extended a ban of major shareholders and apple under pressure. the stock trading near lows not seen since october of 2014. it possibly could not mean triple digits. we'll see but there is a report on iphone production and that could drive it lower. it's wednesday, january 6th and squawk box begins right now. >> live from new york where business never sleeps, this is squawk box. >> good morning and welcome to squawk box on cnbc. breaking overnight north korea successfully conducted it's first hydrogen bomb test. this announcement came after an earthquake was reported near a

nuclear test site. if confirmed it's the first since 2013. they say the estimated yield from the explosion was much sma smaller. it will take a week to figure this out but it's rattling tensions in the area. >> it would be a huge leap forward in their developments and even an unsuccessful h-bomb test would be tens of kilatons. and it's not like north korea isn't prone to hyperbole. it was the supremely perfect test. maybe something is lost in the

translation. >> i bet they were pretty direct about what they were trying to do. >> direct but that doesn't mean it's hydrogen. >> let's get to london where we have more on them and joined by bill neely in london this morning. bill. >> i would echo that. analysts confirmed there was a test and it was a 5.1 tremor. what we don't know is exactly what was tested. >> and you're right. when they say it was perfect. it was a success you have to take it with a pinch of salt. they did say it was a smaller hydrogen bomb that was tested but it will take weeks and months to workout exactly what happened under ground. so 5.1 is certainly dangerous enough no matter whether it's atomic or hydrogen.

the real issue is that a hydrogen bomb is at least four times more powerful than the current strongest atomic weapon so north korea having that kind of technology in it's hands is an escalation, a dramatic escalation in it's military capability. a hydrogen bomb can be just a few feet long. it is lighter than any atomic weapon and it can be fitted into a war head so it would be capable of being fired by the kind of technology that north korea has at the moment. so those are the kinds of things that they're looking at with great anxiety. carolyn kennedy is standing beside her japanese counter part foreign minister this morning saying that this is a north korean provocation and north korean aggression and that the united states stands with it's allies in the region. south korea saying the same

thing. this provocation. we did know that kim jong un claimed to have a hydrogen bomb and he signed the order just three days ago for this test. he is still consolidating his power. he's flexing his nuclear muscle without any question. i was there in october when it was a huge military parade and there were missiles in the back that analysts said we're certainly capable of carrying a conventional nuclear war head. so this would be a step up in nuclear capability and a real concern not just to the west but to the west's alabalies and chi in that region. >> do we have a real estimate of how much plutonium they have? >> i read estimates of up to 8 to 10 weapons and even up to 12 weapons but when you do a test like that is that one down? does that mean you have gone

from 1 to 11? >> that's unclear. that was on atomic technology and the truth is we simply don't know. i don't even think that any other un or intelligence agency that they're quite clear what technology was used in this test and what technology or plutonium north carolina has in it's stock pile. >> thank you for that report this morning. >> we should take a look at the futures. this is creating concern not only in the region but markets around the world. the dow futures are a reflection of that. down by 267 points below fair value after a mixed day for the markets yesterday where the dow

was up slightly. s&p futures are down by 33 points and that would put the s&p well below the 2000 level we have been watching. nasdaq futures at this point down by about 78. for more reaction across the region, eunice yoon joins us from hong kong and the key reaction has to be what china says about all of this because they have been the biggest supporters from north korea and i wonder what authorities there have to say this morning. >> well, china and the rest of the international community condemned this test. and they will be calling and summoning some of the senior north korean officials to lodge an official complaint. what was also interesting is when you guys were mentioning hyperbole north korean state tv says this test is a special achievement in it's 5,000 years of history. they also says this test was an act of self-defense against the

united states and the international community condemned this test and did, in fact, unnerve the markets out here. we saw markets already royaled because of some of the volatility in china this week and also the action going on in the middle east. it fell to a four month low. there still is no independent confirmation, though of the north korean claims. the pentagon has said that they're investigating the matter as bill neely was reporting as well. u.s. officials said this is probably going to take weeks to reach any conclusion. a south korean intelligence official said that they doubt that the north koreans have the technology to produce a small hydrogen bomb device as they claim. the south koreans though as well as the japanese authorities have dete

detect detected tremors in north korea which they believe based on their analysis was man made. those tremors were felt all the way in china. the united nations security council is going to be undergoing and meeting for an emergency meeting later today. >> eunice, thank you. again, eunice yoon. >> let's check on the markets. we'll look at all of them if we can this morning. futures are hideous here. 263 before we have a single trade yet at 9:30. it's all premarket but that can indicate what we'll see. that will bring us back to the lows that we saw on monday and right around the lows i think. 260 plus 260. we saw 470 on monday. this will be a toetal of 520 or 530. they will be tested theoretically on the s&p and breaks those. sometimes it continues to go lower. a lot of times it doesn't continue to go lower. that's how technical analysis

works. like 50% of the time. >> it works 50.1% of the time and there's europe right now which has also been weak. shanghai they were able to manage a 2.2% gain that that probably wasn't, you know, free trade and people doing what they wanted. as cramer said yesterday, if you got it, flaunt it. if you can do it, go ahead and do it. that almost makes it a real number if you're china. doesn't matter that it's not trading on its own. and then for this new contract that's a low and i say new because it's like two weeks old. it rolled a couple of weeks ago.

it had been down in the low 35s. do we get to 34? may have even gotten to 34 and change. and you would think something would get disrupted in terms of oil. everything is taken negatively by crude at this point. >> not surprising that it's back below 2.2% and yesterday, deutsche bank, .5%. atlanta fed is at .7. another major firm came out and said underweight equities at this point. >> it's concerns about what's

happening. >> it's 107 or so on the euro. and here we are. that's a new intermediate short-term low in the euro as well and finally, gold should be about 1500 by now. but it's not. it's up $8. i don't know is that what you get for a hydrogen bomb. joining us is colonel jack jacobs. retired army colonel and medal of honor recipient. does it matter whether it was hydrogen or atomic? it could still do a lot of damage. that's for sure. >> yeah. especially in the close confines of the korean peninsula. it has everybody rattled. particularly our allies, south korea and japan have been going nuts lately over the expansionism of china as it wanders around the south china sea and other places building islands and convincing japan that all is not well with

america's pivot to asia. obama says we're going to move out to the pacific. we'll have an influence there and we haven't had very much influence at all. so it's got everybody rattled. at least partially because nobody can control north korea. it does whatever it wants. everybody has ignored it for a long time and it will keep doing whatever it wants to do. >> and china is expressing similar sentiments to the rest of the world but i don't know, is it real? -- it's more skin than anything else. they can't be shocked. >> but they can't be thrilled with it either. >> i don't know. >> they don't want u.s. troops at their border. >> do you think they're really concerned? or is it just two peas in a pod? >> no, they really are concerned. they painted themselves into a

box as well. they ignored north korea for a long time too and you remember some years ago we were trying to get china to sign on to sanctions. and they just wouldn't do it. they wouldn't put sanctions on north korea. indeed, north korea is a client state and china ships them lots of aid. by the way, something like 40% of north korea's gdp -- some people estimate it as higher. 40% of it goes to defense. now they have a bigger army -- three times as big an army as the united states does. it really is a fortress nation. but china has always been reluctant to do anything with north korea because it really fears that sanctions squeezing north korea even further will wind up driving a million or 2 million north korean refugees across the river into china and

then china has to deal with them. so they have been reluctant to be on anybody's side in trying to corral north korea and when you fail to do that, this is what you get. and it's probably going to get worse. china doesn't know what to do now. >> you're going to probably hear from gop candidates that this is another example of, you know, hillary clinton failed. failure of secretary of state and the obama administration. >> marco rubio is everywhere on twitter. >> but is there anything that anyone can do in negotiating ordealing with north korea? they're going to use that. but is there any merit to that argument? that it could have been handled better given a different administration or different diplomacy? >> well, it certainly could have been handled better but not in the last couple of decades. i think we've had a lack of

interest in north korea's arc for three or four or five administrations. democrat and republican. everybody has just ignored it and this is what happens when you ignore it. so the criticism about inaction is accurate but everybody has been guilty of inaction. republicans and democrats alike. and unfortunately it's going to continue. >> but at least for those cynical observers when we again and again hear even the president or our candidate on the left saying that the biggest security risk, john kerry, to the world is global warming and then this happens -- still you have to look at that and say that was an absurd ludicrous comment to make and focuses us on the possibility of what can happen near term.

not in the year 2100. >> yeah. if you're a politician you talk about what is going to happen decades or 100 years from now and they're concerned about what's going to happen in the market today or what's going to happen to their jobs before the end of this calendar year, you sound like an idiot. it's the difference between strategy and tactics. and the large majority of politicians don't know anything at all about either. indeed, you could argue that politicians generally focus on tactics alone because the only thing that they can understand. >> it will get your attention. if this had happened during the paris talks, this will get your attention. north korea and they could easily get to the peninsula. but do they have the capability to hit the west coast yet? >> no, they don't but just because they can't doesn't mean they can't wreak havoc in a wide variety of other ways. we have lots of allies there. we trade with them.

you disrupt that we're in trouble. >> thank you colonel jacobs. >> you betcha. >> we'll talk to dan senor and bill richardson. >> okay. among the other stories that we're watching this morning, an early read on jobs friday coming up hater this morning. the december adp report at 8:15 eastern time and forecasts calling for 200,000. the private sector payrollsel also on the agenda this morning. november trade deficit. december ism service index and november factory orders. now the minutes from last month's historic fed meeting get released at 2:00 p.m. eastern time and as for earnings look to results from monsanto before the opening bell. also when we return, market fear factors. u.s. equity futures selling off this morning. and then later apple stock hitting lows not seen since october 2014. >> under 100.

oh my god. >> joe was trying to remind me of that yesterday. ed lee is here. we'll talk about the lagging demand for iphones and what it all means. >> it couldn't happen. those new glasses? they are. do i look smarter? yeah, a little. you're making money now, are you investing? well, i've been doing some research. let me introduce you to our broker.

