>> good wednesday morning and welcome to "squawk box" here on cnbc live from the nasdaq market site in times square i'm kayla tausche along with andrew ross sorkin joe and becky are off today. sitting in with us kevin o'leary. it's great to have you what a treat >> thank you great to be here >> take a look sat u.s. equity futures this hour. yet another subdued session early in the morning after thin trading overnight both in asia and europe were they to open now, s&p would be up by six, dow up by 51, nasdaq up by 15. after the dow and s&p yesterday fell for the fourth time in five sessions no santa claus rally to be found. crude oil has been the big story this week. there was a pipe line blast in libya causing supply concerns. that drove the price through $60 a barrel for wti for the first time in more than two and a half years. those prices falling slightly this morning $59.62 is where we sit right

now. brent down more than 1%. natural gas up slightly. mr. wonderful and mrs. wonderful. are we allowed to say that you're not together, but that's -- were you watching before >> yes, i thoughtthat was a great tease. kayla is mrs. wonderful. she's terrific >> kevin's the original. maybe i'm lower case "w. we've got a lot of news to talk about this morning. geely auto has bought an 8% stake in volvo also giving gely the rights. gely also owns the truck maker volvo started to do much better. are you guys volvo fans?ely als. volvo started to do much better. are you guys volvo fans? >> so i always had a volvo growing up i'm a fan. >> kevin, i can tell you're not volvo. >> i'm getting to the place

where i think all auto manufacturers are going to make rail cars in 20 years. because autonomous driving whether it's for individuals, trucking, the brand won't matter as much. you don't even know the name of the company that makes all the rail cars. it's a huge company but nobody cares. >> but you know so tell us >> i don't know, actually. i don't own it but there's two of them that make all these cars. >> you're just going to get out there in whatever it is. >> exactly the brand won't matter i think this is going to face market compression because it won't matter and also pe compression. i don't own any auto manufacturers. maybe i'm early, but as i look ahead and it's going to happen faster, i just bought my wife a tesla and drove the thing for the first time with no hands i thought to myself, why do i need a tesla why can't i get anything at a lower price than that that does the same thing apparently the ai at general motors is better than tesla right now. we haven't seen the offering

yet, but i paid a fortune for a car i think is just a rail box and i don't own the stock. i thought the car was kind of cool, but i realize this car is doing what every car is going to do and it actually read the speed of the sign. it slowed down as it was coming off the highway. it said 50 -- >> it's an amazing thing >> you don't need a driverless car to do that >> the point is why do i care what brand it is if i just get from "a" to "b"? >> did you do ludicrous mode >> i did and it left my teeth behind. >> it makes your heart beat. >> i think i got to 60 in less than 3 seconds that's not good for your neck. >> okay. couple separate issues for us this morning shares of uk office manager iwg are up more than 30% in european trading today. company confirmed it received a takeover offer from brookfield asset management and onex. you know these guys, right >> very well

great firm quiet, very smart money. >> and then little bit of global news to tell you about saudi arabia and the you newted emirates plan to roll out a tax next year. this is a change both have used their tax-free statuses to lure workers some stocks to watch this morning. boeing announcing an order for four 787 dreamliner jets from morocco's national airline boeing says the order which was previously listed as unidentified includes two planes purchased last year and two bought this month. boeing shares up a third of 1% royal dutch shell expects the u.s. tax law to have a favorable impact on its operations says it would have encured a charge of $2 billion on third quarter number and bmw also expects a

favorable impact on its 2017 numbers. the measure could ad up to $1.3 billion to its full year results. but it's interesting to see all these international companies coming out and saying how the tax law would affect them. just this morning barclays said it would take a writedown of $1.3 billion because of where all of its capital is stored currently and the disadvantage effect the tax law would have on pit. >> i'm curious from kevin, do you see any foreign companies you own that for some reason would want to come to the united states after what just happened last week? >> you know, the consequences of the tax code are still being mined every trading day of 2017. and i'm one of the people doing it this is one of the big issues. if i'm an s&p 500 company, i've only been paying 22% tax anyways. 40% of my revenue are in low tax jurisdictions all over europe

and frank ly hasn't made an impact on me >> now it's said the effective rate in the u.s. would be 9%. >> i'm not sure on that. what i'm doing spending my time before the year end is i'm mining for companies that have 1 hurk 00% of their companies here. i i don't think the market has really fig nured out all those names. that are going to have significant impact >> give us an example. >> veil ail resorts, for example they pay maximum tax here. let's see what they do with their extra 18% free cash flow how do they spend it i think it's going to be a very,

very interesting 12 months like we've never seen before. it's too early no one is even at their desk right now. i've got to haul guys back in saying you're getting back to work before new year's >> i think there are some tax attorney who is are probably at their desks right now. some accountants doing year end work >> there are some people at vale is they sell out of tickets before any snow. they give you the option to ski across the country you're paying premium prices and it's a wonderful thing it's a wonderful option. >> all right we got a couple other pieces of nus for you chubb expecting to get a one-time benefit in the fourth quarter as a result of u.s. tax law while we're on that topic. the insurer's estimate reflects the impact of lower corporate tax rate and repatriation on its deferred tax position. tesla ceo, talking about tesla mr. wonderful.

you don't -- you buy the car but not the company, i think >> i get such hate mail when i talk about this stock. >> let me tell you the news and then have you react. elon musk says he's dying to make an electric pickup truck. in a twitter post musk says he's had the core design in his mind for several years. he promises tesla will soon build this truck after producing the model y crossover vehicle which could launch in 2019 i assume you're on the same place on trucks? >> let me just say so i can reduce the amount of hate mail, this guy is a genius and one of america's greatest entrepreneurs with canadian roots i might add. however, the stock is insanely valued one day people will look at it and say it's a car company it's going to trade at a car company margin and multiple. and like epicris who flew too close to the run, it will melt >> then who's the one that flew

just close enough to the sun was it daedilis? >> i think i'm right >> one of the reasons it's so highly valued is elon musk keeps making these promises. we're going to have a semitruck, a pickup truck, hit these production levels. and then they don't. i'm wondering if you think he's just keeping the juice flowing to the stock and how long that actually can last? >> he is the best promoter i've ever seen. his pre-tweeting towards the issuance of all these other models of cars is terrific you know, no, it's not different this time. if it walks and talks and looks and smells like a duck, it's a duck this is a car company. it should be trading at probably 11 to 15 pe when it has some and at the end of the day, that's going to hurt. >> but you're not shorting it? >> you know, i've learned a long time ago, shorting stocks is an

infinite downside. i don't know when it's going to crack. i'm not sure there are other who is have taken positions and it has worked for them. i like making money. to me one day we'll be sitting here when it happens >> all right >> save the tape save the tape. >> exactly wednesday the 27th of december all right. we're also watching shares of apple today. the stock coming under pressure yesterday after a report from taiwan's economic daily. the report suggested apple will cut its sales forecast for the iphone x by 40% in the quarter meantime, we're also hearing today about more lawsuits against apple. consumers arguing the company defrauded them by slowing phones without warning to make up for poor battery performance let's first talk about the fact of the potential supply issues for the iphone x that caused all of its suppliers to fall yesterday. apple fell about 2.5% bringing down the broader market. you think that's short lived >> yeah.

if you had sold apple every time there was a slowdown on demand or the fact the model wasn't selling, you would have missed out a thousand percent return. because this happens every time there's a big cycle. what i'm looking at apple for now is it is drifting into consumer electronics in terms of what it is with the long-term business model of selling services at a very high margin when you buy the x which i recently did, the first thing i did was it told me i had to pay for more memory. every second it flashed. you don't have a plan big enough to support all the photos you're taking at these high resolutions and these 4k videos at 60 frames a second pay me more. and like a dog on command, i typed in my number and i'm paying many for. i thought to myself, this is why i own this stock i love this company. >> all right let's talk about the broader markets now as we continue the countdown to the new year. joining us on set is james lu and josh jolinski.

josh, we'll start with you is this your garden variety thinly traded holiday week or is this people sate zitting out saying the rally has gone too far at this point? >> i think b you could see some profit taking. long-term i'm bullish. could see a 20% correction next year but if you look back a year from now, i think the dow is at 29,000 i wouldn't surprised 2023 we're sitting at dow 38,000. i think we could have turbulence next year -- >> you're starting to sound like kevin hasselt. >> well, we had called that a year ago and, you know, i told people to get on the trump train a year ago when he won. you know, if you look at the corporate tax, we're also seeing this as an opportunity for people with their 401(k)s or iras we think this maybe be a good time to not put money in your 401(k) because if you're deferring tax, you may want to

look at roths, tax favored investing now. there's a likelihood in seven or eight years this all doesn't end up well. and that you'll be facing higher taxes if bernie's president or somebody like that >> james, you know, there's a lot of talk about what people are doing toward the end of the year to try and figure out or gain the tax system wlo they're preparing their property taxes or something else to that effect even though the tax law doesn't actually come into effect when you file in april 2019 so what with sort of asset shifting do you think we should expect right now >> there's certainly a lot of year end positioning happening right now. the key to understanding next year is what happened this last year had a 20% return a huge boost in earnings over the corporate sector and the other half came from expansion of multiples that was because of things like corporate tax reform you could still get an 8% boost to corporate profits

right? that's happening because the u.s. dollar is weaker. that's happening because of tax reform the other half of it, i mean, those are more or less out of the picture at this point. if you're looking at individual stocks, maybe there's a play there. from a broader perspective, we think they're fully valued you could probably still get a solid return because of corporate earnings growth, but really the opportunities are elsewhere internationally. a lot of the flows we're seeing right now are going to other overseas markets emerging markets are probably the more exciting place to be. >> but which ones? >> over the course of the last couple of years, of course asia has been in the news we think that will shift to latin-america. latin-america growth will probably stabilize and try to catch up to the rest of the world. you look at valuations -- >> we've been talking about latin-america coming back and have missed it every time. >> that's true but we've also talked about it coming back and it finally happened this last year. i'm not saying it's not risky.

they're much more risky than european markets but that's where the opportunity is over the next five to ten years. >> does american tax reform, u.s. tax reform have any impact on my european holdings? should i think of it in a different way now? i'm heavily weighted in the eurozone, british pound, swiss francs, euros. should i be worried about? >> the thing to talk about when it comes to europe is less companies repatriating cash back to the u.s it's more about the european stability and growth you look at what happened this last year, it was insulated from the political dealings of the u.s. going into next year, there are still risks in europe. we still have brexit hanging over us. in some ways 2017 was the opposite of 2016 2016 you had brexit. you had votes going in the right direction for markets. we still like europe at this point.

