base between 13 and 34 >> when people get injured or i or worst >> well, they think it is cool >> elon musk, if you are watching us, e-mail us or something. >> in the meantime, "sqwauk on the street," thank you guys. ♪ good morning, i am carl quintanilla and david faber and jim crame jim cramer with the stocks exchange a lot of news headed our way and yellen's last fed meeting and the busiest week of earnings and a global bond sell off our ten year hitting 271 a slew of corporate news, the

president's address and the monthly jobs number. >> we got shares of dr. pepper and keurig is buying the maker apple continues to move in the opposite direction of the market another report of the iphone weakness as the month heads into the home stretch, s&p 500 on track for the best january since '87 busy earnings calendar including results from all, you got the president's address tomorrow night, yellen's last meeting as chair of the central bank and the jobs number on friday. 271 is getting people's attention. there is some theory that yellen is more hawkish on this run. >> she ought to be hawkish

i look for weakness in this economy and i cannot find it consumer is strong and corporate spending i got to tell you, tax reform is working. >> the more ceos that i speak to or everybody in the overall community lets call it the more you realize, there is still not in any way full appreciation and even only a slight of appreciation at this point for what the ramifications are going to be. many words are still unknown most of which are thought to be appositive for pbusiness >> i am coming at it from a business ratio, as things unfold, we find that the numbers are, the earnings per share for 2018 is much larger. i think that's what they want to be able to believe say that we can be able to stick with the market

>> when does the risk free rate star starts >> they' might tell. what you said about janet yellen of 2.7, how can we not be at 3 remember when we are at 3 when the economy is not strong? this economy is really strong. >> you think so? >> i think it will be hard to find people. >> and hasset on "squawk" this morning argued a third of the tax cut. >> a lot more than it has been that'll be a good thing. it may have to because of the labor that's out there i wonder when you get to the market at all. it is a one time the jump up in growth is only one time how much do you want to pay for that it is not like 19 over 18 is

another big jump as a result of tax. >> that's true you need revenues to come. i do think that listen -- we had a couple of quarters last week of 3 m technology and caterpillar you have every single cylinder on fire. you will have big revenue. it is so true. new york times, the oil and gas -- >> i thought that was surprising >> column 6, page on "times. u.s. production is on fire >> i thought that was fantastic that they discovered that. >> honestly. >> it is a big discovery >> it is a huge discovery. >> they used to say the late aubrey mcclendon, he was

completely hyping it maybe news for some but we have been talking about it for many, many years >> the number of people put to work is extraordinary. i had suri suky, the number of projects in louisiana to export and number of pipelines and the amount of equipment that it takes to build these things. the southeast is where you want to be. it is where your kids should go if they are looking for a job. >> well, they're not yet >> don't send them away please >> my daughter's two roommates from tulane, boom, oil and gas >> they'll take anybody. if you want a job in oil and gas, vp. >> remember what happened to north dakota

>> it is really cold >> the premium sometimes has at $2 or $3 >> natural gas premium, they just flare it. >> i think it is an important point when you bring it up when it comes to --? new mexico starting to play a bit real world >> is it you sbot not yet. schlumberger -- late cycle >> we'll get to apple this morning. iphone 10 on the spotlight after a rough week for shares, according to nikkei, the company will cut production. it is slower than expected a holiday sale nikkei does not name any sources directly but warns what j.p.

morgan warned last week. >> i went to apple management and say what do you think of super cycle? please no one can equal super cycle no one at the same time, you want to sell it and knowing they do have a little bit of money, they can distribute shareholders. they are already and are giving a lot of that money. >> right >> to shareholders and in terms of the buy back and dividends and everything else. there is no plan i heard of to return more cash to shareholders from the money they have paid the taxes on even though they deem the repatriation. >> i agree what you have to do is thread the needle i don't think anybody believes at this point that the next quarter is going to be as good as we thought. the question is are the earnings

estimates going to come down enough that it is going to be expensive stuff. remember that typically happens when you have a stock that's mobile, it turns out, the earnings does not deliver. >> i don't want to trade it. i don't think the people at home are good enough. i would not be hedge fund. you sell 170 and buying back in 152s, is that what you can get away, can you do that? i cannot do that and you ha have -- you have been consistent saying and people should not do that >> it is crock >> how you got apple to crock, i have no idea >> i am trying to put in the context of this week this is a big week >> i am looking at your cuff links today. >> oh, i got this at a second store. >> you are dynamic >> your wife says go to .5

>> not everyon one. >> you like it >> my wife said i looked 10 years younger. >> when the usa bombed german, saturation bombing >> got it. >> okay. >> big leaps dr. pepper up in the premarket, the merge and forming a new company called keurig and dr. pepper terms, they'll hold 13% of the combined company. david is going to bring us the exclusive with the ceos. >> 11 billion. first some people may say keurig and dr. pepper, i don't get it we'll have the opportunity to speak with the ceo

listen, we are creating a larger consumer from a consumer perspective, we want to be everywhere they want us to be when they want to reach for or get some sort of a beverage that's going to satisfy what ever the urge may be for example, if it is 2:00 and i want something to bring me energy, all right, what are my choices? and what can i bring them? it can be via machine or brew on their own or something they take out of a cold case they'll be sell to the smaller outlets as well using the delivery system that's in place with dr. pepper. the whole theme you will hear is consumer perspective coffee is growing. keurig has been all the growth in that particular part of it. then there is the financial side

of it which some people made it confusing. people are trying to understand what the value of the stub is. the 13% will be owned by dr. pepper shareholders because of an old deal they did back in the day and they turned that into an ownership in keurig and obviously, jp will own the rest. it is a public company the question is, what is it worth? it is trading 30 bucks above the 103.75 >> who would not want a piece of that >> gamgort is so good. >> i think he's a remarkable executive. >> there is no doubt and i would guess they'll continue to grow, right? >> yes >> they're the new one >> we talk a lot about jp. >> panera, that was their last

deal but in terms of technology that they brought and share across platform at jab we'll see. on the face, wait a sencond, i don't quite get it hell explain it to us. >> i completely get it this is a consumer product story that has great growth. we'll keep that sign and out of the interview, i think it would be good. >> it is a little awkward because coke is ringing the opening bell exchange, some new variations of diet coke, here is ginger lime. >> some of the metrics on keurig, household penetration going from 17 to 20. >> now they're going to be leveling up. it is going to be lever as much

as 4.5 times and they'll take it down to 3. again, they'll have a stock if they want to go out and use it for something that's going to allow for them to sell if they choose so overtime >> right >> a 1.27 in 2017 earnings synergize of what the company is trying to do last year put the multiple on that but i don't know what the right multiple is. >> this is a deal is similar to craft time >> it is but it is friendly. i will tell you what's amazing of the deal. larry, the ceo of dr. pepper he's putting up value year after year he's a remarkable company. pepsi and coca-cola, he's siting there and fighting

by the way, he's a soda guy. he's like a pro-soda guy >> it is a good day to have him here at the exchange although not the right brand. >> and like warren buffet. >> he likes soda >> it is done well for him it is good for your brain, is it >> is it >> i don't know. it is good for him >> they love it. >> when we come back a fallout from the sexual misconduct surrounding steve wynn putting more pressure on the stock. we'll talk about that story. s&p 500 has 75 for the month and hong kong is up 11 believe it or not. >> we'll be back in a minute oh, and there's the closing bell. (sighs) i hate missing out missing out after hours. not anymore, td ameritrade lets you trade select securities 24 hours a day, five days a week. that's amazing. it's a pretty big deal. so i can trade all night long? ♪