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welcome back. valeant pharmaceuticals will report an interim chief -- >> well, interim until it's not interim, right? >> they called it interim but they said it's unclear whether it's interim or permanent. >> i don't know. i don't know what the health story is. >> he's still in the hospital. >> exactly. what kind of hospital? >> exactly. >> who knows. that's personal. >> i don't know, bill ackman, he sold some -- >> right before the end of the year. >> after he had doubled down. >> close to 10% and then backtracked about 1.5%. >> that's getting close to another level there too when you look at those lows that it hit. >> generally wanted to be --

>> okay. got it. >> i just think that we're -- >> yum brands chairman and ceo david novak. former ceo going to retire in may. the company is in the process of spinning off it's china business. verizon reportedly launching an auction to sell it's data center assets. the company is looking to get more than $2.5 million for that. >> let's get back to the broader markets right now. as we showed you the u.s. equity future versus been selling off sharply this morning. dow futures down by 250 points below fair value and the s&p futures are off by 30. they're also looking at the nasdaq down by 71 points. this comes from claims overnight that north korea tested the hydrogen bomb. joining us is ubs's senior portfolio manager and senior vice president. also he is the director of global macro for fidelity investments. what do you think? it's been a pretty rough entry

to the year. we had all of the concerns about the middle east. got through that and then worried about china and now we're already looking at the issues with south korea. what does it all mean to you? >> well, it has been an interesting week for sure but i don't think other than this news out of north korea, nothing has really changed from the dynamics that were in play in 2015. we had the sort of liquidity air pocket at the end of last year after the fed moved and we went into the holidays and the market rallied on very little volume and giving it back but we're still well within the ranges of what we saw over the last six months and in a way nothing has really changed. we're still in this very delicate balance where china and the u.s. are on opposite sides of the policy spectrum of monetary policy. the chinese currency is overvalued and it wants to come down as capital leaves china and china has to defend that by intervening and drawing down it's foreign exchange reserves

and that is a form of tiegghteng and the fed is tightening and so generally it's not a good tail wind for the stock market and this is why the market is struggling a little bit. >> how about you? are you worried about the concerns that we're facing this morning with south korea and north korea with what they just did with the potential bomb? or are you more worried about the currency battles he was just describing? >> well, you can't ignore them. the one thing i disagree with is there is something that has changed and that was expectations and the expectations that have changed are the expectations for the fed because i think u. s. growth is really set to disappoint this year and that suggests to me that the fed is not going to raise anymore. i think one and done for the fed and what does that mean? i think we see a slow economy. i think we see very low interest rates and it would be unlikely to go into a recession in that environment because we industrial a positively sloped yield curve. we still have low energy prices.

so what does that mean? it means we probably aren't in a bear market but the markets are going to be pretty flattish. very volatile. the geopolitical issues are going to be in the headlines. currency wars in the headlines although i think central bakers may be a little less active than last year and if that's the case we're just in a grinded out market. certain areas do well but the overall averages are rather flattish. >> you both kind of just ignored the whole question of what north korea did or didn't do overnight. is that because it's too hard to put that into a model and figure out what to make of all of this or you really aren't that concerned about it? >> it's not the first time this has happened with north korea. so it's too early to say what this means. but i mean, you overlay that with what's going on in iran and saudi arabia and it certainly doesn't suggest that you're in a risk on mode. it may suggest that you're in a risk off mode so that's what we're seeing in the equity

markets now. we probably retest the august lows and after that, hopefully we'll see some calming down. i don't know that we will. but if we do, then i think you'll see some opportunities selectively in the equity markets. >> if the s&p were to open where these futures indicate right now you're looking at it back below, well below 200. is that a buying opportunity to you or are you still nervous about everything else at play? >> the way i see 2016 unfolding is i think there's going to be at some point a tremendous opportunity to get into sort of these forgotten areas. energy stocks commodities, emerging markets, even the high yield market. but we're sort of in that catch the falling knife mode where just like in 2015 on the surface things are relatively flat but there's a lot underneath and i think that will continue at least for a little while until this policy divergence between china and the u.s. starts to close. but until that happens, there's going to be more pressure,

upward pressure on the dollar. downward pressure on commodities. currency pressures between the u. s. and the rest of the world. between china and i think until that is resolved it's going to be more like 2015 or the second half of 2015 which was a really good market for active investors. there was a very large spread for instance between growth and value of about a thousand basis points. so i think it's going to remain selective in a sort of late cycle feeling market where there's not a lot of forward progress until the issues are resolved. >> thank you both for joining us today. >> thanks for having us. >> when we come back, apple reportedly hitting the breaks on iphone production and it is taking a toll on the stock. apple now trading below $100. ed lee will join us next to talk about the flagging demand. as we head to a break, take a look at yesterday's s&p 500 winners and losers. cannot be controlled.

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welcome back. the top story of the day. this morning north korea claimed it successfully tested a hydrogen bomb. but it came after an earthquake was reported near a nuclear test site. it would be the fourth nuclear test but the first test of a hydrogen bomb. they're expecting doubt about the type of bomb. they saw the the estimated yield from the explosion is much smaller tan what even a failed h-bomb detonation would produce.

it's measured in kilatons and even a failed test supposedly would at least register into the tens. do you know fision? >> i do not. >> tough for me. >> another top story. this is after they added like 8 new elements to the periodic table yesterday. >> four. >> eight, four. >> something like that. >> i told you how i used to study chemistry. >> periodically. >> and nerds are sending in other jokes. there's a fine line between a numerator and a denominator but only a fraction of you will understand that. >> it's a little early for that. >> i was waiting for you to get here to test some nerd humor. i was. >> i pick up on nerd humor every

time. global markets are under pressure this morning. there it is. it's 270 and 260. but that will more than test the monday lows. down 470 at one point on monday. indicated to hope today and it's weird when things pile up and you're in a weak market and then these things seem to happen. what's happening in europe now we'll take a look at the price of oil which is also not helping. the market has trouble making head way, that's another intermediate term low there threatening to break under 35 for west texas and look at that, almost identical prices for brent in west texas now. >> and adding to a little bit of the weight on the markets is the big one. apple down now around 2.5%. just this morning. one point fall beg low $100 a share. much of that due to continued worries about slowing iphone

shipments. and he had the call. >> a little while ago. >> he sends me e-mails that just -- there's nothing in the e-mail except it will say 570 which is the market cap. the apple meter going. >> nothing else in the e-mail. no subject line, just 570. >> you know exactly what he's talking about. >> the first time i didn't. >> but these analyst, they got flowcharts, they got models and all of this and every single one of them, ten of them and i can't remember all of them. i remember some of them but at 780 billion it was a slam dunk. they had price targets at 175. that would be 1.2 trillion. for it to double would be at $1.6 trillion. >> they wanted to be the first trillion dollar company. your skepticism is well founded. >> it's just common sense. >> but there was a time you didn't have an iphone and then

you had an iphone and now you can't live without one. >> when i argue with andrew was about you remember exxon. and it went from $12 a share a quarter to $3 a share a quarter earnings. but they're selling phones. what if you don't sell 70 billion in phones. >> i was trying to make the argument then that the multiple was so low. >> but you can't guarentee. >> people are almost valuing some terminal value. people are going to stop buying phones. >> my point is the e on exxon at 12. use that and then use a 3. so at am looks like it was trading at 10 times earnings put what if it's four times what it can do as an annuity business. >> hey, ed.

>> hey. >> only a fraction of the people are going to understand this. >> only a fraction. >> which fraction is what we have to find out. >> fine line. >> i agree with what everyone is saying here. as we pointed out before as well, right now apple and for awhile has really been a one product company. it's been an iphone company. it has a lot of other nice gadgets and nice important hardware but it's really an iphone company. the phone gets good. you don't need to upgrade every year or even every other year at some point. sales are going to slow down. it's that simple. >> and there's nothing anybody can make. now that we decided it's a piece of glass. >> if you're a little computer, it's getting better and better. >> incrementally better. there's no step change coming. >> there's a lot of nice new features. i haven't upgraded to the 6s version because my 6 is fine, right? it's doing everything i need to do. i'm not missing out. i don't have envy over the new model. >> but if you look at the new

models, are there less upgrades than there used to be? is that real? >> in terms of actual features? >> no, no i'm saying -- >> when they up dprgradupgrade. >> if you look at people that bought the 5 how many people bought the 5s and then the 6 do you say to yourself that even on a percentage basis -- >> that not enough people were doing that? there were two curves at once. people getting smartphones in the first place whether it's an iphone or android type phone for the first time and year over year that market went up and then there was the upgrade market that lag bed hihind and a was a huge growth market for them but what we're seeing out of china is less interest in upgrading. a lot of them that want smartphones or apple iphones already have one and they're not upgrading as quickly. >> and this has happened and

nobody has even built a better mouse trap yet. they're still the leading -- everybody still wants iphones. >> they're still the gold standard, yes. >> and it's started chipping away at their market share and i don't know if anyone ever does. maybe they'll stay ahead on the technology. but a lot of companies have not in the past. >> but the expectation game has been much tougher for apple. they had a higher bar. their fundamentals are nice but they want it to be that much better every single time and that's why they take a hit on the stock all the time. >> and the only other thing that i knew back then was that the people that if my eyebrow twitched talking about apple i'd get hundreds of tweets talking about apple. >> you're wrong. >> the aolians. when people own 10 or 12 shares start writing in and get outraged then you no. >> it's a religion for them. i get it.

>> you have icahn and everybody else. woman standing was left to buy the stock when it was in everybody's portfolio. >> i want to have a longer conversation about the other income load they're bringing in. i pay for the icloud every month. there's obviously the music. all of these other features that -- and monthly subscription business. that's supposed to be a great business. >> and it's still a hobby for them almost in a weird way. >> they could turn the dial on that. >> they need the car. >> they need the car. >> thank you. >> 58 billion in revenue per quarter. >> are you going to send me e-mails every day with the new market cap. >> if it goes under a half billion. then i'll send it to you. i may just send you a 99 today. anyway, coming up, chrysler, toyota, nissan east posted double digit sales gains in the u.s. up next sales numbers from

america's biggest auto retailer. surprising and some what troubling stuff over here with mike jackson after this.

