good morning welcome to "squawk box" on cnbc. we're live from the nasdaq market site in times square. i'm michelle caruso-cabrera r along with andrew ross sorkin. joe and becky are off today. joining us toe day is kevin o'leary. and mike santoli is with us for the hour looking at u.s. equity futures, they're suggesting a negative open, a decline of 324 points. the s&p lower by 38 points the nasdaq lower by 81 points. there's a time that would look like a lot but considering what we've been through, a move of 1% doesn't seem that volatile here's how yesterday played out on the big board the dow opened down big time before staging a late morning comeback, then it moved between

gains and losses for much of the day before surging in the final hour of trading. the dow travelled 5500 points in total when you add up all the moves. with yesterday's rally the dow and nasdaq recovered about half of monday's losses show you what's happening in asia.s generally improved asian markets were mixed, flat hang seng lower by almost 1% shanghai off by 1.2% europe this morning, positive across the board gains of a half percent generally. let's go show you what's going on with the yields which has been so interesting in the wake of that wage data on friday the 30-year is yielding 3.03%. ten-year note at 2.7 2.76 we had gotten up to 2.88 on

monday that led to a lot of selling it's a key level we'll talk a lot about as we move through the morning. five-year note at 2.49 the two-year at 2.0. we'll have more on the markets as you can imagine in just a moment we have also a breaking corporate news story making a lot of waves steve wynn is now officially out as ceo of his company following allegations of sexual misconduct contessa brewer joins us from carson city, nevada. she has the details. good morning >> good morning. this marks a seismic shift for the gaming industry in nevada. if you look up and don't vegas strip, you can see the imprint of steve wynn everywhere for all that this is a publicly held company, this is really steve wynn's company, one that he founded and loves as he said in a statement released last night. he once again tries to deflect blame. he says in the last couple of

weeks i found myself the focus the avalanche of negative publicity. one in which a rush to judgment takes precedent over the facts, i cannot continue in my current role the board of directors said it accepted the resignation with "a collective heavy heart." president matt maddux will take over as ceo in a succession plan endorsed by steve wynn maddux is facing tough odds here macau regulators sat down with wynn macau to demand exmra anything th explanations the nerve vad dvada gaming cont

meets here this morning to discussion the investigation, and the gaming commission board is focused on the board's value to disclose that 7$7.5 million private settlement between steve wynn and a manicurist in 2005. with these gaming licenses at stake, wynn resorts is pushing forward and trying to highlight the positive in its statement it says wynn resorts is committed as ever to upholding the highest standards and being an inclusive and supportive employer. more than 40% of wynn management are women, the highest in the gaming industry. the jeffries analyst is raising the prospects of who might want to come in and bye win resorts in part or some assets at a much lower multiple >> i was going to say, before you go, is there any other

locations even in vegas or other places where you can see them completely lose their license or revisit that conversation? >> there's some question i spoke to a source last night who says the idea that the nevada gaming control board is the gold standard of regulatory gaming commissions is laughable. but remember they have a brand-new chairwoman, the first time a woman has headed the gaming control board she's been on the job for less than two weeks this is a heavy burden to tackle we'll have to see how they approach taking a way a gaming license from a whole company, a company that provides so many tax dollars and jobs to nevada, it raises a lot of questions. >> what role will he play in this in the future he still has a huge presence in the company, shares. does he just disappear

>> so far the details of how he separates from this company have not been released. in fact, other analysts are saying they're cautious about urging their investors to buy at this point because it's not clear how the company proceeds forward with steve wynn, what happens to his shares. he's now the largest stakeholder in wynn resorts. but there's a battle between him and his former wife and his former partner in wynn resorts >> this feels like a travis kalanick uber situation. >> can we underline one thing. if you were running a con sewellsewell consumer products company, the overall company would not be worried about trying to sell product on the shelves of supermarket gaming is unique, they can really lose their ability to function >> what about the nfl? there you have businesses that operate with some sort of

oversight from the league itself, there's another industry where you cannot -- >> but they're not publicly traded >> that's true >> i'm just trying to emphasize the fact the reason this guy may have to step down, if they lose their license, they can't function >> no, no. >> there's no process here what about a trial for this guy? what about shining the light on it and fining out what happened before he loses his license? this is wrong. >> can i ask a separate question -- >> guys -- >> consumer issue. do consumers want to hold their convention at a wynn casino? i'm not going to make it political, we have the situation in mar-a-lago with our own president. >> maybe not after he gets his day in court after all these allegations or claims are presented. >> it's not just the issue about regulation, it's about the consumer behavior as a function of it. >> the revenue to the company.

>> can i weigh in on that? >> go ahead. >> so, last week i talked to people who were at a cofrens nfe of women at wynn resorts, i asked if there was any uncomfortableness being there. they said, no, we can separate the man from the company the wynn standard of luxury is unparalleled in gaming nobody else can offer that level of luxury service. not that we have been able to find out and report, with the exception of the republican governor's association, we have not seen a drop off in group bookings the second thing is no one is saying -- none of the regulators are saying they'll lose their license. they're just taking a hard look. in massachusetts they had all of these people that individually they had to go through a qualifying process, that included steve wynn and the company itself the fact that the board did not disclose voluntarily that 7$7.5 million settlement, which now it has told the lead investigator it knew about, but didn't

disclose it at the urging of counsel raised some red flags for them but no one is saying wynn will lose their license they're just at stake. the way the company proceeds will be important, which also leads me to look at even the statements they're sending out have been side by side, the company statement next to the wynn -- steve wynn personal statement. there's going to be a lot of questions about how independent this independent board of directors really was >> when the wording says we have heavy hearts as he leaves. that struck me in that statement. >> exactly >> i will assume that the company did not pay the 7 million. he personally paid the 7 million to settle something. i'm not sure they have to disclose that. i'm not sure the company broke any rules. i don't endorse his behavior but we are losing due process in all of this stuff.

look at the ceo of lululemon he had a bad date with somebody, and now he's out that's what it sounds like i'm not comfortable with this anymore. it's too crazy >> the investigations are due process. >> he lost 20% of this company's market value so far on allegations. hasn't he been punished enough >> many, many, many allegations. >> let him have his day in court. >> i imagine we'll talk a lot about this a lot today >> back to the markets mike santoli is on the set what do you make of this wild market wide? why are we seeing this volatility >> it's a classic picture when you have a sudden sharp drop, and it strikes investors who are unprepared if the market is so calm for so long, people will be unprepared.

yesterday the market bounced where it had to. you had such a washed out market monday night into tuesday, if we had not had these deep readings, you would be more concerned. we have high volatility and low conviction trading you don't know if investors are trapped out there, need to sell. volatility is still elevated you could make the argument that the peak of the fever might have broken we will have to see if that's the case i'm still curious as to whether we get refocus on earnings if the market itself starts to settle down a bit. if we have people reassessing the fundamentals i think it's caused everybody to decide do i have the right risk levels, right exposures? there's talk about large investors, they don't necessarily have to sell but they're saying if this is the new volatility levels we have to deal with, if we can't assume it's going to be a calm march

higher, we are too exposed to equities >> so risk parity is the phrase that a lot of hedge funds use, and most investors think i'll have some money in stocks, some money in bonds hedge funds don't think of it like that. they think what are the levels of risk associated with every asset atility is low, risk is low. if volatility is higher, they have to reduce their exposure. >> in general, that's the case you say it's safe to own this much in the way of market exposure if volatility levels are low. it reminds me of these markets of 2011, where everyone agrees on the fundamentals pretty much in terms o fundament fundamentals, market fundamentals, but what are you paying for them today? the volatility levels dictate that >> explain what's happening this

morning? >> this is what you do when you try to find a bottom you have to keep testing yesterday's final hour of trading, that was just, wow, maybe nobody will come in and slam this market down in the last hour. and these volatility funs liquidating will not take the market down. let's get back in there and pick some up. here's for context yesterday's rally, total rally, half of monday's losses, only 20% of the total decline since friday january 26th. you look at the chart. the chart looks broken look, this is a corrective period that's what happens. you try to have these aftershocks around the low you talk to technicians, that's what we get to >> some technicians will tell you we're there. others will say there's more to ride >> most stocks very well may have hit their low in the intensity of the selling monday and tuesday, but the overall market -- here is my analogy in the nfl, the market has to go

through the concussion protocol. you have a nasty hit, you have to see if the market responds properly to stimuli, watch and wait >> let's add a few more voices to this conversation joining us is jim carin, our guest host for the hour is bob doll and kevin o'leary is here. bob, is the worst over >> i believe so. i love mike's line the fever has broken it doesn't mean it's back to normal we'll have more volatility but i think the last two days were big attempts at finding the bottom in volatility, in force selling, deleveraging, taking risk parity portfolios back to normal we will get back to fundamentals fundamentals are not the same as they were. interest rates are higher,

volatility is higher but earnings are fantastic >> can i ask a simple question, after all this is over, the foo fever is broken, are investors going to be willing to pay 17 times or 16 times? if they only pay 16 times, we have another 14% down. >> i think 17 is more like it our view is the end of the year pe will be lower thannian iajan 1st. we had six straight years where the stock market lagohas gone u more than earnings >> so you're comfortable at that with a 3 handle on the ten-year. >> it's an adjustment. low vol, low interest rates, low inflation, high pes, we will adjust that some to a more

normal environment, if we can remember that. >> last couple days was an adjustment get the chiropractor in. brian, what do you think >> investors have been clamoring for a correction for a while now. 2017 was the first year in a very long time we didn't have a greater than 5% correction so it came a couple weeks later. when i would get concerned about markets -- i have a little dashboard i look at. i would see inflation significantly higher in the united states. a fed raising interest rates, long rates coming down, converging with short rates, credit spreads blowing out stronger dollar, not just the last couple of days. these types of moves don't particularly concern me. i gragree, this is a new paradi but not one that the the end of a cycle. investors should see through this volatility. >> what is your underlying assumption of what the ten-year

will be in. >> i would not be surprised to see the ten-year creep higher. if you were to say to me over a sustained period do interest rates stay at 3% or move closer to 2%, i would say closer to 2% because of high savings rates around the world, because of an aging population i think we can see 3%, i don't think we're sustained there. i would be in the low for long camp >> jim, you tell me, what do you think is going on with the ten-year >> i think when these events happen, there's two questions. one is what have we learned. two, what are the questions we have to ask going forward. what we learned is that the low rate low volatility environment is probably coming to an end that's the ending stages of quantitative easing. this is happening in a slow process what this does, when you end qe or move into this stage what qe did was depressed interest rates, depress eed volatility that's now slowly starting to turn and slowly starting to come to an end.

asset prices are trying to find that next level of risk premium. kevin was discussing what is the multiple the market is trying to pay? that's the right question. bob was talking about at what level of interest rates do we think we can settle at what is the new range? these are the right questions to ask. the range on the ten-year is closer to the 2.50 to 3.25 than 2%, 2.25%. in the process of risk premium readjustment that's where we will find the new levels and ranges >> for the novice viewer, when interest rates start to rise, you are willing to pay less for earnings of a company, right either because it provides competition or there's more uncertainty down the road. that's when -- when we talk about the risk premium coming down, the multiple can come down on the market. that's why the "e" is so important. >> the only thing is that the

long-term historical "e" is 16 and change and the other is 17 and change if you think we're going back to 16, you have another 10% down every day the rational optionor looks at these two or buys stock in the companies i looked at it yesterday, i said i can't get to 2.75% on five years, i would rather own equity >> but it changes at some point. >> that's my question, at what point would you take your next million dollars and say i'm not buying stocks, i'm going to buy the bonds of the same companies. >> if the ten-year is going to 3.5, earnings are probably good. so we get more "e" and less pe >> there's no fixed relationship that's the key here. when the market was much more expensive for one time in history than today, in the late '90s, what was the ten-year?

