stubhub. >> about time somebody speaks out about this. it happens not just on broadway, it happens with concert shows. >> right. it's going to hopefully help everybody, sports, everything else. >> good. >> that op-ed by the way, joseph, ran in a great "new york times." make sure you join us tomorrow. "squawk on the street" begins right now. ♪ california love ♪ california knows how to party ♪ good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with david faber at the new york stock exchange. cramer is at one market in san francisco. he's going to give us some west coast love this a.m. jim, what do you have planned out there? >> well, look, we're going to talk to all the companies that actually are changing the universe. you know, i'm talking about companies like fitbit, which has been just so misunderstood that people absolutely hate, to ford motor not just today but the new

ford. you got to try to figure out -- i know david is completely driven by this idea of the driverless car. well, we're going to be in one, but we won't be driving. >> jim, we're going to get a lot with you in a few moments. in the meantime stocks are up three or four sessions, but a lot of bets may be held today as we await the brexit vote tomorrow. europe relatively steady, a lot of earnings to get to and by the way oil did reclaim 50. road map begins with the countdown to brexit. we're live in london with the latest on which way it could go and how global markets are reacting. >> tesla's offering to buy solar city, the price tag about $2.8 billion. we're going to get elon musk's take on what's really behind this offer. >> and shares of fed ex sinking after earnings. we'll break down the numbers you need to know. but first up ahead of tomorrow's uk referendum on eu membership, a number of polls have the outcome as too close to call. wall street will also focus on day two of fed chair yellen's capitol hill testimony of the economy. she'll appear before the house financial services committee this time.

jim, a lot of discussion about more high cash balances, especially in uk mutual funds, 6% is going to be the highest since 2011. some have said it's almost irresponsible to make big bets with clients' money ahead of tomorrow. >> well, the only reason why i disagree with that analysis is because we're always bound by the earnings per share and the future of earnings per share. and there's just not that many companies where you're just going to have to slice the earnings per share. yes, it's true, some maybe of the banks i would say if you're going to make a big bet on the banks, that could be fool hearted, but i've said that forever even in this election in this country a big bet on the banks might be fool hearted. a lot of other things i see trading, deago, anheuser-busch, these are not going to be the new bud inbev. i don't see these as names, we

get the stocks and decide i'm scared to buy them, someone else is going to be bolder and buy them and do well. >> huh. socgen has a note today the rain could actually hurt the remain vote tomorrow. is that going to be our existence for the next 36 hour sns. >> it's going to be their existence. i'm trying to figure out how it impacts pfizer. if they want to get al roker in there figuring out the numbers, we can poll al roker, see what he says and also see how al roker bets to see if that's different from the way he's polled, or we can actually do the work and try to figure out whether fed ex is a buy or whether adobe's a buy. but it's so much more fun to do this british thing. i mean, to me it's fun because you don't have to do any work. you can say, hey, you know, i don't know. but if you're on the adobe call last night you're not thinking, hey, i don't know, you have to figure out whether it was a good quarter or not. >> we're going to get to adobe, obviously, and a lot more. as far as yellen goes, jim, your

temperature on what she said yesterday and whether you expect anything else different on the house side. >> well, first she's got to cheer up. she brought me down. she had that down beat thing. you got to work on your posture. i've had to work on that myself. i've had a lot of people teach me how to do that. you cannot be leaning over and make the sad faces because it's not a time for that. our country's doing better than everybody else. but she seemed very beleaguered. so maybe she gets a little monster energy today, numbers are going to be made and she's going to come in with a little more effervescence and feel a little better about ourselves. >> all right. we're going to see again her testimony begins 10:00 a.m. eastern time of course after her testimony to the senate banking committee yesterday. then there's tesla today offering to acquire solar city in the stock deal valued up to $2. 8 billion. musk is the chairman largest shareholder of both companies and calling the combination a no-brainer. this is musk on last night's conference call.

>> we think there's really a huge opportunity here to have a highly integrated sustainable energy company that answers the whole sustainable energy of power from storage to transport. >> as the company in his mind tries to go vertical, jim, this morning with analysts he said this is what the world needs. zero doubt about the deal that arguably he should have done it sooner. >> well, no, did it the right time because solarcity cratered because it had a hard quarter and no one really understood what it was. we talked about that on "squawk on the street." i mean, the quarter was so bad the analysts themselves were in open rebellion. is this a desperate act by him? i don't know, if you bought the stock tesla on the big underwriting, i think you're feeling a little betrayed. but musk is taking a long-term value. he's thinking long-term, we got the batteries, get the solar from your roof, it's going to charge your car, it's got this

great synergy. but in the meantime all i can say is solarcity would have gone even lower if he hadn't made this bid. >> it's not clear of course what the synergy is at least on the part of shareholders questioning the significant change in strategy. i would point out of course tesla shares have lost more in market value at least as we get started here this morning than the overall value it's willing to pay for solarcity. you know, it's interesting solarcity will have a special committee, but some people this morning or tesla shareholders tell me they wish tesla's board of directors had its own special committee to decide whether it should actually do this. mr. musk has recused himself from the voting on it as a director of solarcity, as has antonio gracias. but the directorship of others and the potential conflicts are quite significant. the ceo and co-founder and peter, brothers, both musk cousins. john fisher's fund is a spacex

investor, of course another musk company. jeffrey spacex investor, direct forat tesla prior to it having gone public. by the way, tesla did an offering six weeks ago. those shareholders must not be particularly happy though one wonders whether he had any idea he was going to do this. clearly the cost of capital will be improved for solarcity. investors, jim and carl, wondering what exactly is the real strategy behind this other than bringing in a company that clearly is suffering right now and offering it some sort of a life preserver if you will. >> right. but remember before we get too caught up in the conflicts, i'm sure musk say listen i'm losing a lot more on my tesla than i am solarcity. obviously he's a person who's so rich and he did not buy on that $215 offering where it certainly doesn't seem like a no-brainer to those people. those people if they didn't flip it when it ran up to 2.23 feel

very aggrieved. is it a great idea to put this thing together? there are people who think anything elon musk does is brilliant. i come back and say the car's really good. and if you really like tesla, you should buy the car. if you want a solar panel on your house, solarcity gives you a good deal. but what that has to do with buying the stocks, i mean, it's a no-brainer, you don't buy the stocks. >> i know. listen, on the call he wouldn't give a lot of details in terms of synergy numbers. by the way there is going to be a vote it would seem of it's subject to the approval of interested stockholders, so there will be an ability on the part of them to potentially vote this down. but something comes to mind here, jim, because we were trying to think, todd our executive producer and i were trying to think and i did come up with one similar in nature,

freeport-macmoran, when they made that acquisition a number of years back of oil and gas assets of plains petroleum? that didn't work out particularly well. people question the strategy there and it's kind of similar in some ways you'd think. >> well, you picked the worst deal of our era. and, yes, i mean there was family members involved, and that was terrible. i know there were family members aggrieved by that but they of course didn't work at the company so they knew better. that company's still trying to unravel itself after getting together this company i think is much more of a family affair. they don't necessarily disclose inlaws in those s.e.c. filings, but this is one where everyone kind of felt after that solarcity quarter that they're switching their methodology, maybe you're going to have to buy the panels, maybe they lease the panels, making money leasing f you buy they don't make that much, tax credits gone away,

utility companies all against it, but musk has one thing going for it, david, millennials, they love it. they don't have enough money to buy stock because they owe so much debt on student loan. the milleninials champion this deal. i don't know when we're populated on mars and nobody wants to go. the cars are great. i haven't liked -- it's a cult stock. what do you think? don't you know what sustainability means? it means you can lose all the money you want as long as you're sustainable. that's how these people think, carl. they don't think, well, you know, i want to put my kid through college, they want to put my kid through sustainability. >> i understand. but there was questions about to

boost production and now it's about the journal today why does the big cash burner buy the one that burns cash a little bit less. if it had been another company, jim, i think you might have given them a little more heat. but your point has repeatedly been the cult nature of the stock protects them. >> well, go drive one and you want to own the stock except for the fact that the problem is stocks actually trade on earnings, they trade on fundamentals, but this is a cult stock. there will be people who say, listen, what are you talking about? you put the panel on, you charge your battery and it's one-stop shop, it's like your own gas station but it's sustainable and doesn't use fossil fuels. like why are you guys giving this guy a hard time? any time you give him a hard time, on twitter, visionary, visionary, visionary per share, i don't know, i mean, what's visionary per share, what's the press release per share? maybe you like 17 times press release? i don't know. >> yeah. i don't either. and a lot of people are wondering and again i would just point out the loss of market cap in tesla is equal to if not