strong december auto sales capping a record year for the auto industry driven by low interest rates, cheap gas and easy credit. 17.47 million vehicles in 2015 and many analysts expect sales to hit another record this year. here now as the dealership takes down. mike jackson, chairman and ceo of auto nation. and i don't know why you decided to put all of these things together. but it helps us because it gives us like one big company to talk about and judge the whole

industry. to thank you for doing that. it worked out for you too, i think. >> joe, it did. absolutely. good morning. yes it's been 15 years for the industry to set a new all time selling record of 17,000,500 uni -- 17 million unit across the great country but let's talk about december which i consider a true bell weather month every year as an indication of what is going to happen and it looks like at plus 9% as a cherry on top of this beautiful sunday of 17,000,500 but actually it's more like a prune because how tow get to a plus 9%? the industry calendar moved three days in a january weekend into 2015 so that's 9% more days and we have 9% more sales. so if you correct for the calendar, that means sales are

basically flat and that's confirmed by selling rate or adjusted at 17,000,003. so i said okay sales were flat and i'm looking at significantly higher inventories. higher incentives on the manufacturer and bigger from us. we have to discount an additional 250, 300 a car compared to a year ago. so looking forward i think the industry will still be over 17 million but the challenge turns to more a quality story than a volume story. and if you go back to 2000, the last time we had records if you look at the last five years, sales were good. averaging probably 17 million units a year. however the quality of the earnings deteriorated dramatically as the industry

really couldn't manage flat sales and a push. so i think that's the challenge for the industry. i think we're entering a new chapter. you'll hear a lot of happy talk from everybody else in the industry. i'm saying, i think we're in a new chapter here. there will still be good months and still be over 17 million this year in 2016. but it's a challenge for the industry and a test that it has failed in the past. >> well, you know what, it's with $35 oil too. so that's even more. mike, for just you, how much of that shave off margins was what you just described? >> oh that's about a 10% reduction in our variable margin per vehicle. that's a significant number. and it will certainly have an impact on our earnings. we already made the decision to

manage differently. we're going to reduce our costs. reduce our inventories and we have to find the right line ourselves between quality, volume, and trading off growth for volume. so we have a challenge, we're taking it on right away. we've been here before. >> we have like a minute left so. once again, the manufacturers, would you say they did not learn their lesson last time by building too much and then, you know, going in at 0% or all the same stuff, all the mistakes, are they repeating that? and how can you prevent from -- you also went down, is that because of what the manufacturers gave you. >> absolutely. >> it's what the manufacturers gave you then. you didn't decide to do this on your own. >> i think there was reasonable optimism that the fourth quarter and december would be a strong

year close. so i can't challenge anybody for the plans they put in place. however i can say hey, everybody, we had this plan and it didn't work. let's look at the results. this plus 9% is disleading. look at the discounts and let's take stock and there's still plenty of volume out there for next year. it will be a goodyear but i think we in the industry are going to have to manage differently. that's my message. >> thank you for always joining us and being so straight with your talk. >> i wish we had more time, mike. this is important to talk about. not getting anywhere near 2% on gdp. >> it's a lot about the economy. >> need more time. got to have someone good. that's all i'm going to say. >> here's what we do have coming up. the dow transports down nearly 18% but which trend in companies

were the biggest drag and what does it say about the broader economy? we'll talk about it next.

transport analyst, and we scratched leads over this because we hear good signs every time we get economic numbers that are out, and yet you look

at the transports, and that's usually an indication that something's gone awry in the economy. what do you see? well, you know, i step back when people want to talk about dow transport theory is that somehow the stocks are not the stock themselves, but the underlying goods flow, what they move that tells us what happens in the economy. that's the heart beat. >> right. >> really, for a year now, the rail in particular signalled we're in the midst of industrial recession, and recently, that data shows that industrial recession in the united states is getting worse, not better. >> we just finished talking to mike jackson on what's happening with auto sales, better than 17 million. what's not being shipped that was being shipped a year ago? >> well, auto sales are the two positives. housing, building materials, and auto have been the two positive

areas in rail. that said, coal, for obvious reasons, natural gas almost free, down dramatically, metals, ore down, nobody's exporting begin the strength of the dollar down dramatically, and oil's down because no one is fracking new wells, but if you set that aside, set aside coal, ag, and petroleum, the core industrial part of america is seeing 8% lower car volume. >> with we are looking at an industrial recession like you are talking about, is this something the broader economy can escape, or is this telling us the rest of the economy is sitting on a precipice and may be dragged down too? >> well, becky, that's what i'm beginning to worry about in an increased fashion. thavs the first industrial led recovery the united states experienced really since 1961,

and had throughout the 2009 through present time frame a no growth, slow growth at best consumer economy. look i looking at truck tonnage, a great proxy for what's happening in the consumer economy, we've seen truck tonnage negative 3 out out of the last six months, and look at truckload volume, more indicative of what's going on with retail sales, it's negative 5 out of the last seven months, and it's now down 2 preponderate 1%, as i said, my stomach acid is growing we may be slipping into a mild recession at this point if you look at the truck tonnage data. >> what do you do as a result? when you look at the stocks, do you continue to downgrade them even though they are down 18% last year as a group. >> well, there's the tough part. not to pat myself on the back too hard, but we downgrades rail to a sell last year. i tell it's pride and

embarrassment. proud of the call, right thing to do, tough -- i love the companies, a lot of good companies, but bad, bad macro. on the other hand, we stayed too positive on trucks too long. we've downgraded those, as you say, one at a time as data comes in that says our enthusiasm was no longer warranted. i think we, like most people, expected that consumer to take that consumer income that is more disposable income they got from lowering the cost of heating and cooling the house, lower cost of the commute, and spend it. they did not spend it other than on health care and paying down debt and increasing their savings rate. >> right. >> as a result, we're looking for things now that either are so washed out you're buying for what the trucks and trailers are worth, buying it for what the manufactured equipment is worth, or you got a great story like a fedex. >> don, thank you very much. really appreciate it. call us if you see anything else you wished you paid attention

to. >> we'll do. thank you, becky. when we return, geopolitics in focus this morning. joining us next, dan, the foreign policy initiative, and bill richardson. back in a moment. oh remotes, you've had it tough.

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country announced it's successfully tested what claims to be a hydrogen bomb. global markets sold off on the news. latest on this developing story and market reaction straight ahead. fed's rate con numb drum, and china intervenes again. other market moving events that could keep the ride going on wall street. richard bernstein has the latest call. volkswagen going electric.

the auto maker announcing at the consumer electronics show. getting you up to speed on the company's future. the second hour of "squawk box" beginning right now. ♪ live from the beating heart of business, new york city, this is "squawk box." welcome back to "squawk box" here on cnbc, first in business word wide. we are watching futures closely this morning after the news overnight that north korea tested an h-bomb. doubts whether it was true, but there was a bomb set off underground that led to tremors felt up to a 5.1 magnitude earthquake. the dow futures are down below fair value, and s&p off by 28, and nasdaq down by 71. by the way, that s&p move puts us below 2,000 again, lowest

levels seen on the s&p since october. look at the ten-year note. you'll see the yield moved back below 2.2%, this could be seen as a flight to safety in some situations. very tricky what's happening. you see the wti down again, another 92 cents to 35.05 despite concerns in the middle east rising. north korea said it successfully conducted a hydrogen bomb test, its first. we'll talk about that and likelihood. it was nuclear, i can say that. the announcement came after a quake near the test site. if confirmed, it's the first hydrogen successfully tested and first test since 2013 violating u.n. sanctions. the white house national security council has not confirmed test claims yet, but in a statement, the spokesman

called on north korea to abide by international commitments. joining us now, bill richardson, the former governor of new mexico and former u.s. ambassador to the u.n. we posed the question last time, mr. ambassador, mr. governor, i don't know, ambassador governor, whether, you know, whether there's a flaw in the current policy, whether you blame it on the obama administration or hillary clinton or john kerry or it's just north korea, no policy or diplomacy to change the result over the past five to ten years. >> well, we have to reengage with north korea. they are very difficult. they are unpredictable. they have a new young leader who we don't know what he wanted toto do, what objectives are, but this is a tender situation.

we don't want another tinderbox in the world. i don't think it was a hydrogen bomb. at the same time, this is the fourth nuclear test they've done since 2006, and it basically says to the world, hey, we're around. you can't just deal with iran in the middle east, and it also says to the world, we're going to develop a nuclear arsenal regardless of what you do and what you say to us, and it's not going to be a bargaining chip. this is a very serious situation and some real high level diplomacy, mainly the u.s., china, and now russia, another friend of north korea need to engage more than we have. >> and, dan, at the very least, it's something else to add to the notion foreign costs are spinning out of control. at n remind you of an - does american embassy attacked in

iran? bringing back bad memories. >> what we see in the gulf, saudi arabia, uae, bahrain, kuwait, follow the lead of saudi arabia, feel the same sense of anxiety israel feels in the region, which is the sense that america is just disengaging and withdrawing from the region, and at worst, tilting towards iran, siding with iran, and everybody acts out with strategic interests in mind. what's worrisome in north korea seen overnight, there was an agreement reached with north korea by a weak u.s. president in multiparty negotiations, at the time there was questions about how forcible the agreement was, and here we are today, as governor richardson said, multiple violations of the agreements, nuclear bomb testing, and we have to ask ourselves, how -- where with regoing to be ten years from now with this iran deal? looking back and saying, how on earth did we let ourselves get

in the situation with these multiparty negotiations that ultimately produced an agreement that was unenforceable? >> governor, we got this. we got isis. we got what dan talked about. at least, would you say that when we have another administration, say a year or two from now, and looking back at the hoopla for that deal with climate change, that's the most pressing national security issue. is it possible that we look back and say, that was, like, some alison wonderland, down in the hole notion that we were actually focusing on. we're the leading members of your party were claiming the biggest crisis facing us is global warming. don't you think we'll look back thinking what were these guys thinking? >> well, i do think this climate change agreement made a lot of sense whether it's the number one national security threat,

that is in dispute, but, you know, at the same time, i am concerned right now about this saudi-iran situation because it jeopardizes potential progress on syria, on yemen, the fight against isis, and here we have to have a balancing act, and we have to move forward with pressuring the saudis, our friends, into stopping some of the sectarian violence, pressuring iran, that would be europe, mainly that has leverage with iran to stop their executions, to stop support of terrorism, to stop ballistic tests they are conducting, shooting rockets near american naval ships, so, you know, i think, cries for serious mediation, and i know you're going to dispute this or some will, maybe dan will, but this is where the united nations with special envoys with ban ki moon

plays a roll in the saudi-iran dispute to at least engage in some peace talks on syria, move forward, reduce the tension, find ways that we put pressure on our allies in the region to reduce the sectarian violence because it's spinning out of control in that region. >> governor, you know, there have been talks in vienna to deescalate tensions in syria, and while that's going on, saudi arabia is conducting its own unilateral foreign policy in the region, more of a leader than the united states is, all the gulf countries, and israel is working with saudi arabia, not the united states in this regard. peace talks are going on, and people ignore it. the peace talks are meaningless if there's a sense the u.s. does not have a real presence leadership role in the region. in 2013 when the assad crossed

the red line and there were no repercussions after the u.s. president put the good name of united states of america behind action if they crossed the red line, and there was no consequences, that sent the message to the region that america is checked out, and that's been the consistent trend since 2013 that america's checked out. why on earth should anybody start working on, quote, peace process to deescalate tensions when they feel the u.s. is not on the game. >> but we're in the game in global warming. the saudi minister speaking exclusively on iran to cnbc said this about the situation. >> what i find very puzzling is this individual is a saudi citizen, committed a crime in saudi arabia, sentenced in the courts, and the courts was carried out by saudi authorities. what does iran have to do with this? they execute hundreds of people

every year. nobody has anything to say about it. this is their system. the united states inject ourselves into our domestic affairs is what is in line for what iran has done for years. >> governor, think about things like that, and single minded obsession with getting that iran deal done, and separating terrorist activities of iran just to make sure you get this almost on a calendar as a legacy issue, does -- is it clear to you that that was one of the motivations involved here? >> well, i do think that the nuclear agreement, the nuclear accords themselves make sense. i was concerned about iran's roles of iran's state sponsor of terrorism, not releasing our hostages, the marine, the "washington post" reporter, the cleric, but, look, i think what we have to do is recognize now the saudi foreign minister, very bright, very strong individual, our ally, but they shouldn't

have executed that cleric, and he is right. iran had 700 executions, so we're not talking about human rights champions on either side. what we have to do is through diplomacy bring these two together, not just the united states. it's the european union, germany, it's france. i mean, iran wants their sanctions lifted. for that to happen, i think there's enormous leverage the europeans and the u.s. has. this is the time to use it. you know, with the saudis, the problem is that they used to be really important to us, but now they are not as important because we have shale oil, because supplies around the world, there's an oil glut, what you have is warmer weather making oil and gas cheaper around the world. opec is not as strong, but we need saudi arabia to build a coalition of arab countries to form ground troops against isis.

