live from new york, where business never sleeps, this is "squawk box." good morning. welcome to "squawk box" here on cnbc, first in business worldwide. i'm andrew ross sorkin along with joe kernen. michelle caruso cabrera is with us today. becky is off. the shanghai composite plummeting overnight. we'll vl more on that china selloff in just a minute. by the way, you might have seen the chinese makes comments about donald trump. >> great minds think alike. that was the lead on grudge, that china actually warned -- they said, we're not going to speak about u.s. presidential candidates specifically, but one in particular, it's troubling he's winning all the states. with his fiery rhetoric about currency -- and i don't know if

down 6%, that's immediately what i thought. here we are, finally. maybe you brought us together. >> i doubt it. i mean, at some point donald trump will realize the currency in china is being propped up higher. >> it's political season. we talk personality. but you are here. normally you push us apart because you embolden me with my positions because you're worse than i am. >> on some things. >> then we gang up on andrew. >> better than you are on some things you mean. >> further right. >> today we're starting in the right place. together. >> we disagree on apple, i think. >> okay. let's talk about that -- guys, hold on.

>> do you think everybody's freedom should be compromised? >> no, i don't want them to do it. i don't want them to comply at all. >> press the pause button. we have the u.s. equity futures to get to, which may be keying off -- well, actually not keying off as much as i thought they might before. dow would open up marginally higher, 23 points. nasdaq up about ten points. that comes after the biggest intraday reversal for the dow since 2008. the dow fell more than 260 points before rallying late into the day to close higher by 53 points. then in europe overnight, we've seen another green picture with things up -- i don't want to say marginally. the cac up over 1.5%. all good news. check out the price of crude. by the way, good news if you're long. bad news if you're short. wti crude now trading at $32. >> threatening to break under $30. that broke then the market

broke. rn >> i see two things this morning. oil lower, china lower, but stocks higher. >> i have watched several mornings where i thought you were defending the fbi. seriously. >> you're out of your mind. >> really. i feel better. >> yesterday i said this impassioned thing -- >> i was at the gym. >> first we had haydn on. yesterday we had -- who was it we had on? ron paul. talking about the freedom of all of us. we cater to terrorists. >> i agree. >> he's doing hero worship of edward snowden. it's been remarkable. you've never seen anything like it. >> i even mentioned the movie "bridge of spies" and the aclu. >> i was at the gym probably. >> you were not watching. let's just admit it. i don't know what you were

watching. you were watching the other morning show. >> no, they just don't have a tv in soul cycle. >> that's exactly right. >> we've been at each other's throats on this. >> you think they should create the software? you're out of your mund. >> he's going to waterboard again. >> i'm not there. i increasingly have mixed emotions. >> the trade-off is so horrific. they would have you believe that there's always this -- >> we've brought josh lipton on to talk with us about this. >> should we do the markets again? >> among the other big stories we're watching today, st. louis fed president james bullard saying is last night january's big jump in inflation does not change his concerns about slowing inflation. the consumer price index did rise to a four-year high in january, which raised questions about bullard's stance that the fed should pause interest rate hikes. he reiterated his cautious view yesterday. we're going to ask him about it at 7:00 a.m. eastern time. he's going to be our guest host for two hours this morning. he focuses mostly on tips and

inflation expectations. one of the reasons why. we'll discuss that and so many other issues like should the ecb just inject money into people's accounts, like was written about yesterday. a warning from economists at citi. they marked down their forecast for 2016 global economic expansion to 2.5% because of slowing activity in developed economies and weak emerging markets. citi also saying the risk of a global recession is rising partly due to the ripple effects of uncertainty in china. citi defines global recession of growth of less than 2%. we're going to get weekly jobless claims at 8:30 a.m. eastern time. january durable goods, which are expected to have rebounded last month after a big drop in december. now on to the story. >> here we are. okay. tim cook speaking out about his company's fight with the government. we have a little videotape.

apple resisting a court order to create software that would help the fbi unlock the iphone of one of those san bernardino shooters. josh lipton has woken up early on the west coast to talk about this subject. good morning to you, josh. >> good morning, andrew. this was actually the first time apple's tim cook has talked about this case on camera. for cook, it's clear this controversy represents a lot more than just giving the government access one time to one iphone. >> what is at stake here is can the government compel apple to write software that we believe would make hundreds of millions of customers vulnerable around the world, including the u.s. and also trample civil liberties that are at the basic foundation of what this country was made on. >> as you guys know, the government is demanding that cook order his engineers to write new software that would bypass the security features of this iphone. so cook's points are twofold. one, creating such software

creates real risk if hackers, cyber criminals, or foreign governments can steal that code. then it puts the security of millions of iphones in jeopardy, he says. second, it could set a bad precedent. if the government can force apple to unlock a phone, then what's to stop it from ordering apple or other tech companies to intercept messages or track locations of their users? cook also says this whole case does make him and apple deeply uncomfortable. >> this is not a position that we would like to be in. it is a very uncomfortable position. to oppose your government on something doesn't feel good. and to oppose it on something where we are advocating for civil libertieliberties, which supposed to protect, it is incredibly ironic. >> now, we are still waiting for apple to formally respond to this court order, and that

response is due by tomorrow. andrew, back to you. >> okay. thank you for that, josh. we're going to talk a lot more about the challenges apple faces with the government with our management guru, jeff sonneefeld. he's joining us at the bottom of the hour. real quick, before we go to sri -- >> you've got nothing. >> you're in the same place? >> absolutely, from day one. >> it's obvious where you'd be. >> let me ask why one question. >> did you miss my endorsement of bernie sanders too the other morning? >> yeah. >> i just have one question. >> that must have been a nightmare. >> i'm joking about that. >> i'm for everybody's civil liberties. except if you're a terrorist and there's a legal warrant. nobody is suggesting -- >> you always go back to the same lame stuff. you're like a broken record. >> nobody is suggesting that the government -- >> it's not a war. they're designing software. that's different than a warrant. you've had ten guests tell you that's not an accurate

comparison. >> i've heard certain people say it. >> going back to the hotel room. here's this thing. you get a warrant to look into a hotel room where there's a crime. >> totally not equivalent. >> you're like a broken record. the same things that have been refuted repeatedly. >> hold on. do it this way. there's something in a bank, in a safe. nobody's got the key. they'll go to the key maker and say, you must make the key. >> not equivalent. >> tell me why. >> because making that key doesn't unlock every other single safe. >> but nobody's handing out the key. it's not that they're asking apple to hand out the key to everybody. >> and they didn't have hillary's server either. >> and have you seen how many other cases -- we're focused on this one case, but have you seen how many other cases there are? >> absolutely. >> it is a slippery slope. the slippery slope has started. we're on it. >> i i agree with you. the slippery slope is huge. >> we're on it. >> but there has to be some middle ground. >> we're here. the middle ground is that in the trade-off between freedom and

security, you lean towards freedom always. we make choices in this country. in a free society. in this country, we allow criminals to go free because we set the bar so high to imprison someone, and we do that knowing that criminals will go free because we want to protect the innocent. this is no different. there's a tough trade-off here. we have to accept it as americans. >> i just want to make one point. none of what's being proposed is done with the intention of opening things. >> of course not. >> does it open the possibility? sure, but that's also in the name of protecting everybody else. >> you know, michelle, in general, he's not opposed to like a major involvement in a nanny state type -- >> only in particular. >> because the hundred smartest people that president obama picks can probably design a better society than a free society. no salt, no big gulps, no guns.

>> i thought we were on the same side at the beginning of the show. >> we were, just temporarily. freedom -- and if one person is not free, none of us are. >> we keep using the word privacy. it's not privacy. it's freedom. that's the difference. >> there's no constitutional right to privacy, by the way. to freedom, yes. not privacy. we'll talk more about it in a little bit. >> okay. sri is like -- >> poor sri. >> why did i agree to do this? let's get to the markets and the selloff in china overnight. sri joins us no w from singapor. >> he can weigh in on this. >> yeah, sri can. if he spits out his gum, we'll never see him again over there. >> i'm still here. don't worry. i'm hanging in there. my family are forgetting what i look like, but not to worry. etc. will look at these markets. the volatility never really went away. let's face it.

it's just laying dormant for a couple weeks. we had something of a rebound off the lows. i think we really run into a degree of exhaustion and some fatigue and some suspicion associated with the durability of that rebound above that 3,000 level. some profit taking. call it what you want, but we continue to see very mixed signals from the policymakers. are the stock market regulators interventionis interventionists? we haven't really answered that question. once again, it comes down to lack of confidence. no real bright ideas to restore confidence from the g-20 in shanghai. i think the troubling dynamic is that all the bad debt in the system in china, and it is something of a black box, habit really been fully marked. that process is happening now because we're rebalancing toward the consumer. we're seeing defaults. we are seeing bankruptcies and unemployment as well. i think the market is only now really starting to get a handle

on all of that. perhaps pricing it in. that's why we are down by 6.4% in the shanghai composite, constituting the worst loss in more than a month. the european markets are holding up quite well. the futures at your end are implying a flattish open for wall street. so in terms of the follow through, the spillover effect on the overseas markets, seems to be fairly limited. that's where we stand. back to you. >> so sorry. thank you, sri. >> we were listening, sri. we weren't arguing or anything. you need to apologize. >> i heard a conversation the other morning. i was shocked. i thought you were defending -- >> you couldn't have. clean something out of your ears. i won't say what. >> i go to the gym in the morning. i'm sorry. >> put on the closed captioning. >> okay. >> back in the u.s., the dow is coming off its biggest intraday

reversal since 2008. joining us now is steve wood, chief market strategist at russell investment, which has more than $265 billion under management. and mark vittner, senior economist at wells fargo securities. both of you know we have jim bullard on for two hours today. >> yeah, i'll be watching. >> interesting. as the economist, mark, what would you ask him? you've seen he's had a little bit of a transformation. he's much more dovish than he was maybe 12 months ago. what should we ask him? >> well, he was the original hawk. he wanted to raise rates sooner than just about anyone. i think what i'd really be curious about is does the fed feel they're behind the curve b and they need to raise rates because they're just so low right now and inflation does

seem to be headed back to 2%, not all at once, but we do seem to be headed back to that direction. there seems to be an urgency by some to say, going from -- it shouldn't be that much. we're still talking about very low interest rates. monetary policy is still going to be accommodated. how do you reconcile that with the manufacturing sectors contracting. mining is in recession. agriculture is struggling. there seems to be a whole lot of the economy, maybe 30%, that would meet the definition of recession. how do you reconcile normalizing rates in that kind of environment? >> yeah, but half of that stuff in oil is supply. it's not weakness. that's a positive that should actually spur economic growth. if you're worried about -- i mean, if you're worried about anything -- i guess they're also worried about a brexit now. a brexit means the euro might go

down more or the pound goes down more, then the dollar goes down, and manufacturers don't sell anything abroad again. you can find something to worry about constantly. one of these days you got to ask yourself, is staying at zero at this point, a, hen ilping, b, n doing anything because it stopped being positive long ago. it was like the potency of accommodation only goes so far. or, c, is it part of the problem, putting us in a slow-growth environment, having companies not invest for the future. you got to ask yourself. it may actually be dehe teers to the whole effort. >> causing massive distortions. >> i don't doubt that at all. a lot of the problems we face today are because we stayed at zero as long as we did. my question is really the timing of when we decided to start to raise them. the fed goon raise rates in december. the same month the ism dipped below 50. i can't recall a time where the fed cut rates, raised rates, when the ism fell below 50.