6% the math doesn't always work out that way >> the number one question, where do interest rates settle in are we in a 2.75 to 3.25 world if that's the case, equities do well we'll do fine. if we move back down to a 2% level, that's a different story. what about 4%? in my view that's a problem. >> good discussion thank you very much. coming up, we'll talk disney shares rising this morning on the back of an earnings beat that story next and look at the futures. we are down triple digits right this minute. we'll show you some red. mr. wonderful is here but it ain't so wonderful dow jones looks like it will open off 303 points. nasdaq down 75 s&p 500 opening down by 25 points we're back in two.

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let's talk about some corporate news disney topping wall street earnings expectations. that's thanks in part to the success of its new avatar land shares rising on that news the ceo spoke about the company's theme park performance last night on the closing bell

>> it starts with success across the globe. particularly in some of our international or in one particular international resort in paris that had a number of years when the numbers were not that good. they improved substantially. we also had record results for domestic operations, record revenue, record bottom line. it's an across the board success story and includes the cruise ships. >> iger also saying the company will be launching the new espn plus streaming service this spring and one version will cost 4.99 a month. it will offer a range of live sports and events that won't be available on current channels. if you're a "star wars" fan, the creators of and writers of "game of thrones" are taking over that project. >> very excited about that >> that could be a come thing. >> does disney trade on earnings or whether they can execute on

the espn plus? >> it's not just the espn plus >> the over the top. >> the over the top. what's not been fully addressed is once the 21st century fox deal is fully integrated, how hue l hue ll lly hulu could operate. >> comcast could take a shot at fox. >> we talked about that the day the deal was announced >> you saw the story on monday that they're still considering it when that story broke, comcast fell, disney fell. >> people keep talking about the cash flow of espn. iger's theory has always been this has a long tail when i monetize it across the stop, and you want to watch your lacrosse game from bc, you can do that. if that doesn't happen, this thing goes back into the 9 0e0s

>> because you don't have the content? >> you have to get all the naysayers that you have managed the decline of that. that's 40% of the cash flow. >> if you're buying the fox assets, you make espn smaller. he also said the pace of decline in pay tv subs did ebb a bit >> there'sno question, if you have young children, you will buy that over the stop stuff >> of course >> back to the broader markets futures are suggesting a negative open. the dow lower by roughly 300 points the s&p lower by 24. nasdaq lower by 70 our next guest says it is time to calm down mark grant is ready to put ugly inerecve pspti when we return. obvious.

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welcome back you're watching "squawk box" live from the nasdaq market site in times square. good morning it's 6:30 on the east coast. u.s. equity futures at this hour are down again investors perhaps testing the lows dow looks like it would open off by 301 points. nasdaq opening off by 71 points. the s&p 500 looking to open down by 24 points the big story is steve wynn, officially out as ceo of his own empire, wynn resorts stepping down late yesterday this comes after a bombshell report from the "wall street journal" last month which had

detailed those allegations of decades of sexual misconduct by wynn show you what's going on with shares of wynn those shares off about 1%. this has always been a mixed issue. mixed question of the value of steve wynn as a ceo and leader at the same time the damage these allegations have caused to the stock. >> when you see the market cap that's been wiped off. people thought it was important. >> lululemon announced on monday that its ceo resigned saying he felt short of the standards of conduct. sources say one issue that led to the departure was a multi-year relationship with a female designer of the company she left in 2014 but was brought back later as a contractor lululemon did not renew her contract last month. sours say he also had a negative impact o the company's culture, which they described as toxic. a company spokesperson says any

time violations of policies are brought to their attention, they take appropriate action. to take as an investor, he's being fired for a long-term relationship that was tumultuous with a partner i don't know what else to make of that or his performance is subpar and he's being terminated for cause. which is it? that's a bad communication from that company which causes me, if i were a shareholder -- >> you're saying -- you're saying the relationship unto itself, you have no problem with >> people have challenges in long-term relationships. i think we can agree on that >> she's a subordinate by definition >> this is where the whole thing gets complicated there's a power dynamic. that's what this whole "me t too" -- >> i just want to know what is he being perm natured for? is it a performance matrix or

because in the new culture, in the new world, even if you're married to somebody and you have a bad date, you should be fired. which is it? >> i think following corporate policy, and bringing somebody back as a contractor, we don't know the back story on that. >> you would think somebody would read that and say i'm confused why are we whacking this guy >> the other complicated part, i'm sure there are people you have fired before and when you decided how you would describe the firinging, you would describe the firing in a different way publicly than the fact the firing is related to privately. for whatever reason or otherwise, that's the agreement people made. so the company may not want to publicly declare in this environment, because you almost

allege he's involved in sexual assault even though he probably has nothing to do with that. in this environment that's the -- this is the complicated part >> most ceos have contractors with their board of directors that has a cause clause in it. it's much different if you fire for cause and you go through litigation for sure. a whole class of lawyers defend ceos who get fired i don't know what happened here. i don't know if they're trying to reduce costs, trying to make this guy go away quietly -- >> because they weren't happy with performance i see. >> we have so many different pieces >> you can't lose sight of the brand identity of this company and the brand base of this company. >> women >> here's the squawk planner december consumer credit numbers are out at 3:00 p.m. eastern rob kaplan is speaking in germany, and we'll hill from

bill dudley, charles evans, and john williams today. as for earnings, michael kors will report before the opening bell after the bell, we'll hear from 21st century fox and tesla. back to the markets, yield on the ten-year note, 2.77 one of the big movers in the market joining us is mark grant good to have you here this morning. we teased that you will tell everybody to calm down >> i've been doing this for 43 years. the issues have been since the central bank started flooding the world money, inflated everything and inflated asset prices this is a correction the world is not melting down. there are corrections with how you deal with what's going on,

but this is just a correction. some days it's ugly. you have to put ugly in perspective. you just have to look at this rationally >> a lot of people think the correction was sparked by the rise in interest rates with that ten-year yield getting close to 3% do you think that's what caused this how do you assess interest rates impact on the market in the future >> i'll respond to that question, no, i do not think interest rate rises caused anything as a matter of fact, if you look at this data, we started the year with the ten-year at 2.46, we're at 2.77. we're up 31 basis points what i think began all this, and i deal with a lot of money managers, what started this in my opinion is that this pixie dust money is coming to an end there's 21.7 trillion of it in the market no.

the fed has stopped quantitative easing the ecb says they're probably going to stop in september so i think -- i know a large number of financial institutions and money managers decided to do things the other way >> the pixie dust money kept the ten-year lower, right? recall of those central banks are buying that stuff. now they'll buy less of it if any at all it still feels like it's a question around what's happening with long-term interest rates. >> okay. we're up 3 basis poin -- 31 bas. 3% frankly given the history of interest rates won't do much one way or another do i think we'll go to 4% or something? no there's still a tremendous demand for fixed income products one way you can judge that is,

yes, while treasuries are backed up in here, corporate bonds is measured by a number of indexes, and have compressed against treasuries because there's still this huge demand for yield in the world. >> mark, can i ask you at what rate -- let's take a company like disney. you can buy the stock, get paid a dividend today or buy its debt and get 2.3% for five years. what rate would the bonds have to yield before you would stop buying the equity? what do you need to replace equities on yield on corporate debt a strategist like you, what's the number you need? 5% 6% 7% >> you would need about 5%, in my opinion, before something like that would make sense >> yet those bonds are only yielding less than 2.5 today so they would have to drop in value by 50% before you would buy them how -- under what scenario would

that happen? >> that's a tricky question. there are a lot of big money managers, as you know better than anybody, who have plan dates to buy bonds, plus the pension funds have mandates to buy bonds. so it's not necessarily one versus the other it's also a question of security and stability. >> right >> my point is you are not using thoses s as a substitute for equity, nor am i, very few are because people who want to make a return want more than 2.5% over five years. i don't see much changing. there's no competition for equity yet >> all right thank you. >> thank you very much >> good to have you on coming up, more on the markets wild ride. the nasdaq managing to snap a three-day losinging streak yesterday. we'll talk tech and more in just a moment

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snap reporting a narrower fourth quarter loss as ref knew surged more than 40% they added more than 9 million daily users. evan spiegel says he is confident snap can monetize snap more efficiently it's a gain of more than 20% on that earnings report. joining us now to talk a bit of tech this morning, kathy wood is here. good morning >> good morning. >> you like snap >> we don't own it we are looking at facebook copying everything they do maybe this is a break from that. the numbers looked good. surprisedly good >> has everybody missed it >> don't know. we just looked at ma ushgus, da

switched to instagram and my own children >> i want to talk tesla in a second but what have you been doing in the past 72 hours? >> we've been buying now we have a different take on what's happening here. we think the market is finally truly working. the first stage is when the fed started moving interest rates up in early 2016, the market was fearful they were making a mistake. we think this is a con ways tin of that. i'm happy that there's volatility that makes sense. volatility can work both ways. right now you see turbulence to the down side. if you look back to the late '90s, which is the last time we saw volatility to the upside, people forget about that >> you said you're buying. so you think these are fair or better than fair prices?

