twneork. this would have made sense any year in the last ten sort of there was scuttlebutt about this those two stocks are soaring it's wednesday, july 19, 2017, "squawk box" begins right now. ♪ >> live from new york where business never sleeps, this is "squawk box. good morning welcome back to "squawk box" here on cnbc we're live at the nasdaq market site in times square i'm andrew ross sorkin, along with joe kernen, melissa lee is hang out with us deal news, discovery communications reportedly in merger talks with scripps networks terms of the deal not immediately known. while there is no guarantee the two will reach an agreement, both stocks are moving higher on the news the two companies broke off previous merger talks in 2014.

decemb december k putting together two companies that in terms of programming are similar. it's not like we're going from one network that does reality or that type of programming to sports or lots of scripted work or whatnot this is putting those two things together the question is are you better off putting those two together or in this new age of media trying to go into scripted gore into a premium thing >> scripted. >> scripted. >> but this has been bandied about. >> for a long time >> they were two sort of -- they're not like outliers that deserve to get together. if it was going to happen, would put these together for scale >> that's where the synergistic value is some analysts would question

this how much more power does a discovery scripps together have in terms of carriage agreement going forward? how much value proposition, if you want this channel you have to take this channel >> that was more scripps problem than a discovery problem >> zaslav yesterday admitted we are managing through the new times, daunting for all media companies, but the old-times were great the dual revenue of the cable, advertising. we will deal with what we have to deal with now in this new environment. but the old days were great. it's tough it's tougher now tougher to grow, tougher to set yourself apart and everything else talking to him about we got this on facebook, this on snap, any of it making money some day you know, a lot of eyeballs. a lot of eyeballs. but it's not the business.

maybe it will be eventually. >> this is why -- >> it's tougher. >> this is why facebook or more snap or twitter could ultimately have -- create a cable-like model where they actually end up having a carriage -- >> no guarantee. >> this is not something that mark zuckerberg is preexposed to >> becky is not just off today >> she's working on assignment. >> her birthday, she didn't tie one on, right? >> on assignment she fsh >> she's not just off, oh, my head >> when we say joe kernen is off -- >> it's so bad where you can't sleep. you need to sleep, but the hangover god, i wish i could sleep. god, i can't even sleep. you feel that, right no >> i try not to. >> not during the week

>> i know what you mean. >> other deal news, mccormick is buying reckitt benckiser food division for 4$4.2 billion that move adding products like frank's red hot, cattleman's barbecue sauce and french mustard to the portfolio the deal coming three months after reckitt benckiser put its food unit up for sale. and another deal to tell you about. tower operator crown castle buying privately held lighttower for 7$7.1 billion in crashash. it helps expand the fiber footprint in the northeast i wish i had thought about the tower business >> a private company, 7.1 billion? >> here we are. >> another mistake >> blah, blah, blashgs h, let'st up some towers 7 billion cash

are two guys splitting that? >> i think private equity at this point >> could have been us. >> could have been >> get your amex card out. we could all go in together. >> let's check on the markets and where we stand yesterday record highs for the s&p as well as the nasdaq. nasdaq on a winning streak here. looking to add to that up by 21 in the premarket dow jones lose being 4 points. s&p losing about 2 in ashark it's been greia, it'ss across the board the biggest gains in shanghai, up 1.4%. over in europe, the session gets underway green arrows except for spain. that is down by a half percent the crude picture influenced by inventory numbers, but still within the range 46.56 the trade on wti, brent higher by just 22 cents at 49.06. >> harkening back to what we

were talking about at the top with all these snaps and facebook, et cetera, news out from our parent company, nbc universal. nbc news is launching a show on snapchat it will post two news shows each weekday lasting three months a piece nbc assembled a staff of 30 people for the show that will be shot at the newsroom in 30 rock. it will sell ads and share revenue with snap. you may or may not know, nbc universal made a strategic investment in snap at its ipo which included a partnership to create more for the snapchat platform and one of the big numbers out last night -- andrew or melissa, in the tech arena, ibm. is that still -- that's tech >> absolutely. >> servers, sure what chltwhat

call that. >> you look at the last 21 quarters it is tech but it's -- >> old tech. >> legacy, mainframe -- they're dealing style with trying to -- 21 quarters. you figure the business would shrink revenue-wise. you pointed out they're trying to weed out -- >> ginni rometty would say we are trying to get out these empty calories we want higher value calories. >> you saw that chart. did you check out the tax rate >> yeah. >> one of our friends sent it to us, said they already had tax reform >> yes >> cut corporate taxes down to much -- there's the revenue. i said i was going to figure out how many years 21 quarters was i did not do that yet. i figure it's five times four, five years

let's talk to someone. the tech giant reporting a drop in revenue growth for the 21st straight quarter not a drop in revenue growth it's an actual drop in revenues. right? >> mm-hmm. >> not a drop in revenue growth. it's a drop in revenues. we can say it. ibm's first quarterly report since warren buffett announced selling a third of the stake in the company. joining us is james kissner. does the explanation that the company has put forth 21 times does it still hold watt er

>> you may know i have an underperform rating. i look at this quarter's results, not a lot changed it was consistent with history. they missed revenue expectations, adjusted down 3% though they beat optically on the bottom line. taxes really helped. if you back that out, that's 18 cents. then in addition to that, looking at the ip income stream, that's been -- that's not a sustainable revenue stream that's been elevated as well if you back that out, we think the sustainable earnings power is 2.60, below the 2.74. we think the earnings quality continues not to be impressive >> yeah. could anyone have managed this environment better than ginni rometty? was she dealt a hand where she's

playing the best cards that she can? >> i think the company missed some opportunities if they had been aggressive and acquired sales force years ago, that might have been something they could do. at this point the ship has sailed i think they admitted a couple years ago that the transition to the public cloud, amazon, azure, they expected a sloer trawer transition and they got caught flat-footed. given the market developments, they didn't play their hand optimally. >> how do they keep lowering the tax rate at ibm? >> that's complicated accounting they themselves say they can't forecast these discrete items. i might quibble with how they

choose to flow those through reported earnings. it's a big complex company things change quarter to quarter. because they flow those tax changes through the operating eps, it's hard to predict. we think that's reflecteding poor earnings quality. a lot of companies might choose to pro forma that out. that's how they report it. >> let's be clear, the tax rate on ibm now is mid single digits, which is greatly lower than the vast majority of the other companies paying out if you jack that tax rate back up to what it has been historically, let's say for argument sake 15%, what does that do to earnings? they said if you back this discrete benefit out it was back close to 15% that was the book rate they call it the underlying tax rate. backing that out, there was 18 cents of benefit from that they reported 297, they get you

closer to 274 of consensus if you back that 18 cents out like we said, we think the earnings call here, if you back out income as well, it's below the street >> you have yun perfohave under, too, right >> that's correct. >> so do you -- i like the way that works if the market goes up a lot, ibm can keep going up. this will not be as good as the market can i ask you where you think the stock should be? what you think fair value for ibm given the way it's being run and given the future environment, what is it? is 150 fair? o >> our rating is an absolute rating >> good for you. >> yeah. our price target is 125. >> wow >> that's nine times earnings, just given the earnings trajectory, the poor free cash flow yield that is 6%.

that's not attractive for a company that had declining earnings >> here's the thing -- james, anybody out there trying to short this stock over the past several years has gotten burned, in part because it's been a dividend story, it's been a share buyback story. buffet got into the stock. so those who were playing this fundamental game -- >> they haven't lost money >> i'm saying if you -- >> you haven't lost money. >> you've not made money >> they paid out the dividend, too. >> if you bought that company and shorted it even when it was $190, it's $150 today, you have still not made money >> you're right. >> my question is when you think about -- >> if you're long you haven't made money either. >> i agree with that actually -- you're probably -- >> you probably have not >> you haven't made money but you haven't lost money that's the funny part about this stock. my question for james, when you

think about it going to 125, what kind of timeline do you think that's on? if you're a short does that make sense right now? >> we have a one-year target that's when we think it will happen most clients that do short stocks are net neutral or net long they're long other things. they make money on the spread. i would say a big chunk of the performance last year is all cheap stocks, value stocks, dividend stocks rallied. >> james, before we -- before we let you go just being generous about this if you look at the free cash flow, it grew 2$2.6 billion, up 23% from a year ago. up 136% from last year do you look at that and say there's a good sign there? what about the potential of watson part of me desperately wants to believe watson is going to save the day one day.

>> okay. in free cash flow, it's lumpy. cash flow is important for the company. but they're guiding flat for the total year that reflects a modest mid single digit free cash flow yield. watson, we wrote a 50-page piece last week on this. we spent a lot of time on it we think that watson is not going to movement needle the whole cognitive software market for artificial intelligence was 1.5 billion last year. that will grow as we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment, ibm is an expensive solution they expect a lot of consulting services to be attached. there's a ton of competition out there. looking at the war for ai talent amazon has ten times the job listings that ibm does

we think it will not move the needle the competitive environment does not favor them here. we don't think watson is the saving grace to ibm. >> it's nice you give credit to watson he doesn't give a crap for you he has know emotion. >> some think there's a lot more to it -- >> you're clinging to your humanity you need to let that go. he's a machine you won't get any type of -- >> if he takes over the world -- >> you're sucking up to a computer >> kiss up to the computer now >> you always cover your bases >> got to kiss the ring. >> with watson you're right, he can turn off your life support. >> he's probably listening now. >> he's always listening, hal. there's a reason hal was ibm, go one letter back, h-a-l

james can tell you that. >> he's worried about what watson will do to him. >> yeah. if he goes after anybody, it will be you, james, 125 price target. political news to bring you. president trump holding a lunch meeting with gop senators in a last-ditch effort to repeal obamacare. eamon javers has the latest from washington >> tough day for republicans yesterday on healthcare as it became clear they wouldn't have the votes in the senate to pass the repeal and replace effort they've been working on. the white house trying to regroup today. they invited all republican senators to a lunch that will happen at about 12:30 this afternoon at the white house to plot out next stops. the president had the opportunity to talk to the media a lit yesterd a little yesterday here is is how he described healthcare as it all went down >> i'm certainly disappointed. for seven years i've been hearing repeal and replace from

congress i've been hearing it loud and strong when we finally get a chance to repeal and replace they don't take advantage of it that's disappointing i'm very -- i would say i'm disappointed in what took place. it will go on. we'll win. we'll win on taxes we'll win on infrastructure and lots of other things >> the president suggested yesterday that the best course of action at this point might be to let obamacare fail. then he suggested that the democrats might come to him to want to renegotiate. he said he is not going to own this political defeat. he won't own the failure of obama care politically and republicans are not. some reporting yesterday afternoon about a second encounter between president trump and vladimir putin, the russian president in germany at the g20 a week or so ago here's what we know about that meeting which was not previously disclosed by the white house it occurred at a private dinner guring tgu i during the g20 for world leaders

and their spouses only trump was not accompanied by staff, it was him, vladimir putin and the russian translator the russian translator was the only other person on a staff level who participated in that conversation as far as we know the president suggesting the reporting on this is much to do about nothing. in a tweet he says fake news story of secret dinner with putin is sick. all g20 leaders and spouses were invited by the chancellor of germany. press new. that's not exactly correct the press did not know the president had an encounter with vladimir putin at the dinner there's conflicting reports about how long it was, ranging from just a few minutes to nearly an hour in the scrutiny of the vladimir putin and donald trump relationship, a second encounter between them at the g20 is of interest other world leaders were reportedly surprised by the

interaction and it was plain to those leaders that putin and trump were spending quite a bit of time together we'll wait and see what the house has to say about that for the rest of the day today. >> okay. eamon javers three meetings now is that what we're up to >> yeah. we know there was the encounter that went long at the g20. then there was this one. there was an initial handshake meeting. so that's three encounters at the g20 that we know of. >> that different than the meeting i heard ian bremer talking about? >> this is the one the second one at the dinner that was by bremer's account, an expert on international affairs and involved in think tanks, reported this yesterday for the first time putin and rose had this nearly hour-long encounter as he describes it the white house not giving us an indication of how many minutes it was there is no official u.s. government readout of this normally if there's a pull-aside

at the g20 or a formal encounter, we will get something from the state department about why they were pulled aside, what the objective was. in this case we don't have any of that. >> okay. eamon javers, great to see you >> you bet coming up, housingings repo market agenda and united airlines posted an airlines beat but there's a warning about third quarter revenue. oscar munoz will join us at 8:00 a.m. eastern time. stay tuned