this last year they had about 15% earnings growth. we think that can continue into next year as well. >> josh, it's easy to forget a couple years ago when every single company on their earnings call was talking about currency volatility not being able to hedge for it that threw the market out of whack in early 2015 and 2016 when you think about central banks beginning to tighten when you think about risks like brexit potential repatriation widening of the deficit. do you see currencies becoming unsettled and somewhat untethered again >> sure. you look at what's happening with bitcoin bitcoin is really a -- the brexit of currencies people are saying we don't want federal reserve manipulation of our currency, so we're going to de-risk ourselves and diversify outside of the u.s. dollar so i'm a little worried about the general distrust in the fed by people at large >> are you giving bitcoin street

cred by calling it a currency? >> it's a speculative bet that the -- >> digital commodity how about that >> that's good >> you didn't make that up >> bitcoin like tesla. it's a stupid investment now, but it could make us look stupid because it'll go up even further. a lot of stupid things have made a lot of money amazon had no price to earnings ratio for how many years 17, 18 years and i think if people underestimate the fact that the average person has a general distrust in what's happening with currencies, i think we could become a loser i'm not -- i mean, i think -- >> does it bother you that governments like israel are closing it down? that maybe the chinese shut it down that domestic regulators shut it down >> i think regulators will start to adopt it. they look at ways to tax it. put a little penny here. and, you know, once that becomes accepted with regulation, i think that could be a good tunlt for it

>> it's very hard to tax given the way it works >> well, we'll see they can tax anything. >> i know we're going have a longer conversation about bitcoin later in the show, but just for our viewers who are watching for actionable advice, can each of you give a stock before you go? >> right now it's a comfortable time so we would not have more than a neutral weight on u.s. equities at this point. we think it'll be a fine year next year, we think there are much better options overseas. >> we like chinese internet companies. also with what's happening with china, mainland shares we're also liking a amazon play. we think target, if they show strong sales, they're looking online we think they could surprise people and become like the walmart of next year

much how walmart was successful this year. >> all right we'll leave it there thanks to both of you. happy new year >> thanks, guys. coming up when we return, street smarts. kevin o'leary will take us back to school all in the name of finding the next great business. stay tuned you're watching "squawk box" on cnbc

welcome back to "squawk box. check out these pictures from erie, pennsylvania a record-breaking five feet of snow this week and more a apparently on the way. the tally could reach a whopping 70 inches by tonight it feels like there's a cold front all across the country but maybe that was just because i was coming from minnesota. >> i felt it this morning. cold front right here in times square >> i don't mind cold i hate snow. that's the problem >> you hate snow >> i hate snow >> i hate mushy snow >> i love to ski, i hate snow. i'd love to find b a country you ski in the morning and you surf on the beach in the afternoon. >> i think if someone could achieve that, it's probably you. >> we don't have to stateside. that's the problem

>> okay. story for you. it's actually your story, sir. millennials love the idea of owning their own business. offering courses in entrepreneurship we sent kevin o leer we back to school harvard business school, that is >> really just fortunate to have him here today >> i'm going to keech a class and then i'm going to say bring on your deals. >> let's welcome kevin o'leary >> i'm going to share with you three attributes that are found 100% of the time in every pitch that actually gets funded. the entrepreneur is able to articulate the opportunity in 90 seconds or less. >> if he shoots bullets at me, i'm willing to take them >> good. okay, guys >> the problem we're trying to solve is the lack of financial health in the u.s. when i say financial health, i'm referring to two things. one, the lack of savings that

people have. and second thing, the lack of access to affordable prep. >> i'm not loving it i got to tell you. i'm having a hard time seeing how it scales. your communication skills to explain the opportunity have to be crystal clear number two, what gives you the credibility to actually take a great idea and execute on it >> i figured with my background of biomedical engineering from duke and now harvard mba, i could create a better system. >> do you have the patent yet? >> i think once i get the final prototype i could move towards crowd fund launch. >> here's the killer you have to know your numbers. how big is the market? how fast is it growing how many come pot tors are there? what's the break even analysis how many square feet >> i'm thinking 2,000. i really want -- >> how many chairs in there. >> ten chairs. >> it was tough. it was question after question >> what do you think of this >> i think it's interesting. wondering why wouldn't you grow

it as a rollout? >> there's only a first time once that you're going to hear it and that's when the magic happens. i will give you this i thought it was total crap at the beginning. now i'm intrigued. it's not as crappy as i thought. >> pitching to kevin o'leary is, like, or any of the sharks is like, i didn't think that would ever happen. >> i have to keep an eye on this one. >> i'm definitely going to try to follow up >> wow >> did you fund any of them? >> looking at two -- well, first of all, this business school is not something unique that i think others will copy in the last year in your graduating year, they give you credit for starting a business the reason you would do that while in school, when you leave school and fail which happens to eight out of ten start-ups, you're at ground zero again. you're out of school and unemployed this way you can test your concepts within the text of

school school supports you've they've got a good amount of resources plus they bring some in like me that see it early i saw two deals there that are intriguing frankly i don't care where you came from. it's a great idea, it's a great idea but also just because you came from harvard doesn't mean you have the next big thing. i think those students are starting to realize it it's a very interesting program. i like it. >> honest answer though. >> yeah. >> were you more or less impressed with this group of students, let's say, and the other places you have been before given this is supposed to be the creme de la creme? >> entrepreneurship lives and breathes in every college and you're picking deal by deal. but i think what harvard is doing is going to be copied. it's like an incubator on steroids all the resources harvard has and the access to people with capital come marching through there every day. why shouldn't they put their students in front of them.

having said that, though, the real world is going to eat you alive. when you're in the cocoon of harvard, it's a wonderful warm feeling. it's marvelous and why shouldn't it be? same with notre dame same with temple i don't care when you leave those hallowed halls, they don't care where you came from. nobody does. the market just chews you to bits. >> so did you crush anybody's spirit there anybody crying >> what i did tell them was an experience i had when i was their age when i guy like me walked in and said you have no idea what is going to happen to you. you think you're sitting here and so smart i remember looking at him and thinking what a beep this guy is his whole point is experience is worth ten times of an mba. i thought he was such an arrogant you know what he was 100% right. that's what i try to impart on these students don't assume anything until you get outside and see what the

real world is going to do. these are great relationships you're forming and these are technical skills you're taught but the real world is a nasty nasty place. >> if there's anyone to teach them the ways, it's you. i hope you follow along with their businesses >> it was great. all right. coming up on "squawk box," this morning's top stories. plus coin rush as we head to break, look at yesterday's s&p 500 winners and losers ♪

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♪ welcome back you're watching "squawk box" live from the nasdaq market site in times square. >> good morning. u.s. equity futures have been crawling higher slowly this morning. actually taking a slight dip s&p 500 would open by six. dow would open up by 45. nasdaq would open by 14. they have taken a slight retreat. we haven't seen a record in any of the major averages in more than a week app and that is notable considering the type of year we've had we'll see if they continue that today. the nasdaq down. the s&p 500 has been lower four out of the last five sessions. all right. let's talk our favorite topic these days

what else? bitcoin. show you the prices of bitcoin this morning the wild right for the cryptocurrency over the holiday, it continues we're hanging around -- in the mid-15,000s at this point. joining us now for more on the bitcoin momentum, the director of research at coindesk. good morning to you. >> morning >> okay. just basic question. what do you think right now. >> that's an important denominator. we don't know how much one dollar is worth. we've got all kinds of policies that dilute the number in the marketplace. all the dollar has going for it is the u.s. government will take it for payment of taxes. >> okay. can i -- i want to flip this around then. i can mine -- supposedly i can mine a bitcoin today in a place like norway where energy's cheap

for about $1250. if it seems to me it costs $1250 to mine one of these coins, there's something amiss here at $15,000. >> that's competition. so you have an incentivized economic model to provide security to a network. they're literally paid, think of the tragedy of the commons how do you incentivize people? here you have people that provide their computers to the network and they get paid to provide security to this network. think of what banks spend on security for their networks. it's unbelievable. >> right >> that's what's happening with bitcoin. you've got people plugging into this network and getting paid to provide security and the reason why it's getting more expensive is more and more computers are attracted to these jobs to mine these are jobs for machines. these machines are coming in there to mine this stuff. >> we now know that north korea is behind the attack of may and that part of that attack was to

get bitcoins from people who are operating in the system. is there a risk that if you have your computer plugged into this network and the sanctions continue and increase baengzs a larger part of this network, then you could get swept up in that too >> one of the neat things that happened with bitcoin, one of the unintended consequences is this people say is it a currency, is it a commodity cryptographic keys are becoming currency that the wallets themselves, they manage crib cographyptogras and this is one of the interesting things that's happened since bitcoin came onto the scene. vinls protecting their own keys has become a business opportunity. you've got exchanges you've got all these businesses that are doing really well >> but if dealing an asset that touches north korea is considered money laundering, what does that mean? >> there is no center to bitcoin

in that sense. so you have to start accepting that there are differences here. the power for us to authenticate ourselves and use a key to -- >> but intrinsic in what you're saying is bitcoin can't be hacked i made that assumption along with everybody else this is the pure play on security. and i'm sitting with an ios expert last week talking about this phenomenon. she said -- she's a ceo of a company that is hired by s&p companies to hack their systems. anything digital anywhere in the world can be hacked. including bitcoin. is that a true statement or not? >> bitcoin itself, no. the onramps have been hacked so exchanges, wallets, to get access to the keys bitcoin itself, think of it as a law of nature argument bitcoin is elegant and simple. because of that we have this wonderful technology that has never been hacked.

and it's attacked all the time >> let me ask you a different question about the key story so there's going to be 21 million bitcoins in total. i know some cryptographers think the market cap of bitcoin is higher than reality. >> and they can never be recovered. it's like the guy in london searching through the garbage. >> there could be bitcoins that have gone missing and are sitting on thumb drives in people's -- >> that means block chain doesn't work it's supposed to be a trail to go back and get your key, right? >> no, no. not that you can go back and get your key but you have have a system why can't you find the one where i lost my 90 million. >> you can find the transaction where it stops you can't find the key that would allow another block come into the chain. >> that doesn't make me feel warm and fuzzy >> that's one of the things about learning how to do

multi-safe transactions. app lot of these exchanges are developing technologies so that you can have a key, i can have a key, and that will make the transition happen. >> final question. what do you think -- i met a couple of guys that are now ash tra -- arbitraging. then they type in here and physically e-mail the codes and keys this is like picking the stuff up -- >> small amounts i've been looking at this. small amounts. you can't do megatransactions. the arbitrage is not -- it's not industrial size yet, andrew. >> a few years ago, people were able to make a few million dollars on arbitraging when there was a lot of different information coming from different confidence one thing it created for us was create the -- >> you're not helping with the arbitrage problem.

you're closing the spread. you're the problem not the solution. >> maybe >> happy holidays. coming up on "squawk box," raising the roof on housing in 2018 what's likely to drive the market in the coming year. before we head to break check out the market this morning. ♪ tada!