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ah. oh hello. that lady, these houses! yes, yes and yes. and don't forget about them. uh huh, sure. still yes! xfinity delivers gig speed to more homes than anyone. now you can get it, too. welcome to the party. shares of wynn resorts are under pressure again following sexual misconduct of steve wynn. some analysts stuck by the stock on friday, jim some did not >> this is tough to figure out

what it is worth because you know you got an independent investigation but independent for board members. steve wynn is that company stock moved up tremendously. i want to say he's that company. there is few hands on ceos that it is like a family business and i just question what do you have here without him i was going over the board, the boards are really real bored it is not just a joke board like what some people are saying. the more real they are, the more likely they're going to -- i think this is a you ask question or -- it is bad. >> yeah >> i do think they are a real company with the best properties when i was looking at the massachusetts gaming commission, talk about a heavy weight group. i mean he's got a huge property there. >> yeah. >> is it the biggest development in the history of the state? >> when you look at the wynn

board, it is not bad patricia roy, she's 64 and she serves at the company. you look at her, her pedigree and he's done some stuff with unlv, the world economic forum >> just in ages. >> 71, 72 and 78 >> wynn is 65. >> she's the member of the corporate government senior fella for -- >> so you think she's the person to take it on? >> she's the one what are you getting to? >> i don't know. >> well, what do you make of some analysts barclays i am reading here, they believe the

outcome could be a sale of the company. >> to a chinese buyer. that's the word. that's why people are buying it. steven crosby, the chairman of massachusetts gaming 45 years of experience in policymaking and total heavy weight okay, so a little bit more local and gayle cameron, okay. >> these are the people in the massachusetts gaming commission. >> yes >> these are the people that can hold it up i think they are heavy weights i am looking at these people and they are powerful in the state of massachusetts this is not -- you may think -- >> you went from the board of director to the massachusetts games. >> one personal internally the mass gaming, they're not

going to say hey, this is great. lets open it larry mcdowel. this guy is another heavy weight he's very powerful >> you probably think it is a gaming commission from a film that you have seen yes, one that you guys like to reference. it is not,s t >> we'll get cramer's "mad dash" o thdavid's exclusives with e ceof dr. pepper and snapples ceof dr. pepper and snapples on the merger, don't go honking) alright! alright! we've all got places to go! we've all got places to go! washington crossing the delaware turnpike?awau what's not surprising? how much money sean saved

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♪ okay, here is my man, mr. cramer on "mad dash. >> you went to the grammys >> yeah, it was fun. >> not that cool i am far from cool but it was a good show. >> starbucks, speaking of show, on our friday's show, we have kevin johnson who was on, stock was down what do we have today? >> today we got, think of the idea that china is accelerating and the u.s. comp is decelerating so much this is important because they are not willing to give the company the benefit of the doubt because they talk about how they really cannot figure out how u.s. conference is decelerating. it is a shifting now did they miss the mark on a

particular drink they're kind of given up on it i don't know, it is an expensive stock if they don't get it right. the roast stream may not cover it in terms of the growth. this is a battleground >> what about china? >> well, that's why i suggested that they do a yum china which put on so much value david, this stock -- it is multiple shrinking it is funny because we are talking about dr. pepper this cannot be takingen over. honestly, i don't know what to pay for the darn thing if u.s. is not picking up and it is still decelerating then you got a mae jurjor part of the co is not doing well. it is real -- the growth guys don't know what to do with it. kind of like they don't know what to do with nike

>> so it goes for a while. we'll stooart to see if it picks up >> we got a lot of things to get to this morning. >> bruno mars, i like him. >> we got an opening bell coming up after this and a lot more to get to right here on "squawk on the street," stay with us. for your heart...

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the opening bell brought to you by bright house financial, establish by med light you are watching cnbc's "squawk on the street. the opening bell in a minute's time busy morning busiest week of earnings we'll get our jobs number on friday yellen's last meeting and we got some data today as well. the savings are down to 24 is the lowest since '05 we consider a light cycle signals. the spending rate is unbeliev

unbelievable bank of america says it was twice as it was last year. people feel so good. >> pretty impressive >> lets get to the opening bell. >> at the nasdaq it is shift [ applause ] >> beverages are in the news >> yes >> beverages are in the news >> we are waiting for r co consul -- consolidation. >> you go down to the isle, stock haves beens have been a --

>> yes, interesting. >> there is also continued as you say continue speculation on a number of names. i think of pinnacle. that's what people say >> they tried but it was too expensive. given the success they had with the deal how well they have done. >> whoa, you see dunkin' is down 4% >> yeah. >> dps is dr. pepper is up 32% again, investors try to both understand why this combination makes sense, keurig and dr.

pepper and snapple and understand what the earnings will be for the new code, 13% of which will be a public traded entities so it will be controlled by jab, of course >> they figure in our conversation, remember they are a large player and a number of areas and panera bread being one of their recent deals that they did. they raise consumer fund i report on at the time around, they have gone around two of that they're able to come up a lot of cash for these deals and 9 billio billion is being used for this in addition delivering keurig in into dr. orbit creating my company. apparently on the call, analysts are skeptical. well, they don't quite get it. >> here are the two gentlemen behind it.

