six years that the rest of it, as you said, is prelude. >> the stock market is agreeing with you at the same time, if that's the case, larry, is this not the time to take on the chinese? do you think we're in a trade war with them, if you think we are, is it winnable? >> i think it's a significant trade dispolluute. >> >> this is pure kudlow. >> we love you for it. >> look, i'm not a big fan of tariffs, you know that i don't like blanket tariffs i wrote an op-ed piece before i lost my job at cnbc, where we didn't like the steel national security 232 okay, but, i have been a long-term critic of china.

all a matter of public record. i think the president is going exactly the right thing here this should have been done years ago. a., the world trading system is broken the world trade organization is broken we just had this discussion at the g7 b., the biggest culprit is china. particularly since it entered the wto in the year 2000, as i recall they're still labelled an undeveloped third world country by the wto that's nonsense. therefore, they're trying to use most favored nations to have high tariffs, high nontariff barriers, which is a new game in town for europe. particularly with china is guilty of that

they do, in fact, steal our intellectual property left and right. they do, in fact, have a forced transfer of technology for many american companies that operate. it comes from the joint ventures and they will not allow full american ownership, which -- i mean, right now, i mean, i have a long discussion -- i'm not a china hand or expert but i'm getting up to speed rapidly talking to people in business. you open a company on a joint venture basis in a chinese province, okay because you only own 49% and they own 51% or more, the local party leaders, you know, these are like mafia dons, i'm told. you have to lay your entire blueprint on the table, including the technology and they'll have their experts --

>> yes. >> that's wrong. >> larry -- >> this is an important point -- >> you're sounding like peter navarro. it sounds like versus what you said march 15th, 2010, on "kudlow report." when we try to put the pressure on china, they don't like that we revolt. we have to deal with them behind the scenes it sounds like you've come closer what peter used to argue. >> actually, i have. >> okay. >> over the last -- >> why change? >> it's taken awhile for me to do this but i've come to that. i think the problem is getting worse. i really do. i'm not a big trade deficit guy. okay balance of payments, you can argue. you buy the dwoods bgoods but t capital comes back in. it's odd to me, through thick and thin, whatever the stage of the business cycle our deficit

with china continues to expand there's something wrong there. >> at the same time, larry, you did say once that consumers are so happy about ow-priced goods you taught me that the tariff hurts the american consumer. sometimes it's better to subsidize the industry in bad shape. you said there's 300 million americans that benefit from no tariffs. that couldn't have changed. >> i have a solution. >> okay. >> we, americans, we are the lowest tariff country in the world. i mean, there may be new zealand or something smaller but we're the lowest tariff country in the world our average tariff, i think, is about 2. 5%. china's average tariff is 14%. it was worse but they haven't made any progress lately europe is also rising. here is my solution, and the president agrees with this, lower your barriers. all right. i want to help american consumers in business. yes. if they lower their tariff

barriers and lower their non-tariff barriers and open markets, we will export like crazy. because america has become the most competitive economy in the world. give us a chance i went to beijing with our team, and when china came to the usa, i was involved in those discussions and the dinner i sat next to lio hey and i think they're sincere. there's hope oern on the other hand, i don't think president xi has any intention of following through on the discussions we've made i think the president is so dissatisfied with china on these so-called talks that he's keeping the pressure on and i support that put tariffs on all $500 billion. there's not much left.

should we ratchet it up? >> we have to be careful there you can put pressure on them, which is what the president is doing. he's a pretty good deal maker, as you know. on the other hand, they'll come at our companies in china. >> you talked to tim cook. >> particularly the joint venture companies. apple is not one of them. >> right. >> they've already done that i mean, for example hollywood movies chinese love american movies god bless them i think our movie makers take over 25% of their revenues and china's government takes the rest huh? that's crazy that stuff has to be fixed we can't let china steal our technology, jimmy. those are our family jewels. what makes america the greatest economy in the world it is our innovative and inventive use of technological advances we can't let them do that. they haven't responded at all.

