let's send it back down to the new york stock exchange for the start of "squawk alley." back over you to, carl >> dom, thank you very much. good morning it's 8:00 a.m. at netflix headquarters in california 11:00 a.m. on wall street. and "squawk alley" is live >> good tuesday morning. welcome to "squawk alley." we're at post 9 at the new york stock exchange this morning. john broad joins us, co-founder and president at confide and roger mack in a my good morning dow soft lows. still down about 100 points.

some pressure across the board the nasdaq seven day win streak is in danger of getting cut short. it would be the longest win streak since february of '15 when we had ten straight mike santolli, another bifurcation in the behavior of the financials and tech today. >> you are seeing. that it seems on net the earning that's we have seen have not really given you reason for companies specific optimism. goldman sachs trading down maybe just nothing fresh that's going to get your attention on the bullish side and then johnson & johnson is holding up then you have the overlaf, you know, in congress things seem like there's not a the love forward omentum. even though people think are going to get to tax reform the dollar weakening so much just throwing a lot of the macro stuff into flux. bond yields down again usually not a bullish sign. >> at least it's not the mine numbing lack of range we had yesterday. >> yeah. >> both on the major indices and the vix. that was creepy almost. >> it's exactly like suspended animation. even now you have a little bit

of a selloff you used to think the dow drop as being of significance the vix barely nosing above 10 i think what you have to see is waves of selling that follow that a little -- that initial markdown see some follow-through in order for the vix to wake up more. >> roger, where is your head right now? having at least seen chapter one of earnings season >> you know, i think, carl that, we're at a really interesting place for the market in that the underlying dynamic has been pretty good all year long. with the political environment that has probably never been crazier in the lifetime of anyone participating in the market so i think that traditional wall street maxim is politics takes care of itself f that proves to be true this time, then the market's going to be fine. i personally as a, you know, a long time player look at the politics and go this is just too weird, too, you know, there's just too much damage being done. i think eventually it's going to weigh on the market in a way that you're going to want to get out of the way of.

>> you've been cautious for a while. >> i v. >> and, carl that, suits me well again, we're etch entile d to or own risk profile i'm long facebook and apple. the market treated me well even though i have a huge amount of t bills. and each person has to find their own risk profile and get positioned for that. >> well, let's see how cautious you are on netflix this is a record high today. the company adds 5.2 million subs 104 million globally for the first time users they plan to add 1.24 million in q-3. were the shows so good that those that were going to join in the back half of the year decided to do it in the past quarterer? >> great quarter for netflix i think the story sinlt national, international, international. they have the fly wheel working. so spend $7 billion on original content, attract great talent, put out great shows, get the

emmy nominees and then subgrowth. they shown they can do thanlt nationally and domestically. that incredibly powerful >> i expected the story to be international, international, international, but for me it was dme. for them to top a million net subscribers domestically at a time when mark was saying last hour a lot of the bears are starting to say maybe it's getting mature i wonder if there is this bifurcation happening in subscription businesses where the ones that have that fly wheel are continuing to grow but others, the pandoras of the world that haven't gotten traction are really struggling it's kind of like the facebook versus twitter die namic that we saw in social media playing out over the past couple of years. if that's the case, i think there are implications for the market for content and beyond. >> yeah. look, i mean, but just looking at international again, you have for the first time ever they have more subs international and

domestic they had a $13 million loss last year they expect that to swing internationally for the fiscal year seven billion people throughout, 300 million people a year incredible story >> roger, we talked all morning long about cash flow clearly not a concern for the bulls here what do you think about it >> i look at this company as, you know, the new pixar. for a long time pixar seemed to do literally everything right. it had to in order to main taint valuation of the stock and that's what i see going on here at netflix. these guys, as john pointed out, what's going on in the u.s. is really impressive. they have so many subscribers here you would think they were approaching saturation they probably are. but at the end of the day, that combination of great products, you know, great new product and in my mind the pricing is right and the way that they're promoting the product is obviously working everywhere around the world and, you know, the stock

