>> live from new york where business never sleeps, this is "squawk box." >> good morning, everybody. welcome to "squawk box" on cnbc. we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and melissa lee. stocks coming off their worst one day drop since the eelection. the dow and s&p 500 had their first 1% loss since the the election. things are mixed now. the dow is down by 11. in asia, the nikkei fell by 2%. reports of a failed north korea missile test for the drop. the hang seng fell by 1%. and the shanghai down by a half percent. let's look at european equities.

in europe things are in the red. the dax and cac are down 0.6%. the ftse off by 0.8%. knitly, sto ly in italy, stocks are down about a percent. right now the dollar is up against the euro which is trading at 1.0874. down against the yen. and crude oil has been weakening even as the dollar had been struggling with issues. wpi down abo wti down by 1.43%. >> have we shown the ten-year? >> no. >> i would show the ten-year. 2.40. i will do a story in a second talking about fed speak again. who cares about the fed anymore,

they're irrelevant, not at 2.40. 2.40. we were on our way again. we were on our way again theoretically to 2.60, 2.70, 3%. what does that say? does that say 1% gdp number in the first quarter stays at 1%? none of these things in the trump agenda come on time? or big as expected? are they delayed? >> does trump care lite mean tax reform light? >> or do we even get the taxes? >> so these -- i've never been in congress, i never will be. but there's a lot of kabuki dance. i understand that. a lot goes around. a lot of whipping goes on. but everything i'm hearing is there are 30 guys with their

feet in cement. you can only lose 22 in the house. >> they don't have the count right now. hard to believe wall street will be watching every single vote count tomorrow night. >> and that those 30 have complete -- have direct opposite concerns of the senate, of the guys in the senate. we will have a democrat on today, ranking member on the budget committee to talk about trumpcare. his whole opinion is moot. the republicans think they expanded the entitlement state, these guys want to expand it more. >> i'm interested in hearing is there room for any sort of compromise when you get to taxes? >> or in the second and third rounds, will they -- will they cooperate and try to lower costs? >> i wouldn't bet on that at this point. for wall street what matters, can you get to tax reform? if you can find any sort of

cooperation across the board, maybe. >> maybe this market sell juf cou selloff could be the leverage republicans need. trump has been saying markets have been doing fine since i've been elected, all of a sudden the agenda is threatened and we get a selloff. >> not quite the t.a.r.p. 1,000 pointer. >> no but it could be binary sort of events. >> we've done stories about don't chase this market. i wrote down where it was, 2316 on the s&p. we're at 2344. we were telling people don't buy at 2316. even if it pulls back, it's above where you told us not to buy. >> but it means so much is riding on thursday night's vote. >> if it happens. >> if they don't whip these guys into shape, it's oh, a couple of guys got a soccer game for the kids. there will be an excuse. >> would they push ahead with a different version of the

healthcare reform? would they pivot to taxes? that's the thing. you have to do it in this order so you have the savings you can build on for the tax reform. if this gets bogged down, i wonder if they pivot. >> forget about infrastructure. keep your eye out for potholes. they're not going away. >> stocks to watch, fedex's third quarter earnings and revenue rising during the peak holiday season but profit missed foreca forecasts. the stock initially dropped as much as 3%, but then stocks recovered after the ceo fred smith said the company is optimistic about higher margin growth. >> we believe strongly that our strategic investments to expand our global scope and our portfolio of services will significantly increase long-term profits. >> and nike reporting higher third quarter profits but revenue missed forecasts. among the reasons, currency headwinds, and increasing

u.s. competition from rivals adidas and under armour and future orders also disappointed analysts. on the conference call, ceo mark parker said nike will adjust operations to meet customers changing demands. >> in product we're doubling our cadence and scale of innovation through performance and sports style. throughout our supply chain we're doubling our speed from product insight to delivery to the consumer. and in the marketplace, we're doubling our direct connections with consumers through digital, membership and personalization. >> we will talk to a nike analyst in a few minutes. nike has been trying to guide analysts away from the importance of the futures orders, yet futures orders come out on the conference call and it drops like a stone. >> i don't know how they can be tied in. >> we will ask the analyst on

whether or not they think futures orders is important. >> sears holdings warning it faces substantial doubts about its ability to stay in business. earlier this year the parent of sears and kmart announced plans to close 150 stores and just last month said it would cut costs by as much as a billion. the fed is still in our lives. this morning we have three guys that many people have never heard of. we have, because we follow these guys. this guy will talk. that's dallas fed president, robert kaplan. he says the central bank should hike rates two more times this year and continue to gradually trim back the balance sheet. he is a voting member of the fomc. then you have cleveland fed president, loretta mester. she says she favors the central bank takes steps to reduce its $4.5 trillion balance sheet. then when you go up to boston, boston fed president eric rosengren spoke late yesterday and warned that the run up

in u.s. real estate prices could intensify future economic downturn. he's urging regulators to consider tools beyond interest rates to help that sector. here's the ten-year that we were eluding to. 2.4? it's not far from a 2.39 handle. i don't know what that says. we have been confounded by it. there's flows. people like bonds over here still. even -- i therd that theard tha trade is off now. >> positioning in terms of a bullish dollar is off? >> is off. >> is that because they don't think the border adjustment tax is going through? where -- >> i think it -- if i -- we'll find a reason, but i think it got totally overcrowded. everybody who wanted to get in was already in. a lot of times that will happen. >> in europe, the political developments are better than expected with macron winning the

first debate. >> we'll see. he tried to watch some of that debate. >> did you? >> in french? >> yeah. that was the problem. that was the problem. i hear a word every once in a while. sabotage, i hear -- i would hear a french word every once in a while. no. but they were -- the guys started out, macron, he's new. kind of new. 39 years old. he's a bit shy, i think. then the other guy, talking to someone yesterday. the other guy. the bribe was a million dollars. really? you can get in trouble for that? over here it would have to be 100 million -- not really, but over there, that's a lot. there are some people that think that the le pen numbers are like the hillary clinton 98.5 numbers. >> including mark brandt. >> she will win the first round, but consensus is she gets

crushed in the second round by macron. but they are saying there's a whole group of people not polling. >> mark grant stuck with that idea. he's been right about a lot of issues he called up to this point. an update on a story we told you about yesterday. secretary of state rex tillerson had planned to skip a nato meeting next month, but now the state department proposed new dates for that nato meeting that would allow tillerson to attend. changing the meeting date would require the consensus of the 28 members. last night president trump said he will attend the nato leaders summit in brussels scheduled for may. >> the expression, you should never say has the meeting started yet in they say, no they're waiting for you to get there. never go to a meeting that can start before you are there. that's what's happening here. you can't have a nato meeting without rex tillerson. >> 70% of the defense outlay for

nato comes from the u.s. so you'll have the meeting with us? >> the head of nato already said he's interested in changing the dates. >> how can you have a nato meeting without rex tillerson? who will buy the drinks? >> it's been overplayed to say we don't care about nato and that's why nato couldn't do it. the head of china is here, the president is here, with all the issues in north korea i wouldn't want him missing a meeting with china either. >> i can see all the euro caratcarat eurocrats at dinner, here's the bill what? me? where is rex tillerson? >> president trump is making a push for the new healthcare bill. eamon javers has more. >> it's a day of wheeling and dealing on capitol hill. today is the last day for the trump white house to wrangle

votes for its healthcare bill which is facing a vote in the house of representatives tomorrow. as of now the analysis is the trump white house may not have the votes. last night the president did not sound like a guy who felt that he had the votes either. take a listen to what he had to say. >> we had to go with the healthcare first. and we're doing well. i think we'll have some great surprises. i hope that it's going to all work out. >> i hope that it's all going to work out is not something you say when you know you have the votes in the bag. this white house has some work to do today. last night the president also had a message for the business community. here's what he said there. >> we will do everything we can to lower business burdens and to make it easier for hour businesses to thrive and compete, but in exchange they

must hire, invest and grow in america or we're not giving them anything. okay? >> so i don't know if this is too much analysis, if you read between the lines, it does not feel like the president is as enthusiastic about this healthcare proposal. he said we had to go first. we had to do it. we were forced into it because of the legislative calendar, as he is excited about reducing business burdens. that animates this president that they want to get done the but the two things are linked on the legislative calendar. you were talking about the stock market pullback we saw yesterday. in the white house press briefing room i asked sean spicer about this. this is a white house that has said they view the stock market very much as a report card or a realtime barometer on their performance. i asked spicer about that yesterday. he said, you know, look on a down day you can't look at one day in isolation. you have to look at broad business confidence. they're not necessarily using stock market yesterday as the

report card for their performance. back over to you. >> might not ab report cabe a rn the performance but a worry or trepidation about what happens tomorrow which could delay tax hikes. that's obvious. you're not getting a 14% move and then say, wow, you guys suck because it's down a point and a half yesterday. you wouldn't do thashgt rigt, r? a lot of people have total horror watch the market go up after trump was elected. they were waiting and waiting, one day -- i had people on twitter declaring victory yesterday, that trump has terrible business policies, terrible president, because of one day. on the s&p, like i said earlier, we're still about 2% 3% above where most people already said we're way too high. even if you do pull back 5%, you're still above where -- any way, everything is political

now. drives me nuts. i don't know if i can continue. >> everything is political. that is true. my point was a more narrow one. this white house said some things about the stock market that white houses typically don't say. they don't normally say, yes, judge us by the storm performance. yes, we view that as a metric. they normally stay away from the stock market. because frankly oftentimes they don't understand it. also they feel like it can come back to bite them if they embrace a couple days up, then they'll have downturns and answer for that. this white house has said different things about the stock market. >> do you know how many times the obama people said the gdp never got above 2%, but the stock market tripled. they say that constantly. >> you just have to be consistent. just say stock market performance is a measure. >> one day when it goes down 200 you have to own a one-day pull

back, when it's up 14%? fair's fair? that's ludicrous. >> if you believe the storm performance measures the president's success broadly, not just in one day or hour, you have to apply it both ways. >> factor in consumer confidence, small business confidence, animal spirits, factor in everything. it shouldn't be a revelation to all these people that if you're -- that you're a little friendlier to job creators that things may look up. suddenly people are saying golly, some of these pro business things may help the stock market. that's not even a stretch. that has nothing to do with trump, it's pro growth policies. >> there's no question that wall street welcomed two main thrusts of this policy. business tax cuts, and deregulation. the idea that businesses would have more room to maneuver o

out without government coming in and telling them what to do, that is something they liked. >> and trump saying we could have let this thing collapse. they introduced this entitlement, the democrats did. now trying to fix it will tarnish the republicans. if you just let it collapse -- he said you can't let it collapse, like the guy from -- >> can't have it collapse. >> and when you try to fix it, it's like thank you, sir, may i have another? let me bend over. can i have another? >> the obama people felt the same way about it. we promised to do something on healthcare. we were going to propose a major reform on health care, there were outraged town halls, the death pab panels.

