good morning, it's 8:00 a.m. at apple headquaters and 11:00 a.m. here on wall street and squawk alley is live. ♪

thank you for joining me on this tuesday morning. kayla and kelly back for more. always great to have you. first the justice department saying it found a way to unlock the iphone without apple's help dropping the case entirely. aman is live in washington with more. >> good morning, what a dramatic turn of events as the u.s. government said it's dropping it's case here. and iphone of san bernardino shooter and instead the government saying it found another way into the iphone, a mystery way from a mystery 3rd party it will not reveal. the u.s. government and it's process all of that now raising

questions will they be able to use the same technique in other cases going forward? other law enforcement cases? i have been talking to law enforcement officials about that and they tell me why there's two reasons why that might not happen. one is this is a labor intensity and resource intensive process. it's not scalable. they can't do it over and over and over again and another reason you might not see this solution at play in other cases out there for law enforcement is that the solution here is so secretive. it's very closely held. it's one of the reasons they might not want to use it in a small level criminal case because in court filings in those cases they might be required to stay in court documents exactly how they did it. they don't want to reveal how this was done. it will be a closely held secret for a long time but this particular fight not over. the on going debate will continue for awhile. >> thanks. that's a big question. where the debate goes from here.

joining us now first on cnbc, the california republican congressman that's been outspoken on this issue. involved in the debate with james comey about this. we don't know what method was used here. you suggested that mirroring might be a way to do this. the fbi was dismissive of that at the time. that's a variant of it the people are speculating was used here. what was your reaction of the fbi's move here to drop this case and is the next step legislation that you or others need to bring in order to keep this happening over and over again. >> the next step is to get educated and see where the fbi or other law enforcement come back with a demand or a request for some involvement by companies that encrypt their product. remember one of the reasons that this case probably was dropped

wasn't just that they went out and found another way. it was also that they overreached. they didn't ask apple will you assist us in getting the information off this phone. they asked apple for three specific things that had had to be developed that would have automated, made it extremely easy and remote the possibility of tunnelling in and getting information off your phone. so we suspect, i suspect that if the fbi approaches a case again they will make a better choice as to what they ask a company to do because they were, in my opinion, surely going to lose this case. >> but is the well poisoned at this point in a way? it seems like there's a break down in trust. the language that tim cook has used to describe how surprised he was to learn of the government suit through the news media. anything that apple does to help the government could arguably be used in the future in a governing case to say look at all apple has done in the past to aid us and therefore they

should take this next step. i mean, it seems like perhaps legislation, some kind of rules of the road here, the only way forward. >> well, certainly congress has to get educated. there's a working group between the two committees of jurisdiction and the house of representatives put together by the speaker. it exists so that in fact we could begin educating on encryption but also balancing that with your constitutional protections. remember and i straw poll this morning on cnbc. the american people that unbalanced they should have this right to privacy. that encryption is a tool that protects everything they do from their bank accounts to the software we use. they depend on strong encryption so they don't get cracked. if you load a program on your computer you want it to be the program you loaded and not one cracked and modified and turned

into malware. these things require that we find the right way to innovate. we do respect the fact that the fbi had a desire to get this and in this case they found the right way to do it which was to develop a tool that was not available to the public. that they can use when they need to and this may be the model going forward is for the clandestine agencies and the fbi to develop tools and keep their mouth shut a little bit about it. >> you obviously believe this was the right way, the preferable way to go about getting this information. i wonder if you believe it does remove some sense of urgency for congress to reach legislation on this issue which will define the relationship between consumers and tech companies for a long time to come. >> i think your point is right. it does give us a little bit of space. the act that they used was a