normally they cut rates. >> now you're ignoring -- now you're just doing the direction of rates rather than the absolute level of rates. you're talking about at zero. so going up from zero isn't like going from 6 to 6 1/2. that might be crazy. we have to get off zero some day. >> that's my question. that's my question to james bullard. how much does the rise in rates matter versus the level? there's no question that rates should be higher than they are today. the problem is, how do we do it? what's the timing on when we raise them? and do we put the economy at risk? when the manufacturing sector contracts like it did in december and like it still appears to be now, the economy is losing momentum. we're seeing that folks are moving away from things that are cyclical and risky. typically, the fed has to cut rates in order to break the forward momentum.

raising them, i don't know if that's going to do it. >> giving the fed too much credit. these micro little moves. can the economy withstand -- it's giving them too much credit. they say they're going four, do four and let's live with it. we stayed at zero for so long. steve, good morning. >> hello. >> patient. >> he's been here the whole time. >> 18 minutes on set, waiting for us to get to him. >> i want to be hamilton. >> i want to be hamilton. >> not george hamilton. did some weird stuff, i hear. anyway, what do you think? >> i think i don't spend a lot of time advising the fed. they've never called me. bullard is going to be here. i think also voices like mester. she's clearly a voice that thinks we've waited too long or the fed has waited too long. the way i would look at the

entire process is what is the fed likely to do? we advise clients in that light. i think the fed has been in this extraordinary policy stance since qe. they put that to bed a year and a half ago. they wanted to go positive and they have. i think now in 2016, for the first time in many years, the fed is actually data dependent. they needed to be in qe. they wanted to put it to bed. they're positive. now they're looking at the data. march is probably low probability. i think meetings are live until further notice. i'll take dr. yellen at her word. she wants to do two, three, maybe four. the question is really the timing and the spacing of the rate hikes. >> what do you make of the banks getting hammered once again? intraday reversal yesterday. we're back to this, looking at them getting clobbered repeatedly. >> that's due to the uncertainty over what time period the fed is going to raise rates. there are a lot of cross currents globally. there's oil, china, and the federal reserve.

>> i guess i ask you if the context of the fed, which is i think they're the prime example of the distortion theary effect their policy. they're trying to improve the economy, and they're hosing the banks at the same time. they end up fighting with each other, the two different outcomes. >> i think the fed would like to get as close to normal as quickly as possible. in the absence of really bad data, i think they're going to be more inclined to get to a normal rate, whatever that might mean, sooner rather than later. but i still think the fed is going to be very, very accommodative. i think the european central bank, obviously very, very accommodative. you have brexit. it's still a central banker's world. joe, i know you don't like to hear that, but it's another year of this being a central banker's world. investors need to get used to that. but we do not see a recession as a base case scenario in the u.s. so i think you just need to be global. multiasset. you need to be active and nimble. >> all right. mark and steve, thank you both. there's a reason we're called

talking heads. we're not listening heads. >> speak for yourself. >> liesman, he may listen, but it goes in one ear and out the other. liesman yesterday said i was a person blaming the market selloff on the fed raising rates a quarter potent. how could he possibly -- as long as i've been in -- >> right, you've wanted it. exactly. >> so he doesn't listen either. and you don't because you don't have closed captioning. >> they're playing music when i'm in spin class. >> there's no tvs. there's candles in there. it's almost cult like. >> speaking of candles, retailer restoration hardware announcing a weaker than expected quarter. the ceo is blaming the stock market. we'll have details next. later, more from apple ceo tim cook in his fight against the government. "squawk box" will be right back. we're the hottest

young company around but if we want to keep the soda pop flowing we need fresh ideas! >>got it. we slow, we die. >>what about cashing out? no! i'm trying to build something here. >>how about using fedex ground for shipping? >>i don't need some kid telling me how to run a business! i've been doing this for 4 long months. >>fedex ground can help us save money and deliver fast to our customers. not bad, kid. you remind me of a younger me. >>aiden! the dog is eating your retainer again. let's take a short 5-minute recess. fedex ground is faster to more locations than ups ground.

welcome back to "squawk box." shares of restoration hardware plunging after the company reported preliminary q-4 results. ceo gary friedman offering a business update, which included, quote, a fair amount of bad news, in his words. tying the company's poor results to weak stock market performance. friedman wrote, our sense is the increased volatility in the u.s. stock markets, especially the extreme conditions in january,

which is historically our biggest month of the quarter for furniture, contributed to our performance. wow. >> it's bad when -- >> that's a negative wealth effect. >> it's bad when they go that far out to try to make excuses for what probably is operational. >> i do get this feeling that in retail, something happened in the fourth quarter. maybe it was paris and san bernardino together. >> that creates an opportunity a lot of time. that is the environment. all right. in sports news -- >> why are you x'ing? >> another number one team goes down in college basketball. xavier upsets the top-ranked villanova wildcats at home 90-83. wasn't as close as that sounds. i was up late watching this. first time in three years the musketeers have beaten villanova.

both teams were 24-3. the best records in the ncaa division i. afterwards, xavier became 25-3, and obviously villanova became 24-4. i don't think this will move villanova out of the top five. that's for sure. i don't know if it moves xavier up. but iowa got beat last night. i think they were number four. they got beat by wisconsin. nobody in the ohio -- what is that, the big ten? this is the big east. none of those -- you can't tell who's who. anybody on any given night can beat anyone. i went to st. xavier. >> oh, you did? >> st. xavier. my dad was a xavier alumni. like fordham or ignatius. i'm jumping on a bandwagon, i admit it, but i jumped on early. >> you were there early. credit where credit is due. >> now i'm going to try to get some tickets. the big east tournament is coming up next month.

>> can we go together? >> would you come? >> i would. it's going to be really exciting. i'm serious. i would love that. let's get some tickets. >> they got guards. they got a guy named miles davis. >> really? >> all the announcers say he's making beautiful music. >> we keep getting played out. coming up when we return, tim cook says apple will stand tall on principle and won't create software to allow the government to bypass iphone security measures. next, apple's battle with the government in the days to come. back in a moment. we needed 30 new hires for our call center.

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it is time now for today's executive edge. apple's chief tim cook standing his ground on the firm's decision not to comply with the fbi's request. he spoke out yesterday on abc. >> i think safety of the public is incredibly important. safety of our kid, safety of our families is very important. the protection of people's data is incredibly important. so the trade-off here is we know that doing this could expose people to incredible vulnerabilities. this is not something that we would create. >> in your quiet moments, do you have any concern that you might be able to prevent a terrorist attack by breaking into that phone? >> david, some things are hard and some things are right and some things are both. this is one of those things. >> jeff sonnenfeld joins us now

for his perspective on all this. good morning to you, jeff. >> good morning, andrew. >> what did you make of the interview? i know that you've had some misgivings about apple's position. did he sway you? >> well, no. i weighed into this with trepidation, having heard your opening to the show. few ceos want to take a public position on this. i'm really glad the expert anchors, you have some strong positions. i'm sorry to joe and michelle. in this one rare time, i'm going to disagree. andrew, i lean your way. you want to look at ceos using the platform. >> tim cook, has he missed an opportunity? what did he get wrong here? >> what he got wrong is that what's his purpose? a lot of those times when the

good and bad examples i talked about before, it's a chance to frame the issues. the issues are all out here. instead of framing them -- and if you watch the whole half hour interview, he was all over the map. what was his purpose? he drifted between slippery slope issues. he drifted between first amendment, fourth amendment, fifth amendment issues, public safety. he draped himself around that as well as privacy, which is a very distorted term in this particular debate. it was everywhere. of course, there's a brand concern. i don't believe he's driven by a commercial interest. i don't think it's a threat from donald trump that motivates him. in fact, you could argue that this whole situation makes the apple brand look quite good in terms of the impen trablt of his technology. >> metaphors are often helpful. you're critical -- you're saying his message wasn't clear. what about his metaphor about this being the equivalent of cancer? let's play this for people who didn't hear the actual

interview. >> the only way to get information, at least currently the only way we know, would be to write a piece of software that we view as sort of the software equivalent of cancer. we think it's bad news to write. we would never write it. we have never written it. and that is what is at stake here. >> repeatedly he said that. this would be like creating cancer. i thought it was a pretty powerful metaphor. you don't they that'll work? >> no, it's very misguided. clearly he's not overlawyered, which is sometimes a good thing. what he's done is resorted to something, forgive me, but close to demagoguery. it's when you appeal to people's emotions and passions and prejudice over rational judgment. there's nothing out there in terms of a dread disease that people are more alarmed about that the term cancer. this is not cancer. this is nothing different than we license drugs. some people say propofol, that

killed michael jackson, you know, you license that. does that mean you're going to license chewing gum or cough drops? no, there are limits. we have licenses for driving. does that mean you're going to license people who want to go jogging? the slippery slope argument is taken to a moral, absolute absurd position. we have limits of freedom of speech. that's what's being missed here. we want effective problem solving. he's confused the position he's taken with his personality. >> so jeff, what's the solution? a solution that protects the privacy of the public and apple consumers and technology consumers broadly but also somehow magically gives law enforcement, when appropriate, the opportunity to get into these things. that's the conundrum, which is the technology unto itself may not allow for that. >> well, syed farook, the person who possessed this phone, is not the owner. so let's throw privacy out.

there's no apple complied contract to this deceased terrorist. first, he's deceased. second, it's not his. the owner of the property and the system, san bernardino county, said apple, do it. a few months ago, my daughter on apple system forgot her password for the third time. for the third time, apple was able to crack it and get it to us. all the the government has asked for is two things. >> i understand that, but here's the issue. now i'm going to take the other side, which is what do you do with the idea that not only the fbi -- james comey says, okay, this is for this specific item. yet, we know hear in new york there's 175 iphones that they'd like opened up. municipalities everywhere want other iphones opened up. what do you do about that? what do you do about the potential as tim cook has mentioned, this idea that if this software were to get out, god forbid it does, that all the sudden the key is now wide open for everybody? that's the other argument. >> you've abandoned me too. now it's three against one.