this was a quagmire for the democrats as well. this has been a quagmire since 1993. this is a tricky, divisive bigger issue. >> now people will just make fun of you for realizing that. >> who knew it was so complicated. >> all right javers. for more on the markets, joining us is joe zidel from richard bernstein advisers. here we are saying it again. bernstein again. he was on monday wasn't he? >> yeah. >> is this the bernstein advisers network? >> that has a ring to it. >> and simien himen from pro shares. it got weird that almost every day the market went up. so we've been waiting and waiting, but we really do sort of-- are we overplaying a 200 point move yesterday? is this the beginning of

something that turns into a pullback? >> i think people are overreacting. becky, in your intro you talked about how the markets had not had a more than 1% down move since october. >> it's the longest streak. >> 109 sessions. >> that's the longest streak since 1995. we should put that in context. >> if you think about the conversation yesterday, the narrative that dominated traders and investors yesterday, it was about trump will get hung up on healthcare. he can't get to tax reform, everything else. what was missing from the dialogue or conversation was any talk of fundamentals. this whole -- this whole market move since the election has all been about the trump rally, the trump bump. but what people are overlooking is here we are with fourth quarter 2016 earnings now behind us. s&p 600 -- s&p 500 across the board had tremendous earnings growth. small caps alone, year over year

earnings growth over 90%. >> yet the small caps yesterday bore the biggest brunt. the russell 2000 lost all of its gains for the year. >> in the last 12 months we have been in a classic earnings driven market, but it's been all about politics, all about healthcare, then tax reform. everything else. the underlying fundamentals are pro equity, pro cyclical and things continued to go up from her here. >> i'm glad you mentioned small caps, that is an opportunity. the underwer foperformance of s caps wasn't just yesterday, it was all year. people like the trump trade and the domestic aspect, but the hair on it is you get more leverage in small caps, that's sensitive to fed hikes. one way to play this is focus on quality companies, dividend growers, better balance sheets

that can get some of that benefit without the headwinds of the higher short-term interest rates. >> why shouldn't we think this is the start of a 5% correction? naturally within the market there should be a 5% correction. so why go in and buy down 1.2%? >> you're right. you know 5% corrections tend to happen, and tend to happen more often than people think. >> there's a technical aspect as well. we have friday expiration, so all the options contracts expired. we went to this week, and there is momentum coming into the market. that's creating the selling pressure that we saw yesterday. >> the bigger question comes down to not the next 5% move. we know using the s&p from 1960 on, almost five times a year the market will sell off five times or more. the bigger question is what do conditions like like six months to a year from now? if you are in the camp that conditions will look better, use the weakness as a buying

opportunity. our view is there's a lot of underlying earnings momentum. fundamentals are pretty good. people look at this market and say it's expensive. it has to pull back. sure. when you look at the earnings momentum among u.s. equities alone, the s&p can basically go up 10% from here, from where we are right now. by the end of the third quarter the pe could be lower. so we have enough earnings growth -- >> he says buy dips. do you say buy the dips or sell -- >> i agree with the math. >> you say buy the dips or sell -- >> buy the dips. interest rates are still low enough to support pes. >> that's a real question, isn't it? >> there's an opportunity to look outside the u.s. now that the dollar is quieting down its run. valuations are cheap. emerging markets are also beneficiaries of growth. >> they are already up 8% this year. there's room to run? >> true.

and they outperformed the year before. but that's a catch up from the beginning of the finlt cancial crisis. >> all right, gentle men. bernstein. meanwhile, look, they put your hair-do on trump. you are happening. do you believe the daily news? all through the election they had him as a clown, as this -- >> he looks better that way. >> you look better that way. >> you do. >> why a billion dollar tax cut when you can do a trillion? >> exactly. >> thank you very much. when we come back, shares of nike falling after the company post ed revenue that fell short of estimates. we'll have a closer look at nike's numbers next. and don't miss our special guest at 8:00 a.m. eastern time, billionaire investor marc lasry will be with us. "squawk box" will be right back.

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welcome back. nike earnings beating the street with profits of 68 rents a shac share. but nike missed on revenue.

joining us nis paul. it was a conference call where people were talking about future orders. people were saying wait a second. let's take a step back. what did you think? >> the third line was a beat from lower than expected sgna, but the revenue guidance was below our forecast. and they also did not -- they were reluctant to discuss their outlook for the next fiscal year. i think there is some concern right now around what that long-term algorithm for nike's growth will be. as you mentioned, they're pressured from competitors. and i think that the consumer environment is very negative for a lot of nike's whole say e.

sale pa wholesale partners. >> they said wholesale orders were down by 4%. is that a concern to you? >> the direction of futures definitely is. this is the first consecutive quaur quarter we have seen futures decelerate that said, because of the changes in times of when products ship along with a mix moving to a more dtc business versus wholesale, it's no longer telling the whole story. certainly directionally it is a concern. i think the bears will harp on that today. >> are you a bear or a bull? >> i'm a bull. it comes down still to product. we very much like the pipeline that we see over the coming months. we think nike is coming forward in 2017 with a better balance between fashion and sports wear as well as performance. we think that will allow them to compete much better with adidas over the coming months.

there's a big launch this weekend called the nike vapor max. we think nike is taking real steps, if you will, to really solidify their dominant presence within this overall athletic cycle. >> with the stock down 4.25%, you say that's a buying opportunity. >> absolutely. >> what about nike's competitors? would you say the same for under armour and adidas? >> we do recommend adidas globally as a firm. we think they have the momentum. not just here in the u.s., but across a lot of markets. under armour on the other hand, we could see a little bit more down side to be frank with you. we think they have meaningful investments they need to mange make to expand footwear. >> to what expect does nike have a credibility problem on the street? december they gave guidance for

gross margin which they missed this quarter. people are asking why should i believe in the company at this point? >> i think nike has a long-term track record of success. they were very bullish a few months ago in outlining this long-term algorithm? >> did things change that quickly? >> there's no question that the environment changed rapidly. i think nike is controlling what they can. the reality is they're losing points of distribution across the market and a lot of retailers are closing doors, are unable to get good footsteps into their boxes. that has a direct impact with the overall revenue growth. >> would i think of nike as an apparel company now or footwear? >> certainly both. >> which is more important? do you follow all the their products? >> very closely. >> you do? what are these things i got, they got no tongue. they got no tongue. >> yes. >> these sneakers. have you seen them? >> of course.

>> they're so light. it's almost as if they are lighter than air. but they're expensive. like $150. i didn't pick them out, they're ugly. but they have no tongue. you put them on. they're made of material. is it strong and will it last? they're the greatest sneakers ever but i can't believe they won't fall apart. >> i think you hit on two points. >> no tongue and light? >> no tongue. >> nike has been head first focused on innovation and newness. with that came an escalating price point on the product. so i think we got to a point where the consumer preference changed a bit. it wasn't to a combination of not just what's new, what's the latest non-investigati efst inn cool and what are the stars wearing. >> what are you wearing? >> we do see nike over the

coming months having a more balanced approach between the shoeless, sockless look. >> you're wearing sneakers, whose are they? nike, of course. i have a pair of air jordan ones, black history month edition. >> nice. >> >> on this morning. >> paul, thank you. >> i have to do this. when we come back, i have to do it. i can't believe this french election. >> are you still watching it on youtube? >> no. no. you will not believe this. one of the guys is accused of having ties to vladimir putin. >> all right. >> and the russian press came out and said it's fake news. we're infecting everyone. unbelievable. >> when we come back. coming up, a busy day for housing data, mortgage apps at 7:00 eastern, a new report on housing inventories and some surprising numbers. let's look at yesterday's s&p 500 winners and losers.

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it's about achieving goals. and invesco believes doing that today requires the art and expertise of high-conviction investing. translation? why invest in average? welcome back. you're watching "squawk box" live from the nasdaq market site in times square. >> good morning. let's check u.s. equity futures and how they're setting up after yesterday's selloff. saw that 1% move on the s&p 500 for the first time since october

11th. we look to open slightly positive there. watching the action in the nasdaq. we saw for the first time the first record high and then a one-month low in the same trading session. that's the first time that has happened. turning positive there as well. america is in the midst of a housing shortage according to a new report by trulia. joining us is ralph mclaughlin chief economist from trulia. we are seeing inventory on starter homes tight, aren't we? >> absolutely. starter home buyers are hit the hardest. over the last year we've seen an 8% drop in the number of starter homes. all inventory is down, but starter home buyers are feeling the impact. they have to spend about 38% of their income to buy a starter home. that matters because that's the point where lenders start raising eyebrows as to whether or not this household can afford

that home. it's a challenge for all buyers, but hitting starter buyers really hard. >> the price spread has widened, right? >> yeah. that's the big problem. investors bought up a lot of homes and they're being rented out. number two, this price spread is keeping some home buyers that already own their own home from trading up. if they can't trade up, they won't put their home on the market, it becomes gridlock. >> the supply problem is not building new homes, that's what's happened? >> that's part of it. in the big picture, we need new homes. we are building homes at 63% of the rated that we normally build homes. that's a problem. at any given time 1 out of every 10 homes on the market is a new home. there's other fundamental issues going on which have to do with the ability to afford a home you might trade up to. >> why doesn't this fit in with

the whole millennium world? we only need 63%. >> yeah. >> of the homes. >> millennials represent the biggest pool of potential home buyers. >> potential. >> but we've been told they were shunning home buying, they wanted to live in the cities, rent apartments. >> 40% of them are living with parents or a close relative. >> 40%? >> don't egg me on. please don't egg me on here. i'm trying to bring them in to watch sdqux sq "squawk box.." i'm not doing a good job. >> no, you're not. haters gonna hate. >> yeah. >> they can't get out of the basements. >> tweet here. >> it's not their fault. >> because they don't have jobs. >> no. because there are not enough starter homes. >> no, there's not enough starter homes because there's no demand from millennials. >> there is demand from

millennials. they tell us more than any other age group they want to own their own home. >> some day. some day i want to have a job, get off my electronics. >> why are they not coming out and emerging? some of them may actually be wanting to form their -- >> if you're not in silicon valley, it's hard to get hired with a button. >> it's also hard to have kids -- >> living in a basement. >> what happened? >> start ups are in focus. steve case joins us with an announceme announcement. then we are just a day away from a crucial healthcare vote in congress. john yarmuth will give us an update on the vote count. and marc lasry will join us and tell us where he's putting his money to work. you're watching "squawk box" on

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. time for the executive edge. the financial sector was under some heavy pressure yesterday. driving the broader markets

lower. wilfred frost has more on the reasons behind the decline. i didn't have a bounce in your step today, did yoyou, because e market finally sold off under trump? you were more excitable today? do you have a smile on your face? >> i do only sense i heard the tones of mr. joe kernen, but for no other reason. as you will see, if i get to the reasons, i don't put the reason behind the bank selloff just to politics. to the reasons, the main one being the ongoing fall in interest rates. yields falling across the curve yesterday. but worth noting that even before this week's move in rates, the yield curve had been flattening which is bad for banks. thus it figures bank of america was the biggest faller yesterday since it is the most interest rates sensitive of the big banks. another reason cited for the decline is lessening hopes of trump's agenda being delivered on. for banks we're talking in terms of tax reform and deregulation. those fears elevated ahead of

the crucial thursday healthcare bill vote. but are they overdone? for example, while jamie dimon was optimistic last week about the impact of tax reform on the economy, the immediate impact on banks any way is lower. dirmen himse dimon himself stating in the past that it feeds through to wages. and investors may become less hopeful of financial deregulation. morgan stanley's president said we are unlikely to see a ledge lati la can be done through appointments. he concluded so i don't expect any big change quickly but the very fact that the tone is being signaled is constructive to the markets. either way, as we know, banks significant selloff yesterday and leading the market lower.