>> we love the fundamentals in terms of what we do we're focused only on disruptive innovation and seeing incredible opportunities. >> we were mentioning during the break there's a tesla in space you like tesla >> love tesla. it's one of our largest holdings in our overall fund. we think if spacex can do what they did yesterday in space, they're going to be able to produce the model 3. >> but they're different companies. it's a whole different business. >> same brain trust. >> it's rocket science >> do you eventually want tesla and spacex to merge? >> no. i like things the way they are now. i like the focus >> in the tesla story, you know, we also keep looking at that stock with one big question, if it walks and talks like a car, it must be a car it has four

wheels, drives around. all cars will be automated with ai eventually. everybody else trades at a 15 to 16 multiple, they trade as if every car is being shot to the sun at a statratospheric number >> gm is a call option on the future the future is electric gm is not electric yet it's the internal combustion engine all the way the future is transportation as a service, software as a service. you need software engineers for that gm has great engineers, but they're hardware engineers they had to buy cruz automation to get those software engineers. so you have two big model changes. electrician, software is a service, gross margins going

from 20 to 25, the ard wear mha 80, 90% for the software model there's a third problem gm has, distribution by law in many states auto companies cannot do over the air updates. tesla has been doing that regularly. it updates, improves performance, corrects mistakes, flaws. gm cannot do that. and it is really going to have to go maybe through cruz automation an rebuild a company. and even if they were allowed to do it by law, how do most dealerships get their profits? service. is gm going alienate dealers i don't think so >> i want to believe i want to believe. i just bought a tesla. but my dna will not allow me to buy that stock i think one day we'll wake up and say, look, it's a car.

>> if we're right, this stock in our models, this stock is going to 4,000 >> wow >> okay. >> and if we're wrong, all they do is electric, the bear case is 600. >> are you shorting every other car company in the world >> no, we're using some as call options. this will be a huge $10 trillion opportunity. >> you would do well on "shark tank." >> and she also likes bitcoin. >> you want to predict where stocks will go from here we'll do a chart analysis after this, talk market technicals after this break when this bell rings... ...it starts a chain reaction... ...that's heard throughout the connected business world. at&t network security helps protect business,

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the last couple of days sent us all kinds of technical signals, posed some new questions here to help us answer them is jeff weise good morning, jeff. >> good morning. >> technical analyst, you have sent some charts let's start with the s&p 500 chart you sent and what is it telling you about the future of the s&p 500? >> well, what i'm doing here is i'm looking at a lot of trend lines that i believe have stood the test of time if we take a look at this first

chart, there we go, you'll see a trend line going back to the week ending july 27th, 2011. notice that we had six weekly closing highs right around that line each high failed to get above the line we did close above the line recently and now we are below it the line at the end of this week, because, remember, it's a weekly closing chart, is at 2765. >> what's the line >> what? >> what's the line >> kevin, that is a trend line, and the more points it connects -- >> not 200 day average >> no, that's not a moving average. that's a trend line. i use trend lines more than moving averages because different stocks respond to different moving averages much like different patients under the care of a physician will respond to different medications. >> looks like it's forbidden to go above the trend line? >> well, if you stay above the

trend line and we by some -- well, now it would look like a miracle get back to 2765 at weekend, that would say something about the staying power of this bull the next chart -- >> but hold it let's just underline you're saying the key level to watch at the end of the week is 2765 >> yes if we fail to get above there and close where we are now, this would make that area the first potentially significant resistant zone in this bull market >> we're going to go to the third chart now, the double support because we don't have the dow chart. give us the double support >> okay. by the way, that dow jones total u.s. stock market index of 5,000 stocks, it is much closer to its trend line which tells me that the broad market is showing relative strength versus the s&p, so the fact that the troops are performing better than the generals at this juncture in relation to the trend line is a potential plus friday's going to be a key day let's go to the next one if

you'd like. >> yeah. >> thank you >> chart number three, guys. got it why don't you talk to -- why don't you tell us what it was going to tell us >> well, what it was going to tell us, feel free to put it up if you like, is that if we fail at these lines, the next area of support on a weekly closing basis is 2700 in the s&p 500. >> this is the nasdaq? >> the nasdaq chart, which is the final chart, does show a near term top. why? because if we take a look going back several years, you will note high after high after high after high has been repelled by that trend line. you'll notice that in the market's recent swoon we closed clearly below that line, which i believe gives us nasdaq resistance in the next few hundred points, and i would expect the nasdaq on an initial

test of that line to fail. >> bob, final comment to you about what do you think the tech goes here? >> i think the interpretation here is the faang stocks, which were growth stocks when the fed's keeping rates down, as rates go up now, it's more about earnings and that's not the companies you want to own. >> thank you so much good to have you, jeff. >> my honor. great to see you all. >> honor. >> blessed day blessed day. coming up, continuing coverage of the market's wild ride >> team of all-star strategists and investors going to be joining us to get a read on the trading day ahead as we take a look at futures. dow opening off 217 points other big story of the morning, steve wynn officially stepping down the billionaire casino magnet resigning as ceo of his company. we have a live report from nevada straight ahead. quk x"g ed, you're watchin "sawbo right here on cnbc. two big hours coming up.

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good morning the dow pointing to a triple digit decline at the open. but if yesterday's session is any indication, we might be in for a wild ride. we're going to talk market strategy coming up plus, some breaking news overnight and it is big. steve wynn officially out as the ceo of wynn resorts. he resigned following allegations of sexual harassment we're going to show you how the street is responding to that news why is jim carrey, yes, that jim carrey telling investors to dump facebook stock we're going to investigate that as well. the second hour of "squawk box" begins right now ♪ ♪ live from the beating heart of business, new york city this is "squawk box."

>> we are live from the nasdaq marketplace. >> wonderful >> also here is douglas see land >> 300 points. >> corporate drama steve wynn stepping down

about 3% our own contessa brewer has been following that story she is in nevada and has more. good morning >> good morning, andrew. what a change of fortune for casino mogul steve wynn who has really shaped modern dame gaming in nevada. his design inspirations are immediately apparent up and down the las vegas strip. this morning steve wynn is giving up the reins. in a statement he released last night he said, quote, in the last couple of weeks i have found myself the focus of an avalanche of negative publicity. as i have reflected on the pub environment this has created, i have reached the conclusion i cannot continue to be effective in my current roles. this following of course january 26th article in the wall street journal that outlined dozens of sexual misconduct allegations against steve wynn dating back decades. the board of directors said it is reluctantly accepting the resignation of steve wynn with,

quote, left heavy hearts there is a plan that has been endorsed by wynn himself mckau regulators are demanding an explanation about the allegations. they want to know the results of the investigation. the gaming board meets in carson city this morning. it has launched an investigation. the massachusetts gaming commission also has a hearing today and it's launched an investigation as well. one of the biggest challenges though for new leadership within wynn resorts might be the loss of the ceo himself in a security filing before the allegations ever became public here the company had said it was a risk factor. it wrote, if we lose the services of mr. wynn or if he is unable to devote sufficient attention to our operations for any other reason, our business may be significantly impaired. already we've heard from jeffries gaming analysts that they expect any interest in

buying wynn at this point or buying wynn assets would come at a much less multiple trading in wynn in mckau was down shares up 3 1/2%. >> contessa, thank you for that. lots of questions this morning we've been having our own debate at this table about what you were calling -- >> yeah. i'm just looking at the feedback. >> yeah. >> we have a very unusual environment. this is probably unique in that there is no due process, there is no opportunity to defend yourself, there is no way that someone who's allegedly done this, i understand steve wynn may be a bad guy, i'm not saying i endorse his activity, even international entities like the chinese regulator is weighing in on steve wynn's history of dating or whatever it is it's unprecedented he has no day in court no process at all. lost 21% of the market cap of

the company. this is not good for anybody, anybody. it's just not good and i think as a society we should start to ask ourselves, what are we doing to these people why is this fair look, i'm already getting lots of hate mail i get it. >> right >> but i'm just holding up my hand saying, when are we going to look at this with true transparency as to what is being done here to these people? his career is ruined he's toast. >> do you give any daylight to the idea that there are some cases we've seen where there's been one anonymous allegations from a couple of years ago and then there's an article in the paper where they have spoken with dozens and dozens of people who make allegations and there's already a settlement and people on the record saying their experiences, does the market act much more quickly than the -- >> in this case there's a multi-billion dollar divorce

being tested for the sake of money. >> which is often the case with a divorce. >> that may be true, but these dozen other women are not party to that divorce per se. >> do we know what they've actually accused him of? >> yeah. >> there's a litany of -- and yet you can -- i mean, look. i'm already getting blasted for it so i might as well go the whole way. >> we know exactly what he's accused of, yes. >> if you murder somebody, you deserve your day in court because you're going to spend the rest of your life in jail. >> right. >> in this case you spend the rest of your life in jail in terms that your career is ruined, but you never got your day in court and you never will, it seems, which is wrong. >> but in this case we do know some of what he is accused of. i can't say it on television. >> do not pass court, just go to hell, no chance of a trial or -- >> but my original question was, there's a case like this where you've got dozens and dozens of people, some of whom on the record with explicit allegations and then there are other cases, we talked about lululemon, some

one person in the past, the future, maybe they had a bad day. >> do you see the difference >> i do, yes >> i'll ask you a separate question. >> that's my question. >> an employee of yours is arrested -- >> yes >> -- just hear me out, and this is different because we're not in the criminal instance if somebody were in a criminal instance, arrested for rape, let's just say >> yes >> do you -- do you fire them? do you -- >> >> here's our policy. they are excused without -- you know -- >> with pay? >> with pay until they have had their day in court and if they are guilty, the full weight of dismissal because we don't tolerate that and nor should we. >> do you claw back all that money that you've been paying back in the meantime >> absolutely, it's fair to do it but it is not fair to accuse a man or woman without their day in court i have a problem with that you must have due process.