reflects all of that but why shouldn't it this is a company that has proved the skeptics wrong from the beginning. >> the fascinating thing with regard to cash flow, clearly the markets allowing them. they're financing this long term plan creating this content. but the fascinating thing is how the market does allow that if you look at the other big cap companies, they're profitable. it's a matter of what valuation you put on the dollar profits. they're putting faith this model is going to work i don't think it's just faith. also, that spend, the netflix is doing is totally doing is within their control. >> and this quarter shows what happened in europe absolutely shows that the cash flow story is getting better not worse. seen in my mind, again, the sbrulz been rewarded for their faith. >> and, john, let me ask you this what is interesting is how netflix thinks about getting a payoff directly from the

inve investments. there is not a way you're selling. that how do you value this content? netflix thinks they know how many new subs came and binged one series or another. >> look, over time very hard to correlate. maybe there's a regression analysis that could show that. but i think as you point out, they've got the macro formula down they also have the micro formula down, i mean the sky is the limit. >> i think one of remaining questions, roger, is what is the lifetime value of a netflix subscriber up to this point, it's like if you subscribe and you don't leave, sure, that's valuable for them i'm not sure they're capturing all the value they could i'm starting to think that maybe netflix is trying to become the april until content. not only do they have the great content, but they're adding data into the mix to help people discover that content. and data to help inform them about what content they should make

if that works, it could be incredibly powerful. roger, what are your thoughts on that >> john, i think that point is so important there has been a funneldamental shift in viewing habits. this notion of binge watching is not an old concept i don't think we have any idea where that goes. correctly as you point out, the people of the best data on what viewers like are over time going to be able to eek out advantage that's over time will be very, very valuable. and so i'm with you completely i look at what these guys have done and, you know, it's not at all clear where the top s the thing that is clear is that being a pipe over the next ten years is going to be harder than it was the last ten years there are so many of them. but i think at the end of the day, netflix has established itself as gotten such an early lead that i think when the dust set ldz, they're going to be one of the winners >> yeah.

perversely, viewer weighed in and said the trouble spot may be when they start to post consistent profits when this hope story is now a thiveng ng h past. >> i think they're taking a page out of amazon's playbook i think they're outamazoning amazon they know this playbook. netflix has grown this incredible lead and now amazon prime is playing follow up and catch up they're doubling original content spend to get the fly wheel going. they only had 16 emmy nominations against 91 they're clearly in the second place. i wouldn't discount, you know, or hold them out but they've outamazoned amazon >> certainly on the emmy front that is true it's been a busy morning for elan musk. tesla added 20 century fox james mur doch and johnson publishing to the board as musk now clarifies some of the comments on the company's valuation, he tweeted "tesla stock is obviously high based on past and present but low if you believe in tesla's future.

place bets accordingly." a lot of people said the word bets could not be more appropriate. >> look, they're taking heat for not having truly independent board members who have either a personal or professional relationship with elan musk. i think these are two independents it raises the number to nivenlt i like that media veterans as autonomous cars come into being, the driver is going to move to passenger and the entertainment experience going to be critically important >> roger, why does elan musk keep talking about tesla stock this way first of all, who values a stock based on the past and present? of course you value it on what you expect to happen in the future so why do you think he keeps talking about the stock in these sell for stock deprecating ways and then revising it >> well, you know, i have no clue and i'm as mystified as you are. the company is clearly at a moment of truth.