>> someone sent me a leak to the french debate translated. do you know anything about this? did you see any of that? >> i didn't watch it but read quite a few reports of it. the biggest takeaway is mr. macron, the center-left candidate has edged slightly ahead in the polls, 26 1/2 to 25%. >> in the first round. >> in the first round. >> i have some friends that were saying a lot of people agree with what le pen is saying, but they're afraid of her. it's weird. yeah, it's true. it's true. then it's like they can't see it happening. >> i think also hathere's some interesting breaks in the polls. similarly to trump and brexit, macron and the mainstream candidates have supports in cities like paris, he will pandn rural areas. and le pen does well in the youth vote which is not the same with brexit and trump.

that's a difference, and worrying long-time difference is where france is heading. >> you saw the kremlin had to come out and say the news that we're trying to influence fillon is fake news. it's everywhere. russian interference in french elections, relationships between fillon and putin and fake news from the kremlin. it's like deja vu all over again. i'm using french. >> exactly. very nice. >> you were using yogi berra. >> whilwhilst wolf was talking, will be speaking to the author of a book, the rigging rate

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welcome back, everybody. the libor scandal, the manipulation of the rate, is one of the biggest financial scandals in history. our next guest had an inside view as the scheme unraveled. right now we're joined by the financial enterprise editor of

the wall street journal, also the author of the new book "the spider network: the wild story of a math genius." and david, thank you for joining us. >> my pleasure. >> a title like that sounds like big talk, but i have to tell you, it's true in this case. in this situation, i don't think you oversold anything. >> good, i'm glad. it's quite a tale. this is a sprawling, globe-encompassing tale that features all of the normal type of wall street villains, the hard-partying crowd, but also more unexpected types, mildly autistic man who prefers hanging out at home with a bucket of fried chicken is the main character. so it's a fascinating story. >> the main character is tom hayes, the one individual who all of had has really been pinned on. >> he's the one guy right now rotting in a jail cell outside of london. he was accused and convicted of

being the centerpiece of this massive, sprawling scandal. in my opinion, he ended up being a very convenient person to lay the blame on. certainly, he deserves a lot of the responsibility, but is he the only one who deserves it? i don't think so. >> when i first started reading the headlines about libor, i thought, you've got to be kidding me. this is so deep. i can't believe there hasn't been more of a takedown scenario, that there weren't more ways of reaching out to find the parties responsible. what happened? >> this was the very definition of a systemic scandal. libor touches just about every type of financial product out there in the world today. probably dozens, if the not hundred -- >> there's got to be trillions in liabilities. >> absolutely. there's all these derivatives out there too voluminous to count.

that touches everyone. it's not just people with a mortgage. if you live in a town or a city or have a public pension fund that is trying to protect itself against swings in interest rates, they're almost certainly using interest rate derivatives pinned to libor. the manipulation of it was totally widespread. people up an down the totem pole knew what was going on and often participated. and the regulators to a large extent, central bankers in both the u.s. and uk were well aware of what was going on and did absolutely nothing to stop it. this practice has been going on for years. tom hayes took it to a new level of sophistication and ambition and he was uniquely naive or stupid -- or lack of subtlety, really. he was totally open about what he was doing. there's no attempt to hide it. his argument is that's a sign he

didn't know what he was doing was wrong. it's probably partly a reflection of the fact he has a mild case of autism. but it certainly made him an incredibly easy target for prosecutors who were so eager after the financial crisis to be able to kind of show some scalps. >> how come nobody has gone after anybody else up and down the line? >> that's a really good question. it's hard to build criminal cases against individuals. hayes was uniquely open and brazen about what he was doing. to me, it shows a real lack of ambition and creativity on the part of prosecutors that they haven't tried to flip people like hayes. instead, they've used him as the ultimate guy they were going after and didn't make any attempt to go after his superiors, who by the way, remain to a large extent in senior positions. >> kind of stunning. david, thank you very much for joining us this morning. really interesting read. >> thanks for having me. coming up, one day away from a possible vote that could change the country's health care system. we'll find out what happens if

the bill passes or fails. >> later, democratic congressman john yarmouth will give us an update on the count.

the trump trade losing traction. markets post their first 1% fall in five months. we'll tell you what you need to know about your investments straight ahead. start-up shake-up. teaming up to find investments that could change the economic landscape in america. they join us to talk about their new partnership and investment plan. and we are just one day away from a vote in the house on health care reform. the ranking democrat on the house budget committee is set to testify today against that bill, but before he does, he will join

us for a first on cnbc interview. congressman john yarmouth is our guest. the second hour of "squawk box" begins right now. live from the beating heart of business, new york city, this is "squawk box." good morning. welcome back to "squawk box" here on cnbc. we're live from the nasdaq market site in times square. i'm melissa lee along with joe kernen and becky quick. andrew has the day off. take a look at futures after that big selloff yesterday. looks like we'll open positive on the s&p and nasdaq. yesterday, the s&p financials suffered the biggest daily drop since june, since brexit specifically. u.s. banks had rallied 22% from the election through monday. here's what's making headlines at this hour. we'll get a snapshot of the housing market later this morning when the national association of realtors releases its existing home sales report for february.

economists are expecting a drop of 2.5%. that report is out at 10:00 a.m. eastern time. a new development this morning in an attempted cross-border takeover deal. azko nobel has rejected a revised $24 billion takeover bid from ppg industries. akzo says the offer still undervalues the company and does not address the risks. and the future for one of america's best-known retailers is in question. sears holding expressing doubts in its own annual report about its ability to continue after years of losses anticipad sales declines. >> that headline, sears one of the best-known retailers. that's only a 15-year-old story. >> but with the acceleration and the disruption in retail at this point, all of these things -- we used to say we were over-malled

for 30 years. >> remember arthur martin? >> that was in the '90s. >> we're going to put it together with k-mart. that's going to help. yeah, those two. >> tie two stones together. >> exactly. >> i feel like the with way retail has been shaken just in the last two years, especially in the last six months. >> ten years ago it was they this these great brands, craftsman. stocks and socks, remember that? >> forgot about that. >> but you'd walk in and say, hello, hello, hello, hello, looking for someone. >> they wouldn't reinvest in the stores, which is a huge part of the problem. >> but just hearing that, it's a long-running story about whether they can compete. >> but the fact they say it in their own annual report makes this particular story a little bit more biting. >> that's the first step, recognizing that you have a problem. the fist step towards recovery. as for the broader markets,

take a look at what's been happening in europe this morning. you're going to see there have been some red arrows there. in fact, the ftse is down by 0.8%. the dax and cac are off by 0.5%. in asia overnight, some losses there as well with the nikkei down by 2%. the nikkei was catching up after being closed. the hang seng off by just over 1%. the shanghai composite down by 0.5%. if you look at the energy markets, u.s. crude oil inventori inventories climbed by 4.5 million barrels, more than expected. that brings additional pressure to wit. the dollar has been mixed this morning. it's up against the euro at 1.0793. it's down against the yen. gold prices, very quickly. down $1.40. the ten-year note has been one that we've been watching so closely because yesterday lower yields -- at this point, the

ten-year yielding just 2.4%, putting pressure on financials. that was a big part of the selloff yesterday. in a developing story overnight, another day, another attempted missile launch from north korea. u.s. military officials and south korea say it failed almost immediately, exploding within seconds of the launch. yesterday north korea issued a warning of a potential pre-emptive strike. over the weekend, the country tested a new advanced -- some kind of stronger thrust rocket engine. this time it didn't work. as i said, it's just about every day we're talking about another test of some sort. saber rattling. we say stuff, tillerson says stuff. i don't know whether it's really -- >> certainly feels like it's getting bigger. >> all options are on the table. this is a huge black swan for everything we talk about. >> much bigger than the markets.

this is a black swan for life in general that we're watching. in washington news, supreme court nominee neil gorsuch will return to capitol hill today for another round of confirmation hearings. yesterday he answered questions from the senate judiciary committee, telling members he's a fair judge that respects the law. gorsuch would not weigh in on the legal merits of cases that could come before the supreme court, including president trump's temporary travel ban. >> is al franken a lawyer? >> i don't think so. >> did you see any of that? >> i heard about it. i heard about his questioning back and forth. >> had he like pamphlets and stuff. he's got one of the most studied constitutional law experts in the world. you've got stewart smalley looking from pamphlets about trying to talk about these very, you know, detailed -- i heard it was really good. it should maybe be replayed this saturday night at 11:30 because

it was so funny. >> on "snl." >> yeah, where he was. where he earned his stripes. in the meantime, stocks are doing something they haven't done in quite a while, dropping more than 1%. dom chu has that market story. >> i mean, you guys, you mentioned it. october 11th, the first time we've seen this since then. it's been such a rarefied event to see these kinds of moves that it catches everyone's attention when it does happen. let's show you a little bit about what the s&p has done since then. you can see it's been kind of a slow, steady climb ever since what happened, at least on october 11th. the s&p 500 ramping up a lot since then. if you then go to take a look at maybe what happened with the nasdaq, just over the course of the past week, you guys may recall yesterday we hit a record intraday high on the nasdaq overall. it was 9:36 in the morning. from there, we took a slide all the way down lower. one of the reasons why we cared is because over the past few

days, we've hit record intraday highs on the nasdaq each day but failed to close at record levels. maybe some indication already there that there was weakening momentum in the marketplace overall. you can see for the nasdaq, that one little tick there on the right-hand side of your screen and a slow, steady drop ever since then. becky mentioned it before here. certainly a big part of the overall story, the biggs decliner by far in the s&p 500, but more so if you take a look at specific parts of the banks. the banks overall and regional banks in particular, took the biggest hit. it traded three to four times its average normal volume in a day. regional banks were the ones supposed to benefit most if the yield curve, if the difference between low-end rates and heeg-end rates, longer rates started to get bigger. bank profitability was supposed to improve. that thesis was driving a lot of the financial outperformance over the course of the past four or five months.

that took a big decline yesterday. i will point out small cap stocks. actually now went negative year to date. so that's the reason why some traders are at least a little bit more cautious right now. it's not that the bull case is totally out the window. obviously we're still near record highs. but small cap stocks and banks certainly a focus for a lot of guys. >> dom, stick around. we want to dig deeper into the markets with tom lee, managing partner and head of research at fund strat global advisers and steve white from citi private bank. tom, i want to start off with you. you say take a pause right here. >> yes. i think the market being down one day being isn't going to say we should change the trend, but i think there has been divergences between the stock market and high yield and small caps and commodities. to us, it makes sense that other markets are saying the s&p may need some time to consolidate these gains.