actually exceeding the overall value of the potential deal. they had to disclose this by the way because they were already a 13-d filer. they had to let us know before they entered into the negotiations. on the call where people said didn't seem as prepared as they might have been, tesla's ceo musk did say if we're selling power walls and solar panels in the same footprint that we're selling our model 3, then the same person and our costs of sales should drop in half or 30% or 40%, maybe that's some sort of synergy they're talking about. ongoing maintenance, he said, would be one point of contact, not two to three points. the cost of the system itself is lower because you're not duplicating hardware. it all makes a lot of sense, mr. musk is quoted as saying, guys. >> 40% of solarcity sold short. people felt trajectory already down 60%. the trajectory was to take this thing so it was really

questionable whether it had survivabilit survivability. and suddenly snatches the victory out of the jaws of defeat and he talks a big game. and i think that -- here's what i think we're missing. the analysts who are working very closely with the banks that they're at, they tend to like these deals. musk does like a lot of financing. i am not saying by any means that they would be swayed by fees because we know better than that. but they seem to like a lot of the deals that musk does. >> yeah. well, again, it will come down to a shareholder vote it would seem of tesla shareholders if they even get that far, guys. and we'll see how they feel about it. that will be the ultimate decision here. >> well, you got hurt if you bought on that secondary. and i think that people who bought at $2.15 right now are probably feeling unless they have the car, you know, wow, i should have bought the car, not the stock. >> jim, it's good to see the west coast travel is not diminished your energy level today. a lot more with jim --

>> not one bit. when i get some sleep it's going to be dynamite. >> when we come back, facebook pulling out all the stops to strike some live video deals. also ahead, an exclusive with twitter's adam bain, the coo from cannes lion. the dow up by about 42. more "squawk on the street" from post nine in a minute. ♪ ♪ for decades, investors have used a 60/40 stock and bond model, with little in alternatives. yet alternatives can tap opportunities that traditional assets can't. and even though they're called alternatives, they're actually designed to help meet very traditional goals. that's why invesco believes people should look past conventional models and make alternatives a core part of their portfolios.

translation? goodbye 60/40, hello 50/30/20.

fed ex posting quarterly results that beat estimates, but the company reported an overall loss due to pension costs and expenses associated with its recent acquisition of europe's tnt express. also says it plans to boost cap x by 6% in the current fiscal year, jim. but the midpoint of their guidance for the year is just below the street's 12.17. what'd you think? >> i liked the quarter a lot. they did lower the gross domestic product. remember these guys always give a big view on the industrial side. but the consumer looks very strong. the ground plus business is plus 20% growth. same day delivery in 24 markets, why do i mention this? they make a point that 95% of

online commerce is still done by ups, fed ex and the u.s. postal service, they make the point that the u.s. postal service may not be doing as well as people think. in other words, this is not a mixed bag quarter the way citi said it's a stock that's gone up a lot but doing so much right, i really think this was a good quarter $2.7 billion repurchase, big increase in the dividend. those who want to nitpick, i think you're nitpicking because the stock is up too much not because of anything they said because i liked what they said. >> curious comments out of fred smith about brick and mortar versus e-commerce. you sort of know which side of the bread theirs is buttered, but he did say it's going to be a long time before retail is threatened, he said. millennia millennials, he says will still shop in stores. >> he's so far from millennials, he's like 4x millennials, he was kind of split on that but i make

the point fed ex isn't going to be counted out for online or e-commerce. i think the big downer he took down his industrial production number gdp growth in sync with the down beat janet yellen. now she's like jdy, but i think those who don't like this quarter don't understand the way this company is which it does really well, tends to be conservative on the quarter and then blows people away again versus ups which has been stuck at the same price forever. >> indeed. says they don't -- they try not to maximize each segment margin each year. if we did that we'd never be able to take advantage of the broad portfolio. >> yeah. i mean, look, these guys are really good at what they do. and what they made me feel like is amazon isn't going to eat their lunch. i know that ups put in some packaging rules that made it so trucks aren't just filled with nothing but amazon and a lot of air, but i will say that fed ex the margins were increasing, i

like the fact they believe in their own stock. the analysts were very split on it. i think the analysts don't know what to do because the stock's up so much. but fed ex to me is not going to be ruined by amazon, not 24 cities they're doing same-day delivery. it was a humble quarter by a humble group of operators but i'll stand up for them and tell you they did a good job. >> all right. when we come back, jim, we'll get your mad dash from out west, count down to the opening bell, kbh, adobe and talk about mcdonald's downgrade today. meanwhile sarah ieisen is live n london ahead of tomorrow's uk referendum. >> hi, carl, good morning. today is the last day of campaigning for both sides. love the british newspapers, big business mostly on the side for remaining in the eu. here's the cover of the times, some major u.s. companies, more than half in the ftse calling for a british people to vote in, meanwhile the tabloids, the queen graces the cover of the sun with some inside reported

reasons about why the uk should vote to stay in europe. clearly the royal family has been impartial in this vote. it gives you a sense of how all encompassing it is here. things getting heated. you mentioned the betting odds versus the polls. the polls today showing a slight edge for leave, betting odds going up to 77% britain stays, market is following that with a pound at five-month high. are they overestimating? we talked to a very well known hedge fund manager here in the uk who says, yes, he has bearish take on europe and his economic case on why britain should vote out. coming up in the next hour as well as the u.s. impact, the truth about the u.s. impact when it comes to the economy of the brexit vote. that's all coming up in the next hour of "squawk on the street." we'll be right back. there are two billion people who don't have access to basic banking, but that is changing. at temenos, with the microsoft cloud, we can enable a banker to travel to the most remote locations with nothing but a phone and a tablet. everywhere where there's a phone, you have a bank.

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♪ i'll always take a little police in the morning. all right. we're going to do a cross country mad dash here. let's get to it, jim of course in san francisco. but we are about, what, six minutes before the market opened. where are we headed today, jim? >> to adobe. now, adobe's going to be down today. why? because the stock had run from the 70s back to the beginning of february after the disaster that was linkedin. went downright along with them even though it had a really good quarter. once again it had a great quarter and picked up some new clients, southwest air, picked up the nfl, federal express, they're doing so much in social, mobile and cloud, but victim in terms of where the stock was 99 going in, let the stock pull back and start thinking about it

again because they've got that great growth that you want, talked about a nice partnership with s.a.p. i really think that this marketing cloud is doing very well. this is not unusual for the stock to get hammered after the quarter because they don't play the game. they don't raise the revenues really big in terms of the forecast. and then they deliver, deliver, deliver. this is one of the faster growing, better cloud plays that are left now that linked i eedi snatched up by microsoft. i would not bet against them in the low 90s. that's where you want to swoop in and buy some. >> well, i mean, it's been a bad bet against them for a number of years now. this stock was about $20 in 2011, it's just been a straight nice ride up since then. clearly you don't think it's over yet, jim. >> no. they switch. look, i didn't get onboard to the 50s. roger convinced me, said this is going software as a service is becoming a lot like salesforce. salesforce crm and adobe very

similar companies. by the way, love each other, just really good mix there. and i've got to tell you those who didn't understand the way that the salesforce and the way adobe accounting is, which you know, david, looking to defer revenue, don't forget this company is making a lot more money than it looks. double digit growth, digital marketing so on fire and yet everyone's so quick -- the guys who sell it don't know what it is. they think it's like the pueblos. they think it's kind of like a pdf. it is the ultimate salesforce meets s.a.p., develops the cloud, more mobile, analytics. >> lots more to come right here on "squawk on the street." stay with us. they found out who's been hacking into our network.

who? guess. i don't know, some kids in a basement? you watch too many movies. who? a small business in china. a business? they work nine to five. they take lunch hours. like a job? like a job. we tracked them. how did we do that? we have some new guys defending our network. new guys? well, they're not that new. they've been defending things for a long time. [ digital typewriting ] it's not just security. it's defense. bae systems.

you're watching cnbc "squawk on the street" live from the financial capital of the world. a busy day with the opening bell just about to happen.

yellen on day two. brexit vote begins in 16 hours. tesla, solarcity, earnings from fed ex, adobe, kbh, downgrading mcdonald's. we're going to get to all of that as at the bottom of the screen opening the big bell providing services across the borough of queens. at nasdaq, gmhc marking lgbt pride month. this mcdonald's downgrade, jim, nomura cutting it to neutral. price target to 129 and fits with what we're hearing out of rbc yesterday and that is that fast road sales in q-2 slowing way down from q-1. >> yeah. it's really interesting because it's happening across the board and happening at the same time a lot of these companies are telling me east coast and west coast prices are too high for labor.