that should be our main agenda. >> governor, to the -- >> this is a tinderbox, but we've got to use our best diplomacy. >> first of all, the execution of the leader in iran was not the only execution. they executed 46 people, vast majority affiliated with al qaeda. it was not necessarily a sectarian strike. in the last couple of weeks, we've learned a couple things. one. the obama administration intends to proceed with unfreezing all those accounts that infuse $100 billion plus u.s. dollars in the iranian economy as part of the nuclear agreement, basically pulling back, despite opposition from congress, including opposition from leading democrats in congress, pulling back on the sanctions that were to be imposed for iran's violation of ballistic missile program, and so sanctions are pulled back, money is being actually directly injected into the iran economy.

there's a statement that effectively sides with iran. you look at all of these things, and think, what do they think in riyadh? is this the time to count on the united states or take matters into our own hands? i agree with you we have to deus ka late, but how on earth do we deescalate when the perception in riyadh and other gulf countries is we side with iran or just completely checked out? these actions in terms of the implementation of the iran deal send that exact message. >> well, i do understand that there is discussion about not lifting the sanctions as rapidly or imposing new ones because of the ballistic tests, but exercise the option and consider that carefully. you know, at the same time, iran, itself, is being isolated. the united arab emirates, other

countries in the region, sudan are imposing sanctions, deescalating relationships within. so iran is suffering. the saudis put iran in a box, and what we need to do, what's the fundamental objective? the fundamental objective should be to find ways to build a coalition led by the saudis for arab ground troops for several countries in the region, jordan, egypt, uae, saudi arabia, turkey, et cetera, to make sure they are defeated. >> tehran does not believe iran is in a box, but integrated in the international community. there are asian and european companies all flying to teheran today to figure out ways to invest in iran as a result of the nuclear deal. there's a real path now to nuclear viability in iran. iran is alive and well, acting in places like yemen and lebanon and iraq supporting hezbollah. the idea that iran is a

tinderbox does not square with reality. >> okay. gentlemen, thank you. governor richardson, ambassador richardson, thank you, and, dan senor, thank you. >> thank you. when we come back, last year's top performing hedge funds bet big on biotech. the numbers and outcomes next. right now, heading to break, here's a look at last year's top performing names in the space. "squawk box" will be right back.

welcome back, apple under pressure following reports they slashed production of the latest iphone models. apple dipped below the 100 mark in premarket trading, not below 100 since august 24th. the stock was as high as 134 back in may. we are watching shares of yahoo! with a letter starboard value, sending the letter to the board this morning saying it's lost confidence in the ability of management and the board to create value and that significant changes are needed suggesting, perhaps, that the management team needs to be ousted, perhaps the entire board reconstituted. there's talk about whether they should sell core as opposed to the spinoff strategy. they are very upset about the

idea there's a spinoff strategy and not welcoming bids. as we talked about in the break, they talked about how the thing is valueless, and then they, at the same time, also suggest there are buyers. there are potential buyers. what kind of value they get for it -- >> i mean, what's -- at what point was there a huge value for the core business? i mean, they say it plummeted, duh -- >> it plummeted, but the real question, and they do address it in their balance in terms of what they say. you either believe there's a huge tax issue, or the core is worthless. >> right. >> the question is, and they say it's probably a combination of both, and there is an argument to say if yahoo! core was spun out, there's value to it. it really can't be worth zero, and there are potential buyers out there who have sofrt of circled, apparently, those buyers, though, have not been brought in. >> they want to work with management, but they believe a proxy battle could be what it takes too. >> once you announce a spinoff,

it's complicated to actually start engaging in negotiations because it changes tax ramifications of the spinoff if you go to direction. >> tough all around, but biotech has a tougher time in 2016 as far as starts. we have a look back at the year, 2015 in biotech, and one fund that out performed. it was a rocky, and the year for biotech, outperforming s&p, and approvals of the fda, a high last year, 45 drugs approved from the fda from the year before. things were more positive than they seemed. rbc has an interesting graph, actually, comparing biotech performance to the s&p, still an out performance last year, however, not as much in the previous year. you see there, the line chart comparing the ibb, the biotech etf to the s&p 500.

however, the sentiment is just kind of negative at this point, people concerned about drug pricing, feeling exhausted after a whip saw second half of 2015, going into the big jpmorgan health care conference next week, they look for what works this year. one hedge fund did well, a top performer across all spectors, and that was perceptive advisers, a hedge fund with billion and a half under management, up 47% in 2014, not by riding the wave and buying into the sector, in biotech, but picking individual stocks. before the break, you showed top performers in 2015, and biotech included, rein two of the holdings that the fund had, among the other top holdings were amicus, and, basically, the strategy is, a, trying to, obviously, figure out what drugs work and which are not, but completely trying to remove bias from the investing.

they basically said jus because something is up a lot, the run is not over. buy in. additionally, if you lost money, doesn't mean you should buy lower if the situation is basically changed. among their top holdings, some of them still have big news this year to come, and just in the next couple weeks, we'll see a lot of news on the company, one i know joe is interested in because they are working on muscular dystrophy, and they are going to have an fda outside panel review just a week after the jpmorgan conference. could be a huge stock move for the company potentially, and the company advisers in biotech still thinking bullish for biotech this year, does not think price controls come in, but, again, they are stock pickers buying into the sector. >> yeah. going to be interesting in terms of just -- still got high multiples in that, and they always will because it's always the promise of biotech, but in a market, like this, not yet, but

if it gets nasty, it doesn't matter what the promise is a lot of times. you know, you need fundamentals underneath these things. zpr true. their specialty is development stage biotech, so really does the drug work or does it not work? they are good at that. they invest privately, investing in the country, and they won 8% of the company, and everybody's picking which drugs do and don't, and these guys are better at it. >> what's really going on in valeant right now? >> great question. everyone's trying to figure it out. you know the latest we know, sounds like. >> interim ceo or a ceo? >> my impression is they are trying to give clarity on the succession plan, not necessarily to replace mike immediately, but it was not perceived well. they needed six people to replace him. >> you have steroids? >> i do. >> you know what nasinex cost?

400. >> with insurance. ohh ah ah aflac! aaaaf-lac! ta-daa! he's not a very good magician. he paid my claim in just one day. one day?! shh! how does he do it? in just one day, we process, approve and pay. one day pay, only from aflac. my dad gave me you know.ares, he ran that company. i get it. but you know i think you own too much. gotta manage your risk. an honest opinion is how edward jones makes sense of investing.

at ally bank no branches equals great rates. it's a fact. kind of like reunions equal blatant lying. the company is actually doing really well on, on social media. oh that's interesting. i - i started social media. oh! it was my...baby. how many new iphones were released in 2015?

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how many new iphones were released in 215, the answer? two. the 6s and 6s plus. welcome back, and stock futures have been plunging. north korea's announcement they successfully tested a bomb sparking geopolitical concerns. you see the dow. the futures there down 240 points, and s&p down 30, and that would pull the s&p below 2,000 so keep an eye on that this morning as well. nasdaq looks to be down 73 points. mortgage applications plunged 27%. many rushing to get a lope in december before the fed hiked rates. in corporate news, valeant appoints a interim ceo chief. the company said the group of

executives would take over until he returned. volkswagen going electrical. phil lebeau spoke with the chairman of volkswagen way again, joining us now with some of the comments. phil? >> joe, this is part of volkswagen's plan to rehabilitate its immaej and reposition the company's image in the mind of consumers as for one focused on pushing sale through diesel models to push sales through electric vehicles. we'll talk about that and they are concept at this point, talk about that in a bit, but first, here's where things stands in terms of volkswagen's legal woes, and there are many of them. the doj filed a civil suit on behalf of the environmental

protection agency, and there are also several criminal investigati investigation, the state attorney generals looking into what happened with the rigged diesel emissions, and there's no fix approved for fixes about a half million diesel models with emissions rigged. against that backdrop, you have dealers sitting on models they cannot sell. remember, there's a stop sale order in effect. in december, volkswagen sales dropped 9.1% for the year. volkswagen dropped 4.7% of the u.s., and this was a record year for auto sales. last night, they admitted, yes, volkswagen is a damaged brand here in the u.s. >> damaged us here, we can't dispute that. our dealership is fighting hard against it and really doing a fantastic job, and also, our

sales organizations are doing a fantastic job. i think once we sorted the diesel issue, i think we have a wonderful future in the united states. >> he's trying to put on a brave face, and against that backdrop, there's a couple concept cars last night. the more interesting is the bud-e, coming from the heritage of the vw microbus. if this is built, and they think it could be built by 9 or 2020 gets 373 miles fully charged, but, again, guys, these are concept vehicles at this point, not actual vehicles in a showroom any time soon. it was an interesting program last night. trying to reposition themselves as moving forward with electric vehicles. they are behind the eight ball with electric vehicles. they are not a market leader in the arena and hope to start changing their image by

positioning themselves and bringing out more of the types of vehicles. >> you checked under the hood? i mean, you're sure? you take their word for it it's electr electric, though? >> it's a concept car, joe. you're lucky if a concept car drives 500 feet. >> did you check for a gas tank? are you sure it's electric? >> they say it is. there was no gas tank. >> they told us there were no emissions from the diesel cars too, phil. this is your beat. what a story you could break. >> next time, i'll put on the coveralls, and look underneath it. >> i understand why you don't play along. they don't talk to you. if it's me, oh, it's that guy. can't get any interviews. i understand. you play it straight. you get my drift. think anyone will check? >> let's change topics, markets. >> all right. >> i know. >> we'll see.