the new product is the first real mass market product that they've got. and we're going to find out over the next three or four quarters exactly, you know, what the dispute going to look like so it may simply be that we're at the moment of truth and everybody's just waiting for the big reveal and, you know, i honestly -- i have no idea why he uses that language what is obvious to me is that he loves the spotlight. and, you know, when it is shining and you're improvising, you know, words come out of your mouth and sometimes you have to live with them. >> roger, you're suggesting the metric that determines success or failure in the next four quarters is what what, production of the three? >> not just production but the sell through i look at all of this as, you know, the company that you've seen to this point has been a niche player and it has been at the very high end and they've done the best job imaginable there now they're going into the mainstream they're really going to go up

against mainstream offerings from a lot of other vendors. and the tale will be told then and, you know, if that product is as successful as the earlier ones this company is just beginning. and if it is meaningfully less successful than they hope, then, you know, people will have to decide what the company is worth. what is clear to me is that musk created a brand here which i think will have enduring value and the key question is how profitable will it be? i think the three is the thing that will determine that >> we're going to find out if production growth really exists. guys, good to see you both good discussion on two really important name roger mcnamee and john board >> calls wrapping up a few minutes ago, both stocks down. goldman sachs stock slipping more than 2% we're back at hg with the details. >> good morning. the headline, very poor quarter for goldman sachs's fixed income commodities and currencies business here's the cfo

>> the primary driver for the declines are year on year with lower client activity. with all the drivers that we discussed, lower volatility, less dispersion, less opportunities. commodities and as a story of challenges on all fronts and there it was lower client activity and also a difficult market making environment >> chavez admit thatd was the worst ever quarter for commodities since the company went public but would not reveal if that meant the subsector made an outright loss or not. there was small beats in other segment. investors concerned about what is now the second quarterer in a row of tigly underperforming peers within trading bank of america delivered solid numbers. they're grinding out better net interest income although it is a

little behind estimates. here is the cfo on how yield curve moves hindered during the quarter. >> we had significant improvement from the short end. but the long end also did significantly impact us relative to what we were expecting because as you know, we have securities portfolio as rates change, customer behavior changes >> stocks down today goldman sachs bearing the brunt of the selling down 2.3% guys >> yeah. with regard to goldman sachs, obviously that stock weakened during the call and since. and in addition to that kind of scrutiny over the commodities business and whether there is an outright loss, is there a sense out there analysts trying to get a handle on whether the trading business is just kind inform this cyclical lull because of low volatility leaves or something a little more structural about the opportunities down the road in market >> exactly right, mike i would say overall fixed

incomes represented half of the questions that cfo marty chavez faced. highlighting the level of interest investors and analysts have chavez didn't give much more color than we just heard on that call saying it was overall client volume that's hurt all of those subsectors across the board. in terms of what the analysts are writing and saying at the moment within that discussion, the best case scenario is this is cyclical. even if that is the case, you have a very tough environment going forward. 70%st earnings is from capital markets. very tough comps in the second half the worst case scenario is there is an outright structural challenge to the trading franchise and the move in the share price has investors gauging it between the two at this stage >> busy day for you. thank you so much. wolford frost joining us >> the house is out with the 2018 budgets we'll break down the numbers and what they mean for the white

house and economy. we spoke at length about it yesterday. but to day we'll finally get a look at amazon's new meal kits which are apparently moving already. gordon siegel founded crate & barrel with his wife in 'of 62 we'll get his take on amazon and e- commerce disruption when "squawk le cesacaly"om bk. we're on to you, diabetes. time's up, insufficient prenatal care. and administrative paperwork... your days of drowning people are numbered. same goes for you, budget overruns. and rising costs, wipe that smile off your face. we're coming for you, too. for those who won't rest until the world is healthier, neither will we. optum. how well gets done.

house republicans releasing a 2018 budget plan they're setting an ambitious plan for future tax reform at

roll back of regulation. we're watching that. >> this budget does have the backing of both the white house and congressional republican leadership house speaker paul ryan praised budget committee chairwoman dianne black's efforts earlier this morning >> this morning chairman black released a buget that balances the budgets in ten years and tackles our debt crisis. i want to commend her for her leadership and the members of the budgets committee for putting this bill together this plan will mean more jobs and more growth. >> republicans want to use this buget as a vehicle for tax reform but already there is pushback over the proposal that it cuts $203 billion from mandatory spending programs over the next decade. now i reached out to the house freedom caucus they have not taken an official position yet but the head of the caucus has been very clear that he wants to see more aggressive mandatory spending reforms meanwhile, the moderate tuesday