you have a mixed bag. you've got minimum wage going higher, you've got same store sales going a little lower, not growing as much. and that makes these stocks to be much less attractive. frankly, mcdonald's has been stalling for a while, but the rest of the group, wendy's going down, domino's had the last quarter got hurt very badly. the only restaurant chain that is doing well is darden. also zoe's kitchen by the way on an excellent interview on "squawk box" this morning. so you have a particular kind of chain that's doing well, but these big fast food and burger wars, the burger wars may be over, there may be no winners. >> indeed. that's not the only mcdonald's news either. journal saying they're getting bids on some of these chinese franchise rights, 20-year deal for about $3 billion, six bids according to the journal as they try to change the way they do business in that country. >> yeah, but i don't want to bet against these companies too long. one of the things we've seen easterbrook can reinvent and reinvent, he's done such a good job, they're going to use a lot

of technology. but i am worried about labor costs. labor costs in california when you get off the desk -- i have a lot of the restaurants and ceos come on, they of course may end -- they say we pay more than minimum wage, but when you drill down where minimum wage is really high in west coast and east coast, they're reluctant to really expand in these areas because, boy, it costs a lot of money to run stores in those places. >> meanwhile, disney is on the cover, jim, of both hollywood reporter and rogue one on the cover of entertainment weekly. iger does sit down with thr, talks about not so much the company in "star wars" as much as people have encouraged him to run for office. >> yeah, you know, this was kind of like a howard schultz interview where, hey, listen, i'm trying to run starbucks but they want me to run for this, but i got to run starbucks. look at the interview, bob iger is a big think guy who's at a

age certainly doesn't want to do it anymore people looking at the stock thinking we want him to do more. but remember this always comes down to are the movies more important than espn? espn is not the focal point of hollywood reporter, but i keep hearing espn not having a great quarter. i keep hearing it. >> in what way? what do you mean, jim? >> that you're still getting people aboshd, gard, same kind dropoff, it's less but coming together. david, you introduced term skinny bundle. i'd never heard of it before. there is a sense of people are not paying up for sports the way they did. say wait a second that was such a big win, but i still am concerned about espn. i had to take a long-term view and think the movie slate is much better. see the stock going down here and i want to buy it. but understand that espn is still controlling the dialogue, not shanghai and not these unbelievable movies.

i think that's wrong. i think there will come a time espn people will stop, drop -- there will be an end to how much espn has dropped. but right now we're in the hold or wait, i'm going to say within the next two quarters we're not going to talk about espn as much as we do. >> of course sports is the thing many people believe holds the bundle of programming together when it comes to skinny bundles, that being the ability of a consumer to pick what they want to a certain extent, many of the cable companies are prevented from offering as much as they might like because of minimum thresholds, meaning the contracts they have in place with providers of their programming dictate that they have to offer it to a certain amount of their subscriber base, 80%, 90%, there has been some talk that espn willing to accept lower minimum thresholds for higher payments and therefore it may be suffering a bit more than some other networks because it can be taken off from various bundles that are offered, jim. but we haven't seen the proliferation of skinny bundles as much.

then we also have to remember there is the ott, the over the top bundle programming also being put together by the likes of hulu for example which introduced -- well, there were some reports yesterday that it's going to come out at a fairly high price point, which then gets back to the whole economics of whether the video bundle actually will end up being a better reasonable economic value than some of these over the top bundles. i know it gets complicated, everybody, but it is the way things are going slowly but surely we are getting to the point where you're going to have to figure out what is the real ability of these networks to get paid in this new environment that is slowly but surely being created around us. and that's why they all trade the way they do, to a certain extent, every day depending on what we're getting as a data point. >> well, i mean, look, i thought disney would go up after the most recent finding dory, thought it might go up after shanghai disney, but it's this

pervasive talk about espn, guys, i don't know how many espns you watch, do you watch all the espns or the main espn? i think that's really what's coming down to what's going on. >> i love the ocho, always been my favorite. dodge ball being of course a key thing there to watch. >> i don't have a lot to add about my viewing habits. i don't think people are interested anyway, jim. kbh, 17 cents beats by a few pennies, revenue way ahead, delivery up 30, ups price target ubs, you've been constructive on the home builders. >> people look at kbh and people say wait a second the debt is too high. they've had a remarkable quarter. they've seen a reigniting of a lot of the communities that really died in 2006. i'm talking about inland empire which was a little too far from the center cities, but now that gasoline has come down, not talked enough about the call, i would have asked that question, gasoline's come down, some of

the inland empire areas have come back to be alive. san francisco not as strong because the price point went so high. kb homes was the star of the show. now short sellers will come in because, again, they will say the same thing. the debt's too high. this company needs to be sold. the disarray at pulte, david can talk about that. the industry not helping but i thought kb homes delivered a great quarter, even better than lennar. >> jim, i want to take a look at williams and ete. of course you can imagine why. a lot of action in it yesterday given comments from chancellor vascock as we expect a ruling by friday given what he's told us at this point on whether or not ete is going to have to go through with its acquisition of williams or not. some comments yesterday being taken as a positive for ete and its ability to get out of the deal. one is whether latham and watkins acted in good faith.

we don't think you can actually do this ete as your advisor on taxes, but the other is as ete used its best efforts, best reasonable efforts to actually get this deal done to find an opinion that was actually in favor of the deal. so we'll see how the judge or the chancellor i should say rules on this. but we should know by friday, jim, either an end or not to this very difficult and disputed deal. no talks by the way anybody who thinks they're talking settlement outside the courtroom. nothing going on there, at least according to people who would know. >> well, david, i did feel that the tenor of the commentary was, listen, don't worry about the tax ruling. there's legitimate reasons why this deal should not close on the terms that are currently being offered. and it was almost like the chancellor i thought was saying, hey, guys, get in a room and come up with new terms. you don't need to do this. stop the vitreal. i was speaking to vice

chancellor not long ago and he was saying, look, we're trying to get away from the vitreal. we want people to come to have a little more consensus. it felt like even though i know you said there's going to be no consensus that the court really wants them to sit down and figure out a better price. >> i don't know that that's going to happen at this point. friday's almost here. so thankfully i'm sure on the part of some of our viewers they won't hear me discussing it perhaps much longer. but did want to take a look at moves in stocks. >> it's energy transfer brexit. you're calling it wrong, etb, not etp. >> all right, guys, let's move onto pasani. mcdonlds's is the biggest drag in either direction shaving about 15 points off the dow. hey, bob. >> good morning, carl. modest gains here and modest gains in europe on very light volume not surprisingly given the vote tomorrow. just want to show you germany. talk about a round trip, when we first go out about two weeks ago the reports that the polls

indicated increasing support for brexit. you see the market decline. this is germany that you're looking at. and then the complete round trip that has occurred since then. right now today oil is over $50. that's the important thing right now. and generally these exploration production companies doing great this week, many of them are up four, five or six percent for the week. so that's important. we've had a very good week as well for commodities stocks, the weaker dollar has been a help. it's been a relief rally too of course. and some of these stocks like africa, brazil, even steel stocks generally have done better here though you can see south africa downright now, was up earlier at the open here. let's talk about solar stocks. you can see generally modest gains, solarcity to the upside. it's been easy to writeoff solar this year. general returns have been awful. if you look at stocks year-to-date a series of missed targets, pushback from utilities and a lot of disappointment. look at solar stocks for the year most down 40, 50 or even

60%. ugh is all i've got to say. of course first solar makes panels, not residential. i think it's important to note that the technology is continuing to move in the right direction. you can argue execution and timing, but technology is working. solar energy if you look at the cost of manufacturing solar cells, they have been dropping. the efficiency of solar panels, how much energy can get out of a panel has been increasing dramatically. and the prices they are charging are dropping. not quite competitive with oil and gas, but it's heading in that direction. the point is we are just slowly but surely technology is starting to get better and better. and eventually it's going to cross and be competitive with oil and natural gas. you can argue with whether he's going to do it or not and whether he's the right man, but it's bold. he wants to be end-to-end generation, storage and transport, the first real solar utility out there. let's move on, talk about what's going on. and speaking of transformative moves, maybe, just maybe, we

might get a successful tech ipo. it's been a long, long time, but good talk about twilio on the road show here. coding platforms, basically apps within apps, allows you to do things within a messaging app. everybody wants to do that. 10 million shares talk 12 to 14, road show is going well. who knows where it will open but a lot of talk this will be a successful ipo. we have not had a tech ipo in ages. in fact, this would be the first silicon valley tech ipo since square, that was way back in november. remember that? square priced at $9 back in november. you can see what a roller coaster ride that's been overall. what about next? if we get a successful one here, remember the line ipo, the japanese messaging app supposed to price on july 14th, a duel listing here in new york. that will be emphasis if we get a successful twilio tonight.