as a society we deserve to give that to people it's wrong it's totally wrong what's going on here. now when they are found guilty, the full weight of the punishment. >> right let me ask you a question. harvey weinstein -- >> yes >> -- if you were running weinstein and company and you had a situation where it was clear people wouldn't work for the company because they didn't want to work with him, what do you do as a business person? >> yes i want that man to have his day in court he is not a good guy it clearly seems. we as a society should hold the bar high regardless of how disgusted you are with that. you owe that man his day in court, period. there is no flexibility on that. that is how it should be, and i bet you in this discussion -- >> but dare i say how do you think about the quote, unquote, the market, the market forces of our society are such that you

have to make a business decision -- >> i have never wanted to get into this debate, but i feel today looking at this so frustrated at what's happening here, and i'm not the only person it's not right and if we don't give people due process, we are not -- we have fallen as a society. that's how i feel. now, look, as you say, the market's made its decision and my goodness is it brutal. >> let me just say one last thing. the bar is different than going to court that's the complicated part about this, which is to say that if there are enough people in an office environment who don't feel comfortable working with you, that is the bar. >> andrew, who decides who decides? >> well, ultimately in this case the board decided or you could argue the market. >> or the investors decide. >> too much risk. >> that was decided a week ago to take 21% off the company. >> exactly there was too much risk. >> he is finished, and even he in his statement say, do i not get my day in court? do i ever get to refute any of

this and the answer seems to be, no throw him on the sidewalk, say good-bye that's it. a that's basically what happened and it's not right look, that's just one man's opinion. >> no, no, look -- by the way, you want everybody to have their opportunity to tell their story and to the extent they can i just think it becomes -- as a business it becomes very complicated. >> the one thing to also think about because we're dealing with a publicly traded company is here you have a man whose name is on the company, right if it was x, y, z company would he be doing this, i want my day in zmourt show me. the value of the brand is our name are people going to go visit wynn and do other things >> by the way, the other piece of this. i imagine that every woman who feels that they have been victimized by him thinks that they never got their day in court, ever, and are getting their day in court -- >> i think we're hurting young women in the workplace with this because i know plenty of

executives off the record who will not go for dinner. >> i think there's a backlash -- look, there's a cultural backlash as a function of this that may not be helpful in the short term towards moving things forward. i believe that i have heard a lot of men say i don't want to be going to a dinner or a function on an individual basis with a female co-worker because of those complications. >> how do you think it works for me in the small caps tell me they are no longer comfortable in this environment. they don't talk about it because they know it's toxic as a topic. >> instead of helping to advance women it's -- >> it's a horrible story. >> let's get back to the broader markets now. >> okay. >> james lu is here, head of research and our guest host for the hour is ross efy cnbc contributor of course and our very own dom chu is also here we can have this wynn debate for the next several hours we can also have a debate about

the markets for at least until 4 p.m. today try to help us understand what you think is happening this morning. >> so i think we had a couple days where you had so much technical quantitative selling the fundamental selling wasn't there. this was really coming out of algorithms, quant shops. if you look at things, interest rates have changed if you're a long-term investor, this is the time to start adding to our positions if you've gotten cash where i think three years from now you'll be very happy. maybe we'll go down another three points or two points. >> when you say the fundamentals haven't changed except for interest rates going up, interest rates are crucial to stock prices, right? they move on earnings and -- >> the interest rates are moving for the right reasons. they're not moving because we've seen huge inflation. maybe we get it now. we're seeing earnings power, we're seeing geosynchronous growth and companies talking about positive earnings and a tail wind with potential tax

benefits. >> when interest rates go up it still means people are willing to pay less for a future stream of earnings. >> depending, again, on the company. if you've got a company that's growing on earnings, interest rates are going up i don't think it's a bad thing. >> the it offsets the multi-at this point until. >> exactly companies that are dependent on leverage and the capital markets, those companies are going to be in trouble you're talking about utilities, some reads, mlps. >> high multiple stocks. >> even consumer staple companies that are trading at 20 times earnings and are dependent on interest rates because if interest rates go up people will move money out if you look at financials, they're going to benefit from this area. if you look at even home product companies that are like masco and lowe's, they're going to benefit. what's happened in the past couple of days the market has basically taken no -- everybody is being sold off. what's my buy list what companies do i want to buy

that are good quality, fundamentally sound companies that can ride this out >> we've been debating all morning whether it's okay to be 17.5 or it goes back to the historic low of 16 what is it >> i think if you get anywhere from 15 to 17% i'm comfortable with that buy. you've already had a drop in multiple of almost one turn in just a week. i think if e continues and you can continue to get 10 to 20% earnings growth, you are going to stay the same concern, you are a dividend guy. if you get a stock with 2 or 3% dividend -- >> that is the debate. i think 2.4% within the s&p 500 with about 150 of those companies. >> right. >> those are the ones i like their bonds are yielding less than the dividend right now. >> right so why would you buy the bonds today? >> well, my question is, at what point do the bonds become more attractive i'm worried about that and say

to myself, one of two things happens. either the equity price erodes to where i say to myself i like the security of the bond returns, which i hope doesn't happen -- >> or the other thing we haven't seen yet which is interesting is spreads haven't widened. >> right >> sometimes you get the spreads widening so much that a bond you could buy for 3% goes to 4.5%. that's where it gets interesting for the short term you haven't seen that. >> is there anybody at this table who thinks that it's possible this isn't just a dip that there's something grander going on here? >> i see this from a macro perspective. i think what's happening is a healthy adjustment in the market we've talked about we're entering the weak stages of the cycle. inflation is the last thing to drop the market is adjusting to the new phase. that does mean that the market is going to pull back and be volatile we saw this during the taper tantrum and the presidential

election, et cetera. to go back to your point earlier -- >> mine? >> yeah. if you think about what really drove the markets the last year or so, it was really strong fundamentals in healthy earnings but we had very, very low perceptions of risk. in your dcf -- >> both pushing markets towards record highs only one of those things is sustainable over the long run and that's the earnings trajectory so if earnings do grow as the market expects about 16% right now, if we do see that, interest rates may rise, perceptions of risk may increase, local volatility may re-set. we'll probably still end up with a solid year when it comes to the end of 2018. >> one of the things we looked for yesterday was in the meles in the past week, where have investors been buying the dip. if you can get something on discount, on sale, where would you put the money to work? we looked at some of the stocks in the s&p that had some of the biggest interday lows and then the biggest rebounds from there

to close we're talking names like intuitively, netflix, nvidea, home depot to speak to the home construction theme and everything else. a number of these stocks that are in the s&p 500 have become battle grounds for when people do find the opportunity to see a 10% discount or 15% discount, they will jum p in and get in on some of those. i will point out that some of the biggest volatility moves happened on the etfs on a volume basis. massive amounts of volume going in on the spdrs. >> in the etfs where you have specific stocks that you want to own and they're selling the whole basket everybody sells a semiconductor etf, you want to hold nvidea or intel. >> use it as locations to -- >> by the way, in high yield as well. >> thank you, guys thank you. coming up next, we have all the angles of the market covered this morning

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welcome back take a look at how the selloff in stocks is impacting currency markets. the dollar is at 1.23.

you'll get 109.22 yen for every u.s. dollars joining us is the head of brown brothers merriman. >> it's a pleasure to be here. >> what's interesting is the stock market was selling off but all the other markets around it didn't seem necessarily to react in the ways that we would have expected, right? gold didn't rally. treasuries on that monday at first. what's going on with currencies at this point? how do you think it reacts to all of this? >> well, we saw a washout in what we call risk positions. so i would say emerging markets did sell off quite heavily during that period of market turmoil. >> emerging market stocks? >> stocks and currencies the dollar strengthened. that tells me that a lot of these risk positions were being funded by the dollar as those risk currencies got washed out we had to buy back the dollar

it was a bit of short covering, bit of positioning i think selling the dollar has been doing trade over the last year do we go back to that? i'm on the fence because i think the interest rate side, i think you noted that in the opening segment is sort of the missing piece in this whole fundamental story. that's in flux. >> when interest rates rise and traders around the world use different currencies to borrow and then buy their position, interest rate of the underlying currency matters because that's what it costs. if the interest rates rise to borrow the dollar to spend on other assets becomes much more expensive so you start to make different choices. that's why the yen's been so popular for so long, because interest rates are still near zero there >> that's right. i think my warning is that to investors that i think the markets are underestimating interest rate risk, both on the short end and long end if you look at the fed fund,

there's only two hikes the fed is saying three this year, two next year and two in 2020 that's a difference of 75 basis points. >> rising heat in the economy, right? all for enhanced economic activity there's no other reason to do that >> well, part of it -- that's part of it, but it's also normalizing. we're coming out of a period of 5% interest rate the fed is normalizing and trying to choke off -- >> when it comes to the currency markets, does the underlying reason matter? it's to borrow gets more expensive. it doesn't matter why they're raising rates, right, ultimately >> it depends. i'm an emerging market guy people lose confidence and you're trying to shore up your confidence. >> i'm thinking in the u.s. >> of course can we raise rates here if the rest of the world doesn't come along? if that doesn't happen then the disparity is so wide then your dollar is going to get stronger as well? >> that's the theory but it's been puzzling for the currency

markets. you've seen interest rates rise. the ecb are still doing qe d.o.j. as far as i can see, so the differential i agree is widening that's, again, the missing piece. the link to the dollar has not quite asserted itself. >> right we've been watching that thank you. we'll watch to see if that changes. as we head to a break let's take a quick look at the futures. we are in the red. things got in a little better as we've been on the air. things have come down in half. dow looking to open off 150 points it was off as much as 300 points literally about 20 minutes ago back in a moment time now for today's aflac trivia question. who is credited with coining the phrase dosav man the answer when cnbc's "squawk box" continues and a gentle wave-like motion... liberate your spine... aflac! and reach, toes blossoming...

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now the answer to today's aflac trivia question. who is credited with coining the phrase davos man the answer, political scientist samuel p. huntington the majority of wef members were male >> that may still be true today. coming up, today's top stories including the market volatility

and what it means for the fed. as we head to break, te aka look at u.s. equity futures dow would open down 156 points

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good morning welcome back to "squawk box" here on cnbc we are live from the nasdaq market site at times square. shares of michael koors are jumping in premarket trading they had a quarterly profit of $1.77 a share well above the consensus of $1.29 comparable sales of like shares have dropped that stock is higher by 8% supermarket operator supervalu is the target of an investor blackrock has sent a letter urging them to have a breakup. blackwell wants supervalu to give up three board seats. mortgage applications rose .7 of a percent last week

that's according to new figures from the mortgage bankers association. that was driven by refinancing activity with new purchase applications unchanged the average 40 year rose three basis points to 4.0% that's the highest level since april of 2014. making big headlines, humana out with earnings. they reported quarterly profits of $2.06 per share 6 cents as a medicare advantage program grew it gave 2018 forecast above current consensus citing benefits it raised its quarterly dividend from 10 cents to 50 cents. that stock is unchanged. toy maker hasbro did report better than expected earnings. hasbro did say it was well positioned for success this year and that's the hike in its quarterly dividend to 63 cents per share up from 57 cents per share. however, the stock now down a

little over 5% check out shares of disney this morning. they're higher, about 1.5% higher the media giant beating estimates by 28 cents with a suggested quarterly profit of 1.89 per share revenue did fall below forecast. disney saw declines at its broadcast cable tv networks and that was strong attendance and lots of questions about what's going to happen with their over the top espn service getting set to roll out. a big surprise for snap investors. that stock up 20% in the pre-market today reported a smaller than expected loss than analysts had been forecasting. snap chat beat on revenue with daily active users increasing from 8.9 million to 187 million during the quarter and one often mentioned cause of the wild ride we've all been on on the stock market said to be in the bond markets. your economics reporter steve liesman joins us a little bit of fed news and how

