yeah the ensemble is jelling. we're going to be back tomorrow. >> yes. >> texas is the best state and this is a phenomenal, tremendous, i get all these words, you know, we can use them. >> exclamation points. 7. >> we'll be here tomorrow. >> nice. >> anyway, make sure you join us "squawk on the street" is next ♪ good tuesday morning welcome to "squawk on the street." i'm carl quintanilla with jim cramer and david faber stocks approach key resistance levels q 2 earnings machine revving up with pepsi marginal gains in europe this morning. watch the ten year 2.87 as we await the bank earnings on friday earnings season is underway

and futures pointed to continue gains at the open. >> plus, euro trip president trump delivering a trade warning ahead of the nato meetings with long time european allies and pepsico topping estimates. the cfo hugh johnston will join us stocks looking to maintain the upward momentum. major indexes coming off their sixth positive session at seven. banks helped lead the rally. facebook hit a fresh record high is this about no escalation in trade worries? is it about people covering shorts ahead of earnings >> a bit of both i think the president has been preoccupied with picking a supreme court justice and now going overseas i think there's a sense when he does these things, he's not focussed on trade. i would be careful with europe he said no many bmw or mercedes.

that's the only risk to the trip pepsico is a microcausam of what is happening two analysts said negative things ahead they set the stage for what we thought was going to be a disappointmenti disappointing quarter. i think part of what is going on we got too negative. be careful you'll be steam rolled. >> we hear from jpmorgan on friday and wells. >> i think that's going to be a standout. >> you think wells fargo is going to be a standout on the earnings front >> i think wells fargo will be a stand out on the earnings front. >> i think what happened here is that wells is doesn't have world trade. i think jpmorgan's stock has been caught up a shrinking price. why are we paying less for the

earnings there's less world commerce. wells fargo is u.s.-related. and wells fargo never lost the deposit base. >> isn't that a bad thing? >> there is not yet, i think, a lot of disruption in the world commerce we're getting these strong pmi numbers. you know, i'm using jargon and i feel bad about that. >> purchasing manager. >> people's whose job it is to see ahead through supply chains. >> yeah. and it's still expanding i think there's a sense that already we've been hit by what is going on. it hasn't happened it's a little more like what happened in 2001 and 2003. there was the real disruption. there were 30 percent tariffs on steel. obviously it was a little quieter. we raised tariffs in a more easy fashion. >> the journal has a piece, of course, on foreign automakers such as bmw that have huge plants here in the united states

that are suffering potentially as a result of the 40% tariff on automobiles into china where they sell from u.s. manufactured cars, even though they're foreign owners. >> not denying it, i think that's a big negative against the jobs number that occurred on friday what are you looking at me for this >> i'm not allowed to look at you? >> you're looking at me like it's a small world afterall. wake up to the chaos of world trade! i see you world trade and i raise you in favor of kavanaugh. >> yes he's deregulatory in nature as for stocks, we tried to push through the levels three times this year. it sounds like you're saying we could do it. >> i think we haven't had the financials as a leader of the category and the financials are valued between nine and 11 times next year's earnings, which is

extraordinary. we'll get it before the earnings collapse, but it's almost impossible for jpmorgan not to make $8 million. they have to go out much their way to do bad. jamie diamond has to say we no longer have a balance sheet because we made a lot of mistakes i think that's highly unlikely i think you'll hear ways they make money they turn the lights on and make a lot of money and the obsession with twos and tens and tens and twos i'm not saying bury that but i'm saying it's overlooked because it's about they don't make as much money i think they're making a lot of money. >> so that dip or that retreat in yields from above 3% to where we are now is overblown in terms of the impact it has. >> everybody loves to get on board when yields are moving up. >> i would love to have the stocks going in where they were where they went out friday but jpmorgan's stock has been a huge bow wow and citi.

the ceo buying back 7 percent on the stock. all it does is go down. >> we went through some curious action on loan growth in recent months some guess ha maybe because of tax cuts people don't need to finance things like they used to. >> let's flip that and say, you know, what happened is that the number of people who have been defaulting have gone down dramatically they're paying down debt and we've got to be careful what we wish for i didn't want a lot of delinquencies. so you have to get a decline in delinquencies. and we're having people pay down and then i think as things get better, they'll think about buying people are still fearful. >> we're six months into tax reform, if not more at this

point, right i think it would start to -- >> i think it is starting to -- >> move down the field. >> it's a full context show this morning. >> if you're on the pepsico conference call you would recognize we don't have enough drivers. why? there's so many jobs in construction people who are not highly skilled in terms of the traditional measurement that they don't understand for computer science degrees, they have the plethora of jobs they can choose from. >> yeah. nfib today saying positions not able to fill 36% which is the highest, at least, for the year. >> and wage increases are not that great there was an article today that said wage increases are beginning to eat at the profits. that article is wrong but that's okay everyone has a right to write a wrong article. there's nothing in the constitution you can write wrong stories and the government can't say a thing. >> good. so kavanaugh will protect the first amendment? >> yeah. >> and the second amendment.

>> he likes the second. >> i'm sure he loves it. >> how does he feel on the 11th? >> i don't know. 14, i guess, is one of the keys. >> we like them all. >> yeah. >> jim, as to your point going to the quarter cautious we have downgrades of urban, ebay. >> i found the urban downgrade to be fanciful fanciful they're doing so great when it comes to the look and feel of fashion. nordstrom downgrade. you downgrade that stock on the day they have their first analyst meeting? look, the brothers -- the stock is down two? are they kidding me? what the heck is that? it's like they're presuming a shortfall in the way they know how to talk. it's an analyst meeting. it's not a quarter number. that's an outrage. >> an outrage. >> chipotle.

how about the square downgrade the stock has moved a great deal i think it's yesterday twitter was the stock down jack dorsey runs both companies. carnival carnival let's lighten up there's too much negativity. now nordstrom is down $2.02. >> january 2019 eps range of $335 to $355. >> why sell it you have to upgrade everything >> i think the words were more balance near term risk reward. something like that. >> we have to move on. someone said that in my ear. as jim said, pepsico getting a lift on better than expected earnings we'll talk to hugh johnston as they continue to battle coke take another look at the premarket, as we said, going for day four of gains for the s&p. more squawk on t"squawk on the

moment see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st. hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade

this wi-fi is fast. i know! i know! i know! i know! when did brian move back in? brian's back? he doesn't get my room. he's only going to be here for like a week. like a month, tops. oh boy. wi-fi fast enough for the whole family is simple, easy, awesome. in many cultures, young men would stay with their families until their 40's. pepsico is out with earnings

as q2 reports begin to come in earnings and revenue beat. shares getting a boost from the 4% boost in frito lay. sara is on set having covered it since early this morning. >> expectations were low going into the quarter and pepsi managed to surpass that. joining us now is cfo and vice chairman hugh johnston welcome back, hugh nice to see you. >> nice to see you, as well, sara good morning. >> good morning. we have the tale of two businesses very strong growth in the snacks business and frito lay not so much in north american beverages. give us some color as to why you're seeing the discrepancy lasting. >> yeah, happy to talk about it a little bit i guess i characterize it as the resilience of the pepsico portfolio working. our revenue and neps, obviously, came in strongly and the investors seemed pleased with that. if you look where we are, the international businesses are performing well.