>> you mean the structure why the two makes sense together >> does procter makes sense? >> i don't know. some way it does and some way it does not >> i think this company is uniquely trying to put together many isles of the super markets so trying to make it so they own a lot of your kitchen. why not? >> okay. >> i think it is fantastic >> panera was the greatest performance restaurant stock during the period, it is up 2,000 percent. they kind of forced their hands. this is larry young trying to make you richer. he has always tried to make you rich he was on the show on "mad money" long time ago in 2014 i don't remember how long it was. hey, we are going to get the stock up and make you a lot of money. we are going to make you money have few ceos have said over and

over again, we are going to make you money and he did it. >> he managed to >> you make a lot of money that's another reason why it works. i mean here is keurig and look at what is this? look, you want to dominate a lot of people feel starbucks should have done something >> an acquisition of something >> kind of make it so that december tiomestic is not as im. they're big in consumer products and big in the isles >> how about mondelez? >> what about mondelez maybe that's off to something. tast w ta it is a win for everybody because you are questioning it >> goldman, advises on the deal. >> goldman is the top p

performance dow component. >> we pushed it hard because it was a great quarter given the circumstances. >> right >> final point on this deal. >> what are you doing? >> going back to tax reform, i was trying to think while it went on which is, this is a deal where -- keurig is not and three or four years ago, no way they would do that. they would have inverted it and taken dr. pepper and brought it back over. they did not >> so it is interesting that u.s. domicile company. that's all >> yes remember they got shut by the queens' treasury sector. >> that's right, jack luke >> it was a good time to sell allergan, didn't it? >> yes, fabulous time.

i thought it could go up in earnings sometimes you have to own the fact to get it wrong >> do you still own it >> yeah, never did anything. >> you're down on it >> yeah, sometimes when you own something for your trust, you just like wow, it is doing great. no, you cannot do that the giants are doing great and the season ended not great. >> right >> guys, verizon along with apple, helping to drag down the dow and if you saw these leaks, the presentation note about a federally designed or manage 5 g. >> the fcc is out with a statement saying i oppose any proposal for the federal government to build and operate nationwide of the 5-g network.

>> broadcom they call themselves a 5-g company. >> by the way, speaking of 5-gs, strange report of the government wanting to get involved and i don't know what's will come of it if anything to verizon. it would be a complete change in direction in terms of u.s. pom si yeah, just seem like it exploded and trial blue >> no, i am not a comcast user >> i was talking apart of my team, boy, he's got it put the sixers on. i want that. >> comcast is down 2% this morning reflects of sort of what we were talking about. >> i want that i want to be able to talk and get what i want instead of going and let me see, let me see, look

at that. that's nova. it is impossible they change their minds >> you are making a point that's interesting one which is the box that's going to give you access to all of these and netflix as well >> i am looking at my release that came in cable vision and suddenly and all at team usa owns >> why do we need roku >> netflix, mkm goes from 225 to 320.n 320. netflix is up a % apercent and half >> it is only up 45% this year >> an amazing quarter. that was some conference call,

too. >> how about amazon? >> their market value is $120 billion >> it is so low. it is an international tv station. was that like turner broadcasting >> tbs >> cnn >> come on, you can get it everywhere and they have programming for everywhere there is so much white space, you call them white space. >> total adjustable market i love it when you toss around jargons. >> i know what that is i do know tam. have you ever looked at the ge acronym that's used? >> yeah. >> that's not really acronym >> it gets a little annoying >> dow is recovering from the initial drop lets get to bob pisani, welcome back to the floor. >> 4-1 not a lot of point damage but it maybe a little psychological damage and it is because of that

ten year creeping over 2.7%, that's starting to get people a little nervous take a look at the sector, defensive tone of the mark you can see consumer staples and healthcare is doing a little better also, on the weak side, if you look at the interest rate sector groups which could include stocks and bonds and telecom being weaker emerging market, eem is the third line that's an interest rate of sensitive sector and utilities are to the downside. i think the big issue for the mark, there is several issues this week. the president's address and there is a jobs report the most important issue for the week is the fed meeting. the market is chattering a lot and it is starting to believe that there maybe a risk of more

hawkish out there. >> suddenly a lot of people are at four or possibly five rate hikes. that's start to get people nervous. on the surface, the numbers are fantastic. the earnings numbers are really good look at today. look at what happened with lockheed martin and seagate. seagate is beat by 10% or 9% lockheed martin, beat by 6%. for a company that size beat by 6%, that's an extraordinary number this is mirroring what we have been seeing so far so far we got earnings up about 13%. that's not the best that we have seen for many years. it is close to it. these are the big movers it is not just cost cutting. we are getting notable top line growth that's starting to come through here

>> they often cut numbers going antonio the close of the quarter. look at the target the blue line is the positive estimates and earnings revision is on the upside and it is been increasing for r the last month or so. this is the most important part and more companies are beating expectations by wide margins 80% of the companies reported have beaten expectations typically, revenues beat 61% look at this, 80%. revenues beat. this is rather remarkable numbers here they have been beating by larger margi margins. this is why the markets keep on holding up so well and the first quarter number are not coming down if you look at the first quarter for 2018, the earnings are high and reservenues are not droppint

all. when you look at these numbers, no wonder we are still holding up record highs. january, you cannot do much better s&p 500 is up 7% it is the best monthly gained since october 2015 we had ten months of gain now. these ten monthly gains is the best that we haves now these ten monthly gains is the best that we have had -- i know that's an over used phrase but that goes a long way explaining why we are sitting at a record high >> carl. back to you. >> thank you bob pisani. lets get to rick santelli, the cme. hey, rick. >> we are all hooked in together lets look at our two-year note i see it on the board. 2008 is going to be the comp for

a while because we hit 3% in 2008 lets look at what's going on in the ten-year carl just talked about it. we have go to back to see no yields at these levels there is always a clue that makes you pay attention and keeping up with rate movement the easiest. guess where the 30 year bond settles of the last day of 2016. it settles around 307 as you see on the chart many traders on the floor is going to look for the 30 year to get to the point and see where the rest of the curve is aligned. if we look at what's going on in europe, they're feeling a lot negative on rates. no, i am not talking about investor sentiment, i am talking about negativity it is at zero. it is at zero and the last time it was at zero, it was november

2015 yes, think about that. now, lets look at what's going on on the longer run with respect to the bound. there is a joke on it. tell me where bund is going? it is closing on 70 bases point. this is the highest yield since november 2015. lets look a t tt the deal today yes, you see it is bouncing around ever so slightly of the dollar index it is still below 90 which is technically significant. many traders are saying, pay attention here lets see if the dollar will respond with a little pulse. carl, jim, and david, back to you >> okay, mr. san terick santelli will take it the story we are talking about this morning is snapple and dr. pepper is joining together bob gamgort, now coming back to

the public markets we'll spend a lot of time with you. mr. young, let me start with you, the decision you made to sell the company on behalf of your shareholders and along with your board of directors. why is it a good deal for your shar shareholders >> it is for our consumers and partners and we talked a lot about being a total beverage solution this is a perfect avenue we are not in cold beverages but also hot beverages >> what does it mean >> in every category, they are changing quickly beverages are moving fast and sub categories, we want to make sure we are there every minute and any time and any place >> mr. gamgort, similar question to you, i have spoken to a handful of people this morning on the face of it, i don't quite completely understand what the

benefits of bringing these two companies today. i understand what dr. pepper does and keurig, but i would not see them together, what are the benefi benefits >> if people realize about it, it will make total sense when we put these beverages together -- we cover all consumer stakes. importantly, we got a distribution system that could get those brands to customers any where they shop. i don't think there is anything quite like it. >> distribution, we all know dr. pepper truck, dsd delivering to small stores and stores all over how does keurig benefit from that system. you don't deliver that with keurig, do you >> if you think of how beverage brands are born, they are born in small outlets where people buy one bottle at a time