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welcome back to "squawk box. joining us now is karen calf kne cavanaugh and sam stovall yesterday we saw another record high for the nasdaq. what's interesting is this morning bank of america merrill lynch said the nasdaq is the most crowded trade but that's the trade that keeps working

where do you stand on this conundrum? >> it is a crowded trade we're seeing a wide spread between the best performing sector, technology and the worst, and you're finding people are placing heavy bets one area over the other technology is doing well from an earnings perspective double digit growth, expectat n expectatioexpectatioand we're not looking at overvaluation in tech today as we did back with the tech bubble. take out the f.a.n.g. stocks, s&p earnings would be about 6% lower. that's just a few stocks, not the entire sector. >> karen are you concerned about the financials and how they performed? we are expecting morgan stanley earnings later this morning. so far whenever we have gotten the reports no matter what earnings have been, for the most part they've been good with the

exception of a couple lines of misses within various earnings reports, the stocks trade lower. >> what you said is correct. the financials are beating and we're seeing positive growth, especially in the banks and in the capital markets. the consumer finance is under pressure overall the earnings are good. so investors are reacting negatively to that i think financials are a great spot to be in. we have not seen tax cuts. we have not seen the trump agenda taking place. when we do, i think financials are going to be a great spot >> let's assume the trump agenda doesn't happen it's hard to trade on the promise of policy, especially in an environment which we're seeing now taking that out, all the reasons that have lined up, c-car with 90 billion there buybacks to come, what are the reasons to be

here, the stocks are faltering on the release of earnings >> well, the earnings are moving pore ward. we are s forward and we're seeing a tick up in yields as global growth does better and the u.s. growth is continuing to move forward. it's not growing by leaps and bounds and we're not seeing a steep yield curve but yields are starting to increase, that's good for bank stocks >> quick question, sam, on energy the growth in earnings for the second quarter, half of it is supposed to come from the energy sector will we see that given what oil prices did in the second quarter? >> oil prices on average in the second quarter of this year were 0.7 higher than in the second quarter of 2016. our energy specialist did a study and found there was a 93% correlation between energy earnings and -- i should say oil prices and energy earnings yeah, we get upward pressure

because of oil prices, when you deal with a 300% gain, you can easily see a slip one way of the oth or the other. >> okay. thank you both >> coming up, former trade rep michael froman will join us. first a look at yesterday's.

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welcome back you're watching "squawk box" live from the nasdaq market site in times square. it's early, isn't it for that good morning u.s. equity futures at this hour we'll take a quick look. i don't know what, we were down yesterday, though the nasdaq was really -- look at the nasdaq again today. the nasdaq indicated up 19 dow indicated down by 5. ibm is not helping in the dow. but the nasdaq marching to a different drum their momer thisg the s&p is up by 2 >> the trump administration rolling out the list of objectives for the north american free trade agreement. changing nafta was a topic hit again and again and again as a candidate. but it's a discussion with many potential pit falls. joining us is michael froman

good morning to you. >> good morning. >> ambassador froman, we can talk about the pit fall pitfallw you think this should be framed up >> the document that the administration issued in the last couple of days is general in nature. a lot will depend on what the details are that they go after at first glance it looks very, very familiar. a lot comes directly out of the transpacific partnership, the kind of issues we negotiated there. canada and mexico were part of that so, it should be -- those issues should be ones that they're familiar with and comfortabilley with and can agree to quickly. there are a couple areas where the administration wants to go further. trade remedies, they want certain tools to keep out imports from canada and mexico more easily. and they highlight how central getting the trade deficit down is to their negotiating

objectives they don't say how they'll do that, but they say they want to see the trade deficit in goods be reduced of course we have a trade surplus in services, and services is four out of five americans work in the service sector >> is there a risk here? >> well, there's a risk that because of politics in both mexico and canada or by the administration insisting on provisions that would be unacceptability to othunak se unacce unacceptible to other countries that they don't reach an agreement and there's a risk that president trump goes back to the idea of withdrawing from nafta altogether i would say there's a political risk i'm not sure anybody fully thought through what it means for a new nafta to come back to congress for a vote. i'm not sure there's enthusiasm in congress for having a vote on nafta. those are the major risks. >> is there a piece of this, is there one single piece of this you wish you could have negotiated yourself?

>> they flagged something we tried to get done. which is called dominimus. when you cross the border into another country, you can bring $800 worth of goods with you without making duties. it's great for small business and e-commerce it's something we tried to get done canada in particular was opposed to it. they don't like the idea that their citizens cross over whenever milk prices go up in canada people cross over the border and buy groceries in niagara falls. they don't like that if they can get that done, that's good for small business and e-commerce >> you just talked about e-commerce and a larger trade question it's something we raised yesterday. for all the conversation we have about steel and dairy and bringing things across the border, there's very little conversation about what's happening to our silicon valley companies in europe right now. i'm curious as to what you think we as a country should be doing to stand behind them or not.

>> well, our approach had been to very much put forward rules for the digital economy to get other countries to agree to rules that would very much be part of a very innovative ecosystem that support not just silicon valley countries but every manufacturer is now a data company. every manufacturer relies on software or relies on the free flow of data across borders. having rules where countries agree to have that data flow across borders -- >> when you look at what the eu is doing for google, how big a deal is that for you >> i think it's a very big deal. whether it's the tax, the data, the antitrust kind of criticisms that we're getting out of the european union, they don't like our big internet companies coming out of silicon valley and playing a dominant role. >> that a bigger deal than steel prices >> i think for the future, absolutely it's not just about the four or five very big internet companies. it's about the broader digital

economy and everybody relying on cloud computing. >> is this enough of a conversation, meaning i -- i feel like we're not having this conversation in washington >> i think that's right. in the nafta renegotiation objectives they mention the digital economy. we did a lot on that in tpp. i hope they will build on that and continue that effort the more countries we can get to agree to our view of the rules of the road that promote innovation, the easier it will be to get the europeans to come on board >> ambassador froman, appreciate your time and perspective. in some other political news, former utah governor jon huntsman is president trump's pick to be ambassador to russia. he served as ambassador to singapore under bush and ambassador to china and pr president obama. coming up, discovery communications and scripps

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welcome back our top corporate story, discovery communications is in deal talks with scripps. julia boorstin has the details i'd like to think this happened in sun valley. the moguls were meeting. but it's been going on for so long, probably not >> exactly both the ceo of discovery communications and the ceo of skrips were in s scripps were in sun valley and were in talks. discovery worth about 15 billion, nor scripps worth nearly 9 billion would comment on the report. the two companies held merger talks back in 2014 they've long been speculated about as a good potential match. discovery which owns animal planet and tlc, scripps with hgtv and food network make exclusively nonfiction cable shows and are among the true pure play cable tv content

companies not part of a conglomerate discovery ceo david zaslav yesterday weighed in on the pressure to evolve >> we have a choice. we can hold on to our existing business or try to do some of these new forms of content or figure out how to disrupt ourselves. the question is not how much money, the question is can we be relevant on all platforms? if we are, we will be rewarded by shareholders. >> if discovery and scripps merge they could offa a streamig service direct to consumer or have more leverage with cable carriers what happens is up to the scripps family and john malone who controls 30% of discovery's shares other big media news story hitting this morning, at 7:00 a.m., nbc news is launching a new show on snapchat called stay

tuned. the shows will be two to three minutes long posting new episodes at:00 a. 7:00 a.m. and p.m. and breaking news updates that's in combination to the 15 other shows that snapchat runs nbc hired 30 people to work full time, it will cover national, international news, politics and pop culture. this follows nbc universal's investment of 5$500 million int snap in its march ipo. nbc universal is cnbc's parent company saying it would launch snapchat shows to build on the success of the olympics snap channel. for nbc this is an opportunity to reach younger viewers and advertisers targeting them for snap joe, back over to you.

>> all right zaslav, ken lowe is still there. he was out there in sun valley >> yep >> those guys -- >> ken was there along with zaslav >> they have known each other for a long time. >> they had the same talks back in 2014. but things have changed since 2014 there's been more skinny bundles which may not include their channels more direct to consumer streaming options like hulu, youtube tv the world has changed since 2014 >> we were talking earlier, this clearly wouldcripps in terms ofg their mote, how much does it help discovery is there more value in doubling down on content or diversifying into more scripted >> nfor discovery, it's a massiv international presence they have sports rights

overseas here stateside we think of discovery being about animal planet and that nonscripted reality tv ornate cho nature programming. overseas they have moved and diversified into sports. it would give scripps great diversification. there is the question how you can bring content direct to the consumer with an app, with a product that will be over the top and outside the bundle if two companies could treatment team up they would have a lock on that type of food or travel, and make that nonfiction content -- figure out how do that as a stand-alone product. that could be beneficial for discovery the question is whether or not they need scale to have that negotiating leverage everyone else is bigger than them now >> fair enough

julia boorstin, thank you very much we'll see you in just a little bit. when we return, the nfr says the reports that retail is in trouble are overblown. we will talk to nrf ceo matt shea next. first a quick check of european markets right now. mazing thing. but as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. the name to remember.

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vice president mike pence addressed the national retail federations retail advocate summit yesterday in washington here's what he to say on the corporate tax rate and the impact on the sector >> our outdated system of worldwide penalizes companies for being head quartered in america, but not for long. president trump's plan is to slash the business tax rate to 15%. we'll enact a territorial tax in line with the rest of the world. we'll cut taxes on the trillions of dollars locked away overseas so that american companies can invest those dollars in american workers, american jobs, and america's future >> for more let's bring in national retail federation president and ceo matthew shea good to see you. >> hi, melissa >> seems like tax reform would be a push and pull for the retail sector. a corporate tax rate cut would be beneficial, bun of the most

divisive pieces of the platform is a border adjustable tax which could be negative. how are you viewing this fight that could be coming down the pike on taxes? >> we were grateful to have the vice president come visit with us yesterday he said a lot of things about the policy agenda ahead, the way we get the country moving, create jobs, get america back to work and generate gdp growth that we have not seen for several decades. when it comes to the tax issue, we pay the highest corporate tax rate of any industry in the country. we're playing 35%, plus state and local taxes, it gets close to 40% it's our number one priority to get tax reform done and bring relief the border adjustment component in the house blueprint that got proposed last summer, it's a year old no one expected it to go anywhere. i think most people who looked at this concluded this is not the right way to go forward it

creates too many winners and losers it picks between industries. many folks inside the administration made that point there's not a lot of appetite for this >> the message from the administration is that it's not happening? >> i think you heard secretary and say this isn't somethingpre. gary cohn, as well as well as others there's no appetite for this at all in the senate. so i think what we need to do is go back to the drawing board, look at the things that can get done some of the things the vice president talked about and some of the things that folks like larry kudlow and steven moore have talked about, pick the things that make the most sense, bring back some of those offshore earnings, and reducing the rate, broadening the base but border adjustment tax is too complicated and it's going to hurt too many americans and raise prices on the working class. >> matthew, if i can pivot just a bit and talk about amazon whole foods that proposed merger i'm wondering how the national retail federation views that

people would say that maybe the ftc and actually a congressman has said that the ftc should look into this merger, this could really decimate retail in the future if you let amazon go into these businesses time and time again what's the view? is amazon a member of the nrf? >> amazon is a member of the nrf and so is whole foods. and so are walmart, and you know, so it's -- what we're seeing here is one more chapter in the rapid transformation of the industry and if you think about the walmart and jet deal last year, and now the amazon and the whole foods announcement from a few weeks ago, you know the sort of flip sides of the same coin. and both of those things demonstrate that the consumer is changing and in order to reach the consumer where they want to be reached, the companies have to change the way in which they deliver their products and services that's going to continue i don't think that, you know, whether it's amazon, whole foods or anyone else, walmart, it's going to continue, because

that's where the consumer is headed and what the ftc does, what the department of justice does, what the congress does, we talk about these things generally speaking, but those are regulatory issues for the regulators to discuss. >> matthew when people talk about employment in the retail world i don't know if you've paid any attention to some of the research that people like michael mandel, economist and others have done, suggesting, maybe for the first time, that perhaps we're not accounting for retail jobs properly, and that if you look at all the fulfillment centers, and third party retailers that have -- that have emerged in this new e-commerce economy that, in fact, perhaps we're creating more jobs than are actually being lost in traditional retail do you buy that? i heard some people say wow that math makes a lot of sense. i've heard other people say that's completely illogical. >> i love it i could kiss him i could kiss you finally someone is telling the truth about what's going on in the industry we've got secretary from the labor department coming over to