we really wanted to be more cautious in the first half. >> how do you interpret this pullback, steve? the context of it is not just what's going on, on capitol hill, but also we've seen yields come down. we've seen gold at the highest level since the beginning of march. the safety trades are back on. what's your interpretation of the market's movements? >> within equities, this is the first time in a long time where sector rotation hasn't protected the broader market. that does show a little bit of exhaustion. we've had a big move since november. we could never rely on markets to just have pure, uninterrupted confidence in reflation. i think we've had big moves in expectations. we were not going to go from reflation bag to stagnation. the next few months there's going to be a lot of drama over legislation. ultimately, we think they're not going to give up and we'll see tax cuts that will boost the american economy. if we didn't, we were already at record profits in the fourth quarter of last year. it's not even that demanding for

us to hit this year's earnings estimates when we were over $125 a share for the s&p in the fourth quarter already pip do. t i don't think they gave up because of the daily news flow over one peeiece of legislation. >> some people would argue a lot of the gains -- and i understand your point about hitting earnings estimates targets for this year. some make the point that if you believe a lot of the rally was predicated on trump agenda being enacted, if you don't get health care or get health care lite, that means you don't get taxes or tax reform light and te and . >> that poses a problem. i think risk-reward is a real issue now that markets are 11% higher since election day. if you look at p.e.s, the breadth of p.e.s, it's higher than in october 2007. unless you're confident about tax cuts or a big revision, the market isn't going to pay you to

buy stocks here. >> one of the things we noticed yesterday, the underperformance of credit markets, specifically high yield, that's been a cause for concern. also, if you look at the way the credit markets are shaping up, at least for treasury yields, we look back on october 11th when we first saw this kind of a move. it's a completely different picture in the treasury side. yields on the ten year were 1.76%. >> not only that, we had a "wall street journal" article on monday saying, look, with the yield pushing up towards 2.6%, is this changing the attractiveness of the stocks versus bonds. if you've got the yield back at 2.4% two days later, what does that tell us? you're still comparing where you're going to be putting your money. are you going to put it in stocks or bonds or in real estate? from all of these areas, what looks the most attractive to you? >> even if we had all the growth we could ever hope for, the global yield environment is going to make the u.s. absolutely shine by comparison. i mean, we're showing up with

european yields moving up to half a percent. if we're lucky. some of that can come off a little bit. some of it might be the hope that we're going to be above a negative yield in the eurozone. by and large, we're not -- we're going to look at high yield in the united states as being a very attractive place to be for global investors. it's come full circle. when the oil market was collapsing a year ago, all of those high-yield energy bonds have come back. they're back above those levels. it's not going to be as easy anymore on any of these markets, but this is still going to be a relatively good attractive valuation compared to the alternatives around the rest of the world. >> do we agree volatility is higher, will be higher or will remain higher? already this morning we have the vix up by about 3.5%. granted, it's still below 13%. when you see that spike, you think about the impact on risk parody funds. the volatility goes up. position in equities goes down.

if volatility remains higher, they're certainly not going to be repositioning back into equities, which takes the buyer out of the market. >> if you take a step back, the vix has been in the low tens. if you look back at history, it's never really peaked at 13. if it's making its way back to 19, everything you just said would amplify downside risk. >> i would also say one place to look for as well, we've been talking about oil and how it's diverged. energy stocks have been underperformers. we wondered whether or not oil was going to fall down to meet energy or energy was going to rise up to meet oil prices. it's evident right now oil prices have fallen to meet where energy stocks have been. >> bear in mind on the oil side that the u.s. is just grabbing a larger share of the world. when we look at inventory data, the fact that if the u.s. is going to grab a larger share of the world, we're going to have more inventory. that's quite observable with what's going on in the rest of the world in terms of production

investment cuts. so i think that we're going to find the big picture the last two years, 60% cut in explore nation and production is going to be the story that dominates. >> all right. steven, tom, and dom, thank you. coming up, the health care bill front and center in washington. but also on wall street, we're going to find out which stocks may or may not benefit from the legislation and some of the new amendments. that's next. then steve case and j.d. vance will join us. we'll talk jobs, the economy, and their new partnership. later, kentucky congressman john yarmuth joins us to talk about tomorrow's important health care bill vote. he's a democrat. i don't expect a lot of those guys doing anything other than voting. no, stay tuned. you're watching "squawk box" on cnbc. just drop in. cme group can help you navigate risks and capture opportunities.

we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances. we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley

we're just one day away. that's unbelievable. from the house vote on the obama repeal and replace bill. joining us to talk about what's at stake for health care stocks, a senior analyst at lyric partners. back by popular demand from last time. before we start, you probably do have to handicap tomorrow. why don't we start with that. do you think they can whip these guys into shape, or is it going

to go down? what do you think? >> well, it's a big binary catalyst, no doubt. for the medicaid hmos and hospital stocks in particular. if the bill actually gets passed in the house and they can whip those votes, i think those stocks sell off even more. they have been giving up some of their gains. i'm in the camp of i think they'll be able to whip enough votes in the house to at least get it passed through the house. the senate is another matter, i think. we can talk about the managers' amendment, which certainly i think isn't improving the situation any. i doubt the cbo score gets any better with this amendment. on the one hand, we've had them appropriate additional funds to appease the senior lobby. you may see a bit more enrollment, but on the other hand, for the freedom caucus, they have done a big change, i think, in medicaid. now they're saying immediately no new states can expand

medicaid with the enhanced subsidies we had under obamacare. so this big, bold thesis on florida and texas expanding medicaid potentially ahead of 2020 now in is not there anymore. so some that had traded up in the first couple months of the year, you know, that thesis goes away. >> that's pretty funny that just as an aside -- no, you mentioned "huffington post." big headline, major health care honcho hates this new bill. it was molina. the stock has been going down. that company is one of the losers with this bill. so obviously that's why he's -- >> definitely. >> squawking about it on "huffington post." anyway, so you also got to figure out what happens once we get to this -- if i were you, i wouldn't know what to do. once it gets to the senate, do some of these amendments become

less draconian? does the entitlement state get even bigger once it goes to the senate? do you have to take back everything you just said about the amendments? what do you expect to happen once we get there? >> i think they would end up loosening some of the restrictions on medicaid to get the vote. there are a number of republicans states, as you know, that have already expanded medicaid. some of the republican governors have come out with a proposal that's a little more moderate. my view would be they would have to change it a bit to get the vote. >> all right. >> but we'll see. >> let's take it back to ideas for people that are watching. so you think humana, united health, and anthem will all have upside potential from what happens if this goes through. >> yes. as i had said a couple weeks ago, they have the benefit particularly from the repeal of

the obamacare tax. that lays the bathway for broader tax reform which is huge for domestic companies paying full taxes. when you compare that to any potential downside that united an anthem have, it pales in comparison to the upside from the taxes. hu man humana has hardly any exposure to medicaid at all. with the amendment, they actually moved not for insurers, which are really not impacted by this, but broadly speaking they had moved the repeal from 2018 to 2017 and are now sunsetting the cadillac tax repeal a year later. all in all, this legislation is great. i think the stocks have traded up some. i don't think by any means they're reflecting all of the upside. i'd still be a buyer of humana, anthem, and united. i think if, for whatever reason, tomorrow the house cannot whip

the votes on the floor, you may see a bit of a selloff. i would view that as a buying opportunity. each of those names has a buy thesis that's related to health care reform but independent of the legislation. >> i want to know, if i use a basket of community health, tenant, life point, if i use that basket on my screen, does that follow the chances of health care going through? will they sell off more, the higher the chances that health care go through? is that some sort of barometer for me? >> i would think so, yeah. i think the hospital stocks are very tied to the passage of the legislation. so i think they would probably trade up more if the vote is not successful. then they would trade down because they've given up some of the gains in the last week to week and a half, but they would be a nice barometer for you to see how they're trading. >> i don't know if we can bring up molina again. that's been getting crushed, right.

i was just reminded of something. so there's molina. you wonder why that guy doesn't like this. do you remember who we had on the other day? he didn't like it. he was in here. when he got done, i was ready to sign up for obamacare forever. but that just tells you something. whenever you hear anyone saying anything, you have to look at how it affects -- >> follow the money. >> but i believe these guys. >> same thing with those advancing some of these. >> the aetna guy who said it was in a death spiral. you like that guy. you love him. >> i do. >> is anyone just saying what's good for the country, or is it all about their stock price? >> i think any ceo is going to be talking about what matters for their business. >> i guess, all right.

i don't want to make you cynical, ana. you just cover these things objectively and let us know. anyway, i'm so glad that explains the molina thing completely. thanks for your time. we'll see you again. we need you here like once a week, i think. >> thanks, ana. coming up, steve case, chairman and ceo of revolution, and best-selling awe to be j.d. vance join us to talk about their new partnership and how th they plan on focusing on start-up investments. and congressman john yarmuth joins us later in the hour. "squawk box" will be right back. time now for today's aflac trivia question. who is the only coach to win an ncaa and nba title? the answer when cnbc "squawk box" continues. hey steve checks leg. yeah looks like a real nasty moving back in with his parents. what? no. i just broke my leg. no, this is a full blown move in to the basement, you're gonna be out of work without that money from...

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good morning. welcome back to "squawk box" here on cnbc, live from the nasdaq market site in times square. among the stories front and center, mortgage applications. you're asking yourself, what happened in the last week? well, they fell 2.7%. i'm trying. it's hard. according to new figures from the mortgage bankers association, both new purchase applications and refinancing activity were lower. the average 30-year mortgage rate was unchanged from the prior week at 4.46%. president trump will travel to brussels on may 25th for a meeting of nato heads of state. the trip was announced in a statement from the white house which also says the president looks forward to reaffirming a strong commitment to nato by the united states. and cke restaurant ceo andy

pudzer stepping down. if the name sounds familiar, you know why. he had been the president's nominee for labor secretary before withdrawing. he'd been ceo since 2000. he did some things at carl's jr. but left the onion ring on the bacon double cheese burger. you've had one of those. there's an onion ring on the sandwich. it makes a difference. and that barbecue sauce. >> sounds pretty good, actually. >> oh, you haven't had one? fried zucchini sticks. >> of course i've been to carl's jr. >> but you didn't order the western bacon double cheeseburger. >> no, but i'll make a note of it. >> i've been mentioning different foods on the air this week. they keep delivering them. >> oh, really?