north korea announced overnight they had a successful h-bomb test, and talking strategy is richard bernstein advisers, more than $3 billion assets under management. >> thank you. >> it's nice to see you. >> thank you. >> what's going on in north korea matter to you in the markets right now? >> short term, of course. right? i mean, what do you do? you know people are quite upset about this. the combination of north korea, of china, of the fed tightening in a profits recession. a lot of things going on here, so, yes, there's normal volatility. i don't think it's abnormal, by normal what's going on, but, sure, pay attention to it. >> 12 months where rewith? >> higher. >> much higher. all the gloom and doom is unfounded? >> i don't know if it's unfounded, but i think the probability of the market ending up for the year more than people expect i think is getting higher here because people -- look, you

guys have every year ahead, every strategist here. did anybody of all the strategists you spoke to, of all of wall street, did they say the market's up 15-20%? nobody did. >> therefore, it will. >> i don't know that it will, but it seems to me it's not an environment of euphoria, and we're not so look to invest. that's the way to think about it. somebody said to me yesterday, there's no urgency to buy equities. i said, but that's the point, nobody senses urgency to buy equities so that's why you should be buying equities. when people have an urge -- >> what do you think is key this year? >> gdp is punk. i mean, look, we're in a post-credit bubble environment. >> the target, that's the point. >> i understand that. >> the question, i think, we should be asking is, what's corporate profits this year? i think there's a reasonable chance -- first of all, it's a profits recession. i don't think investors appreciate -- you hear of the narrowing leadership, these are

symptoms of a profits recession. we're in a profits recession. will we be in a profits recession 12 months from now? no, profits improve, dramatically? no. >> just to help you, if nothing else, it's a reason to be in the stock market, you go to a half point, one point, one and a half points, there's still nothing else, and then throw in that the rest of the world might not -- >> i'll tell you, joe, if the fed continues to raise rates, you know, at any kind of rapid pace going forward here and profits do not improve, i don't think you want to be in equities, but in long term treasuries because the economy's slow. >> kills the economy. >> will kill the economy. >> nothing changed on the lack of alternatives for your money unless you stay in cash? >> think about the past year even. i mean, if somebody said the fed's going to be raising rates, u.s. is in a profits recession, but yet u.s. stocks are going to outperform other markets around

the world -- >> flat. basically. >> right. who would have guessed that? >> we talked about this repeatedly, guests came on saying you can't just buy -- you can't just buy the index. >> my personal view of the statements is it's cute to say that, and i think stock pickers always say it's going to be a stock pickers' market. it's always a stock pickers' market if you're willing to have a high concentration portfolio. what most managers do is they do not have a high concentration portfolio, but no man's land, 150 stocks or something like that, but why does it outperform? if you don't make the big bets, no risk, of course you're not going to outperform, so it shouldn't be earth shaking to say that active management is now performing. if you're going to make big concentrated bets, you're rewarded through time, whether the bets are, you know, microeconomic stock picking or ma crow economic like my firm does, make bets. if you're in the middle of the road, you're never going to be

rewarded. >> looking at energy, would you buy? >> not yet. not yet. the energy sector was in a bull in the united states. i think we still have the remanents of the bubble, the hangover's there. what's frightening to me is there is a ton and a half of money rate 9 wawaiting on the s of distressed energy. >> way too much money. >> way too much money, preventing consolidation of the sector and rationalization of capacity in the sector. what you want is you want a situation where that money just goes away, and everybody thinks the sector's completely dead and gone forever. we're clearly not there yet. >> so bull markets usually -- over euphoria, i don't know what that is or -- i know it when i see it. remember the stream court justice saying that. i don't know what it is. i know it when i see it. i don't know what it is, but it's not -- it doesn't feel like it here, but valuations are not cheap, but is it 22 times

earnings? 23 times earnings, what is it? >> look, valuations, the number they were six years ago, of course. >> we're not euphoric, are we? >> no. you can't have an overvalued market everybody hates. >> right. >> that doesn't make any sense. so i think given the levels of inflation, given the levels of interest rates, we're at fair value. argue all day long whether we're over or under, i don't know that, but i think given the levels of inflation, levels of interest rates, we are where we should be right now. >> mike jackson was on earlier talking about this. >> yes. >> would you buy any of the auto makers right now? >> i don't know. consumer stocks in general were the best performers last year in the united states. that makes perfect sense because despite the political rhetoric from both sides of the aisle that everybody's suffer, and we're horrible, somehow consumer confidence is above average in the united states. >> all pulled forward by the fed? >> no. i don't think it has been, but here's why. real wage growth, purchasing

power, more important than wage growth, real wage growth is close to a cycle to like a six, seven, eight, nine year high, almost all-time high, and what that means is that people have a lot of purchasing power. how do you see that? i think today when i came in this morning, gasoline futures were 4% or something. what's that do? help auto sales, helps all kinds of things. does it show up in retail sales tomorrow? no. like everybody's been waitsing for that. >> we have people saying, look, the money's gone to health care. they are spending the money they need to on insurance. >> well, that may be, but it's going in the economy. it's not like health care is not in the economy. >> not in the areas we expected in terms of retail. >> well, in terms of stocks and health care stocks, that's absolutely right right now. remember in a profits recession, health care, despite the sex appeal, is just a defensive sector, and it's out performed as we have been in the profits recession, but the key thing, look at the head of the wall street journal, record auto sales. that's what's happening in the u.s. economy. it's hard to see how consumers

will be pinched. >> thank you. >> thank you. >> great to see you. coming up, a preview of tonight's big premier on "restaurant startup," and the host joining us next. when a moment spontaneously turns romantic, why pause to take a pill? and why stop what you're doing to find a bathroom? cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. do not take cialis if you take nitrates for chest pain,

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negotiating with both of you or just you. >> split down the middle with trevor. >> do you feel like he's out of the value? >> extreme value. he knew how to keep the books, run the dining room. >> been in the industry since i was young, shut my mouth, do what i'm told. >> feels like you have to sell yourself. feels like he speaks by what's on the plate. >> you're not a big fan yet. >> you have to prove it to me. >> okay, i will. >> that is is sneak peek of tonight's premier episode of the third season of "restaurant startup" right here on 10:00 p.m. eastern time on cnbc. talking about the new season, the show, is the co-founder of bnb hospitality, and as you know, puts his own money on the line with restauranteers featured in the show, and, joe, great to see you. >> thank you. thank you for having me. >> season three, what can we look forward to? >> the show is growing in

popularity so the breath of talent and people bringing ideas is more nationally, bigger, more to choose from, and there's some big ideas that come through this year. it's a very interesting. >> what's something -- ideas we see exploding on the restaurant theme? >> absolutely. past seasons have proven in restaurant and concepts, it works. you're at the forefront of the investment, really prior to to angel investment, just finding raw talent, and then, you know, through the resources, bringing them along to make money with them. >> such a tricky business. finding raw talent is amazing. the restaurant business i think is one of the trickiest to get into in attracting money. >> it is. it's a challenging business, although, these days, at least it's considered more business as, you know, a lot of companies have been welcomed into the public markets and people are thinking about investments in restaurants and food service as any other industry, which we are penalized in the past. that's a positive thing for our industry. >> i think it comes from people

like you who take it seriously, a look at the business, and not just a labor of love. labor of love, sure, but on top of that making sure -- >> business matured into its own. i think that in the last couple years, there's such an appetite for investment and so much money looking to go to work that, you know, even our industry, which was one that was always looked over -- >> dare i ask, though, do you think that's a problem? the multiples, do they make sense? there is a lot of money chasing the business. >> there is a lot of money chasing this business. i think in the world of virtual reality, uber everything, i think restaurants are still the one place you physically have to go to to eat, and thank god we have that because people still will go out and eat in the restaurant. you can't do it on the iphone or do it at home or on the computer. >> you know, we just watched minimum wage rising here in new york city and new york state and happening a lot of places around the country. here it's 7.50. >> yes. and i think that that's a reality. people need to make a certain wage to live in the world.

everything's expensive. a cup of coffee is five bucks, and people need wages to live in the city and pay rent and be part of the economic cycle. ultimately, that means wages go up, seeing it now, wages increase, wages increased on january 1st in new york so prices increase throughout restaurants costing more. >> another question, chipotle, what it represents in terms of fresh food, all the things we've been taught or told are a great idea, and then, of course, this happens. dpl y >> you know, a big hiccup. i don't know what to say. super ambitious idea, incredible company, steve is an incredible guy to think about this, and this is a bump in the road, i think, for them, unfortunately, it hurts. >> what do you think went wrong, though? >> i mean, maybe there is a bit of -- i don't know, nigh evidenceness?

they are so committed to the idea of direct products, and it is a good idea. >> local sourcing. >> you have to be cognizant of what it brings with it, and in this case, it didn't work out great for them, but it's -- >> e.coli and neurovirus. >> if you -- these are viruses that are transmitted because the produce is real because it comes from the earth and dirt. it's not grown in some lab, you know, in some vaporless environment, but it's real stuff. that's positive and negative. >> you mentioned uber. i wonder whether you think uber eats will change the business or not. >> i don't know what to think about that. i don't. i think that, again, the restaurant hospitality, restaurants are becoming more than just places to eat, but places that the client these days looks to be entertained, educated, and all in one evening. to give more is always a big pressure point, and restaurants

in new york and throughout the world deliver more. it's a great point in the city, why people come here, we have the best restaurants in the world. i thank god that will always exist. things come and go, but people have to eat. >> auto tipping or no? >> we'll see what happens. no comment. >> joe, thank you so much. >> thank you so much. >> looking forward to the show. >> thank you. season three of "restaurant startup" tonight at 10:00 p.m. eastern time and pacific right here on cnbc. when we return, consumer electronics show in full swing in vegas, where they bet big on the next top product. dozens of major tech ceos speaks this week. we have an update after the break. meantime, the futures have been under pressure all morning long because of what happened with north korea and the test of a bomb. you can see the dow futures down by 263 points and s&p off by 31, and nasdaq is down by 78. "squawk box" will be right back. it's hard to find time to keep up on my shows.