>> no, no. i'm just trying to take the other side so we can understand your position. >> no, no. the other side is that's what courts are for. that's why we resolve these things on a case-by-case basis. tim cook, almost as bad as the cancer metaphor, which was ridiculous, is when he went off and said, well, you know, this could be used for speeding tickets, car crashes, stolen cars, or divorce proceedings. well, no, that's ridiculous. >> you said your daughter has forgotten her password three times and apple helped her open it three times? >> yeah, we've managed to -- whatever the back door was, it wasn't easy, but the same company, the same year. >> how old is she? >> she's 10. why? >> wow, okay. that's pretty amazing. so you go to the genius bar or how do you do that? >> i'm not sure how they did it. i didn't ask for the secret. historically, the way these

things are resolved. they agreed in the past these things were done privately. it's not the demands they're making. they should have let this thing back up into the icloud so they could have imaged what's on the phone. that's part of how apple does this secretly. they can and they do look in those systems that they need to. that's how they do it. >> why don't you answer andrew's question. don't just say you're ganging up on me. what if everybody in the world suddenly has the key to unlock the back end of the iphone, and the iphone -- no one will even use it anymore. it could be totally displaced by another maker that has an encryption on the back end. if it totally opens up and everybody gets it, that's the point they're making. how do you prevent that from happening? >> so if you want me to answer that question, the answer is very simple. if the waldorf won't let people into a hotel room because the government has an illegal search

warrant and you're saying eventually they let them in because the gott insists they do it, that all the businesses are going to go down the street to the four seasons. no, it's silly. whoever does it has to operate by the same laws. this is why we have laws and why we have courts. sadly, even why we have lawyers. to resolve these problems on a case-by-case basis, joe. it's not going to be all 175 cases in new york. or as tim cook ridiculously says, divorce proceedings and things like that. that's why we have lawyers. what they've done here, what the ceo has done is he's allowed himself to become the issue. he's trapped himself in a corner. this should have been resolved quietly and try to figure out how to separate the people from the issues and the problems from the issues. the issue here is they want to slow down the time between trials to crack the system themself. >> there's an individual we have on a lot.

never stores anything in the first place. what if you do it that way? what if a lot of this data isn't anywhere and you do the system so it doesn't exist anywhere? there's no back end to open up. there's nothing. would that be okay? or would you force that company to make sure that they preserve -- what? >> i don't think that's the issue. i think it's okay to have safe storage, have it encrypted. the issue here is the role of the ceo, the voice of the ceo. >> i talked about talking heads versus listening heads before. we have the same problem here. >> if you don't have the law on your side, the classic cliche is you argue the facts. you don't have the facts on your side, you argue the emotion, scream and yell. that's basically what tim cook is doing here. he shouldn't make himself the target of this. they should resolve this by basically -- they don't want the self-destruct wipe-out program to destroy the government's

chance to crack it by not giving them ten tries. that's a pretty low bar for the government to ask for. >> jeff, we always appreciate your insight and your willingness to debate the issues with us here on the set. thank you. >> well, at least two-thirds of you. >> you've alienated andrew, i think. >> that's not true. jeff knows i love him. >> but now you're seeing the light. >> i'm seeing the light right down the middle. i'm seeing light on both sides. >> thanks, jeff. coming up, uncertainty about the global economy, a potential brexit. mark grant joins us to talk strategy next. as we head to break, a quick check of what's happening in european markets right now. as you can see, positive across the board with the ftse and france higher by more than 2%. you're an at&t small business expert? sure am.

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welcome back to "squawk box" for the squawk planner. weekly jobless claims at 8:30 eastern time along with january durable goods, which are expected to have rebounded. also, best buy, campbell soup, and kohl's reporting before the opening bell. after the bell, we'll hear from gap and kraft heinz. also, atlanta fed president dennis lockhart and john williams both speaking today. we won't be hearing anymore "star wars" music. sometimes we do that with john williams. st. louis president james bullard will be speaking here on "squawk box" starting at 7:00

a.m. you don't want to miss that. that's today's squawk planner. >> plenty of catalysts making waves in the markets this week from earnings, wild oil price swings, fed speak, the looming possibility of a brexit. here to break it down is mark grant. good to see you. so many things to be worried about right now. we've seen the markets acting so poorly since january. what's the biggest concern? what has the most impact? is it brexit? is it what we're seeing with the chinese currency? what's top of your list? >> you know, michelle, i wish i could tell you it was one subject. i have about three together at the top. >> what are they? >> they're the devaluation in china, which i think is going to be between 10% and 20% of their currency. two, brexit and what that's going to do to the dollar because the sterling is already weakened. i expect the euro to weaken. the dollar is going to strengthen, which is not good for american corporate earnings.

then frankly, the inflation number, because there is very little inflation. what the fed is going to do as a result of that, which i fervently hope is nothing. >> you mean they're going to continue on the path, they're not going to raise? >> they're not going to do anything. they're not going to raise, which is what they ought to be doing. you can't go one way, michelle, when every other central bank in the world, the ecb, the chinese central bank, the japanese central bank, is going the other way and expect any kind of good results, except you're hurting america. >> what do you do with your investments then as a result of your outlook? >> so i'm generally bearish about equities, as i have been for quite a while. having said that, i'm very bullish about bonds, especially long-term bonds, in three categories. taxable munis, municipals, if you need them, and corporate bonds in america that are not international in terms of most of their earnings revenue but

are american centric. they will fare very well, i think, going forward given the current spreads. >> what kind of ratings are you talking about? high-grade corporates or lower in the scale? how deep into the lack of quality would you go? >> well, what i've been advising a lot of big constitutiinstitut go on the lowest grade, lowest part of the investment grade rating, which is the bbb and a-rated space, especially in the muni sector. the default rate is about a tenth of what it is in the corporate sector. i think there's a lot of value there. though, corporates have widened out enough that i'm seriously looking at some different names, x the energy sector that are right there in core america. >> got it. mark, thanks so much for getting up. live from davy, florida. >> any time, michelle. thank you. >> coming up, much more on the selloff in china overnight. the shanghai composite plummeting 6%. first, though, if donald trump

is elected president, would he have to relinquish control of his business interests? robert frank is here to answer that question when we return. ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪

welcome back to "squawk box". with a win in nevada donald trump moving a step closer to the white house but would

president trump have to relinquish management over his companies. that's the question and robert frank joins us now with more and perhaps the answer. >> yes. the answer, indeed. >> he has to sell off everything? >> no. donald trump is looking to add the title of president to his ceo role but can he hold both at the same time? ethic lawyers and presidential scholars say there's no law that would prevents him from owning and running his company from the white house. now there are detailed criminal laws preventing executive branch employees from participating in government matters that would benefit them or their families but under a different statute i spent hours on this yesterday the president and vice president are exempt from those rules. so trump would be able to keep his company, remain on the board, promote his hotels, golf courses and condos while in the white house. >> no. >> yes. trump has said he would let his children probably run the trump organization if he gets elected but he hasn't promised to sell his ownership stake in the company.

he couldn't since he's so closely tied to the brand and licensing deal. a blind trust would also be futile since he knows what the assets are in the company. along with his companies in the u.s. he has projects in dubai, scotland, south korea, india, turkey, panama and his new luxury hotel on pennsylvania avenue just down the road from the white house. but there is no law that says donald trump cannot be ceo of the trump organization and own it and be president. >> could he be out there commercially doing commercials for it, promoting it. >> yes. >> can he go to dubai to open up new hotels. >> can he get foreign governments -- like the clinton foundation. could he do something similar to that? >> so she has stepped away from the board of directors and are restricted foreign government contributions. it's up to hillary say we'll shut that down if she's elected.

>> it's a little too late. they won't do any more irs targeting. >> even if he says my kids are going to run it, let's say in russia where he's been in discussions to do a hotel, if there's any discussions with putin or any resolution on the russian relations people will say it's because of your business in russia. in palm beach he's been trying to get the faa to get rid of the flight path. if they do that people will say it's because he's president. >> so long he's been fighting it. if they do that while he's president it's clear -- >> any other president that had a situation like this? >> the rules were written in the late 1970s. fairly recent set of rules that govern the executive branch. >> prior to that what was the rule >> you had the kennedys. kennedys were wealthy. perot was rich which had government contracts. but the company could have easily been sold.

steve forbes was rich. >> you go back to the '30s, '20s. >> the rules were different. these are new statutes from the 1970s. i was amazed the president is exempt from these rules that ambassadors have to follow, cabinet people have to follow. >> robert frank bringing us real news this morning. i just learned a lot in the last three minutes. >> coming up -- okay relax. st. louis fed president jim bullard is our guest host. last week the previous hawkish chairman said it's unwise to raise rates. bullard will explain next.

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should the fed put a hold on raising rates? st. louis fed ceo and voting member of the fomc james bullard is here to defend his stance and tell us whether or not citi's take on the risk of a global recession are warranted. his comments are minutes away. >> the tim cook speaks out. >> what is at stake here can the government compel apple to write software that we believe would make hundreds of millions of customers vulnerable around the world. >> apple's chief taking the national stage last night and explaining the company's position of opening the iphone of one of san bernardino shooters. more from that interview and what investors should take away from it. >> a shark is circling the set. second hour of "squawk box" begins right now.