talk to us today the bureau of labor statistics only counts retail jobs as those jobs that exist in retail locations in which a sale occurs so if you work at a distribution center, warehouse, logistics, supply chain, finance, accounting, design, web technology, none of those retail jobs get counted because they aren't in a selling location so one big problem is the fact that the bls counts jobs the wrong way, they don't account for them properly. we're trying to get that fixed i think the bigger issue is this whole narrative is if you don't see someone at the store front as an associate it's not a retail job and the truth is there are thousands, hundreds of thousands, millions of jobs that aren't in sales, and the truth is the vast majority now, we're at that tipping point where more retail jobs that are not sales associates than there are. so part of it is the way we perceive things. part of it is just the way we're looking at the numbers so i think that what they've done is right but we've got to give them more ammunition by changing the way the government

actually accounts for the jobs >> matthew, let me take it one step further which is to say it may very well be true that we're creating more jobs in fulfillment centers today, but five years from now, ten years from now, you think about the kinds of investments that companies like amazon are making in robotics and a.i., are those jobs here to stay? >> well, you know, then we have to get into the bigger question about the elon musk gloom and doom of what a.i. and robotics and machine learning does, or do you believe, you know, that i think the more traditional view which is, as we become more productive as human beings, and we divide labor properly, and so the low skilled types of things that can be done by machine are done, that frees up human beings to do the higher things that require different kinds of learning, different skills, so it ought to make us more productive it ought to create better jobs in the industry and in other industries as well so i think at this point what we ought to be doing is recognizing that, we're not going to turn back the clock on a.i. and machine learning, we're going to -- retailers are investing massive amounts of money in

those technologies they're going to continue to do that and if they do the jobs are going to be created and they're going to create more jobs in other parts of the business that should be good for everybody >> again and again and again, that's been the case you go all the way back to, you know, the machines that, you know, out in the field that did something with either grains or, you know, all those people are going to lose their jobs but, as you say, you -- the labor that can be done automated and with machines is not going to last anyway and you're able to do bigger and better this is the optimistic view. did you see this we're going to talk about this tomorrow people, reporters do not have an optimistic view of the world robots are taking over no one's going to have a job anymore. all this progress is going to end up, you know, the machines are going to, you know, cut off our life support >> i have a very optimistic view, he's 100% right that we don't want to -- >> i know -- >> it would be very nice for robots and a.i. to take over the

mundane tasks, the things that we don't want -- >> yes, so you can soar. so you can soar. so you can -- >> -- being spectacular. >> i want to see you soar. >> recognize that there's a transition cost and that's okay. but -- >> and some people are going to benefit and some people are not. >> did you invest in a buggy whip company is that what happened that made -- >> i wasn't around for the buggy whip >> oh, i -- >> it worked well. you were at globe records at the mall where they sold lps, you think that, you know, we can't move beyond that we need those jobs anyway thank you for putting up with andrew -- >> joe, i'm wondering where the whole thing on michael mandel -- >> -- to kiss me -- >> trying to answer you know, without, you know, getting frustrated and you know -- >> we should be optimistic we should be looking forward this is going to be better it's going to be a period of disruption but that happens in every industry for generations >> it might be different this time when the machines really don't need us. that's my only worry

i mean, flesh and blood and food and waste and everything they don't, you know, so we'll see. but hopefully not. maybe we'll have a default software program or something. anyway, coming up, thank you matthew. coming up the trump policy agenda we'll talk health care tax reform and the gop budget with douglas holtz-eakin, and then jason furman, next and then later house budget committee chair diane black will join us live from washington we have the great prospect that optimistic prospect of budget talks in this current congress how great is that going to be? when this bell rings... ...it starts a chain reaction... ...that's heard throughout the connected business world. at&t network security helps protect business, from the largest financial markets to the smallest transactions, by sensing cyber-attacks in near real time and automatically deploying countermeasures. keeping the world of business connected and protected.

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description. now reports discovery communications has the your honor to merge which comes first the budget or tax reform we'll get the latest out of washington from house budget committee ranking member john yard mouth and the craze boosting business for five below what happens when sales stop spinning we'll ask the ceo as 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" right here on cnbc we're live at the nasdaq marketsite in times square i'm andrew ross sorkin along with melissa lee and joe kernen becky is on assignment today, back tomorrow. the futures at this hour, quick look see what's going on dow looks like it would open off about ten points off close to 11 points right now, s&p 500 looking to open a little bit higher 1.5 points. nasdaq up about 18 points

higher we have some news to bring you right now. morgan stanley, the latest financial company to report results, just moments ago. wilfred frost joins us with the details. wilf >> andrew, yes, so yesterday we saw goldman sachs basically beat on every single line apart from mixed income commodities and currencies morgan stanley have managed a small beat on every single line. so eps has come in at 87 cents versus expectations of 86. revenue $9.5 billion versus expectation of $9.1. let's dive straight into that trading because it's the really juicy talking point in terms of the fixed income performance came in at $1.2 billion. estimate was $1.1. equity, $2.2 billion the estimate was $2 billion. the clear beat there coming on the fixed income line because others had done well on equity, they're really stand out on fixed income and really important, though, how they differentiate from goldman sachs. not just the others, because one of goldman sachs' excuses more last quarter than this quarter

was that they had a different mix than the other universal morgan stanley and goldman sachs were pretty similar client mix but morgan stanley beating on fixed income where goldman sachs missed quite significantly morgan stanley has a slight gain year-on-year by a couple of percent. that stands them out on the overall trading performance but particularly their most comparable rival goldman sachs down 17% year-on-year in terms of equity plus fixed income trading. investment banking is also a decent little beat $1.4 billion actual versus $1.2 billion estimate goldman sachs did, in fact, do quite well there themselves. they've got a small beat on wealth management and a small beat also on investment management, so across the board a solid set of results in terms of r.o.e. they did reiterate their target of 9% to 11%. up just within the range of 9.1% so as i said really across the board, solid set of numbers. the big differentiator here, is a decent fixed income number

where they've managed a small beat many of the others missing but particularly goldman sachs missing on that very heavily yesterday. the shares were before these stats came out about half a percent down in the premarket they're jumping as you can see, 1.2%, albeit very thin trade throughout this earnings season we have seen the banks move a lot in premarket relative to what they actually open at but certainly been taken well by the market at this stage >> that number, wilf, that's a feather in james gorman's cap in that he set out the goal of four straight quarters of $1 billion revenue in that business, right? >> absolutely. and you rewind it a little further 18 months of course they made cuts in this area and in the last three or four quarters have started to see it perform and of course, on the flip side, goldman sachs didn't make cuts and yet they're not performing in this area that's still that very old question we heard it repeatedly yesterday from marty chavez the cfo that there was a cyclical issue, that will impact client activity, and if we rewind an extra quarter the excuse goldman sachs was given was that they didn't have that corporate

exposure to some of the universal banks but both quarters in a row now morgan stanley have delivered in fixed income when goldman sachs haven't and they do have a more similar client mix than you could say against universal banks. so it's a big question mark continues for goldman sachs in fixed income, morgan stanley shares up in reaction. >> and as a volume increases premarket it will be interesting to see if the stock reacts to that r.o.e. number which came in below the midpoint as you pointed out. wilf, thank you, wilfred frost at headquarters. ibm is one of the stocks likely to weigh on the dow today. the company did beat estimates by 23 cents, with quarterly property of 297 a share but revenue fell short of estimates and declined for the 21st consecutive quarter. two cable channel operators may be getting ready to join forces discovery communications which operates discovery channel and animal planet among others is in merger talks with food network and hgtv parent scripps. that's according to "the wall street journal" which said terms could not be learned and another

bidder may still emerge for scripps. google is unveiling a new version of its mobile search designed to give users a stream of personalized links. but google says it's not trying to duplicate facebook's news feed united continental is out with numbers beating on both the top and bottom lines the airline says that profits were up 39% from a year ago. the stock, however, trading lower based somewhat on the outlook and announcing that revenue in the pacific region was down 5.5% in the second quarter. a lot of weakness that we're talking about from china where the united states faces stiff competition from newer chinese carriers and we're going to talk about this the united ceo oscar munoz will join us today in a cnbc exclusive right at the top of the 8:00 a.m. hour about an hour from now a big day on the hill today as republicans begin debate on -- in committee i should say on the 2018 budget republicans need the budget to unlack tax reform.

ylan mui joins us with more. >> the committee will be marking up the fiscal 2018 revenue and spending proposal. the biggest slash point will be the $203 billion in cuts in mandatory spending programs. democrats are planting to offer 28 amendments. that is the maximum that is allowed. and among their key issues are made cade, medicare, pell grants, the border wall, immigration, and of course health care. meanwhile, some members of the house caucus are refusing to support this budget until there is a more detailed plan for tax reform another point of contention, the budget's economic growth the proposal prejekts 2.6% over the next decade. that's less than the white house had promised of 3% growth but both democrats and budget hawks say that is still way too optimistic that growth rate is important because the budget committee

estimates an extra $1.le trillion in revenue over the next ten years most of that money would go toward reducing the deficit. but the budget carves out about $300 billion to help pay for tax reform without that rosy growth estimate analysts say the house budget probably would not balance. so this document is expected to fast out of committee today, but it's far from guaranteed >> all right, ylan, thank you. joining us now, jason furman senior fellow at the peterson institute for international economics. and president of the american action floor i tell you how i think we should do this, jason, and doug, let's start with the postmortem on the republican attempts with obamacare, and then we'll go and move on and see what the prospects are for tax reform in this wonderful congress, this bipartisan -- this kumbayah congress that we have right now and what the process are jason you say that republicans

wasted seven months on health care, and that legislation to tweak obamacare would have been welcome but isn't necessary, because the laws stabilizing on its own. you didn't see any benefit whatsoever to trying to reform medicaid, in some respect, and the growth that we're going to see over the next ten, 15 years, if nothing is done there was no benefit to that in your view? >> look, i was on your show, you know, seven months ago, saying they should do tax reform and infrastructure first those are the most important things for our economy this is a distraction. the health bill failed in part because it was bad policy. it would have taken us back to the health system that people didn't like. and in part because it was a bad political strategy, which is to do something with republicans only, lock democrats out from the very beginning, that gives you such a narrow window to work with in terms of medicaid, medicaid growth has been enormously slow. it's actually been negative.

it's fallen in real terms on a per capita basis so there's a lot of our health system -- >> the capita is the problem jason. look, you know what? i'm really gratified because it sounds like you're ready to work with the president and republicans now on tax reform. i can't wait to see your editorials, i can't wait to see -- >> i had one in "the wall street journal" two months ago talked about the performance -- >> well you need -- we don't even need doug today to argue that side. doug -- >> i'm now irrelevant? >> we've got jason on board. i think maybe so you just heard that about the a.c., i just heard that the "journal's" lead editorial, these guy got all worked up over these nine republicans that, you know, i don't know, what would you call that, they can't adopt the good >> in the famous words of miracle max, health care reform is mostly dead

but it's not totally dead, because the problems remain. the reality is that the individual market is not stable. we're seeing double digit increase in premiums we're seeing insurers leave. lots of places where there are going to be nobody, towns with one insurer. something's going to have to be done and this year in fact. >> the "journal" points out that you put an entitlement in, for seven years, and the idea of getting -- reforming it or getting rid of it is almost -- you almost have a zero percent chance and how close they actually came, these last two guys, if lee and moran hadn't held hands so that neither one of them would take the blame, this had a chance of actually passing. >> sort of a narrow politics of the moment, i mean this was a lesson in politics not in policy. there was never going to be a perfect bill that got everyone on board it was about coming together to fulfill a promise, coming together to prove the republicans can govern getting something to advance the president's legislative agenda they didn't get it done.