operating profit internationally up 12. as you mentioned frito lay performing strongly. north american beverage, as we've been saying, continues to improve but there is brick by brick work as we're building that business to be even on better footing if you think about north america beverages, three big pieces to it and a lot of smaller pieces the big pieces are pepsi, mounta mountain dew, and gatorade that's what we saw through the second quarter the business strengthened. >> talk about the advertising. even on the conference call mentioned a competitor going through a big business change. how is the coke business change affecting you? how else are you planning to turn around that brand pepsi, which is such a core product for you. >> yeah, i think the biggest thing that we needed to do was,

number one, really focus on increasing the level of advertising. our competition increased advertising, obviously, we're going to be competitive on advertising. that's what we've been doing in the recent weeks, and we'll continue to be competitive in that regard. number two, we're going to continue to use our portfolio to work well. carbonated soft drinks we compete, obviously, and the noncarbonated area is where we have leading positions we'll continue to invest in those businesses to grow the combination of the two, i think, should put us on good footing as we move forward into the coming quarters. >> jim cramer, great to see you, sir. there is something i've been trying to think about the narrative of pepsico but we spent a lot of time talking about 25% of the business and we worry about each percentage, the minus five to minus three, to minus one. at what point do we say pepsico

is on the door but the 75% of the business is firing on all cylinders versus every single consumer packaged goods company. is the narrative wrong are we beating a dead horse on carbonated >> you know, jim, obviously it's an important business for us but we have many important businesses my experience over the many years i've been with pepsico is there's always, at some point, the business that will face challenges sometimes it's north american beverages. sometimes it's an international business frankly, that's the role we have as leaders is to turn around those businesses do i think there's overfocus on one business because it's here in the u.s. and the competition tends to make it more interesting? i think sometimes we spend a little bit too much time talking about it that said, it's a big important business and we have work to do to continue to make that business better. so i think we're in the right balance. the broader narrative, i think, here is that pepsico portfolio is resilient and it's working now, as it for many quarters

you should expect to see it in the future, as well. >> let's talk about the way people view the company in terms of granularity i'm wondering whether the different channels have changed enough that the analysts, particularly two analysts who are highly negative. i would say downright critical ahead of the quarter really did not get what is going on at the company and the ceo and, you know, have built a business that is no longer as easily modded and managed as the analysts may have thought it was. >> that's a great point, jim there is more and more of the business moving toward what we characterize as unmeasured so analysts, obviously, deal with the information they have and that tends to come from the traditional market share reporters. the fact is, as more business goes into food service, as more business goes into e commerce and unmeasured retail, it's harder for the analyst to get a read through on it we're performing well in those segments one notable example i point to

is the e commerce business we have it's grown terrifically. it's a billion dollar business for us now and our expectations are for continued outsized growth there. and growth that will come at good, healthy margins with good competitive advantage. we have leading brands in so many categories. >> i think a lot of investors were encouraged by the fact you maintained your guidance in what is the sort of volatile environment internationally with emerging markets, the dollar back on the upswing, which could hurt later on. talk about what you're seeing in the economic macro environment, which this quarter looked pretty strong. >> yeah, in general i think we're seeing positive economic outcomes for most countries around the world obviously, there's various ups and downs in different countries. certainly argentina has some challenges right now certain areas of eastern europe have their share of challenges but the reality is, relatively speaking, the global market -- the global economic environment is quite good. that said, one thing we've

learned over the years, there are surprises. somewhere there's always volatility somewhere we affirmed our guidance because we feel confidence in the ability to deliver the year. but we do expect some volatility because, frankly, particularly given the conversations around trade these days, that volatility is likely to come from somewhere. >> speaking of trade, also i wanted to get your take on inflation. on the cost side and the consumer side. talk about what is happening with your input costs. whether it's tariffs or commodity prices and whether you have pricing power in this consumer environment. >> yeah. happy to do that in general, as i've talked about in the past, we do tend to forward buy on commodities which affords us some level of protection against inflation that said, you can't forward buy on tariffs from the overall company perspective, the tariffs thus far have been immaterial but it does, because aluminium is impacted, it affects the

north american beverage. that's part of the challenge in the operating profit numbers in addition to that, just the driver shortage that exists in the united states right now. it's affecting transportation costs. that does create some inflation, as well. again, particularly the north american beverage business where we use more what we call third party transportation compared to the frito lay business, which tends to do more of its own trucking. >> it's carl the increased ad spend who is getting the marginal dollars. is it changing in any way? where are you finding value in terms of reaching people >> you mean from a channel perspective? we're certainly putting more in the digital. over time, that, obviously, has proven to be a more and more successful avenue of advertising for us frankly, we're going to go where people are going our goal is, obviously, to get the best roi on our advertising. we're pretty good measuring that digital provides a good return particularly to build 101 relationships with consumers

that said, tv, still, obviously a big part of our spend. you'll be happy to know. tv is the best way to get reach. >> hugh johnston, thank you for the reassurance there. the cfo and vice chairman of pepsico joining us on the results today. jim, i know you like the company. you must have been pleased. >> i was thrilled. i have bonnie i've known her for years andyears she expected pepsico would be minus 2.3 to create an example which would be a back ward move. what you said that is important is every month got better. that matters tremendously. gatorade good. we discussed it the other day. i think gatorade is too sugary the new one is flying off the shelves. >> gatorade zero i think the hot weather helps a little bit with the sports

drinks also, yeah, they're winning back fans bubbly is one of their new products, as well. that's exceptionally well. >> that's important. >> sparkling. >> gatorade is like 150 calories. >> yeah. >> if you haven't worked out, that's not a significant number of calories. >> i remember i coached soccer for years. we won because i made the kids work i made them go way above their game kids are fine. as we get older, you need the zero but i like the -- stop it. i like the progression i think inagrthey built a powere company. the 75% doesn't get nearly enough credit. >> snacks. >> how facebook should rename itself instagram one day we'll be talking to frito lay. congratulations. >> thank you, sara see you in a bit cramer's mad dash and count down to the opening bell in a coup omite lef nus.

s&p posted nearly 1% gains for the past three days. we look for additional gains today. opening bell about five minutes away don't go anywhere. at the marine mammal center, the environment is everything.