>> yeah, shake shack. >> a t-bone steak. maybe we can get one of those. >> i mentioned i've never had a five guys. i haven't had a carl's jr. western bacon cheeseburger in a long time. >> is this a way to get free food? >> i'll pay for it. >> are you paying your rent or something? >> no, we're upgrading. >> it's pretty nice. congratulations. >> did you ever do anything in the nasdaq in all your -- aol was new york. >> went public in 1992. first internet public to go company. it was nasdaq. >> pretty cool building. steve case is here. >> our next guests are seeking opportunities for start-ups across the united states. let's welcome steve case, chairman and ceo of investment firm revolution and co-founder of aol. and j.d. vance, a newly named partner at revolution, also the author of the massively popular "hillbilly elegy." he's going to be making investments in hot new start-ups. more portly, he's trying to change the economic landscape

overall across the united states. gentlemen, welcome to both of you today. >> great to be with you. >> steve, let's talk about rise of the rest. that's an initiative you started in 2014. you talked about it here on "squawk box" when you did. you've been on a bus tour, something like 26 cities. your point is that 80% of the venture capital funding was going to three states, massachusetts, california, and new york. that's nowhere 80% of the talent is. >> exactly. what's happening in silicon valley and here in new york city or boston is terrific. great entrepreneurs building great companies. we should support them. but there are also great entrepreneurs all across the country, and we don't really pay attention to them. most investors don't really look to invest in pthem. that's what we're trying to change, shine a spotlight on communities around the country. we have been to 26 in the last several years and are struck by what's happening there. still, most of the venture capital is focused on the coast. that ties in the with the frustration in the country. a lot of people in the middle of the country feel left out. that's part of the reason j.d.'s book was so successful. so it's great to be working together to take the initiative

to the next level. >> j.d., you really hit a nerve across the country with "hillbilly elegy," just laying out what happens and how these people have felt left behind. why are you moving back to ohio? what do you think you can do there? >> one of the big issues that's driving a lot of the social problems that i write about in "hillbilly elegy" is the fact the industrial economy has really changed in significant ways. it doesn't employ the same number of people it used to. a lot of people are unable to find jobs in the areas they grew up in or even nearby, broadly speaking, in the region they grew up in. i think one of the drivers of this problem is the fact you don't have enough investment. you don't have enough economic opportunity in some of these areas. that's a problem that can be fixed. that's a problem that can be fixed with capital, with investment, and with energy. i think a lot of these areas do have the energy, they have the talent. what they haven't necessarily had is a lot of the capital. >> we've seen it work in cities like detroit, where you have dan gilbert, who's been putting so much back into it. are there other places you can point to? >> detroit is great. we just backed a company in

chicago called uptake, started three years ago. now nearly a thousand employees. >> do you have to go to washington to get help from federal funds? >> you don't need to go to washington. there's a lot of capital obviously that isn't focused on these entrepreneurs and is mostly educating venture capital investors and institutional investors to pay attention. part of the reason they should do it is because there's an arbitrage opportunity. once the companies go public, once the companies are acquired, you get full price. you can buy wholesale right now and sell retail. it's a great opportunity for investors, part of what j.d. and i are going to do is try to educate investors in backing these entrepreneurs around the

country. >> have you spoken to investors? >> we have. now this is taking rise the rest to the next level. we're trying to figure out other ways to accelerate capital flowing to these regions, which will then create jobs in the regions. >> i know it's very early days, but what are your initial plans? what do you hope to do in ohio? where are you focusing? >> the hope is to first educate the investor community, the business community, that there are really great opportunities here, that the valuations are lower, the cost of living is lower too. this is something entrepreneurs like. they can take the same salary that they would have taking in another place, but they can actually afford a house, support a family on it. just getting the information out there, getting people to recognize these are really exciting places to invest in, to think about building a business in. hopefully the metric for success is not just that you're educating people about

opportunities that are there, but capital starts to flow into the rest of these rise of the rest cities. i think we're going to start to drive capital there too. >> what lessons did you learn in silicon valley? what do you take back with you? >> i think one of the things i took back with me is that there are, you know, talent and energy are potential energy. they need capital to allow these ideas to flourish. you need capital to build big and successful businesses. i think the venture capitalists who do it the best are those who approach their capital pool saying, looks, we have the ability with this capital to drive some of these ideas to take them from concept to successful businesses that employ people and sell great products. i think that's the lesson, one of the main lessons i took from my experience in venture investing in silicon valley and something i hope we can apply. >> and i love the story. the fact they group up in ohio, moved to silicon valley, because that's where the opportunity was. now there's a sense the

opportunity is to move home, obviously taking the themes of the book, roll up his sleeves, and help some of these people. >> i grew up in middletown, which is right near cincinnati. how do you get along with your buddy steve? you know he's a huge -- were you a bundler for hillary? >> i've always stayed out of. ic tos -- politics? >> you stuck your neck out for hillary. you came on here and sung her praises. >> i was concerned that donald trump wasn't focused on innovation policy. >> we certainly talk about politics. i like when steve just tells me i'm right all the time. >> but then he can't move over to that side. >> i'm right there in the middle. the. >> he's a part of the thoughtful center, not the far left. that's my sense. >> steve, what is the sense that

you get out of washington? you've been concerned about entrepreneurial growth potential. as you see more of this, where are the opportunities, where are you most concerned? >> you got to focus on the future. we can't go backwards. we have to figure out what are the jobs in the future. that's only going to come if we invest in entrepreneurs in these third-wave sectors, whether it be health care, education, agriculture, food, energy, transportation. do that not just in a few places but all around the country. there was a bipartisan bill introduced called the investing in opportunity act that would create capital gains insecentiv. there may be some policy there. i would expect the trump administration to focus on this. this is why he got elected. a lot of people did feel left out, left behind by globalization. the best place to focus is on the start-ups. the best way to back the start-ups is figure out ways to insent more capital to flow

around the country. >> and to cut their taxes. that's going to be huge. >> some of it is taxes, some is deregulation. there's a lot of things that need to be on the table. it goes back to this issue on the sectors. entrepreneurs need the capital to fuel their -- take their start-up into speed-up mode. >> you're not going to buy a basketball team, are you? >> i'm not. >> do you want to be on "shark tank?" >> i do not. >> i'm just wondering the ultimate goal. >> just to be able to spend time with you. that's my purpose in life. >> steve, thank you very much for coming in. j.d., thank you. by the way, check out j.d.'s book "hillbilly elegy." definitely worth the read. coming up, kentucky congressman jan yarmuth on tomorrow's health care bill. stay tuned. your insurance company

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big day on capitol hill tomorrow. let me say that again. i read this and, you know, we

always say things, but tomorrow is a big day on capitol hill. the house republican health care reform bill goes to a vote. joining us now, congressman john yarmuth, who will be testifying today against the gop health bill. congressman, i know you hate this bill. you've got like a hundred reasons why it's the worst bill in the world, but that's the issue of what we're watching tomorrow, what the republicans are able to do amongst themselves. all you guys are going to vote no anyway. i don't even know whether -- i guess i'll just let you go and tell me why everything about this is horrible and why everyone is going to lose insurance and grandma is going to get pushed over the cliff with the orphans. we've already heard that. go ahead and go over it for me again. >> of course, the congressional budget office has already said this bill would ultimately end up with 24 million people losing their coverage, that premiums would go up, and the individual market 15% to 20% over the next

few years and that people in that category of 50 to 64 years old in the individual market will be priced out of the insurance market. other than that, it's a great plan. it represents one of the greatest transfers of wealth in history, almost $2 trillion, $900 billion in tax cuts and $880 billion in cuts to medicaid. so it just goes in the wrong direction. my characterization of it is it's not really a health care bill. this is an ideological exercise to basically satisfy paul ryan's ayn rand tendencies. >> but it kind of reverses the transfer of wealth that happened when -- you know, through reconciliation and without a single republican vote, that that transfer of wealth was pushed through eight years ago. congressman, the only problem is obamacare never got even a plurality of popularity in this

country until maybe now. it never got above 41% or 42%. all these republicans, they're saying they got put into office to get rid of this thing. you got to admit, if you look at governorships and state legislatures and losses in the house and the losses in the senate, i mean, the american people, they were saying something about something over the last eight years for the democratic party to be in the position it's in right now. >> well, i can speak to kentucky's situation. when we polled consistently over the last seven years, obamacare polled very poorly. the affordable care act polled very positively. there was almost a 20-point flip in polling just when you change the name. >> now you're just calling kentucky people stupid, congressman. >> no, no, no. there was an awful lot of -- >> they just didn't understand -- so they didn't

know it wasn't bad. they just had the name wrong? >> they didn't know it was the same thing. now you see it time after time in kentucky and elsewhere around the country when people say, oh, this isn't -- we like the provisions in the affordable care act. this isn't what we thought obamacare was. and you're also seeing the experience of many people who say, okay, i know somebody who has a child with juvenile diabetes or childhood cancer or something like that who's got coverage. so they're seeing that there are protections in the affordable care act for people who already had insurance through their employer but didn't realize there were additional protections now. >> so these guys are, you know, control the house now and control the senate and the presidency. let's say that they do get something through and then you get the second phase and the third phase where you're going to be able maybe to make improvements on what's left of obamacare. you know the critics on the right are calling it obamacare lite. so there's going to be a lot of

the entitlement still left. will you and your colleagues on the democratic side be willing to work at that point on the second and third phase to try to vote yes on things that would help the health care system in the country, even if it's republican? >> we've always been willing since day one to work to improve the law. we know there are problems in the individual insurance market. as a matter of fact, that's really where the only problems exist with the affordable care act. and we need to get more providers of insurance in a lot of areas in the country. we need to do more to deal with costs. we need to bring the cost of prescription drugs down. we'd love to work with republicans on that because that's one of the biggest drivers of health care costs. so yeah, we'd love to work with them. if the philosophy was we're going to make this a better health care system and not we're going to try to create some kind of pure, free market which doesn't exist anywhere else in the world. that's in health care.

>> we've had a lot of democrats on. you're really nice and seem very reasoned. i think it's because you're from kentucky. it's in the middle of the country. so you're not -- >> it's the bourbon too. >> when you look at the current climb -- and you saw -- i don't know whether you watched any of the hearings from yesterday. >> i did, yes. >> are you at all uncomfortable with the position that the core of the democratic party has taken, or do you think it needs to be resist trump at all costs and that's what it's going to be for four years and damn the torpedos, we're not going to try and do anything because that's what happened to obama? >> i think it's unrealistic to believe that we could keep anybody from being confirmed to the scalia seat on the court for four years. i don't think anybody believes that. >> i can't believe you're saying that. you see what schumer said? >> i understand. >> when you see what leader schumer says, do you -- so you

would tell him maybe that's not the right tack at this point? what would you say to him? >> these are always tough battles because when you have somebody -- and most every supreme court nominee is going to be impressive when they go through the confirmation hearings. they're very well prepared. they start off as very, very smart people. they wouldn't be where they are if they weren't very intelligent. gorsuch is not just very smart but smooth and affable. to be totally obstructionist on somebody who makes as good an impression as he does, i don't think bodes well for us if we don't have legitimate concerns about his judicial temperament or his philosophy. >> damn. you are -- i'm glad you'rening rai -- you're ranking member, congressman. i might even vote for you. those people in kentucky aren't stupid. they are smart. >> thanks very much. >> you're welcome. we hope to see you again. >> thanks verying if for having.