1790 piece of legislation and shortly before that we had a constitution. most of what needs to be defined in the way of your rights and your privacy and freedom of association and your ability to encrypt and there may be little that congress needs to do. having said that, we only recently passed the usa freedom act which pushed back on law enforcement for some of the excesses that occurred after the patriot act so we're constantly looking at how to balance your constitutional protections and law enforcements need to do their job. >> either reasonable warranted searches in the area or design systems to defeat court orders putting themselves and criminals and terrorists above the law. >> well, you know, our founding fathers never said you couldn't

have a stronger door or even built a fortress. there's no prohibition on that. so the fourth amendment provides a case under which law enforcement or your government can seek to look at something. do you have a back door to your government and today the same encryption and the ability to have back doors, who gets the back door and who doesn't? >> indeed. there's one aspect of this case, we're almost out of time but i was wondering your reaction to. what troubled me is the fbi's con thaengs the publicity around

this court case allowed them to find the expert that could crack this phone. shouldn't our intelligence agencies be good enough at their jobs and at finding experts in the field that they don't have to bring court cases against u.s. companies in order to find expertise? >> i said it in live testimony of the fbi director and i'll say it again, they took a shortcut. they went and did this rather than doing their job. i served on the select intelligence committee for a number of years. we do develop tools. it was not an accident that i questioned the fbi director. he took the path of least resistance what he wanted to do was prove a point and discovered that the american people are not ready to have that point proven. that anyone can be ordered to develop something to help the government at a time when people are concerned about their own

privacy. so i do believe that he was wrong and i don't believe he was genuine. we do have tools behind closed doors. i described a process that is probably not a lot different than the one that they ultimately used because it's not a secret to do that. >> well, congressman, we certainly appreciate your insight and thanks for joining us on this important issue. >> thank you. >> 2.5 days left in the quarter. the dow was down as much as 100 points this morning. down 42 points. the s&p is down .2%. nasdaq in positive territory. sector wise tech is leading. energy is lagging. not surprisingly the trigger for today's drop and the dow and the s&p was 3.5% decline in the price of crude oil today. meanwhile, barclays downgrading a couple of tech names cutting e bay to underweight citing weak fundamentals for ebay and a descent period of consolidation

for linked in. both of those stocks in negative territory today. when we come back do founders make the best ceos pandora hoping the answer is yes with the return of its founder. we'll take a look at the numbers behind that trend. plus the stock market recovered from early lows and the ipo market still doing a whole lot of nothing. why is that? when could hah change? and another example of crazy home prices in silicon valley in facebook's hometown, many local firemen have to live at least 100 miles away to find affordable housing. the fire chief will join us later on this hour. squawk alley will be right pack. sales event is on.

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a lot of tech news to get to us today. joining us is four square co-founder. >> thanks for having me. >> we have to start with apple to get your take on this. the government dropping after the doj said it was unable to lock the iphone itself with the help of a third party. apple riting in a statement that the case would set a dangerous precedent writing this case never should have been brought. there's probably a temporary exhale happening on behalf of tech companies but what's the thought process. but the larger question is still needed.

>> it's a particular device. they haven't enclosed the methods that they did that. and i imagine this is the end of it and there's another version of this in a month or so. and i don't think it matters what you want to here. i would be surprised if they disclosed the actual method and that's like giving instructions for how other people would like to move it. that could be valuable data. how does this factor into your business and what secrets you want to keep in data and what information government or others should have access to?

>> it's interesting we always put the users in control of the information. occasionally law enforcement asks us to provide information we have been able to buy in these cases but i think it's fundamentally different in terms of we need the key to the iphone which is is the key to all the iphones in the world. >> tim cook said the only thing we can do with every release is to go up and increase the security level. i know that you are in a different role now but how do you as a technologist think about increasing the security of your product given what the

government has shown it's willing to do. >> every technology company has a whole team of people that work on security. making sure the servers are secure and the data is secure. every tech company is focused on this. no one wants to be the victim of an attack. i'm not surprised that every single version of every piece of software is going to get better and better. >> moving on. another down day for pandora after the founder returned as ceo. pandora is the latest company to bring it's founder back as ceo. another recent example at tw twitter and the detractions.