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♪ come on. come on, squirt. (dog barking) whatever your financial goals are, a u.s. bank wealth management advisor can help make them a reality. talk to one today. u.s. bank - the power of possible. the opening bell is sponsored by u.s. bank the power of possible. welcome back to "squawk on the street." about two minutes before the opening bell let's squeeze in a mad dash. we want to talk united technologies some research this morning. >> david, one of my favorite companies is united technologies we know that's elevators, it's climate controls, and arrows space. jeffreys said you don't want to break the company up they should not break the company up it's going to be a key to outperform the execution it has underperformance the last

two years. they say keep it together. i don't know. >> they haven't closed the rockwell collins deal. >> right. >> when they do, the signs i'm hearing indicate they going to pursue this split. it's interesting to hear a voice. >> i think that i don't like the call because i agree rock well collins a game-changer it will make it so, frankly you need otis who is connected to china. do you need climate control which is is a low-tech business and greg hayes prefers high-tech. i think the answer is you break the company up, i think you get 150. i don't know why do it on earnings when you have this rockwell collins i'm with you. >> we'll see. >> it will be significant

potential transaction. >> let's get to the opening bell this morning [ opening bell ] >> the stock was at 13 when it was listed but i think what is most important is david has a tremendous view on drilling and exploration and service. he's a premier high-tech company in the oil field he's saying $100 oil why? because the national oil companies are not doing what they thought he expected with oil at these prices the countries would turn it around. mexico would turn it on. a lot of countries simply have not responded. they're decompleting their oil

and they're not replenishing so $100 is in the cards. i agree with this call. >> give it time. >> 18 months in two years. there's no replenishment what is interesting because why aren't the national oil companies drilling well, because look at the countries. look at venezuela >>well, venezuela, libya even mexico. >> mexico is not drilling. you would expect mexico would take the advantage brazil is drilling but they're not that well run. i found his comments chilling. we'll have more on "mad money. why? because holy cow the president is not going to keep it up by asking the saudis. he said world growth is going to be one-half percent. it's been 1% demand. that's despite the fact we know there's a tremendous -- he has a

handle on oil. >> that will strengthen the hand of one mr. putin for his oil-based economy. more money to do whatever he wants to do. >> the president meets el sinky this week. >> i think putin wants to return to the days when it was bipolar with united states and the soviet union. >> they are primarily a oil-based economy in russia? >> oh, yeah. >> pepsico is very big in russia. >> that's true very true. especially frito lay. >> yeah. and milk didn't they do a deal? >> yeah. >> i think when i look at russia and i think what is going on, i say to myself are you kidding me this is not a major power. but it's a major oil power. >> wow $100 oil in 18 months. >> three years, at least in the end it's going to be there. >> on the point about long-term

demand for crude and oil and gas. tesla today is making all kinds of headlines as the shanghai government, according to reuters says they have signed a memorandum of understanding to build a plant with annual capacity of half a million vehicles >> wow. >> where is the money coming from to make the plant >> you. >> do we know? >> you. >> all of us. >> on a big capital risk i think that phil when he was on "squawkbox" said something amazing. he said i think a lot of people are going to say didn't we already -- and this islike the tenth announcement this is a formal and important announcement you reference the tariffs earlier. >> i did. >> is this the way we want to go that's the point so a plant that may have built there is going to be delivered vehicles without a tariff in country. china is, obviously, an important market for them. >> >> that's not putting people in the united states to work. >> no, look at gm.

>> that's an $8 billion plant, right? that's what they're talking about? tesla? >> i don't have a price on it. they had a account showing elon musk shaking hands with the mayor of shanghai. the annual capacity is 10 x what they did in q2. >> this is a country whose official policy is to go nonfossil fuel i don't regard that as our official policy. no as we pointed out many times, bmw, of course, they're moving down the ev road, as well. with what are going to be competitive vehicles to tesla. i would be curious to see what is more competitive market what the share is like. >> is he a headline maker or what he is just one person news story. >> he is. >> he's unstoppable.

>> he is. >> and the bears, meanwhile. the bonds, which david has taught us are more important the bonds had a bad week last week. >> keep an eye on that. >> keep an eye on it. >> yeah. things have been moving in the right direction for them lately. >> yeah. and you say something bad about him, now he attacks you. it's really the president and elon musk. a lot of fake news, according to elon musk. fake news. >> nearly every dow component is green. lead by chevron, exxon, boeing walgreens newest is the big laggard. basically on amazon pill pack. >> yeah. and there was a piece recommended by cvs that said be ca careful of walgreens you know, walgreens has got a real challenge i mean, they've got the front of the store amazon now they got the back of the

store amazon they're not doing what cvs is doing. they are poorly positioned in the new world. they don't have it inline is not good enough for nordstrom. >> right. >> but the key piece is that they don't -- somehow nordstrom doesn't recognize inline i remember when bruce nordstrom told me who has the best customer service amazon they've been trying to play catch up one of the reasons i thought they would go private, it's hard to play catch up in the public. >> it is when you're trying to adhere to quarterly earnings at the same time, back to the bond market. they had a rougher go there. when you get to a certain leverage ratio, the incremental barrings above that become expensive and they could not get

to what was, for at least from their viewpoint, a number that made sense that the special committee and the board would accept. >> most companies, if you look at the banks now, you would look at the stocks and say these didn't really take off there was going to be more m & a activity i have to tell you, i'm flabbergasted there is, isn't say, this morning when i come in and comcast. where is comcast >> we're waiting on comcast. and believe me, my phone yesterday just ringing from all the big funds trying to find out what we know. don't know there's nothing to tell now. they do not need to come with the bid to compete with disney's $38 half cash/half stock deal to acquire fox today or tomorrow. but soon the annual retreat begins at sun valley. >> are you going >> i'm not. >> why is that the world cup? >> i was there like 18 or 19 years ago. they let me in and i did the great interviews and the next year they're like you can't come

in i've never been asked to moderate becky will be there. >> julie. >> and sorkin, i think, will be there. we'll have some insiders telling us what is going on. and maybe if they see bob iger and brian roberts chatting together in the hallway, they'll let us know. >> that would be fabulous. >> i don't know that's going to happen i would think probably not my guess there's going to be a force field keeping them apart. >> really? like a marble. >> rupert will be there, too who knows. maybe rupert could sit down with brian and iger that doesn't work well for rupert he wants the highest price we'll see. comcast could come back as late as next monday, if they chose to if you come with a high enough number, they have to move the meeting. they won't get the vote on the 27th in the meantime, we have a bunch of target bumps one on facebook and apple they're not working. they're not working today. i think it's something to think

about. the "a" in faang is amazon we had an underperformance by tech yesterday and today i think it's worth watching. you a rotation that is into financials going into when they report you don't want to lose tech. you don't want the leader of the market to be oil. >> which it is at this moment. >> yeah. it means chevron is a greatly run company. we had scott talking about oil in texas remember, texas was the top state for business. >> yeah. number one a quick point on m & a to your larger question. i have been picking up lately and speaking to the practitioners that things are not moving quite as quickly because of fears about trade you know, typically your large enquirers would be global companies, cross border has been an important component of m & a, as we know you can see how people might have a wait and see approach a

little bit given what is going on there are decisions that conceivably made that will have significant impacts either you're going to buy or something you may, in terms of your own. >> what happened to sprint and t-mobile it kind of out there >> we're waiting on doj. i mean, anti-trust is the key for sprint and t-mobile. delrahim is who they're focussed on. >> the man in charge of anti-trust. >> we need to see deals at this level. at this elevated level we need to see deals we need to see deals for retail. >> really? >> retail being what >> home depot. >> they're not doing a deal. >> i'm just saying i would like to see a deal in retail. >> something to confirm value. >> yes.