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and take them anywhere. ready or not, here i come! (whispers) now hide-and-seek time can also be catch-up-on-my-shows time. here i come! can't find you anywhere! don't settle for u-verse. x1 from xfinity will change the way you experience tv. dozens taking the stage at ces announcing the latest and greatest technology products. josh lipton is live from ces in las vegas, and, josh, the show already started. i know there's a lot of cool things already out. >> reporter: that's right. last i checked the intel ceo takes the stage in dramatic fashion, gliding in on a sort of hover board-like device. he announced the partnership with espn and new balance to

create a fitness band, a new drone that's going to retail for $2,000. drones still hot at ecs. we checked out, for instance, this new drone, a giant paper airplane that goes up to 15 miles per hour. throw it in the air, and, boom, sensors take over. now, beyond drones, startups hope to capitalize on smart home technology. we looked at the top most smart home devices like a smart thermostat and security camera featuring facial recognition to detect cars to animals when they are moving outside your home. >> we look to make really simple, easy to install products that diy installation, so, truly, do it yourself. >> reporter: with these companies, of course, they face some criticism. a report found 50% of respondents had issues about security, privacy, and ease of

use when it came to internet of things devices. finally, of course, wearables everywhere here. a little something for everyone. i'm trying out underarmour's new headphones. they measure your heart rate while you run, and the new smart sneakers. now, these are going to be able to measure everything from distance to tracking the life span of the shoe, about 450 miles before you need a new pair of these. the ceo, kevin plank, will be on cnbc's "power lunch" later today, so stay tuned for that. guys, back to you. >> josh, i know that was part of the reason fitbit shares dove this week, concerns about the competition, including the stuff from underarmour. have you tried the shoes or headphones yet? >> reporter: i'm hoping to try both today, becky and give you a sneak peek of that. fitbit's ceo will be a guest here at ces, and the shares did go down coming out with the new

watch, but not enough, apparently, initially to please investors. we have that ceo on as wellment stay tuned for that. >> thanks, josh. >> futures down 300, down 289. in the next hour on "squawk box," north korea's claim it successfully test ed an h-bomb. we'll know in a couple weeks whether it was an h or a. markets reacted negatively to the news, and update on that after the break, and federal reserve vice chairman stanley fischer with an exclusive interview. things change quickly, don't they, in terms of the fed? stick around for that. "squawk box" will be right back.

north korea with a hydrogen bomb, and dow set for a tipple digit loss as there's shock waves in the markets. what's north korea's end game? breaking news on jobs. counting down to the release of the employment report, and what it says about the number. "squawk box" exclusive, the first interview since the rate

hike, what he sees for the u.s. economy in the new year. the time hour of "squawk box" begins right now. live from the most powerful city in the world, new york, this is "squawk box." welcome back to "squawk box" here on cnbc, first in business worldwide. i'm becky with joe and andrew, and we are less than 90 minutes from the opening bell on wall street. fallout now from north korea's bomb test weighs heavily on the market along with other issues over the last couple months. the dow futures are indicated down by 300 points. s&p futures are down by 35 points. the nasdaq down by 87. take a look at what's been happening in the early trading in europe at this hour. you'll see that right now there are some deep declines there as well. the dax down by 1.7%, and cac in

france, down by 1.9%. bill richardson gave us a take on the saber rattling. >> it basically says to the world, that, hey, we're around. you can't just deal with iran in the middle east, and it also says to the world, we're going to develop a nuclear arsenal regardless of what you do and what you say to us, and it's not going to be a bargaining chip, so this is a very serious situation, and some real high level diplomacy, mainly the u.s., china, and now russia, another friend of north korea, need to engage more than we have. >> joining us right now with more reaction to this morning's events in north korea, nbc news, jim? >> becky, if north korea and, quite frankly, it's still a very big if, if north korea actually tested a hydrogen bomb, this would be a huge game changer, not only for the region, but for

the world. the u.s. military has sniffer planes in the air gathering air samples, and i'm told samples are gathered from the u.s. embas embassy's roof to indicate if there's any evidence that a hydrogen bomb have been tested. those results could be weeks, if not months. a hydrogen bomb would be a thousand times more powerful than a nuclear bomb. it takes a small atomic bomb planted inside the hydrogen bomb to ignite the nuclear thermal defies. more alarming is the fact that a hydrogen bomb is made much smaller than an atomic bomb and easily on a long range ballistic missile that north korea already has. we heard worldwide condemnation. there's an emergency meeting of the u.n. security counsel today,

but north korea's already pretty much sanctioned to the hilt. the u.s., obviously, looking, as we heard from bill richardson a moment ago, to china and russia to put the squeeze on north korea, but it's doubtful there would be any immediate results from that kind of pressure. i'll tell you this, here in the pentagon and throughout the u.s. government and now worldwide, there's a lot of skepticism that they actually tested a hydrogen bomb, but it's clear, again, as bill richardson said a moment ago that north korea is hellbent on becoming a world nuclear power. becky? >> has to make china nervous at this point too. i know they are a huge defender, giving aide to the country, and really kept it in business for a long time, but to have that on their border, at some point, has to make them question their policy. >> i don't think china feels

especially threatened by north korea's nuclear weapons itself, but the fallout that would have worldwide, look at markets today, has to be disconcerning to beijing. >> to make the point that, you know, a-bomb, h-bomb, does it make a difference? if you drop an a-bomb on south korea, neither one of them can be done. neither one of them, can we allow to happen, and you're just talking about, as you said, it's much more devastating, but either one, i mean, look at the devastation from that, but you make the point, which i didn't realize, so you counterfeit an a-bomb on one of their delivery systems now, but you could fit an h-bomb on to it? that changes the whole game. >> the miniaturization of an atomic bomb is difficult to do, but if you already have a smaller device that is a thousand times more powerful, that can, in fact, be easy put into a warhead on a long range

ballistic missile, that raises the stakes exponentially. >> i immediately thought, if you need the a-bomb to set off the h-bomb, where's the a-bomb to set off the h-bomb? you know what i mean? if you need the bigger thing with it. >> quite frankly, the immediate biggest threat are their conventional forces. you know, people asked, why not just bomb the north korea facility? they have so many rockets and artillery situated, perched on the border with south korea, that if there were a conventional attack from north korea, there would be temperatures of -- easy missile range of the capital, seoul, tens of thousands of south koreans could be killed within a matter of minutes. that's the most immediate threat. why? there's no military solution to north korea's adventurism into the nuclear war field.

>> okay. all right. all right. thank you. appreciate that. certainly is worse. price of crude, weakening chinese economy, rising tensions in the middle east, pressuring oil. latest stockpile data from the u.s. on crude add 10:30 eastern. watch for that. right now, trading under 35 now, and down another 3.4% adding to probably some pressure on equity futures. >> other stories investors are watching this morning. the countdown to the adp employment report. december numbers released in minutes, 8:15 a.m. eastern time. private payroll expected it rise, but slower than the previous month. fed ready to release minutes from last month's historic meeting after raising rates for the first time in a decade, creating light on the internal debate on which takes precedence, and there would be

clues on future increases. that's something steve leisman is asking stanley fischer at 8:30 a.m. eastern time. stick around for that. we have to tell you apple would be one of the stocks to watch. apple shares dipping below $100 this morning, slashing production of the latest iphone models, and shares 24% from last year's high. >> all right, martin sass is here. we have app anniversary now, and 35 years, not for us, but -- >> that's right. >> with merrill, and biggest producer in the office, best money management and company. that was 35 years, and neither one of us, why is everybody else getting old? >> i have more gray hair than you. >> you do. you went -- i mean, this is your platinum portfolio guy, we should have you as a guest host,

but you're nice enough to be here, and before we do that, this year, we're allowed to have cash in the contest, and you're at 60% cash right now, and you did that in november. >> right. >> well, i guess we're going to stanley fischer on, did you see what richard said today? i forget the term he used, but front loaded a -- the stock market rally by a couple years by what the fed did. >> absolutely. >> by three or four years. >> if that's true, and we're not doing it anymore, we're two to three years ahead of ourselves in stock market gains. is that something you saw? >> yeah, not only the stock market, but the economy. ultra accommodative me ivive mo policies, zero interest rates, trillions of dollars in qe, pulled consumption forward, pushed back failures for later, pushed off equity prices, and now we're in a period where we are reversing that, and so the

fed, as you know, is starting a path. >> even though it's only a quarter point. >> yeah. but more the signal of the change of direction. >> i know. inflection point. >> exactly. >> second derivative, right? >> exactly. so at a time when we have increasing global pressures, increasing geopolitical tensions, seeing, you know, just this weak sign of just a continuation of significant deceleration of economic activity there, plunging commodity prices, decline in currencies versus the dollar, all these pressures at a time when market breath is the narrowest it's been since you and i met three decades ago. >> so marty, what do you usually hold in cash? you -- >> this is -- >> you were for seven years at what? 10% cash? >> zoero, and now you're 60.

2008 was the last time you were at 60% cash. >> referring now to the hedge fund because i manage also long only equities, which stays -- has to stay by mandate fully invested, maximum 10% cash. i'm at cash, but -- >> hedge fund. >> but you gave me no limit, which was great in the platinum portfolio. >> right. >> which was a good move on your part, adding that element. >> without capital preservation. >> that's it. i think that's the focus. >> are you keeping the cash because you think there's going to be a moment, meaning -- talk about 2008, there was a moment. you had to be right before the moment to get into cash, and you had to be right again in the moment. some people right once, but hard to be right twice. >> right. so the way i look at it is we're going to enter a period because of all of these tensions, and

potential negative shocks, and we saw two of them this week, g geopolitically of violence corrections in the market. >> violent. violent to you is? >> 10-plus, 10-20. >> not 30? >> probably not. >> okay. >> as long as we'd be -- we don't see recession. if we see recession, all bets are off. >> with your 40% you're invested, we have seen these before. three of them seen before, haven't we? one is new? allergan you still like. >> right. we talked about allerga and shire, and, also, i think the last company -- >> exactly. >> that was on my platinum portfol portfolio, trading it in and out last year. >> berry plastics, and why? >> because that's a special situation. it's a mid cap company that just made a very transformative acquisition of a company, which

brings them into the nonplastics for hygiene and health care. >> all right. good. all right. we got that. i want to hear the macro stuff first. >> sure. >> if you're still playing, but only playing with 40%. >> right. >> dap number in a moment.