group has already said in a letter to the house budget committee that they want to see less aggressive spending reforms, $200 billion is too much they call that impractical they said that can make tax reform even harder representative black defended that number earlier this morning in a press conference. >> we do we here in the house doll our work i think that's very important that we do our work and that we show the senate that we can do our work and then we will work with the senate because obviously that is the process and that's what we will do. but we cannot not do our work dependent upon what the other body is doing. >> the house will be marking up this bill tomorrow and perhaps bringing it up for a vote later this week. back over to you >> thank you for that setup. joining us this morning, larry lindsey, former national economic council director under president george w. bush donald marn former acting director of the cbo. good morning, gentlemen. good to see you both. >> good morning. >> larry --

>> how are you doing >> i'm doing great. >> some pointed out that $200 billion over ten years is not that far a ride the how messy do you think this is going to be? >> oh, legislation is always messy. the point i would make is if the more conservative members don't like it and the left doesn't like it, you probably got it about right. >> donald, how about you >> you know, if you look at the budgets, it pencils in more than $6 trillion of spending reductions over the next ten years. but then they only ask this year's congress to come up with $200 billion of them and so i think you get the sense that the spending reductions they have in mind are, you know, aspirationally way outside what is possible. >> larry -- >> some of those are mandatory >> yeah. sorry, go ahead. >> i was going to say, hairy, when it comes to sort of the next phase beyond let's say getting to a budget here and

what might get done on the tax front, you know, a lot of the talk turned away from a comprehensive reform package to maybe just, you know, a package of tax cuts. do you see anything taking shape more specifically in those areas? >> i think that would be serious mistake. the economy needs supply side oriented tax reform. it's the only way the economy is going to grow going forward. it's necessary to get investment restarted. it's necessary to get productivity up. and if they don't do that, they won't get the growth that is estimated in those numbers and so growth is a necessary -- not sufficient but it's a necessary condition for achieving any kind of budget control. >> larry, i'm also wondering are the republicans at risk of losing their sort of aura of inestability when it comes to legislation? they control both houses they haven't been able to o get a lot done if yu you're the democrats, is there any insentive to help them out

with this budget >> one of the biggest stumbling blocks and this is the point that i sent you earlier, that we have a congressional budgets office that is really doing a lousy job of estimating things, particularly on health care reform a little bit of history here they were way off in estimating the reforms, the benefits of the reforms in part d medicare when obamacare came in, they estimated that by 2017 we would have 23 million people in the exchanges. we actually have ten million people in the exchanges n 2015 when they estimated what was going to happen as a result of a repeal of obama care, outright repeal, they said uninsured will go up by 22 million. we have something that is far from outright repeal we have literally hundreds of billions of dollars in subsidy in the senate bill and lo and behold they find it still is

going to cost 22 million people their insurance. the strange et thing is they have a number in there that 15 million people are going to lose insurance because they're not required to get i. so the cbo really thinks that people are going to give up free insurance if they're not required to take it? i mean the numbers unfortunately these numbers are getting in the way of sound public policy and really need to sort of step back, cbo is fine. but taking their numbers as gospel just like taking dods numbers is gospel about defense spending is a silly way to go. >> although technically nonpartisan, cbo is a part of the swamp. do you push back on that >> yeah. cbo is not part of the swamp cb so a bunch of professional well meaning folks trying to do their best to figure out the effects of all the ideas that congress comes up w you know, you can certainly debate about whether they're right or wrong or

particular provisions of that but, you know, they're carrying out god's work trying to inform policymakers about the tradeoff they face without something like cbo, you're in a situation, where you know, people are making up their numbers, quoting things out of context. and it's incredibly use follow have an organization that is trying to gifs the big picture about what the effects of policy changes are going to be. >> finally, larry, while i have you here -- >> cbo is consistently wrong on health care. they have been they have been consistently wrong for the last 15 years and all of their health care estimates. how is it that they can come up with the same number of uninsured when you repeal the law as when do you something like the senate did which has billions of dollars in subsidies? it just doesn't make sense >> right >> that turns out not to be true so if you score the repeal bill that the house and senate enacted and passed in 2015 and president obama vetoed, right that, shoeld that showed them covering more