>> i haven't heard a thing. >> no. >> no. >> okay. >> dow is up 110 s&p 27.90. got a sixth straight all time high for the russell let's get to bob hey, bob. >> and another strong start. happy tuesday. the right stuff advancing. energy is on fire. a lot of new highs in the energy group. oil is near $75. energy leading banks and industrials and semiconductors the consumer staples are up. pepsi is up 3% it's dragging coke up. not a lot of new highs but most are energy stocks. slowly but surely they've been populating, marathon, conoco, petroleum 52-week high at least here they're starting to creep up and move in here we have had a one heck of a rally. the s&p has moved 83 points in the last four days or so that's big and we're starting to look technically very positive here here is the s&p for the year

the line across. remember we're starting to pass the june and march highs that we had before that's a series of higher highs, lower lows that's technically a very positive indicator the all time high $28.72 that was back in the end of january a ways to go, but that chart is a very positive looking chart. the markets pricing in a lot of good news. i'm worried about the risk is the downside i mean, the market is betting cooler heads will prevail on the trade tariff thing inflation is relatively undercontrol momentum is clearly growth over value. everybody is betting tech is going to go up that's a big bet now and almost other marginal issues rising rates, the higher dollar, everyone seems to think they're going to be manageable and, by the way, we heard that essentially from the pepsi cfo great interview from the guys this morning with the cfo on commodity costs manageable i would note his comment on the dollar this was in their press release.

there's concerns about the higher dollar but pepsi said foreign exchange translation had a one percentage point favorable impact on reported net revenue because the dollar is a little weaker than it was a year ago compared to today. yes, the dollar has been rallying quarter over quarter, but these companies do the comparison yooe comparison year over year. remember that. that's going a positive impact earnings trends in general pretty good. here is the difference, first quarter and second quarter about raising earnings estimates on the tax cuts and buy backs and global growth. q 3 and q 4 is about maintaining that you don't want the numbers to go down that's the concerns. if you look at the numbers, the estimates why would you? everything is up 20% this year and nothing is changing. q 1 is up 26%. take a look at the next one. q2 will be up 20%. q3 23 and maybe beating q 1. and q 4 is 20% the key is don't drop below 20%

on the numbers most people will say maintaining not a bad idea here. you guys mentioned nordstrom affirming the guidance for the full year. obviously, that stock is down a bit. they may get a downgrade today pepsico has good numbers overall and affirmed their guidance. the key for earnings season this year is maintain a forward guidance right now we're off the highs for the day. the dow is up 93 points. >> thank you we'll get to the bond pits and check in with rick santelli. good morning. >> good morning. you know, the earnings rally that we're seeing in stocks up six out of seven days, it looks we're going to further that statistic. maybe seven out of eight days, the way it's trading it's giving the markets tension in the fixed income area it's also flattening the yield curve as short maturities a little more buoyant. tens minus two is hovering at a

level around 30. it's not a record, but it's getting close. but 30s minus fives at 20. 30s minus 10s are 10 these are records going back to july of '07. look at a two-year note yield it's about a basis point half way from challenging as you see on the 10-year chart the current high yield close going back to '08, which is around $258. that was for mid may we're not far away you can see the two day of tens as we moved into the time zone february 1st chart of tens clearly shows that we have held a lower bounds it's been one of these years we've had many periods of long consolidates at tight levels now, of course, we're moving back toward the 290s which we spent a lot of time. it isn't happening very quickly. i know there's been a couple of articles after friday's pretty good employment report about

wages being strong i think really strong in that report we've had scares of it being stronger than revised lower much earlier in the year. if we look at what is going on with bunds, all yields are tethered together. the bunds are sitting at a very precarious spot. you see on the june 1st start, the way we traded back under 30. we're hovering around there now. a key levels and it, we are dragging them up. i think they're holding us back more than we're moving them up if you look at the pound versus the euro and considering the brexit issues, you can see that march 1st chart that it is getting to a point against the euro where it's going to start getting at a point where it's not supported by many who have been trying to pick the pound to do a bit of reversal look at one year of the euro versus the dollar, it looks like the dollar index ranges granted that the dollar index tested 94 and we got close to 118 on the year but it hasn't busted out of the range. carl, jim, david, back to you.

>> all right, rick later on this morning tom farley on the state of the ipo market that's coming up in the next hour dow up 103 s&p up better than six back after a break

cnbc's top states for business has been topping this year's list the state of texas scott cohen joins us from the lone star state. good morning, scott. >> good morning, carl, one of the great things about doing this year after year, we get to see so many beautiful parts of the country, we're in the texas hill country near fredericksburg, it's a beautiful place. there's also a very serious or we like to think study behind all of this. we rank all 50 states for competitiveness across ten different categories and you can see where your state ranks right now at top states.cnbc.com and learn about issues facing the states in the critical year, election year, 36 states choosing governors, states

facing worker shortages and all of the things going on right now. read about it at top states cnbc.com we'll keep talking texas as well greg abbott will be with us in the next hour to talk about the things that texas is doing right and the challenges that texas faces. that's coming up later on on squawk on the street. >> great work as always. people excited to hear more about what went into making the list i saw colorado number five you say the texas element is more than no state income tax -- >> i mean, there's just headquarters being built there just the -- actually i know tennessee was mentioned a funny song that went with that but look, texas is where companies are saying i'm going to relocate and it's very easy to relocate to texas >> a lot of tech flowing in as well. >> a lot of time in california and spent time here recruiting businesses and talking about the

low tax regime and other number of things. taxes matter elections matter don't forget. they have consequences >> we'reoi gng to get trading with jim am a minute dow is up 92 hi i'm joan lunden.

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>> a lot of people are getting a little cautious about this biogen situation, stock was up 60 on the alz himer's relief drug bayer says take the money and run. now biogen has led a really favorable rally in this particular group in the biotech. be careful just like faang seems to be rolling over a little bit. this could cause even though celgooen had a new drug that looks promising, this could cause a pullback that could be surprising given the fact biogen looked to be the star of tthe - the ---the - the ---al himer's so hard -- >> this was the company that was the discussion point between stevie cohen back for the sac,

remember >> yes. >> 20 minutes conversation. >> 12 . -- >> then it was a fail. >> it failed to meet the end points and let it go for a little while when you deal with ceos trying to solve this at the major -- they say listen, we've spent fortunes can't do it people are getting suspicious now. and it's cooling off i thought this would be a multiday rally i'm wrong. >> that is fascinating. >> jim, tonight. >> core labs, we have david demshur, there's two different entities, international oils and domestic oil production and nations and the nations are what really keeps a lid on oil. the nations aren't spending like they should. why they announced a short fall. he thought they would. we're drilling like mad in texas, scott cohen. >> indeed. >> we've got to hear that interview tonight.