that's not a good day for republicans. that's all there is to it. going forward the problems remain the individual market problems are there. despite what jason said, medicaid is, medicare -- >> are you optimistic now? we've got jason on board are you optimistic >> it's over we've got jason on board. >> about tax reform? >> we've done every, what, 50 years? >> 50 years. >> it's pretty easy. and, no, this is -- there is -- tax reform as a proposition is very hard. i remind people that in '86 president reagan ran for re-election promising tax reform he won 49 states he wrote the bill. he sent it to the hill and said this is what the american people sent me here to do, and it still died twice on the way to getting passed so that proves you need a lot of political will to get it done and i don't think anything suggests we're in that environment. this is going to be very, very hard >> jason, short of i -- short of a president pence, what would

democrats need to actually be -- to try to actually help in this process? >> you know, i think there are two really simple steps. say that it will be revenue neutral. which is something the house republicans have already said. say that it will be distributionally neutral that's something that treasury secretary has already said there's a lot of democrats who are open to lowering business tax rates. we have the highest tax rate in the world. it's something we absolutely should do. but there's no reason that in solving that problem we should make another problem, which is our deficit worse. i think it's just those two things, they're two things that each side of pennsylvania avenue has committed to it's not going to bring all the democrats on board there's a lot of them still wouldn't go along with that. so i think if you did those two, you could get enough, give yourself a bigger margin of error. >> you know, jason, that sounds like any dynamic scoring you're going to get zero democratic support if there's the slightest -- >> i'm for dynamic scoring as long as it's done by the

congressional budget office and the joint committee on taxation. >> because they've been so accurate in the past >> i think that's the right way -- the house republicans say that's -- >> -- the policies and the growth, it happened from reagan, the growth that was totally unseen and unpredicted by the cbo. >> the house republicans are assuming $300 billion in revenue from dynamic scoring i think with a well designed tax reform that doesn't add to the deficit that's a reasonable number to aspire to. >> wow >> the house republicans put in their budget but you need the right reform to do it. it's not going to happen automatically. >> i am going to agree with jason on that. >> i knew you would. >> but i'm going to disagree on another point. if you say we're going to a revenue neutral, disdistributionally neutral tax reform, we end up with the same tax we have now. you have to do something that's different than what we have now -- >> it's almost impossible to do anything truly disruptive right now in washington.

truly. >> i don't disagree with that. >> if you were going to try to handicap what is possible, what is doable, between now, and let's say christmas, what would it be? >> it would be entirely dependent on whether the white house decides to go all in on tax reform, and has a coherent strategy for delivering it but i think it's all about the white house. that's all there is to it. you need white house leadership because tax reform is going to have losers. everyone on capitol hill is going to have to go back to their district and defend themselves and unless the president of the united states is saying i asked them to do this, this is why you elected me, this is why you went me to the white house, they don't have the cover they need it's really that simple. >> and the white house leadership is pushing off in the direction of large unpaid for tax cuts >> you actually don't know that. >> oh, but i heard a lot of people that have met with them who they said to them, you know, would you like a temporary large tax cut, or you know, something

paid for, that's smaller and long run and problem with these temporary tax cuts is they're unstable, they add to the problems of the tax system they don't distract from it. they'll get reversed in the future, and in the meantime, they'll add to the deficit so that's -- the house republicans i think actually have a better strategy on this, with their at least stated commitment to revenue neutrality not from the white house >> jason and i are on the same page on that if you want genuine pormt you need permanent changes in the tax code things people can rely on. the only way to get that is through revenue neutral reform especially if they're going to rely on reconciliation has to be revenue neutral. and you know, that's the pace the house -- >> hold on a second, jason i'm -- jason, you're doing great today. i, you know, i am -- i feel like maybe there is hope when -- >> i'm a good influence on him >> no i think you're going to get yelled at. i think your twitter feed is going to explode from this new

democratic party you're part of now when they hear what you said >> i'm part of the party that's was the first party to propose cutting the corporate tax rate in 30 years. that's what president obama did. >> let's not get carried away. >> he was a little bit -- he had some other fish to fry that seemed a little more important like climate change -- >> we did prioritize the trans-pacific partnership over that before tax reform. >> well, and then you had the same problem with the democratic rank and file that the republicans are having now let me ask you this. >> yeah. >> you got the moderate republicans and these conservative republicans, right? are they going to be able to -- do any of the ones that ruined this last deal feel any remorse and feel like they need to be more conciliatory, in tax reform do you think they'll be able to get together because these two wings are really far apart >> they are really far apart and i'm not happy with people blaming one side or the other.

these are legitimate policy differences and they exist within parties and across parties. the question is whether republicans find a way to be a governing party. >> so you did read this? you read that -- said that -- as i said before did not come to washington to hurt people. does she honestly think so little of her colleagues in the party that she chose to affiliate with can insult every single one that was ready to go with this and then they quoted what she said when she was running for election, she was going to washington to turn the tide from a washington that tells us who our doctors are and delivers a lower quality of care and she folded like a cheap deck of cards the minute there was any criticism coming from the left on this >> so my point -- >> she needs a primary challenge and so do some of these others >> i gather you're announcing, so good luck no, my -- >> when you get to tax reform, you will find yourself in the same position. there's no question about it it's the same thing. >> i know. >> so what's going to happen -- >> -- be able to rise above

their individual desires, and get the votes, and do something that delivers on the most important promise the president made, which is better economic performance. it's all about the economy >> jason i think you can act like you want it to happen because you know that it's not going to happen with these people in the republican party and you can say hey, i was for it, don't look at me right? >> i mean you're questioning my motives. i worked pretty hard to -- obama administration have written op-eds on it because i agree with doug, i agree with you, our tax system is untenable. just look at the international side of it we pretend to tax you on your foreign earnings, don't actually collect any revenue and we -- >> jason are you 40 yet? i might leave the lights on for you to come home some day. are you 40 yet >> i'm over 40 >> but, joe, the question -- >> i'm serious doesn't he seem to have a lot of potential in terms of finally coming around. >> but he's -- >> -- the primary -- >> the gop is not the ultimately

is not on that side. >> on which side >> your side >> which side am i on? i'm not on a side. i'm just trying to mediate between doug and jason i'm just trying to mediate i'm just trying to bring some peace. >> so, i think the key here is not about the side it's about the fact that the republicans need to understand from a basic self-preservation view they are heading into 2018 without anything that delivers on the commitment they made to have the economy perform better and if they don't do something, the objective they -- >> what did voters put them there to do? that's the question? whether voters putting them there to repeal obamacare? because voters -- >> that's what they thought they were supposed to be there for and then they realized they weren't supposed to be there for that >> they sent them there to do better than jason furman cheap shot, jason. and what they're going to get is repealed tariffs, immigration restrictions, that will hurt american manufacturing and growth going forward enjoy your free market

>> you know what you know what? the invitation's rescinded it's a big tent, jason love you jason now andrew loves you see you later. thank you. >> thank you, guys when we come back, we are in the thick of earnings season find out where you should be putting your money to work from two market pros right after the break. and then at 7:30 eastern time, congressman john yarmuth is going to join us ranking member of the house budget committee is going to talk to us about budget cuts, the debt ceiling, the president's economic policy. stay tuned you're watching "squawk box" right here on cnbc.

welcome back to "squawk box. we don't talk about the ads enough but that sock slider is something. i'm thinking about it. i don't know >> i feel like that's -- >> that fascinates me. >> velcro sneakers, too? >> you don't seem like -- andrew, i can see it because i can't reach my feet anymore. but you can still reach your feet, right? >> yeah, but you know what i have a big shoe horn, like a shoe horn not a little one so you have to bend over. i actually got one of those really long ones so i don't have to bend over

we have to tell you about the futures. we have some guests here the markets, if we could, right now, dow looks like it would open off -- open up about nine points nasdaq looking up, a little over 18 points. the s&p 500 up about a point and a half we do want to talk markets mergers and acquisitions, we are joined by the chairman and ceo and president of oppenheimer funds. joe croft is also here the president of wells fargo investment institute and chief investment officer of wells fargo's wealth and investment management markets continue to just sort of -- >> we're back at a disconnect between fixed income and equities, aren't we? where, you know, yields continue to inch downward the yield curve continues to flatten which is typically a haitianer of a flowing economy and stocks just continue to flow -- >> what do you make of that? and what are you supposed to do about it >> i'll have to give my standard stump speech here. you're not supposed to do anything about it. you're supposed to have a long-term plan and stick with it the main reason people underperform the market, their

experience is worse than what the market delivers, is because of bad timing decisions. so you know, if you had been asleep at the switch in 2008 and done nothing you'd be back to where you started from >> joe likes to say we've been asleep at the switch for a very long time in terms of -- >> you're still in new jersey with your thumb out. we're in georgia on the train and you're not on the train yet. >> for those who missed the train. >> there is an element of timing to all of this if you missed the train, where is the train going at this point? >> i'd still be a little bit hesitant, andrew i think right now at 2450, 2460 on the s&p, we think the back half of the year probably sets up for a little bit of disappointment we could see our year end target is 2280 on the s&p so still some traction back. >> and what is the inflection? what pulls things back >> a number of things. right now we're tracking to 2% gdp growth in q2 i think the back half of the year gdp growth is somewhat

underwhelming. we still have the policy disappointment element and frankly, earnings get to be a tougher year over year comparison in the back half -- >> so you were rip roaring bullish like at the end of last year >> no. >> oh, so you -- >> 17% and you're still looking for -- the market's still wrong about what it's doing? so it gives you your -- >> the fundamental story you're not playing -- >> give me your 5% pullback and where you finally get and then it will still be 10% before where you were telling people not to get it anyway why don't you just say i was wrong and i wish i had been in and now is the time. >> joe makes a great point because if you wait for a pullback you'll never do anything and that's what people were doing in the decline after 2008. >> -- equities no matter what the backdrop is? no matter what train you think you see coming >> i'm saying because you don't see the train coming i've been doing this for 30 years, i was a portfolio manager for 25 years before i got this superfluous people management job.

i'm just saying the managing money was easier than managing people but, you know, i've seen the ups and downs and i wasn't all that great at predicting them even though i was theoretically an expert. i found that, you know, you know, closing my ears sometimes, and not listening to the noise was the best strategy. >> so you're -- what you're at 2280 so if we go to 2600 on the s&p, you'll quietly raise your price target to something above that no one will remember that you said 2280 and you get a free pass on being totally wrong about whether you had -- >> no it's not a free pass you have to, to your point you have to eventually look at fundamentals, joe, right right now we're at 19.7 times earning- >> isn't this a story about the sfed that's the whole story >> look at corporate profit. >> you've got to have -- you've got a 127 -- >> all right so let me know before you raise your price target, finally throw in the towel, just let me know. >> we've got to go it's great to see you, sir

thank you. >> discovery communications reportedly in merger talks with scripps network. more on that story after the break. and john yarmuth will join us to talk about theud bget 8:00 a.m. eastern time an exclusive with oscar munoz. so that's the idea. what do you think? hate to play devil's advocate but... i kind of feel like it's a game changer. i wouldn't go that far. are you there? he's probably on mute. yeah... gary won't like it. why? because he's gary. (phone ringing) what? keep going! yeah... (laughs) (voice on phone) it's not millennial enough. there are a lot of ways to say no.

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welcome back to "squawk box. that's for melissa but nice to see everybody. >> welcome everybody, too. >> we're all welcome >> yeah. >> there's a similar sentiments that we all have, i think. >> yes, of course. welcome, everybody --

>> right, exactly -- >> the nasdaq marketsite in times square among the stories front and center spice maker mccormick is adding french's mustard to the portfolio. it struck a deal to buy them for $4.2 billion that price is above the range analysts add submitted morgan stanley beat street forecasts with the latest earnings report. the firm reporting quarterly profit of 87 cents a share, 11 cents above estimates. revenue also beat forecast and morgan stanley also hiked the quarter live dividend to 25 cents a share from 20 cents and announced the $5 billion share for the repurchase program that stock is updy 2.6%. and mortgage applications were 6.3% last week according to a weekly report from the mortgage bankers association. refinancing activity was particularly strong jumping 13% during the week. the average 30-year mortgage rate was unchanged at 4.22%. discovery communications and scripps networks reportedly in talks on a tie-up. joining us recode managing

editor ed lee. >> hello >> good morning, good morning. >> more media. >> we had zas here yesterday >> he was funny. >> what do you think >> you know, they tried this a few years ago. >> yeah. >> i think the era of sort of media consolidation, we're getting there. it's a short-term fix for a -- >> is it a short-term fix for discovery or scripps >> both. they're both challenged. they're both smaller basic cable companies that, you know, in an era of core cutting where there's fueler and fewer subscribers every year there's less money for those guys. they don't have sports, either >> well, discovery does now. >> euro sports >> euro sports right. >> no, that's big. >> ed doesn't consider that -- >> they have the olympics in europe >> the economics of television in the u.s. is so driven by sports it is true sports is a big factor in europe, as well. it's just not the same doesn't have the same writing factor -- >> is it soccer and they never score any goals. >> okay so if you're right, let me ask you this, you put these

things together, how much more leverage -- this is a leverage story. >> it's a leverage game, you combine these two -- >> how much more leverage does a discovery scripps have together in terms of fee agreements, given the fact that you said they don't have sports in the u.s. >> so, they'll get to leverage they'll get higher fees combined better than they would separately i think that those carriage fees are done every four to five years. they'll get a nice bump on the next one, after that, i don't think they're going to get anymore. because, look at the pay tv universe three or four years ago, 99 million, 100 million now it's 95 million. in three or four years it's going to be 90 million even if you're getting slightly higher fees it's just the pace of the operators, there's fewer of our customers anyway. they're not watching the same things they're watching things online if you look at netflix 50 million u.s. subscribers, they have a lot of the content that you see on discovery and scripps. they've got a lot of documentaries. they've got a lot of like food stuff already. so netflix is sort of

replicating what you normally see on cable, just on one -- >> in terms of scripps programming what can they do to pump that programming through the other discovery networks that are global? >> actually, i think discovery, 46% or about half of its business is international. i think that was really smart move on zas's part the last yew years. i think you could take a lot of that sort of home, hgtv programming and distribute that internationally, extract some higher revenues. but those are all short term plays. >> viacom was mentioned in the article. >> viacom was mentioned. like any cable network company right now, they're trying to reformulate their content. in terms of how -- will it work online will it work on snapchat >> does scripps have any really, really hot content meaning i'm thinking if you're a verizon -- >> must have >> in other words like there's a fight for the skinny bundle. everything's going online.