that was $30 million it's now $20 million it's not true that they give you the same number regardless of what you send it they analyze the particular things in the proposal they work out what they think the implications are and they tell us that >> well, that's because they're wrong on the initial starting point. that was the difference. the numbers of uninsured are still going to be the same and also, again -- >> larry, i look forward to your model, larry >> pardon? >> i look forward to your modelling effort >> larry -- >> i put a bet -- i'll tell you what i put a bet. i put it in my letter this morning. i'll bet you $1,000 for every million that they're under 49 and i'll give you $1,000 for every million they're over 49. if you're willing to take the bet, i'm willing to put my money where my mouth is. >> i have to see the details

i'm not sure what bet was offered. e-mail me and we'll follow up. >> with that bet pending, larry, before we go, the fire in the room today is this straight repeal which some are saying some support and others won't s that a smart idea? >> well, they're going to have troe place to replace it with something by the way, repeal wouldn't take place for a couple of years. you know, i think they're on the right track. they have to put a limit on the rate of growth of medicaid spending they have to provide subsidies for the uninsured to get insurance. the bill does that you can quibble over numbers by the way, they also have to get health insurance premiums down for most of us. and the necessary thing to do is get rid of the excess regulations and price controls that are in obamacare which are driving up insurance premiums. >> we'll get another count on our hands today regarding that one after what happened last night. larry linld

larry lindsey and donald maron, thank you. >> happy birthday, larry >> still to come, shares of netflix in rally mode. up that hour about 13% after adding more than five million new users in the last three months. why they think the company's cash burn is an indicator of enormous success we'll be right back. you got he this bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across all your devices, right? oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. only at td ameritrade

i'm scott wapner, here is your cnbc news update.

house speaker paul ryan calling on the senate to pass some kind of health care overhaul bill so lawmakers can move forward >> we would like to see the senate move on something we are proud of the bill that we passed we passed a fwoil repeal and replace obamacare, replace it with a better system but as you well know, the legislative process for it to work, house has to pass a bill we've done that. the senate thohas to pass a bil >> former house speaker dennis hastert has been released from prison in minnesota and transferred to chicago to a re-entry facility. he was sentenced to 15 months in prison in april 2016 fwh n. a banking violations indication that revealed he sexually abused teenagers while coaching wrestlers in high school the cheapest day to fly is august 22nd which marks the start of the airline's fall season you can save an average of 11% to 20% over summer ticket prices as demand falls. that's our cnbc news update

this hour. back to "squawk alley. john, we'll see you top of the hour at "halftime. >> sounds good, scott. thank you. and shares of netflix, meanwhile, getting all time highs on the blowout subscriber additions. julia is in los angeles. quite a few high browse raised over the numbers >> that's absolutely right, john not only did netflix at two million more subscribers for a tote afl 5.2 million net subscriber additions, but they also forecast the company would add more subscribers in the third quarter than wall street analysts were projecting hastings says that the company has plenty more room to grow especially in asia and that they're benefiting from the global rise of internet tv >> we're such a small player in our viewing compared to linear tv, compared to youtube. so we got a long way to go to

har more a have more and more content to please more members that continue to grow what you see us doing as we grow is also improving our margins. so we're getting some efficiency out of that as opposed to spending every dollar in the content. but we are growing the content budgets significantly also because of the opportunity that we see >> as for that content budgets, hastings says they're producing more shows themselves like "stranger things" which means spending more up front netflix updated the cash burn to between two million and $2.5 million this year >> the irony is the faster that we grow and the faster we grow the owned originals, the more are drawn on free cash flow that will be. so in some sense, negative precash flow is an indicator of enormous success >> avenlnalysts all raise their price targets on the stock after this earnings report most of them were citing