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we at the imaginary friends society always have your back! welcome back to "squawk box. time now for your executive edge the library of congress will no longer add every public tweet to its archives it launched this project seven years ago. the library will now only archive tweets on a selective basis the same way it does with website. s. this changes the game for the president although they may deem everything the president of the united states says to be archivable >> i think so. right? there's a guy or somebody who does it who turns the tweets into the white house statements on the stationary. >> who decides which tweets? >> there must be a quality

control. >> government work that's the job >> that's got to be painful watching that all day. says tweets may be archived. and so for people in every single level now to know that they may not be archived i think is probably a good thing for them >> i assume everything that goes out is archived in perpetuity anyways. >> it is on the wayback machine. you know that? >> yeah. if it's controversial enough, somebody takes a screen shot of it and starts sending it around. that happens all the time screen shotted to e many. i'm like, that stays on the record forever >> they can this out this morning. the kanye west putting the stock in stocking stuffer this holiday season he rapper giving his wife kim kardashian hundreds of thousands of dollars in stock. the presents included netflix,

apple, adidas, adidas depending your wa i y to say it, and disn stock. did we show the image? >> actual certificates >> that's what i think they were doing. >> or just you own these stocks now? >> and i wonder if they were stocks that kanye personally picked out based on his brand loyalty or whether there were at the advice of a financial adviser. >> that i don't know the answer to adidas one i understand. because of the yeezys. >> i find it intrinsically wonderful. that's a great gift. >> it's the reason for the season capital appreciation. >> she'll get a gift every quarter too. let's open up another playbook for 2018 while we're at it diana olick is getting us up to speed on the real estate market.

>> 2017 saw a big slowdown in the housing market not in prices but in home sales because there was just nothing to buy 2018 will not be much better sales slow more. sales could become even more sluggish as the supply situation worsens. yes, home builders will continue to increase production, but slowly and mostly in the move up market not the entry level where millennial demand is highest that could squeeze would be buyers back onto the sidelines prices push higher all that demand without much supply will keep the heat on home prices and the reliability will become a much bigger issue. especially now that the republican tax plan wipes out valuable deductions for property taxes and mortgage interests in high-cost areas. mortgage reform. the biggest remove in 2018 could be in the mortgage market. and the elephants in it namely fannie mae and freddie mac talk is finally heating up in congress to reform the system and private investors seem not

only ready but eager to get back in the mortgage game as for mortgage rates, most predict they will move higher. but most predicted that for the past two years and were wrong. coming up when we return, deficit politics why less government revenue could make house speaker paul ryan's job easier. could you believe that it's going to be easier for him in the new year. we'll tell you why as we head to break, take a check on what's happening to european markets right now mixed picture with the ftse up 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.

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. welcome back to "squawk box" this morning there has been a shift in the deficit debate john harwood joins us this morning from washington. you have a very provocative article out with a pretty interesting idea, john >> andrew, good morning. happy holidays to all of you guys look, when president obama was in office, republicans led by people like paul ryan was crusading against the idea of a trillion dollar deficit. they said it was going to create a debt crisis. now having passed these large tax cuts, which most economic forecasters say will increase the deficit.

in fact, the bipartisan policy center says we may have a trilt yon dollar deficit in the next fiscal year, that has shifted the debate from the tax issue now to spending, and paul ryan wants to go after reductions in medicare, medicaid he is also in the past supported partial privatization and higher retirement age for social security all of that's put spending cuts on the table in a way that's risky for republicans as they face a difficult 2018. >> we heard the president talking about wanting entitlement reform first thing we've heard speaker ryan say that mitch mcconnell seems to be couching the possibility saying if it happens, it would have to be bipartisan. i wonder if you think this is one of those scenarios where it would pass the house, but the buck will stop in the senate >> i think, kayla, that is exactly what will happen mitch mcconnell was asked about what ryan has said is the in

explae ex -- next plan. ryan said the way you deal with the deficit is through entitlement reform mitch mcconnell was asked about that, and he said i don't see that being on the agenda next year, and that's because to do that you have to have democrats. it's also -- when he says to do that, you have to have democrats, that means pursuing it without democratic support is also politically risky, and there is no way that democrats are going to join in with republicans on the heels of this tax bill and look to say turn medicare into a system of premium support. the vouchers that they've talked about in the past. we're in a situation where the likelihood is that we're going to have big deficits that there is no practical thing to be done about them if democrats sht going to go along with entitlement cuts, republicans have already instituted tax increases that's something the economy is likely to have to live with for a while. >> politically, who does that favor then

>> i think it favors the democrats because if you look at our nbc-wall street journal poll and you ask americans should government be doing more to help average people or is government already doing too many things, by 57 -- >> it made me immediately ask myself why doesn't trump change the agenda why take a chance by taking away the bread when you can giveth and get votes? why is he going in this direction? >> because you're not going to have republican support for major outlays on infrastructure. the president has talked about a plan that would leverage some private money and provide incentives to states and to the private sector to increase infrastructure spending, but it's not going to have direct outlays. republicans aren't going to vote for a big deficit expanding

infrastructure program they're kind of stuck, and i don't see -- the president has said, and he said during the 2016 campaign, he was not going to touch medicare, social security, and medicaid already through the obama care debate, he pro he posed big medicaid cuts. paul ryan says he has been working on the president to try to get him to go after medicare. don't know if he is going to do that nick mull veiny, the budget director, said he is going to try to persuade him to go after social security disability all of those things are going to be unpopular especially with those trump voters a lot of whom are on social security disability. >> john, is there any priority in 2018 that shares the one characteristic that made tax reform successful, which is that the entirety of the republican party had a singular focus on it and was all on the same page >> i don't believe so. i think that's the -- when you talk about found'sal believes of the republican party, it's not

health care and it's one of the reasons why the health care -- obama care repeal failed it is tax cuts reducing the suz of government and reducing taxes is as close to a universally shared belief within the republican party as exists they have now taken their best shot at that i know, kayla, you have been covering nafta the republican base is split on that establishment versus the populist wing. there is no consensus there. there's not consensus on infrastructure i don't know what the president can do that is going to spur that kind of broad support in the republican party >> john, i have a final -- since you are a d.c. hand -- though kayla is also -- we have two d.c. people here how much do you know about the royals one thing i want to -- we haven't talked about this morning is this whole situation about whether trump is going to get invited to prince harry's

wedding because they want to invite obama, and if you don't do that, what happens? do you have a take on this, john >> my guess is that prince harry and megan markel are going to follow their own wishes in this matter i mean, he has become close to president obama. he wants to invite him to his wedding. i understand that that puts a political squeeze on buckingham palace, but i would expect that they would be governed by it being their wedding by what they want now, that might involve ultimately an invitation to the president. what i don't know is how strongly, say, megan markel feels about president trump in not wanting him there. >> did any u.s. presidents -- when prince charles was married to princess diana, were there any u.s. presidents there? >> i don't believe president reagan attended. in fact, i think that was after

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it is 7:00 a.m. eastern time good morning stocks are in the green with just three trading days left in 2017 we've got a full market rundown coming up. also, a pickup truck is imminent that's what tesla ceotweeting t build it log off facebook and erase the tweet. another warning about social media. this time from former president obama. it's wednesday, december 27th, 2017 the second hour of "squawk box" begins right now live from beating heart of business, new york city. this is "squawk box."

good morning welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm kayla along with andrew ross sorkin joe and becky are off today. sitting in with us today, mr. wonderful himself, kevin o'leary. we're going it hear a lot more from him in just a bit we want to get you up to speed on the markets we've seen the futures declining, but slightly. just by a couple of points the s&p opened up by six the nasdaq would open up by ten. we've seen very thin trading overseas, and that's trickling through to the united states not much data out that we are getting some cpi in and consumer confidence a little bit later today. let's take a look at where europe is. the u.k. is reopened for business after the boxing day holiday. we are seeing that europe broadly is in the red. the ftse 100 is the only market that is in the green up by about a quarter of 1%. finally, let's look at the ten-year this morning. forecasters at the beginningof

2017 said we would be sitting at 2.9% right now, and we are not even piercing 2.5% despite the fact that we are expecting several rate hikes to come in 2018 andrew >> okay >> we're going to get some key economic data. it's coming up at 10:00 a.m. eastern time the national association of realtors coming out with its pending home sales for november. the home sales contract signed but not yet closed, and that number expected to come in unchanged after 3.5% rise in october. we'll also get the monthly consumer confidence index as well we also have two reports usually on a wednesday -- they're not coming today, though the energy department's weekly look at oil and gasoline inventories is postponed until tomorrow because of the christmas holiday. i know you are all awaiting that number you know what to do with yourselves the mortgage bankers association will not issue its weekly jobless reports on mortgage applications either. i'm sorry. its office is closed this week they're on vacation. it will issue two weeks of reports, and they'll do that

next week. also, the big news of the morning, china-based automaker has bought an 8.2% stake in swedish truck maker volvo. they already own the volvo car group that was the truck maker people get this confused i do too it's also another stake in automakers like britain's lotus and malaysia's pro tton? i know what a plotus is that's a cool car. >> when you think about buying automotive investments like that, you make the assumption they appreciate in value a lot of them don't. i get the ferrari thing, you know, spending $2 million on a really exclusive car to me they're all commodities. i think the story did is going to end badly >> that's a contrarian view. >> it's a box with four wheels it reminds me of a cattle car. no different >> you did buy tesla >> i did, and i must say it's a

beautiful thing. beautiful thing. not a beautiful stock. >> don't you think there is a luxury element to all of these products, meaning you are saying they're all going to become commodities. i don't know what kind of car -- you walked here. >> i tell you a story. i had a beautiful mercedes diesel with the new diesel technology when the lease came up, i realized i never drove it. maybe i put 9,000 miles on it in two years because i was using uber so much, and i actually gave it back to the guys, and they said, well, we have a new car for you. i said i don't want it i'm not kidding. this is just one man's story, but i bet there's a lot of people in metropolitan areas if you live in boston, you don't need a car there's nowhere to put it. why don't you just -- >> shuttle it out 90% of the time >> you can get a car in 30 seconds. >> i don't know if you saw a story, though. in cities like new york, there's a huge problem apparently these cars -- these

uber cars are going unused now there's empty cars everywhere they're clogging up the streets, and there's a whole effort now to do major deal congestion pricing all over again they're thinking about doing this in cities all over. >> it's happening in washington d.c. >> that's why uber is going to win in the long run. cars will be more efficient. most cars will be riding 90% of the time in boston one of my friends who does student housing, when he is building his new student housing project, he didn't give them a garage he is going to lease it to uber where they can store themselves and charge themselves at night in cambridge right near harvard. smart. none of the students have cars this is the future that's why it's all going to commodity pricing. short those auto stocks. >> very clever we're going to get back to the broader markets. he might have a view on shorting the auto stocks. i don't know joining us now yuri timer, who is is not sitting next to me he is across the way

director of global macrofor fidelity investments also, rod sethi is here. do you want to short autos >> no, i don't want to short autos. if you short them more -- >> okay. maybe that was a little aggressive, but i'm not excited about the sector >> i'm more excited about the auto parts supplier because it doesn't matter what the box looks like where, they're the ones that are going to produce it >> i agree >> there's value there, and they also trade at a discount to the market today the opportunity is finding stocks -- >> are you long tesla? >> great car stock, i would stay away from. i can't find the valuation >> i don't know if you want to weigh in on the auto debate, but i want you to weigh in on the market debate. i want to know what you think the investors are doing the last three days of trading when they start getting fancy with the taxes and what people are trying to do to either position themselves one way or the other before the end of the year >> yeah. i don't know that it's related to taxes because, you know,