that's hard to do. you need a sophisticated distribution system. that's what dps had. we are able to match that with our strength which is traditional grocery. we got a terrific ecommerce business the combination of those two allows us to get to anywhere the consumer is shopping >> you became committed to making money since i can remember >> look at what we have done the last ten years and i get so excited the next ten and that's why i want to be apart of it i want to make sure it goes out to the best of what it can be. >> bob, people don't know your history, you want to build the old consumer product company this is it, is it? >> we look at procter kind of

stole colgate and not that great on friday. your background is that you maybe kroocreating the big ones. >> i love brands and i love being able to read consumers there are pockets of growth that are faster than others thch this allows us to put these two businesses together. carbonated drinks give you scale. one of the fastest growing segment of beverages right now is coffee in all form. now we can get into cold as well >> lone starry, i am interestedn what you were saying of sub categories we got more from your competitors here do you envision a day where c h carbonated is higher >> carbonation drinks will

always pay the bill. i think we are starting to see the start of the sub categories. look at all the innovation havem >> is that flavor or packaging size or both something else >> all of the above. >> let me get to the financials a bit here, bob. >> sure. >> investors are trying to understand what's the stub equity worth what am i paying 600 million in synergies how many years to get there? >> three years. >> you put in 9 billion obviously new capital. give me a sense of the growth rate is it going to increase as a result of this deal, you know, so people can try to understand a multiple that they're willing to pay >> 9 billion is the new equity coming in from j.a.b. >> sure. >> the current exposure to the categories in which we participate today we estimate to be a growth rate of about 2 to 3% we're always conservative on the top line side.

we know we have complete control on the cost side of things which is why we put a hard number on that if you look at where the portfolio sits today, you're looking at 2 to 3% growth. we think over time we have the ability to drive that into higher exposure to faster growing segment. >> i mentioned capital you're increasing debt 4.5% leveraged >> it would be higher than that. on the keurig green mountain side two years we were 5.5% leaf verdict. we're now at 2.27. we paid off $2.5 billion in debt in two years we have a great ability to drive margins, manage our cash flow that pays down debt rapidly. >> you'll have a currency. is there an idea here that you would use it for future deals as well >> it absolutely gives us optionality to expand the portfolio. having a public currency certainly allows you to be a bit more creative at times. >> there had been a question about how steady keurig was.

there were a lot of shortfalls, shorts going against it. it turned out to be a pretty great business. >> it is a fantastic business. it is driving more than 100% growth in the coffee market. we continue to build household penetration every year when we started we were in 17% of households. we're in 20 today and we just got started with innovation in marketing. we believe the up side is close to 50% of households should have a keurig system in there and we own that system. we have 75 brands, all the brands you know and love participate in that system. >> i had dunkin' today, pcs, love it. >> variety is one of the largest benefits that our consumers talked about coming into the system. >> although the other coffee brands j.a.b. owns are not a part of this, correct? >> they're available to us to expand through partnerships, correct. >> yeah. >> this is keurig and dr. pepper snapple getting together. >> do you have a name by the way for this thing >> keurig dr. pepper. >> you've gone with keurig dr. pepper >> i like that

>> people like the double names. dr. pepper and keurig green mountain like combinations making a combination. >> absolutely. >> one of the people who like snapple are going to be sad. >> and green mountain. >> best selling pod? >> best selling pod in the system is green mountain. >> it is green mountain? >> it is we're right up there with starbucks, dunkin' donuts, pete's. >> flavor? >> would be breakfast blend. >> breakfast blend green mountain. >> thank you both. >> thank you for enlightening us on this deal this morning. appreciate it. >> thank you. >> you're welcome. still to come this morning, house energy and commerce committee chairman greg walden is going to join us demanding answers from the security flaws. dow is down 31 back in a moment ♪ ♪

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jim, what's on "mad" tonight. >> the group has been very weak. >> great looking.

>> larry young cam cords, powerhouse when it comes to this group. everybody knows it. >> we'll be hearing more i have a feeling. >> see you tonight, jim. 6:00 p.m when we come back,hat wto expect on a big earnings week. dow is down 38 don't go away. gy infrastructure mlps? gy think again. it's time to shake up your lineup. the alerian mlp etf can diversify your equity portfolio and add potential income. bring amlp into the game. before investing, consider the fund's investment objectives, risks, charges, and expenses. read the prospectus carefully at alpsfunds.com/amlp

♪ ♪ ♪ good monday morning. welcome back to "squawk on the street." we're back from europe david faber is here. sara is off. verizon, apple and cat earnings, fed number and jobs number and state of the union. our roadmap begins with a drink deal dr. pepper snapple merging with keurig green mountain. what the ceo told us moments ago. plus, under pressure mogul steve wynn resigns amid misconduct allegations we'll give you the latest on that and what it means for the future. gearing up for a huge week on wall street earnings.

the jobs report, a fed meeting and of course the president's state of the union address we are going to discuss it all in fact, we're going to do it all. the major averages are under pressure as we kick off the busiest earnings week of the season ten dow components, 109 s&p 500 companies are set to report including mcdonald's, boeing, facebook, microsoft, apple, alphabet let's bring in samantha azarello thank you for being here. >> thanks for having us. >> earnings expectations are pretty good because of the tax cut. the ease is going to go up at the same time interest rates are starting to get to levels that we haven't seen in years. the german five year went positive today, by a teeny little amount. how does this play out is it earnings that are going to win or rising interest rates that are going to be the thing that puts the brakes on this rally? >> so we never said earnings are going to win

>> you would have said earnings are going to win your mike wasn't on. >> we said earnings were going to win i think there's a few market indicators that are important and they're breaking out one is the ten year yield. above 2.7. the other is oil prices on the move outside they aren't range bound anymore. if both of those beat inflation that is a risk that the fed moves faster and that is not the case six months ago. >> charles, weigh in here. between the two, which are so crucial for a stock price, what's going to win? >> well, but the thing is that not all stocks act the same thing. you're right on the two forces, interest rates and earnings, but there are some kinds of stocks that are very sensitive to interest rates, utilities, high dividend paying stocks those things are going to under perform. the things that are less sensitive, commodities, oil, industrials are going to be much better now is the time to do stock picking not blindly buying the whole market. >> so, in other words, for so

long it's been all tides -- the rising tide has lifted all boats but at this point you have to get very, very picky about where you're going to put your money >> right absolutely risen all boats but risen some boats more than others when the 10 year was going from 3% to 1.6%, what did you see you saw leadership from the bond substitute stocks. that had a huge impact that's reversing one of the reasons why the big companies like ibm and ge have done poorly is because they put all of their money into bonds at exactly the worse time whereas people like warren buffet has stayed in the stock market that's an important trend. >> samantha, your advice to investors? >> be selective. we're looking at percentage of foreign sales from abroad. we want that spread and we're saying watch correlation to treasury yield