we'll put a list tomorrow out if we get a nice move up in twilio, that will be down here tomorrow. >> a lot to be discovered. bob, thanks so much. let's get to the bond pits, rick santelli in chicago. good morning, rick. >> good morning, carl. it's hard these days to tell, we don't get a memo on cause, effect, reasons why things are moving, but as we look through kind of the container that has all the issues, whether it's brexit, janet yellen, draghi, what's going on in japan, all of the above most likely, we do see a pattern in the market. and the pattern is pretty much the same in just about every market. and even the uk to have their own financial instruments be their own flight to safety on a brexit vote really puts you in a loop of, you know, thinking. let me tell you. look at a one-week chart of tens. no doubt rates are on the increase. it's not a lot but if we were to close up 10 basis points on the week. the rest of the chart will be month-to-date, just to show you

how the perceptions of all those issues i brought up may have been priced in or changing or just leaving completely. ten-year, as i said, yield's up. but the deal it's the uk, ten pretty much exactly the same pattern as its month-to-date chart. bunds, forget scaling, the relative move is pretty much the same as well. it doesn't stop there, especially when you isolate the pound. let's look at the pound versus dollar month-to-date. how much different is that than the pound versus its neighbor, the euro? in front of the referendum, the only chart that's a little different is the pound versus the yen. not that the pattern is different, but the breadth is a little smaller. we want to continue to monitor all these relationships because like a snow globe, after the vote tomorrow things might get shaken up a bit. carl, back to you. >> rick, thank you very much. rick santelli. when we come back, a power player in the advertising world, wpp's sir martin sorrell from

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big names in media at canne lion. kayla tausche sat down with some of the biggest. >> wpp where sir martin sorrell is chairman and ceo, headquartered in the uk, it has been for 30 years. and as we take the temperature of business leaders in anticipation of tomorrow's brexit referendum, we of course took the opportunity to ask him about what he expects and how he's preparing his business. take a listen. >> if you look at the economic argument, the uk would grow slower apart than it would together, i think. like a deal when you put two companies together, you put them together primarily not because

you get cost -- it's revenue synergies from britain being part of europe i think are very significant. that's one thing. the second thing is sovereignty, i think we're better with a seat at the table rather than outside the tent to mix metaphors. and the last is immigration. as the second generation descendant of immigrants from russia, poland, romania, i think immigrants make a contribution. unfortunately in the campaign that issue has not been dealt head-on. i think the remain campaign has tended to focus exclusively on the economic benefits, which i think both sides accept are there if we stay. even the leave side says that certainly in the short to medium term. so i think the campaign has missed a full debate on the immigration and maybe to the less extent the sovereignty issues. >> if that is true, do you

expect that the remain camp will win? how do you prepare a business for either outcome? >> very dangerous to predict, but if you sort of -- i would say 53-47 for remain. i think a small victory for remain. we're within the margin of error. the turnout is critical, 66% is what most of the pollsters, i think all of them have assumed, which is the same as the general election turnout. we know there's still a large number of undecideds. women -- that's not because women can't make up their mind, but women tend -- >> right. >> we've seen that with the scottish referendum, as we get closer to the vote they tend to make their decision. and they tend to be more focused on the realism of the situation or the economy actually. they do take into account the economy and the uncertainty. we are stepping into a black hole if we do come out. so it's very difficult to predict, but on balance i think we'll probably see a remain

vote. >> so 53-47 remain were his guess if he were a betting man. he has said on the wpp earnings call for instance that he does think that gdp would suffer both in the uk and in europe because of the uncertainty. of course that is pretty much channelling what the official line of the british government has been. but of course it's anyone's guess what happens tomorrow depending on that turnout for the referendum. and we'll have more coming up later on this morning with our conversation with sir martin sorrell and his thoughts on the situation at viacom as well as the advertising industry at large. for now, carl, back to you. >> that's an important guest on an important week, kayla. thank you so much, our kayla tausche in cannes. when we come back we'll get stop trading with jim. dow up 52. early session highs. back in a minute. olay luminous

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thank you. ordering chinese food is a very predictable experience. i order b14. i get b14. no surprises. buying business internet, on the other hand, can be a roller coaster white knuckle thrill ride. you're promised one speed. but do you consistently get it? you do with comcast business. it's reliable. just like kung pao fish. thank you, ping. reliably fast internet starts at $59.95 a month. comcast business. built for business. time for cramer and stop trading. >> now a lot of people trying to figure out why oil is going up. schlumberger had a good conference where they said good deal shale place in america are 20% to 30% under water, meaning

they can't make any money here. that moves the stock of schlumberger up and moved oil up. i think it's important to recognize, geez, we thought a lot of these shale plays were valid right here, they're not. and then really funny note out of bbt saying william sonoma should buy restoration hardware. they said it a couple years now restoration has been cratered. does it make a lot of sense? i don't think gary friedman, the ceo ready to surrender, but it's a rumor that seems to make so much sense people run with it. >> yeah, with acquisition in house you weren't favor of last week's deal either. >> we have to find out how much they paid. i like home goods from tjx. if you want to buy something from your home, home goods is the place they don't charge you an arm and leg. i like prices there. >> jim, what's on mad tonight? >> well, talk about something where the price goes down all the time, fitbit, the stock. we got to find out whether what's the deal, is it health

and wellness or is it just a fad? and new relic, one of these companies like adobe, salesforce, service now, another company involving the web and trying to figure out cloud business. they're doing really well. >> look forward to the coverage tonight, jim. and you're going to make it back here for brexit on friday morning, right? >> of course. you know, i mean, why do humans have to sleep? that's never been anything that's occurred to me. >> all right. jim at one market in san francisco. jim, we'll see you tonight and a lot later on, jim cramer. when we come back live events involving different takes on the economy. one from janet yellen, the other from donald trump as trump makes a speech in new york and yellen goes to the house. dow's up 45. don't go away.

♪ because i'm happy ♪ clap along if you know what happiness is to you ♪ good wednesday morning. welcome back to "squawk on the street." i'm carl quintanilla with simon hobbs and david faber at post nine of the new york stock exchange. sarah eisen today in london ahead of tomorrow's historic brexit vote. she's going to join us in just a moment. but in the meantime take a look at the markets. obviously some cards being held

close to the vest but the dow is up 47, mcdonald's dragging on that a bit. oil is helping out as it reclaims the $50 level. it is a big hour ahead, janet yellen about to kick off her second day on capitol hill. the fed chair about to testify before the house financial services committee. janet yellen arguably using the occasion to inch more deeply into the lower message on interest rates which may be why the dollar is lower. meanwhile, donald trump is also about to launch what's being billed as a full frontal assault on hillary clinton. the presumptive republican nominee also repeatedly mentioning that he could personally fund his own national campaign. we will bring that to you live. first though some breaking economic data. existing home sales for the month of may are out. let's get to diana olick with some numbers. diana. >> carl, existing home sales in may up 1.8% to a seasonally adjusted annual rate of 5.53 million units. that is almost exactly along with expectations. it's the strongest sales pace since february of 2007, up 4.5%

year over year. so i want to get right to the big headline, and that is the median home price of homes sold in may $239,700. that is up 4.7% year over year. and it is the highest median home price recorded by the national association of realtors since they began tracking in 1968. now, this is a median price, so it does skew slightly depending on which homes are selling. we see weakness on the very low end, homes priced below $100,000 fell 2% year over year. the high end of the market, $1 million plus, which was weaker in the last several months, is coming back up 12% year over year. that may be skewing price is higher but realtors saying we are seeing yellow flashing lights on availability. we're seeing high home prices approaching peak levels. now, that is because of low inventory. 2.15 million homes for sale in may, that's down 5.7% year over year to a 4.7 month supply. homes are flying off the shelves