>> it's no secret here. they're interested in investing and finding other companies. i put someone else in the ceo role and i'm the executive chair. i'm in the vision and strategy of the company and make sure that the company stays on that path. >> we're going to continue this conversation but we do have breaking news on gop front runner donald trump. nar we go to sue at headquaters. >> yes, specifically this involves the donald trump campaign manager who has been charged over alleged battery in florida. it concerns the reporter. that's according to various news

sources including reuters and abc news. he was arrested in florida and charged with simple battery according to the police report. donald trump put out a stalt basically talking about this situation and he is accused of battery and absolutely innocent. that is a quote. donald trump in in a statement saying he's quote, absolutely innocent. pandora's founder was returning as ceo. and why do you think the market is not giving founders credit today. this week.

>> super smart guy. a great leader and generally i think i agree with what the market is saying in the past. they're probably better than other companies. and how was the vision and the strategy changed a little bit. >> blind spots cause you to say all right i need either another ceo or maybe a strong number two to come in and help me, i mean, steve jobs had tim cook and what are the blind spots that lead you to say it's time to do that. >> this is what i went through. i'm a good vision person and product person and when it came to looking at four square seven years in, i was a ceo for seven years, we're doing all of these amazing things with data technology and advertising

technology. those aren't my strong suits. it's recognizing the things that you're good at and not so good at and empowering people in the organization to fill the holes for you and the best leaders are able to say i'm not so great at this. can you help me do it and you're much better at the ceo role. why don't you do it as well. >> it frees you up to come in and see us. >> dennis crowley, the executive chairman at four square. >> stocks making a big come back from the year to date lows. so why are we still waiting for that market to warm up? some answers in just a moment.

welcome back. still in full effect. only nine companies went public in the first quarter. that's the lowest since 2009. bob has more of what this means. >> it's been six weeks since the market bottoms but february 11th one missing element is the rebound in ipos.

where are they? it takes a few weeks to recover after a stock market bottom but we're overdue. the two most important factors to get ipos going the state of the market number one and the state of the most recent ipos and since the market bottoms on february 11th it's up 10% and the ren dance capital. and both of these are flashing a go for new ipos. why aren't they here yet? the first issue is investor sentiment. it's still very uncertain. we may have had a big bounce off the lows but the overall market is still flat for the year. it's hard to justify. most ipos are small cap growth stocks and if you look at that sector it's not done that well this year. still a lot of uncertainty. private fund chg is providing some for it to go public. uber's ceo implied they're in no

h hurry to go public: soul cycle, bats global markets, mgm growth properties. and they filed confidentially. they could go public. they have updated their financials in the last couple of weeks. that's a good sign they're getting read dy to go public. so bottom line guys is its time to put up or shut up. if something doesn't happen in the next couple of weeks i'll be out hearsaying the market is really broken at this point. i give them two weeks. got to see some big names. >> guys back to you. >> bob, a quick question. could it be a good thing in a way that we're not getting the

iposs but sometimes you get the garbage ipos that shouldn't go public in a market where they would have too many of those companies are going for m&a and the higher quality companies that will come later. >> where are they? >> we want to see the higher quality ones and they'll be the first ones out the door. i didn't throw any of them but i didn't include them on the list. they're not going to come. high quality names will be the first one out but still they're not even coming. >> thank you, bob. coming up, now that the doj has dropped it's case, is apple's fight against the fbi done for good? apple's former chief evangelist will join us in a moment. make bd accessible... from anywhere. hula dancing? cliff jumping!

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good morning, here is your cnbc news update at this hour. the federal trade commission filing suit against volkswagen for falsely advertising that hundreds of thousands of vehicle were environmentally friendly. they suffered billions of dollars in injury as a result of the emissions deception. the wisconsin governor and former presidential candidate scott walker endorsed ted cruz for the party's nomination. the texas senator is in the best position to win the november presidential election.