we'll see you at 6:00 p.m. on "mad money." when we come back, greg abbott, ranked number one on our list of top states for business. you'll hear from him and dow is up 103 to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today. fidelity. looking for a hotel that fits... whoooo. ...your budget? tripadvisor now searches over... ...200 sites to find you the... ...hotel you want at the lowest price. grazi, gino! find a price that fits. tripadvisor.

good tuesday morning, i'm carl quintanilla post nine of the new york stock exchange markets having a fourth good day in a row dow is up 117, s&p back to 2790 led by oil. >> our road map begins with president trump kicking off his week long european tour, his first stop brussels for a nato summit as trade tensions simmer. >> the president's pick for the supreme court and what it could mean for american business and your money. >> lone star state taking the spot in america's top state for business we'll take you there and hear from texas governor greg abbott. >> we start with the markets though stocks continuing to rally, s&p on pace for its fourth day of gains and the dow coming off its best day in more than a month. now positive for the year 2018

joining us now -- good to see you both we're looking set to almost break out here could be talking about new highs, is this surprising given the head winds out there, notably trade? >> yeah, i think that trade escalation or skirmish or maybe up toward if you define it, has been weighing on markets european markets and asian markets bearing a bit more of the real brunt of the trade discussions because there seems to be more to lose in those areas versus the u.s. have growth is booming and macro caters look very strong and fiscal stimulus is helping them feel the benefits. we're seeing that show up in the earnings numbers as well as stock prices at the moment. >> strong enough when you're talking earnings and economic growth to withstand the tariff

tit for tat and possibly even more >> well, we've lowered our equity exposure and now moved to an underweight equity exposure in the tactical portfolios and the reason is that the the market story has changed from where we are a year ago. unequivocal signs that data was accelerating to the upside we still had the tax cut in front of us and investor enthusiasm was picking up nicely as we rounded the year to this year, we now see a less even -- or more uneven performance, chap yor performance and pickup in volatility look at the bond market. you had a significant flattening of the yieldcurve and spreads continue to widen in the corporate bond marketplace over treasuries we've gotten a little more cautious on the outlook. >> before we continue this discussion, we have a breaking piece of economic data to bring you on jolts, labor market how do they look

>> well, you know, the may jolts on the appearance is down 202,000 from our previous look, which was revised up, all the way up to 6,840,000. still a solid number and it's the fifth over 6 million job openings in a row. it backed up a bit but holding lofty levels the real question after friday's labor report was how many people do we really have to fill them even in the context of the low unemployment rate. it boils down to the available pool of workers and tens of millions of workers that may get drawn back in and that is the question traders are trying to handycap back to you. >> pretty strong picture of the labor market thank you very much. this is part of your case, right, that the fundamentals on the u.s. -- and i would cite the

small business optimism that came out today, continues to remain at elevated levels. looks pretty good. the question is, is this as good as it gets with the trade concerns and the other headwinds that are building higher in put cost and inflation and that sort of thing >> yes, it's going to be a tricky balance for u.s. companies and broader u.s. economy to handle what's right now very strong. tight labor market, you've got companies who have strong earnings you've got them with lower tax rates that can benefit to their earnings expectations but at some point, not this year but maybe not even for the first half of next year but towards the end of 2019 as wages rise because of a tight labor market and interest rates rise we expect the fed to do two more this year and next higher interest rates and wages wrapping in the higher inflation picture will be a challenge. that's why like general themes in the market thinking about reallocating or perhaps we are still positive on risk assets but with a bit more of a

cautious approach in some areas is appropriate at this time because as these data points tell us, we're definitely in the later part of the u.s. cycle and affects investment opportunities we see ahead >> so where does this caution take that part of your portfolio? who benefits from any change in weight >> we're looking in the equity space and favor to u.s. equities because that seemsz to have the most room to run in terms of stimulus and not being hurt in a lose-lose situation of the trade wars the u.s. equity market does seem favorable geographically within the fixed income space, looking at less duration, securityized properties and parts of the high yield market which have good fundamentals versus investment grade. picking and choosing between the asset classes that will help weather the storm this later end of the market and economic cycle.

>> so she's adding and you're subtracting. what do you expect to change the tide as we see the russell 2000 hit a fresh record high? >> at some point you would expect to see all of the things your other guest just talked about, we are at a point where we have valuations that have increased and reflect a lot of the very good things that are going on i don't want to suggest we're bearish for the long term. our short run indicators are leading us to a tactally cautious position here but ultimately investor enthusiasm has to stay strong and what we've seen is an upswelling of enthusiasm through the last year and into this year and there's a more cautious tone, being expressed in a wide number of indicators, moving away from growth and tilting more towards valley and looking for consumer type names and

utilities are interesting to us and so that's kind of how we've been positioning the portfolio tactically in washington crossing >> kevin, really quick, it sounds like you've think we've seen the high for the year on the 10-year? >> it's hard to say but we have had a big backup in -- big backup in rates. our short term indicators are pointing to slowing down or some little bit of weakness in the near term, not a big deal but perhaps this has put to rest at least some of the big move interest rates but ultimately we would think long rates square with norm nal gdp to get us eventually to 4% as a yield target for the lodge end of the curve. that's going to be something that's going to have to play out over time. maybe we pause here. >> good debate guys over the optimism and pessimism we see in the market nice to see you both. >> thank you. >> the president kicking off a

week long european tour today. starting out in brussels where we finds eamon javerse this morning. >> good morning, this could be a contentious nato summit in brusse brussels, we heard from donald tusk speaking in a direct response to the president of the united states, dear america, appreciate your allies after all, he said you don't have that many a direct response here from eu leaders to the president's rhetoric about nato allies increasing defense spending and overall criticism of nato at a time in which the president will be meeting with vladimir putin in helsinki finland. that putin meeting sort of looming large over this entire summit at nato here in belgium this week. the president as he left for air force one this morning was asked whether or not he sees donald trump as a friend or foe and here's how he responded? >> i really can't say right now. as far as i'm concerned, a kmet

tore, a competitor i think that getting along with russia and china and it's a good thing. not a bad thing. i said that many times for many years. >> we'll see. >> we spoke to a former nato official here in brussels yesterday. i asked him how that putin meeting is setting up the atmosphere here in belgium here's what he had to say. >> it adds a toxic element a u.s. meeting with russian leader is always a complicated issue for the european leaders even under obama or george w. bush i remember the administration before trump were expending quite a lot of time debriefing and reassuring the european allies they were not going to sell away europe for deal with the russians now with trump it's even more like this. trump does not have the confidence of the european leaders. so putin is very much at the center of that summit. it's the big shadow.

and the question is what's going to be the deal between putin and trump? i don't think trump has much room foreman ufr congress is still controlling the sanctions now. and also many of the relationship but can do a lot of political damage, which he has already done >> carl, one area for optimism, really emphasize the idea that a lot of nato allies have committed to spending more money on defense that should go a long way towards reassuring president trump that in fact his rhetoric is having an impact here and ultimately likely to get most if not all of what he wants here in brussels, guys >> we look forward to seeing what brussels gives us and london and helsinki. busy week ahead for the president. roaring back, the ipo market on pace for one of the best years on record. we'll check in with former nyse president tom farley on all of that and texas takes the top seat, the lone star state makes its way to the number one spot