youtube has more -- >> yes, within the scripps universe what is must have what is the must have network? >> none of it is must have that's the problem it's great background tv that's what i call it. >> like food network >> something you turn on and you can watch, and like maybe get into it but you're not looking to watch it necessarily. there's always going to be a core audience for those types of -- >> but i'm being generous for a second the food network stuff translates in a big way online it does. >> and a lot of that kind of programming does translate on line in a very different way some of the home stuff >> so i think it's a good point. i think food network and those types of shows are suffering because of the way you get that stuff online the same way that like sport center and espn is suffering which is you can get that stuff online anyway. like food network as a brand is less meaningful online than just food period. there's so much food stuff online that you know, it doesn't really matter. people aren't as brand loyal when it comes to that. >> what's amazing me is that in terms of people sticking their

nose in some type of screen, whether it's a 72 inch screen, or whether it's an iphone, it's bigger than it's ever been, so the pie should be bigger than it's ever been for media companies, but for some reason, we don't know how to monetize it yet. how do you monetize it >> my 12-year-old is a big fan of watching those tasty videos, they're like 30 second, two minute sort of how to cook something. not because she wants to cook it, it's entertaining to her >> everything's just more fragmented is it the same amount of money being divided up among a lot -- >> the pie is getting bigger but it's being divided -- >> then a comcast or a multichannel, you know, if you've got everything, maybe you have a better chance, because at least something you have is going to end up working. and that's why, you know, if you're just content, and you're just niche like discovery, or scripps, you're not big enough -- >> that's -- >> to survive. that's the issue and i think especially that kind of content all the nonsports content where there's viacom, scripps or

discovery is having a much harder time because that kind of stuff exists online -- >> at&t that's how they made -- you want pieps you want content you need everything then >> so i've been on the show talking about the at&t -- >> -- we'll get to that. >> before we go. is there anybody else you think comes out of the woodwork to try to bid on scripps? >> oh, that's a tough one. >> these two are meant for each other i think. >> i think these two make the most sense if viacom comes in as a last minute sort of bidder that could be interesting but it doesn't line up the content doesn't line up necessarily. because of what viacom does and what scripps or discovery do so doesn't happen, doesn't happen but it's the most likely one. >> ed lee. >> spongebob is a sea creature, but not exactly like -- he won't fit in on shark week he's a sponge. not a predator >> okay the sponge bob shark week that's i think only you could -- >> synergy you hadn't thought of >> the sea creatures but i just

don't think it -- one is animated right? different. >> animated? >> the other is reality. like like michael phelps racing a great white now that's reality. >> we have a fish in our house named sponge bob >> you do? you've got tropical fish >> yeah. the last one was -- >> salt water. >> salt water is -- >> sponge bob -- >> you got to -- you will learn about death with tropical fish, believe me >> trying to avoid that. >> my favorite one -- you're going to have to face it >> ed lee, thank you, sir. >> thank you house budget committee beginning to mark up the republicans' budget plan today joining us now budget committee ranking member congressman john yarmuth. congressman, thank you so much for joining us >> sure. i was enjoying that conversation >> i'm sure you have a lot to add about sponge bob and the synergies there. we do want to talk about what's going on in d.c. and after what's gone on in the republican party with health care, you know, there's a drudge head line yesterday that congress is the least productive

congress out of 164 years, people are willing to right now write the epitaph for the ability for republicans to get stuff done are you guys celebrating are you thinking, 2018 is going to look better for us? >> well i think 2018 has the prospect of being good for us. but we're not celebrating at all. i think all of us are frustrated here we came to govern. we came to try and improve people's lives, and we're not doing anything in that regard. and you know, this is a perfect example just the timing of this budget markup today. we normally expect a budget to be done by april, the middle of april, so we're three months later than that. i think the latest it's ever done been on the committee is may 17th we're two months beyond that record and this is just another example of republicans being unable to come to consensus on their own and unwilling to work with democrats. so, nothing happens. >> all right so, you're late on budget. in terms of it coming out of committee, are there the votes right now to get it to the floor? >> apparently there are.

now there's some thought that some of the freedom caucus members might try to blow it up in committee today but we don't know about that the assumption is that they have enough votes to get it out of committee by a margin of one or two. but they're very uncertain as to whether they can pass the budget on the floor and if you remember, last year, they never brought a budget to the floor because they didn't have enough votes to get to pass it there >> you're talking about, you know, improving americans' lives and i'm sure that's a goal of every person who's elected to congress who's serving at this point. so, with that in mind, congressman, when it comes to tax reform, how committed are you to working with republicans on tax reform to presumably your constituents would enjoy some sort of a tax cut. are you willing to reach across the aisle there? >> well, absolutely. i think we'd want to have input into any tax reform measure that comes to congress. i think what we would be concerned about is whether the huge majority of whatever tax

changes are made benefits the top 1%, or whether it's spread fairly throughout the population last year's tax measures, one of them was estimated 98% of it would go to the top 1% so, we want to work to make sure that tax reform does get to middle class americans and hard-working americans, as well as to the people who really don't need it. >> is there anything in white house floated and granted it's been limited in terms of republicans and what they perceive for tax reform, is there anything there that strikes a chord with you that you would really like to see happen and you could actually agree on >> well you know i think probably the most fertile area for agreement is on the corporate tax rate side. and i don't think any democrats are willing to go to the 15% that president trump has proposed but i think somewhere in the 25 to 28% change would get a lot of support from the democratic side we understandthat there's a

competitive global competitive aspect to the tax rates, and i think that again, you find support wrong democrats for some reduction in the rates >> congressman we're going to leave it there thanks so much for you time. >> thanks for having me. >> all right coming up the fidget spinner craze boosting business at five below. but sales of the stress reducing toy are slowing. the retailing ceo joins us after the break to discuss what's the next big seller to be. and then at the top of the hour sharks are circling at scripps reports this morning that discovery communications could ren atto iju ain a merger. mo oth sryn st bit.

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it's so fluffy! look at that fluffy unicorn! he's so fluffy i'm gonna die! your voice is awesome. the x1 voice remote. xfinity. the future of awesome. challenges with buying and selling increasingly occurs online but even amazon with its bid for whole foods, and some new physical book stores clearly sees value in brick and mortar joining us is joel amundsen. retailer of five below

we've got historically low unemployment rates yet your stock is up 21%. you just a great ceo or -- >> the fidget spinner. >> yeah, but why how? the bifurcation in real estate -- or i'm sorry in retail, i can't even tell where the dividing line is necessarily. >> you know -- >> winners and losers. >> winners and losers, you know, retail is alive. and there are a lot of retailers doing well we happen to be on the side that's doing great and you know, i think the success factor in retail is usually got to be in the value space, or you got to offer an incredible store experience. and the retailers that do that are winning. and i think five below is doing both you go in our store, it's just a store to have fun, let go, and just have fun -- >> that's not the price. it's the experience in the brick and mortar >> well, clearly price matters i mean, value's been winning for

a decade now and if you can offer value and a great store experience, you're going to win >> and you describe -- so you got to be -- you got to be what is it called, multichannel >> brick and mortar and you need -- >> e-commerce. >> to go but you say that the brick and mortar is the cake, and the icing on the cake is the internet >> absolutely. >> really? that's not what amazon would say. right? >> i think amazon just bought a brick and mortar store >> i know. but in general that's not the cake. >> the key, forget amazon or anybody else, the key is, if you're going to be a retailer in 2017 you've got to have a point of differentiation and i believe our point of differentiation is value >> right >> you know, picking up spinners for a great price. >> what does this spinner cost right here >> that one there is $5. >> $5. and what's the margin you can make off this thing? >> well, that's between me and my head merchant >> but really, i'm fascinated by

this phenomena you have one and you like it everybody likes a fidget spinner. how long is this fad going to last is this just a summer thing? is this a 2017 -- >> five below is a trend right retailer >> right >> three years ago it was frozen, two years ago it was selfie sticks. >> right >> last year it was shopkins this year it's spinners. >> how long does this last >> slime >> your buyers and merchants are saying to themselves, oh, the spinner thing it's pretty cool, but by september this is over? this will be in everyone's christmas stocking still i mean how do you think about that >> you know what we really follow the trends. >> okay. >> trends usually start on the coast. >> okay. >> so we really watch -- >> where are we in the fidget spinner trend? >> i feel like final innings i think a lot of investors are concerned about the fade or the potential fade in the fidget spinner story so can you talk to what replaces the fidget spinner? or how important fidget spinner has been to you?

a sequinned pillow is going to replace a fidget spinner >> the sequinned pillows are so fun and it's only $5 right? and i think that's what's magical with five below. >> can i play with that? >> you can play with that. >> it is pretty cool >> you see that? how you can go both ways >> you can go both ways. >> i used to -- >> wait, wait -- >> you can play with it and go both ways. >> i know what you said -- >> i'm not saying anything can i ask you something about -- >> i love this -- >> has been brought to you by andrew ross sorkin >> you've got eight worlds the entire score -- >> you've got style. room, sports, tech, crafts, party, candy, and now. what would it -- what would it take for a ninth word? there isn't one, is there? you've got it all right there. you've got the whole world >> i think that's what makes five below so unique, you know,

we're not an electronics store we're not an apparel store you know we're not a, you know, kind of go through it. we're not a party store. but what our customers expect is this sense of discovery. and what you -- >> like a treasure hunt. and you can't do that -- you can do it a little bit online. >> we're t.m. max for kids >> this is our heldly ball this is a fun item it flies >> no it doesn't >> it's like a drone >> it really is like a drone you can put on eye out with that thing. that's cool, too how much is that >> five bucks. >> you notice a theme here >> spiedman. >> you notice the name five below. >> that's why? it's not the temperature inside the store. >> not the temperature >> this is like the old dollar store. >> everything below five >> some things are less than five >> they are. >> five below. >> how do you like my coffee mug? >> all the things he got here he's trying to gouge people with because they're all five >> this one is $3.50

>> what the hell is that >> that's a coffee mug >> would you rather drink out of a cnbc mug or that mug >> i'll take the cnbc mug. i'm sorry on this one, joel i like the cnbc -- >> is that $5? this sort of pashmina -- >> i brought this for melissa. you know, pineapples are hot >> they are. that's the latest trend? is that to replace the fidget spinner? >> a little kimono for you to keep you warm on the set >> i think andrew needs this >> as you were walking by him, he was like what am i chopped liver? >> you can share the pashmina. >> i already gave andrew a spinner. >> i want a spinner. i want the bigger spinner. give me that one >> did you only bring one of those? >> i've got another one right there. >> this is for you >> we brought a lot of fun things >> this is for you >> thanks, andrew. >> thank you >> seems like -- >> we like the children to have their toys >> so this was cool. >> all right >> can't eat any of this stuff i'm hungry you don't have any -- >> we brought candy, too we have a huge candy section >> cramer gets his candy from

five below >> really? >> yeah. he always talks about it >> okay. >> they have the best prices >> joel, thank you >> we appreciate it. >> this has been fun >> you got to come to five below. it's just a great place for teens and 'tweens and families just let go, and have fun. so thanks. >> all right, treasure hunt. thanks, joel >> thank you >> okay. and like inflatable pretzels we've got to go. >> ouch! >> i hurt myself >> he's hurting himself with the fidget spinner >> very important interview, a cnbc exclusive with united airlines ceo oscar munoz we're going to talk sector sectornomics, quarterly results and the recent pr nightmare the airlines have faced. futures, dow slightly off. nasdaq and s&p both up back in a bit.