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welcome back to "squawk box," everyone. we are just moments away from the release of adp. steve is here with the numbers. >> thanks, becky. in washington here, 257,000 adp private sector payroll number for december, guessing what the private sector will be in the bls report this friday, revised down by 6,000 to 211,000. good job growth in the good sector, up 23,000. the services sector powering ahead, 234,000, and nonfarm payroll segment is 210,000, and the difference, folks, 257 from 210,000, that is enough, i think, to possibly cause economists to upgrade their estimates for this friday's number over the next day and a half or so. construction spending strong, up

24,000, and i wonder if there's, perhaps, some weather-related good hiring in there in the sense that home builders might have been able to build homes a little bit longer into the season. manufacturing up just 2,000, and trade transportation, utilities up 38,000, and financial t.sects up, and one thing you can find here, guys, look at by business size, strong throughout. small up 95,000. it's been leading the way, and then large also up by 97,000. that's lagged quite. i will just say we had a string of really so-so to negative economic numbers, and this is really interesting that economic activity seems fair to midland, maybe down looking at the manufacturing sector, and yet the jobs market remains pretty strong, and it's a little bit of a tussle between the two becky, and we'll see which leads the way. >> steve, i'm holding off, steve, on really laying into you and all your friends at the fed,

yet, we may go under 17 thoirks this morning, and i know there's north korea, things like that, but that whole neat little, we go in for seven years and go to 5 trillion, nothing bad ever happens, and take victory laps and write books, you know, where every single thing we did was perfect. we get down too much more, we'll talk again about who was right and who was not, you got that? >> i do, joe, and i know that the fed -- >> you will there to take -- be a punching bag. >> right. i know that fed policy's responsible for what's going on in north korea right now. >> you're responsible for fed policy. >> it's the federal reserve that had north korea do what could be an h-bomb. that was fed policy. fed policy responsible for china. >> 500 on monday. >> right, but, joe, you expect some trail off in stocks as a

result of the fed tightening. the question is how much is acceptable? >> even the guy -- another guy named fischer acknowledged that you -- we loaded -- we front end loaded a three year bull market. >> well, he's always thought that, joe. >> well -- >> here's the thing, joe. >> maybe he's been right all along. >> i have a question, put you on the hot seat. >> i'll put a punt. in fact, we have to go. >> no, no, no, you can't go. do you really see excessive risk taking when you see what happened with, say, for example, the ten year at 2.25%? >> the rest of the world makes it hard to know what the clearing rate -- >> you're a smart guy. i knew that. >> jim cramer says it's not the h in h-bomb you have to worry about, but h in fed hike you have to worry about. >> we'll take about that, and what is the policy, and i'll say right away, and, you know, tell you the thing i want to get out

of the interview with stan fischer is how do you judge? see the markets, okay, the fed hikes a quarter or where the fed pauses? i want to get the new framework, going from one framework to another. that's important about the interview coming up. >> okay. great. steve, see you in a bit with that. in the meantime, when we come back, risks of a recession, why symptom mass acid levels rides about the future of the economy. is the road for auto sales about to get bumpy? that's coming up in this morning's executive edge. we'll be right back.

all right. welcome back, everybody. right now, time for the executive edge. we've been looking all morning at what's been happening to the target. you've seen weaker numbers, dow down at some points as much as 300 points below fair value, watching that through, and there's concerns, certainly, about what happened in north korea overnight, but there's also a lot of talk about what's been happening with the potential recession. that seems to be an overriding concern that we hear again and again. this morning, we had plenty of guests talking to us about execexec exactly that. the news from many of them has been worrisome. the avondale partners says when he looks at truckloads and freight numbers, he's very

worried. >> we've seen truck tonnage negative three out of the last four months, negative six out of the last 11 months, look at truckload volume, more indicative of what's going on with retail sales, it's been negative five out of the last seven months, and it's now down 2.1%, so as i said, my symptom stomach acid is growing that we are slipping into mild recession. >> that's something that made me pay attention. obviously, there's been people worried about this all along. the transports, watched over the course of 2015, down 18%. having people trying to figure out what was going on in the economy. don's been doing this a long time, and what he's seeing has him worried is a industrialized recession leading into a general recession for the broader economy. >> it's not dow theory, just means -- >> it's the economy.

>> what's going on? it's economically sensitive, what are we not seeing? we have to think of the transports in a global way having to do with what's going on with exiting the country. not just -- not just -- >> you have not seen a lot of exports because the dollar is stronger, so that's not happening, and you have oil not being extracted in the same way. >> oil should be helping, but you said, look, cars are sold and moving around, east and west coastings there's action, but not enough of the international stuff happening either. i guess there's not a lot of oil moving domestically either. >> coming -- stopped fracking so you're not seeing oil move. it's better in terms of prices guys get for filling your -- i guess, your trucks if you move them across, but he's very concerned and is not upgrading any of the outlooks on any of the stocks. >> the next story, you know, i think i would bail the guys out. they never go back to what they used to do, not auto nation, but the big three, releasing

december sales figures on "squawk box." ceo mike jackson talked to us about the pace of sales. >> i think there was reasonable optimism that the fourth quarter in december would be a strong year close. i can't challenge anybody for the plans they put in place. however, i can say, hey, everybody, we had this plan, and it did not work. let's look at the results, this plus-9% is misleading. look at the discounts that it took to get it done. let's take stock. >> so, and i thought -- >> auto nation. >> did auto nation do it or -- >> both. >> they had to do it to clear inventory. >> to clear inventory. >> the big three pushing it out to these guys like they used to -- same crap that got them, you know, where we needed, you know, your favorite, you know, obama policy, the bailout. >> i think this is a situation where we heard from the airlines again and again.

>> you need it again. >> right. >> and so they are in the position where they are trying to hold on to market share and pushing numbers out. >> we know how to do it, so we can do it again. >> plaining the auto makers? >> not learning the lessons. >> not the guys selling the cars? >> not really, but the auto makers for pushing -- >> surprised you're not blaming the fed. >> oh, yeah. yeah, yeah, yeah. >> yeah. >> that's what motivated the auto makers. >> yeah. i'm trying to help you. >> you know, when steve comes back, i would have. >> i'll try to help you. >> i like to blame him for the fed. >> yahoo! under pressure again. sharply criticized in a letter from activism investor, starboard value, they lost confidence that the yahoo! board management can create value arguing significant changes are needed, including throwing out management and reconstituting the board. >> potentially. potentially. >> potentially. >> they want to work with management, but if they do not listen, then -- >> sounds like they worked behind the scenes for a year, and management is not listening

to them. i think they would be happy for management to leave the stage, if you will. when we come back, we got a big story and a big exclusive. federal reserve vice chairman stanley fischer talks about the first rate hike in nearly a decade. so you're a small business expert from at&t? yeah, give me a problem and i've got the solution. well, we have 30 years of customer records. our cloud can keep them safe and accessible anywhere. my drivers don't have time to fill out forms. tablets. keep it all digital. we're looking to double our deliveries. our fleet apps will find the fastest route. oh, and your boysenberry apple scones smell about done. ahh, you're good. i like to bake. get expert advice for your small business at att.com/small business.

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welcome back to "squawk box." it could be a wild session. we're starting out with a november read of the trade balance. obviously, a deficit comes in at minus 42.37 billion, close to expectations, maybe actually a little smaller, a little less negative, maybe looking for 43.5-44, depending on which direction your expectations came from. last month, though, gave up the edge, moving from under 44 to 44.5 billion. but after a 257 adp watching yields hover at what could be the lowest yield close in the

ten-year note since decembe december '11, we know they are not looking at a traditional sense at the data, but lever pullers in china, and maybe the same type of lever puller here with regard to control of money, how it affects foreign exchange because the key watch area of the day, again, is weak equities in treasuries, sometimes propensity to be purchased in that environment so we'll keep a close eye, a lot more data coming, service sector, pmi, hovering at 219, and about ready to be under 1% in the two year note, and short maturities align with the fed, and, by the way, the minutes to the last unanimous decision meeting will be in front of our eyes in several hours. back to the gang at the desk. >> thank you, rick. great to see you. we do have breaking news for you right now. valeant named howard schiler interim ceo, serving as the company's cfo from december 2011 to june 2015 and stepped down.

he currently is on the board. michael is on medical leave of absence in the hospital where he's treated for severe pneumonia. he worked in goldman sachs for many years. >> interim? interim? >> remains interim. >> interim. could make him permanent? >> they don't say that. >> okay. >> they don't say that. >> how long does pneumonia last? >> timing of the expected return is uncertain. he will remain on medical leave of absence until further notice. that's the line. >> i mean, a guy has a heart attack, like at united, you understand that, but severe pneumonia? don't you take pencil lan? >> there's antibiotic resistance, i know, but opportunity seem like for six months. >> that doesn't say this. >> you know, this from howard who is now going to be the interim ceo says, as i step into the role while mike focuses on health --

>> yeah. >> there's sort of -- i think the sense is that this is a -- >> permanent? >> an interim situation. there's another line, this is robert on the board who says, while mike's illness was sudden and unexpected, our strong management team stepped in to keep the business on track and thriving. >> let's get to steve leisman in washington, d.c., joined by a special guest, and rs stev, stee been waiting. >> thank you. i'm here with stanley fischer, and thank you nor joining us this morning. >> thank you, steve. >> the news that north korea may have exploded a hydrogen bomb, how can you, as a policymaker, you with the international experience you have, how do you process uncertainty into policy? >> well, it -- there are levels of uncertainty, and they have rose a bit now, i can't at this moment figure out what the

hydrogen bomb rumor or news means, but any geopolitical uncertainty is sort of course of markets to worry for a while and absorb the news and see what happens, and i think we've just got to keep watching and see what impact there is. the china developments are probably more significant, but it's very hard to know precisely how because for the united states, direct links with china are much less important than the role of china in the world, and if all china's neighbors and large other parts of the world are negatively affected to considerable extent by china, then that would be an impact. the rest of the world matters for us. it was only china. it would still matter, but a good deal less. >> when last we met, stan, it's interesting, it was in august,

and china exploded in terms of the concerns on the market. your take back then was, perhaps, things will settle down, but it caused the fed to not hike in september, at least one reason, certainly, with what happened to the dollar. was that a mistake back then in terms of pausing in september? is the lesson from that that the fed is likely to look through some of the uncertainties from overseas? >> well, you know, we've been saying for years, and everybody says it doesn't matter whether the interest rate moves in one meeting or the next meeting from the view point of what really matters, but it's what people think happens over the next couple years issue and i think that was september, a good example of that, and we waited, looked around, saw that it had not had a huge effect, and made the move at the next suitable to

occasion. >> talking about what you brought up, trajectory over the next several years and this year. the summary of the economic projections says four rate hikes this year, at least that's the median forecast of the fomc member. is that your view? >> well, my view is that we have those numbers in the ballpark. you know, the reason we meet eight times a year is because things happen, and as they happen, you want to adjust your policy, otherwise, we could meet in january and close down sharp until a year later, but we have to react to incoming events, and we'll react to them, and what's in the set survey of economic projections, the famous dot plots, says will be around three and four, that's different people's views, and we don't know enough now to know how many there'll be. >> what about how to know which

meeting or when the fed hikes rates? we seem to have a decent framework before to know when you would start, and it was confidence that inflation was going to 2%, and further proven in the labor market. now that's gone, and now you're at a meeting-to-meeting basis. how should the market think about investors' process? the next meeting one where the fed would hike? >> we have something known as the consensus statement, saying what our basic principles are in the fundamental point there is that we have a goal of 2% inflation, and, quote, maximum employment, which we interpret as the natural rate of unemployment. people think it's somewhere around five, probably a little bit below. that is how we are guided. we want to get there and get there without creating big messes in the markets.