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bnb and possibly saudi aramco. joining us today, group president tom farley, currently chairman and ceo of far point acquisition corporation. >> great to be back. >> of all of the names i just mentioned, what to you is the most interesting right now >> they are all interesting, every one that you just named. just to tick them off. this is a great time to go public not only is it the biggest ipo year in five years but up 22% to where they are trading today, a good time to go public what's air bnb thinking about their ipo? they are in this battle whether they want to admit it or not with the big lodging providers for the long term and having a public currency would be helpful. uber is clearly moving rapidly towards an ipo but also moving judiciously in terms of hiring a cfo. >> oncethey hire a cfo, i expect to see the timetable accelerate quickly zonos is very interesting to me. do you need a neutral party in

this kind of speaker space they are competing with bose and samsung and amazon, whether they want to acknowledge they are competing or not they want a software multiple three or four times revenue, half times to one times revenue. i'm very eager to see how that plays out. >> and the big one saudi aramco x first, let me tell the viewers why it matters if saudi aramco ipos the market cap in the united states, go close to 5 mrs, it would be potentially the biggest in the world. >> could be as much as $2 trillion i doubt that but -- >> i think over a trillion there's a report that came out only worth half a trillion that's bogus it will be over a trillion maybe a trillion and a half. >> and we know that but i continue to hear -- and i'm not sure what your point is going to be that they are going to list it locally first and then most

likely not going to come here or anywhere else. is that what you think. >> i doubt it. i don't think they will list because it is just -- has 500 billion of market cap. doesn't have international investors. they have two choices, come list in the united states or they don't list at all. that's my view the u.s. has 40 trillion of market cap 50 trillion of market cap and london by comparison has 3 or 4 trillion and i spent a lot of time in the kingdom and know a lot of people involved here. i will tell you this comes down to his royal highness salman if he wakes up one day when he's done with a lot of what he's dealing with in syria and qatar, we're doing this ipo, it will happen. >> i wonder if the higher oil prices change the calculus on that. >> both ways, helps valuation but makes it a little easier on the budget because they have more dough to fund the initiatives. >> did you agree with reports

that said their planning decelerated? >> that happened a year ago. the recent reporting really is nothing new. i was in the kingdom maybe ten nights last year and it was decelerating all throughout the year because everything is waiting on nbs. >> still thinking 19 or 20 >> it's hard for me to predict my gut feel is it is a 2019 deal here in the u.s. but again it comes down to one guy. it's a black red bet you're asking me to say is it going to be black or red. >> you said it's a great time to go public and ipo. what about for chinese companies so important having listings here at the new york stock exchange we saw what happened now that the trade war is going back and forth. do you expect there to be a dropoff in chinese ipos here >> i do. i do is the short answer i already see in conversations i'm having subsequent to my departure from the new york stock exchange a ret sent to actively engage in conversations

about joint ventures or partnership in the u.s burned in a number of ways and tightened the screws on what's allowed to happen in the u.s there's still a little concern that the trump administration will come out with on orrous regulations against being able to invest in technology companies here in the u.s. so increasingly chinese companies are looking to list in china or ascy secondary option hong kong. >> the ones we've seen come to market have binged, they are essentially done they are not being buffetted by the rhetoric >> no, no. this is just shades of gray. you're still going to have chinese companies coming to list here if you're a chinese company in domestic china and want to list in domestic china, you have to wait for our five years. you're going to see great companies that will choose to list in the u.s. it's not going to end but on the margin, you'll see fewer chinese companies here. >> one company coming back to markets is michael dell, with us

last week. what's your take here. it's interesting of course, they are buying in the tracker for both cash up to $9 billion which would be about 41%, cash of $109 and then the rest is going to be in actual dell stock number of holders i've spoken to are unhappy with the consideration at this point. it will need a vote in october it's a ways away don't need to get into that. what's your take overall on dell coming back to the public markets. >> i think it's great. i think it's $100 billion enterprise value company returning to the markets i think it's a good deal for shareholders for a couple of reasons. i think that they are not -- they haven't fully taken into account the extent to which dell is performing really really well, revenues up 17% and number two, michael dell holds all of the cards here and he chose the most shareholder friendly option to effectively kind of merge with the tracker stock

the tracker stock is trading higher than it was preannouncement. they are getting not only cash but getting to own -- >> about 20% if all gets used up they were also picking up up almost $13 billion in value critics would say that's on the floor there basically, the difference between where the tracker is right now and where vm ware is. >> he's sharing that with shareholders -- >> 20% of the overall. >> look at the alternatives. >> the alternative is they go public and buy at a 20% premium. >> without a vote -- >> or choose any time they want to do it. >> that's the key. >> far more transparent and he's allowing those tracker shareholders to share in the upside. >> you're real positive on this. >> i like seeing michael dell come back to the public markets, somebody who talked publicly about the public markets are difficult to run a business. i think this sends a really good message to other companies contemplating going public as well. >> really? you think he could be an offset to what ron sheikh has said too being private?

>> he could be he's been on your network. >> he has. >> we asked and he did not say because it's the a better way to go clearly they see an opportunity to make a lot of money, which they already have, for silver lake his partner and mr. dell himself. >> one last question, president impact on companies willing to be public on the theory if i get attacked on twitter, my stock reflects volatility there, is that -- >> no, in the time i spent with listed companies that just isn't -- that wasn't a factor. the companies he's tweeting about boeing and amazon and pfizer, these are hundred billion to $700 billion market cap companies, the newly public companies are less worried about it the irony, tax reduction and

deregulation and business over the environment, but yet it's not necessarily bad politics for him to bash big business because other than those of us who love free enterprise and understand the good. >> what about our trading partners that doesn't cut into the pro business friendly characterization. >> it does. if -- it absolutely does and i'm a free trader and taking on multiple trade, bringing this angst with multiple parties at the same time is a suspect strategy i'm referring to the policies he's already passed, the legislation that's already passed and it's a little bit concerning that he does bash these big companies. i was just noting there's a balance there in that he's been friendly to them on one hand and sending out the occasional nasty tweet, not necessarily responsible. >> tom, it's good to talk to you. come back more often tom farley. >> the governor of texas taking the number one spot on cnbc's

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let's get over to seema modi, looking at the rebounds in emerging markets. >> emerging markets have been volatile to say the least in 2018 but in the month of july, we've seen some signs of stabilization the eem is higher on the month currently on pace to break is three-month losing streak. in investors see this as a sign that the worst may be over goldman sachs agrees with the notion saying valuation alone will not trigger a recovery instead driven by positive growth figures from asian economies. chinese stocks rebounded in the last two or three days after the central bank reassured investors that it would not devalue the chinese yuan the smart phone maker had a lackluster debut it is higher today by around 13%. that's seen as a positive as more chinese companies look to go public in the coming months

now, let's go to the middle east because that has been one standout within emerging markets. getting an upgrade to emerging market status last month this is the i shares saudi arabia etf and as you can see up nearly 20% in 2018 transforming economically as the kingdom moves away from traditionally heavy reliance on oil and that seen as a good-bying opportunity for those international investors. back to you. >> thank you very much when we come back, the president picks brett kavanaugh to figure anthony kennedy's seat on the supreme court. we'll look at the impact on business and your money. america's top state for business reve revealed, the lone start sta sto texas. "squawk on the street" is back in a moment.