>> pleasantly surprised. thank you, kong manage. coming up, we discuss the latest market move. up next, stocks on the move ahead of the opening bell. take a look at futures right now. we are turned back to the negative on the s&p as well as the nasdaq. dow jones looking to lose 34 points at the open. as we head to break, check out yesterday's moves in the s&p's biggest sectors. "squawk box" will be right back. kevin, meet your father. kevin kevin kevin kevin kevin kevin kevin kevin kevin kevin trusted advice for life. kevin, how's your mom? life well planned. see what a raymond james financial advisor can do for you.

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take a look at some stocks to watch this morning. american airlines group was downgraded to equal weight, has been overweight at morgan stanley. among the concerns, aggressive increases in capacity at american, when it already has below average profit margins. urban outfitters was upgraded at key bank, which says the apparel's retailer stores are well positioned and differentiated from those of its competitors. snapchat parent snap is raised buy at drexel hamilton. the firm raised snap's view on itself as a camera company and the fact its platform is strongly engrained with millennials. it is true. they take a lot of pictures and snap those things out. >> constant, constant interaction with that app. >> and it supplants instagram a little? >> with our kids, it has.

they use instagram occasionally, but snap is the method for getting it out to their friends and reaching out. >> you've seen emojis. if you look at them all together, you can look at a whole page of them. someone sent me a comparison of that in hieroglyphics. we've reverted. coming up at the top of the hour, marc lasry. we'll get his views on the trump administration and proposed regulatory changes that could be coming. plus, where he's finding market sweet spots. also, fedex can't deliver for investors. revenue missed, hitting the stock initially, but bouncing back a bit this morning after the conference call with fred smith. we'll speak to an analyst about the results. as we head to a break, here's what the ceo of fred smith said on the conference call while he

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global market alert. stocks fly and oil prices drop to levels not seen since november. a "squawk box" newsmaker. billionaire investor marc lasry joins us in studio. plus, new this morning, mortgage applications drop as borrowers turn to riskier loans. we'll bring you the details as the final hour of "squawk box" begins right now. live from the most powerful city in the world, new york, this is "squawk box." good morning. welcome back to "squawk box" here on cnbc, live from the nasdaq market site in times square. i'm joe kernen along with becky quick and melissa lee. our guest host this morning, marc lasry.

we'll talk in a moment. not that hedge fund -- it has become kind of a pejorative. they don't do it better than anyone else. it's almost got a bad connotation. >> we're trying to charge 5 and 50. >> but you might be worth it at least. >> i don't know. we're trying. >> let's look at the futures, which are extending yesterday's losses, at least a little bit. actually, not the nasdaq. the dow is going to have some problems because of -- once again, i'm reminded nike. that's the lead story today. nike is a dow component. that was the lead story for me. >> news alert, news alert. >> nike's future orders were -- the numbers were great.

up 16. >> the earnings were in line with expectations. it was the future orders and concern about what's happening in the retail environment. we saw it hit under armour very hard with future orders down. analysts are nervous. >> those margins were 1.4%. they had forecasted just in december, which really highlights how things have changed in a few months. >> okay. all right. good. i saw this on the way in, in the car. treasury yields, which i've always been scratching my head about, back under almost 2.40. i don't know if they got there or not this morning. 2.40 earlier. they consistently seem to get to 2.6 or close to 2.65 and then that seems to be the high end of the range. with everything we're talking about in terms of gdp, stimulus, infrastructure, tax cuts, all these things you wonder, how

does it stay so low? but it does. it's a global market maybe. the dollar, that trade that the dollar was going to go up forever, that's starting to be questioned. we have seen the euro perform a little better after the netherlands. we'll see what happens in france. then oil prices are at new intermediate or short-term lows. in our headlines this morning, sears holdings issuing a warning about its ability to continue as a going concern. the retail's annual report said substantial doubts exist about its future after losing money year after year and seeing sales decline. dutch paint maker akzo nobel has rejected a revised takeover bid from ppg industries. they say it undervalues the company and does not address risks. elliott advisers is urging the company to engage with ppg. and in economic news, total mortgage applications declining

2.7% in the latest week. that number stands nearly 12% lower than it did a year ago. stocks to watch today, fedex's third quarter earnings and revenue rising during the peak holiday season, but profit missed forecasts, hurt by higher fuel costs. the stock initially dropped on the news then staged a major reversal during the conference call when the ceo said the company is optimistic by higher margin growth. it's higher by 2% in the premarket session. nike reporting higher than expected revenue. futures orders disappointed analysts. american airlines group downgraded to equal weight from underweight at morgan stanley. they are concerned about increases in capacity with american being especially aggressive at the same time. its margins are below average. that's lower by more than 1% right now. urban outfitters upgraded to overweight from sector weight at key bank. the analysts citing the

company's well positioned in differentiated stores as well as a number of total stores. despite yesterday's pullback, the s&p 500 is only about 2% below its record high. mike santoli is going to tell us which sectors appear well positioned and which ones seem vulnerable after yesterday's decline. hey, mike. >> hello, joe. seems like we can call this an overdue pullback. yes, only 2% from the highs. a 3% to 5% drop is routine in the market every two to three months. we've gone over four months without something like that. so right now, this is just kind of a downward wiggle in the headline indexes and really not something that i think changes your view of what the trend has been, which of course has been up. a lot of people waiting for a dip to buy. 5% from the highs would be another 3% down from here. so you're kind of in that range where maybe that's what you want to get to, to have some kind of fat pitch. the first 1% decline in this very long stretch of 109 days without one is typically, if you look back at similar periods in the past, has not been a major market top. it's been relatively quickly

recovered. so that's not a reason to think that something has changed in the way of tone. i think the big key here, underneath the surface of the index, this market has been correcting and pulling back for a while. the most popular areas of the market, banks, a lot of the cyclical stocks right now look more than 5% down from their highs. in fact, close to 10% with energy. i think that's where you're going to look. if this market is going to make a stand relatively soon, it could be the energy, financial, autos that have been in up trends and have already kind of given back a lot of their gains from the highs, guys. >> all right. mike, thank you very much. our guest host this morning runs one of wall street's most successful debt investment firms. marc lasry is the co-founder, ceo, and chairman of avenue capital. they have about $11 billion in assets under management. great to see you here today. >> it's a pleasure. thank you for having me again. >> we haven't gotten to talk to you in a while. in fact, i haven't seen you in even longer because i was out the last time you were on. we know that you were a clinton

supporter and a big part of the campaign, being involved with that. what we've seen in the stock market since donald trump's election has been fairly remarkable. what do you think of what we've been calling the trump rally? >> look, i think it's all good. to be honest, i think for -- what everybody is hoping is you're going to have this 2% to 3% gdp growth and deregulation. if you have that, it's all positive. it's positive for everybody. i think the question is, is that really going to happen? the market absolutely believes. i think the market has gotten a little ahead of itself. look, i'd like nothing better than to have 3% gdp growth. i don't think that's going to happen. i think you'll be closer to sort of 1.5 to 2. if it ends up being that, that's great. >> you think the market is overvalued at these levels because it's still waiting on things? much of this was based on earnings that was out there. with trump's election, it was also deregulation that doesn't have to go through congress in a lot of ways. >> i think the deregulation,

that's going to be a big part of it. it's going to be how much are the banks really going to be out there and start lending again. is this deregulation going to have a real impact. the perception is it will. i don't disagree with that. the question is how much, and are you going to get to that 3%. i hope so, right. i do, but i think at the end of the day when you take a look at it, it's going to be closer to sort of that 2% number. >> if we don't get to 3% gdp, yo uh thi -- you think the market is already overshot? >> yes, if you don't get to the 3%. >> back in january, you told cnbc you thought we'd see a 10% rise. are you re-evaluating that? >> no, i think you'll see that. look, for the next six months to nine months, i think everything is pretty positive. you're not going to see these effects coming in, in the next six months.

my view is for this year, you will see that 10% rise. the question ends up being, what ends up happening for next year. i think as the numbers start coming in, that's when people are going to start realizing, wait a minute, there's a real issue. >> your record in the private sector, you're still a young guy. >> thank you for that. >> coming from me. but being able to navigate through pretty tough stuff, distressed d distressed debt and things like that over the years. we've had a conversation. i know how you feel about the private sector. people have allegiances to different things for a lot of different reasons. you don't have to cop to this, but there were certain things in the last eight years that you were frustrated with in terms of the private sector, in terms of job growth. so knowing you as i do, you're going to ride this thing. you don't care it's trump. right? >> i just want to make money. >> that's what you need to do. i don't even think you feel bad

about it. you don't have any value judgments or anything. you're more invested now than you've ever been in the past. >> that's correct. >> and you're not shy about saying it. >> at the end of the day, it's about what you said. you'll find over the course of the next six months that the r perception of everything that's happening is all positive. everybody is waiting for this deregulation. i would love it to all work out. >> and the tax reform. >> absolutely. it's all good for everybody. if that happens, that ends up being positive for the economy, yes. >> the wiggle we saw in the market yesterday with concerns about whether or not the health care reform will get passed and therefore what that means for tax legislation down the road, is the market right in reading into that and thinking, okay, maybe this is a time to pause? >> i think it is a time to pause because everybody is waiting to see is the health care bill going to pass, right.

if it does, then what you're going to see is with a republican president, republican congress, things will get starting done more. i think everybody is worried, are they going to be working together as much as everybody wants them to. so if it gets done, then what you're going to see is everybody focus on tax reform. that's going to end up being pretty positive. so i think there is a bit of let's wait and see. it's only a day, right. i don't think there's any harm in waiting that day to see what happens tomorrow. >> although, if the vote does pass in the house, is that going to signal a new rally for the market to push higher as if, okay, the first hurdle has been overcome, it's game on again? >> i think it'll be how much does it pass by. if it passes by one vote, i don't think the market is going to look at that as being overly positive. i think if it passes -- i wouldn't say comfortable margin,

but it's got to pass by something a little bit more that'll have the market looking at, all right, that'll be positive. now let's wait and see what happens on the senate side. >> to that point though, your forecast of 10% higher in 2017, is there an asterisk next to it, depending on how this health care vote turns out? which will then probably give us an indication of how tax reform might play out, which will then give us an indication of how deregulation might play out, which is a key to your call. >> look, if the health care doesn't pass, i think you'll have a bit of a dip. but then everybody is going to focus on tax reform. we're not sort of -- we don't make bets based on sort of certain events. i think to us, we're looking at the economy an saying, all right, everything we think is going to be positive and that deregulation -- it is going to end up, i think, working itself through the system. then the question really ends up being how much do banks start lending and how much are people spending. so consumer spending and then how much lending is going on.