high rates could ultimately go. >> good morning, andrew. robert kaplan speaking in frankfurt, germany we're bringing all of these comments kaplan saying markets are healthy. market valuations are high relative to history that's been said by several officials now. one concern with recent tax legislation, it will lead to higher debt to gdp talk about that more in a second along with this idea which he said the neutral interest rate is likely to be lower than historic levels. finally he said higher wages may not push up. he said earlier that we're convinced on the march hike, that's one again, remember yesterday we were here, it was priced in for august that's moved earlier now back to june it's been very volatile this week this is usually a fairly steady metric december, 47.5

so pricing in 2 1/2. i want to take a look at some of the factors influencing the outlook for rates. we haven't talked much about the supply factor here the fed balance sheet reduction will ramp up this year it is going, folks, to a $600 billion annual rate. it's not there yet it's going to ramp up slowly finally, government borrowing is back on the rise it should be back up to estimates are about $1 trillion this year. the first two are more supply. the second one -- the third one there, the neutral rate will rise with better growth is an outcome of the better growth numbers and what investors will demand finally i've got there, what does kevin want? and that's really important because it's kind of been a bit of a pleasure here to have mr. o'leary, mr. wonderful on. it embraces homoeconomus in that regard we mean someone who thinks very rationally the question becomes in the given supply that's coming, the

government must finance it, what will be required from investors -- to investors to pay for the government borrowing and then where is that break point which you've talked about all morning? very simple math here. one plus two is three. one of the neutral rate, two with inflation gives you a three nominal rate two plus two, four so you could imagine an underlying neutral rate of two, which is two points higher than we are now 2% inflation would give you a 4% nominal yield. very quickly, i have here a chart of the real ten year yield. this is the inflation adjusted ten-year yield you can see it has generally come down. that has been one of the features of our life here that investors on an inflation adjusted basis have been demanding less around the world of governments to finance their

debt what does kevin want >> don't move. we're going to bring in two more guests greg and david wets ze zell. good to see you. first of all, steve, correct me if i'm wrong, what you just reported there is that the expectations for the number of rate hikes has come down as the market volatility -- >> right the very cause of why we were maybe in this tumult has somewhat gone away. >> greg, do you think that the big declines that we have seen in the major averages does actually lead to what the market has been telling steve, which is that we're far less likely to get as many rate hikes as expected because of the declines in the market? >> no, i don't i think this market selloff is in a different category than those we've been used to in the last decade. the market disruptions in 2008 connected to europe or china, those were deflationary shocks this is an inflationary shock.

it's associated with higher prices, wages, higher profits and higher interest rates. the fed isn't going to back off its plan because people are worried about inflation. it will worry more about not sticking to its plan if there's agen u wine concern about inflation. that said, you don't go from missing inflation on the down side for five straight years to suddenly having a great big inflation problem. people need not to over react here. >> david wetzel, weigh in. >> i pretty much agree with greg there are two intervening factors. i think the fed is in some ways pleased by what's happened in the bond market and stock market they've been trying to change the financial conditions and the markets have interfered with that this makes them a little more comfortable. secondly, as steve pointed out, there's a lot of government debt coming online. we're going to get fiscal stimulus at a time of employment that will get the fed to keep raising rates three times this year. >> why don't uconn convenient the people now working at the

hutchins center right now because there are more former fed governors over there than there are actually in the fed where there's only two fed governors right now, i believe it's just quarrels, powell and grander. >> we're looking for a good label. the shadow open market committee name was taken by a bunch of monitorists. we're looking for something else i proposed the other day the better open federal market committee but it didn't go very far. >> i find it intriguing that on the rational investor theory or the thesis that the real return for the 10 year is 4% because in a pragmatic way if the 10 year was yielding 4%, i would be allocating 20, maybe 30% every dollar going in every day into the ten year which is a risk free return theoretically. risk free return. >> bitcoin, but that's separate. >> well, but the point is backed by the faith of the u.s.

government, got that but we are so far from there we are so far away from there to see 100 basis points brought into this market seems impossible since -- that's the bet equity investors are making. we don't believe we'll see 4% ever in our lifetime on the ten year. >> that's the front end. >> that would be a recession. >> when that indicates the market -- >> but in your lifetime, do you see a 4% yield on the ten? >> i think so. i've got a lot more years to live. >> inflation expectations have been rising but they've been rising very gradually. the ten year break even rates on treasury back just two years ago we were expecting 1.2% inflation. now it's up to 2.1 so it's not like crazy but it's still there. >> greg, you've done some excellent work on pointing out that janet yellen, one of the big things she did, for better or worse, i guess, is to move the fed towards thinking about a lower neutral interest rate,

down towards zero, maybe even negative if we start -- given what's happening with the corporate tax cut and the better growth we've seen in the past year, don't know if it's permanent, where do you think the fed is thinking on what that neutral rate is right now? >> their neutral rate view is heavily driven by long term secular things weaker probability we're an aging society they would need to see the tax cut or something else change those structural factors to raise their neutral rate right now i don't think they see that they see only a tiny impact on long-term growth from higher investment from this tax cut steve, the thing you have to watch is strong growth that's consistent with a higher neutral. that's a great world everybody gets higher returns and we don't have to worry about a recession or inflation if the strong goet is accompanied by steady declines in the unemployment rate, that's a problem. unemployment has to go negative. you can't keep that up

the fed tries to tighten that. >> unemployment negative, pretty difficult. david wessel, last word to you. >> i think the fed hasn't changed its mind on the neutral real rate because of the reasons greg said. i think what would change their mind is some unexpected but welcome surge in productivity growth if we get that, then greg's happy ending comes true, but there's no sign that that's happening yet. >> got it. thank you, guys. >> welcome. >> thank you coming up when we return, disney ceo bob iger unveiling new details about the over the top ideas. stay tuned you're watching "squawk box" right here on cnbc

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welcome back to "squawk box. show started, guys hold on one second welcome back to "squawk box. the futures are suggesting the dow would open by 120 points these futures have come off the bottom when the show opened at 6:00 a.m. this morning. >> yeah. >> they were down by 300 points for the implied open for the industrial average. let's talk disney. big news they beat estimates at 28 cents with an adjusted quarterly

profit of 1.89 ceo bob iger said the over the top platforms painted a positive picture. cnbc's julia boorstin sat down with him last night on closing be -- "closing bell." >> there are signs that people are coming in on multi-channel television cord nevers are starting to adopt to packages that are less expensive, for instance $39 a month. fewer channels but more mobile friendly that's a very good sign. espn as well as our other channels are on all of those services, all of the packages that are offered. >> joining us to break it down is the founding partner and research partner, michael, good morning. >> good morning. the big question is what do you think is going to happen with espn over the top thing and what does the next over the top system look like later and we should talk about hulu and how

the integration of 21st century fox happens or doesn't let's start with espn. >> the espn app is going to come out sometime in the spring they're going to try to up sell all of us games on top of your subscription people have it wrong. >> $4.99 is the wrong price point? >> you're going to pay for a game here or there it's an add on to espn it's not espn over the top it's going to top up your current service, right to me it's an add on it's complementary it's not a big idea. >> not a replacement >> no, not a replacement >> going to reducer advice on my main feed? >> no. no this is what they're doing this is where the market is wrong. you watch espn on your phone, on an app, on tv. you're paying for what you pay for. if you are a fan of maple leaf hockey, if there's a game on the road you want to see, you can buy that game.

you can buy extra games. >> the game individually >> yeah. buy a game, buy a package of games. that's additive to what you're paying for today. >> like a la carte. >> exactly >> the promise has been the long tail of espn i've been a shareholder for a long time. 95 to 110. 95 to 110. >> right. >> it's always based on where you emotionally feel about the degradation of espn quality cash flow every quarter when iger comes out, it doesn't matter what he did. he's a great manager nobody cares, they just want to talk about espn. it must be very boring for him when do we get to see the long tail story play out? in other words, don't worry about the fact that there's cord cutting. i have all of these other ideas to make espn a monetizable cash flow is this part of that story >> this is part of it. >> what's the measure going to be >> here's the part we've been bullish in disney a long time. disney has another rate cycle. an affiliate cycle to come in 2019 where they go back to

comcast and charter and directv and ask for step ups in their affiliate revenue. they just had cost growth and no revenue growth i think the espn story gets better as they show wins they won the negotiation in the fall that's the part of the story that's coming. >> but he's talking about when do people start to value the very dramatic change in strategy >> the -- so andrew's asking the second part of the strategy, disney over the top product. that's a bigger idea, which is not an added -- it's not a topping of espn, it's a new product that takes it -- >> netflix. >> all their i.p. around the world. >> that's not in the stock >> no. >> that's what i need to know. 21st century fox, does it happen >> yes. >> you don't think comcast jumps the transaction? >> i'll let you ask the question. >> start with that. >> the question is -- it's going to happen.

>> deal's going to happen? >> fox investors like the disney deal because what's moving from fox and disney is great i.p. and disney, as you've said, has proven they can manage it. >> stipulate the deal happens. >> yes. >> next step, what happens to hulu and what happens to the streaming service and do they become the same thing when this is all over? >> right so disney talked about hulu as a separate product with all of their i.p. >> right. >> and then disney kids product. i think they're going to evolve a strategy this is my estimate that they're going to create one product with a disney kids layer and a hulu adult layer and come to the market with one big idea. >> okay. we've got to go, guys. sorry. >> thank you >> good to have you on. as we head to break, check on u.s. equity futures they suggest we're going to have a down opening dow would open down by 138 r esho ougut st will be able to open his mouth after the commercial break

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stocks are, they're still waiting. there's an opportunity. >> nobody's talking about earnings don't you think your 50% rise since the election had a lot to do with the tax cuts being expected >> it did. when you talked to most companies they're still digesting what do these tax cuts mean what does this mean about money over seas. how am i going to spend on r&d >> it's not priced in based on the stock rise we have seen? >> i don't think you're fully priced in for some companies that can use the capital to grow you have talked about it -- >> that would take you to the midcap market because the real impact is going to be all on domestic revenue s&p are 47%. >> you get that benefit but if you get a lower dollar you get the multinational. you have investors with huge volatility going forward. >> why do you think the dollar is going to be lower >> because if you look at kind of what's going on, the rest of the world's going to come along

and raise rates at the same time i think you're still going to get that same parity going forward. >> all right serat, thank you. awesome. coming up in the next hour of "squawk," we have another big hour is volatility here to stay we're going to talk market strategy with your money next. and then at 8:40 a.m. eastern time why morgan stanley's chief global strategist says 2018 is the year the markets will return to its, quote, natural state he's going to join us on set to explain. and i think mr. wonderful has a surprise for us in the 8:00 hour as well. >> oh, boy. >> may have to do with undies if you can believe that. >> what? >> we're going to be right back in just a moment 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.