i would agree with that point. >> what's that mean though, be selective? what do you mean >> i think for years and years the broad index was more than enough you got all the risk adjusted return you needed. that's not the case. our longer run forecasts expect the s&p 500 to return 6 to 8% total return but it's not amazing if you need alpha. alpha will come now from being selective. beta is not enough. >> charles, i get the idea that when interest rates are rising you want to buy stuff that's less sensitive to that and sell off the stuff that is more sensitive, but at some point doesn't the ten-year yield if it rises fast enough or far enough, excuse me, actually become competition to all stocks? have you thought about that and what level is that at? >> a lot higher than this. i think inflation will be 2.5 to 3% and shorter two-year rate is still not attractive we've got, i would say, another 150 basis points before anybody

starts to seriously consider saying there's value in the ten year. >> michelle, we did some analysis on this we put the estimate between 3.5 to 4%. historically it was 5% if rates were moving up and you were above 5% on the ten year, that did not bode well for equities we think that level is lower but we still have a buffer before we're there. >> atlanta fed's now got their first number on q1 they usually run hot and cool off. they're saying 4.2 likely >> we were in the camp of 3.5 but it's possible. we think q1, q2 the u.s. economy heats up and later on we simmer back down. >> charles, 4.2, that would be a huge victory lap for the president notwithstanding what he'll say tomorrow might >> right, but remember after the big ragan tax cuts in '80 and '81, the economy grew 7%, 8%, we've all been conditioned to this world of 1.5, 2% being good

growth it's not good growth we can grow much higher faster than that. we at ariel still think the market is anchoring. this new economy is going to be better and we think we're going to have north of 4% gdp growth. >> you're going to need a megaincrease in productivity you're going to have to bake that in if you get a bigger number. >> yeah, we're going to get some it's been disappointing. productivity growth has been disappointing. where does productivity come from usually capital investment when companies put money into their plants, they don't do it for no reason. they usually get productivity from that. we think we are going to start to see better productivity numbers although i'll admit we've been disappointed. >> the other thing we've noticed was the savings rate at 2.4 which is, what, more than half of the top on a micro level, households, are they getting into dangerous areas with revolving credit and savings or not >> so in q4 consumption spending

was 3.84% which is very strong we don't think we're there there's still a bit of room for it to move up. >> lady and gentleman, good to see you this morning. >> thank you. when we return this morning, dr. pepper snapple shares soaring on the buyout deal with k cup maker keurig what the ceos told us about the deal a few moments ago at the desk and the fallout from wynn, steve wynn resigning as the rnc chair and we'll bring you up to speed. and we'll break down the company's stock falling. the founder of the world's laesetwi trgt f thhe dow now down 56. nobody's putting their money into equities. they're not investing in commodities or fixed income. what people are really putting their money into is what they hope to get out of life. but helping them get there requires a real refusal to settle for average. because when you approach investing with a tireless desire to beat the status quo, something wonderful can happen. those people might just get what they wanted out of life.

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take a look at shares of dr. pepper you see they are up on this news we got this morning on a large deal in which they are merging their business with that of keurig keurig itself, green mountain keurig taken private by j.a.b. that's the large investment firm that took panera private now keurig coming back to the public markets in a way. let me explain if you're a dr. pepper shareholder you're getting $103.75. they'll get a share of the new company equal to 13% in the newco. it will be largely owned by j.a.b. although mondolise will own 14%. that's not worth getting into.

they will own 14% of this company. the combination itself, 11 million in revenue taking on some debt. they will be leaf vvered almostv times. it's the combination of the two that seem to be, well, bringing some questions for those who wonder about the $600 million synergy number that they're coming up with what are the synergies and what are the benefits to putting these two companies together we asked the ceo of keurig who will be the ceo of the combined company to answer that question for us here's what he had to say. >> it's not intuitive at first but as people learn about it they're going to realize that this makes total sense when we put these two beverage companies together we create a north american beverage company of scale, $11 billion in revenue. we cover all consumer need states we get exposure to high growth

areas and really importantly we've got a distribution system that can get those brands to customers anywhere they shop >> investors for their part trying to understand exactly what it is that equity will be worth. in other words, take out the $103.75 you get a sense where they think the stock will trade based on the earnings. they didn't give us a sense of what the earnings would have been last year if you had realized synergies they said it would be $1.27. if i believe that if they have the synergies. that gets me to a stock price above $103.75. >> to over simplify they think dr. pepper has a larger distribution system than keurig has and they can get into more places >> they have the dsd deliveries, trucks, they go and stock the

shelves and so forth keurig doesn't have that they think that will benefit them they talk about it being a consumer play with coffee, the fastest growing beverage so to speak and wanting to be available in all forms to people in many places as possible he did also push, as you might expect, their online share which is large and growing though we didn't get details. >> it's much easier to ship keurig pods than coke. >> or dr. pepper. >> through the mail. >> much lighter. >> okay. why so much a.m. list skeptic--t skepticism >> there are beverage sz but you're talking about a very different delivery mechanism from the pods. >> liquid and powder. >> yeah. >> little more aluminum in the soda business. >> right and liquids are so heavy compared to -- >> now mr. young who we also spoke to, larry young the ceo of

dr. pepper snapple did seem to indicate carbonated is going to generate the cash. >> no, but said we were at the beginning of this new wave of having variations on flavors and varying package sizes and ways to invigorate a brand through marketing and flavors and so forth. we'll see. >> he held up that can earlier. >> diet coke has how many new flavors today? five, four >> gosh, tons of them. they're kicking them out today. >> interesting day that we had the ceos of the dr. pepper deal. meanwhile, coke is advertising here at the nyc. >> i saved my ginger lime to try with dinner tonight. thanks, david. time for our etf spotlight let's get to bob pa spisani >> by far, michelle. 25 years ago today, today the very first u.s.etf started trading. this was the guy behind it even then this is jim ross, executive vice

president of state street global advisers 25 years ago today started the spdr, the s&p 500. what was the idea behind it? why did you create the first etf? what did you want to do? >> the idea came out of the crash in 1987 where portfolio insurance didn't work. the american stock exchange came to us. they were our partner on this and said, can we build a product that's securitized or has equities that can list and trade on the equity and can go up and down but was focused on institutional traders. >> they can get in and out of the market really fast and avoid the crash of '87 you never envisioned retail -- >> not a lot entered my mind i was doing a lot of work. i think most of the folks are focusing on the trading community. there might be three or four of them on equity markets

that shifted over time it started with $5 million we're talking about $300 billion. you have 9% of all of the assets under management of the etf business, 9 the% is in that one fund, the spy. >> it is. >> eventually all of the money started moving out from the institutional people and when did registered investment advisers start saying, oh, you know what, you should own this >> it was interesting. institutional traders have not moved out. they still have a very, very great institutional trading product. but the registered financial adviser community really kind of -- as we started having more etfs, late 90s, sector spdrs, when they had choice they saw how they could build portfolios. there was a shift in their world from commission based to fee based where etf worked well. >> all of this has gotten caught