not one basis point to our request to do something about the theft of intellectual property and the forced divestiture of our technology. >> what are you telling the president how to get them to change their ways. it's unacceptable to the american people and the world economy. >> right i agree. by the way, by the way, the whole world agrees with us. >> right. >> europe agrees with us da canada. everyone knows this is true. our sources, i have a lot of sources in china, are telling us that the chinese government realizes they're wrong okay i hear this repeatedly from my sources, and yet, as of today, they refuse to act on it they know they're wrong. they know the rest of the world knows they're wrong. i call it the trade coalition of the willing. and something has to be done here no now, for potus, i'll defend him

here we've had republican and democratic presidents in the past make these complaints to china, even take these complaints to the world trade organization okay but they never follow through. they say it, nothing happens, life goes on, the situation gets worse. you follow >> yes. >> this guy, president trump, has the biggest backbone -- this is one of the things i admire about him. he will not let go of this point. he will not. nor should he, in my opinion and china has to come around i'm an optimist, by the way. >> remember stephen mnuchin indicated this can work out. there has been movement. it sounds like no movement by the chinese and you have to step it up, if you're going to get it to change >>well, we'll see on the tactics. your point is well taken steve mnuchin is a good friend, we're allies we're essentially free traders in the administration.

that's no secret so, yeah we're optimists. all right. i believe from my experience two days in beijing, a day in washington, d.c., and a long dinner in washington, d.c., i believe china wants to make a deal. >> okay. >> okay. so it's out there. >> you really do >> i do. >> okay. and your sources within china are indicating there could be more >> that's correct. but insofar as we know, president xi, at the moment, does not wish to make a deal now, i'd love to be wrong on that president trump has a good relationship with him. we're working together with respect to north korea the communications continue. but i think xi is holding the game up. i think they would like to move

and haven't. i think he needs to move we're waiting for him. the ball is in his court and the tit for tat business is nobody's favorite path, but nonetheless, they can end that this afternoon this afternoon by providing a more satisfactory approach and, essentially, doing what the rest of the world knows need to be done. tariffs down, non-tariff barriers down, ip theft-no along the american or british or german full ownership of the companies operating in china and let me make one last point here i think there's confusion. people said, well, trump is doing it president trump inherited this mess if you talk to him, as i have, so many times the last three or

four months, and i wrote an op-ed piece about this in the "washington post." first day of g7. don't blame trump. blame china, please. blame europe he sees himself as a free trader he has said in the group of 7 and since, i was there fixing the communique let's have no tariffs. let's have no tariff barriers. let's have no subsidizes let's have a tariff-free trade system that's his view. >> but at the same time, larry, he has been instrumental. >> you have to protect the country. >> let's take nafta. you have a 4-1 ratio with the peso when it's created it's 19-1. that's a trade barrier itself. do we need -- how do we adjust nafta? how do we make it so american commerce -- jay powell said the

countries that remain have grown faster higher incomes and productivity. raise a wall have them pay for the wall >> jay powell is right i'm a free trader. i am i'm so simple. lower tax rates, roll back regulations, keep the dollar steady, and free trade advances. that's me. that's pro growth solution jay is 100% right. jay powell has done a great job, by the way we're talking to mexico. so i can report without specifics i can report good progress on mexico that could be a promising avenue the stocks are saying that's absolutely the case. >> i want to talk about

inflation. and why you can be optimistic about inflation despite the fact we have a high budget deficit. again, why is the 2-year and 10-year at an odd frame. >> okay. good barrel full of questions here let me do the best i can in limited time i get that you've heard this a baa zillion times before economic growth does not cause inflation. more people working and producing do not cause inflation. okay bad money, excess money, a sinking currency, i mean, you'll see it fast in the markets, as you well know. bond markets, commodity markets, whatever i don't see it i'm very happy the fed is independent. i made some remarks a few weeks

ago. i support what jay powell is doing. i'm just saying i believethe new management of the fed is -- does understand that by itself economic growth, particularly what i call supply side growth, where you're increasing the economy's potential. more capital spending, more productivity. >> right. >> that's not inflationary. >> why raise lock step if the truth is we're just beginning to get to certain part the of this country to get some of the workers more money it's happening now the last three quarters. >> i agree i think, you know, again, i don't want to spend a lot of time critiquing the fed because i agree with what they're doing. >> is the 10-year wrong? >> i think their gradual approach is good i do i think it's very good i think that approach, by the way, will get things done rather more quickly instead of holding it out regarding the spread, actually, we're reading the spread wrong