>> announcer: live from the beating heart of business, new york city. this is "squawk box". welcome back to "squawk box" right here on cnbc first in business worldwide. i'm andrew ross sorkin along with joe kernen and michelle caruso-cabrera. becky is out. futures at this hour are looking up both marginally, dow up 50 points higher, nasdaq looks like it will open up 17 point higher and s&p 500 opening up seven points higher. we'll tell you what's going on with oil. so much of it has been keying off each other. wti crude at 31.99. >> here's what's making headlines. apple ceo tim cook says complying with a court order to heb the fbi help the fbi to break into the iphone would be bad for america. >> the stake here is can the government compel apple to write software that we believe would make hundreds of millions of

customers vulnerable around the world, including the u.s.? and also trample civil liberties that are at the basic foundation of what this country was made on. >> he' equated it to creating cancer. cook argues there should have been more dialogue with the government. >> fbi directed the county to reset the iclub password. when that is done the phone will no longer back up to the cloud. so i wish they would have contacted us earlier so that that would not have between case. >> how crucial was that missed opportunity? >> very crucial. >> apple has until tomorrow to respond to the court order which it intends to fight. sears reporting wider than expected fourth quarter loss. sales declined 2.69%.

another busy day of economic dat data. atlanta fed president in plant and fred williams is speaking today. >> tim cook, i my eyes has grown, just for the recent stuff he did personally and everything else. that's courageous. >> i give him enormous credit for being principled. >> the knee jerk public reaction, 55% probably against him because we're so terrorist phobic which we should be because we're not doing what we need to do on the ground to prevent isis. i'm not saying we shouldn't be worried we should because we're feckless. >> we'll continue the conversation about apple in just a second. >> this guy is -- we got to get

to another hero. jim bullard. i was is going to say steve liesman. nobody was going to take that seriously. >> yes! >> citigroup releasing a note yesterday suggesting the risk of a global recession is rising. steve liesman, "deadpool" joins us now with more. >> cue the patriotic music. citigroup saying the chance of a global recession is high and rising. it defines global recession as growth below 2%. the global economy never stops growing it just gets much weaker when it's in a recession. we're in a highly precarious environment. it says recession is not the base case but worried about slower growth in emerging markets and uncertainty in the developed economies. the international monetary fund

encouraging organizations to encourage growth. the most recent cnbc is your ray putting the chance of a u.s. recession at 24%, down a bit from the prior survey but higher than the lower teens we had earlier in the year. we had lows on that but not as high as you can see on the left-hand side of your screen. dallas fed president says he does not expect a recession but we have jim bullard over there. >> these other guys -- this other guy is talking -- who cares. right. right. we don't even pay attention. joining us now on set for the next two hours our very special guest st. louis fed president james bullard. >> great to be here. appreciate it. >> let's get out of the box because steve will want to know -- i would say at this point if you had, i know you are independent but if you had to forecast at this point would you

say no more increases in 2016 is the most likely scenario based on the current scenario >> one things i want to do is get away from trying to predict how many increases there will be in a year. we want to be data independent. we want a better coordinate with markets on the idea that, you know, we will move but move on good news about the u.s. economy. >> i didn't ask you how many there would be. i asked you if there will be any more at all. so that's a different question. is it zero or some? >> one of the things i have been concerned about is that we didn't tighten by 25 basis points in december, we tightened by 125 basis points. let me tell you my story. if you look at the 20042006 tightening cycle we moved 17 straight meetings in row, 25 basis points per meeting. that doesn't sound data

dependent. markets got the idea that well once the fed gets going there's no stopping us, like a train leaving the station. if you look at the median sep -- yes. the immediamedian looks like a t line up. what happened was when we moved in december markets didn't see 25 basis points which should have been a small move and should not have been important. instead they saw 125 basis points pulling up. >> give me a victory lap. >> no. i just want to say, i want to express my disappointment in jim because i liked when you were hawkish. now i'm going to give you the benefit of the doubt. who said if something changes i

change my opinion. i guess that's your story something to change. can you tell us two or three things that were most important in the change of your position? >> the most important thing is that inflation expectations are continuing to fall. they have been falling since july 2014 which is 18, more than 18 months ago. but, you know, if you ask me during 2015 i would have said yeah inflation expectations are down this, is market tip -- >> guys in the back we have a chart here which is exactly what jim is saying. >> what if it's fracking based. >> last year i was saying okay that's because it's highly correlated with oil prices. oil prices were falling. inflation expectations were falling. they shouldn't have been correlated but they were. i said once oil prices stabilize inflation expectations will go back to where they were.

then starting in november we had another leg down in the oil markets and inflation expectations five year five year forward is now below 1.5. ten years down at 1.20. those are cpi based inflation so subtract another 30 basis points off of that to get inflation. this is too low for kfrlt acomf gives me pause. >> i want to get less wonky, he starts with the tips in the inflation. i want to talk about -- we started off with this idea of probability of recession. there's the tip chart coming up. are you worried right now about a global recession, are you worried about a u.s. recession? >> no, i don't think the probabilities are particularly high. you always face risk and we are at a lower trend growth rate so you could always argue that there might be a higher probability of recession because

your trend growth rate is lower than it was historically in the u.s. but like citi coming out and saying probably has gone up, they had global growth at 2.5% already. they are defining global recession at 2%. they don't have a long way to go to make an argument that you get whatever they are calling global recession. everyone knows that the g7 economies are not growing very fast. china is slowing down. you don't have as much global growth as you might have once had. >> tell me you as a policymaker look what happened with the stock market and process that. does it give you pause? is it something you ignore? how do you take account for pretty precipitous drop in u.s. but global equity values? >> i think if you look at say the wilshire 5000 it was increasing at a rapid pace all through 2013, 2014 up until

january 2015. if it had continued up at that same pace, we would be sitting here talking today about a bubble in u.s. equities. that isn't what happened. sold off. now we're about 10% down from where we were january 2015. i think that's probably better pri pricing on -- >> you don't see it as an economic signal or economic omen or something that makes you nervous? >> i think it's better pricing than it was. you know, if we had continued to go up at that same pace that would have been asset pricing. >> if it was 125 basis points you did cause a sell off in the market then. i say they didn't. >> the idea being the minute they did 25 the whole world assumed 125. okay. >> so you did cause -- >> we said and yellen is great about this.

we're data dependent. if you look back to 2004 to 2006 that's not how we behaved. markets said train leaves the station. we didn't have credibility on the idea that we're data dependent. >> a lot of money because of that. a lot of people lost a lot of money. >> i can push back a little bit, though. we knew -- yellen said what the fed was going to do. all the guys on the fed said what the fed was going to do. the market didn't react. the fed did what it said it would do on that day. the market went up and went up for the next week or so. and then all of a sudden all of these things you're talking about start to happen. so you're saying the market eventually woke up seven days later to this reality? timing doesn't work for me, jim, in the narrative. >> the other thing that doesn't look if you look at fed funds future that has been a more shallow path and so you could

argue well why weren't they just looking at fed fund futures. >> right. let's be clear about this. >> people that trade on those things and another broader financial market especially globally, you know, they are just going at what the fed is saying. >> the key is fixed income markets did not price in this 125 but you're saying the stock market did and has been this divergence between stocks and - tightened for you very dramatically over the last six weeks. when you look at spread they have gotten very wide. >> that's true. that's also true. so i just think it had a -- if you just think it was a 25 basis point increase which is the way i portrayed it and, you know, chairman yellen portrayed it and then slow and gradual and we'll move on good news and going data dependent it shouldn't have had that big of an impact.

i'm telling you a story about why it made of had an upsize impact. if you look at our past behavior it didn't look -- >> the truth is guys get up there and i know some people even blame me and the interview i did with stan fisher, when i asked him your going to do four this year and he says that's in the ballpark, the thinking out there is, jim, if i'm not mistaken you shouldn't even respond to that question because that is a time based question, and you should answer a time based question in terms of data and you think that's part of what is conditioning the market and leading it astray? >> yes. actually, in my speech last night -- >> would you blame me as well. >> i did. i had a big picture with a slash through it. [ laughter ] >> you and joe. >> no. well, i do worry about this that

we've somehow signaled that we're on a freight train path even though we're not intending to do that. one of the things we can do is think about presenting the information in the summary of economic projections in a different way. we could either do more to emphasize uncertainty around that path or just say, you know, quit giving guidance like that. don't put the future path out there. >> here's your problem. i know we got to go. >> because what that would do emphasize as it was in the greenspan era emphasize we'll take it meeting by meeting and make decisions meeting by meeting. >> you can emphasize that all you want. but here's the problem. the bond market has to go out and buy a one year, two year, ten year bond. it cannot go and buy a 4.5% bond. >> there's expectations in the market but we don't apartment

commitment out there that we'll definitely do that and we have committed in the past about zero rates. >> do you have a team out there? >> i'm iu. >> you can't adopt them because you got a ph.d. there. >> the lives when they won their last championship in 1987. >> you're indiana. >> yes. >> all right. we'll talk more. should have adopted the jesuits. >> we'll have much more from james bullard. when we return apple's tim cook saying cracking apple's iphone is equivalent to creating cancer. we'll talk about tim cook's comments and what it all means. we're back in just a moment. ♪ every insurance policy has a number. but not every insurance company understands the life behind it. for those who've served

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welcome back to "squawk box". apple ceo tim cook went on national television last evening to defend his company's refusal to provide the federal government with the code to the iphone of the san bernardino shooter. >> the trade off here is we know that doing this could expose people to incredible vulnerabilities. this is not something that we would create. >> we're joined by crisis communications expert, the

co-founder and ceo of dezenhall. >> rarely do i i advise a client to pick a fight with the federal government but if i did, apple defies every law of crisis management to their benefit. they are not seen as a corporation they are sort of a evangelical organization where people worship their products. i see very, very little down side for them. the worst that can happen they say they fought it but it didn't continue. they were unable to prevail. what's interesting is if you look at his position, he was not saying we're not cooperating with the fbi. what he was saying is what the fbi is seeking is a pathway into all of our phones. and whether or not that is technologically true, i don't

know but it's a very, very powerful message and i think that they are going to be able to sell it at threat of their consumers. >> i'll give you a worse case scenario. the worse case scenario there's another terrorist attack of some sort in the near future, and law enforcement comes back and says that the terrorists used iphones to communicate with each other ahead of it and that they had tried to get into it or get access to it and couldn't. that's the worse case scenario. >> it's a very good example. i think one of the things in fairness that the fbi has going for them is with all of the talk we've had about privacy in the last several years a huge segment of the american public is perfectly comfortable with the government looking at some of our data if it means it's going to stop islamist terrorism. that said, i do think that apple is in an unusual position, i mean if you look at apple's

history, you're not supposed to be secretive. yet they are secretive and they profit from it. you're never supposed to insult the consumer yet steve jobs when people had antenna problems was saying, you people are holding the phones wrong. and nobody said apple really violated the laws of pr so we're not going to continue using their products. i think the scenario you laid out is really the biggest crisis management scenario, but they are standing on a principle here and if anybody can pull it off i think they can. >> but the public, you know, some people don't think the public is smart enough to understand these things. i think they are. meta data versus individual looking right at a person's iphone information versus having all of this stuff where all of a sudden you see wow look at all these calls going yemen or something like that, we're not even picking an individual to check what he's doing. we're seeing in sort of a

circuitous way something that looks suspicious. americans are comfortable with that. i don't know if they are comfortable with having every single thing on their iphone opened up. >> can i make one point -- >> that's the next stop. >> that's the worse case scenario. >> he didn't call it cancer because it kills us he called it cancer because it would spread. >> apple prior to this situation had actually had a key that was relatively open and for the last several years we have not heard about a public issue where all of a sudden -- >> apple's position with their core consumer base is likely to resonate and that's what they are looking at. >> eric, thanks so much for your perspective this morning. we appreciate seeing you. we hope to see you again. when we come back we'll much more from our special guest james bullard. i want to hear what you have to