up in the active versus passive debate we all know oceans of money are going into the passive investments of etfs. very low cost. gain has been these indexes tend to outperform the active managers for a long time oceans of money coming in. a lot of people are wondering if passive is getting a little too big. what are your thoughts >> overall passive is not that big of a size compared to active world. it's still 15% i don't think it's getting too big. the interesting thing is, people are assuming passive is big. people are buying and holding forever. they're using from the institutional advisers and moving on a tactical basis. >> that's a good point you could use etfs in an actively managed way, what we call tactical management then we talked about the fee

wars, you charge 9 basis points for spy. that's $9 per 10,000, i believe? >> correct. >> yet you have competitors that are charging 3 and 4 basis points when is this going to stop are we going to see a zero fee etf in the future? and how are you guys going to make money on this >> i'm never going to say never, but i don't foresee that right now. fees are very important. fees are very important to investors. everyone should look at the total cost of ownership which is looking at fees plus the cost of buying in and buying out spy is a very competitive product at 9 basis points. obviously has a significant institutional following that looks at it much more for its liquidity. it has the mostly quit at this of any etf and it's traded at a penny widespread. >> you have competitors much lower. are you under pressure to cut your fees? >> we just introduced a suite of what we call portfolio spots that has a low cost in their segment across equities, fixed

income, international. we're really proud of that spy in itself stands by itself and has a significant following. >> the answer is you're so big and popular that right now you don't have to but you'll introduce a sort of self-cannibalizing other product that's cheaper >> across the spectrum not across the s&p 500. >> it's great news for investors in general lower fees benefit the investors. before we let you go, there's a lot of talk about more regulations for etfs, particularly those in more obscure parts of the market. sudden selloffs, could they withstand it because they'll have to sell the underlying what's your overall thoughts on etfs and liquidity right now can etfs withstand a downturn? >> my answer is to go back, they have they've gone through different market cycles when you think of some of the challenging reopening the stock markets after september 11th when you think of all of the fall of 2008 and 2009, etfs provided liquidity in the

marketplace. i think there's a better chance etfs will get us out of the next crisis rather than cause the next crisis. >> give me a number. 3.4 trillion assets under management let's go forward five or six years. how big will the etf business be 2025 >> a lot of it depends on global growth trends. i mean that because the u.s. will continue to grow, i'm confident of that. we want to see more etf growth in emerging markets like china and india. if we see that, in addition to the millennials, the fastest growing segment growing 6 0e% a year, i think we could see upwards of 2025, i think we could get to 25 trillion. >> 25 trillion. >> it's only got 12 trillion in it or something like that? >> i don't know what it is right now. >> bigger than the mutual fund industry >> it's possible that's a very global number. the global mutual industry, remember, etf's not just a mutual fund competitor. >> all over. >> that's a pretty bold claim here that means the mutual fund

industry really has to start lowering their fees rapidly. jim ross, we have to go. thanks very much congratulations. 25 years, the biggest etf in the world, 3.4 trillion in assets. they have almost 10% of it back to you. >> bob pisani. when we come back, the new tax law having an impact on the super bowl we'll talk about that. as we go to break, take a look at shares of lmt this morning. the defense contractor reporting a beat on the top and bottom line did take a $1.9 billion charge for the new tax plan, but guide's high back in a minute see that's funny, i thought you traded options. i'm not really a wall street guy. 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.

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but for everyone else, there's directv. for #1 rated customer satisfaction over cable, switch to directv and get a $200 reward card. call 1.800.directv a new tax law is having an impact on businesses looking to wine and dine clients, specifically the ones planning to take their clients to the super bowl our eric chemmy joins us at hq to explain that. >> that's right. the new tax law means the super bowl tickets, they're no longer deductible the new tax bill eliminated the deduction for business entertainment expenses such as when a company takes a client to

the super bowl previously they could deduct 50% of the face value. now they cannot deduct anything. the same rule means no more deductions for playing golf. that's causing a lot of grief across many industries, but it's also forcing stadiums and teams to get creative about how their biggest buyers are spending money. i spoke with tony knoff. you'll see different definitions of what a company is buying. instead of paying for tickets you can see the receipt say you bought a very expensive meal instead because meals with clients, those are still deductible maybe the team will just so happen to kick in a couple of free tickets with that very expensive meal another option, companies can buy a jumbotron sponsorship. that's a marketing expense that's fully deductible. every sponsor just so happens to get a couple of free tickets to that game. carl, let the tax games begin. >> the long arm of the tax man some amazing consequences.

thanks, eric. speaking of all of this, amazon unveiled a teaser of the commercial for the super bowl. the ad is starring the company's ceo jeff bezos he's facing disaster and gives the go ahead for an alexa replacement after the ai assistant loses her voice. we had harris diamond of mccann on "squawk" saying you're going to be seeing the commercials, the social rollout, the leaks happening all week long. >> interesting that he chose to put himself in the ad. >> yeah. >> i think -- i do believe he wants to take a larger sort of public role in some way. i think he knows, as bezos often seems to know what's coming, that there may be some fights ahead for his company, it probably helps him to sort of be seen in a broader fashion, i guess, not just the man behind the curtain. >> become more familiar to people, be in a funny ad, soften your image to the degree that you had one that was very public. >> by the way, 1414 this

morning. 1300 was literally the other day. >> my very first story at cnbc was when henry blodgett, then analyst. >> famous. >> said that the stock was going to go to 300 bucks. >> it was 400. >> december 16th of '98. >> that's when i joined, i believe. >> yeah. and it did it within a week, not in a year. >> ended up being a good call. >> it was. >> good for henry. make sure to tune into nbc to catch the super bowl this sunday, february 4th starting at 6:30 p.m. eastern time don't miss our special prooe super bowl coverage here on cnbc this friday. jim and i will be in minneapolis. >> wow that's call. >> not me. >> how fun. >> under pressure, casino mogul steve wynn facing sexual misconduct allegations the company's board launched an investigation into the charges we've got the latest tu othcano it means for the furef e si empire and

stock. "squawk on the street" back right after this [ click, keyboard clacking ] [ click, keyboard clacking ] [ keyboard clacking ] [ click, keyboard clacking ] ♪ good questions lead to good answers. our advisors can help you find both.

talk to one today and see why we're bullish on the future. yours.