campbell soup company announced plans to remove bpa from its cans by 2017. it's on track to have 75% of its soup line-up in nonbpa lined cans by the end of the year. and defense secretary ash carter and robert mcdonald laid wreaths at the vietnam veteran's memorial in honor of u.s. service members killed in the vietnam war. it's part of an on going commemoration to mark the 50th anniversary of that conflict. and that is the news update at this hour. back downtown to squawk alley. kayla, back to you. >> thank you so much sue. well after a daylight savings time break and a long holiday weekend the close in europe is back as is simon hobbs. >> it's a mixed day today. it's been a four daybreak for many in europe but mixed overall. just for the record. we had good data coming through on bank lending today. the fastest ways for four years

and now doubt it will also tighten the rules on mortgages as well. which is big news in the u.k. it's not hugely market moving. the major factors through the session have been the way in which the oil stocks have sold off and the mining stocks have sold off. you will be aware of barclays yesterday and reaffirmed but still the sector is down and the oils have fallen. the banks have also fallen. particularly some of the weaker banks but some of the stronger ones as well they failed to do a

deal in portugal so the bairgegs are down. there was a deal on the italian banks but they're still falling as a group with the exception of this one which apollo offered to take over and the stock is still rising today. up almost 9% on the session and as you can see surging very dramatically over the last week or so he spoke in the daily telegraph about the possibility of another bidder emerging. do you remember premiere foods from your time in the u.k.? they make kipling cakes. >> what is that? >> i don't remember them. >> maybe you're not old enough. but that's what we grew up on.

>> is it chocolate? >> spongey cakes. >> thank you. meanwhile the justice department dropping it's case against apple after claiming it cracked the san bernardino terrorist iphone with the help of a third party but could this create new problems from apple as first just how secure it's products are. joining us is the former apple evangelist. when you read the report that a third party was actually able to crack the code, what was your first thought? >> my first thought was wouldn't you think the fbi would have figured this out before this all happened? my second thought is, this some what impugns apple's statement that they are not into it by anybody else and my third thought is you always have to bet on the hackers.

someone that can always figure it out. >> do you think that the fbi needed this to become such a public relations campaign to actually get someone to come out of the woodwork and say i know how to do this? >> no. i think if that was a calculation it's a miscalculation. it's hard to built the case that the fbi looks good in all of this. it's hard to built the case that they look like this too but it could have been done in a better less public way to figure this out. >> guy, i could argue that apple looks pretty good that even the fbi didn't have on hand a method for getting in and the method that they found is secretive enough that they don't want to tell people what it was. overall, i think people assume their phones were less secure than they are today and my question is do you expect apple

to get flak if in a couple of months they come out and say look at all the loopholes maybe if we ask for the cloud, give it to them then. >> problems with that? >> problem with the fbi or problems with consumers? i think it's clear from the miscalculations that there is such support for encryption. how often do you see facebook and google and apple all on the same side of the page? so there's a big miscalculation on how they desire security. so more is better of that. >> you mention how you think somebody will always figure it out when it comes to breaking through the encryption here, that just seems to dodge the issue though that, you know, certainly congress might grapple with which is should there be

permitted access to content in the case of reasonable searches. >> well if you go with the assumption that hackers will always figure it out then you understand if the fbi says we'll lose it in only this way or only we will ever do this or even if apple says it cannot be done, you to take all of that with a grain of salt. neither apple nor fbi was right in the case. so i think you know the good money has always been on the hacker. it's like the saying that no one could break the 4 minute mile and then 20 people do it in the next six months. it will be done. >> earlier in the show he was talking about the fact that this being settled out of court has bought some time for congress to legislate. obviously it's an election year. no one expects anything to get done very soon but what do you think the key tenants of legislation should be now that that job is in front of

congress? >> i don't know if congress is going to do it as much as the supreme court. the supreme court at 4-4 now, it depends on who wins the presidency. right? so if we get a conservative president there's going to be a conservative and then it's going to be more likely the government will win. >> it's going to end up in the supreme court. it's not going to get settled in congress. hard to imagine that congress is going to figure this out. >> you think that the hundreds of iphones sitting in front of authorities in new york and other states and they were waiting to see if they could get it, do you think they should slow throw those aways. >> i doubt it.