that's a capital gains tax issue for most people. we have a year of risk adjusted returns. 2017 will go down as the 99th perce percentile of most returned for least volatility it's been a hell of a year in that respect there's always going to be some repositioning, some adjustments going into year-end, and, you know, this question of rotation certainly comes to mind. you know, small caps really ramped higher a year ago after the election, and now that taxes are actually happening, they're just sitting around. there's still a few question marks as to -- >> most decembers that i can recall in recent years to the extent that there have been gains, people talked about locking in the gains i need to lock in the gains. >> that conversation is -- >> i think you have a couple of catalyst that is people really don't understand and they're working on it. one is the tax rate. how is it going to affect

corporations, how is that going to affect consumers? those are positives going into the future now, i think you guys have talked about this. something you want domestic stocks that are going to have a tail wind not just with taxes, but with the consumer spending, so home improvement stocks stocks like lowe's those are companies that are going to do well because the tax rates are coming down, and the average house is 11 years old. people are going to be spending money, and these -- some of these are midcaps, and i think those are going to do well >> you want your money here given this tax story, or do you want your money in a market because everybody says all the boats are rising, and, frankly, the boats may rise elsewhere faster >> you do domestically with a tail wind, and you do internationally because some of those stocks will have money coming back as well, and depending on kind of where the growth is, you give multi-nationals assets to then allocate >> what are you rotating out of? >> i am rotating out of really high dividend stocks i do not want to be in the telecoms and the utilities because i think those given where rates are globally, are going to get hurt, and they don't have growth rsh investors are going to look for growth, and they're going to look for catalysts in those areas where

they don't have it >> jurrien >> yeah. i would agree with that. i think the bond proxy stocks, high dividend sort of, you know, stocks that act like bonds, that will be a story for the next down turn when the fed is easing again and bond yields are declining, but i do agree, the bond price -- the bond market is still mispricing the fed in my opinion. i think the ten-year probably should be at 2.7, 2.8. the market is pricing in 2.8 more rate hikes over the next two years. i think that's probably too low. now with tax cuts and still the global synchronized expansion going fairly strong, even though china is tightening at the margin, we could see a classic overheating in the u.s. cycle, which will bring the fed into play i think it will be mostly a growth/momentum versus a value/small cap sort of game for 2018 i think the value side still has some catching up to do >> final word. >> i would add one more thing.

i think you also want companies that have growing dividends. i think that's going to provide you a floor. we're going to get more volatility in companies that have cash flow that's going to come back to investors you want to have all those as well >> we'll leave the conversation there. thank you, both. happy holidays, guys >> thank you up next, former president obama sounding off on the negative effects of social media. joining that chorus. the details coming up. as we head to break, can you guess this mystery chart a few clues to help you. the stock is up more than 55% this year. if we say one word, one of the companies products might wake up in your home you can probably guess it by now. we'll tell you the answer on the other side of this break for your heart... your joints... or your digestion... so why wouldn't you take something for the most important part of you... your brain.

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>> futures in the market in the u.s. are positive, but subdued retreating from the highs earlier this morning s&p with open six. dow would open up 39 nasdaq would open up by eight. that's following mixed trading in europe and positive trading for the most part across asia. even amid thin trading, thin news flow. we are paying attention to oil after news of that pipeline explosion in libya

it caused dti prices to sore 2.5%, piercing $60 for the firs time in two and a half years nat gas, because it's winter and people are heating their homes, especially during this cold front, that's up more than 1.5%. andrew >> okay another day and another warning about social media joe kernan often likes to warn about social media, but this time it's from former president obama. in an interview with prince harry obama said that one of the dangers of the internet is in a people can have entirely different realities and can be cocooned in information that reinforces their current biases. it wasn't all bad. obama also told the prince, who was guest editing the social media part, he credited it, in part, with his success.

>> tell me what the different is i'm not seeing it. what's the difference? >> there are fewer barriers to entry in today's platform. >> everybody now has a voice >> now the question is why is that a bad thing >> that's the question. >> cable news of esther year forced you to be in front have your tv. social media of today is addictive, and you can be on it any time anywhere 24-7 if you want to be, and you don't have to be in your home there was sort of a natural -- >> it all sounds good to me. >> there was a natural untethering. >> you whan i love about social media?

i get the news as it happens i can look at it myself. what's happening in rome or geneva or tel aviv, i can go on to any feed i want and get what people are thinking right on the ground i don't need the network -- >> you are cure ating, among a select group of people that you follow, right? so you are following people who might have your own -- >> what i likeabout this, andrew it's starting to smell like i'm from the government and i'm here to help you. i don't want their help on social media i don't want anybody looking at what my feed is. i'll decide myself what i want that's what i love about social media. >> we're going to keep that

debate going and talk about whether president obama will go to the royal wedding up 55% in the last year, and the answer, as many of you probably guessed with the second clue, it is, in fact, amazon. that stock is up sharply, and as the company grows its brick and mortar presence and its cloud computing services, it is likely to go up even further. so says our next guest joining us now to discuss what else the tech giant may have in store next year, james, analyst at montis, crestview, and hart thanks for being here. happy holidays the debate we have every year, okay, so am zwron azon is the w but to what extent >> i think it can conceivably double almost to 2,000 to $1 trillion in market value this company is exploiting more aspects of the economy than any other company in the entire market now they're going after food you have the whole media opportunity. the advertising opportunity. the logistics opportunity. it just doesn't stop >> we heard the former ceo of toys "r" us saying life got

worse for them after amazon entered the toy space. they're looking at generic drugs. they're pretty much trying to touch everything is there any industry that cannot be amazon'ed, where it would run into a wall? >> you would have thought that food you know, prepared food delivery would be, like, one of the areas that they couldn't get into, but i think that that's going to be their natural next step as they shift the entire two-day shipping battle into a same-day, same-hour shipping battle with prime now. >> how big of an opportunity does advertising represent for them now one of the things you keep hearing about is that they're going to effectively go into the advertising business big-time in 2018 people don't even appreciate it. there's so much advertising already on amazon, and people use the search on amazon they have a remarkable amount of information that i'm not sure is appreciated properly.

>> if i'm coach, hermes, and i decide i want to know who my customer is. if you collect pins, you know who they are they're not going to go on amazon why would they bother doing that you can't get them unless it's a used product on ebay or whatever, but why wouldn't they protect their gate and say, sorry, amazon, unless you give me my customer, you can't sell my unique brand that handbag for, you know, whatever it costs? is that not the protection in the long run >> there is protection for certain brands i think that you do see that nike and amazon, for instance. i worry about energizer.

the energizer bunny. col clorox that's part of the economy that can move over to amazon. that's something that -- >> the company put out a press release yesterday with statistics about its holiday shopping a lot of those stats bordered on the obscure, talking about copies of walter isaacson's da vinci book, totaling the weight of 25,000 gallons of paint >> heavy book. it's a heavy book. >> it is a heavy book. they did have one stat that the use of one day, same day, and prime now shipping doubled thi holiday. is that a good thing, or is that really bad for margins this quarter? >> i think it's going to be fine i think what they're going to do is take the fba, the full fimmefi fillment by amazon model and basically store products from merchants in their warehouses and ship it for you. i think they're going to bring that model to the local markets and use local retailers at their warehouses to bring in more same-day efforts i think that they can shift a

lot of those storage and cost burdens over to -- >> do you think they're going to buy -- there's speculation -- >> andrew, spoiler alert, they bought whole foods >> i know. people talk about kohl's could you do something i think substantial where you decide you're going all in on the boxes? >> i think the -- no, i think the criteria needs to be incredible brand loyalty and afi affinity for the business. >> people made the subjects that it's asset-light >> it's an asset-heavy business. >> all these distribution centers cost billions of dollars. the amount of infrastructure this is turning into a brick and mortar play just through its ability to -- or its desire to ship in a couple of hours. i don't see the difference anymore. they're just a really big wal-mart with a different brand name i think to me wall march has the biggest chance to compete with them because they've already got the brick and mortar >> so this doesn't become an advertising segment because we are about to have to go, give us one down side risk for amazon.

is there anything that could hurt this company? >> regulation. at the end of the day. i think it won't come until you reach a certain target threshold and value where the headlines start to explode like a trillion what we're seeing right now is the government fully behind them rubber stamping the ftc with whole foods. they're moving closer to the government agencies with the aws partnerships, and then you have the fact that, you know, they are shopping around hq2. all these markets are, like, clambering for their attention i think they bought themselves some time, but ultimately nothing lasts forever. >> they're in the president's sights too coming up, elan musk and the tweet that has everyone talking this morning on the other side of this break. as we count down to the opening bell here on the nasdaq, got a very special reason.

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it's been almost two months since the saudi crackdown. robert jordan, the ambassador to saudi arabia, will help us it try to understand what's going on there we have the futures right now. show you what's going on before we go to a break dow looks like it would open up 30 points higher nasdaq about nine points s&p up about six points. squawk returns in a moment [hawaiian music playing]

♪ >> good morning. welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm kayla along with andrew ross sorkin among the stories front skpr center this morning, a new name is surfacing for possible consideration as the next fed vice chairman. the "wall street journal" says pimco money manager richard clarett is under consideration

mohammed elariyan and lawrence linsdsy are also candidates for that number two slot at the fed. current vice chairman jay powell is set to succeed janet yellen as fed chair and is expected to be confirmed he early next year. china wants to see the ramp-up of electric vehicle and hybrid sales to continue the government has extended a tax rebate on those vehicles until the end of 2020. that had been set to expire at the end of this year harbing capital is suing apollo global over the wireless venture known as light squared remember that? harbinger claims it was defrauded by apollo and that the firm knew or should have known about flaws in the technology. apollo says the lawsuit is without merit. andrew elan musk teasing some details on twitter about a pickup truck that he says would challenge automakers and one of the company's most lucrative segments the tesla ceo tweeting i promise that we will make a pickup truck right after model y.

have had the core design, engineering elements in my mind for almost five years, and am dying to build it. he also tweeted that the truck would be similar in size to the ford f-150, although slightly larger to account for a really game-changing i think feature i would like to add. model y, musk referenced, has yet to be revealed, so we might have to wait until a little longer. >> that kind of thing is one of the reasons people buy these formats. again, commodity >> commodity >> also, in global news saudi arabia and the united arab emirates plan to roll out a value added tax next year. it's going to be about 5%. the changes as both couples have

used their tax-free statuses to lure foreign workers there will be some exemptions for big costs. two dozen high profile detainees have been released by the saudi government, but saudi prince alwaleed remains detained. with more on what's ahead for saudi and the u.s. relationship with them, robert jordan, former ambassador to saudi arabia in the bush administration and author of "desert diplomat, inside saudi arabia following 9/11." good morning to you, ambassador. help us understand what you think of these dozen or so folks, two dozen folks who have been let out of the ritz carlton, also known as the prince palace -- i'm sorry, the prison palace is what they're calling it these days. still, as we mentioned prince alwaleed, who is the best known in terms of financial circles, still there.