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market whiplash. stocks on a wild ride and hang on to your hats. here we go again navigating the ups and downs. we're turning to veteran investors for advice on what you should do with your money. this hour, argonaut will join us. steve wynn is out as ceo of wynn resorts the final hour of "squawk box" begins right now

♪ ♪ live from the most powerful city in the world, new york. this is "squawk box. good morning welcome back to "squawk box" right here on cnbc live at the nasdaq market site in times square. i'm here with michelle caruso-cabrera and kevin o'leary. richard bernstein is wearing a sweater, a zwetter a sorkin sweater sweater of the month guys maybe. >> maybe we'll show it. >> there it is >> sorkin sweater of the month it's like a box set. >> you bought it >> can you help me with that >> sweaters. no, i want to sell sweaters monthly. >> nah. >> no, i don't think so. >> sounds like a reallybad business in the meantime, we want to get to the markets because they are down this morning. let's show you what's going on with the futures we are in the red again, triple digits we should say it's better than

when the show started at about 6:00 this morning we were looking at down arrows about -- dow would have been off about 300 plus points. dow now looks like it would open down about 161 points as perhaps investors are looking to test new lows or at least figure out where things are settling. nasdaq down about 37 points. s&p 500 down about 12 points right now. if you think you can afford to look away from the screen for just a minute, think again wild ride does not describe the last three trading sessions. you have a time lapsed image there of the dow yesterday blue chips opened down big before staging a late morning comeback the dow moved between gains and losses before surging in the final hour of trading. up more than 2% on the day it traveled 5500 points in total backwards, forwards, backwards, forwards show you what's going on in treasury yields because our friend, mr. wonderful -- >> i love the way, it's very

binary for you you think you're buying stocks or buying bonds. >> rational investor theory. you have to choose between two asset classes. >> i've got it 30 year -- are you buying 10 year or 30 year? >> i was a 10. >> 10 is your number >> 30. >> i would never buy that piece of paper >> i would never buy the 30 ever, but the 10 makes no sense at 2.7. >> okay. different question if you're in the housing market right now would you take a 30 year mortgage? >> yes, you would. >> that's different. >> sure. >> different question. >> yeah, i would like that. >> because you're a borrower, not a lender. >> much more on the markets. this morning's top stories, steve wynn is out as ceo stepping down late yesterday this comes after a bombshell report which detailed allegations of decades of sexual misconduct by wynn shares of wynn are higher by more than 11% on that news though they have not recaptured what we saw from the big decline when the story first broke snap reporting a narrow fourth

quarter loss as revenues surged. soeg social media company adding more to the ipo evan spiegel says he's confident snap can monetize more efficiently. that stock is higher by 21% in the premarket. disney's first quarter earnings boosted from the theme park business disney said espn will launch the online service this month. couple stocks on the move to tell you about this morning. michael koors beating the streets on the top and bottom lines. comp sales declined less than expected looking up a mixed quarter for hasbro earnings topped estimates and the toy maker said it was hurt by a decline in sales for its partner brand and in the european region. want to get back to this week's market whiplash. here to help us make sense of it

is david bur steen he's the president of argonat capital. what are you doing what have you done in the last 24, 48 hours >> well, look, i think that what i did was cover some shorts, which you do when markets get hammered as much as they do, but i don't think this is over so quickly. >> you think there's more to run on the down side >> well, i think that we're going to have a period of volatility you don't v out of normally these sorts of corrections, and i think that we're not done with the problems in the bond market either. >> are you short vol stocks >> i had puts on. >> just the overall s&p. >> yeah. >> we've been asking all of our guests what are you prepared to pay on earnings as a multiple

are you in the 16 times camp, long term average or are you comfortable at 17? there's a big difference that's another 11% down. >> yeah, no, it is. >> we're saying flat earnings here. >> yeah, no, i think that's right. i think that the market had gotten ahead of itself in terms of what people were paying for earnings. >> so are you more in the 16 time camp? >> more in the 17 times camp. >> we're here now. we're at 17. >> yeah. >> you think you can safely deploy capital get your 2.1% div yield and that's how the year is going to end? >> i think the market is likely to climb back up a bit from here, but i'm not overly optimistic that we're going to have a rip roaring event we've done a lot of damage. >> would you give me 4% capital appreciation plus my 2 div plus a 6 all in >> yes >> that's a reasonable rational man -- >> or woman. rational woman. >> richard bur steen, what do you think here >> i think there's two things

going on remember, volatility always signals a change in leadership, always in history. what's the change in leadership that's going on? everybody is finally giving up on the disinflation/deflation story that has lasted for a very long time. i think this is the realization that something is changing, nominal growth in the economy is heating up and your income strategy doesn't work anymore. your deflation strategy doesn't work anymore your bond strategy doesn't work anymore. all those things that people were gaga about for the past several years just doesn't work anymore. i think that's number one. number two, people have forgotten why rates back up. rates back up because the nominal economy gets stronger. and if the nominal economy gets stronger, guess what earnings are? earnings are nominal as well so, yes, we will see multiple compression, but you're not going to see multiple compression with earnings staying flat i disagree with kevin on that one. >> you're bullish on earnings? >> yeah. yeah tax consequences. >> partially tax consequences.

>> i want to go after you on your thesis. >> right. >> incriminate rational man dollar, it -- >> it has to be cyclical equity. that's the monkey wrench you look yesterday when the market rebounded, what was one of the leadership sectors? materials. when was the last time the materials sector was one of the best performing sectors in the s&p? >> we had a lot of viewers who just threw it at the spdr. they don't want to make the choices, they want to ride the overall market i hear you say there will be sectors that will do better than others >> you're just in the market, i mean, i would hope that you're a long-term investor and not a trader you're not day trading if you're an individual in the spdrs, hopefully you're there for the long term. what's going on in the next ten minutes won't matter if you're in there in utility stocks, if you're in the utility spdr, you could have a tough couple of years. >> investor that goes into the s&p to michelle's point, can

they feel good about 2% div yield -- >> right. >> -- and 4 or 5% capital appreciation >> that could be very good >> that's complicated. >> yes. >> guessing sectors is not easy. >> of course, but what you're saying could look very, very good relative to what your total return is in the bond market. >> right >> right 6% might look great relative to minus 6, minus 10. i don't think people realized that since inflation rates troughed, the bond market gave you 1% total return. that's it. stocks were up 35% which asset class is helped by inflation? which asset class is hurt by inflation. >> what i find fascinating about your thesis is the old time money manager thesis, 60% equity, 40% bonds, throw that out the window. >> i think that's right. >> do what instead >> personally, i think you're more in cyclical equities, you're in commodities but you're not in income. you are not in fixed income.

>> things that have high interest rates because to make it very, very simple. >> proxy. >> if i can get a risk free 3% on a ten year, why are you going into an asset with a lower yield and has an underlying risk to the stock itself. >> but, again, think about what would cause rates to go up it's growth in the nominal economy. you need stocks that are -- >> so that their e goes up even as people are willing -- not as willing to pay as much for stocks >> right. >> can i ask a question? two weeks ago we were in davos, switzerland. >> yeah. >> everybody was gaga about the economy. they were gaga about the tax cuts they were gaga about the deregulation efforts kevin hassett yesterday on the show, we talked about these quote, unquote, stimulus measures he said how could good news be bad news is this a good news/bad news story or do you think there is something else going on here >> i think david's a very good macro economist. i think, look, you just had a

stimulus to the economy at a point in time where the labor markets are pretty tight, right? >> with the tax cut you mean >> with the tax cut. >> yeah. >> and to think that if we're going to have a strong economy that interest rates are not going up, that's a dream that's a dream. >> yeah. >> no, i think that's right and i think the market hasn't come to terms with this yet the market is pricing in 2 1/2 hu hikes for this year. i think there's still a reckoning that has to occur. you've seen that the economy can't necessarily grow as quickly as people believe it can and the fourth quarter gdp data you had a significant deterioration in the trade imbalance and you also had a rundown in inventories so while you had strong domestic demand you didn't have so much gdp growth interest rates are going up. >> so when you make me nervous there has to be a reckoning when it comes to interest rates. >> yes. >> that to me sounds like a market that goes lower before it goes higher. am i reading that incorrectly? >> i think the bond market is at

risk and i think that you've seen a progressive increase in short-term interest rates since september. i think that's not over. >> so if the bond market is at risk that means a selloff in the bond market. that means interest rates go higher. >> yes. >> which as we've seen last week when it even nuzzled nearly a 3% for the ten year it was very bad for the stock market. >> but the credit spreads don't tell you that. i look at the credit market, that's the issuance of debt by companies. it is not signaling any stress whatsoever even through the craziness we had this week. >> i don't think there is any stress of substance. you're exactly right the economy is doing pretty well but the level of interest rates is out of kilter with where the economy is. >> but the real question -- look, there's the market and then there's the real economy. my question is do you think this is a self-inflicted policy problem? >> the tax cut >> yeah. >> yeah, i think it is you're throwing stimulus into an economy late in the economic cycle which is already growing

as rapidly as it can. >> so uncompetitive versus the eurozone that tax cut was nuts. it was nuts. you would never put the incremental dollar in the u.s. in a company that would do x, y, z when you can do it in germany, switzerland. >> to me this is it. i do think this policy issue is actually the reason we're in this soup this week. so the question is what was the right decision, meaning what are the tax cuts what are the deregulation efforts the right decision >> all-american business, we needed the tax cut above anything else. we just weren't competitive. >> what the fed is going to do is part of a healthy part -- >> don't you think a strong economy is a champaign problem as opposed to a real problem >> and this becomes the question and the question is could you do it -- is there a more balanced way that you could do it so you wouldn't have these type of shocks >> take the politics out for a second and just say how were people's portfolios positioned

by that i mean not only individuals, pensions, even hedge funds. we're basically all on a deflationary, disinflationary program. that's how everybody has been structured that is now ending we can argue whether the tax cut is tomorrow. >> you agree we have to be competitive? >> i agree i think the timing is -- >> andrew has hinted that he doesn't think it's right that we dropped our taxes to be competitive. >> no, no, no, no. >> i'm calling you out on it you've always hinted it was a bad idea. >> i've always wanted corporate tax rates to be lower. 100% the question has been what's the cost of those tax -- meaning if you bring the rate down to 20%, do everything we've done -- >> i say the costs of not making it competitive. >> i understand that i've always said could it be 22, 23%? i've always been on the margins of the corporate rate. >> 23 is too high. >> you believe it's too high i wonder whether that's the case i'm not advocating for highe tax rates on corp rails.

i think there's the individual rate then there's the question of how much debt are we going to take on and more importantly in the context of where we are in the economy, if you do it right now, does it help or does it hurt >> i think we're getting that answer by looking at these enhanced -- >> that's the question nkts you're arguing that we're going to better earnings. >> absolutely. i think that's good. the big problem for the market is not so much whether the tax cut is good or bad -- >> of course it can be better. >> how people were positioned relative to this everybody is talking about how great it is, but nobody was positioned in cyclical stocks. >> they're on the wrong side of the trade and everybody is going to move. >> it's been staring people in the face for the last year and a half and nobody wanted to admit that something was changing. just look at the flows into bond mutual funds and bond etfs. >> be more specific so people can go buy the sec to recall -- you can buy spdr for this. you like materials. >> materials, financials. >> what about consumer discretion naryury.

