sound off for the first time in the new year. the markets according to jim next. 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.

let's get down to the new york stock exchange. jim cramer joins us. is it possible a year could be like a day where some days you start out strong, you don't make a firm bottom, it's better to see it start off, build a base, go up later. maybe a year like that. maybe it's good to get this out of the way and we build on this. >> it's funny you mention that. i thought let's get it out of our system. i didn't like that the futures opened up last night initially. geez, let's just start out, get all the people who want to get out of the market out. i listened to my friend, i knows there nothing good happening, but once we factor in nothing good is happening, we can make

some money. >> maybe that's the way to go. in the past, that makes sense. you can't look at current fundamentals and decide what to do. you never know why a market is going up half the time. if you were to purely look at china and terrorism and the fed's going higher, and we're the best at 2%, profit margins are peaking, those are a lot of things. >> on january 24th, we will annualize the euro which will be up versus the dollar. we'll have to do that constant currency, nonconstant currency. gasoline is not going up. you can take all the china you want, i'll take kroger, macy's, is it going to 28? i don't think so. how about liululemon?

i see things i like, but august 24th to 28th some fed guys were sanguine. >> who had it rougher, you with the eagles or the jets fans? >> we talked about this this morning. it was clear the jet fans. you don't lose the must win. we lost every must win. every must win we lost. we had a change at the top m i'm pro our franchise. maybe the change had to occur. i wish chip kelly the best of luck. >> who is peaking right now? >> i don't want to watch seattle. kirk has done a great job. is there one team you don't want to play? the eagles won, we have to play seattle the first game? i would rather go to germany, spain, anywhere but not play seattle. >> i know one team you do want to play. i'm not going to mention names.

they know who they are. they know who they are. >> i hear you. >> lucky enough to draw them, you're moving on to the next round. thanks, jim. >> when we come back, plenty of things to keep investors on edge today. cnbc.com is asking viewers what what you most worried? we have the findings when "squawk box" comes back. here at td ameritrade, they work hard. wow, that was random. random? no it's all about understanding patterns like the mail guy at 3:12 every day or

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polled investors are worried about the u.s. economy. make sure you join us tomorrow. "squawk on the street" begins right now. good monday morning. welcome to 2016 and to "squawk on the street." i'm carl quintanilla with jim cramer and david faber at the new york stock exchange. first trading day of the new year. this one is not coming in quietly. futures down sharply after a selloff in china. shanghai down 7% on a weak pmi. trading was halted, hong kong and japan each down 3% as well. that's led to some weakness in europe. the worst day for the dax since august. crude oil and gold among the few things working today. the new year for the markets beginning with a worldwide selloff. global growth concerns