>> he is resisting that kind of a fine >> do you look at this and say this is a fantastic effort at an anti-corruption really cleaning things up, or is there some kind of shakedown >> i think last time i was with you, all i said is possibly a bit of both, and i think that's still true there has been a tremendous corruption problem in saudi arabia for many years. the business community has been pretty fed up with princes coming in at the last minute and claiming pieces of their deals, being shaken down from time to time this needed to be cleaned up and king solomon, even two years ago, said that he intended to do that at the same time the way this young crowned prince has gone about it has been very authoritarian. he has been trying to essentially euserp the

traditional functions of many of the institutions in saudi arabia and command power unto himself he has gotten rid of the former crown prince, the minister of interior, and the head of the saudi national guard all of this is now under him at a time when there are many crisis, some of which he has initiated, in the neighborhood >> ambassador, at the same time that he is pursuing these anti-corruption efforts, we're heegd stories about him buying 400 million dollar pieces of art, this $300 million chateau right near versailles. how is that playing internally and externally >> the lack of judgment and the lack of self-awareness that this reflects, i think, is shocking there is some pushback on the story about the piece of art that apparently may actually have been an emiratic purchase for the louvre in abu dhabi. the chateau and the yacht that he purchased last year are

certainly signals that are inconsistent with what he is trying to do to reform the society and the economy. there will be members of the royal family, others in the community who are saying, wait a minute, this guy is just the biggest hypocrite in the world i think he has to be very careful to balance that. >> let me ask you a question back to alwaleed if the price tag to freedom out of the ritz is $6 billion, should i impude from that that those are ill-gotten gains and that somehow by giving them back he is now free and clear and that there's no other price to pay? this is a get out of jail and that somehow these were ill-gotten if i were him, i would be resisting that like a lot. >> there are some offers that he has -- in exchange for his relea release. this may well go to trial. he has for years had very strong legal representation there has not been a suggestion

of an ora of corruption about him, as perhaps there has been with others, and so he may well resist this. we will then have a big test of whether the rule of law really does apply in saudi arabia and whether he can get a fair trial. >> what do you think of the idea that he would like to stay and continue to live in riyadh by the way, apparently many of the folks who now have been released who have had to give over money or what not, plan to still live there >> well, i think this is embl emblematic again of his insi insistance on his innocence. he may say, look, let's put this into the coffers of the sovereign wealth fund and move on, but i do think part of the equation here is his reputation, his standing in the community, and standing within the family >> he has been in the ritz now for over three months. he must be really tired of the in room dining menu there. are these people being let out of this place?

can they go visit their family >> apparently not. the diet there i think is probably something that is still not quite what they're used to, although alwaleed himself is a very strong exercise fanatic he watches his diet, and my guess is he is managing fine on the circumstances. this would get old for anyone. your freedom is very important to you >> although the riyadh ritz is not a bad place to be. ambassador, before we let you go, i'm curious what you make of the administration's approach to the middle east more broadly there are questions about not only the situation in saudi, whether the u.s. approach is led by the state department or the team behind jared kushner, the efficacy of the -- in pakistan the move to potentially set up a new u.s. embassy in jerusalem. i mean, how are you looking at the doctrine of the trump administration in the middle east is there one >> well, there isn't one yet it's still unfolding

i think the speech that president trump made in it riyadh some months ago suggested that he wants those in the neighborhood to take more charge of that neighborhood with a softer touch by the united states and still supporting them, particularly in countering any influence by iran. i think iran is now the great villain both to the sunni arabs as well as the trump administration, and this is where they have found common ground >> okay. ambassador, we're going to leave the conversation there lots more to talk to you about we hope you can come on back and skbro join us. >> thank you >> hopefully we'll hear more about the future of prince alwaleed >> kevin o'leary, we'll get his tax on tax reform and all the stocks he is watching. stay tuned you're watching "squawk box" on cnbc [lance] monica, it is absolute chaos out here! gale force winds, accumulations up to 8 inches...

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if you wanted to learn how to hit the road on a motorcycle, here's your opportunity. harley davidson is expanding its riding academy program to more dealerships. that's in an effort to stem declining sales by teaching more

people how to ride motorcycles the program launched in 2000 with about 50 locations and 245 dealerships in the u.s. offer three or four-day courses. the stock is up by about 1%. not sure if it's on the back of that news, but i wonder if it comes with a leather jacket or if you have to bring your own. >> i wondered why this industry hasn't gone electric if you want to go fast on a motorcycle, you put an electric motor on it, and it would beat all of these gas-powered engines. that's not part of the vibe on a harley, what it's all about. >> incredibly efficient. if you have to build something, you're an engineer and you want to beat everybody on a motorcycle, you go electric. >> kevin, we have some time here to chat with you >> yeah. >> i said before the commercial break that we were going to talk about tax reform, and some of our earlier market segments you were talking about all the things that you are doing right now to sprint to the end of the year ahead of tax reform coming into effect next year. >> this conversation also goes into this debate which we're

going to have in 2018 about active management versus new indexing technology. for example, when i saw the tax reform coming, we first started talking six months ago, i don't know all the companies that filter this way. for example, has to be domestic. has to have 100% of its revenue in the u.s has to be profitable because a lot of small companies are all domestic are in the russell 2000, which are unprofitable companies because why would i care about tax if you're not paying any doesn't matter >> sure. >> i went and said i'm going to introduce myself to all the indexers because i can't do that work i can't look at 2,000 stocks here is the big debate that will come in this market. i could hire an active manager, maybe pay them 100 basis points, 80 or 90 basis points, or go to an indexer, in my case i use ftse, and say you do the work. here are the things i want you find me every single company in the russell 2000 that makes money, that's going to pay tax domestically, and that basically

has a good balance sheet and is not over levered >> you wrote a piece for cnbc.com three weeks ago, and that was the conventional wisdom for the reasons you just said that the russell was exactly where tax reform was going to play out >> i didn't say the russell 2000 i said within the russell 2000 there are 300 companies that make money i can't find them individually who is going to read 2,000 balance sheets my point is an indexer now does the work of an active energy instead of paying an active manager, i went to an indexer and said i'll pay you. i don't own the index. it's called ousm they own it. they licensed it to me for one geography and one currency u.s. dollars u.s., and they can give it to somebody in europe or london the point is they have 100 researchers i'll never hire. the big thing for me in our industry, financial services, is why isn't every single market that can be indexed going to be done by an indexer at half the fee of what an active manager did, and the next time we see

somebody shining shoes here, that could have beenie yesteryear's active manager. they're not adding enough alpha or value i'm just one guy doing this. there must be billions of dollars worth of people saying i'm going to get an indexer to do this work for me. >> as jim likes to say, i prefer to pay someone to lose my money. >> now i have 300 stocks >> right >> ftse russell made it the ousm index for me they all make money, and they pay a dividend, and they did all the work i did nothing. i licensed it from them. i don't have one single active manager. i fired them all now i have an index that does the same work. >> how has it performed so far >> it's been fantastic it got me 85% of the up side with only 55% of the down side they designed it that way. >> okay. so based on what you would do -- based on what you are saying, what would you -- what companies would you short as a function of this >> i would say any company that went up in the run because i

haven't done this. i'm an optimistic guy, andrew. >> no, no, no, i'm thinking financial services companies i'm thinking if you are living in an active management world that you think is about to get nailed -- >> without putting any names in place, anyone running a mutual fund with an active manager versus someone now actively creating active indexes, all they're doing is taking the mind of a good manager and putting it into an index. >> the separate question becomes you look at a black rock, for example, which is just a huge amount of resources and money under management isn't there margin compression on all of these guides >> black rock is the master of all of it. i think steve wiseman is the new guy driving that there he is saying if you can't -- if you are an active manager and you can't beat an index i can build, why are you here? as a result there's a lot of bodies flying out of those windows right now. i'm saying this will be the 2018 debate if you can't beat an index, if you are an active manager and

you are charging 100 basis points to do it and you can't beat an index, you have to find a new career, and, boy, the hate mail will come in, and i'm just an average investor doing everything everyone else is. >> there's something to be said that these indexes are turning us all into sheep. >> no. >> it means we're all chasing the same thing there's nobody out there who is actually finding the needle in the haystack >> here's why that statement is incorrect. >> and if you are a value investor, you have to wait for your little company to somehow get recognized by an index for it to actually work out. >> andrew, that is the misconception, the biggest one, about this whole space it's true when something like an s.p.y. was created, market cap industries has every stock in them that's all gone. there's a whole new generation of actively managed indexes. what ftse did for me, ousm, is actively managed it picks stocks. they're not market-cap weighted, and if they're not profitable, they get kicked out.

that's what an active manager used to do they've been replaced by a machine and 150 researchers. sorry. that's just the way it is. don't shoot the messenger. i'm just a guy trying to scratch out a living >> mr. wonderful >> wow there we go. >> mr. wonderful >> leave it there. >> people are jumping out of windows. is that what you said to me? >> i'm saying the industry is going through a massive change, and you're going to be talking to me all next year right here at this desk fewer and fewer active managers. might as well bring a computer and talk to you. >> i see the phone lines being lit up here. coming up, 2017 saw even more delivery mania and uber eats gained market share we're going to talk to the former coo of delivery.com about his specialty meal company that brings you food from popular restaurants no matter where you live we're going to show you and tell you all about it when "squawk box" returns i'm here to fix the elevator. nothing's wrong with the elevator. right. but you want to fix it. right. so who sent you? new guy. what new guy?

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you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. zblierngts joining us right now the founder and ceo of gold belly. good morning to you. you brought lots of food >> you didn't eat breakfast, right? >> i have not eaten breakfast, so you'll have to tell us what you brought. >> you said you wanted a cake for breakfast. >> kind of unbelievable all of the stuff you brought here, but for those uninitiated, tell us what this company does >> best foods from around the country from mom and pop shops, from iconic restaurants.

we ship it to you wherever you are. so if you are craving new york bagels, you want h & h, but you live in texas, we'll ship it to you overnight. >> are you freezing the bagel? what are you doing >> bagels are shipped fresh. it's kind of a case by case basis. like barbecue is a very popular category >> right >> for barbecue capitals in the country. texas, k.c., carolina, memphis we ship the most iconic shops in all of those areas generally those are either shipped frozen or in gel packs and you can heat them up for 15, 20 minutes >> you have a pastrami sandwich with the mustard ready to go this is from carnigy deli. they're no longer in business. >> correct there was a shop a few blocks away from here that was around for, i think, 50, 60 years they closed their doors new year's last year we talked to the family. so many people want it our whole mission is to find the most cravable, nostalgic foods that people miss and want and ship them. >> what's the damage for that sandwich sent to me if imauto in

california right now >> everything -- something like this is shipped overnight. you can't order one sandwich we'll ship a kit, a four-pack kit for $89. it's actually a little bit cheaper than it was in the shop. >> how many people are actually looking to order big city experiences? personal anecdote, i lived in new york for a decade. now live in washington d.c would probably be interested in ordering some of this stuff because there are experience that is i remember personally from when i lived here how many people in rural america say, oh, yeah, that looks good that's something that i want, and i want to pay up for it. >> well, a lot we've been fortunate and had tremendous success over the last four years you know, i think there's a few things to explain for that this is the foodie generation. a lot of people have grown up on food network, have seen these different interesting shops from all around the country that they love, and social media where -- the most shareable experience is sharing food experiences breaking bread, but doing it on social media people see all of these

interesting things from all over the place, and they want to be a part of it >> talk about the margin the reason i'm thinking about the margin here, i don't know if kevin is thinking about the margin, is it's -- you have to pay fedex or ups a substantial fee because you are trying to get the stuff overnight. these guys, i'm assuming, that david chang, for example, who owns milk, right >>crustini toast >> she's going to want a margin on that cake, right? >> sure. >> is she giving you a discount on the cake? this is what i'm trying to understand you see what i'm saying? >> yeah. so we make a cut of the order. it's on a case by case basis how we structure >> are you marking it up from the price i can buy it in new york city, that sandwich, for example? >> in some cases yes >> we as investors have learned a brutal lesson this year. remember blue apron? it's in the meal kiting business what we learned watching that stock slide 70% or 80ers approximate of the cost of acquiring a customer was always more than the lifetime value of that customer. why are you able to beat those horrific odds?