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good morning, i'm sue her a herera, all 12 boys and soccer coach have been rescued from a flooded cave in northern thailand ending an 18-day ordeal that captivated people all around the world the remaining four boys and coach were all brought out safely this morning. it took three days to get everyone out >> secretary of state mike pompeo visiting the u.s. embassy in abu dhabi later in an interview with sky news arabia, he stepped up his warnings to iran >> so there's a broad range of series of sanctions aimed not at the iranian people but rather aimed at the singular mission of convincing the iranian regime that its maligned behavior is unacceptable and has a real high

cost for them. >> actor george clooney has been hospitalized after he was involved in a motorcycle accident in sar denia, his injuries are not serious but he was taken to the hospital's emergency room he has since been released we send our bestwishes to him. that's the news update this hour, i'll send it back downtown to you guys. >> sue, thank you very much with the mom nation of brett kavanaugh, the president has created perhaps the most conservative supreme court how does this affect key business issues including antitrust and financial regulation joining us this morning, a director of washington research brian gardner and public policy anl sift terry haines. >> good morning. >> the journal in this case takes a look at high profile cases but mostly on abortion and semiautomatic rifles and there is one they mentioned on the aca but in general, brian, how can we define his take at least in

recent years when it comes to regulation in business. >> i don't view it as a good for business, bad for business view. he is generally suspect of the administrative state and i think he wants to restrain it and force congress to be a little bit more explicit in the laws it writes i think the outcome is probably generally positive for business. but he's also -- i think it's a very moderate pick, a modest pick if you will when you look at the cfpb case in which he ruled the cfpb as structure was unconstitutional he didn't go out and strike down the entire cfpb. he fixed it in a narrow way, giving the president to power to fire the director. he's generally going to be supported by the business community. i think they are going to like the pick but i think you have to be very careful in saying this is a really pro business pick. it just doesn't play out that way. >> really? fortune magazine calls him

business' best friend and says he's overruled regulators from consumer protections to net neutrality, 75 times. >> that's fine when it's in terms of i don't agree with the premise that that's how he gets there or that's the outcome of it i do think that he is suspect of an administrative state that's gotten a little out of control that he wants to reign it in and leave it to congress to figure out what the law should be, not that the administrative agency should be rewriting the laws when they are vaguely written. i think we're going to see a pull back over time on what's referred to as the chevron doctrine and the deferral the courts give to add mshtive agencies, i think he wants congress to be more explicit on this that can actually in the end back fire on business if congress comes in and actually writes laws that are substantially more explicit and

more pro consumer. i think the inputs are more important to him than the outcomes are >> terry, where do you come at this from? >> my view of this generally is that judge kavanaugh is a very well known quantity in washington i think he's very likely to be confirmed. i think that his sfrs on the d.c. circuit and last stop before the supreme court and most of the regulatory decisions are first looked at or approved or disapproved by the courts, show him to be somebody who is interested in making sure that regulators don't get to go out and try to make law on their own, that congress is there to provide guidance and to provide the limits of their jurisdiction and that's what regular laters ought to be doing. it is -- it's untrue to say he's against regulation on this or that or the other thing. it is true to say that what he

wants regulators to do is stay in their own particular lane and not go out and try to create powers that they don't already have to me that's incrementally market positive and incrementally pro business. >> terry, real quickly, we bring you on often to talk about political strategy and analysis. will this have any i am pmpact n your opinion on the midterms in what goes on in terms of the congressional vote itself or is this a nonentity when it comes to the election. >> it's not a nonentity. i do think it's pretty much a wash what you have here is a situation where obviously, the opponents of a new supreme court justice appointed by president trump no matter who that is it's going to be used in order to fire up the left base. but i think what's unappreciated is that it's also going to be used and also will to some extent fire up the right base.

so my view remains the same as it was before, that what you have this fall is you have a -- an increase republican representation in the senate and republicans probably hang onto the house with a smaller majority than they have today. >> interesting call. we look forward to the hearings in the weeks to come talk to you soon >> brian gardner, terry haines, talking about brett kavanaugh. >> in terms of stock movers. a beat and continues to be a story of strength in snacking. the stock is up more than 4% north american beverage business which includes brands like gate orade and diet pepsi dropped 1%. pepsico reaffirmed the full-year outlook and we spoke to the cfo hugh johnson the last hour here's what he had to say about the overall quarter.

>> the resilience of the popcyco portfolio are revenue and eps came in quite strongly and investors seemed pleased with that if you look where we are, the international businesses in total are performing very well, developing in emerging markets up 6%, operating profit internationally up 12. as you mention frito lay performing trongly north american beverage as we've been saying continues to improve but there's brick by brick war as they build that business to be even on better footing. >> guys, the plan there to turn around north american business back to growth is to put some ad spending dollars behind the pepsi brand. that's what we've seen coke do they are going to match them toe to toe in terms of ad spend and bring back the brand and coke has undergone a major business tran formation we saw pepsi do that a little bit overseas and that led to the big earnings beat. investors are encouraged because it's been an under performer

against coke and the broader market and these results were better than expected that snack business really doing well if you look at it compared to other what they call center of the aisle package food brands >> a 4% number, very strong. >> let's send it over now to scott cohen in this year's top state for business with a look what's coming up next. hi, scott. >> hey, sara, the secret is out. it is not a secret to companies here texas is america's top state for business we will talk with texas governor greg abbott coming up next whoooo.