confidence that netflix invest ment and content is going to continue to drive subscriber growth guys, back over to you >> all right julia. stick around we're going to bring in now netflix shareholder dan morgan, portfolio manager. dan, is this amazon all over again except instead of spending up front on logistics and warehouses, netflix is spending up front on content? is that bet you're making here >> you know, carl, i thought about that coming over this morning. it is very similar to amazon you look at the multiple in terms of amazon trading at 190 times earnings, netflix trades at 190 times earnings. as you said, they're willing to spend a lot of money for the future what are we looking at for netflix, $16 billion in content costs and they did $608 million in negative free cash flow in the quarter. so it is very similar. you got to spend money to get the subscribers to keep them loyal to your name opposed to going to someone else. but in the expense of doing

that, obviously it impacts negatively on your cash flow and on your overall, you know, debt. so that's something that these companies are very similar >> dan, one difference between amazon and netflix, yes, the market seems to be granting them a similarly long leash but amazon by the numbers was free cash flow positive going back into the early 2000s. it made that cross at an earlier stage. what is the -- i guess what are the key landmarks you're looking for for netflix in terms of making that turn it seems to me you have to estimate how many subs, what percentage of total global broadband customers are going to be netflix subscribers and whatever three, five years what kind of numbers are you kind of kicking around in that regard >> well, one thing i'm really focusing on is contribution margin one of the things that is really hurting netflix in regards to obtaining future growth in the international space through new subscribers which we know they have to do because we know the domestic space is so saturated,

you know this quarter they lost about roughly about $14 million in terms of for every new subscriber they gain ibt nationally, it negatively affected their contribution margin they said at the end of the year they're expecting a positive contribution margin from the international space. you're looking for that threshold. you mentioned amazon getting over on the free cash flow basis. i'm looking for netflix in regard to when they can start having a positive contribution margin for the expense associated with adding the new international subscribers which we know is the future for them >> julia, give me your take on the read hastings psychology here most ceos don't like bringing up spetors on the call. certainly not unprompted he is talking about youtube and hbo and amazon in a very kind of self effacing way. why do you think he's doing that >> oh, he loves to talk about competitors. every time i interview him and ask him about competitors, he compliments hbo on the content

i think it's really interesting what he's trying to do is it folk ounce exclusive content en that idea that if netflix and amazon and hbo are making exclusive content, he believes there is room for all of them. i mean he's been very clear. he's not going to try to compete with the streaming dod sstss with these skinny bund ldz les f content. but he is competing amazon and hbo. when it comes to this content, he'll praise his rivals but he'll also say what they're doing is working it's winning emmy nominations and also drawing new viewers and new subscribers. i think that he sort of sees this as the new content universe we had a bunch of cable channels now we're going have a bunch of streaming content services and you may get hbo and amazon prime and also netflix >> he's a ben environment lent king >> he certainly is >> the other thing, dan, a lot of analysts are soon down the tlood is going to be price increases as part of this story.

do you think that has to be central? reid hastings does not rush that put that at the center of his story. >> price increase wobz helpful i think the key is what you touched on before which is how well they're able to expand internationally, not just in latin america and europe but also in asia and some of the other spaces where they have such low penetration rates but, you know, i think they just did a price increase i'm a netflix subscriber i don't know you about it seems like there is one recently i think they'll slowly try to move that up on the domestic space. the future for them is what you've been talking about which is their ability to penetrate the international markets. >> yeah. i try to resist personally for a long time. but now i'm in dan morgan and julia, thanks >> when we come back, we'll talk to the founder of crate & barrel on the changing face of retail first rick santelli, what you are watching >> the moves in interest rates to mshgs rates down is counter intuitive. but when you start thinking in

terms of central banks, sometimes widespread uncertainty leads you to a narrow spread what is the narrow spread? tune in after the break.