shares of vertex pharmaceuticals soaring on positive cystic fibrosis trials. meg tirrell joins us with the details. $32 billion company all of a sudden >> it was already a $32 billion market company adding about 27 premarket with about an $8

billion move on these results. these were highly anticipated data they had two cystic fibrosis drugs on the market already. those can only treat a portion of patients with cystic fibrosis, just less than half because of the genetic mutations that drive this disease. they've been working on triple combinations of drugs to extend treatment up to 90% of patients. you can see the drugs they already have on the market getting to about 30,000 of the 75,000 patients with this disease. so, these are mid stage study results that came out late yesterday. surpassing wall street expectations improving a measure of lung function by way more than people expected between 9.6 percentage points and 12 percentage points to put that into context, jefferies said anything about 2.5 percentage points would be considered a success here. so that's why you're seeing this stock moving up. >> i wish we had more time to talk about is it the root cause of the disease -- >> it is

these are the first drugs to go after the root genetic cause >> it can extend life? >> you know, i mean they've only been on the market for five years. >> but it's the root cause of the disease not just the symptoms of the disease. >> that's right. it's actually fixing the biology that -- >> such a heart breaker. >> it's huge in biotech. >> all right, meg, thank you >> thank you >> okay coming up when we return ap encluxive interview with united airlines ceo oscar munoz on the company's quarterly results. plus or on today's big budget unveil congressman diane black is going to join us, chair of the house budget committee and later senator heidi heitkamp is our guest your joints... or your digestion... so why wouldn't you take something for the most important part of you... your brain. with an ingredient originally found in jellyfish, prevagen is now the number one selling brain health supplement in drug stores nationwide. prevagen. the name to remember.

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>> >> media mega deal talks discovery communications and scripps network trading higher on reports the two companies will merge earnings central shares of united continental hit turbulence after reporting quarterly results. a cnbc exclusive interview with ceo oscar munoz straight ahead plus google's plan to out-facebook facebook. the tech giant launching a new feature this morning that might look a bit familiar. 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 and welcome back to "squawk box" here on cnbc live from the nasdaq marketsite in times square i'm joe kernen along with andrew ross sorkin and melissa lee. becky is on assignment put that thing down. is it making you -- >> he's got a fooidget spinner. makes you feel calmer. >> maybe you should use one. >> do i look not calm to you futures are indicated down just under two. the nasdaq indicated up about 14 and the s&p up 1.3 points at this point and we've got treasury yields, which had kind of an interesting move yesterday, big rally in the bond market. ten year now 227 >> addictive fidget spinner. >> but harmless. >> but it is calming me down >> i was starting to fidget with one and you saw i hurt myself. it went flying off the -- i

don't -- if you practice do you get better >> i -- >> why don't you guys see? >> we'll practice. some of the big stories we're watching this morning. morgan stanley out with earnings the firm reported quarterly profit of 87 cents a share revenue beat forecast and morgan stanley also hiked its quarterly dividend to 25 cents per share from 20 cents. announcing also a $5 billion share repurchase program also, discovery communications reportedly in merger talks with scripps networks while there's no guarantee the two will reach an agreement both stocks moving higher on that news discovery ceo david zaslav joined us right here on "squawk box" yesterday here's what he had to say about media content disruption before the news came out. >> all media companies on the content side are down between 30% and 40%. and they're down because there's this question of, it's a terminal value question. you come out of the tunnel, who is going to have the i.p. that's going to survive there's 7 billion mobile phones

out there. who's going to get on those screens? who's going to be the emerging company that's going to be relevant on all of those platforms? in the long run, content i think is going to continue to win. >> right >> and hopefully we'll have the right ip >> discovery and scripps has discussed tying up before, two years ago. they abandoned those merger talks. we'll see where this one goes. also a nonprofit disability rights organization filing a class action law sought against uber claiming that the ride sharing company discriminates against wheelchair riders. that lawsuit said although uber offers wheelchair accessible vehicles they count for fewer than 100 of the cars dispatched in new york city uber has disputed that claim saying they have expanded access for all riders including those with disabilities. shares of ibm in the red the company beat estimates by 23 cents with quarterly profit of 297 a share but revenue fell short of expectations. declined for the 21st consecutive quarter. ibm also saw profit margins shrink across all of its units

the stock would open here at about nine-month lows. telsey advisory group upgrading chipotle citing confidence in menu innovation and aggressive sales plans. this comes after a new food scare at one of its restaurants in virginia. meantime a very different view over at beamo which downkraded to a market perform from outperform the analyst there saying media coverage of the norovirus outbreak will outweigh the severity of the incident and create same-store sales weakness that was a huge decline yesterday. >> norovirus >> it doesn't come from the food chain which is the good thing for chipotle which is equally bad in my view. >> it sounded like it was a real bout of some horrific -- whatever the person got was not good >> usually norovirus is on a cruise >> human-to-human.

>> 4,000 people on a boat in >> another stock on the move this morning >> get to an important interview as well. united airlines. phil lebeau joins us now with a very special guest this morning. phil >> phil? >> good morning, andrew. let me bring in oscar munoz, ceo of united airlines the morning after your report, better than expected earnings top and bottom line beating the street the stock is under pressure in part because of your guidance for passenger revenue for the third quarter. anywhere from down 1% to up 1% that's weaker than many people were expecting >> interesting i think good morning just to start off with we had an outstanding quarter. >> you did >> beat estimates. this is probably our fifth quarter in a row that the margin gap between us and the industry has narrowed and our operational results in a quarter were outstanding, in fact led the nation in arrival, departure and completion and we finished second in fbr so we're very happy about the second quarter. with regards to third quarter guidance i think united is firmly, and i mean firmly on the

right path and a quarter does not make a lot of difference the simple difference is others have guided a little higher. part of it is that they're cycling. some issues, some negative issues from last year. and then it's a forecast and so we'll see as the quarter develops we feel very, very strong about our path >> the other metric that's getting a lot of attention is revenue asia pacific and in particular china down 5.5% that is such a huge market so important to united, has been for many years what's the issue there is it the growth of your competitors from china the chinese airlines or is it the fact that you have these developing markets which are a little lumpy in terms of developing that revenue? >> it's a combination of all of those things such a massive market from a population perspective that connecting all those customers from the inland aspects of china, and to the coastal areas is something that a lot of airlines are jumping in so we've got a lot of competition a little bit of softening of the economy that drives americans to china. and so the combination of that, and one of our biggest international regions for us is

causing some of our -- some of our degradation. >> and one last question and then the studio has one. is there any indication, because initially the incident with dr. dao being removed from the airplane, there was a lot of social media backlash, if you will, in asia. any indication that that impacted bookings, demand, revenue at all coming out of asia >> no, listen. that was a concern and i personally traveled out and saw some of the highest people in government in both china and japan, just to make sure, and i have to tell you, in the course of my week there, i don't think i got one single question on the aspect it's all about growth, secondary cities, demand and capacity and balances in airport infrastructure and growth. so it was an all-business conversation despite that we're very concerned with that issue and making sure that, indeed, there's no lingering ish issues from that incident >> i know they've got a question back in the studio >> okay, great, phil, thank you. mr. munoz it's great to see you. you know, watching the industry, it's not specific to any one

airline. these things that -- these interactions with the public, which are inevitable you're running -- it's a very difficult business to run where everybody's happy all the time, with weather, and with mechanical issues, and dealing with the public. we know about the public sometimes, you know, they're obviously not the easiest thing to do. so, it just seems like it's going to happen forever. and the most you can probably say is to all your employees, please be nice please be nice whenever you can, please treat other people like -- so, with that out of the way, i don't know how you -- things are always going to happen but what takes up all of your time right now, every day in terms of operating this airline better is it, you know, you had a merger, you had to put the computer systems together, you had to put employees together. what is it that united is working on each and every day that you spend like 15 hours a day working on right now >> well, listen, i appreciate the empathy with regards to the customer service aspect.

it's a new era with regard to social media it's just something that we have to adapt to and accept but overall, other than just being nice, we do have to train and develop and nurture a more values oriented customer service policy when you ask the second question, where i spend a lot of my time, part of this business, it's so dynamic and complex and large that you really do have to divide and conquer and we built a great team at united and everyone has their little niche, and for me, right now, between the governmental issues, and the customer service issues, i think that's the area that i spent most of the time with. >> oscar, one of the things that i'm curious about is given how price sensitive customers are, and we've now looked at this and had all sorts of guests on the show talking about the price sensitivity, literally a dollar or two here and there, will literally change the decision of a customer, and yet, then we talk about ann coulter, and her situation on delta how do you even think about that i mean the idea of -- that the

product itself is not, these days, unfortunately, what the customer is after? that it's still such a price issue. >> yeah, i think one of the things that, at least i found out over and many have in the industry, is that of all the customer service desires, and needs, price is one of them. and in the last 30 to 40 years, absolutely, i mean price on an absolute basis is actually decreased. so what discuss mers in the airline industry have gotten over the past few decades is price reduction. and that is the primary driver after that you get into reliability, get me the heck where i want to go and then we have to work and part of our customer service training is around flexibility and information. we have such rigid rules sometimes that they can be policies and procedures that can be adapted for the moment and information when things do go wrong as you mentioned it's so important that we tell customers what's going on as best as we can. and we're trying to do that. we don't often know ourselves, for so many different factors,

reliability, flexibility, information are the three critical customer service orientations and providing the right price points so people can fly. >> is there another airline that you think does it well right now? >> you know, i think in general, the industry as a whole, the legacy carriers in particular, and some of the smaller players domestically, and sometimes abroad, i think the industry as a whole has made a huge improvement both in dynamic pricing, giving customers choice, customer service orientation, reliability, flexibility, and information is what we're all working on. >> oscar, i'm curious about the -- go ahead. go ahead melissa >> sorry about that, phil. i want to ask oscar about asia pacific and specifically china phil had highlighted there's such great competition i go to china fairly often and i fly over on kacathay is there a level playing field competing in china against the domestic carriers? >> you know it's a big market

with lots of entrants. vis-a-vis some other places in the world where we face very unbalanced level of competition, china would not be my first concern in that regard >> oscar one last question, and it's with regard to the denied boardings. you're trying a new policy as a pilot program and i don't think you've actually picked it off except for in a few flights here but you've noticed that you've cut denied boardings in june, with this new policy is this essentially a way for you guys to say, in advance, let's nip it in the bud before it even -- >> exactly from day one, we have to deal with the root cause of issues. and our involuntary boardings are down 88% and of course in the last couple of months so we're very happy with that we're rolling out up to ten things that we talked about we would do essentially nine of them are completed with the tenth any day now so we're very happy about all the developments as we've always said that was the first chapter. we've got another set of ten or so we'll announce shortly around the area of flexibility to make our customers' life even easier. >> do you find there are more

passengers who want that who will say look if you let me know in advance i'm willing to either make changes in my plans or say sure i'll pony up some extra money, et cetera >> the reverse auction aspect of that is that's the last remaining part of it that will be rolling out fairly soon we found and other airlines have tried it as well and i think it works. >> joe, go ahead >> i don't like -- i never thought i'd join a club that would have me but i do go in the united club, oscar is it done at newark when it's closed, it's like -- it's like for remodeling so i'm expecting big things like all-day breakfast. i'm not sure what you want to institute. >> thank you i'm not sure about all-day breakfast. listen, we are renovating our clubs across the system. in new york, specifically, we'll have a new polaris lounge in the first quarter of next year across the system, unfortunately when you're doing the renovation is a little bit disruptive to our customers. and yes you can expect the best out of us because that's what

you get. >> oscar before you go, just one question with the tsa. we recently heard that the feds are not going to have an extended laptop ban but they're going to make it a little more complicated when you do go into the airport. how much communication do you have with the tsa? and what do you advocate for >> well you know, we worked with tsa for some time with regards to collaboration and communication, and now with home security with regards to the initiatives they're thinking about. we will comply with everything that's out there there are some stations that will be a little slower because of equipment availability. but i think at the end of the day, we need to communicate to customers if, indeed, there's going to be an area where it might expect a little bit more of a delay so especially with the big travel season here in summer out to europe we'll make sure we'll let customers know if they need to get there just a little earlier on the return >> following up on that, we know that american has made a deal with analogic to buy some of these 3-d scanning machines. are you in the process of considering that, whether it's

with analogic or one of the other technology companies saying we'll pony up and buy some of these machines -- >> that's what the collaboration process is the answer is yes. clearly we will workwith whatever suppliers are available to us. again at the end of the day it's about the customer and all these directors and issues are real to a agree, and we have to make life for our customers a little easier so we'll invest in the right things and collaboration with tsa and homeland security >> oscar munoz, ceo of united airlines joining us exclusively on "squawk." it says on the screen up there, joe's flying out next week don't help him out just so you know >> oh, i can't accept any special treatment. but i actually -- no i'm kidding. let me message you, phil let me message you thank you. >> appreciate it >> he looks great, too looks awesome. all right. still ahead the budget battle congresswoman diane black helped write the gop's blueprint. she'll join us plus the next step for health care could a bipartisan solution

be on the table? we'll talk to democratic senator heidi heitkamp at 8:30 and later the original host of man versus food, adam richman, is taking on extreme dining and it could get messy he'll join us here on set. stay tuned you're watching "squawk box" on cnbc we cut the price of trades to give investors even more value. and at $4.95, you can trade with a clear advantage. fidelity, where smarter investors will always be.