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welcome back to "squawk box". the futures right now are better than yesterday. all day yesterday we were down until all turned around and closed up but it was a pretty good reversal, and the gains are continuing after what was a great week last week. so the market is at least at this point in recovery mode. also best buy earnings and revenue matching wall street estimates but first quarter guidance fell short of current consensus. best buy announcing a new $1 billion repurchase plan and 22% dividend increase. kohl's is posting better than expected profits. raising its dividend by 11%. massive selloff overnight in china and oil is lower this morning. but the u.s. markets are moderately higher with the dow coming off its biggest reversal

since 2008. trying to make sense of the volatility is john bellows and our special guest james bullard. good to have you here. what do you make of the market moments at this point? what do you make of mr. bullard's comments this morning about what the fed might or might not do. >> let me start with the fed comments. i think the fed is in a difficult pose. there's a lot of cross currents. markets have been volatile. hard to distinguish the signal from the noise. the sfed in a difficult and challenging situation. one thing that's helpful is something president bullard was mentioning or the fed to talk about the conditions they need to see in order to have another rate hike. one of them as you mentioned higher inflation expectations. that's exactly right. that's a big concern. we've seen inflation expectations move down in europe and japan and having a lot of trouble getting them back up. acting or at least not letting inflation expectations fall further that's condition number

one. i think you need to see some improvement in credit markets. we've seen spread widening. you've seen reports that lend cigarette harder to come by for smaller businesses and households and until financial markets heal that will be a big drag as well. >> you see citigroup's concerns and one of their concerns is that these guys are going to be less effective all over the world that it's just not going to help in propping up asset prices or raise aagrggregate demand. >> we don't have a good model how to get inflation expectations back up after they've fallen so low. it underscores the importance of not letting expectations fall further. >> on that note, i don't know if you saw bullard yesterday, martin wolf, he wrote about the possibility of this injecting money into bank accounts. just straight up.

sending people money with the idea being you're trying to get inflation and with all the attempts that have been done so far the banking system is brought to its knees because of negative interest rates and people buying asset classes they would never buy except they are desperate for deals. when you go through the logic, ben bernanke, helicopter money, could they get to that? would that work? >> that's the kind of thing we kick around in simple based on monetary theory if you want more inflation how about morgan. if you can print currency with impunity why not do it solve all the problems of the world. whether we ever get to something more radical like that, i don't know. i will give you just one little snippet that we thought about this. you know, when you take your money banking class and they

tell you if you double the money supply you'll double the price level and they mean currency. but there's an expectation component to that. if i hand you a $20 bill and you think in your head he's handing me a $20 bill but he's going tax it back from me at some point in the future so, therefore, i'm going to put it in the drawer. if that's the view then even that won't have any inflationary effect. i think there's a lot going on in sort of deep ideas about what drives inflation. >> meaning that if they did that in europe where tax rates are so high or potentially going higher it might not work. >> take a place like japan. they built so much credibility they wanted inflation to be low in japan and did all these things that kind of looked crazy from the outside, but what people are thinking inside japan they are thinking yes they are handing me dollar bills but going tax them back in the future and this was this doesn't cause any inflation. >> if i could, the point on tax

just underscores one of the central points here which is in order for this to work you need a coordinated fiscal and monetary policy. obviously we don't have that or anything close to that and instead we're relying a lot on monetary policy. i don't think that means monetary policy can't contribute, can't do a lot but it under scores one of the big limitations we have is lack of coordination between fiscal and monetary policy. that will be true for a while. we're not looking for fiscal policy to get in gear. >> so belabor this point a little bit more, they screamed about structural reforms in europe. remember. trichet didn't want to help anybody out. if we help you out with your interest rates you'll never changed. then they helped them out with interest rates and they didn't change.

right. we're back -- right. they don't grow. you can do all you want with monetary policy but if you have an economy that is so calcified. >> the u.s. needs a medium term growth agenda and has nothing to do with monetary policy. it has to do with a whole package of things that's more growth friendly than what we've had in the last, you know, in reason times. we've got very low productivity in the u.s. we need to get that higher. we need to get more capital formation and entrepreneurship. we need to do a lot of things that would get you to higher productivity, higher long run growth rate in the u.s. and, you know, monetary policy tricks are not going to do it. monetary policy is about stabilization. you're stabilizing around a trend. the trend is lower you got to do other things. >> would the rest of the world be ineffective in getting our

structural problems in order? i mean we one why europe doesn't grow. look at the way a lot of the economies that labor laws, you know, they are not exceptional in the way that the united states is exceptional and the way we approach an economy, right? suddenly we're all faced with this malaise. it's a global malaise. if german rates are 20 basis points how do we go above 1.75. suddenly we're in this interconnected global economy. it is because we join the rest of europe -- >> i'm sure you can do things to get higher growth. >> here. we won't fix the rest of the world. >> we could have higher growth. >> this makes a point that kind of comes back to something you said earlier which is the fed didn't tighten by 25 basis points the fed tightened by the dollar going up by 20% in the last 18 months. part of that is the fed and part of that is the global context. when you look at the effects of monetary policy 25 basis points is just the start.

$impact is very significant. it's weighing on growth and inflation. >> china comes in. >> comes back to the point it is fwlobl and does matter what everybody else is doing and has direct repercussions. >> if the ecb eases further does that affect? >> well, we look at -- we certainly look at the dollar as it impacts the u.s., the dollar is, obviously, a multiplayer game where it depends what the other guys are doing. i think the main movement in the dollar was really during 2014 when they decided to do qe, it was the run up to qe in europe and that's the period where the euro weakened substantially and the dollar strengthened substantially. that's almost all the recent movement is due to that period from about may to december of 2014. once they actually head the decision to do qe, the party was over. it has strengthened, the dollar has strengthen ad little bit

since then. >> now you have to deal with possible zip. i'm not sure how you view the entire european union at this point as whether it was a success or not because obviously if you were going to start from scratch you would not design a system where you have all the same currency with no financial or fiscal coordination. that's not a way to run an area of the world. would it be bad or it would be positive for growth if the eu were to dissolve? >> i know we're going to talk about -- i don't think it's a risk event for the u.s. economy. it doesn't matter for the u.s. whether the uk is in or not. >> what if the euro plummets like the pound and the dollar gets stronger? >> here's what i think. if the uk votes yes then nothing has changed. if the uk votes no, now you got three years of negotiation to figure out how the hell to get out of this. or possibly some other kind of

free trade agreement that isn't exactly the same as being in the eu. so, i think that it's not as critical a point even on the yes/no vote right on june 23rd because there has to be this negotiation afterwards. not much will change on that day even if they vote. >> you talk about free trade. what if trump becomes president. will you have to base some of your monetary decisions on whether suddenly we become totally isolated -- >> trade war? >> yeah, trade war. that's another -- >> i have to understand exactly what he's saying. i'm not sure. he's art of the deal. right. i thought he felt like these deals were not negotiated properly. >> but still negotiate. >> he would still negotiate. that's what i heard him say. maybe i misunderstood. >> you may have the midwestern view. that's not an elitist view. >> one thing on trump or on trade is -- >> or trump. >> you see a shift every where.

the usual kind of moderate coalition that's for free trade seems to come apart. you see hillary clinton backing away from free trade a little bit. you see the more moderate republicans backing away from free trade. i worry that you lost that constituency for free trade. that's just kind of gone. trump may be an out liar here but the middle that used to support free trade is crumbling a little bit. >> i'm big on free trade. what i'm thinking in my head why would we ever block a voluntary trade between two people. we're trading for mutual advantage. this is why we allow this. we don't want to block this. that's why economists are for free trade. then you look at the actual agreements. what are these actual agreements and are there nontrade barriers and other things going on. are they not as free as they look. so, you know, you could argue there that maybe they are not right. i don't know. i don't know enough details

about them. >> good discussion, guys. thank you for coming in, john. mr. bullard staying with us. "shark tank" investor and entrepreneur daymond john talks about business success and what he's hearing from businesses he invested in about the state of the economy. check out the futures. they have been up for most of the morning after a good turn around yesterday after 50 points down on the dow.

>> welcome back to "squawk box" right here on cnbc first in business worldwide. president obama's information budget director is getting a gig. pet are orszag has bean vice chairman at citigroup since he left the obama administration in twun. i am emailing with mr. orszag he's watching us on television on an airplane and sent me a little picture. >> the mrs. was not on tv. >> she would be watching her instead. >> better be. true. >> we love you.

there's a new billionaire capital of the world, china has taken over the united states for first place with a total of 560 billionaires. the u.s. drops to number two with 535 billionaires. despite its second place finish the u.s. can still claim the rich john roberts person in the world bill gates. when it comes to specific cities beijing takes the top spot with new york a close second. bernie has a lot of work to do. >> i know. he has to take over there too. >> get rid of these guys. >> coming up -- >> you need actually -- >> just take it. >> "shark tank" investor daymond john is in the house. he'll tell us what he's hearing from entrepreneurs and start ups he staked. becky quick sits down with warren buffett for three days on leap day. that's monday february 29th following the release of

berkshire hathaway's annual report. scene cnbc your questions for the oracle. use the #askwarren and your question might make it on the show. today we'll be right back. "scorsese finally wins."

"could you double check the envelope?" "best actress, 1984." "and i can't deny the fact that you like me." "life is like a box of chocolates." "you never know what you're gonna get." "we're gonna need a bigger boat." "xfinity x1 lets you access the greatest library of oscar moments, simply by using your voice. live oscar sunday, february 28th on abc." . welcome back to "squawk box". for a look at entrepreneurship in america we're joined bay special guest who started lifestyle empire from his mother's house in queens. "shark tank's" daymond john is here. he's the author of "power of

broke." how a hunger for success can become your greatest competitive advantage. good morning. >> thanks for having me. >> how does the "shark tank" thing changed your approach to entrepreneurship. i hear now you have a whole team just devoted to the "shark tank" thing. >> it really has changed. we have a whole team, vets companies and make sure things are in place. it's opened up my mind to this whole world of conversion whether you need retail or not selling directly to your consumer and how the millennials are doing business. some of them are doing business out of a skateboard in manhattan park on their iphone. if i wasn't behind that i wouldn't get a peek at this. >> when you look at the funding model. it feels up until now that anything can get funded. >> yeah. >> is that too much? >> it is. it's a small percent that get funded in that sense.