>> yeah. we're a totally different business blue apron is actually taking the food, storing inventory, shipping those we're a platform we take no inventory we take no product similar to a grub hub, similar to an etsy >> hold on just so i'm clear, these guys are all doing the shipping themselves >> correct >> there you go. >> what happens if my sandwich doesn't arrive >> we manage the shipping and logistics. we manage the e-commerce technology we manage the on-line -- >> you still have to acquire the customer >> of course of course. >> how do you reach them you mentioned instagram before and the social media >> social media is huge. word of mouth is huge. a lot of press coverage because we launch interesting products where, when carnigy deli launched, it was in 20 different media sources because it was basically dead to most new yorkers. now they're alive and shipping nationwide to people a lot of press coverage. a lot of nostalgia, and emotional connection like, our big thing is a little bit different than most businesses in the food space

a lot are trying to be the fastest or the cheapest. we're trying to be the best. to us best is emotional when it comes to food. you were speaking about it earlier where it's, like, you have certain connections to certain places it can be a small town where you grew up in it can be a big city which you visited. we want to establish those connections with those local food makers and empower them to enter an economy they're not a part of. >> we have to go, but who is the one restauranteur or chef that you want on your platform that you don't have right now make the pitch >> that is tough a few of the most popular items that people want are shake shack burgers and in and out danny myers is a talented restauranteur. that would be one. >> you can send me a push notification when you get in and out. >> we will we work with most of the top chefs. >> thank you this is great. thanks, guys >> hope you are hungry >> this might be our new year's.

will that cake last? >> yeah, of course big hour still ahead on squawk the trump agenda in 2018 we're opening up the political playbook a big hour on "squawk box" on the other side of this break it's a small finger...a worm! like, a dagger? a tiny sword? bread...breadstick? a matchstick! a lamppost! coin slot! no? uhhh... 10 seconds. a stick! a walking stick! eiffel tower, mount kilimanjaro! (ding) time! sorry, it's a tandem bicycle. what? what?! as long as sloths are slow, you can count on geico saving folks money. fifteen minutes could save you fifteen percent or more on car insurance. you're gaining something from meeting mr. adderley. it's a calling to not only everybody in this neighborhood in miami, but to the nation how great we are. and how great we can be. ♪ ♪ i'll stand by you.

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the dow on space for its first nine-month winning streak since 1959 >> squawk goes shopping. why gift cards could be a game changer for the retail industry this year. >> plus, washington watch. president trump signing tax reform into law and we're just starting to learn about the biggest winners and losers from the overhaul the final hour of "squawk box" begins right now life from the most powerful city in the world, new york. 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 kayla, who is hanging out with us today. becky and joe have the day off also, sitting in with us, mr. wonderful himself, kevin o'leary, is going to spend many some time, and we've been having

a lot of fun he has made some contrarian calls. some things we'll have to save this tape for including tapes on the automotive industry that i'm sure people like elan musk and mary barra are looking at. take a look at futures this morning as we see how things are going to set themselves up for the day. it's a bit of a green picture at the moment it was a mixed picture in europe dow rooks like it would open up 20 points. nasdaq up about three points >> anybody want to do a fixed year -- 30 fixed year mortgage >> not at these prices >> if you believe it will be four rate hikes, that's 100 basis points next year, you would hear that -- i haven't bought any debt in three years i mean, i used to own 40%, 50%

of our portfolios in fixed income this is a really big conundrum for managers now >> if you are doing a mortgage, by the way, today, would you do one of these five-year, you know, arms or adjustable rates or not >> i wouldn't do an adjustable rate i would lock and load. i would say, look, how long can i go at these rates. >> even at these prices. >> yes, because frankly they're still historically very low. you have to remember there was a time when a telco bond yield the 6.5% for five years, and it competed every year for stocks it was a more secure way to guarantee 6.5% if you thought the company was staying in business we don't -- today, you know, i have some portfolios and yielding 2.6% with 38 month duration, and i can get a better yield off a midcap stock i can buy veil resorts and do better than that that really is becoming a big issue. >> although i will say on the mortgage topic, even rates rising by 100 basis points, historically is still low. it's not as good as it would be now, but people who 30 years ago got their mortgages, i mean,

they were at 10% >> there's a theory amongst bond guys if they're smarter than equity guys because they have to get the principal back a long time from now for 35 years they have been. it's been the longest bull run in fixed income history. at some point is it now this is going to reverse this is the big question mark of the day. we don't talk about fixed income very often, but, frankly -- >> especially for retirees who are shifting into fixed income right before they -- >> it's a 30 year bond and rates go up 200 basis points, and you're 65 years old, you'll be dead before you ever get back your principal dead.

>> those are going to be key for the market >> i want to make one comment on the apple phone situation. >> i feel like it's been misreported or misunderstood in terms of the idea that they're slowing down i do think that phones do get slower >> you've always suspected that.

>> if that doesn't stop a coninc.ancy lower that -- my guess is this case won't be settled for five to seven years, and apple probably will win. what slows a phone down is an upgrade to a much more powerful code on an old processor if you had a seven plus, as i had until a couple of days ago, that thing was crawling like a turtle as soon as i got the 10, yipy, the thing was on fire. i get the joke, but it's a much higher, faster -- >> do you think that this negative pr that apple has gotten from this story will actually have a positive effect and encourage more people? >> i have come to the conclusion with apple that there is no bad fres and that somehow the fact that they get headlines all around the world drives more people into the stores to buy more stuff.

skbro let's talk taxes and what's going on with tax reform and what specifically was signed into law there are many other items, though, on the trump agenda, and amman javers opens up the playbook for us this morning >> first, we can see a much different group of white house aides advising the president gary cohen publicly split with the president earlier this year. also closely watched will be the president's top liaison to capitol hill, mark short, and keep an eye on the president's son-in-law, jared kushner, and daughter ivanka trump. with investigations swirling and legislative progress slow, some believe the power couple may want to return to new york second, the special council's investigation will continue to haunt the trump administration in 2018. already robert mueller has obtained guilty pleas and cooperation from former national security advisor mike flynn and

foreign policy advisor george papanopolous no one knows exactly where he is going next how will it all end? three possibilities. more indictments, an impeachment referral to the house of representatives, or a full exoneration of the president and his team third, the white house will try to capture legislativemomentum after the tax debate president trump says one focus will be on welfare reform. he argues some unemployed people make more in welfare benefits than workers struggling with two jobs that suggests he would like to reduce benefits, but a senior administration official told me the plan will involve getting people back in the work force and increase job training, suggesting an increase in certain benefits either way, the white house will try to get legislation through congress early before midterm election year politics makes progress impossible. all right. our thanks to ayman for that now the president has signed tax reform into law. will he get that momentum, and what is at the top of the d.c. political agenda for next year

let's bring in joe watkins, former aide to president george h.w. bush, and a former obama administration official. welcome to both of you joe, i'll start with you, because next weekend president trump, senate majority leader mitch mcconnell, and house speaker paul ryan are going to have a retreat at camp david to talk about the agenda and try and make sure they're on the same page. if you were a fly on the wall, how do you think that will go? >> well, i think it will go well i mean, donald trump does very, very well with the people with whom he meets as long as he is meeting with them, and i think it will go well. they'll talk about not only welfare reform, and also infrastructure, which is important, and they'll talk about probably immigration maybe a daca and some other items. 2018 is a midterm election year, so it's a very, very important year they'll be talking about that also

>> what seats are up and vulnerable >> democrats are hoping to flip this party make-up in congress, jake, but i'm curious, how do you think the 2018 election year will go? will democrats hold their ground and continue not giving away their votes on key legislative priorities that republicans are putting forward, or do you think that they will find that it's in their favor to vote for things like infrastructure or be involved in the conversations on entitlement reform >> i think you'll find that democrats will be voting to do things that help the american people and, frankly, those are things that are also going to help democrats take congress that's going to be standing up for working americans. it's going to be working for a fix to the health care law that donald trump just blew up a little bit with the tax cuts i think the democrats are looking at a tough map certainly, but the energy is all on the democratic side, and there's a reason for that, and

it's because the american people are looking at the actions of the current republican congress, and they're not seeing a whole lot to like. i think that going into 2018 you're going to continue to see a lot of energy on the democratic side. i think you're going to see democrats, independents, and some republicans who are looking at what's happening in washington saying this isn't for me >> how far can energy go even in the senate where there's a lot of talk about the need for bipartisanship given that it will be 51-49, jake, i mean, can energy actually result in legislative policy >> well, you know, you've got mitch mcconnell talking about bipartisanship, but i wouldn't necessarily trust a whole lot of that this is the same mitch mcconnell who shut democrats out of health care reform efforts. it's the same mitch mcconnell that shut democrats out of tax reform it's the same mitch mcconnell who held open a supreme court seat for a year in order to install a conservative justice i don't think you're going to be seeing a whole lot of bipartisanship the idea that mitch mcconnell suddenly got religion on

bipartisanship is unlikely color me skeptical on that >> well, interestingly, joe, i asked senator mcconnell last week in his year-end press conference where he sees bipartisanship playing out they didn't mention welfare reform, and he didn't mention health care. he mentioned a banking regulatory relief bill, and he mentioned daca do you think that those are the two most likely areas that are right for bipartisanship >> yeah. i think so daca certainly would be one that would be right for bipartisanship it would be great to see republicans and democrats working together on some of the key legislative items going forward, but in a hotly contested midterm election year that may not happen. i mean, democrats have a shot to maybe contest strongly in arizona and in nevada in those -- for those u.s. senate seats, but republicans as well have a chance to flip the seat in missouri that blows claire mckavgel and the seat that belongs to joe donnelly.