just 32 days on the market in may. that's down from about 40 days one year ago. and that's the shortest time on market since the realtors began tracking this particular number in 2011. so there's your headlines, but existing home sales up 1.8% month-to-month right along expectations. back to you guys. >> okay. thank you very much, diana. meanwhile we are less now than 24 hours away from that historic brexit vote. the uk will decide whether or not to leave the european union tomorrow. our very own sarah eisen is part of the team we have in london and she joins us live. sarah, i've just been told that tomorrow the weather forecast for the uk is actually very poor, which is significant and may worry many people in the markets. >> yeah, poor and rainy is what is in the forecast for tomorrow. we've already been told that could, simon, actually help the leave camp more impassioned to come out and vote for leaving the eu. but, yes, i am here because whatever happens the results

will be felt far beyond the uk. a lot of people are wondering what it means for american investors and the u.s. economy. clearly the main risk here is going to be financial market contagion. but it is worth highlighting the trade relationship between the u.s. and the uk. the uk's the seventh biggest trading partner of the u.s. total trade represents about 3% of all of u.s. trading activity, but it is an important partner. and any decline in the british economy could hurt demand for instance for u.s. exports. also some uncertainty around a trade deal. doesn't exist, but the eu is negotiating itself with the u.s. over a trade deal. financial markets, that is going to be key. the british pound for instance, the george sorros accounting a 20% decline if britain is out, strong u.s. dollar could hurt multinational economies. warning of a seizure in markets as the main sort of way that that could impact the u.s. banking system, credit spreads widening, stocks falling.

it's not what we're seeing today. in fact, it's going completely the other way, the british pound is rallying to a five-month high. but earlier we spoke to one of the very well-known hedge fund managers here in the uk about why he says britain should leave and why he's very bearish on europe. jim melon, here's what he said. listen. >> i think the european union itself because of the euro is going to fracture over the next few years. i think france and italy are in classic debt traps. and those debt traps are going to result in bull market flight some time over the next three to five years resulting in a division of the eurozone. in those circumstances britain is better off in a lifeboat than on the euro titanic as it sinks. >> calling the euro a sinking ship there. important to note that the uk's not in the euro but in the eu. nonetheless, the betting odds say 70% chance that britain remains in the eu. and that's what markets are following. but i will tell you that we

spoke also with one of the betting sites here, he says actually there are more people betting on a brexit. but there is more money being placed on the remain side, which is why the odds continue to favor remain. also, i should warn you that the pollsters and the betting markets grossly underestimated the support for prime minister david cameron in the last general election in the uk. so this is far from a done deal which is why these polls in the next few hours are going to be very important guys, and we'll continue to bring them to you as well as the market reaction. because as much as the pound and other markets are pricing in that britain stays, could be a real shock if it does go the other way. >> okay. sarah, stay with us in london if you would. let's bring in our markets guest for analysis here. chief global economist at deutsche asset and wealth management, scott wren also joins us, senior global equity strategist at the wells fargo investment institute. scott, you are very clear here. if they vote to leave tomorrow and we get that result on

friday, you think that investors in this country should take the opportunity to step in and put any spare cash to work, and specifically on large cap stocks in this country. why have you come to that conclusion? >> that's right, simon. i'm telling you, i think the fear factor is going to drive these markets, but i think the economic factor is a lot less especially in the longer term. i think the u.s. is going to be looked at as a safe haven market, which it certainly is. i think the fundamentals are not going to change. whether the eu votes to stay or not, the trajectory of the global economy and the trajectory of the u.s. economy are not going to change for at least the next 12 months or 24 months. so for us we like large cap stocks. we're not changing our strategy one bit because of this. we've wanted our clients for five years on every pullback to step in. and that's what we want to do here. now, i don't think you'll have to do it on friday, i think you'll have a few days to react.

but we definitely want to step in on any downside. >> okay. i mean, people -- i mean, we're waiting for janet yellen on day two on capitol hill, scott, as you know. and probably she'll warn again brexit could slow the economy in this country. somebody wrote overnight brexit is an iceberg, we can see how high it is above the water, brexit remain, if you like. but none of us can fathom how deep it goes under the surface if they actually exit. and that says is the problem here. but you're discounting that. you think the unknowns are effectively known. >> you know, simon, i'm telling you, if they vote to exit, those other 27 member nations are going to be tripping over themselves to sign trade agreements with the uk. the uk runs a trade deficit with the eu and a surplus outside of that. but those countries want to sell into great britain. they are going to be fighting for first place to sign new

trade agreements. >> let me pick that point up with sarah eisen. sarah, it would appear if you listen to what the rest of the european union is saying, they're going to be vicious with the uk if it votes to leave in order to prevent in contrast to what scott is saying to prevent other people within the union saying they'll have a go as well. what are you hearing in london? >> absolutely that is the case because it is in their political interest to make it as tough for the eu as possible. also keep in mind this is the last day of campaigning. and european leaders have overwhelmingly come out pleading with british voters to stay inside the eu. the other factor worth mentioning here is that i mentioned that the eu is negotiating a trade deal currently with the u.s. whether you think that will happen or not, if it does happen that could put the uk in an awkward position. the uk and the u.s. do not have a trade deal as it stands, but it could make uk companies uncompetitive versus european

companies if they do sign that trade deal. >> okay. >> president obama was here, simon, in april. and he said for the u.s. and uk to sign a trade deal the uk would go to the back of the cue if it votes out of the eu. >> john, what's your analysis? >> i think it's the uncertainty factor. we don't have any historical precedent for this. no one knows exactly how it would shake out if we were to get a brexit. and i think that is what would, you know, really roil financial markets. it's fine to say ultimately things would probably settle down, but the initial response in financial markets i think would be pretty severely negative. and it's just a lot of uncertainty surrounding. >> to scott's point, as somebody said on the show yesterday, it's very rare that you get a sudden repricing of any asset in the way that we may have on thursday and friday. and that in itself, josh, surely represents an opportunity. that is an opportunity that people have to look at. they may discount it, but sudden

price moves to the negative oftentimes will be winners longer term. >> absolutely. that could happen. i'm just saying we don't know. it's opening a potential pandora's box. and, you know, that uncertainty could freeze activity for a while, again, things will settle out, the uk sign some sort of deal with europe, things would work themselves out. but in the interim, you know, a lot of economic anxiety and market anxiety. >> scott, do you want to come back here? >> well, you know, simon, i think, if they vote to exit it is going to be a wild one. gilts, sterling, ftse 100, those are going to be crazy and it makes sense. the rest of the global markets are going to be crazy as well. you know, you got to buckle your seat belt here, but in the end i think if we see downside in the s&p 500, you need to be in there buying these large cap stocks. i think you're going to be kicking yourself down the road if you don't do it. >> sarah. >> scott wren, with all of your market experience, i'm just

curious as to the shock reaction of something like this, something that has been so widely telegraphed, so widely reported, so widely discussed, if you will, on not just financial news networks but really all around the globe, i mean, this is not a 2007-2008 kind of banking shock. so can you still predict that doomsday scenario given the fact that it has been so well out there for the past few months? >> yeah, sarah, i mean, from our perspective i don't think you can predict the doomsday scenario. i think if you just look at the size. you know, the uk fifth biggest economy in the world, less than 4% of gdp. like i said they run a deficit with the eu trade deficit. you know, these things are going to work themselves out. it's a matter of when, and certainly a very, very violent reaction is going to happen on friday in the u.s. if they vote to exit. now, the magnitude of the downside volatility on an exit vote is going to be extreme. i think if they vote to stay,

you know, that will be supportive, but i don't think we're going to see that same upside volatility at least in the s&p 500. >> okay. i mean, potentially history in the making. guys, thank you. scott wren from wells fargo, and john feinman joining us from deutsche bank. and sarah eisen in london as part of our team. back home, fed chair janet yellen testifying before the house financial services committee. we're going to bring that to you. plus, fed ex with a beat but the shares slipping. we're going to talk about why with our panel of experts. another stock story we're watching is tesla. elon musk offering that $2.8 billion bid for solarcity. both stocks definitely on the move. more "squawk on the street" after this. mary buys a little lamb. one of millions of orders on this company's servers. accessible by thousands of suppliers and employees globally. but with cyber threats on the rise, mary's data could be under attack.