this is an interesting point i want to give a hat tip to my friend and colleague and former anchor ron insana. i love the guy ron wrote a good article he looked at the yield curve model from the new york fed. it is actually not 10s to 2. it's 10s to three-month treasuries very important and i went and got new york fed publishes the model. the spread is flatter, but it's 100 basis points, or so. it's up 20 or 30 that's very important. it was 10s to the 91-day bill. this is a professor estrada. so from his work, the probably of a u.s. recession predicted by the spread over the next year is only 12.5% through the month of

june 12. 5% so i think people are making too much of the 10s to 2s. watch the 10s to 91 days now, every recession has been lead by an inverted curve 10s to the 3-month. you can look it up i think estrada has his website. but the new york fed is publishing i give a hat tip to ron insana we found it on the cnbc website. good for you. >> good for us do you think the steel tariffs -- >> there's no recession in sight. let me make that point no recession in point now. >> we can put more tariffs, let's say german autos. >> look, a lot of discussions are being held with the individual countries. >> right now behind the scenes. >> right now the head of the eu is coming to washington next week, we'll be

in discussions i'm told he's bringing a very important free trade offer i'm told i can't confirm that this is what i'm hearing. >> could lower barriers -- be very bullish. >> look, i was in the bilaterals, to step back for a minute, with justin trudeau and president trump and with president macron and president trump. our team was there bolton was there and lighthizer was there. so president trump said to both trudeau and macron and later to merkel let's abolish tariffs. >> right. >> nontariff barriers and

unstance let's work together to do that okay we made progress there were no deals. okay that communique broke down not because of the bilaterals. but because a press conference trudeau should never have given. i'm told through sources, including our ambassadors, that our goal has been working on that shaking up the eu. >> even if you're nato what looked like a tough nato discussion >> yes. >> you're more positive than i've heard about this. >> yes. >> i'm here to work on it. so we may be -- you know, in this game, predictions are impossible but i'm just saying the president has put things on the table. the europeans are looking at them okay we may be pleasantly surprised if not a factual deal, jimmy, at least pro good solid

negotiations on these topics. >> all right last question. just to go back to china it sounds like things could get out of control with china. boycotts, kick outs, things going worse before they get better is that an accurate depiction what can occur with china? >> not necessarily not necessarily. i mean, at the moment the trade negotiations are kind of stalled. but other discussions are red hot. i mean, in most cases, according to the president, they have helped us with the north korean situation. that could be one of the greatest breakthroughs in history. possible and president maintains i've never been the calls but his calls with president xi are cordial. this is good this is the trade area where they're lacking. so i don't, i mean, if i have a message to you, don't be gloomy

and doomy in an overboard sense. >> okay. >> the american economy is in very good shape. when you do the math on these things, the buying of goods subject to tariffs times the tariff rate itself is a small number relative to our gdp that's important i think that can be overrated. from someone who doesn't like tariffs. but nonetheless, we're in good shape here and the discussions are ongoing, so i don't -- i want to be as optimistic as i can, even though i'm more dissatisfied with china on this point. these things may change. we've got a lot going on here. there's a lot at stake here. >> okay. >> but i want to say again, you know, you mentioned peter navarro, cwho is an old friend o mine from our show and my show we agree on some things.

he's a wonderful person, by the way. personally friendly. the trump administration is a lot more together on these things than people think. >> that's important. >> journalists do their job. you're a tv journalist i used to be a journalist. they're doing what they have to do and they love to cause trouble, but it is a bit overrated inside the administration i'm here to say on that point, not only is the economy strong, because of many of trump's actions on taxes and regulations, but also to tus po is, by and large, an advocate of kudlow-free trade. it doesn't mean he agrees with every tactic and every meeting he's a hands on, decisive guy, as you know. >> yes. >> we've interviewed him many times. but he's on the right track. the story is on the right track. nothing succeeds better than

success. 35 or 40 years ago when i was a child working for reagan, reagan to g7 meetings and they thought he was nuts. tax cuts, deregulation that was nuts. all of a sudden we started growing at 4 or 5% and they decided to copy it the usa is starting to grow at 4 or 5%. others will copy it. i hope they do i hope free trade will be a pillar of our policies this is how we started it. >> let's leave it there. larry kudlow, thank you so much! [ applause ] it's larry kudlow with jim cramer at delivering alpha this morning. a lot of topics. gdp. in kudlow words maybe for the next quarter or two. >> and no recession in sight.