>> despite all the volatility, that's been outperforming consumer staples if we were heading for recession you would think staples would be doing fantastically. >> you would allocate 1/3 financials, 1/3 consumer discretionary and 1/3 -- >> i'm not sure i would use those numbers. >> i like to squeeze heads to get numbers. >> our biggest over weights are technology very cyclical though everybody thinks they're growth. financials and materials those are our three biggest positions. >> three out of 11 sectors basically, that's your call? >> yeah. if you want a fourth i would go maybe consumer cyclicals or something like that. >> i like guys who put it on the line and say here's what i'm going to do for the next 12 months >> what are you going to do for the next 12 months if not the next 24 hours? >> well, i think you have to be short the front end of the bond market that's a give. >> yeah. >> you're going to get a negative total return to short-term fixed income.

i want to be in a position to buy a significant set back in stocks i think stocks will be fine, but i don't think they're going to generate the sort of total return that people are used to people have to get used to a much lower total return out of financial assets than they've seen. >> guys, thanks so much. >> cool. >> david and richard f'ing burn steen. he's always here the next potential risk in the markets could come out of washington we could be headed to another government shutdown. stay tuned you're watching "squawk box" on cnbc

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welcome back to "squawk box. breaking news. sources telling us that tronc has now reached a deal to sell the "los angeles times" and the san diego union tribune to dr. patrick sun gyung. the transaction worth $500 million plus the assumption of

$90 million, of course, the "los angeles times", one of the most storied newspapers in america. lots of controversy over the past couple of months about that paper, but this really does change the trajectory of where that paper is going. also may change the trajectory of tronc they've been working on the turn around of that company they bought "the daily news" earlier this year. the proceeds of this transaction will be used to effectively wipe out all of tronc's debt. >> the old tribune >> the old tribune company it's been a fascinating deal >> the market cap for tronc is $608 million. >> correct. >> this one new hampshire and commuumulativommunumulativommung

for half a million >> we should tell you that ross levenson, who you may recall, had been hired to be the ceo of "los angeles times" company but had been temporarily suspended talking about sexual harassment allegations, my understanding is he's going to be reinstated into what effectively will be a new role as the chief executive officer of something called tribune interactive which will overz other assets our understanding is that this should cross the tape before the market opens this morning. >> what do we know -- >> you're a newspaper guy. is the "l.a. times" not a second tier property? >> why is it such a huge amount of value of tronc? >> that has always been -- "l.a. times" has been the franchise publication of tronc given all the other publications >> two brands, the ones that you have to buy, barons and wall

street journal. >> first of all, it's the only newspaper in california. it is the newspaper of california it's been considered a trophy asset. >> did you read it this morning, andrew >> i did not. >> not a national newspaper. >> have you ever read it >> i read it sometimes for hollywood stories. >> you can debate whether he should have bought it for $500 million. >> who is he >> he was a board member of tronc. he's been trying to wrestle control of this company from tronc for some time. there's been a lot of back and forth between him and the board. at one point he was frozen out he got in, made an investment and then he was told effectively, talk to the hand. this has been his attempt to take control of this you asked what he had done he became a billionaire. he sold a brexit and american

pharmaceutical partners for $9.1 billion. some people call it nant. >> that will do it your question, kevin, i find that when people get very, very wealthy, especially men, they want to own some kind of football, baseball, they want to own a team because they couldn't be on the team when they were little or whatever and then they also-- they love buying newspapers everybody wants to have a newspaper. i don't know why the teams i understand, they seem to make money and go up in value. newspapers i don't know. >> "the new york times," you read "the wall street journal" and then you maybe read barons online what incremental informational value would you get from the "l.a. times" what would you get why does it have any value. >> because a lot of people in california read it and california is a big state. they probably read the "l.a. times" before "the new york times." >> same thing. if you can't get incremental information, it has no value >> look, i would contend that the promise of the "l.a. times", not what it delivers today, but the promise of the "l.a. times." >> worth $600 million?

>> i'm not going to argue the price point. i think there is a value proposition in a newspaper that looks at the world through the prism of -- >> california. >> california through the prism of hollywood through the prism of the entertainment world. >> journals for all of that. you know, variety has -- the value of this trade is actually zero. >> zero. >> somebody decided to market it at 600 million, i argue that's going to zero. that's what's going to happen. i could be wrong. >> we'll set you and patrick chung up for lunch. >> the tronc board loves hearing this the deal hasn't closed yet see if it ends it. still ahead, top stories this morning and little political risk to the market plus, morgan stanley's ruchi ruchir sharma. he has the quote of the year, moody market beast returns to its natural state. you can join us at 8:40 eastern

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coming up, we have this morning's top stocks to watch plus congress facing a deadline to avert another government shutdown how much does that matter to the markets? as we head to break, take a look at u.s. equity futures this hour dow would open lower by 173 points you're watching quk x""sawbo on cnbc don't move we'll be right back. fees? what did you have in mind?

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♪ ♪ extreme market volatility

this week. there's one more big question for the markets. there's also political uncertainty. congress is racing towards the deadline of midnight tomorrow to strike a spending deal or face another government shutdown. joining us is kim wallace. he served in the obama administration as assistant secretary for legislative affairs and dan clifton is head of policy research at stratega research dan, let me start with you do you think there's going to be a shutdown if there is one, the market didn't seem to care last time. >> absolutely. generally the equity markets don't care about a government shutdowns. we've got to reopen the government obviously doing that at a time when you have higher market volatility can be a little more stressful. the market is worried about the debt ceiling short term debt has inverted washington related issue around the debt ceiling, it would be much more problematic for the markets. michelle, i look at it the other way. the senate is negotiating a very

large spending package, 4 to $500 billion they're hoping to have an announcement today they're looking at raising the debt ceiling by two years and throwing in some infrastructure money on top of that this may actually turn out to be a net positive, at least getting the debt ceiling out of the way and throwing in some more fiscal spending at the time. >> i wonder what that does to the bond market. we'll talk about that in a minute kim, what do you think about the potential for a deal here? how's it going to be structured? what do you think of dan's optimism in the two-year package here >> i think dan has it right. the developments overnight in the house of representatives where you had mark meadows of the freedom caucus endorse this plan developed between shu murmmu schumer and mcconnell. the government doesn't have to worry about a shutdown the top down risk that republicans have put up with for much of the last year leads them to protect themselves about

creating bottom up risk. we're not going to see any shutdown of any magnitude. this positive package, i think the market will look beyond it in large part because we have very loose fiscal policy right now. we have tightening monetary policy and somewhere in between the market is wondering if the fed's really going to go four times this year. if they do and the rising inflation environment to the extent they know how to measure it, what does that do to market. >> are you worried about bond vigilantes at all coming back here when you hear all the potential debt we're going to get an infrastructure deal. politicians of every ilk, they all agree on spending other people's money we have a big infrastructure package on top of the tax cuts, kim. we already got hints that the bond vigilantes might come back. is congress ready for rising interest rates looks like the rest of the market doesn't seem to be ready for them i doubt members of congress are. >> don't give congress too much credit here. they're looking at november 6th. that's what they're most focused

on to answer your question directly, bond vigilantes, they've got to pay attention 24/7 now what's going on around the world. it's not just the policy that's up in the air, it's globally at the same time on the short end, everybody is selling on the short end. that makes sense no rates are rising you know that through the economy and you also know it through the policy makers that's the easy call when you jump in here and exercise your vigilanteism will be difficult >> dan >> michelle, i take a little bit of a different perspective on this it feels like 2003 when we did a large defense cut and spending because of the iraq war. once that passed the markets priced in early. it took a while for the market to recognize what the economic growth was it would only raise gdp b by .2, .3% the bond market needs to catch up and there's a bit of an adjustment process it took about 6 to 8 weeks where

bond yields started rising and equities sold off but once we got to that level where bond yields were, it was back off to the races for equities i think we're going through a similar but a tougher adjustment today than we did 15 years ago because we're in a later cycle at this point. >> richard, are you worried at all about the bond vigilantes? if you're a new viewer or very young that phrase comes back from when president clinton was in office and they were going to try to trade the health care system bond markets went up and president clinton said, what do you mean i have to wait on policy because of what the bond guys are doing? >> most of those are probably retired. >> i know. right. >> look, i think dan made an interesting point where he -- and actually kim did, too. they both mentioned the word inflation in what was going on i think we have to put this in proper perspective even in the last cycle, which nobody remembered, the cpi peaked at 5.5% nobody remembers that because we're running around because of

the financial crisis, but that was the peak i'm not saying we're going to 5.5. what if inflation goes to 3.5 to 4. you can't tell me the ten year is sitting here at 272.80, it's going to sell off. if you want to -- >> all of that in wage inflation right now if we're getting anywhere near that kind of move. >> say that again. >> wage inflation, you start to see that in wage inflation. >> friday is up to 2.9 i'm not saying it's rising i'm not saying we're getting to 5.5. what if we pierce 3.5? >> that would be a raging economy. it would be. >> think about what dan just said, maybe the senate is going to add another spending bill on top of this. it's not like we're in recession and now we need a lot of fiscal stimulus it's a reasonably healthy economy. we can argue it should be healthier, i get that. now we're getting stimulus on top of it. i don't see how the bond vigilantes don't come back in a big way. >> which is what kim and dan

were highlighting there. >> yes. >> thank you, guys good to have you on. another big issue this week has been volatility. the cboe volatility index is the talk of wall street after this week's record surge. monday's jump in what we call the fear index was the biggest one day increase since its inception. joining us is dennis devitt, portfolio manager at harvest volatility management and from chicago rick santelli joins us as well. harvest volatility management is a hedge fund asset manager that specializes in volatility? >> yes that's why it's in our name. >> did you get slammed over the last couple of weeks were you short volatility? >> yeah. there's a series of different funds that we run at harvest the majority of which is a short volatility fund. >> how did that do in the last couple of days >> it struggled a little bit but it's come back it's been fine and we'll see what today brings. it looks like we're heading back towards unchanged. >> you must not beleveraged?