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sounds good, scott thank you very much for. that let's get to the cme group and get the santelli exchange. hey, rick. >> hi, carl. you know, there's much uncertainty with regard to how the exit of all policies by central banks that have ultimately the same operating manual flood the market with as much liquidity as possible, purchase securities and then corporate securities as well as sovereign government securities and in the case of japan, stocks, etfs. just buy everything in sight it sounds a little unfair for those that look at investing as

kind of a, you know, risky potential. you take on more risk, you get more reward. you take on less risk, you get less reward. with the thumb on the scale, rewards are good when you think about the he can wid markeequits maybe not if you look at an income stream if you're holding securities but i'm getting off the point a bit. the spread between ten year notes and boons may offer some clues. let's go to the white board. take ten year notes, minus ten year boons, it is hovering at the lowest level since november. the phigh water mark is when it was 235 basis points that separated them that's a pretty big move the point that what i'm saying is i don't know how all the uncertainty is going to clear away people like jamie dimon have no uncertainty how it's going to clear away all the heads of all the central

banks, they have great economic educations and they talk good game all important, i guess but they don't know either but in the end this spread is giving us clues. the relative value trade has had a long life. and over last six or seven years, the one thing that most investors remember is that yields were kind of anchored together, moving down. and they influenced one another. the foreign exchange comes to an equilibrium. but the spread narrowing here, what it means in english is they're starting to gain the yields are coming back while the ten year isn't moving quite as fast. that dynamic, i think, is telling me that ultimately we might have seen global lows and yields that would make sense especially if you look at negative yields and how pervasive they are in europe but without knowing what central banks are going to do, the other wild card is the euro currency now the 115 handle might be great for germany to be

able to withstand it as an export economy a stronger euro because of how much money. just look at the trade surplus but in the end, the weaker sovereigns in europe may pay that price all of this is lumped together how can we make this much easier the next time you see a boon, settle above about 65 basis points and it's just a bit under 60 now look for this spread to narrow rather dramatically. and ultimately at some point in the future, i'll make you a prediction both of the yields will be within 20 25 25 basis points then yields will be higher >> thank you, rick santelli. we're going to talk to changing face of retail the impact of amazon with the co-founder of crate & barrel also a quick programming note. don't miss the united ceo oscar munoz. he had a busy spring and summer. he's joining "squawk box" tomorrow at 8:00 a. stn..meaer

"squawk alley" is back after this moderator: welcome. come on in, have a seat. we invited real homeowners to participate in a blind challenge comparing two home equity line of credit products: a traditional home equity line of credit, and a reverse mortgage line of credit. we called this the home equity line of credit challenge. our groups learned that while both products let you tap into the equity in your home to help you fund your retirement, there are some important differences. they discovered that there are options for how and when to repay the loans that monthly payments and available funds can change over time

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think of it as the amazon infect the e-economic giant surging 35% this year while other traditional stores like tru religion and payless shoes file for bankruptcy true religion jeans, that is we're joined now by crate & barrel co-founder gordon seeing who will invested in a new retail start-up framebridge that does custom framing. gordon, welcome. >> thank you >> in 1962 you and your wife started crate & barrel it seems like you were on the cutting edge of the demographic shift of babyboomers begin to set up house s that what is happening with amazon here a major shift that a retailer is really taking advantage of >> well, i think what's happening with amazon is different. amazon is about convenience and speed. not necessarily about editing and selection and price. it is about, you know, getting a

value and getting it to your house fast what it doesn't do is let you touch or feel or understand the quality of a product so i think people got to be careful when they're shopping on the internet and understanding g that what they should be looking for is firms that deliver quality product and design product or something that since they know about rather than just buying product because it looks like it's the equivalent there's very many different qualities of product you should always, in my mind, go to the houses and retailers that in a sense sell a certain quality, whether it be crate & barrel, at least you understand the quality of the product what i worry about is people are not picking up and touching a product anymore. they go to a website, look at a picture and order from that alone. they really have to understand the product. >> gordon, it seems like amazon