>> right on china a significant trade is in -- being stalled by president xi good morning welcome to "squawk on the street." david faber is delivering alpha and going to be there. this was a heck of a way to dick off, david. >> yeah, it was interesting listening to kudlow. i think listening to our experts chime in, of course, carl, in terms of what they thought was important. from my perspective, it was the language used to describe the trade dispute with china which i think differed in tone with how he was describing relations, at this point, with europe. and certainly with mexico. it is seemingly, at least, the possibility of real progress it didn't sound that way on china, to me i'm not sure what you thought. >> no, he said xi doesn't want to make a deal it's holding the game up

he could end the tariffs this afternoon, if he would come forward on issues like intellectual property theft and technology transfer, which he said china has been unresponsive to. >> yeah. exactly, sara. and, you know, it'll be curious to see if we get a market response at all to those comments from kudlow jim asked him why not go to the full $500 million in trade, you know, in exports they have to the u.s. he didn't bite completely on that but i think it was an interesting die cot chotomy of s sentiments when it came to key trading partners we've talked often, carl, about the possibility that continues to reverberate over 20% on eu autos, the review continuing now. the "wall street journal" today, of course, having a long story about automakers themselves pushing back on the idea of any tariff there and/or on parts

but judging from this conversation, perhaps, you could argue maybe that's less likely i would venture to question perhaps. >> as jim gets settled next to you, david we'll bring in kayla in d.c. kudlow did offer a couple of positive notes one about eu's younger coming to the white house. may bring a negotiating offer on some of those auto tariffs and then that nafta, too, was a point of the positivity now. >> yeah. he offered a few teasers by next week's visit he heard that the president would be bringing a prominent free trade author with him and said that behind the scenes he's heard from ambassadors that german chancellor angela merkel has been working to advance the president's free trade proposals he floated at the g7 and at nato kudlow is seeming to suggest that headline contentiousness from these multilateral summits belies the progress being made behind the scenes and belies

some of the acceptance that u.s. allies have come to make of the proposals that the president is making we'll see whether those bear fruit in the next few weeks. he said our allies agree with the president on china but that's an interesting comment because the way we've seen the u.s. go about this fight with china is not with its allies it's face-to-face, head-to head with china interesting to hear him say that president x circumstance standing in t -- xi is standing in way of the deal he believes the rank and file members of the chinese team want to make a deal but the ball remains in president xi's court. as david said, he didn't comment on whether it would be possible for the u.s. or the president would want to place tariffs on all $500 billion of chinese imports. he said, carl, we have to be careful about that.

>> i think david is going to bring -- >> yeah. it's like a mad dash we should tell people we're three minutes or so from the opening bell we're not going to miss here, of course, on "squawk on the street." give me your take aways on our mad dash from delivering alpha from the interview. >> chilly. pretty chilly. i think that any sense that any of this happy talk, secretary min knew ch mnuchin indicating truce there's no movement whatsoever i found that, to me, it's a collision course more than i thought before the interview i think it's real clear that this thing is going to escalade. we should get ready for a serious -- i couldn't get him to say there would be a boycott of an apple he spends a lot of time with tim cook without a doubt, if you're buying stocks, be ready. you're not done getting bad headlines out of china. >> it almost felt as though, and i know obviously he came here with the agenda to share that particular message.

>> yes yes. and, you know, i'm kind of -- i'm not saying that it's just shocking to me, but there is a level of intransigence he said china has done nothing everything that the president has done has meant to xi that's just unacceptable larry actually sided with peter navarro. >> carl, i think we've got that sound that jim is referring to. >> absolutely. he thinks china wants to make a deal but xi may be a different story. take a listen. >> i do not think president xi, at the moment, has any intention of following through on the discussions we've made, and i think the president is so dissatisfied with china on these so-called talks that he's keeping the pressure on and i support that.