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transportation giant reported overall loss due to pension costs and acquisitions of europe's tnt. for more on that bring in logistics analysts and john barnes transportation analyst at rbc. good morning. david, is guidance deserving of this? >> guidance is uncertain.

they left tnt completely out of guidance and in uncertainty there's risk. the management team said accretive fy-17, so people stepping to the sidelines right now and i think waiting for, you know, fed ex to show them something through the year and maybe get a little bit more constructive as we move into the tnt integration. >> is this just classic fdx guidance and their classic conservative style? >> no. >> i do believe that they are being a little bit conservative here. i mean, you know, if you take a look at the numbers and the way they built them out, basically talked about not only owning tnt for 28 days now so essentially i think, you know, being pretty coy about providing any color around tnt i think is being pretty conservative. >> yeah. john, a lot of the questioning to fred smith was about amazon, and the degree to which they can replicate even a part of the service they get from this vendor, how deep is that mote? >> i think the mote's pretty

big. the big issue for amazon is it is growing so fast. it is somewhat overwhelming the ability of u.p.s. and fed ex to kind of keep pace. i think what fed ex -- excuse me, amazon is doing in terms of rolling out own air freight network is kind of necessary at this point in its evolution. i think they have to do it to supplement what u.p.s. and fed ex can't provide because, again, the growth is overwhelming their partners. >> david, you make the point in a note, the company repeating again that no customer accounts for more than 3% of revenue. >> correct. so amazon while significant to fed ex and to u.p.s., you know, does not make or break the company. e-commerce is a very strong trend and pretty much everybody that ships and buys online, you know, interacts with fed ex at some point. >> david, they didn't have too many comments on brexit, but obviously it's the only real topic people are talking about today. what do you imagine the effects

would be on fed ex if this is a leave vote? >> i think it's a net negative on fed ex probably more so just in trading than in reality. you know, up until this point when fed ex bought tnt, you know, fed ex did not have a large european exposure. so it actually increased exposure to brexit by adding tnt into the mix, but they have all the other issues going on with the integration and potential synergies that could offset any brexit over the long run. >> john, your thoughts on that just as we wait 16 hours away from voting to begin. >> yeah, going back to your last segment when you talked about, you know, the other eu countries tripping over themselves to negotiate trade deals with the uk. i believe whether or not they vote to exit or remain is not going to impact global trade. i think ultimately global trade will continue, e-commerce growth will continue, i think at some point fed ex and u.p.s. benefit from that. ultimately i think it's more of a risk to sentiment in the near-term than it is some impact to the reality of global trade. >> yeah.

more fundamental question, john, is regarding margins we mentioned the cap x boost 6% and then there's also the rise in jet fuel costs. how much is your eye on the cost side of the balance sheet? >> you know, you go back to the guidance that they gave. they talked about some margin degradation at the ground business as a result of some additional investment they're making there. obviously investors never want to hear about margin degradation. i think jet fuel price is creeping up a little bit, but keep in mind they make a little money on fuel surcharge. it's not the worst thing to have fuel prices go back up a little bit. you know, i don't think that that's going to be what makes or breaks the story. i think, you know, the margin degradation at the ground business is going to have to be carefully monitored and i think more importantly whatever the costs are integrating with tnt that's the big enknown here. >> can i pick out the broader point that you make about trade and structurally the outlook is

good, i understand we may say that for generations but if you look at some of the shippers that's not the case, if you look at rhetoric from donald trump, you might think trade would be hit. that seems to be his aim. if you look alternatively at concerns china might devalue, it seems to be influx. are we sure china will keep on expanding as we have assumed? >> i'm not sure of anything in this environment with the rhetoric that's being passed around. ultimately i believe trade will continue to expand. it may not expand at the prior levels that we've seen before. i think you've seen, you know, that's kind of showing up in the data points recently. freight volumes not particularly good at the present. not indicative of a strong u.s. or global economic. again, i think the rhetoric around a lot of these issues is going to impact sentiment more than it actually does the real volumes, but i think over time,

you know, global trade will kind of stabilize and the rhetoric will die down, hopefully. >> does sort of bring us -- i mean, specifically on ground, david, we talk about the worries about amazon, sluggish u.s. growth and yet these volumes continue to go double digit year on year. why is that happening and how long can it last? >> very impressive. you know, especially given the weak macro backdrop and everything going on with amazon and the headline fears that we've been reading about. it's happening because e-commerce is taking share in the retail environment. a lot more folks are choosing to go to either their mobile phones or online to a website to buy their goods than go to the store. and what we've seen over the last several years is actually a stair step function of adoption in terms of e-commerce and online buying every holiday season. so what we saw again in the fourth quarter just continued into 2016, you know, fueling the rapid growth of e-commerce. again, fed ex, u.p.s. and postal service are there to help get

those companies, the goods delivered to the consumer. >> yeah, i remember when we were talking about people downgrading from premier delivery, a different story today. david, john, appreciate that very much, guys. >> thank you. >> recapping fed ex's quarter. coming up on the show, we are now with two live events in our view, fed chair janet yellen is about to finish her statement on capitol hill. we will take day two of her testimony live. and of course donald trump is preparing what's being described as a full frontal attack on hillary clinton. we will also have that live on cnbc.

we're waiting for both janet yellen to finish her testimony and of course for donald trump to start his speech described or billed as a full frontal attack on hillary clinton, partly written by his own son-in-law. john harwood joins us now with a preview of what we can expect from the republican presumptive nominee. what do you think the headlines will be, john? >> well, i think let's step back for a second, simon, and consider that donald trump's attempting kind of a reset of his campaign. he got rid of his campaign manager, former campaign manager corey lewandowski, a couple of

days ago. he's trying to build a more professional operation for the general election. in the last 48 hours he's added staff, added various digital directors and field political director to his team. now he's trying in a formal speech to get back on offense against hillary clinton. she's done two big takedowns of him in the last couple of weeks, one on foreign policy a couple weeks ago, one on the economy yesterday. yes, he replied via instagram and tweets, but this is the speech that he wanted to give before the orlando shooting interrupted his plans. and he's going hard after hillary clinton tying her record as secretary of state to scandal, clinton foundation donations, and also talking about bill clinton and his past scandals. now, it's unclear how effective any of this is going to be with an electorate that understands that this was almost two decades ago a lot of this stuff. now, some of the clinton foundation and the secretary of

state material he'll be discussing is more recent. hillary clinton does have a problem with trustworthiness in terms of the assessment of the american electorate. so he's trying to touch on that and enflame that feeling about hillary clinton. we just don't know how effective it's going to be. he's had a couple of weeks where he's been fading in the polls, and he needs some momentum. he'll try to get some this morning. >> although i think there was a poll out overnight that showed that clinton's lead had narrowed somewhat over recent days. john, where are we on the funding of the trump campaign now? the "new york times" has decided to collect together a number of the comments that he's made that he might self-fund his campaign. are those comments really more in passing than a major change of strategy here or thinking that that might take place? >> well, he reiterated some of those this morning on television where he said that he would be delighted to fund his campaign if he needed to.

it is not clear whether he has the money in liquid form, in cash, that would allow him to pay for what you need to do to run a general election across this country. remember mitt romney and barack obama their larger political enterprises each spent a billion dollars last year -- last election in 2012. donald trump only had a million dollars in cash. in theory he could write a massive check and replenish that immediately, but he hasn't shown the propensity to do that. that means he's got to kick fund raising into gear. he sent out an e-mail yesterday offering to match dollar for dollar money that came in. but republicans are very concerned that he doesn't have a modern fund raising apparatus and he doesn't have a modern campaign apparatus, so it is true donald trump has broken a lot of political rules this year. but he needs to break some more. >> john harwood in washington. meanwhile, let's go across town to capitol hill. steve liesman is watching yellen as her q and a's about to begin.