>> this is going to be very interesting. >> we always appreciate your insights on this topic and hope you'll join us too. >> there are staggering stats about phone, data and security and obviously the main issue in this case is how hard or easy is it to crack a password. the government if it didn't have to worry about the limit on an iphone it could have just kept trying every single option. so we think about not just iphones but computers in general. look behind me. a password that's just 8 digits lock. that would only take three hours to crack but if you start adding extra letters, one at a time, look how many years it would take for a computer to crack. one extra letter takes six days. a couple more 48 years. a couple more 125,000 years. so that's just one computer trying every possible password and just going up the alphabet.

it's really annoying but so a computer can't try every combination and crack it. if you want to go online, you can try your own passwords yourself on the site and see how secure it is. how much data are we talking about? 60 giggs per person. that's how much is on smartphones alone and not desktop computers or your car. that's about 33 million libraries of congress and hue concerned are people? we did a survey and turns out 11% of people would rather they lose their job and steal their car than have their phone. so these are staggering stats. how secure is your password? >> well, it's to your point eric, i just have one of the four digit ones and i wonder now if everybody will start to go well i guess have the option to enter a longer one.

>> i love cnbc.com but i'm paranoid enough i never enter my password into somebody's website to see how secure it is. >> you better problem you're not keeping all of these passwords around. more details on donald trump's campaign manager. sue herrera, what's happening now? >> we have obtained a copy of the police report and the alleged incident took place on march 11th. a reporter for the news network filed the complaint with jupiter police department and based on the police report they charged him with simple battery. he was arrested and turned himself in. donald trump put out a statement saying he is isn't but here's some of the details from the police report. fields ask trump a question while holding her cell phone up

he asked her a question but felt someone yank her left arm and she fell back but caught herself from falling. then subsequently when she went to the jupiter police department fields showed the investigating officer her left forearm which revealed bruising from what appeared to be several finger marks in a grabbing type industry. based on the above described investigation probably cause existed to charge him with one count of simple battery so that's some of the details as we look at this video of the alleged incident. and he was arrested and charged with simple battery. back to you guys. >> do we know if he is still -- if he is still with authorities right now? >> no, we do not know whether he

is in jail and we do know that he apparently has retained an attorney and we're getting more details on that but we do knnot know the status of where he is right now. >> thank you, sue, we'll keep you updated on that story and one eye on the market which is are still lower but off the lows of the session as we await the speech from janet yellen after 4 pl eastern time. more on what to expect and the markets when we return from a short break.

take some questions as well. we'll break down what's at stake for the markets. plus berkshire hathaway upset stake in wells fargo. which is the best bank for your buck and we're trading to home fielders today as numbers impress. we'll see you in about 15 and be at the economic club for this speech everybody is waiting for. there's only one thing everybody on this floor is waiting for today. yellen. yes, janet yellen. that's what they're waiting for. doves, hawks. dovishness, hawkishness. it's all about foul language, isn't it? that's what it is going to be about today. indeed, doves or hawks but i think the fed personally is

looking for financial utopia. that i don't think really exists. the fed ideally would like to wait until everything is so green at the intersection that everybody who is driving quickly in the equity markets trying to get to the long side of the boat. they want to be long. they want to raise rates and they want the market to like it. that ship has sailed if indeed it was ever on a maiden voyage to begin with. there is no financial utopia. and i think the fact that the fed has brought in globalization and if global effects of economies that aren't necessarily as up to speed as the u.s. recovery which in and of itself is under scrutiny, well, the problem with the global pause is how long we're going to wait. when you look at all economies

like china that had to level off but more moderate rates as their economies grew these could be a long waiting line. we could be in a pause mode for quite awhile. i don't think it makes sense. policy contagion has its effects whether it's a stronger dollar or the fact that other economies may weaken to the point where it makes normalization difficult. but the problem is calibrating. rates are too low. the timing is horrible and that isn't anybody's fault but the fomc committee themselves and finally, you know, kicking the tires or having a view other than the big view is kind of frowned upon these days but the more i kick the tires on this, the third rail to the fed without a doubt is plitization. no doubt about it. you never want to talk about that. even people on the floor. they run the other way. but look at the issues they tighten at the end of 15 to try to take the pressure off of talking about it during election

year 2016 and most will do anything until after the election. boy that seems like a political response, doesn't it? ponder that and don't be afraid to kick the tires. kelly, back to you. >> i just like the pun, rick, fowl language. we're looking forward to all of that. thank you. coming up next, silicon valley sky high real estate is now forcing very critical members of the community to live 100 miles away from work. we'll tell you who when we come back.