>> jim, you like to look at price action and whether or not it's ratifying various scenarios in the markets what is the market supposed to make of that >> i think the market, the china stocks are going to get hammered again. i mean, some of the china stocks are reporting good numbers, but i call china stocks, obviously, companies that receive more than 20% of their growth coming from china. but they're back in the cross hairs. if i were a caterpillar i would say we have to reconfigure mastercard and visa are going up what i heard from larry is nothing. nothing we've done mattered to this country [ applause ] to xi.

let's send it back to you for the opening bell. >> don't go too far, guys. the opening bell here, guys. the s&p 500, as we start the wednesday off on the big board -- [ opening bell ] celebrating its 50th anniversary. a lot of news today just to remind folks powell will be on the hill day two. house financial services and delivering alpha, of course. we have europe which we're going to talk about and morgan stanley earnings pick up on what you were about to say, david. >> thanks, carl. in contrast, jim, and in listening, but i want to get your thoughts, obviously, and preparing for this he did seem to offer more olive branchs on europe, or at least a sense there's more progress

being made and drop something on mexico. >> i'm glad you brought it up. anything the single second biggest news he gave you, maybe third. is the idea that merkel is coming the germans are coming with a possibility of a real piece where all barriers are coming down he said that now that is fabulous news. they're a huge trading partner larry said next week could be a crucial week to listen to him, i think he gave you more than tea leaves we're about to have a major breakthrough in europe. >> i feel we have gotten that sense previously certainly when it comes to nafta. back in the spring it was hope we were close. we were not. and he pointed out yet again that mexico. we've been close, it would seem, a few times, jim, to find we

weren't. >> that's what you said the other day which is where are the trade deals? again, you're absolutely right larry was bullish about the situation with mexico. he did say there could be what i call a tariff surprise next week but, look, i don't want to bury -- i mean, i'm reeling from what he said about china reeling. i thought behind the scenes what is happening. >> he was belligerent language. >> language saying he's insulting the president of the united states and the president won't tolerate and i sat there thinking what is the next move? what can the president do? i asked all $500 billion obviously that's on the table. but it sounds like something needs to be done that is a little more forceful i didn't think either one of us knew what it would be. and i don't know if the president knows what it's going to be. it's going to be more force than now. people owning stocks, get ready. what larry kudlow basically said there's going to be another

volley and even bigger than what we've had. we're having 4 or 5% growth. if you can't now, when can you peter navarro and larry kudlow, they are friends in the sense they're tv friends, but kudlow, i think, because of xi's intransigence has moved into navarro's camp. >> he has evolved. he admitted my views have changed. >> yes and what is navarro's stance 2025 the chinese want to beat us everywhere target and take over industries. larry has been of the mind that, look, if everybody played fair, then everyone would do well. larry changed his view obviously things are more tense than we realized obviously things are worse than we realized. if anyone takes away anything from the interview, this is really not going down the right path and just be ready i don't think it's enough to dismantle the stock market there's so many things going right with the economy

but holy cow. >> yeah. >> i did not expect that from larry. >> speaking of the stock market, carl, we have the s&p up about.70%. shares of alphabet are up despite that $4.3 billion fine from the eu. >> yeah. $5 billion fine. that's a record. the eu making cementing the role as global tech regulator charging google, alphabet, with anti-trust violations. it relates to the abuse of its market dominance on the android system android, remember, powers 80% of worldwide phones the eu allegations that google preinstalled its search and apps on the phones. whoever the smartphone maker is and it shuts out the competition. google is going to appeal this it disagrees the ceo out with a blog post saying completely misunderstands consumer behavior and google has been good for competition.