all that should be positive for the system. >> do you even buy stocks? >> no. we just buy debt. >> i don't even know why -- why do you make a forecast? why do you even dabble in forecasting? >> i think for us, the focus is really on the debt -- >> i don't even know why we talk to you about stocks sometimes. >> you like talking about stocks. i'm happy to go down there. >> i'm fascinated. it's 50/50. you have 4.9 billion here in the united states. in europe, you got 4.4 billion. >> yeah, that's correct. >> you know there's some elections happening over there. greece is ready to -- so you feel pretty good about europe. >> i think europe is a huge opportunity on the distressed side, yes. and the reason is because the banks are still forcing -- and we've talked about this. they're still forcing everybody to deleverage. i'm sorry, the ecb is forcing the banks to deleverage. because of that, you've got quite a lot of paper that we're able to buy at pretty good

prices. >> better than a year ago or two years ago? >> it's the same. it just keeps on happening. the banks are selling about 200 billion a year. we're still able to keep on buying that. >> i really sucked up to marc when i thought he was going to be ambassador to france, which was going to happen like three or four years -- i mean, i've been to that place in paris. i've been inside that joint. that didn't happen. i think it was better that it didn't. you've got other stuff. you would have had to step away almost completely. but you're an expert. you speak french, moroccan. what's going to happen? are you following it that closely? >> i don't think le pen wins. >> you don't? >> no. >> you think there's ever a frexit? sounds like fresca. >> that would have some huge issues in europe if le pen wins, just because of what would end up happening in france. >> but the chances of that

are -- >> i think they're 20%. >> oh, really? >> what would that mean for your investments? how would you change your strategy? >> i think you'd have much more distress. >> so that would be a good thing. >> for us, that would be a good thing. you'd have more issues. the measu the more issues, the more problems. that would be good for what we're doing. but we don't really need that to happen. that would just have a lot more volatility in what's going on in europe. so i think for us, the fact the ecb is just forcing the banks to sell and keep on deleveraging, that's a five-year play. really, what you want is just stability and that opportunity to keep on investing there. >> what about the opportunities for debt here in the united states? where do you see that playing out? >> where we see it still is on the energy side. you and i have talked about this. i've talked about it here. i think when i started talking about it, it went up to about

400 billion. today it's about 180 billion. there's still quite a bit to do, at least for us, on the energy side. on the aviation side. we do part outs. we buy end of life planes. planes that air jamaica, sort of different airlines. so that's sort of where we're seeing -- really what we're trying to do in the u.s. is be a liquidity provider. provide liquidity for people who need it. and you're able to generate sort of, if you can, that low to mid-teens type of returns. >> talk more about energy right at 8:30, i think. it's almost -- what's the expression where things are so good that prices might stay low and it might be self-defeating that things are so good. that'll make probably more opportunity for you. >> yes, that would be good. >> but we're going to have a renaissance here, aren't we, in this country. >> look, what you're finding is oil is staying somewhere between

40 to 50. >> that's enough, isn't it? >> it's enough for a debt player. for an equity player, you need oil to be above 60. that's sort of how you've got to look at it. for us, really, we're just trying not to make a commodity bet. we want to end up investing in a company and saying, look, as long as oil is staying around that 40, 50 mark, we're going to do pretty well. >> can you get a double digit coupon in a distressed energy issue now? >> not in a new issue. in a distress issue, you can. if it's 6% and you're buying at a 50 or 60 -- >> you can still do that? god, no wonder you do so well. nobody makes 16%, 20% anymore. all it has to do is not default. >> that's correct. or restructure. >> all right. we've got to go. >> marc is sticking around. coming up, fewer americans applying for mortgages. the reason behind that change. then, uber ceo getting a

vote of confidence from the board. stay tuned. you're watching "squawk box" on cnbc.

welcome back to "squawk box." mortgage applications falling 2.7% in the latest week. diana olick joins us with more on the housing market. >> the fast-rising cost of housing today is shrinking demand for mortgages and pushing those who are in the market to cheaper, adjustable rate loans. total mortgage application volume fell 2.7% last week. it's now about 12% lower compared to a year ago. re-fi applications were down 3% and applications to buy a home were down 2%. that's week to week. mortgage rates didn't move last week, but they are nearly three-quarters of a percentage point higher than they were on election day. and home prices are red hot. so borrowers are turning to shorter-term, adjustable rate loans, which have lower interest rates. the a.r.m. share of total applications has doubled since the election. it's nowhere near what it was during the housing boom, but it is at the highest level in over two years. now, demand for housing is

strengthening as the spring market kicks into gear, but very tight supply of homes for sale is keeping prices high and bidding wars fierce. we get the latest read on existing home sales in about an hour and a half. watch for that on "squawk on the street." back to you. >> all right, diana. thank you. if there's no houses, diana -- >> i know, that's the whole point. >> i mean, there should be people building houses if there's demand. i don't understand. >> the chicken and egg scenario. >> the builders say they do not have the land, they do not have the labor, the high cost of materials, and they're old building the move up and the pricier homes. they're not building the starter homes we need. you can to them. >> the labor force is a huge issue. >> we own houses, becky and i. correct me if i'm wrong. this is good for me, right? >> not if you want to move. it's good for your home price. if you want to stay, you're all good. then your prices are going up, you're sitting pretty, gaining equity. >> all right. never mind then. >> if you're going to stay, what

does it matter? >> if you're not selling, you're not going to make a profit. >> you can pull cash out. >> you don't want to pull cash out. maybe you do. >> tom celek says i should do one of those reverse mortgages. have you seen that? he's looked into it. it's really a good deal. like free money. anyway, coming up, uber ceo gets a vote of confidence from the company's board. details next. stay tuned. you're watching "squawk box" on cnbc.

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welcome back to "squawk box," everybody. uber plans to keep co-founder travis kalanick as ceo this is according to board member ariana huffington. she said the board has confidence in kalanick and the possibility of his resigning hasn't come up and isn't expected to. huffington said kalanick needs to change his leadership style to that of a scrappy sbep neuroto become more like the leader of a major global company. separately, aol ceo tim armstrong is among the candidates that investors have suggested to serve as kalanick's chief operating officer. that's according to a bloomberg report. coming up, much more from our guest host marc lasry. first, check out the dollar index this morning. up fractionally. barenaked ladies, as we go to break here. stay tuned. you're watching "squawk box" on cnbc.

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good morning, everybody. welcome back to "squawk box" here on cnbc. among the stories that are front and center this morning, the national association of realtors will release february existing home sales just about 90 minutes from now. economists are looking for a 2.5% decline, which would partially reverse january's 3.3% jump. recreational vehicle maker winnebago beating estimates by 3 cents with quarterly profit of 48 cents a share. revenue well above forecast. winnebago credits a more balanced portfolio and greater scale among the factors for those gainings. that stock is up by almost 8%. shares of sears have extended their prior losses in pretrading today. in its latest annual report, sears expressed doubts about its ability to continue as a goirng concern, given its continuing losses amid declining sales. that stock is off another 12.5% today. let's get back to our guest

host, marc lasry, avenue capital co-founder and ceo. i could talk about energy all day long. we didn't cover everything. before we move on, i want to talk real estate, too, after what we talked about with diana. but how much of the domestic 4.9 billion is energy? is it half? >> it's about -- yeah, it's about half. >> and i would imagine that that's the biggest percentage. the other half is divided into what type of -- >> just totally different. >> like what? could be anything. manufacturing stuff? >> yeah, i mean, it's going to be -- we're short retail. >> what do you mean short retail? >> retail, so companies you've mentioned. >> like sears we just talk abouted? >> so you're shorting the debt? >> you'll short the debt or the equity. >> so you do play in the equity markets, just not as much. >> not as much, unless you think

there's a real issue out there. >> can you say specifically, is sears one of the ones you're shorting? >> i don't know if my compliance department will allow me to. i can tell you off the air, definitely, what we're doing. >> let's talk about retail in general. that's been a picture that has just seemed like a rapid escalation of the decline of retail as we know it. all kinds of displacement there. >> so i think that's a huge opportunity for us going forward. simply because when you take a look at what's happening in the retail sector, it's just getting destroyed. so i think you're going to see a lot of equity value go down. then you'll have value to these companies, but it's going to be a lot less than people think. so therefore, you want to be in that debt. >> we look at retail, and you think of that as the malls, the stores within those malls, but then you can play that out to nike and the trouble that dow component ran into yesterday when they announced earnings. do you play beyond the general areas of retail into the

players, like a nike and beyond? >> suppliers, yes. a nike, no. nike's debt isn't going to have any issues. >> are the fears -- they've been battered along with retail, but maybe fears are overblown because maybe certain ones don't own the stores that will close. >> we're not playing in that because we want to be much more specific and target specific companies from a credit standpoint. which ones are going to get hurt more as earnings come out and which ones are currently having issues. >> the border adjustment tax, have you looked a tt that close? do you have an opinion on whether overall it's a good thing? probably wouldn't be great for certain real estate companies. a lot of countries do it.

initially, knee-jerk reaction is a , are you out of your mind? but i've had enough people that have come in here and said this is the way we should most likely do things if we can phase them in, and it would be a net positive long term for the country. have you thought it through? >> i haven't. i haven't really looked at it. >> it would be good for you if you're short retail. >> that's exactly it. i think you could make an argument both ways. i think for us, i'll take a look at it when you start seeing if it's really going to -- if there's a real probability of it passing. >> that means your short on retail has nothing to do with this additional massive head wind that could hit the retailers. >> that actually would be a positive. for us. negative for retail. also, i think negative for people because that's going to increase prices. when you sort of look at it, i just think right now the issues you're having on the retail side are just too big. >> i wanted to ask you about the auto sector. a lot of the automakers have been going down recently. there have been a lot of

negative data points about used car pricing, for instance, and credit. the concern is obviously used car prices go down. that drags down new car prices as well. auto yields on leases are coming down too. is there any sort of trade in there? you had been in gm at one point. it had been one of your biggest positions. you liquidated that. >> i think for us, there's not much to do there yet. i think you're right. you're starting to have issues. remember, for us, we need companies to have real issues. we don't want to get in at the beginning. you want to sort of get in when sort of problems start coming. so i think it's way too early. we invest theed in gm when gm h all those issues and was sort of coming out. that was around 2009, 2010. today i think the tri industry

fine. it may not be in a couple years. for us, it's still too early. >> why is it too early? i'm just curious, what would make you change your mind? >> when you start seeing that debt trading around 70 cents. the only time that starts happening is when people start getting really worried about sort of earnings and different issues that companies are having. >> is that the deaf fission for y -- definition for you? >> yeah, it's got to start trading around 70, 75 for us to really start focusing on it. to go from 75 to par, so 33% return, that takes about two to three years. so you're going to make 10% to 15%. >> correct me if i'm wrong. you may have a team spending a year or longer getting into the industry before then. >> oh, we'll have a team looking at something a year or two years. you're just waiting. you've got to wait for prices to come to the level that you want. it may never get there. >> so are we allowed to ask what areas you have teams looking at

right now that you're not playing in? >> yeah, i mean, i would say the auto sector is one of them. >> would it be like auto lenders? would it be the debt in an ally financial, or would you go with ford, for instance? when you look at its financing unit, the percent of assets as a percent of market cap is the highest among the oems. >> that's absolutely correct. you'll look at those financials, yes. >> what other areas do you have teams working on? >> i think right now it's more idiosyncratic. the only industries or areas that have real issues is on the retail side. energy is the other one. so everything else is you're waiting for specific situations and specific companies. i wish it was broader. it's not. you can have sort of broad issues when you have positive gdp. when you've got that 2% to 3%,