there are only nine republican seats in the senate and 25 for democrats in the senate. republicans have a very good shot to retain control, although by a slim margin of the senate they have a very good shot as well to retain control of the house. even though democrats do have momentum, republicans have something to say that they did now, which is tax reform republicans are heading into the midterms with something to talk about. if they have one or two more accomplishments in 2018, it really helps them move forward >> i think kevin has a -- >> excuse me for being a skeptic, but i'm going to assume the new normal is partisan politics forever i am thinking i'm a republican i've just passed the tax reform. only 17% of the people polled think it's going to benefit them yet, within the next couple of months, their paychecks will increase dramatically. tell me what you have to do if you are sitting in that think tank to go into the midterms with a winning game plan what's next? what's the next big thing you can get done and call it 12, 15 months before you actually have to focus on the electorate that

it's going to vote again, and you are a republican you want to win. >> well, i think, first of all, i take an issue with the idea that people are going to get to see a dramatic reduction in their taxes. that's true for folks at the upper end of the spectrum, but for a lot of middle and low income americans, that's not going to happen. they'll get minor benefits, if any at all, and over time the american people understand this. over time those benefits are going to go away, and in some cases those taxes are going to increase for middle and low income americans, and this isn't -- this isn't a secret you know, when we talk about republicans going around and trying to sell this bill, the more they talk about it, i don't know that it's going to help them a whole lot >> well, i would argue that potentially companies coming out with these announcements about raises does more than anything lawmakers could do to potentially sell this bill we'll see how that feels for middle america when it hits their paychecks. joe, we'll give you the final word because tax reform was a

success. it was the largest and potentially sole legislative success that this administration has had, but is there anything we asked this question of john harwood. is there anything that unionitis the republican party that's on the agenda as much as tax reform that has similar chances to succeed? >> i don't know that there's anything that unionitis republicans like tax reform did. that really was a thing to bring americans together the biggest winner in all of this is not necessarily even congress because depending upon where you are a member of congress, you may be more or less favored by your constituents, but certainly president trump is the biggest winner in all of this. as a matter of fact, peter hart is a democratic pollster, and he shows that 40% of americans think that the economy is better because of president trump that's a big number for the president. no matter what you might say about his approval rating or popularity among americans, 40% of americans think that the economy is better because of donald trump that's a big number. it's a big win for the president going for 2018 in the midterms, and it will help republicans as well >> we'll see whether he can

harness that and channel it into continued momentum for now, joe, jake, appreciate your time. happy new year >> happy new year. >> happy new year. >> coming up when we return, "squawk" going shopping. first, the purchases now it's time, though, for the returns. yes, gift card redemptions a huge week for retail we have the winners and losers next stay tuned you're watching "squawk" here on cnbc us. it's what this country is made of. but right now,

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>>. >> the ceo of jay rogers smithon

worldwide. you dig it, though >> i got it. yeah >> understood? >> in 55 years in retailers, i can still get those puns >> are you good at wrapping things >> no, i'm not good at wrapping things, but i'm really good at buying things. >> yeah. >> okay. let's go winners and then losers >> the winners are pretty straight forward the winners were on-line, off price, and local that's been true for a long time now. if you look at what really happened, everybody won because inventories were low, sales were great. it was hard to be bad at it this season, and so even people that will may not have been doing really well to start have still had a good season. relatively speaking, the winners and losers haven't changed.

>> we'll see more bankruptcies and more store closures. that's not changing. >> who is on your list who is on that list where. >> notice u no you that we have the new tax law, what's going to happen is the guys that are maximum taxpayers at 35% are going to 21ers approximate, they say 14 percentage points, where will that go they'll give it back to the consumer over about a three-year period what happens people who don't have the advantage because they're really bad retailers and don't make money are going to get pounded if you are not very good at what you are doing already or not a money making retailer, you'll go broke faster than you were already going broke because the ones that are profitable are going to get you >> can you give me your forecast for macy's >> macy's, i actually like only because macy's owns its space. yet, it has $16 billion worth of unrealized real estate value for a while yet -- and it's a maximum taxpayer it's going to win for a while. in general department store

space is giving up to off price and it's giving up to local and it's giving up to on-line, and that's not going to change every time we take a sale out of the store and put it on-line, the roi goes down. >> is that answer, yes, it's actually going to die. it will just take a lot longer >> it's going to take a lot longer for that space to die, but macy's is going to be the only department store left in the space. we're not going to have a -- dillard's is probably a melting ice cube over time, but macy's fills that space above them, nordstrom's fills athat space. do we really need saks and lord & taylor and the other players neiman's we probably don't. >> what happens to those companies? b.k. they get sold? >> some go broke some get merged out. some just shrink down and try to be more effective in a smaller space. >> wlapz hat happens to their r? what happens to the building itself a bowling alley next >> what happened to the lord &

taylor store they sold it for $850 you will month. i thought it was a $$650 million project. who bought it? people who money means nothing to >> are there retailers that are narrowing the gap with amazon? >> wal-mart is the biggest threat to amazon that amazon will ever see. amazon is the biggest threat to wal-mart that they'll ever see you love wal-mart? >> i love wal-mart >> amazon is in a big cap x expansion, and wal-mart has already spent it on decades ago. >> i heard you say they're not asset light. they're not. the only reason amazon wins is they have this great thing called aws, which has nothing to do with retailing, right >> wal-mart is not that doum dumb at that space anymore they increased their market cap by a factor of ten times that. >> yes when they did that, i said buying mark for $3 billion was a really good idea, and that's exactly what they did, and they turned all that over to him, and now they're running much more -- probably have 45% on-line.

>> is there a company that we haven't heard about, talked about enough that you think is about to emerge or we haven't really appreciated what's happening there? >> that's probably true across the board in retailing at the moment the people who i like the best still despite the fact that the tax law doesn't value them as much, is the suppliers i like nike. a lot of people don't right now. i like ralph lauren. a lot of people don't. >> because >> because -- >> i mean, you like nike and ralph lauren because >> because the brands are winning and the third party sellers of brands are losing i also like vf and pbh i like those players because i think they win going forward they -- when they take a sale out of macy's and put it on-line, their roi goes up when macy's takes a sale and puts it on-line at macy's goes down, and their roi goes down. the brands win, and if you have a strong brand, like nike or ralph or, know, pvh has and tom

tom tommy hilfager -- i like macy's because i think they'll finally recognize the value of the real estate and i think they win their space, and they get advantage on the tax law i like kohl's right now, even though long-term it's a tough space. right? they're a big maximum taxpayer as well. >> merry christmas >> what? you're going to throw me off now after we just got rolling on all these -- >> you just got rolling. >> i have 20 stores on my list here, man. >> we have to make money too, you know >> it's great to see you >> you too still ahead -- uncertain... but you can feel confident in our investment experience around the world. call us or your advisor... t. rowe price. invest with confidence.

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>> good morning. welcome back to "squawk box" here live from the max market site in times square among our stories front and center this morning, we are watching shares of tesla key bank has lowered its estimate of fourth quarter model three deliveries following store checks key bank now thinks about 5,000 will be delivered compared to a previous estimate of 15,000. the firm rates tesla stock sector weight. they're a whole slew of tesla headlines out this morning, but the stock right now in early market trading is down one quarter of 1%. a significant number of comments criticizing the

fiduciary rule is fake they are saying many comments were critical of the rule, but were not written by people as the authors. the rule put forth by the obama administration set to take full effect in 2019, and it requires retirement investment advisors to act in the best interest of their clients. this is a rule that the trump administration has wanted to scrap, but in the meantime, has just delayed it. pieces of it have been coming into effect in the meantime. the national association of realtors will be out with its november look at pending home sales in about 90 minutes time economists think the number of home sale contracts signed but not yet closed will be unchanged. in october pending home sales had jumped 3.5%. andrew >> okay. now to washington news not everyone gets a break in the new tax bill some groups and businesses, they are losing out in the legislati legislation, and we are joined with a look at who got left out in the cold this winter. i know people are going to be watching this segment very carefully. >> yes, andrew

well, republicans had promised close leap holes in the tax code, skps by and large they did. this new system also creates some unexpected losers like bicycle commuters. the law gets rid of tax incentives for employers that encourage biking to work right now companies can reimburse employees up to $20 a month tax-free for biking. that can estimate an annual savings for workers of $89 starting january 1st, it's going away also caught in the crosshairs, barrea college in kentucky all of these students are from low income families, and none of them pay tuition they get a free college degree it was supposed to be exempted from a new tax on colleges and universities with big endowments, but at the last minute lawmakers learned they had to scrap it because the carve-out didn't comply with the rules of the >> the where, remember how they had to vote twice on the tax bill that is one of the reasons why berea college president issued this statement, "it seems so unfortunate that the political strife over tax reform in our

country will result in greater difficulty for colleges seeking to serve low-income students." now, the biggest shocker of all, though, could be the fact that congress got rid of some of its own tax breaks the deduction for lawmakers living expenses is going away. they also won't be able to write off settlements they pay in sexual harassment claims guys, closing that loophole is probably long overdue. back over to you >> you know, you even put it on your list, but somebody should do you know about food the cost of -- >> can no longer -- yeah the cost of providing free food. >> especially the dot-comcompanies, google, hedge funds. you might be providing food abecause you want to keep your employees in that used to be deductible as well >> i would rather have them staying in the office, hiring a chef a lot of people want low carb, all of that. >> it's now no longer -- uncle sam can't help subsidyize that

>> this is encouraging people to gets out of the office and have a life, guys >> are any of these -- are any of these actually going to be meaningful in terms of pay fors even as an aggregate. >> the biggest pay for is the limitation to the state and local property taxes you know, these are very small provisions with very small dollar figures attached to them. even the sexual harassment claims is probably good news that the jct estimates that that's going to be less than $50 million over the course of a decade >> can i ask you a question? when you see like the bicycle thing get removed or the deduction on employee food or what have you, is that done for philosophical reasons, or is that done because these are little money raisers you said they're not big dollar numbers, so i'm thinking to myself, are they sitting around and trying to get as much revenue as humanly possible or saying, you know what, we don't like companies that do that or actually we just philosophically don't think that the government should actually be subsidyizing that particular -- that

particular deduction >> i think it's a little bit of both clearly, republicans were looking for change under the cushions to make sure they stayed within that $1.5 trillion window for the cost of the tax bill when you look at something, as you mention, the bicycle commuting expense, you know, driving to work is still going to be subsidized you didn't lose that benefit you lost a benefit for commuting by bicycle that seems like one where it's more of an idealogical difference versus a fiscal one >> okay. thank you. we're going to continue the conversation right now to talk about the tax plan and what it could mean for the 2018 agenda is aaron cline, from brookings, and fell -- good morning to both of you >> good morning. >> good morning. you know, i want to talk taxes for one second just off the bat. do you think that any of this tax plan -- you know, people say that things get adjusted in the years after the things happen. how quickly does that happen, and which loopholes or other things do you think get opened or closed over the next six