good morning, everyone i'm sue herera here's your cnbc news update at this hour. islamic state militants attacking afghan soldiers guarding a military place in kabul. it is the latest in a wave of violence by the taliban and islamic state group that has killed many and left hundreds wounded. saudi arabia's prince al waleed has been freed. he described the arrest as a misunderstanding >> there are no charges. >> okay. >> there are just some discussions with me and the government, but rest assured this is a clean operation that we have and we are just in discussion with the government on various matters and that i can't divulge right now because

we are in continued discussion with them. a pilot with engine trouble managing to land his small plane on a california freeway sunday evening. he did manage to safely land the plane, but as you can imagine, in southern california it backed up traffic for miles luckily though a happy ending. no injuries. that's the news update this hour i will send it back down to you. michelle >> yeah, the traffic's always bad there. >> traffic is always bad there, it really is and that just made it worse. but at least he's safe >> yes all right. thanks, sue. >> you've got it. so the fallout continues for casino mogul steve wynn following allegations of sexual misconduct contessa brewer has the latest >> hi there, michelle. the stock is down 5.7% ubs has downgraded it from neutral to buy they're telling me they're concerned about the, quote, appropriate qualifications of the major shareholders, directors and key employees holding important positions in

casinos. the nevada gaming control board is reviewing the allegations the massachusetts gaming commission is investigating the allegations as is "the wall street journal." really this is the first time the ceo of a major publicly held company has become the center of such a public controversy in this me too movement wynn says the accusations are preposterous and blames his ex-wife. elaine wynn sat on the board until 2015 wynn resorts said in a statement on friday. it's noteworthy that although ms. wynn says she knew about the 2005 allegations involving mr. wynn in 2009, she never made them known and she did not raise them until after mr. wynn remarried and the shareholders of wynn resorts voted no the to elect her to the board multiple law firms are investigating claims for a breach of fiduciary duty the board has established a commission to investigate led by the only female member of the

board, patricia mulroy these members are bound to face questions of what they knew when and if they didn't know, why didn't they know analysts are raising the question of what a wynnless wynn could have >> yeah, the casino industry is unique like that there can be some real consequences to the business model. thanks. >> sure. let's get more on the impact of the stock let's bring in harry curtis. and american company managing director adam bryant who's a ceo coach. gentlemen, good to have you here stock was trading almost 200 bucks when this news broke it's now down 15%. what is that pricing in? is that pricing in steve wynn is definitely gone, likely gone >> i think it prices him a great deal of uncertainty and the question is, is there more i think that if he were to face

problems with his license in massachusetts, that's probably $15 a share. there's also the issue of multiple compression in macau. that could be another $30 a share. there's just so many pieces to this puzzle we don't know. >> worst case scenario >> we this morning published a piece that suggested that it could dip below 150. >> what would you do at that point? is that a place to get in or is that -- >> i think that there are an awful lot of unanswered questions, but there's still value here. >> adam, what do you think so you're a ceo coach. i mean, if you had steve wynn in front of you, what advice would you be giving him? >> he's going to have an army of crisis managers around him right now. i do think this story is going to push a broader focus to all of corporate boards. boards have a long list of things they have to worry about. it's getting longer. cyber security now they're going to have to be worrying about sexual

harassment i also think it's going to put a focus on the lack of diversity on corporate boards in general roughly 20% of directors on american boards are women. there's a lot of boards with just one woman, some of them with actually no women at all and all the research shows that if you want the benefits of that diversity, you have to have at least three female directors on the board. so i think this is -- >> why what does that achieve and what do you get >> then you get the different perspectives, you getthe sense there's enough of us here, we can raise the alarms and concerns but, again, this is a new front in the ongoing sexual harassment moment we're living in, and i think now there's going to be a lot of interesting meetings that are going on in boards just adding to the concerns, you know, just the process of vetting ceos is going to get that much more granular. this is going to have a lot of consequences >> i've got to read you what they say this morning. to be honest, we find it wholly

reflective of the society in which we live that a news article in and of itself would compel people to speculate as to what wynn would look like without steve wynn are we making these leaps too soon story comes out, is he gone or not? that discussion happened within minutes. >> seems to me there's a legitimate question about brand value. >> because >> it's -- for example, 20, 25, 30% of corporate business and occupancy in vegas are group meetings and conventions there's an issue of whether or not there's going to be cancellations. >> so you think bookings would see a material drop because of an accusation? >> i think that there's an image here -- image issue here, and the thing to remember is what's the batting average of ceos surviving when they've -- when they've been accused of this >> i mean, to discuss further, carl, what you bring up, i mean, the details are so extensive and

so numerous compared to other allegations that we've seen -- >> right. >> -- that it just becomes almost overwhelming. >> it does ad adam, to your point, it sounds like a board level issue i mean, just beyond whatever behavior takes place, this idea that harry's raised of endangering the brand would certainly go right to the heart of what a board is supposed to focus on. >> sure. this is the problem of having a prominent ceo where you have your name and your signature on the front or the company's signature is the logo, and that's great it's great for the brand until it becomes a problem and then they have to act fast because the headlines are the headlines, you know at this point they're allegations. there's a lot of claims being sent back and forth, but you can't put the headlines back and the board has to be looking at the fallout of this. again, as part of their fiduciary responsibility >> harry, what about the company being sold that's certainly -- you know, i've seen some notes that bring that up as a possibility is it? and what would it be worth if,

in fact, that were to occur? >> it's not that easy and the reason is the vast majority of the cash flow comes out of macau. what determines the fate of macau are the folks in beijing so i think that there could be an issue with approvals. you could get -- >> unless it was a chinese buyer. >> unless it was a chinese buyer, but then you get the issue of sifius. >> here in the states, it would be a national security concern >> that is so interesting. >> it's an issue of would the chinese buyer then be permitted to own the u.s. assets >> right right. >> maybe they could buy the macau assets. >> it doesn't seem to be a national security issue. >> it's not a national security issue as much as a cash flow issue and a preservation of licenses here. >> right

right. licenses yeah >> gentlemen, thanks so much. >> thank you. >> harry and adam, good to have you on. when we come back this morning, a look at the state of the economy, taxes and more. as the president is set to deliver his first state of the union tomorrow night, two former chair men of the council of w ecutives join us dois down 94 we're back after a short break each day our planet awakens with signs of opportunity. but with opportunity comes risk. and to manage this risk, the world turns to cme group. we help farmers lock in future prices, banks manage interest rate changes and airlines hedge fuel costs. all so they can manage their risks and move forward. it's simply a matter of following the signs. they all lead here.