that's why i wrote the book many people go out there and they don't have the funds and access and create it. they don't need all this money because all you're is going to do is basically lie to yourself until the money is gone and then realize you got the same results when you had nothing. if you have crap and only a dollar to sell it don't take out a million dollar loan. >> vc model has been, you're a venture capitalist of sorts you're hoping for a home run, recognizing some of these things you might strike out on. >> sure. >> what's the most successful investment thus far and did you think it would be the most successful? >> two. al b everyone bba boneless ribs. there's a patent on the product and the process. so now women no longer have to get ribs in their teeth and on nails you can cut it up. you see when i used to sell

people a shirt they can wear it ten times. now when they eat ribs it's gone. we'll take that into $200 million. that's my most successful. the other is b omb a socks. they give a pair of socks to the homeless for every one they sell. >> what's the investment you thought would kill would be awesome that you totally missed that didn't work? >> you get excited and every single investment you think will do that. like the last girl you met at a bar you're going to get married to. i have about a dozen of those. i'm trying to figure out. trust me there's a bunch of frogs in the -- >> what's something you wish you had. which is the song you passed on that went on to win the grammy. >> i realized there's not one company. it's the marriage of the perfect shark with the perfect product perfect entrepreneur. lauri buys the worst crap ever

on "shark tank". she buys all the stuff nobody wants. but do $70 million of business so obviously she had a vision that we didn't understand. >> did you think you can buy an entrepreneur, a serial entrepreneur because one of the things you talk about "power of being broke" when you're broke it creates a huge incentive. once you made it does it change the dynamic? >> absolutely. the people that operate the power of broke more than anyone the ones who stay successful. if you kneed known make money like we were all brought up, if you're in the top 8,000, they were broke generation of wealth didn't put anybody tloints. an athlete who was bankrupt three years outdoor of the league you had $100 million the money didn't get you anywhere. i lost most of my money when i had that and could spend $6 million and $10 million and get lied to. so it really is something, a

mentality you have to use when you get to that level. >> while we have you here since we've been debating it all day and you're a big iphone fan. what do you make of this debate. what do you think tim cook should be doing? >> i think tim cook is doing what he should be doing. the fbi tried to get into phone ten times. i'm paying some good taxpayer money for some smart guys who had the phone taken down and opened at that point. you can't give everybody an open platform to peek into our eyes. if the whole case is based on iphone we have a bigger issue. our surveillance and things we pay for in this country should be able to get to that point before you have to go and mess up getting into the phone ten times. my 7-year-old knows after three, four times go down the apple store. you should have a warrant. >> what's your biggest secret? >> the biggest secret is that i actually like some of the

sharks. >> don't let that get out. >> you shouldn't say serial as adjective. i think of ted bundy. serial entrepreneur -- >> that's what i think of when i hear serial entrepreneur. >> born or could be made an entrepreneur? >> we are all born thinking like entrepreneurs. i think many of us go up through life and certain people around us say you can't do that, it won't get done, you'll embarrass us and then we change our minds. but just like kids we think we can do everything people around us and people we have access to. >> i could never be an entrepreneur. i want to work for a corporation. i want to know my health care benefits are okay. you know. >> listen, i don't want to

glamourize entrepreneurship. you go to work for a corporation that's just as hard. >> what should the fed do? >> i leave that up to the smart guys. >> i look at silicone valley and a lot of the games is start the company then sell it off to a bidder that will pay too much for it. to what extent -- i don't hear that as much for these companies that you guys are talking about. >> i don't feel that way. i'm a career brand builder. i believe and most of the companies, you know, years ago you can get an exit in four years. now you're looking at seven years. so i don't go into it with an exit in mind. i go into building a brand and then an exit will come. >> daymond john, the book "the power of broke." >> great having you on. >> coming up more from our special get st. louis fed president james bullard and tim cook speaking out why apple is fighting the government's

request to unlock that iphone from the san bernardino shooter. we have no sympathy for terrorists. in my view they left their rights back when they decided to do awful things, way in the planning stage.

the man of the morning. >> i do worry that we've somehow signaled that we're on a freight train path even though we're not intending to do that. >> fed voting member jim bullard speaking out on the central bank's next move. an interview you'll only see on "squawk box". >> bad for america? >> it will set a precedent that i believe many people in america would be offended by. >> tim cook makes his case for fighting the u.s. government. >> it's bird, it's a plane, no it's a drone. we'll tell you about a new idea for the popular aircraft and what the faa is doing about it. the final hour of "squawk box" begins right now. ♪ your love is lifting me higher ♪ ♪ than i've ever been lifted before ♪ >> announcer: 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 am joe kernen along with andrew ross sorkin and michelle caruso-cabrera. she's sitting in for becky quick. >> i like the music. >> less than 90 minutes away from the opening bell on wall street. futures right now are up 31. they were up 50 earlier after a reversal yesterday based on oil reversing, today oil is back down but the market is up because oil is still, you know, somewhere around 32 almost broke under 30 yesterday a big selloff in china. so far the markets hanging in there. the european markets were all based on catching up with the moves here yesterday. that's giving some strength to our markets. among today's top stories economic data is front and center. weekly jobless claims and durable goods out at 8:30 eastern time. tim cook says complying with a court order to help the fbi

belonging to an iphone belonging to one of the san bernardino shooters would be bad for america in his words. apple has until tomorrow to respond to the court order which it says it intends to fight. we'll have more in a few minutes. foxconn is buying sharp. talk about china the global market story is one of the morning. big losses in china. stocks dropping more than 6% in what was the worst performance in a month. among the reasons fears of tightening liquidity and fears of a cooling economy. it is the wall street called it everyone is talking about this morning, supposedly. economists at citigroup are downgrading 2016 global growth forecast to 2.5 from 2.7%. citigroup says that there's a risk that the world economy may grow below 2% due to probable

mismeasurement of the chinese data and citigroup economists say they anticipate more policy ease from the ecb and boj and argue britain's referendum on whether to stay in the eu is a near term global risk. guest host doesn't think ate risk. we'll talk with him more. >> global financial leaders gathering in shanghai for tomorrow's start of the g-20. on the agenda global growth fears. earlier today cnbc caught up with the chief economist for china's central bank. >> i think investors are nervous about various aspects of the chinese economy but when you look at japan, the more fundamental aspect of real my for them, for the consumption is actually quite robust. what i saw in recent statistics is that giving the chinese new year retail sales were growing 11%. >> our guest host this morning

st. louis fed president jim bullard. i've never seen a chief economist from the pboc speak to the press before. they are so opaque. the other thing retail sales going 11%. they used to grow 20% in china. it's a double edge sword. >> they did the right thing bringing him in. he's a very sharp guy. obviously comfortable talking. that's probably very helpful. it will give them more transparency. a lot of being transparent is being able to talk sort of on a regular basis about the chinese economy without it having to be a sort of policy pronouncement from on high. so i think this might give them some ability to do that kind of thing. >> would you agree that they've been a little ham-handed in the last several months in terms of their market messaging when it comes to what we've seen with the moves in the currency? >> very transparent economy and

everybody is scratching their heads from around the world. i had to smile about citi saying maybe the chinese data isn't quite right. the story i like to tell is that, you know, u.s. gdp, get a first release and then you get a second release and than third release and then you get a benchmark revision. chinese gdp reported on the last day of the quarter and it's never revised. so it's just totally different. >> we're in a weird world. you got to admit. you must look around sometimes, all of the fed must, 4.9% unemployment and zero interest rates. i guess you figured out a way to explain it somehow. >> if you just look at that, the story is you should be going up because -- >> i'm trying to figure out what is different about the world that these relationships are suddenly, that we don't just scratch our head and say it's impossible because if you described this world ten years

ago to someone they would have said that could never happen in the real world. i used to explain the malaise here in this country as you probably would from not only the inability to get anything done but also all of the regulatory overreach and obamacare and, you know, anti-private-sector sentiment. everything we've seen for seven daers. defenders for this administration says the rest of the world was slow too. that can only mean it's central bankers every where. central bankers every where that have in response to the financial crisis which maybe made sense at the time but here we are eight years later and at this point you have to ask yourself, is zero helping, is it not doing anything or is it actually hurting because of misallocation of capital and mispricing of assets and these assets are already too high based on liquidity? >> you're an economist, you're thinking about the credit market, supply and demand, you

want the right price in the credit market. you don't want to be saying i'm going to tilt everything towards borrowers. the place where it's hurting as savers, you got people that, you know, were counting on being able to get a higher real rate of return on their retirement savings, other kind of savings, they aren't able to get it. it's disincentivizing investment, maybe you want to move that more into balance. >> what happened to the world? did do you this? >> i would like to normalize and get back to the equilibrium we had in 2004 and 1987. we had good growth. two recessions that were relatively mild up until the financial crisis. would you like to get back to that kind of scenario because those were some pretty good without comes for the u.s. economy. how to get there and being able to get there in the right way. >> central bankers were responding to a weakness they didn't cause the current weak

economic -- >> i don't think central bankers caused it. we talked about it before. my leading hypothesis is you had the financial crisis, you re-regulated the u.s. economy and it's taking, frankly too long to get that re-regulation done. why count you have done that in a couple of years. okay here's the new rules and then go from there. the other thing we have low productivity growth. all this technology around. >> do you think you have pushed people into assets they otherwise wouldn't have invested in. >> yeah. i think there's some of that. >> where? >> well certainly, you lower rates and people move out to try to get some returns so they move out into equities, move out into higher yielding debt that they would have gone into. >> does that mean you think the multiples in the stock market are too high? where are the distortions if you can pinpoint. >> as i was saying at the top of the show, if you look at the wilshire 5000 that was

increasing at a very rapid pace in 2013 and 2014. if that had continued we would be talking about asset bubble in equities. that's not what happened. you got this correction. now you got your closer to fair value and less of a concern right now. >> classic economist would have thought the commodity inflation would be rampant by now and instead -- >> here's the thing -- >> it's crazy. nobody predict this. the biggest commodity bust in history while you're printing that will money. >> didn't predict it, i don't know. real dollar price of oil between used to be low and then between 2003 and 2007 it tripled real, in real terms. it tripled. what happened? you got a supply response. globally. it's beautiful economics. >> it is. >> you know people started fracking. people started deep oil drilling all kinds of stuff that wouldn't have been economical before and now what happens you're awash in oil. >> central bankers really don't

cause inflation. maybe the whole volcker idea it's their fault. japan has been trying. maybe that's not what causes it. >> you might want to consult the venezuelans. >> a way to do it. >> consult with them. >> all right. >> can to be done. >> now the buzz story of the morning, tim cook speaking out making apple's case against the u.s. government. josh lipton joins us live from san francisco. josh. >> reporter: apple's ceo tim cook suggesting he's willing to take this case all the way to the supreme court if necessary. and he laid out what's at stake here. >> the tradeoff here is we know that doing this could expose people to incredible vulnerabiliti vulnerabilities. this is not something we would create. this would be bad for america. it would also set a precedent

that i believe many people in america would be offended by. >> reporter: so clearly tim cook there choosing to stand his ground. he does not want his engineers to write new software to bypass the security of this iphone. that new software could be stolen and put the security of millions of iphones at risk and that's why cook says this debate isn't just about privacy and security it's all about safety, that your iphone he says knows more about you than any other device. cook also says he learned about this court filing from the press, the obama administration he says did not give apple or him a heads up. he says he will be meeting the president to discuss the case. joe, back to you. >> really. that's interesting. okay. the house judiciary committee will hold a hearing exploring security versus privacy next tuesday and apple ceo tim cook has been invited to the hearing but no word whether he'll attend. joining us now is congressman