that's how people should interpret this and wonder what the survey of economic projections say. we put out a lot of data including what people say, the 17 people who sit around the table when we discuss the interest rate, what they think, and i don't know any better than anybody else does other than i spend more time on it, what my colleagues will do when the time comes, how they view things, and it is a collective decision making party. >> if you do raise rates four times, that would bring the fed funds rate to 1.5% by the end of this year. is that still accommodative, helping the economy? is your intention to get to a neutral rate by the end of the year or remain accommodative by the end of the year? >> well, as long as inflation is lower than 2% and unemployment is somewhere around where it

should be, there'll be a force requiring us to maintain an accommodative policy. as we get up to two and as unemployment rate gets to what we think is the natural rate, full employment rate, we'll stop and stop accommodating, but those changes are very settle, and you don't know exactly what is the accommodative rate. >> when i looked at where the market is priced, the market is priced below to where the fed median forecast is. quite a bit, two rate hikes really, count in quarter points, does the market need to catch up where the fed is or matter where the fed needs to recalibrate where the market is? >> we watch what the market thinks, but we can't be led by what the market thinks and make our own analysis. we make our own analysis, and ours is that the market is underestimating where we are going to be. you can't rule out probability they are right because there's

uncertainty, but we think they are too low. >> another issue, which is some of the popular issues on the reserve, and one that's interesting is the fed raised rate, and the fed is paying more to banks and interest on excess reserves, be u when you look at deposit rates, banks are not paying more to customers. is that a problem of monopolies in the banking system? why is that going on, and why aren't depositors making more now since the rate hike? >> well, it's about two weeks since the rate hike, and we're beginning to see announcements of some banks who are going to pay and raise rates, and i assume as time goes on, we'll see that adjustment get completed. you know, the link is not absolutely automatic, but there's a strong link between what we'd be paying and what the banks are likely to be paying, and i expect that comes through. >> bernie sanders says the fed should -- that banks should pay

the fed for keeping their money there, that the fed should pay the banks. how do you respond to that? >> well, that's called a negative interest rate, and we have not experimented with negative interest rates, but who knows what happens in the futures after elections and things. we'll see. i don't think we're going there. >> just a quick question on inflation before we go. when we last met, in august, basically, inflation cut down, the forecast for 2016, do you remain confident the fed will be able to get inflation back or what time horizon? >> i remain confident because i have -- because the analysis of what's going on now is that continuing declines in the price of oil are quite important in the overall price index, and our estimates of takining thing acc

the exchange rate and price of oil and food is that we'd be at about 1.4% now, which is a heck of a lot closer to 2 than is almost zero. so we think that as oil stabilizes one day, and it will, and even go up one day, we'll see a trend beginning to turn, and my confidence is that those trends declines in oil and that deappreciati depreciation of the dollar will not go on forever or very long. >> thank you, stan. >> thanks a lot, steve. >> back to andrew in new york city. >> steve, thank you for that awesome interview. fascinating. the market is watching. coming up, north korea's claim of a nuclear test rattles markets this morning. what is kim jong un's end game? why can't the world stop him? the fallout from today's action next. as we break, check out the

futures, sharply lower ahead of the opening bell, and "squawk box" is coming right back.

welcome back, everybody, news out from chipotle. the company says that in december, it was served with a grand jury sue peen that, with a range of documents related to

chipotle restaurants in california. the chain says fourth quarter as a result of everything that happened with the neurovirus, contamination there, it now anticipated the following comparable restaurant sales were down 14.6% for the fourth quarter. the stock down 9.39. >> 30%. 30% in december. >> by the way, the comps decreased to an average of down 34% just after that last incident in the week of december 7th, but then recovered to down 31%. >> right. >> that 14.6% number you see for the entire quarter does not tell you how bad things were in december after the latest incidences. i don't see anything yet about whether that's come back up or improved beyond the down 31%, but that's some huge developments in this story that we've been following for some time with the chain. in fact, you see as people digest the news, so to speak, the stock is now down 3%, and

we'll see how people continue to take this, but, again, a subpeana in california, required to hand over documents, but how much damage was done from this. >> 3% it not that much, but the old low was 4.46 was the old low, and now we're 4.35, 11 points below where it used to be, so they just fired, did you see that? the crisis management guys yesterday. >> yeah, i saw that. who had been working with them for a while. >> yeah. >> yeah. >> okay. talk north korea. north korea says it successfully conducted its first hydrogen bomb tests. questions about whether it was a hydrogen bomb. reports came after an earthquake came, and if confirmed, that's the first test since 2013. joins us now is gordon chang, author of "nuclear showdown: north korea takes on the world and coming collapse of china," a statement from you, from the

country saying that one east destiny should be defended by one's own efforts and nothing is more damaging than dropping a hunting gun before a herd of wolves. >> they want a deterrent. they want to prevent the united states from attacking them. now, of course, we wouldn't do that. when you're a ruler who is in charge of a shaky regime, you need an adversary or enemy, and the united states serves that purpose for north korea. >> bigger question. is it a hydrogen bomb? >> i don't think so. they may have mixed hydrogen ie so toep in the weapon to increase yield, but remember this yield is estimated at six kilotons, the same yield as the 2013 detonation, the one before. it's pretty unlikely. nonetheless, i'm worried about an atomic device. >> how many weapons do you think they have or potential to create? last report suggested somewhere

between 8-12 weapons based on amount of plutonium they have. every time they use to test it, isn't that a weapon they can't use? >> that's right, but there's a second pathway, uranium. when you add those stock part-timstockpiles, they have enough missile material for 15-20 weapons. >> may be a mute point though, there's so many traditional weapons aimed at south korea right now that's a huge deterrent in itself. >> absolutely. >> you have someone who is saber rattling like this, how concerned should we be whether they have an h-bomb or not? >> we have to be concerned. kim jong un is in charge of the regime. it's shaky. he's executed somewhere like 120 senior officials and military officers since he became the chief in december 2011. so what he needs to do is this is good politics for him inside his own government. it's also good politics for the regime with regard to the north

korean people because the economy there is sort of stable, but it's not very good. >> real quick, walk us through the permutations. what's next? >> well, i think there's going to be certainly security council sanctions increased. we need them. the other thing the united states needs to do is make sure iranian technicians and scientists were not on site. if they were, we need to revisit the deal with tehran. yes, iran may not have a nuclear weapons program in their own country but they have it in north korea. >> do you think there's going to be parallels? ten years from now when we look at the iran deal, will we look at this? >> we are make the same mistakes. north korea is a weak country. we're the strongest country in history, nonetheless they get everything they want. this is a failure of foreign policy. bipartisan, this administration, the one before it and the one before that. when we return, geopolitical risks and we will head to the new york stock exchange with jim cramer.

welcome back to "squawk box." check out shares of disney. the dow component more than 13% in the last month alone. now below $100 a share. today would be the sixth

straight down session for the entertainment giant. let's get down to the new york stock exchange. jim cramer joins us now. i don't think you agree with this, jim, but as someone who is pretty smart and thinks that the fed pushed people out too far and that there was malinvestment going on for the past 13 months or so. he said this is not north korea today. in 13 months we had 8 trillion in m&a, 1 billion in buybacks, most of it with borrowed money. this is not about north korea, this is about what we're set up to happen either way from $5 trillion balance sheet. >> i've got to tell you, it was an excellent interview steve did with dr. fisher. we have a strong adp report. it's so strong it's difficult to restr restrain the fed from taking some action. everything you said is why they feel like they have to do it.

thank you, becky, for mentioning my tweet, the h-bomb are the hikes. not north korea. we have a problem on how to handle thermonuclear war, but this is all about job growth. >> if they know that oil is why we're at one point -- if they know why inflation is low, where did that 2% end all be all number come from that they have to -- i thought it was price stability. if inflation is stuck at 1%, why do they need to get it to 2? >> i was surprised that stanley felt oil was temporary. if anything, what we're seeing is lower longer. the question is can it temporarily hold in the 30s or does it go to the 20s. >> wage price spiral could occur -- not that it's imminent, but if the new level of oil is 30, that still doesn't help normal concerns at 4.9% or whatever we are at unemployment.

you're looking at the wrong number for whether there is wage price pressure or not. >> i agree. look. the saving grace of the interview was we're still data dependent. but when you see the adp number, you are astonished. wow, service economy is very strong. >> except for the industrials. >> industrial economy is really bad. >> very, very bad. >> jim, you're up -- what time are you on, 9:00? >> yeah. three minutes and 50 seconds. >> okay. >> we'll see you in a minute. up next, we're celebrating a birthday on "squawk box" today. we'll tell you who when we come back.

at ally bank no branches equals great rates. it's a fact. kind of like ordering wine equals pretending to know wine. pinot noir, which means peanut of the night.

we have a special birthday today for a happy birthday boy. joe, happy birthday. >> thank you. it's a state of mind. you have to celebrate. >> happy to be alive. i express it in dog years. >> you don't know what you're age is? >> i have a half brother, he's 56. i was born after him. you ever see where they interview people, they say -- she thinks she was born sometime -- >> that's you.

>> sometimes you don't know. i'm going with that. >> i'm getting younger every year. >> dog years, 8 and change. >> big plans today? >> big plans. i get go to breakfast with the boss. >> nice. >> it was not because of this. because we love each other and he's good at what he does. >> happy birthday. >> thank you. join us tomorrow. >> happy birthday. >> thank you. >> join us tomorrow. "squawk on the street" is next. good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. a lot of hand wringing going on today with north korea claiming to have tested a hydrogen bomb. the yuan at a five-year low. news from apple and chipotle not helping. watching for cues from europe today. one silver lining is adp, the best since july of 2014, oil at an 11-year low. and