let's get over to wilfred frost. he just spoke to the cfo of morgan stanley hey, wilf. >> yes, indeed so a reminder the head line out of the results for morgan stanley in terms of the overall trading performance they were only down about a percent year on year. the net for the peer group down about 12%. and during the middle of the quarter when others were guiding down 10 or 12%, james gorman would say that sounds about right for us i asked whether he was being coy or whether they picked up in the final month. it was a mixture of the two. they did say there was more central bank activity in statements in the final month of the quarter. that helped activity but also i think he was coy in terms of that guidance. in terms of how they did do better than peers, the important thing is they said europe was particularly strong but within the fixed income i said they were a product of their environment. that the changes they made in 2015 now allow them to do well when the quarter is strong, or

do well in a defensive quarter like this one and that is a stark, stark difference to what we heard from the cfo of goldman sachs yesterday saying it was down to client activity. clearly morgan stanley didn't experience the same thing and managed to perform now, interesting thing in the earnings that some analysts are picking up on, rwas, risk weighted assets wejt up about 7% goldman sachs fell so are they increasing their balance sheet using some of their access capital to try and seize the moment when others are weak to gain market share and they said that they can continue to increase the capacity, they're very comfortable with it they have the balance sheet support, so they wouldn't say specifically they're doing that on purpose to try and steal market share but it did sound like they have gained a little bit, and selectively they say they can continue to bring in more talent across the firm if they need it i asked if they were hiring specifically in fixed income and from goldman sachs and they wouldn't say that but just said broadly they can continue to do that interesting increases in risk weighted assets. also don't wand to want to

underplay the risk management. revenues at $4.2 billion and they hit the top range of their margin in that business, 25% which is the sort of target to reach by the end of the year the wealth management a decent area to highlight as well. a decent set of numbers and these shares up in the premarket. >> okay. thank you, for that. we appreciate it in the meantime, we want to tell you the house set to mark up the republicans budget blueprint today, but chair diane black has called the proposal a plan of action house budget chair black joins us right now good morning to you. >> good morning. >> so, the markup begins what's the first thing that's going to get marked up >> well it will be our budget and our budget this year is set to increase the spending for our military because we know that the military has been decimated over the last eight years, and with all of the additional threats that we have around the world we need to make sure that our military is ready. and that we're defending -- we're making sure that our men and women that are serving have what they need to serve.

we are looking at this being a vehicle for doing tax reform which is obviously one of the things that all americans are looking forward to a fairer, simpler and flatter tax code >> that is, i don't want to say the third rail, but it is the topic that we all have been talking about for the past year since the last election. what do you think the chances are that we actually get tax reform >> i think it's good i'm very encouraged by it. we're all working to the and looking forward to working with the white house, and working with our senators. we are having meetings, and talking about what we all want and we're about 85% there. there's still a few things left to do but i think we're going to have tax reform by the end of this year. >> in fairness to you, when we asked, i think about health care earlier in the year, and so many of your peers and colleagues, whether they thought we'd get that through, they were optimistic, and yet here we are. why would tax reform have a better shot? >> well, i will say that we're working together, both the house

and the senate, and also the white house, and so unlike when we did health care, we didn't have that kind of dialogue that was going on and i think this is very helpful that we know right now where the issues are, and that we're able to figure those out before we put them on our floor. >> where do you see the fault lines, just even within your own party when it comes to taxes at this point >> there is some discussion about whether we should be using a deficit neutral, or idea on this whether we should -- many people feel that when you do a tax reform, that obviously that helps us to be able to stimulate the economy. and that you will see the taxes go up. and so some people don't believe that we have to worry about it being deficit neutral. but many of us do believe that that is the way the tax code should go so that's one of the fault lines that we have to come to that conclusion about -- >> and where are you on that fault line >> i think that it has to be deficit neutral. i do agree that there will be an

economic boom as a result of that when taxes go down people have more money in their pockets. they're going to spend their money. that means that there's more services and more jobs, that are created as a result of that. and so i still believe that we should make sure that when we do that we balance it so it is deficit neutral. >> congressman, there's a piece in the "journal" today on the debacle. the affordable care act debacle. and they really do take it to task to and not quite a dozen but about nine republicans that, you know, sort of, that are at least partly responsible for what happened. are you unhappy with some of your colleagues in the senate there that were elected for a certain reason or in the past had voted when it didn't matter for this to happen, and then were -- didn't have the political courage to follow

through on what they had done so many timesbefore what's the mood? what's the feeling for some of your colleagues? >> well, i will tell you on my part, it needs to be done. look, we've got people that are suffering in this country. the affordable care act is not working, it's obvious. it's falling apart on its own. in my own state of tennessee the premiums have gone up by 60%, 70%. there are some places it's gone up over 100% just because someone has a card on the exchange doesn't mean that they have a service, because the deductibles are so high so we know it's not working. and in my opinion, as a nurse, as someone who has been in the health care field for over 45 years, i want to see people have an opportunity to have something that they can afford, something that they desire themselves, not what washington has told them they need, but something that they make that choice on this is what i want, and this is a price that i can afford. and we can't get there right now. so i want the senators to get the job done so we can move forward to help the american people

and will i get mad at someone? no, i know that they have their own opinion but at the end of the day we've made this promise, and we know the american people are suffering. let's get the job done and i don't want to give up until it is done >> congressman we appreciate your time today. thanks >> you're welcome. >> we'll see coming up a key read on housing in just a few minutes. we'll bring you the numbers. stay tuned you're watching "squawk box.

good morning welcome back to "squawk box" right here on cnbc live at the nasdaq marketsite in times square google escalating its war on facebook the tech giant launching a new future this morning called google feed. it's a stream of news articles, videos and links customized for individual users using the company's app. if it sounds familiar, it is because it is similar to facebook's news feed and will include more social-like features and the ability to follow favorite topics however, google says it is not trying to duplicate facebook's news feed. we're just seconds away from housing starts >> we're watching the nasdaq looking to extend the gains up 20 points in the premarket dow looking to add 15. s&p looking at about 3.6 take a look at the 10-year yield. 2.655 -- actually 2.27 here as it's rounded but we're down

about 12 basis points for the week that is a pretty big move for the 10-year yield here again expecting june housing starts let's get to rick santelli who is standing by to give us a lowdown on the numbers from the cme in chicago rick >> all right we're waiting june read on housing starts and permits and looking to see how much they've improved mortgage applications rose all right we're expecting a number around 1.16 million on starts we ended up with more. 1.215 million seasonally adjusted annualized units. that's up, i don't know, i'm ciphering maybe a little over 7% we did have a positive reversion, much better number 1.09 last time upgraded to 1.12. pretty good news there let's look at permits, what may high ahead up over 7%. close to 7.5%. 1.254 million seasonally adjusted annualized units

besting expectations no revision on the 1.16. just about 1.17 last time. which gives you close to 7.5%. as i look up at the screen i see 227 basically unchanged on the day. basically hitting senior we settle at 2015 where we settle at 2016 was 244 so pretty much if you look at the settlements for the last couple years they proved ongoing importance with traders and the al goes. we should pay close attention to the boone yields after testing the 60 level have backed off in the mid 50s. pay close attention to the spread hovering in the low 170s. the distance between yields the more that narrows the more potentially we could see policy getting on the same page although many question how central banks will accomplish that melissa lee, back to you >> rick santelli, thank you. cnbc's senior economics reporter steve liesman is here. steve what's your take on these -- >> good numbers. you know, we're still right in

that range and the question is going to still be asked as to when ever did we break out of the range? and i do this every month. i remind that we were up near 2 million units on an annual basis back in the heyday and nobody quite knows what the right number is for this situation let me go through the numbers. a strong number on the single family starts here 849,000. multifamily, 366 that's been a little bit challenged and when you talk about the weakness that's happened over the past several months a lot of it's been in the multifamily sector as rick pointed out, big numbers in terms of the permits, which say that things are going to continue going on. a lot of talk about what's challenging housing. this rise in rates a little bit when it comes to the federal reserve, that a little bit maybe has translated over to the mortgage market. the tariffs on lumber is something to said to reduce homebuilder sentiment in the data yesterday available losses just want to show you one chart that looks at demographics, which to me is destiny when it

comes to housing you can see we had this huge housing boom at a time when the 25 to 44-year-old population, those are the people who go into buying houses, was declining on the year over year basis and now you're back to who knows, back to normal, back to where you're in terms of housing relative to the population growth if you want to sell houses, you want to have people in that 25 to 44 year range but we built all this housing into that decline in that population >> can i just say this president trump just tweeted, kind of interesting. having lunch, i will be having lunch at the white house today with republican senators concerning health care they must keep their promise to america! i don't know what that means exactly. is it off? is it on is he letting it fail? is it -- ed clean repeal is still going to be voted on because they want people on record >> right >> the ones that aren't going to -- i don't know if that changes things sorry, steve >> i'm pretty much done. i was going to check the fed probabilities when it comes to that interest rate hike.

earlier today, the third hike was trading at a record low probability for this contract just 37% remember we were up above 50 so continuing to dial out the housing numbers aligned with the second quarter growth of around 2.5%. and if we're lucky because that's what the house budget is building into their budget we can stick around that 2.5% number and continue doing that and that would just some of the numbers in the house budget. >> you have a favorite in the open championship? starts tomorrow. >> which open championship >> you know, just that answer -- just that answer -- >> tells me how disconnected i >> to not even hear -- >> between my outside interests in fishing and music, joe, i don't have time. >> if you fish a lot you cannot play golf. >> that's a terrible cast. >> it's called casting if you hit it right >> you're doing a spinning cast. >> i'm just telling you -- >> i'm going to start golfing with you >> the golf swing and the fishing movement are not good together >> no it's true but things like

follow-through and do you lock your wrist when you -- >> i don't no, i got a plot of problems >> what do you do with your left toe? >> thanks, steve numbers are in hedge funds had a big first half of the year, leslie picker joins us now big in terms of doing well >> hey it's actually kind of a surprise hedge funds posting their best returns in the first half of 2017, than any period since the first six months of 2009 the depths of the financial crisis now, this is -- this is very two markets that could not be more different, for example the vix was quadruple the price and the sfund was a third of levels. to be sure, according to industries returns this year 4.9% which is a far cry from the almost 17% returns from the first half of 2009 they also trailed the s&p in the first five months of the year.