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>> do you view this as a symptom of a strong economy or rising house prices? how much have you had to shift the way you're working to fight fires with all of this going on? >> it's all of the above. and the housing prices and traffic congestion are all symptoms of that. you don want to complain at the same time as an agency had that

worked for a fire board. we needed to try to find solutions for the problems that were just becoming worse and worse. the personnel that we have, we have four employee groups. two are unions. two are not. we have support personnel that work for us. everything from mechanics to clerical support to the firefighters themselves and the trend is to move further and further away and that's not conducive to what we do. >> now you're thinking you might have to build a sleeping area that would cost about half a million dollars and your firefighters are well come pen sated by general american standards making $147,000 this year but you're finding guys sleeping in the couches before their shifts. is that right? >> it's correct. it doesn't matter what you get paid. if you have to travel through the traffic to your place of employment whether it's daily through the work week or it's on a firefighters schedule transit

doesn't always work. you primarily drive your car because your carrie your equipment around. some people we have on our support staff with use transit but very few so the reality is that they need to drive and anybody that's driven in the bay area recently knows that can be a pretty difficult task. so it's not about what they get paid. it's about the ability to show up to work on time. >> an those of us that lived in the bay area know that during upturns in the housing market people end up getting pushed out to stockton and et cetera but longer term, what is the solution here? do we need housing assistance for public workers that allows people to be closer to work? higher density housing options? what is going to work here? >> well, some of that would work temporarily but you mention that the salaries they get paid is a fair salary and i would argue based upon the type of work that they do that that's appropriate.

we looked at those things. when you get paid 147,000 or more at some point you want to buy something and own something. >> right. >> so the firefighters are no different. they want to own a home. you pass that benefit on to the next person so you don't take that equity with you. that's the down side of the program. >> one of your fire captains commuted from reno, nevada, a 250 mile journey where that money will go further than in your area. keep us posted. we'll see how the community handles all of this. the fire chief. >> up next, shares of am getting close to exiting bare market territory. up 1.5% just today. squawk alley will be right back. . and to help you accelerate, we've created a new company.

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apple's fight with the doj has not had an impact on the stock which continues it's own come back. >> what's behind this? >> investors never seem too concerned about this battle

between apple and the u.s. government. since late february when this fight first broke out in the open apple has out performed the s&p 500. a gain of 11% versus 6% for the broad gauge. apple now within 21% of its all time intraday high back on april 28th and it's up some 10% month to date. it's best month since february of last year and while the court case has attracted a lot of headlines, investors remained focused on the money maker for apple. it's iphone franchise and they're getting new information today on how it's performing. slice intelligence says fewer people rushed online to buy the se than the 6 or 6s and that's not too surprising since this isn't a new flagship device. what might be surprising though is that the se could be attracting new fans. 16% of se buyers were previously android users by comparison 10%

switched over from android. apple declined to comment on the sales data. guys back to you. >> thank you so much. on the apple beat in san francisco. well, with the dow and the s&p in negative territory that does it for us on squawk alley. it's about noontime so let's send it over to the halftime report. >> welcome to the halftime report. we begin with breaking news this hour. the speech heard around the world. fed chair janet yellen with remarks that could very well move the markets this hour. we're going to take you there live when it begins in a few moments. with us for the hour today, joe and pete. so much at stake today in midtown where yellen will speak and take questions from the audience. it is a speech that comes amid growing questions over whether the economy is once again weakening and whether the fed itself is behind the curve when it comes to its