>> we're not that's the point on the story most people are missing. short volatility is not the story of what happened what really happened here was unrealized leverage, right options are leveraged instruments, and when you package them in an etf and then allow leverage on that and then pitch it as an etf, like a stock, there's no way of telling how that's going to behave i mean, when i was reading on monday night about a poison pill being enacted in a volatility instrument, i'm not an investment banker, right i don't know deals and stuff like that, but suddenly everybody's combing through -- >> so we don't dis the etf market, that was an etn. that was a -- >> a note not a fund. >> right >> a lot of people -- >> a lot of people are not happy with the bad press. >> blackrock came out and said -- >> larry fink came out and said they should be regulated jim cramer has been very vocal,

correctly so, but once again, it's a leverage issue. >> here's the thing about regulation people always want leverage. you go back to 1929 and people were buying on margin. so they've raised the margin requirements and then you try to tamp down leverage here. no, you're not allowed to do that then you know what happens, when money gets cheap, people buy six houses when it works, it's really good. >> they didn't understand what they owned in etn. it's okay to go to zero if you don't know what you're buying. that's a good lesson. >> if you're looking for leverage in a product, you can go and get reg team margin from your bank and get leverage assess your risk. >> but it's so much easier to buy this etn. >> so much easier to lose 90% in a day. >> yes >> if you know you have the probability of losing 90% in a day, you may go to that product etn, not etf, etn and do your best and say, listen, i've doubled my money in a year now i'm going to take all this money off the table. it could all be gone tomorrow.

>> right >> the flip side -- this is -- like volatility is volatile, obviously, but the move that we saw in volatility doesn't happen in a lot of asset classes. so if you saw crude oil go from $150 to $20 overnight or $20 to $150 and there was a leveraged product on that, it's math, right? they have to reassess where they are. you're normally bound by zero. you can't go below zero so you have this poison pill. >> your firm has an interesting fee structure. you're not 2 and 20 hedge fund >> no, we're not. >> what do you charge? >> less than your funds. >> rick santelli, we haven't forgotten about you. weigh in here. >> listen, i want to weigh in there. first of all, the axiom that's been on the trading floor ever since 1987 about volatility, when that issue in 1987 brought firms down, they had a lot of option traders to be short volatility was moments of terror surrounded by

months of boredom. that pretty much summarizes volatility i agree a lot with dennis and mr. wonderful. i think much of the issue that occurred with respect to the drop in equity is based on volatility i think that the people that own those products knew exactly what they had you know, this whole notion of risk parity and control in portfolios and all the products that hedge funds either market or use, insurance companies, pension funds, it's actually quite simple you know, they own more stocks, for example, when vol's low and they own less stocks when it's high they have all kinds of models and overlays to deal with this but the issue is just like subprime mortgages, when you get an inordinate amount of traders in positions, laser focused on any one thing, in this case volatility, whether it's etns, etfs, portfolio control, risk parity, that when it moves the shock waves are large.

so it isn't that vol's a problem, it's the problem we've always had michelle eluded to. customers are smart and they come up with creative ideas. the problem is creative ideas spread like wild fire and you get too many of them >> got it. >> i mean, that's fine >> we went through a whole period -- >> i'm sorry we deleaf veried -- delevered banks. >> there will always be leverage because people love it because when it works, it's a drug. >> thank you thanks, rick. coming up, morgan stanley chief political strategist will be here to make a call on the markets. wall street listens. he'll join us next back in the studio e producers in the eastern united states supported by innovative packaging that extends the shelf life of foods and infrastructure upgrades that help us share our produce with the world.

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welcome back to "squawk box. ruchir sharma is here. he joins us now. he is the chief global strategist and head of emerging markets at morgan stanley. when he speaks, the market does listen you say we're in for volatility. what kind of volatility are we talking about here >> well, i think that this bull market is basically the process of forming a top this is the first crack of it. bull markets tend to bei a process, not an event. the trifecta which has been driving global stocks over the last 20 to 18 months, a tailwind is about to turn into a head

wind what exactly do i mean >> we started the conversation by saying you're calling for more volatility? >> right. >> i could also make the argument that you're calling this market a top and for it to go down from here. >> well, as i said, not exactly from here, but the process has begun because even in 2000 if you remember we had a lot of back and forth in fact, the s&p in october of 2000 went ahead and almost made a new high then we went back down same thing in even '87 stock market crash, something similar happened yes, i do feel the next 18 to 20 months we are directionally lower. >> directionally lower >> yes >> it's hard to call whether this is the start of it or the start of a process usually at the start of a round you have a lot of back and forth which happens between opposing forces. >> why would we be lower in 12 to 18 months >> right, because the trifecta that has driven the market in the last 12 to 18 months is coming to an end what's the trifecta? growth supply on the up side

inflation during that period consistently surprising on the down side and of course we have had very cheap money from global central banks with the fed sort of taping down, you have the ecb and blj which have been accommodative. >> what about earnings >> exactly that always happens. earnings lag my point here is that the valuation up side basically now is capped and you get valuation compression over the next 12 to 18 months. >> you've been saying that all morning. talking about that all morning however, everybody has said but the off set is going to be the e will get bigger. even though the pe gets -- >> let me ask you a pointed question there's two kinds of bull markets. pe interest rate driven and there is a pe compression rising bull market. most people have been schooled on the first where interest rates have been falling but why can't we have the second what makes that impossible >> i mean, like anything can happen, right? >> right >> my entire point basically is the fact that it's unlikely that

global growth is going to accelerate much from here. in fact, i think that in the second half you're likely to see global growth disappoint that's what it was about. >> if that happens, why would central banks remove liquidity >> because inflation lags. inflation lags by 12 to 18 months. >> you're saying the yield terms are going to invert? >> eventually. it's so below where nominal gdp is because the inflation dynamics are going to change and this flags. finally the biggest sort of thing that we haven't internalized yet is the fact that there's a big demographic challenge which is the fact look at the u.s. and look at everybody else the unemployment rates is at a 40 year low. we're going to have unemployment rate at 3 1/2% or lower by the end of the year. that sort of unemployment rate has never been sustained

all you end up getting massive wage increases at that inflation point. >> i want to put money to work today at 9:30. i need to make 5% after tax imputing a 7% return i can go anywhere in the world under your theory where do you put that incremental million dollars? >> incrementally i feel that the international stock markets are better especially since europe is at the beginning of the economic cycle initially if you get a bear market everything goes down. >> anywhere but the u.s. in equities you like? >> yes >> wow. >> you would put no money in the united states market right now >> like it's hard to make the generalized statements because this is a big market this is more than 50% so it's hard to say but overall, yeah. in terms of i run portfolios as well we are under weight u.s. and over weight the international. >> when did you make those moves? >> a year ago because of the dollar >> that also means that you missed the past year as well

>> the relative weighting we're talking about. over weight emerging markets and international. >> which have gone up. >> yes emerging markets are twice as -- >> it's almost axiomatic. >> the difference in the cycle is very different. if you're in the much early stages of the cycle here look at what the difference is that in emerging markets they're still 10% below their all time highs despite the massive run they've had over the last 18 months or so the u.s. compared to 2007 is about 60% above that level so on a daily basis the correlations appear to be high over time you end up getting the differences. i think the big driver of emerging markets -- >> you still like equities over fixed income. >> maybe for a while longer. i do feel in 12 months time it's possible that the bond market basically caps out just because equities can't handle very high yields. >> i like to quantify. 70% outside of the u.s., 30%

inside, would that be the right mix? >> very aggressive stuff given the benchmark but why not. >> that's fine >> all right thank you. >> thank you, very, very much. we should note because we did throw on the screen about two minutes ago while you were speaking the la times across the table. $500 million >> who lost $500 million already. we'll talk more about that take a look at tronc stock it is up 55%, just off of that announcement >> when we return, jim cramer live from the new york stock exchange futures they're recovering even more down 183oi pnts for the opening of the dow we'll be right back. we'll be right back. ♪ conditions is the best way to get that fish to your plate safely.

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. welcome back to "squawk box," i want to get to where jim cramer is. michael farrel when he bought into this is $8.50 there was a period of time i was sugge suggesting it was $18 a share and i thought it was insane not to sell to him at that price you are looking at tronc for

$500 million, $90 million plus and the pension liability. that stock is in the premarket of 65% trading at $30, the guy is a genius or what? >> look, i misjudged him, too. i was listening to kevin the fact that it can go up, some of them is damn fool enough to buy the la times and be able to retire for tronc farrel maybe he's just wild. he is certainly more wild than i thought. kind of remarkable of what he did here >> $500 billion? >> what does that say about the purchaser? >> stupid? i don't know, dumb i am going to sell that guy the xiv at 90, what do you think, kevin? >> it is a stunning outcome. $600 million for a paper that

andrew has not read. i think it has no value, at zero the trade make this tronc thing does look like a genius move it is brilliant. >> i admit it -- i mean, wow, i guess a sucker is born every minute the la times is not worth that price, it is just not. the fact that andrew has not read it is certainly an issue. andrew reads everything. >> we should tell you something, that stock is now halted, what we were showing you what the price hit after we reported that news, we'll see what happens when it reopens at 9:15. right now -- >> cannot we sell that at the buyer of xiv, maybe at 60, we'll give them a discount >> we have red hour across the board looks like the way the markets are going to open this morning, what are you going to do about it? >> they're unwhining

there is still a lot of damn fools in it and all the money being pulled from funds doing the short volatility because investors did not know they did not know, they thought it was an asset. ain't no asset you got a lot of different guests and fuses, i am with mr. wonderful about the opportunity here if the pe shrinks, i am willing to say that there are stocks of companies are doing better i don't know -- i do like europe, too. i think it is fabulous >> see you in just a bit >> it would be 200 million >> tonight on "mad money." we'll sit down with jim. "squawk box" returns in just a moment

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be stretching like a peacock >> oh my god, it is going to add a little bit >> it is called full frontal augmentation >> richard buernstein >> join us tomorrow, "squawk on the street" is next. >> good morning and welcome to "squawk on the street," i am david faber along with jim cramer, we are live. carl quintanilla, they're still en route to south korea to pyeongchang. lets get to the futures, of this volatile stock markets that we have been talking about. you can see we are looking for a down open, what does it mean three minutes later,