is trying to address that through things like where they will send you the clothes and you decide how you want to pay for it if you were starting crate & barrel today trying to compete with amazon, what would you do >> well, i think what's important and i think the good firms are doing great websites, is you've got to have wonderful quality, wonderful photography, great copy and you've got to be able to service the customer quickly. so you've got to be competitive with amazon. it's not like amazon is going to cover every aspect of product range that's available so again, you need product being sold in a very beautiful way with photographs or -- apparel may work with sending product out and back and take what you want and send back what you don't want, but retailers are already doing that today it's a little harder in the home

furnishings arena, obviously. >> gordon, when you say you've got to be more competitive, i assume you're talking about convenience and getting it there quickly rather than price? >> i think you're you can taing about everything but if don't understand the quality, prices can vary a great deal it's really what is the value you're getting in other words, if you're buying something that has poor quality and it's cheap, that's not going to be good for the consumer in the long run you have to understand that quality is equal to the price and value. their prices used to be better but today they are building warehouses everywhere. you don't get the sales tax advantage that you used to get >> gordon, i wonder where this all fits with regard to framebridge, this company you've

invested with, which is interesting because it's mostly about lower prices and convenience. not necessarily a competitive advantage on framing things. >> well, the difference in framebridge, it's beautiful quality and wonderful service and a passionate and intelligent team of leadership so to us, what make as difference in a retail firm or an internet firm is does it have passion, smart leadership, do they understand the business or how to merchandise it and are they delivering a quality product at a great price that's always what retail has been about and that is just doing it digitally versus doing it by walking into a store but i think the really good retailers take us and williams & so somona, we do 35% of our business on the internet i think what's better about

these firms is that the quality of the product and being able to see it in a beautiful setting is what make as difference and i think framebridge is really an example of that. it's really quality product delivered very quickly and conveniently. >> well, we'll see how they manage to compete. certainly an interesting company to be investing in thank you, gordon, co-founder of crate & barrel. >> you're welcome. thank you. speaking of amazon, what the company's meal kits already look like. goldman sachs is leading the dow lower after revenue disappointed with a 2% decline. dow is down 76

amazon is already selling food kits on its websites. it started to appear online a week or two ago starting at $14.99 a month the kits look very similar to the competition, mainly blue apron. no comment yet from amazon as to the kit's official release date or news on when a broader rollout might happen the thing that surprises me most about this is between all of the algorithms and the analysts, nobody noticed this was happening until the trademark

application. >> that's fascinating. you wonder if that's the one edge that amazon has in the sense of getting the word out, advertising, knowing the customer, having the relationships as opposed to any competitive advantage in the labor of putting food in a box. >> although, according to some, like steven king, that's part of the appeal leave meal kits to the pros. he believes it should be blue apron which is at $6.31. this thing went public at 10 two weeks ago. $6.31 is a massive decline >> this has been the threat that's been shadowing it the question is, when you have a company that has already gotten to a good revenue run rate but hasn't seen a path to being profitable, is it going to get easier >> or does it get perhaps taken out by the likes of a walmart.

i wonder if there becomes a counterstory to tell. >> i wouldn't be surprised if that was the case. >> financials obviously are going to be a focus into the afternoon session. the ten-year now is 2263 when do we start talking about a reversal in that financial trade? >>. >> it's a known story and is the environment going to get any better in terms of yields. the capital is well known. we know that volatility isn't going to get lower is it going to pick up from here and help out on the trading side it's a wait and see trade right now and so that leaves you with the growth stocks kind of carrying the markets still. >> to bring it full circle, netflix is up at new highs, 14%

after the blockbuster earnings. >> 184 is not far from the 210 that the target was set at today. don't forget tonight, csx, ibm phil lebeau will have oscar muniz in the morning let's go over to wapner in "the half." welcome to "the halftime report." what today's earnings say about the sector and whether those stocks are even worth your money. with us, steve weiss, jon and pete najarian and kevin o'leary, the chair of otf investments let's go to goldman and bank of america. raises a whole host of new questions about the future of a group many investors, pete, including you, have been counting on. >> yep. >> do yo