bob goodlack. is it clear what apple should? >> it's not clear cut. first thing that we need to recognize is that this issue of the balance between security and privacy and protecting civil liberties is not a new one. it's not even new in the communications environment because it's been going on for to 6r years to 20 years. it's important to note that encryption which is at the core of this debate is very important. very positive thing that all of our devices and communication systems use very strong encryption. that wasn't true 20, 30 years ago so people are safer but they are still not safe enough. so the effort by tech companies to enhance encryption and make it harder for people to crack into these systems and that

people can't get access to keys to open them up are very, very important. having said that law enforcement, obviously, has serious problems in detecting crime and solving crimes with the advance of encryption. that's why this issue needs to be addressed by the congress and that's why the judiciary committee is having a hearing which by the way we've already scheduled the hearing on encryption before the news broke about this apple/fbi dispute. >> this goes back hundreds of years. in principle. trying to decide privacy rights versus what the government is allowed -- again we've grappled it with warrants and miranda. so many different -- it's not a new argument. in the past the slippery slope argument worked a lot of times we give up something. we give up some things that we would like because of the purity, pure instinct to keep things private. suddenly there's gray areas

here. oh, no this involves terrorism. all of our previous principles we need to compromise because this involves possible terrorism. it was always clear cut in the past. you need a warrant. >> there is a warrant. >> i'm talking overall general idea of protecting privacy versus saying well in this case -- we're talking to the congressman. what do you say? >> first of all you're right this goes all the way back to the constitution itself which provides measures for the country to protect itself but also in the bill of rights adopted immediately after the constitution was adopted provided a fourth amendment protection against unreasonable searches and seizures. in this case the government has a warrant, they have a reasonable basis for wanting to look into this phone. it's their solution for how to do that that is in question here because they are asking apple to create software that once it's created makes not only this phone vulnerable to getting into

it which we want them to get into to find out what's there, who else was conspiring with these murderers and terrorists in san bernardino, but also gets -- >> that's not what they are -- >> congressman, two points. >> he just said something you said is not true. >> the one piece of it is not true it's not clear, well not even not year, the goal is not to then take this new piece of software and put it on everybody's phone. >> no. >> it's slippery slope potential. >> i'm not arguing you put it on everybody's phone. i'm arguing that its existence will become a vulnerablity to everyone's phone because somebody getting access to it other than apple or the government with a warrant can abuse this and make everybody's phones vulnerable. >> that's 100% correct. what i'm trying to -- the thing i'm trying to grapple with in this is that in the analog world, right, and i used this

example 10,000 times, but if you have -- there's a crime that's committed inside your apartment or inside a hotel or whatever. invariably there's a warrant the police can go to the landlord, the hotel company whom ever and say please open the door. if they don't open the door then they can go the key maker, please make a key. if they don't do that they will say we'll bust down the door. what's the problem in this instance? >> the problem is the nature of communications and the change in the way people store their data. in the past if they didn't want anybody else to have access to it they could put it in their place where only they knew where it would be. >> why is this information immune? why is a technology company or in the technology world, digital world somehow that world is immune from subpoena power if and when the subpoena and warrant is legally taken? >> it's not what the technology

companies want that's important. it's what their consumers want. it's what american citizens want. and that attitude has changed because more and more information about them is stored in devices and in the cloud in ways that people do not trust other people getting access to it. and so this change in attitude needs to be reflected. where that is reflected is in the united states congress. it's a serious problem balancing security and civil liberties and that's why we're going to hold this hearing and that's why we'll delve into it deeper and ultimately we may fine some solutions that satisfy the people that we represent. >> what do you think a solution looks like? >> i don't have a specific solution to this problem because as i said i want to promote stronger and stronger use of encryption. and as these devices become more interoperable and able for

somebody in the ukraine to attack a system at a u.s. government agency or a business or an individual and get access to it means that we are not strong enough yet to protect encryption. >> they are using these tools to attack us. >> that's right. that's why end to end encryption, protecting people is very, very important. >> no, no, to use the tool to then physically -- to use the tool to create the crime that physically attacks us not digitally. >> i'm not sure i follow what you're saying but i certainly believe that improving security is a very, very important thing to do for individuals, for the government, for businesses, and that's what these tech companies are trying to develop when you create back door keys of various kinds that access part or alligator of these things. once that key exists that create as vulnerablity that people worry about. consider the international competition here. if you require this of u.s.

companies but other businesses are out there around the rest of the world developing products and saying u.s. government doesn't have a back door key to our products you got a serious problem there as well. the world is much more intercommunicative than ever before and encryption is a key part of protect people and also protects people who are plotting against us and that is why we're holding this hearing. >> whenever you say stronger and stronger encryption is something that we want, that's mutually exclusive from saying stronger encryption that people can get through. it's mutually exclusive. if we get rid of all these other things terrorists are using maybe we would be safe. they are using words. maybe we can get rid of all of them, andrew and then maybe -- i don't know. get rid of it all. it always involves words. if we go to the source and get

rid of the words. anyway, thank you. appreciate it. >> thank you. >> coming up -- retailers, names to watch. you investment opportunities. i've got a fantastic deal for you- gold! with the right pool of investors, there's a lot of money to be made. but first, investors must ask the right questions and use the smartcheck challenge to make the right decisions. you're not even registered; i'm done with you! i can...i can... savvy investors check their financial pro's background by visiting smartcheck.gov i thione second it's there.day. then, woosh, it's gone. i swear i saw it swallow seven people. seven. i just wish one of those people could have been mrs. johnson. [dog bark] trust me, we're dealing with a higher intelligence here. ♪

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. stocks to watch this morning, best buy earnings and revenues matching wall street estimates but first quarter guidance falling short of current consensus. stock is lower. best buy announcing a $1 billion repurchase plan and 22% dividend increase. kohl's posting better than expected results. raising their dividend by 11%. sears reporting a wider than expected loss. same store sales at k-mart decline 7%. the company blamed unseasonably warm weather. don't move coming up we have breaking economic news, weakless jobless claims and durable goods. "squawk box" will be right back.

welcome back to "squawk box". the faa has assembled a panel to explore allowing drones fly over people not swoeshd the aircraft. this could have an impact on how and where drones are used at sporting events and deliveries. until now the faa has sought the discourage dproens flying over or near people other than its own operator -- >> if you go to a major stadium. >> i don't want to see a drone come up behind me with some anthrax. >> a sporting event, you see that camera that's on the wires.

you see the wires they use now at a football game. you would think, okay we get rid of the wires and have multiple drones flying above. coming up when we return, breaking economic news. we'll get you jobless claims and durable goods. but take a look at u.s. equity futures. dow will 20 points higher. you're watching "squawk box" on cnbc, first in business worldwide. we like that. not just because we're doers. because we're changing. big things. small things. spur of the moment things. changes you'll notice. wherever you are in the world. sheraton.

welcome back to "squawk box". we have some breaking news. initial and continuing claims, 272,000 on initial claims. fairly close. couple thousand higher. last week's 262 stands unrevised so an up even ten. 2.235 million on continuing claims. preliminary durable goods for the month of january is 4.9%. now this is much better than we anticipated. we're looking for a number around 3%. last time, horrible numbers down 5% on the finals. they are now down 4.6. so some benefit there. let's look at transportation.

up 1.8. multiples is what we were expecting. let's look for that proxy on investing by business capital investment. let's look at capital goods orders, nondefense xaircraft and that's up 3.9. finally a good number here. we're expecting a number around 1%. just to show you where we're coming from originally the last time that number was down 4.3 anticipate stands at down 3.7. look at shipments versus orders down .4. maybe a slight fly in the ointment but that's what we were expecting. .7 positive revision on orders from up. to summarize these preliminary durable goods orders is better than anticipated. jobless claims did get a job but i'm not sure that moves the needle much. we've seenle yields creep up a basis point or two after the data points are released. everybody is talking about china but today there's something different not everybody is trading on china.

china's markets are operating somewhat in a vacuum. whether that's a new development or not pays to pay a lot of attention to that especially today when we look at oil coming down close to unchanged. back to you. >> we talked about that, rick. we're ignoring what happened in china and what's happening with oil and futures in positive territory. good point. >> i think these numbers are crazy and it's hard to know what to do with it. minus 4.6% in december, plus 4.9% in january. rick pointed to us this nondefense aircraft a proxy. up 3.9% this month, down 3.7%. boeing, and boeing reports its orders, 223 in december. did something like 60 or 70 in january. the government reports it is down 29%. it's crazy. you got to weight it. the better number is the claims number. i want to turn to jim bullard.

this is the high frequent data best ignored. the ism on manufacturing show decline. people talk about the manufacturing sector being in version. we had softness in the service sector. what's your outlook and how much concern do you have for the growth outlook for the united states right now? >> i think this year will be better than last year in gdp growth and baseline forecast that most people have are for a better year. last year was 1.7%, q4 gdp growth. this year people are in the 2 to 2.5% range. not a great number. we were talking about it earlier. pretty slow growth. because our trend growth rate is slower than it used to be. still a better year than last year. i don't see recession as particularly high. the stories i'm telling about declining inflation expectations being concerning do not have to do with the idea that i think the economy is going in the tank. you look at this claims number.

i mean 272 on jobless claims. if you put that in a historical perspective, it's like a 50 year low. >> it tells you there's going be another strong jobs report. so tell me how you look at 0.3% growth in the fourth quarter, and job growth that was north of 200,000 and continued strong job growth. two very different stories. jobs and the economy. do you side with one as to what's telling the real story? >> when the jobs data tells a different story from the gdp data, you go with the jobs data. >> i do that all the time and they yell at me. >> okay. >> for the record. >> you just told me gdp gets revised so much and there's benchmark revisions later on that you might look back at this five years from now. >> you mentioned your concerns about inflation. the arm chair economist at home says wait a minute we just saw cpi come in above 2%.