it's going to be much more targeted, which is where we're going to be focused on. everything else, at least for us, is going to be -- you've got a company that's got this specific issue. >> how would you describe the days for distressed debt? how does this work out? we saw huge issues in 2008, 2009, 2010. what kind of market is it right now? >> i think the problem you've got today is you've got sort of less than a 1% default rate. so therefore, it's going to be more idiosyncratic. so you don't have broad base, which is what you had in 2009. so for us, that's why we ended up having targeted funds, why with focus quite a bit on energy. so if we just want to invest u.s. distress, you're going to find there isn't as much to do. you have to end up becoming much more targeted and much more focused and try and take advantage of the opportunities you're seeing. >> how many bucs games do you

make? >> how many games do i go to? i'll probably go to about a third. >> you go to a third. >> yeah, 25% to a third. >> you at .500 this year? >> we actually are. seventh spot. >> what does that mean? >> means we're in the playoffs. if the season ended today, we'd be in the playoffs. >> i haven't followed that closely. jabari? >> he tore his acl again. >> i'm watching college. who will you draft? who do you like? do you watch college too? >> i do, but a lot of it is going to depend on sort of where we are in the draft. if you make the playoffs, then you're not going to have -- >> plenty of good guys to look at. did you do a bracket for march madness? >> i did. i actually did the bracket. i'm happy to say i got absolutely destroyed. i had villanova. i got killed within the first week. >> that's a horrible feeling, isn't it? you know what you can do? you can join me. i don't have xavier beating

arizona, but they're doing so well. i'm going to go xavier. i don't even care. i have north carolina. >> then you're golden. >> i'm golden. we'll talk about some other stuff. how much is it worth now? >> we paid 500. probably worth 1.5 billion. >> that's just -- you got to have money to make money. that's what i'm realizing. >> it was good. >> you made a billion dollars? >> my partners and i. >> oh, okay. just one partner. meantime, coming up, shares of fedex up in premarket. we'll get the street's reaction next. stay tuned. you're watching "squawk box" on cnbc.

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welcome back, everyone. a new associated press report this morning says president trump's former campaign chairman paul manafort secretly worked with a russian billionaire for the benefit of vladimir putin. eamon javers joins us with the details. >> here's what we know from the associated press this morning. paul manafort had a business relationship, according to documents obtained by the associated press, with a russian oligarch who is close with vladimir putin. according to to the associated press, the secret work for the russian billionaire was to advance vladimir putin's interest. it was a $10 million annual contract to influence politics, business dealings, and news

coverage, including in the united states. that work began in 2006 and continued until at least 2009. according to a 2005 memo obtained by the associated press, mana fort wrote that it needed the appropriate commitment to success. he proposed he would work around the world, but including the united states. white house press secretary sean spicer has given a statement to nbc news about this report this morning. here's what spicer has to say. it would be inappropriate for us to comment on a person who is not a white house employee. and paul manafort himself has given a statement as well. what he is saying this morning is, i worked with oleg deripaska almost a decade ago, representing him on business and personal matters in countries where he had investments. my work for mr. deripaska did not involve representing russian political interests. so guys, this will be another headache for the trump administration today as they deal with the fallout from this

story, on a week where the fbi director said the fbi has an open investigation into any possible links between the trump campaign in 2016 and the putin government and the putin government's efforts to interfere in the u.s. election, guys. >> because the media says it's a headache? it was 2009 when it ended. is it a headache for hillary that podesta's brother worked for, you know, was an agent for the biggest bank in russia, which has tied to putin? people have ties all over the place with each other. it's a global -- maybe not quite as global as it was. people have global business interests. it was a decade ago. why is that a headache today? because you and msn say it's a headache? >> not sure who you're accusing of being in the msm here, joe, but look, this is something that's going to take the white house's time and energy today. >> why? it was 2009 and it was a business interest. >> because they're going to be asked about it. >> right, exactly.

they'll be asked about it by who? >> and because there's an open fbi investigation into any contact -- >> this is totally unrelated. and manafort was gone how long before the election? he had already resigned. >> manafort worked for the president up until the convention, right. so after that, through the whole period of the general election, he wasn't the campaign manager. the white house has sought to distance themselves this week. >> okay. all right. i don't know. that's a one aspirin headache, i would think, at most. anyway, thanks. >> thanks, eamon. fedex stock bouncing back after initially dropping upon the release of its quarterly earnings report. joining us with more, managing director, chief market strategist and senior transportation analyst at avondale partners. it was really interesting in the afterhours session to watch the trade in fedex. fred smith gets on the call, the ceo, talks well about ground margins and tnt. then the stock lifts. so everything is paid off for fedex in terms of their

investments? >> well, it certainly appears so. i think everyone's reaction, the market's reaction, my reaction initially, and i was the bull. it was oh, my word, they've missed. once you started to peel into it and look the a the results, you realize, oh, i see. actually, this is less than we were expecting. primarily because of fuel. this is a company that literally spent $200 million more on fuel this quarter than they did a year ago in the same quarter. that's despite the fact they moved 3% more packages with 1% less jet fuel gallons. it was a reflection of their investment in the new airplane fleet. but that said, that produced quite a headwind. it's kind of a temporal thing. they maintain guidance for the full year, which means the fourth quarter -- they have a funny fiscal year -- the fourth quarter is going to be better than expected by a margin of more than the third quarter was less than expected, if that all makes sense. >> so do the results and guidance, does it sort of widen

the spread, so to speak, between the value of fedex and the value of u.p.s., given the weakness we saw in u.p.s.'s latest results? >> oh, absolutely. it continues to tell the story that we've been trying to tell now for years. i've got a very entrepreneurial company that's still run by the original entrepreneur that started it versus a company that's highly unionized and run by a management team that is several generations removed from the original entrepreneurs. it's just a very different culture between the two companies. otherwise, they're very similar businesses but very different the way they approach the marketplace. >> all right. we're going to leave it there. thanks so much for your time. >> always my pleasure. thank you. when we come back, jim cramer will join us live from the new york stock exchange. stay tuned. you're watching "squawk box" on cnbc.

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the energy sector has dropped over 8% so far this year. since 1990, when the sector drops at least 5%, the oil and gas refining sub sector

we're watching shares of dow component general electric this morning after talks with major shareholder trian management. ge modified bonus rules to tie with more closely whether results are achieved. trian issuing a statement saying it was pleased with the changes. operating profit target for 2017

is $17.2 billion. see the stock higher by just about 0.6%. let's get down to the new york stock exchange and talk with jim cramer. jim, you cannot believe the responses i have gotten since. tell us what etfs you're against and what specifically? >> okay. thank you. s&p 500, etf, vanguard which is what warren buffett suggested, i think that's terrific. but the anti -- the so-called single stock risk that has been -- that you see constantly the proponent of single stock risk of all these new etfs, you're lumping in the best with the worst thinking you can somehow eliminate single stock risk in a sector, it's an oxymoron but somehow gained great credence. i feel we've been brainwashed. brainwashed by etf people who really believe somehow if we lump the bad with the good we do just fine.

it's a mistake. >> yeah, i mean, you don't have to go too far for an example. if you take a look at for instance i know you know this, jim, the ibb, you got some of the biggest components there, gilead, right? it's down 27% over the past 12 months and biogen is up 15% or so over the last 15 months. you want to own biogen, buy the ibb, you're out of luck. >> exactly. we want growth from biotech, but gilead is either value or value trap. why would we want those altogether? why would we want the really great cyber security companies with the really bad cyber security losing to the great ones. makes you think somehow you're diversified, you're not diversified. yes, if you're an etf for gold that may be a better way than owning individual gold stocks, but the brainwashing has to stop. the single stock risk game, that is all about trying to get people to buy certain products that i think are really against their best issues -- their best

interests. i got to tell you something, melissa, the people upset about this is typical of how brainwashed people are. listen, i want to buy the bad with the good? oh, wow, i'll fight for that right. >> a lot of great points there, jim, thank you. and of course this is worth watching. look at the clip on cnbc.com, read the article, it's great. see you in a few minutes. later on, don't miss the ceo of winnebago, that's later on "power lunch." but mobility its an autonomous-thinking vehicle protecting those inside and out. and it's the mercedes-benz of today that will help us get there. the 2017 e-class, with innovations no car has offered before. and that will change driving forever after. lease the e300 for $549 a month at your local mercedes-benz dealer. mercedes-benz. the best or nothing. what's critical thinking like?

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welcome back everybody. our guest host this morning is mark lasry, mark, let's end this conversation the way we started thit morning. you were a big supporter of hillary clinton. the election didn't go the way you thought it was going to go. what does that mean in terms of what you think of the trump administration right now and what you're rooting for? are you rooting against them? >> no. i think for me what i'd like things to work out. you do want it. you want the tax reform to work out. you want gdp to be sort of positive. you want the deregulation to happen. you want things that are good for the country. so you want america to do well and if it does, that's positive,

right? so i think for -- i need to be a little bit more convinced from sort of on the financial side that some of those things will happen, but you do want that success to end up happening. because it ends up being good for everybody. >> you didn't emigrate. >> i wasn't born here, otherwise i would have run for president. >> so do you have any empathy in terms of those positions, legal, illegal immigration, border security, is there a way someone who's immigrant can say i agree with some of this stuff? or not? >> look, i think this is the greatest country in the world. i was able to come here with my parents, become a naturalized citizen. i think only in america could i have had the success i've had. >> right. >> you sort of look at this country and what it always stood for was people could come here and that you'd have a better life. and it is this beacon on the

hill. i mean it really is. >> right. >> so you want that. and i think that's what america stands for. so i would like it to keep on being that way. >> can i ask you one individual company story? >> sure. >> have you looked at valeant? do you own it? valeant debt? >> yes, we do. >> you do. so you're not worried about the company being able to pay its debt holders, violating debt kov nans, not having enough assets? >> i think it depends on where you are in the capital structure. so if you're at the top of the capital structure, you're going to do pretty well. >> and i'm assuming you are. >> you can assume we are, yes. >> marc, we want to thank you very much for being with us today. >> thank you. >> it's always a pleasure. we hope you come back again soon. >> thank you. >> all right, where are we now? we're still negative. nike is going to be a drag to some extent on the dow today. we'll see the pan ultimate day before.

>> it was how she said she just spoke to someone in ryan's office who said the vote is still on for tomorrow at this point. >> they think they have the votes. >> at this point. >> right. >> it's still on until it's not, maybe. >> well yeah. >> we'll see. >> melissa, thank you. >> my pleasure. >> marc, great to see you. thanks. make sure you join us tomorrow. "squawk on the street" is next. ♪ good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer at the nyse. faber is off. futures as you heard just below the flat line after tuesday's selloff. the worst day for stocks this year. europe is red. nikkei down about 2% overnight, oil trying to hang onto 2.4 and we begin with the stock slide. is the rally over? good to have jim back on a day like this. nike takes a hit, second best dow stock o