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>> markets up 153. find out what to watch for next re "uading nation. mosqwk on the street" coming up.

the big reveal, texas claiming the top spot in

america's top state for business scott cohen is there with the governor of this year's top state. scott, take it away. >> absolutely, texas always does well in the top state study, never finishing out of top five in the 12 years we've done this. governor greg abbott, we're glad to have you with us. we've done this three times before with your predecessor governor perry, now back with you. and governor perry always used to tell me back when we did this in 2012. he would say he's philosophy was low tax, low regulation, don't spend all the money. is that what you've been doing as well? >> that formed the foundation to getus to where we are now we'r doing so much more one thing we're working to achieve is to further diversify our economy. a lot of people don't know but texas has the largest medical center in the entire world another fact printed by the dallas morning news last year, if you look at areas in the country with the highest concentration of workers in the

financial sector, it's not new york and nos boston and actually is dallas. if you look at the technology sector, texas not only has been number one in the nation for exports for 15 years but texas has been number one in the nation for exporting technology for five years in a row. and so our sectors are so diverse, leads to even more robust economy. >> i'm glad you brought that up. one of the things we've noticed, texas always does well but the last time it did well, oil prices were in triple digits it hurt you last year when oil prices were low now oil prices are somewhat back. is it a fact you can't really be firing on all cylinders unless you have oil at levels like these? >> well, listen, last time oil had fallen by $100 a barrel. and so that obviously is going to impact our economy. one thing that will continue to grow our economy, i was just talking to -- in charge of the

fed, talking about what it looked like over the coming years and oil and gas, expiration production, we'll be off the charts in our economy and gdp should continue above a 4% annual pace for a long, long time that said, because of what we're doing to diversify or economy, i think we will be less tethered to oil and gas in the future and texas will continue to be a very robust and diversified economy. >> this is an economy that also relies heavily on exports as we head into a trade war. this is one area where you've somewhat broken with the president when it comes to nafta. can you sustain this kind of growth if we're in a trade war, if exports ultimately -- >> well, i did break on nafta but with regard to the tariffs because both hurt texas. texas is number one in the nation for exports and leading export partner is mexico and then second is canada. also we're exporting a lot to asian based nations.

we need robust trade and if the president wants to be a good economy for the united states of america, he needs to have a reasonable trade policy that will be good for texas what is good for texas economy is going to be essential for the american economy >> do you have a fall back if we go into a trade war and if tariffs continue and things don't go well at the g-7. >> we'll be continuing to work with trade partners. here's what we know and that is, take energy for example, we know our trade partners need energy from texas and because of texas prolific ability to produce oil, gas and because of our future shipments of lng to india, to japan, to countries across the entire globe, we know that the economy will be very robust. it's just that it will be tempered a little bit. the trade negotiations don't work out all that well but the u.s. economy, i think also will be tempered a little bit. >> let's talk about the other

challenges that texas faces and in the context of our rankings, no state that since we've done this has been perfect. texas is keeping that record going. one of the areas where you did poorly was in education, 37th ranked in the study. a lot of that had to do with low high school test scores, you're going to come into a legislative session next year and there's already talk about 10% budget cuts or being prepared for that. what's the situation with education? why can't texas improve in that area. >> actually we have been improving, this past year we had the highest high school graduation rate ever in the history of the state of texas, for each of my four years as governor, our high school graduation rates have improved, texas ranks number fifth in the nation for high school graduation rates going into the session, we have a primary goal and that is to not just pay teachers more, but to use it in a way that's very strategic so we'll get a great return on our investment i don't think we're going to be

having 10% cuts in the budget because the revenue we're producing so so prolific, we'll find ways to ugs the bounty of the money we're making to invest strategically to improve education, to improve infrastructure, to improve every aspect in the state of texas. >> another area that is always a sore spot the way we rank things is quality of life where you came in 31st and it's not that texas isn't a marvelous place. i love coming here let's talk about a couple of areas here one of which is health care, still the highest percentage of uninsured in the nation. do you see that as a problem. >> let me give you new information and that is this past year, texas ranked number two in the nation with regard to adding children in health care insurance. in the state of texas, we -- those who are not insured, have access to health care through the methodologies we provide to them another thing about texas and

health care with our strong streak of independence, there's a studly in the wall street journal last year showing that texans were purposefully choosing not to opt into the obamacare but rather pay the penalty instead. >> let me also ask you, what we look is inclusiveness, your democratic opponent touched on this, the texas brand is not welcoming anymore. you have things like what she calls the show me your papers law. i know your banning sanctuary measures and the bathroom bill which came up last session is supposedly will come up again this session is texas not welcoming enough. if a company wants to come to a state where it's going to have access to the widest possible workforce, are workers going to want to come here with those things >> that concern is a false political narrative that comes out during times of campaigns and the proof is in the puding and not what some politician running for office says. the proof is the fact that texas

is the number one state in the united states for migration from other states people are voting with their feet people are coming into the state of texas more than any other state and that's people and companies. i've got to tell you from ceos we talked to on a weekly basis, they are coming here right and left and feel very inclusive every ceo i talk to says they feel texas is warmer, more embrace and more inclusive than any other state we've been in. greg abbott, glad we were able to do this congratulations on being america's top state for business a reminder you can see where your state ranks lots more from texas all day long back to you guys >> all right thank you, scott interesting interview with groffer grof govern abbott. >> john? >> coming up, we've got michael chertoff former homeland

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dow up 150 let's go to chicago with rick santelli rick >> good morning. i would like to welcome my guest, peter bookfar thanks for joining me. >> good morning, rick. >> whether it was the wage number on friday's jobs report, the participation rate moving higher, drawing more back into the work force, this morning's national federation of independent business reading is not the highest but darn close like jolt. comments, astounding optimism. but all of that together for me. how should investors look at the current marketplace. >> from small business perspective, always the two things that clog up an economic system is excessive regulation and too many taxes and small businesses have gotten big relief on that end

question is do they have resources to provide the services that are needed in terms of demand and we're beginning to see some constraint particularly on the labor side where positions not able to fill hit the highest level on record. finding more bodies to produce the supply the economy now needs. >> peter, my assumption is that we have millions of workers in the 95 plus million not counted as unemployed. how much leverage is it going to take with regard to conditions, whether it is wages or something i'm missing, to draw them back in >> i'm convinced wages continue to go higher and convinced that with friday's wage component that the mediocre aggregate increase we're seeing is a mix issue and that it is younger entrants keeping the aggregate wage numbers somewhat

suppressed for everyone else, wage increases are accelerating, great for employees, but profit margins, depending how they deal with higher labor costs. >> you know, you dug into a very interesting topic there. so we bring in more bottom rung jobs, not a bad thing, everybody has to start somewhere, and that excuse wages to a lower level. what you're saying to me is a very optimistic condition. how hard is it to handicap higher rung zwrojobs and how it relates to inflation. >> i think they're seeing good wage increases, i expect that to be the case. record number of people quitting their job, also a sign that labor has more leverage. just a couple of years ago, labor cost pie of profits hit the lowest level since world war ii leverage is shifting to labor.

i think that's going to continue they're going to see a continuation of higher wages >> excellent peter, always interesting. i'm sure chairman powell is paying close attention to that dynamic. >> hope so. >> thank you for joining me. sarah, back to you. >> rick santelli, thank you very much. docoming up later, talking trade with the president heading overseas, drill down on the potential economic impact, and u.s. company impact of tariffs david stockman, former office of management and budget under ronald reagan will be joining us i have a feeling he is very much against this trade policy. >> he usually brings the fire. former secretary of homeland security michael chernoff, why he says cyber security is america's greatest threat. dow up 158 "squawk alley" starts in a few minutes. ♪

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♪ ♪ good tuesday morning welcome to "squawk alley." an awful lot to get to this morning. we begin with the markets overall. only five stocks contribute to nearly half the gains for the s & p, amazon accounts for nearly 36%. just published a new note today on amazon with bullish commentary, joins us with senior markets commentator mike santoli. looking at staples and concentration of power and few bi