why your worried about inflation being so when the last number looks like it's the highest it's been in years. >> i'm worried about expected inflation declining and expected inflation declines getting out of control and i don't want that to -- i want that to stabilize. those numbers should start to go back. actual inflation is coming up and a lot of people are thinking the pc will also be up. we'll see when that comes out. the cpi, core cpi is over 2% right now. and so that's good news in the sense that it fits with committee's narrative on this, that there were temporary factors that were keeping inflation, low those temporary factors will go away. therefore inflation will come back to target. i think that's still a good baseline story. what's got me worried these inflation expectations have fallen and according to hour dels that has a bigger influence

on where inflation is going than these -- >> this is a big change in how central bankers work. used to be they did exactly what michele just did which is you look at the inflation numbers and say they are going up. this idea of what people expect inflation to be. you're saying it's even more important than the actual inflation numbers. >> it's killed japan and maybe europe as well. because they've got, you know, they've got a situation where inflation -- they allowed inflation expectations to erode. they got low inflation that they haven't been able to come back, cannot come back to target. maybe the ecb and boj will make progress. tough trap to get out of. i don't want to get in that trap. i want to see inflation expectations stabilize. the five year five year forward which is based on the cpi in our models that thing is never supposed to deviate from a little over 2% and it is right now, down about 100 basis points

from the summer of 2014, and has been having -- >> so will you not support rate hikes as long as the inflation expectations are headed the wrong way? >> well, i'll reserve judgment about the meeting itself because we're not there yet and we got more data to come but i would like to see inflation expectations stabilize. >> thank you. more coming up from jim bullard. neel kashkari making a splash with his first interview on jobs, making big policy pronouncements, he's working on a plan to break up the big banks. we'll get more from jim bullard next.

i want to be honest with the american people that yes progress has been made but if we have a stressed economic environment and multiple banks are in trouble at the same time the government is going to have to step in and bail them out and i don't think that's an answer that people are going find acceptable and so now is the time to consider more transformational solutions, breaking up the banks is one of them. some advocated turning them into utilities by put sewing much capital they can't fail or leverage across the system. >> that was the new minneapolis fed president, neel kashkari making the case last week right

here on "squawk box" to break up the big banks. our guest host is simple fed president jim bullard. like a boxing match. >> that's the new neel kashkari. i swear to god. >> what do you make of your new peer. >> he's a great guy. i'm glad he's joined the fomc. i appreciate that he took on this issue. you guys know that i've advocated thinking about breaking up banks and that i don't think we've solved the too big to fail problem, so, you know, putting a circle around this issue and getting the fed research staff in minneapolis, that's a great think. >> what do you think the answer is? do you think the banks are not safe enough right now? >> i'll give you a vision for what i think about this. what we've done with our regulatory environment -- course we had to implement dodd-frank. i thought we did a good job doing all that.

what we've done is's esconced these big banks as if they are going to be here 50 or 100 years from now. you protect their position in the economy. how much innovation will you get out of that in the linkedin run. what i want to do is have many more firms smaller give up on the economies of scale. i'm willing to sacrifice some on economies of scale. you have more firms. you let them, you take off some of the regulation, let them do whatever the heck they want. you get more innovation. and then u.s. financial markets are the leading ones in the world because i'm sure we run circles around these big bureaucratic institutions out of china, japan or europe. >> when jamie dimon says we need size of scale -- >> they want scale. they want economies of scale. and to some extent want the protection of the government being around them saying that they are too big to fail so that they don't have to --

>> you don't think there's a free market here going on. >> no. >> you're using the free market -- >> my analogy is at&t. >> back when it was a monopoly. >> you broke that thing up and what did you zbhet you got all the phones we're talking about this morning and everything. incredible innovation. if you look at the financial services industry over the next couple of decades i see probably tons and tons of innovation that's going to happen, has to happen as financial innovation intersects with new information technology and new ways to think about how to do these things. that's what you want. you want that innovation to occur here and then you want do future. >> china their ability to make any profits seems almost zero at this point. any worry about a feedback effect, transmission effect to u.s. banks here if we see some

kind of -- we've had guests on say some of those major banks have to be nationalized ala aig. >> because they are a mess? >> yes. >> a lot of them have backing from their governments. the natural inclination is they have national champions. >> banks are safe despite what might happen over there? >> we're safer than we were in 2007, 2008. we got more capital. >> i won't make the case for larger banks but let me ask enthusiast, if you look at the banks in china, for example, they are going to be banks that are two and three times the size of jpmorgan competing against us. >> i'm sure they will be bureaucratic nightmares. >> loans up the gazoo. >> there's political influence who gets what. doesn't sound like a good business model to me.

>> i've bern advocating breaking up the banks for quite some time. is that what your first statement? was >> yeah. i agreed with richard fisher who worked on this issue. so that's my position. >> and neel is not alone and if we put up all your pictures we can put a check mark next to you and neel. >> you want to break up the banks too, joe? >> i'm nailing them down. >> what would you like to do? >> you know, i just want more atms, really because there's always a line. >> you want innovation. you want innovation. >> break them up? break them up and create for competition. >> people that are in front of me trying to put the check in. it should be about -- >> giving out money. >> they take too long. >> i want more atms.

>> more innovation >> you're right. there's one other thing, sometimes i do like -- i wish there were mortelers because there's no tellers. would that be effective by breaking them up? >> you know, you got innovation occurring in virtual currency, peer to peer lending, this kind of stuff. there's a lot going on and you want to be on top of that. those kinds of things are part of it. >> andrew, i would say we need to let things fail and if these things still need to be rescued then that wonderful law you love and helped co-write dodd-frank -- >> i did not -- i didn't advocate this. >> but it didn't work. okay. >> it did work. >> okay. >> so far as capital requirements. >> i will say further capital requirements are getting these companies to think about

divesting and they have die vested some. >> if things can't fail they can't succeed, right? if you haven't been in the ring you don't appreciate -- >> didn't you just see "power broke" right here? >> you need let them fail. when we return jim cramer will join us live from the new york stock exchange. plus, the global glut. saudi's oil minister said he's prepared to let oil slip below $20 a barrel. we'll hear from a commodity expert and we use that term loosely next.

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welcome back to "squawk box." let's talk oil. matt smith joins us on set. he's director of commodity research at clipper data. what do you think is the next stop for oil? is it 20, 40, is it flat? >> i think potential is to the downside in the near term here. i think saudi arabia is playing absolutely brilliantly. they're saying you know what, we're happy to let free markets roll here. in terms of exports with be they are just pumping out like crazy. it's a political statement to iran. we're seeing exports to china at a record from saudi arabia, to

underlying it, they're really count of sticking it to iran. while at the same time you have iran saying we're pushing out all this extra production and we're not actually seeing that coming through in the data. i think really saudi is continuing to flood the market here while saying if you won't cooperate, we'll freeze production. >> at high levels. >> right. >> all these people that say 60 by the end of the year, do you believe them? >> no. it's not going to happen. i don't think it will happen. we'll see a supply crunch hitting because of capex being cut. so i think in 18, 24 months, we're really going to feel the crunch there because granted, demand will keep on going but you need sort of depletion rates running at 5 million barrels a day. we need to have an extra 5 million barrels each year to keep up. >> that's a long way away, 18 to 24 months. >> right. >> in economics there's a theory called contestable markets. so the idea of the saudis seem

to be partly to drive the american producers out of business. but even if you -- even if you marginalize american production, prices go back up, american production could come back on. there's not that much upside for the oil price. is that a reasonable idea? >> that's fair to a certain extent. there's also other high-cost production. the u.s. is the most dynamic in terms of the shale. in brazil, offshore africa, et cetera, there's going to be plays that take a long time for production to come online and those are the ones that will feel the pain. even like russia and norway, we'll see depleting production from them. ultimately we are going to see supply squeezed out of the market. >> thanks, matt. good to have you here on set, pocket watch and all. >> thank you. let's get down to the new york stock exchange. jim cramer joins us now. we've been talking about apple. i don't know if you saw the tim cook interview. >> between a rock an a hard

place. why didn't they come to us? people behind the scenes who have done the deals, people have said that law enforcement if it's less intrusive, says look, guys, we need what's in that thing. a tim cook might have said yes. they did this very public kind of display and so there couldn't be a behind the scenes back channel which is what i would have expected. instead you have tim cook is basically saying, listen, we want to protect privacy. it resonates, frankly. mr. board is so spot on today, it's a joy to listen to. and it's so right. i wish other people when they saw the data get weak kind of re-adjust. the inflation rate is coming down because of oil. it's great to hear someone say there's a little bit of change, therefore, you have to change with him. >> this is nice. let me return the favor. i love your comments on apple. it's a lovefest today. >> it wasn't always like that between you two guys. this is really nice. >> jim, you want to break up the banks, too? >> no, no, i think the banks are

fine. i worry about the oil exposure and the pipeline exposure. they're all coming out now. geez, it would have been nice to know how bad it was when they reported at the beginning of the year. >> mr. cramer, we'll see you, much more of you in just a little bit. >> thank you. in the meantime, much more from st. louis fed president jim bullard when we come back in just a moment. vo: know you have a dedicated

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st. louis fed president jim bullard here with us this morning. in thinking further about this whole issue of breaking them up, i guess we don't know now whether dodd frank really did make them not too big to fail anymore. if i could be convinced that at this point that no matter how bad the stress was that they'd survive, you wouldn't have to break them up. because if you did break them up and the stress was a commercial paper shutdown or something like we saw, everything you broke up could go out of business. everything could fail in the worst case scenario, right? >> yes. the fsoc, the financial stability oversight committee,

are naming particular firms as being too big to fail. that's ensconcing the status of the firms as if it's going to be the same companies for the next 50 years or 100 years. and to their credit then, we're requiring more capital for those guys, because we're worried if they did fail it would be a big problem. i'm not sure that -- neel kashkari has the right idea, you have to think about this more deeply longer term. whenever you think about dodd frank. how are you going to get the innovation. >> there are black swan events where i could see the fortune 500 failing. god forbid. >> are you talking about this from an antitrust and competition perspective or a too big to fail perspective? >> that would have been my answer, too. >> what do you mean? >> go ahead. >> what do i mean? >> i hear you saying we want more competition in the banking world. >> yes, yes. >> and that would argue that there's an antitrust yi issue

effectively. >> or are you saying we'd get more competition, that would be a happy upside. >> i'm trying to understand what's motivating. >> antitrust would say there's one company which isn't true. there are many companies. >> right now people would still say -- >> it's a fragmented thing but you've got very big firms that are unlikely to innovate very much into the future. the idea is they've got a certain business model. we're writing all these laws, all these detailed things about exactly what they're doing today without much thought about what are they going to do tomorrow. maybe some of the businesses will go apply completely. these laws won't matter at all. the striving the innovation outside of the sector into some sectors we don't know very much, peer-to-peer lending is a good example. >> right. >> how is that going to play out not only in the next year but the next couple of decades. >> it was great having you on. did you enjoy this. >> loved it.

always great to be here. thanks for having me. >> we have to come back to st. louis. we loved being there, too. >> come on. >> maybe you should adopt kansas. they're right next door. >> merger. >> you're looking at kansas. >> all right. >> thank you very much. it's always great when you spend this much time with us. makes us feel important which we need, all the of us. make sure you join us tomorrow. "squawk on the street" is next. good thursday morning. i'm carl quintanilla with david faber and jim cramer at the new york stock exchange. a lot of retail earnings to look at, bullard on "squawk." europe with nice gains, shanghai, the worst session in about a month as the repo rates cause concern. bonds, durables,