steve. >> committee chairman just about to ask the first question. he had earlier repeated his remarks that the federal reserve ought to be following a rule based system for determining monetary policy, called for the fed to bring down the balance sheet. i'm actually expecting a little more fireworks today as the house has objections with monetary policy. i don't know if we want to take a listen to the opening question of the member. >> we are going to listen. >> have you reviewed the legislative history? >> well, i have some recollection of it although perhaps not perfect. >> did any fed official at that time to the best of your knowledge say that ior would supplant open market operations as the main tool of monetary policy? >> i don't recall exactly what was said, but we were faced with the problem, i remember former vice chair donald cone testified

on this, and i believe there were a number of testimonies on many -- over many years. >> well, i agree, i just wondered if you had a memory -- >> well, i think the fed felt that there were difficulties in managing short-term interest rates using our standard techniques. >> do you have memory of anything else besides the fed saying rate floor? because if you don't, i believe congress granted ior for one purpose and it appears the fed is using it for another purpose. my son could ask me, my 12-year-old, for a louisville slugger to improve his batting practice, it doesn't mean i approve it for the use of chasing his sister around the house. i'm not sure that anybody in congress foresaw the tool being used in such a way. and i think as you know section 201 of the financial services regular relief act says payments in reserves, quote, cannot exceed the general level of

short-term interest rates. today you are paying 50 basis points on interest on excess reserves. the feds fund rate yesterday i believe is 38 basis points, is that correct? >> probably correct. >> so you're paying about -- back to the calculation 35% on reserves you're paying a premium to some of the largest banks in america, is that correct? >> well, i consider a 12-basis point difference to be really quite small and in line with the general level of interest rates. >> okay. so you believe you have the legal authority to do this otherwise you wouldn't do it, is that correct? >> well, i do believe we have the legal authority to do it. >> madame chair, would it be legal for you to pay a 50% premium? you're paying a 35% premium today? would it be legal to pay 100% premium? >> -- and interest on excess

reserves did not succeed as expected in setting a firm floor. >> would it be legal under the statute -- would it be legal under the statute for you to pay twice the fed's fund rate as a premium on interest on reserves? >> well, i believe that the way we're setting it is legal and consistent with the act. >> that's not my question. what is the legal limit? what is the legal limit on which you can pay? what does the phrase, exceed the general level of short-term interest, mean? you're saying 12 basis points does not trigger the statute. at what point is the statute trigger snd. >> ilt depends on exactly what short-term interest rate you're looking at. there are a whole variety of different rates. >> okay. do you have an opinion on whether or not it would be legal to pay 100% premium? >> whatever level we set the interest on reserves -- >> madame chair, please, it's a simple question. >> -- funds going to trade below that level. >> madame chair, please, it's a simple question. would it be legal under the statute to pay a 100% premium? if you don't know the answer to the question, you don't know the

answer to the question. >> well, my interpretation is that it is legal. >> it would be legal to pay twice the market rate? that would not exceed the general level of interest? >> there is likely to be for quite some time a small number of basis points gap between interest on reserves and the fed funds rate. and that is something that -- >> i would simply advise discussing that with the legal counsel because i think that frankly offends common sense. last question, you mentioned as part of your policy paying interest on reserves part of the rationale that you've sent roughly 600 billion back to congress, to the treasure, only possible because of larger stock of reserves. are you aware that the gao has a pine, quote, while reserve bank transfer to treasury is recorded as a receipt to the government,

such transfers do not produce new resources for the federal government, and are you aware that the congressional budget office has opined transferring excess earnings, quote, from the federal reserve to the treasury has no import for the fiscal status of the federal government. are you aware of either of those opinions? >> i am, but i believe those opinions were rendered in connection with the highway bill which tapped federal reserve surplus in order to pay for the highway bill. and what the opinion meant was that congress was not generating additional revenues in transferring federal reserve surplus to the congress. this was essentially an accounting -- >> my time has expired. and i think the language is plain. the chair now recognizes the ranking member for five minutes. >> thank you very much.

last month's jobs report included an unusually steep decline in labor force participation with 664,000 workers reporting that they had stopped looking for work altogether. you said recently that it's too soon to tell whether this drop was an aberration or the sign of a larger trend. and cautioned in your testimony in the senate not to place too much emphasis on a single jobs report. that said, the drop was quite substantial. so i'd like to better understand your current thinking on what could have caused such a deep decline in labor force participation, moreover, how are you reconciling the consistently positive job gains over the past 75 months with the steep labor force decline, and to what extent has the decline and labor force participation affected your thinking regarding the timing and pace of further rate

increases? >> so taking a slightly longer time perspective than just the last two months, labor force participation has been declining and is likely to continue declining in the coming years because we have an aging population and as people move into the retirement years and their fractions in population are increasing, they work less even though more recent cohorts participate more but there's a sharp dropoff in participation in the labor force. so that will continue. but we've also felt, or at least i've felt that labor force participation among other groups has been somewhat depressed by the fact that we've had a weak labor market. and a sign of a strengthening labor market is to see people

who were discouraged brought back into the labor force. now, over the last year the labor force participation rate has been essentially flat. it had increased for a bit. it's come down somewhat over the last year it's been flat. now, with the declining trend due to an aging population, i take the flatness in the labor force participation rate over the last year as an indication that in fact we have seen some cyclical gains, that people who were discouraged have come back into the labor force. if we just look at the last labor market report, the last month, i would caution these numbers are quite volatile. and i don't think we should attach too much significance to a single month, but as i indicated in my prepared remarks, when we have a month in

which job gains are very low and we see a decline in labor force participation and that reflects an increase in the number of people who had actively been looking for work and in the previous month had been categorized as unemployed cease looking hard enough so that they're now move into the category of out of the labor force because instead of actively searching, they're no longer actively searching. that's not a good sign. so we're watching that very closely. but i think we shouldn't overblow the significance of a single report. i continue to believe this is likely to be a transitory phenomenon. the economy slowed toward the end of last year. and in the first quarter of this year. when gdp growth slowed, the

labor market nevertheless continued to perform well with 200,000 jobs per month in the first quarter. now, this more recent decline in job growth may be a reflection of that earlier weakness in spending. and as i pointed out, we are seeing, i believe, a pickup in growth. there's been a sharp increase in consumer spending. i think if that turns out to be the case, and i see the fundamentals as remaining essentially strong there, i'm very hopeful that we will see a pickup in job growth. we will be watching for that as we assess the economy. >> thank you very much. let me just say, you noted in your testimony that a uk vote to exit the european union would have significant economic repercussions for economic activity, labor markets and inflation here in the u.s., and have previously indicated that the uncertainty posed by the

referendum was a factor in the fed's most recent decision to hold off on raising rates. my republican colleagues have called for tying monetary policy decisions to a strict mathematical formula. and i wanted to just get your take on whether there's any such preset formula that you're aware of that takes into account the uncertainty associated with the chance that a member country could drop out of the european union, can you quickly comment on that? >> well, mechanical rules take none of that into account. they base changes in the stance of policy on just two variables, the rate of inflation and gdp or the unemployment rate. and i do think especially given how low interest rates are and how long it's taken the u.s. economy to recover that it's important to look at the risks and to bring in risk management

considerations as we are doing. i don't know that a brexit vote would have significant consequences for us, but it could. and i think it's important to take that into account. >> thank you. i yield back. >> time of the gentle lady has expired. chair now recognizes gentleman from michigan -- >> you can always count on the house side to bring the fire. chairman questioning chair yellen about interest on excess reserves to start. steve liesman's been watching this as the q and a begins. steve, your thoughts. >> so henserling has sharp questioning about this interest on excess reserves which is a way for the fed to stabilize fed funds rate, they're paying higher than that and for the first time i've not seen the criticism questioning the legality of that pamgt. we're going to have to run this down. it's the first we've heard of it. second, yellen said that the

flat participation rate, it has been flat, it's been down recently and up before that is a sign of strength in the labor market because the long-term trend is also down. finally, she used this brexit issue very interestingly as a way to counter the charge from republicans on the committee for why there shouldn't be a rules based way of making monetary policy. maxine waters asked, does the rule take into account things like brexit? she said, no, it doesn't, it's why we should use a risk management approach to making monetary policy because we can factor in things that aren't in the formula. and she said not sure brexit would create a big issue, but it could so we have to think about, that carl. >> steve, thank you very much. another live event we're waiting for is for donald trump to make a keynote speech counterattacking hillary clinton. let's bring in john harwood, political editor of course. john, just before we get back to mr. trump, what news -- this news that marco rubio e is going to run again for re-election in

florida, what should we make of that? does that have any impact on the 2016 campaign? was there ever a question he could be on the trump ticket? >> i don't think so. i don't think that was in the cards, marco rubio wants to run for president again. and i think he would not want to run on donald trump's ticket. in fact, he said in an interview announcing that he was going to change his mind and run for re-election to the senate. he indicated one of the reasons he was doing that was whether trump or hillary clinton becomes president, you need the senate to stop bad ideas. so the implication there was that perhaps some bad ideas will be coming from donald trump. this is good news for republicans because it increases the possibility, probability that they'll be able to hold the seat. republicans have got a narrow majority in the senate, more of their seats in vulnerable states are at risk. and if they can secure marco rubio, and you'd have to consider him the favorite as