months to let's say 18 months? >> well, i'll jump in and say i don't think you can expect much of anything in terms of six to 18 months. i think that the legislation would require a greater set of corrections because it was so hastily drafted. it wasn't subject to the usual process and amount of public input just as a matter of drafting i think there will be more loopholes and as the accountants get ahold of this, i think the tax code will be shredded more like swiss cheese as a result of this legislation, but congress, i think, you know, this was the only major bill that was enacted this year. by the skin of its teeth, by bare majorities, you know, so i don't think you're going to see new legislation fix many of the mistakes of this bill for quite some time. >> the other question, though, by the way -- i was talking to an accountant about this the other day. there's nobody at the irs to actually monday store all this everybody who is turning themselves into a pass-through and a company and all the craziness that's going to happen over the next 12 months, there's nobody there to actually fight

the fight and actually enforce whether it's a -- these things are being done properly or not is that something that you expect to be a problem >> i'm pretty sure that's not true it's true there are slow growth at the irs in terms of head count, but there are lots of people watching very closely that use a lot of algorithms to analyze tax returns to spot errors a lot of it's computer operated. there's a lot of changes that are coming the tax returns aren't due for about 15 months until april 2019, and in that time the irs is going to put out the guidance necessary, particularly for this pass-through provision which undoubtedly will involve some complications, but generally speak, i think that the tax reform is -- we're not aware of any loopholes or true drafting errors yet we'll see in the next couple of weeks and months if anything opens up where. >> if 1% of all businesses in america are audited, what does that say about our ability to

enforce what you are talking about? >> sure. it's obviously the case that we have what we refer to in the tax world as a tax gap there's a certain amount of taxes due every year that aren't paid that's been a problem for years and years that lawmakers have tried to study the question is does this tax bill change that in some way does that make it better or make it worse generally speak, when tax rates go down as they do in this bill, people's incentives to try to hide or cheat go down as well. it's possible that we'll see more income being reported just for that fact alone. >> the big difference here is that people are now incentiveized to rereport the same amount of income. whether you are an employee, whether you run your own company, whether you have a business, whether it's primarily a professional services business or not, which is a big open outstanding question, you are going to get very -- you are going to do the same work, and you are going to get tack taxed at very different levels this is what we are going to

call differences in equity i am concerned about the irs's ability as an organization with the treasury department who has to sign off on these rules, which is also under staffed, i mean, you have -- i worked at treasury for about four years. putting through one simple revenue rule or revenue procedureinvolves a tremendous amount of bureaucracy, analysis, study. a lot of keys need to get turned >> there is a question about the permits. we talked about the permanentance of the individual rate cut that will roll off in several years, but a couple of weeks ago chuck schumer was asked if democrats flipped the houses of congress in 2018, will he move to repeal the tax bill, and he said we wouldn't rule it out. if you are a business, can you treat this as the end all be all and totally rearrange your capital holdings, or do you think that the democrats would really move to repeal this, aaron? >> well, look, this is one of the problems about not doing tax reform this was a partisan tax cut.

tax reform was bipartisan. it can only be done in a bipartisan manner. the bush 01 tax cut didn't survive. the bush 03 tax cut didn't survive. i don't see why people think that trump tax cut is going to be the law of the land forever now, as a practical matter, i don't see any repeal even if democrats get congress you're going to have the permanency of the trump presidency or republican successor for the foreseeable future you know, i think you're going to have this current tax code through the end of 2020, 2021. >> i have a different view of what we saw the last few years almost all of the bush tax cuts are permanent law today except for the top rate that went up -- stayed up for a few years, came partway down starting next week. democrats are going to be very rediscent to raise taxes on the middle class democrats have been in favor of a lower corporate tax rate for years. it was part of president obama's

budget >> one bush code that went away in 2010 was the estate tax i've read all the firms that put up last week on this issue there's a lot of confusion we have two experts here if you are small cap krks you're a husband-wife, you own a business that's worth $40 million, $50 million >> you're rich >> what is the rate at which you start paying estate tax again? dra $22 million? what's the number? >> so let's talk about that because then you're incredibly wealthy at 40 million, 50 million. the biggest bishop of teneficia estate tax, was hall steinbrenner instead what you are going to do is put a tremendous tax burden somebody has to pay this, by the way. washington still is in spending free mode. the trump administration has been increasing defense spending, cutting taxes and blowing out our deficit. the question is if you are going to inherit $20 million, is it unfair that you inherit $15 million instead of $20 million >> why is death a taxable event?

where in the world does it say when you die, you should be paying anything to anybody >> it's inheritance. why can you get income free and clear from your parents? why is that not taxable? >> it's unamerican to tax somebody that dies you and i don't agree, but i think it's ridiculous. it was an opportunity to get rid of it. i know lots of people that have worked their whole lives to build their businesses, and the government dips in on death. it's so wrong. >> the government -- so you should inherit infinitely tax-free >> this income is not tax-free this income has already been taxed once it was earned. it was taxed when it was earned. >> you get a stepped up basis at death. you pay no capital gains tax it's a huge hidden tax cut >> this in particular is a larger debate, and we will have, i hope, all of you -- >> looking forward to it >> we can talk about dynastic wealth and what that means and the good and the bad of it in the meantime, though, thank you, gentlemen separately, we want to tell you, we have a poll on our twitter page right now it's asking you this which provisions of the tax bill

are viewers wanting to hear more about? some preliminary results pass-throughs and state and local tax deductions leading the way in a big way, as you would imagine, and i imagine you're going to see the number of "start-u "start-ups" in 2018. that's the story of 18 >> and you are such a cynic. >> i am. >> you are now against young entrepreneurs starting businesses because of the tax code change? >> no. i think that the "start-up" won't be the kind of start-up that you think it is >> i think there are all kinds of start-ups of which the same ratios of success and failure exist, but the incentive to start up will be higher, which is great for all of us >> all right we'll keep talking about it, but when we come back, harley davidson trying a new way to get sales back in the fast lane. the details on that up next. we're counting down to the opening bell here at the nasdaq for a very special reason. cnbc's technical operations team, the unsung heroes behind everything you see on air,

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sflo there are leeches that charge them hundreds of thousands of dollars to restructure them because they're pending death starts to be in their focus at the age of 65, and they want to pass their assets to their children how unamerican is this contortion why are we doing this to ourselves? why when we make the pay tax all their lives does death trigger another grab from the government it's so unamerican it just turns my stomach this was an opportunity to change all that once and for all, and we didn't get it through. i'm telling you, this has to be revisited because many countries have given up on this. every time you sell something, you pay tax. every time you have income, you pay tax. when you die, you should be taxed? yeah, it touches a nerve i don't like it. >> but the argument is that it doesn't affect that many people. it's not an across the board -- >> that's right. let's punish the successful. let's make sure we take their money back let's make sure the winners in our society are clawed back to zero and they can't pass on their successes to their

children that's a great idea. that's very, very bad, i think >> but you don't want to live in the old england, do you? right? that's the argument. >> here's the issue. if in every level of transaction you tax tell me, andrew -- thank goodness i'm here because if you are left unfettered -- >> it would be a real -- >> it would be brutal. >> brutal. >> why is death a taxable event? tell me what in your mind makes you think that is a good thing either of you. i think you could win me over. tell me why dying should be a time when i give back all my money, 55% of it, to the government >> i'm not going to argue -- >> because you have no argument. >> i'm not going to argue your philosophical argument what i am going to argue is that this country, as opposed to other countries, have actually tried to -- it's a social issue, and it's been about avoiding creating sort of this dynastic

woe wealth, which we have in some form or another anyway >> here's the problem. there are so many scams and tricks now that no one actually pays this. instead they spend their whole life working structural experts to redefine -- i'll tell you why it's inefficient for our country. if you divide a business in half so you can get under the minimum, you're making it less efficient and selling it because you're forced to before you die. happens all the time with farms. if you want to see -- >> the farm story is one of the great myths of america. >> people any business, any industrial manufacturer in texas, who will split canning separations from my livestock slaughtering, because i can split it it half -- >> one of the great reasons to get rid of the tax, it's one of the great incentives as a parent, we're all -- you're not a parent yet but you're a parent what insents you to give all of this. >> you're not giving money to my

kids make it on their own. >> what are you fighting for >> because it's wrong. it's unfair and i'll fight it to my dying day it's just wrong. >> we'll let that be the last word, kevin. >> thank you. >> when we return, a lot more of mr. wonderful and ringing up retail early numbers suggesting it was a more than solid shopping season for the industry but could gift card sales put sales 'rop the t wee going to find out next his late 50s zar: n right in the heart of the financial crisis, and saw his portfolio drop by double digits. it really scared him out of the markets. his advisor ran the numbers and showed that he wouldn't be able to retire until he was 68. the client realized, "i need to get back into the markets- i need to get back on track with my plan." the financial advisor was able to work with this client. he's now on track to retire when he's 65. having someone coach you through it is really the value of a financial advisor. that's why feeling safe is priceless.

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welcome back, first comes the holiday spending then comes the gift cards, kate rogers takes a close look at the impact on retail sales figures. >> reporter: this is a popular week to unload gift cards an retailers are eager to get shoppers in and spending americans were set to spend $27.6 billion total on gift cards, up slightly from the last year $27.5 billion consumers were feeling better in that their gift dollars got allocated elsewhere this year. when it comes to gift cards, holiday shoppers plan to buy four on average for $45 each the most popular place to purchase them for, restaurants followed up by retailers then

the generic, visa, mastercard, discover cards were popular. coffee shops like starbucks and dunkin' donuts came in fourth place. we got figures from mastercard, up 5% from november 1st through christmas eve. we caught up with shoppers yesterday. they did spend a little bit more money this year and feeling pretty good about the economy. >> since president trump has been elected, i think he's done a lot of help with the economy. >> i went into this year working really hard knowing there was a lot of unknowns and we had a good year. >> reporter: the nrf told me given consumer sentiment and tax reform, that will be good for both retailers and consumers and they are expecting a stronger holiday shopping season next year. >> nice thing, very few of them expire coming up on "squawk box." 2018 pdirections from kevin o'leary. stay tuned

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what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade prince harry's interview with former president obama making waves on social media here's what obama said he was thinking after president trump's

inauguration >> the sense that there was a completion and that we had done the work in a way that preserved our integrity and left us whole and that we hadn't fundamentally changed, i think was a satisfying feeling that was mixed with all of the work that was still undone and concerns about how the country moves forward. but you know, overall, there was a serenity there, more than i would have expected. >> that interview was broadcast on bbc radio, prince harry was a guest editor of the show he was rather sanguin in his comments about the president at the very end repeal the individual mandate. >> what i took out of the whole obama administration, you don't do things on a bipartisan basis it all gets unwound. which is telling for tax reform.

getting very ago nos tick to politics, what i learned in middle america where i do investing in places like amarillo texas, fargo, we hate all politicians. and frankly, one of the reasons -- it doesn't matter what side you're on. one of the reasons trump is so successful he's poking a pencil in everybody's eye. >> thank you for poking a pencil in our eye, mr. wonderful. kayla will be back tomorrow as well make sure you join us tomorrow "squawk on the street" begins right now. ♪ good morning, welcome to squawk on the street we're live from the new york stock exchange jim and carl both have the day off. let's give you a look at futures as we get you started with the trading day ahead. you can see set up for a bit of a higher