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ahead of his first state of the union, the president is continuing to hammer things. businesses are coming back to america like never before. chrysler, as an example, is leaving mexico coming back to the u.s.a.

unemployment is nearing record lows we are on the right track. joining us to discuss, gleb hubbard. former chairman in the bush white house. oscar ghoulsby gentlemen, it's great to have you both thank you for your time. >> thank you. >> austin, he goes into the speech with a lot of talking points what would you emphasize >> if i were donald trump, you know, i hope that he will emphasize bipartisanship and, you know, i think there are a fair number of things that he could perhaps rally people around i don't know that it will work i kind of think most presidents do most of what they're going to do in the first year, and there's been such an erosion of trust really on both sides, but especially the democrats do not trust what the president says. so even if he comes out with a bipartisan kind of unifying message, i think there will be a

high degree of skepticism. >> glen, he's got all of these businesses giving wage hikes and bonuses. he's got the market, of course, which raises that other question how effective is the stock market as a barometer of your success when we know the percentage of households in this country who actually own stock directly or indirectly >> well, i think it is very important. i expect the president to look back and look forward. he'll look back on the economy and what he's accomplished, but actually look forward with what he expects the effects of tax reform to be you have to be, of course, careful about overly embracing the stock market mainly factors determine the stock market, and i agree with austin i fully expect more bipartisan discussion from the president. >> on what areas is infrastructure the obvious play, glen >> i think infrastructure, even a bit on immigration as well my guess is we will hear more of the president that we heard in davos and less of the president of twitter

>> austan, do you go along with that was davos a setup in terms of the packaging we're going to get? >> probably. davos man trump, i don't think anybody thinks that that's actually what trump believes and, you know, just on immigration, take immigration, we went through a period in december where the president came and made a promise to the congressional democrats about the d.r.e.a.m. act and then within weeks reversed himself and said, oh, no, i'm not going to do it so i think regardless of what he says that tries to be bipartisan, there's going to be a lot of skepticism of does donald trump standing up reading off a teleprompter actually represent the trump administration's views because on a few of these things we haven't seen it. >> austan, you think there's nothing he can say that might be convincing to the other side, that might get that side of the aisle to stand up for once

>> i don't know if it will be convincing for sure he could say things that would be better received than some of the things he has tweeted out, you know, as glen put it, which for his first year he clearly took a mostly confrontational stance i think if he did that, that would not be well received it would be well-received, but i think they will view it with skepticism as they should, i think, because he's said a number of things that he hasn't carried through on on infrastructure, i hope he says something that's bipartisan, but as you know, most of what they're talking about now on infrastructure would force the cities and states to pay more and the federal government would reduce the amount of spending on infrastructure >> hey, glen, did you see the atlanta fed this morning coming in with their estimates of growth above 4%. historically they haven't been completely accurate, but certainly the optimism that we see in the stock market is translating into believes about what gdp growth could be

do you believe that number >> i don't think we're going to see long-term gdp growth of 4% but we could see some very good quarters the economy is on very solid footing. we have solid policy support i think we're headed back towards a growth rate of 3% which strikes me as very, very positive >> okay. how about you, austan? >> well, i think the atlanta fed for fourth quarter gdp said it was going to be over 4% and it was 2.6. the year 2017 was 2.3% as a whole. that's a small and modest improvement over the growth rate over the last six years, and i think 2018 still looks to be relatively positive, but i think 4%, to me, seems relatively unrealistic. >> hey, glen, prior to the tax plan kevin has set of the cea had some projections about what the bill could mean for take home pay for average households which in some circles was widely

divided. this morning he comes on and he says he thinks maybe 1/3 of the cash flow benefit could eventually make its way into wage hikes and bonuses has he been vindicated to some degree >> well, i think the corporate tax cut will raise wages, it has to through investment and productivity firms have already started by giving bonuses exactly how much is the subject of debate, but i think definitely that argument is there. i think it was one of the big reasons people should support tax reform. >> austan, last point to you. >> okay. last point you heard glen make a very diplomatic statement, that is, the administration originally was claiming that more than 50% of this tax cut was going to end up going to wages, now it's down to 1/3 what they have announced is more like 2%, and i think that's where the rub is going to be is what's the magnitude of how much are they going to give to the employees versus just pay out to

shareholders in dividends and share buy backs. >> guys, we'll see what happens tomorrow evening good to see you both glen hubbard, austan goolsbee. >> let's get to rick santelli for the santelli exchange. rick >> excellent thank you. i'd like to welcome dr. tom sabine dr. sabine, glad you're here this morning i specifically want to start right out with some of the issues on excess reserves. you've written several op eds concerning, and your notion is that for every $12 -- excuse me, for every dollar of required reserves, banks have 12 bucks with the fed is that a good thing or a bad thing that we're paying 1.5% currently on excess reserves >> well, i don't think it has anything to do with being good or bad i think one of the things interesting about what happened in the whole expansion of the federal reserve is that they moved very rapidly but also see

questered most of the increase in their assets. their assets have actually gone up significantly from about 6% of gdp to 20 something percent of gdp but as you and i do in our own asset net assets and for the first time in its history, the federal reserve has very significant liabilities and those are one of those are excess reserves. the others are reverse repots. it's not increased that much it's less than doubled it's net assets. versus the five times the gross assets so i think this gives us an opportunity -- >> all right d doctor, let me interrupt you a second i know you say it's not good or dad. let's look at this from another perspective. we've had over the last eight years really weak loan demand. now being in the market, i think it's because the credit markets have just been more palatable that's banks in many ways. but there's also lots of issues.

we've had tax reform maybe that will make a difference but i guess what i'm asking is there any correlation between weak loan demand and the amount of money i think for 2017 it was $26 billion that we paid for excess reserves. is there any correlation there >> no. i don't think there is i think there certainly in a sense is what the federal reserve has to do in order to keep the bank -- because if they are going to do as they argue they're going to, that is to reduce their portfolio and they've reduced it the forecast for the first quarter would have been a maximum of $30 billion. they reduced it by $18 billion what they're doing is taking money out of the economy they have to make sure that the banks reduce the amount of reserves that they're going to want to hold in order to not to make the stifle the recovery i think that's important they -- >> now, is it also true that these reserves are also rather

integral these days to monetary policy is that kind of the way they view the excess reserves at the moment >> i'm not sure. certainly the interest rate and excess reserves is the upper part of the fed funds rate but it's the different -- the important part is what our market interest rates relative to what they're paying on reserves and over the period of the two quantity take thei easings, the giant amount of change in those periods, they were paying more on excess reserves than the one and two year treasuries. >> dr. s savinaving. we're out of time. i would like to have you back to see if there is any discussion on interest on reserves. thank you for your time today, doctor michelle, back to you. >> thank you, rickster let's send it to jon fortt for a look at what's coming up on

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welcome back to "squawk on the street." markets are taking a breather after record closes for the major u.s. indices on friday the worst performing sectors are the ones associated with higher dividend payments including the utility sector the losses are being driven by weakness in eversource and centerpoirnt energy and duke energy and others in the sector. this is longer term interest rates rise and hit multiyear highs making high dividend paying stocks less attractive. every member of the sector is negative territory so far today. so certainly, carl, one of the sectors all of the interest rate sensitive ones, ones to watch in the coming hour. >> thank you when we come back, production pullback. apple is cutting the iphone 10 pruction production in half we'll discuss that take a look at stocks at this hour

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good morning it's 8:00 a.m. at apple headquarters in coopertino, 11:00 a.m. on wall street and "squawk alley" is live ♪ ♪ good monday morning. i'm carl quintanilla at post nine at the new york stock exchange kara swisher is with us to talk about tech at large and specifically apple, kara shares of apple under pressure on a report that company i