somebody who has been elected to the senate before and has a high profile and well regarded among republicans, although he didn't win his state against donald trump, this is good news for them at a time when they've got a lot of bad news going on. >> hey, john, on fund raising, this time yesterday the narrative was that the trump campaign was way behind the clinton campaign for may. today, trump is positioning it as fund raising in a sense is unseen because of the political favors that you aostensibly hav to give in return. how effective is that? >> not so effective. you need money to run campaigns. he's got two options. he's either going to have to write much bigger checks than he's been willing to write so far, or go raise the money in the same way hillary clinton is raising it. which would undercut some of that rhetoric about how she's going to be bought and paid for. remember he used that against fellow republicans he was running against said they were puppets of the koch brothers or

woody johnson or other people, now he's got woody johnson raising money for him and he's going to need money. interestingly there's a story this morning where ed rawlings running a pro-trump super pac said donald trump needs to get on the stick and either write that big check or get on the phone with donors and persuade them, which you need to do that personally to get people to write big checks for an enterprise like running for president because he hasn't been willing to do so so far. so that's coming from his own side about how he needs to kick it into gear. >> are you buying any of these stories, i don't even know if they're stories, more like rumblings about something dramatic happening in cleveland. you've long said you do not expect it to be contested in any way. >> you know, there will be depending on how the polls look, and trump's been falling behind although the last couple of days he's gotten a little bit better news from some battleground state polls and some national polls, but the further he gets behind the more rumblings there

will be about having to replace him. but bottom line is i do not think that there will be effective opposition to him at the convention that could dislodge his nomination. i simply think that's too difficult to pull off. his opponents couldn't pull it off during the primary campaign. i think it's going to be very tough, even tougher in the convention. >> john, on that note here is donald trump taking the lectern. >> thank you. [ applause ] thank you very much. [ applause ] thank you very much everybody. today, i'd like to share my thoughts about the stakes in this upcoming and very important election. people have asked me why i'm running for president. i built an amazing business that i love, and i get to work side

by side with my children every single day. we come to work together and turn visions into reality. we think big and then we make it happen. we absolutely make it happen. i love what i do. and i am grateful beyond words to the nation that has allowed me to do it. so when people ask me why i am running, i very quickly answer, i'm running to give back to this country which has been so very good to me. [ cheers and applause ] when i see the crumbling roads and bridges, or the dilapidated airports, or the factories moving overseas to mexico, or to other countries for that matter, i know these problems can all be

fixed but not by hillary clinton. only by me. [ applause ] the fact is we can come back bigger and better and stronger than ever before. jobs, jobs, jobs. [ applause ] everywhere i look i see the possibilities of what our country could be. but we can't solve any of these problems by relying on the politicians who created the problems themselves. we'll never be able to fix a rigged system by counting on the same people who have rigged it in the first place. [ applause ] the insiders wrote the rules of the game to keep themselves in power and in the money. that's why we're asking bernie

sanders voters to join our movement so together we can fix the system for all americans, so important. this includes fixing all of our many disastrous trade deals, and they are disastrous, they're destroying our country. because it's not just the political system that's rigged, it's the whole economy. [ applause ] it's rigged by big donors who want to keep wages down. it's rigged by big businesses who want to leave our country, fire our workers and sell their products back into the united states with absolutely no consequences for them. it's rigged by bureaucrats who are trapping kids in failing schools. it's rigged against you, the american people.

hillary clinton, and as you know she -- most people know, she's a world class liar. just look at her pathetic e-mail server statements or her phon g landing -- [ applause ] -- or her phony landing in bosnia are where she said that she was under attack, and the attack turned out to be young girls handing her flowers, a total and -- look, this was one of the beauts and a total and self-s self-serving lie. brian williams' career was destroyed for saying less. just remember that. and yesterday, she even tried to attack me and my many businesses, but here, and this s is the way it is, it is the bottom line. i started off in brooklyn, new york, and not so long ago with a small loan, and built a business

that today is worth well over $10 billion. [ applause ] that's the kind of thinking that we need for our xun trichlt i have always had a talent for creating jobs. that is the talent that our president needs. aam running for president to end the unfairness and to put you, the american worker, first. it is about time. [ applause ] we are going to put america first and make america great again, and this election is going to decide if we are ruled by the people or the politicians. here is my promise to the

american voter. if i am elected president i will end the special interests monopoly in washington, d.c. very important. if the other candidate in the race are has spent her entire life krcreating special interes and she has made plenty of money for them, and she has been taking plenty of money out for herself, and hillary clinton has perfected the politics of personal profit, and even theft. she ran the state department like her own personal hedge fund doing favors for oppressive regimes, and many others, and really many, many others in exchange for cash, pure and simple, folks. pure and simple. [ applause ] then when she left she made $21.6 million giving speeches to wall street banks and other special interests and in less

than two years secret speeches that she does not want to reveal under any circumstances to the public. i wonder why. together she and bill made $153 million giving speeches to lobbyists, ceos and foreign governments in the years since 2001. they totally own her, and that is never ever going to change, including if she ever became president, god help us. [ applause ] the choice in the election is a choice be between taking the government back from the special interests or surrendering really the last scrap of independence to the total and complete control of people like the

clintons. those are are the stakes. hillary clinton wants to be president, but she doesn't have the temperament or as bernie sanders said very strongly, the judgment to be president. she does not have the judgment. she believes -- pla [ applause ] -- she believes she is entitled to the office. her campaign slogan is i'm with her. and you know what my response is to that? i'm with you, the american people. [ applause ] thank you very much. she thinks that it is all about her. i know it is all about you, and i nknow it is all about making america great again for all

americans, all americans. our country lost its way when it stopped putting the american people really first. we have to go back to putting our american people first. we got here because we switched from a policy of americanism focusing on what is good for america's middle-class to a policy of globalism focusing on how to make money for large corporations who can move their wealth and workers to foreign countries all to the detriment of the american worker and the american economy, itself. we reward companies for offshoring, and we punish companies for doing business in america and keeping our workers empl employed. they get punished. this is not a rising tide that lifts all boats. this is a wave of global iism tt wipes out the middle class and our jobs along with it.

we need reform, and we have to reform our economic system so that once again we can succeed together, and america can become rich again. we have to make america rich aga again. [ applause ] that is what i mean by america firstt. our country will be better off when we start making our own products again. bringing our once great manufacturing capabilities back to the shores, and i mean, we have to bring our manufacturers back to the united states desperately needed. desperately, we need those jobs, and we need it even from our psyche. one of the really great things and the first major bills that george washington signed was amazing when i saw this for the first time the encouragement and protection of manufacturing in

ameri america. our first republican president abraham lincoln warned us by saying that the abandonment of the protective policy by the american government will produce want and ruin among our people, and in other words, we have to protect our country. i have decided, and visited cities and towns across america all across america, and seen the devastation caused by the trade policies of bill and hillary clinton and it is total devastation, all over new york, and all over pennsylvania and all over new england and all over the country. and hillary clinton supported bill clinton's disastrous and totally totally disastrous nafta, and just like she supported china's entrance into the world trade organization, and we have lost nearly one-third of the manufacturing jobs since these two hillary-backed agreements were signed, and among the worst we

have ever done, and among the most destrucktive agreements that we have ever signed. our trade deficit with china soared 40% during hillary clinton's time at is secretary of state, and a disgraceful performance for which she should not be congratulated but rather scorned. then she left china -- so true. [ applause ] -- then she left china and what happened is that billions and billions of dollars in our intellectual property, and chinas ha taken it. it is a crime that is continuing and going on right now, and they are stealing billions and billions of dollars of our intellectual property. hillary clinton gave china millions of jobs, and our best jobs, and effectively let china completely are rebuild itself. it returned hillary clinton to

be rich. the book "cagetting cash" by per schweitzer shows how she did it. she gets rich making you poor. here aes quote from the book, at the s the center of the u.s. policy toward china was hillary clinton. at this critical time for u.s./china relations bill clinton over a number of speeches were underwritten by the chinese government and its supporters, and these funds were paid to the clinton's bank account directly while hillary was negotiating with china on behalf of the united states. tell me, folks, does that work? she sold out our workers and our country for beijing.

hillary clinton has also been the biggest promoter of the trans-pacific partnership which will ship millions more of our jobs overseas, and give up congressional power to an international foreign commission. now, because i have pointed out why it is a disastrous deal, she is pretending that she is against it. she is giving and deleting as you know, and most people have heard about this, and have we ever heard about her deleting anything? no, i don't think so. she deleted the entire record from her book, and deletion is something that she really does know something about, because she has deleted at least 30,000 e-mails which by the way should be able to be found. should be able to