hedge funds tend to outperform that is partly why we've seen year's worth of pain in the industry now what's causing this turnaround, one thing it isn't it's not the computer driven strategies we hear so much about. they gained a mere 3.2% in the first half of the year, compared with the more traditional funds known as discretionary they returned double that, about 6% so, at least for the first half of the year, you can thank good old-fashioned stock pickers, guys >> hmm, been awhile. what did we decide do they have any clothes -- >> just what everybody left. everybody got out. >> right >> did that mark -- >> that's always the way it is >> always the way it is. >> so what kind of returns are we talking about what's the best? and what's the average >> interestingly enough, the more equity focused strategies are doing the best activist driven, those are doing very well -- >> what's the best we're

looking? >> activist, actually. >> what's the number >> 6%. 6% for the first half of the year whereas -- >> market's up 17% -- >> the market's up 17% >> and obviously they're more of a private equity style investment where you go in, you have, you know, very strong dialogue with the ceo, try and make changes very quickly. the challenge for activists has been that the market has run up so high and activists are value investors. so whatever they're doing seems to be working, at least at this part of the year >> but not really if you could just be in the s&p >> yes >> if you could be in the s&p and be levered in the s&p -- >> they're still naked and most of those guys i've seen i don't want to see naked. >> touche. >> okay. thank you, leslie. >> thank you >> coming up, senator heidi heitkamp real good. i love this senator. just she's got the fargo thing going. you'll see what i mean but she's very good. very smart going to talk health care, securing our future for coal

she'll join us right after the break. you betcha she will. stay tuned you're watching "squawk box" on cnbc where's jack? he's on holiday. what do you need? i need the temperature for pipe five. ask the new guy. the new guy? jack trained him. jack's guidance would be to maintain the temperature at negative 160 degrees celsius. that doesn't sound like jack. actually, jack would say, hey mate, just cool it to minus 160 and we're set. good on ya. oh yeah. that's jack. what if we could bring you by having better values? at blue apron, we work directly with more than a hundred family farms. so instead of spending on costly middlemen and supermarkets, we can invest in the things that matter most: making farmland healthier. cutting down on food waste. and bringing you higher quality, fresher ingredients for less than you pay at the store. because food is better when you start from scratch. get $30 off at blueapron.com/cook

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sfw >> senate majority leader mitch mcconnell huddling with republicans in hopes of finding a compromise on the gop health

care bill. we just heard from the president on twitter, i'll be having lunch at the white house today with republicans senators concerning health care. they must keep their promise to america. now joining us, north dakota senator heidi heitkamp and in a -- one of my fantasies, senator, i thought you might, because of where you stand politically, i thought you might actually make up for one of the rhinos that the republicans were going to lose in health care i thought you might make up for it and vote for the -- was that just -- what i called it a fantasy, not going to happen >> that was really a fantasy not going to happen. >> what should we do then? are you willing to work in some way to -- to fix some of the parts of the affordable care act that need fixing do you think that's something that would -- does it have a chance of actually happening, senator? >> i think it does, actually you know, i got here, i didn't vote for the affordable care act. and i campaigned saying there's good and bad let's fix the bad and so i introduced bill upon

bill, went around, tried to shop that around bipartisan, and this has been such a partisan issue what would be great is today we claim the partisan debate about health care is done, let's bring people together. and if i were in charge of this, there's ten governors who sent a letter saying we want to sit down and be part of this discussion, those governors have to administer these programs, they're bipartisan, bring in the governors. listen to what they have to say. and let's start fashioning this together in the other bit of good news, lamar zoalexander suggested in a press release that he's going to start holding hearings in the health committee so i think we're starting to see that dam break and we're starting to see ideas perk late up and i'd love to hear what the governors on what they think the fixes are. i have a whole list of things i've been trying to do let's sit down and work this out. so i'd like to say politically, let's just bury the political hatchets, and let's start doing our job here >> the political hatchets are still being buried, in the

opposing party's heads on both sides. and it's still having -- let me ask it this way. so the republicans decided to, you know, to not take the recess right away not necessarily for the affordable care or for tax reform but for all these appointments now, you're more to the center than a lot of your colleagues. do you think senator schumer is -- would you be doing his job the way he's doing it right now? or are you content with the way he's running your party in the senate do you think it's helpful to the country at this point? >> i would love to see these nominations move more quickly. unfortunately, we're at a spot where we don't see, because so much attention has been on health care. if we say health care, take the vote, let's move these nominations in an expedition fashion i think that we're being hurt in places like homeland security, and treasury, and hud by not having those nominees in

place. so i'd love to see those nominees expedited >> when you go to work every day, and you see senator schumer, and you see you know, mitch mcconnell and you see what's going on, you think about, like, i don't know, what did you used to do before you were a senator is it looking good >> oh, it's just another day in paradise every morning i wake up with a renewed sense of optimism, and it takes about an hour before i'm like, oh, it's not going so well >> senator, but on this topic of chuck schumer, you can put him aside. i don't know if you saw james carville over the weekend saying, we talked about it yesterday, that the democratic party doesn't have a leader right now. do you think that's right? >> i think we have a lot of leaders. i think one thing we don't have and you see that borne out in public polling and when i'm out and about is so what do you guys stand for? what are you about and i can rattle off about 20 things that i think are critical and important. but i think the overarching discussion for the democratic

party isn't there. and frequently the void is filled by someone who is the presumptive nominee. we don't have that and so, i think we're in this process of seeing opportunity for anyone to step up, and start talking about what the democratic party stands for. and what we intend to do and honestly,ist very diverse. as you can imagine, i introduced the raa with senator portman that's not a very -- wasn't received very favorably by the progressive groups but i think i can make an argument that it's n got to be part of our discussion i think i can make an argument that tax reform has to be part of our discussion. we just would do it differently. we have to do health care fixes. let's have that discussion so i've always believed that good policy is good politics and so too often we put the politics and the ideology ahead of getting things done and you see it has just ground to a halt here in washington, d.c.

>> do you see yourself potentially voting with the republicans on tax reform? do you think that's going to happen i mean, honestly, when it's all aid sand done do you see yourself as a yes there? >> i don't know what it is you know, people ask me all the time, joe, you know, are you going to -- what do you think of tax reform and i used to be the tax commissioner so i know a little bit about it but i say, tell me what it is. and then they look at me like what do you mean and i say oh, is this where we broaden the base and lower the rates? and they go, yeah. i go, tell me what it is are we going to see expensing exchanged for deductibility of interest that's not good for agriculture. so i'm going to evaluate whatever proposal comes my way based on what's good for my state, and what makes sense fiscally responsible sense in washington, d.c. and for the country. >> i think we had jason furman on, or i know we had him on, but i think he said even if it was dynamic scoring would assume $300 billion that he would think that that might be okay. you don't need a completely paid

for tax cut? you could see something that's not totally revenue neutral that you might be able to vote for if it accomplished some things with corporate taxation, and other things, you could go that way? >> i think the last time that i was on, i think what i talked about is pairing this up with infrastructure because infrastructure is just another way of accumulating debt when you don't repair the roads and bridges, and you pass them on to the next generation, that's passing on debt in my mind and so let's put these two things together, and let's talk about how we can, in fact, create a packagethat's good fo the american economy, you know, it's interesting because you get a lot of argument from conservatives that public spending isn't stimulus. but yet tax cuts are and so we're in this kind of philosophical debate what i'm saying is there's a deal to be made. and i'd like to see the details of the deal before i'd ever commit to voting for it. >> all right senator, when's the last time

you were in fargo? i got -- >> i'm in fargo all the time, joe, mm-hmm. all the time >> you know those -- one of the things that makes it so cool to watch is those scenes of just complete bleak, all you see is just snow and a couple of like electrical -- >> and joe, that's the beauty of it you're struck by the awesome putty of it. >> you have to have an eye for it were you back in december or january when it was like below zero, were you there >> oh, i'm home all the time and i love it. i think it's absolutely the most beautiful place. >> i've never been there >> well, why are you dissing it all the time when you've never been there >> dis it? i'm obsessed with it i'm obsessed with it, and i'm obsessed with your accent. this is not dissing! this is love this is jealousy that i'm not there. senator, thank you >> thank you take care, joe >> you betcha. you boetsch california

okay see you later senator. when we return why ed sheeran is getting some hate on twitter plus jim cramer will join us live from the new york stock exchange we'll be right back once upon a time a girl with golden locks broke into a house owned by three bears. she ate some porridge, broke the baby bear's chair, and stole some jewelry, a flat-screen tv, and a laptop. luckily the geico insurance agency had helped the bears with homeowners insurance. they were able to replace all their items... ...including a new chair from crate and barrel. call geico and see how easy it is to switch and save on homeowners insurance.

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the power of smart beta. power your client's portfolio with powershares. before investing, consider the fund's investment objectives, risks, charges and expenses. call 800-983-0903 for the prospectus containing this information. read it carefully. distributed by invesco distributors inc. >> om viewers had harsh

criticism that the appearance jarred them out of the fictional world. the show's director now responding to critics saying he was surprised by the reaction saying he did a lovely job and he was appropriate for that part because he needed to sing. >> see i think they should only have actors on that show that live in westrose you should be from that world if you're going to be on that show. you shouldn't be just a person -- >> i'm so far behind. >> well, i am too. but i saw lena heady in an anthony hopkins movie from the 90s. twitter and social media, i'm ready to pull a kelly evans and just get off it. is it worth something? >> try one morning not logging on at all and see how you feel. >> i look at things. >> don't look at it and see how you feel. >> maybe i will. >> tomorrow. >> let's get down to the new

york stock exchange. >> jim cramer loves twitter. it's a functional thing for you. you use it i don't really think i use it. how about ibm? what's what do you take away from ibm >> they're really telling you it's going to be the 4th quarter and a lot of people are just getting tired. 4th quarter is going to be kicking in one month is all you're going to have for the mainframe this one. it may actually do well because it's encrypted and there's not a lot of ability to hack encrypted programs but you have to wait until the 4th quarter. let me go be in facebook and this is a business of have you done for me now. not what are you going to do for me in the 4th quarter. >> we got to go. >> thank you for the shout out melissa on canada. >> that's right. >> candy. >> and nvidia lives.

>> candy might as well be tobacco. >> except for cow tales. >> get your forks ready the host of man versus food is taking on extreme dining he'll explain next [ indistinct chatter ] [ intense music playing ] it's here, but it's going by fast. the opportunity of the year is back: the mercedes-benz summer event. get to your dealer today for incredible once-a-season offers, and start firing up those grilles. lease the gle350 for $579 a month at your local mercedes-benz dealer. mercedes-benz. the best or nothing.

to keep our community safe. before you do any project big or small, pg&e will come out and mark your gas and electric lines so you don't hit them when you dig. call 811 before you dig, and make sure that you and your neighbors are safe.

811 is available to any business our or homeownerfe. to make sure that you identify where your utilities are if you are gonna do any kind of excavation no matter how small or large before you dig, call 811. keep yourself safe. >> our next guest is hosting an event that will take it to the

extreme. joining us is adam richman he's a cook book author and food enthusiast this is an extreme cooking weekend. what's happening >> it is it's not very often that you get to be part of a first in kansas city barbecue but what they're doing is creating an event called raising the barbecue and they have a dining table with five roller coaster style seats and in an effort to embrace the carnival fun barbecue atmosphere and they are in a three course meal progressively raising the dining table to a height of 40 feet in kansas at like the famed 18th and vine intersection and dixie ultra is actually proving the durability of these new plates they're working on and i'm working with them on these campaign and they have tightrope walkers bringing two pounds of barbecue up each plate. >> have you practiced this

have you seen this in action. >> i am not the tightrope walking kind. >> are you going to be thereupon? >> i'm going to be sort of officiating it obviously they want to invite a lot of the local food personalities. there's football players coming out but for me, part of the food that i've always been associated with whether in my cook books or the shows i've done are the fun food and the comfort food that the nation universally loves in any incarnation so for me it's about sort of, look, i come from a single parent family here in new york city. i grew up watching the bottom line with a mom that was very value oriented so i never wanted to be a corporate show but i have had lots of barbecues i've had stuff fall on me and i was like if you're going to legitimately put your money where your mouth is and show they're durable then here you

go. >> who gets to be in the seats and eat barbecue three seatings the first one they're doing food influencers in the area and local chefs and things like that the other two seatings i am not sure it's going to be -- i'm going to be officiating it and doing a facebook live at 1:00 p.m. on the 22nd but if you're in kc i think they're going to have people volunteer and get a chance to get 40 feet in the air. >> you're involved in a thing called common threads helping disadvantaged kids eat healthier. >> yes. >> what do we have to do in terms of the food industry to help you on that. >> well, for example, i think it's access to good healthy food but it's also information what to do with it. just saying organic or green leafy vegetables doesn't incentivize a child to have it when you realize that one in 8 kids can identify broccoli it's about the integration of healthy foods. >> what about pricing? >> i think that there in also

lies the rub i think that it's local merchants will actually decrease, you know, the transport costs, the storage costs, urban gardens begin to emerge. >> we had a guest on yesterday doing an urban garden. >>but it does actually that's what common thread does they'll find local merchants and bring healthier foods to make it more accessible. >> good luck. >> thank you very much. >> scared of heights. >> thank you see you tomorrow make sure that you join us tomorrow squawk on the street is next