it lowered prices. margaret was the woman in charge of this fine she's the eu top cop for anti-trust here she is speaking this morning about this ruling. >> google has used android as a vehicle to cement its dominance as a search engine these practices, they have denied rivals a chance to innovate and to compete on the merits they have denied european consumers the benefit of effective competition in a very important sphere this is illegal under eu anti-trust rules. >> she's tough, you know google, this is the second time within the last year she's fining them for breaking anti-trust rules i mentioned google doesn't agree. here is the specific response. "android has created more choice

for everyone, not less a vibrant ecosystem, rapid innovation, and lower prices are a classic hallmark of robust competition we'll appeal from the commissioner's decision. we'll ask the commissioner about the ruling and what she plans to do next. she's on the next hour investors don't care $5 billion is a drop in the bucket, guys, when it comes to google's cash pile how do they change their behavior >> she was asked whether or not she has to do anything about the u.s. she said it has nothing to do with how i feel. in her view, it's about enforcing competition. >> the probably is, it's coming in the middle of the trade spat. she's going to be accused of protectionist ideas, right, jim? that the eu is the only one going after the big silicon valley technology companies and making it harder for them to do business. >> in 2004, they hit microsoft

with a $670 million fine microsoft appealed for many years. that was the largest fine at the time september of 2007 microsoft lost they paid the money. was it a great opportunity buy the stock? probably one of the best i've seen the stock went from $27 to $37 in less than three marks i see google being up. i say maybe people are realizing, wait a second, if the worst that happens is what happened to microsoft, you have to buy the stock now particularly netflix reporting that sub par -- not stellar quarter in the shorts panicking they probably have a chance. when alphabet came down with the news at stock at $24 -- the stock was down 18 points it was a momentary buying opportunity for alba bphabet th lasted -- >> five or 10 minutes. >> not 30. >> yeah. it's not an insignificant sum.

>> generate that pretty quickly. >> they have more than $100 billion in cash. in that case, this is not -- i mean, i heard more benedictions for faang today than i heard because of netflix. >> the netflix turn around yesterday was impressive. >> it was scary. i was looking at twitter and i was like you idiot i coined faang five years ago and said buy the stock i missed 17 crucial points of netflix. >> you're so dumb, it's unbelievable. >> my wife said the same thing last night. >> it's horrible what you did to us just terrible. want to own morgan stanley this morning? we watched the financials roll in morgan stanley coming up with a quarter, frankly, beat on virtually every front. it does appear the trading business, equity trading, in particular, was better than had been anticipated by the analysts

who follow the company overall, jim, a strong quarter and that is reflected, of course, in more than 3 percent. >> that's the goal i have some disagreements with the negativity involving with goldman's call yesterday i don't mind investment banking doing badly. this has been a weird banking period whatever has been we thought we cared about before now we don't. what matters is the yield curve. by the way, larry, had a good explanation for flat yield curves don't look at the bill look at the two. what is important is they delivered on every single line item everybody else had some issues that are a little bit awry but it was the lowest here the bar was low. >> it was low and they beat it currency commodities, revenue $1.4 billion that was up 12% equity trading up almost 15%.

>> that's extraordinary. >> r.o.e. 12.5%. and they have their -- >> when are they going to get a price earnings multiple. >> that's always the question, at this point, given where they trade in terms of multiples. and jpmorgan, of course, the outlier and a higher multiple in the book. >> continental i'm waiting for the airlines to pass the price earnings i'm not getting it. >> yeah. we did hear from ual another future this morning, i know. >> he was on this morning, yep i got comments as we continue to watch the transports and see if the divergence continues on faang there was jokes yesterday that people were fleeing netflix to facebook, amazon, and alphabet today amazon $900 million market cap. piper goes to plethora of type

line tail winds. that values them at more than a trillion. >> i did like that piece very much i think what is crucial in the piece is the people have to recognize when you hear what larry kudlow said there's a lot of capital spending. where is capital spending going? it's going to get on the amazon web services azure and microsoft which has all sorts of tail winds but amazon's web services gets obscured when you have a prime day and a picture of a dog because the site wasn't working for four hours it turned out it was the best ever look, yeah, i think that amazon is a fantastic play on the digitization of the world, and, therefore, the stock is hard to value other than positively. it was a flight to safety to amazon. >> yeah. >> they're hammering clorox. that used to be the safety no more! bleach >> disney and netflix now have the same margin cap.

>> do you handicap them every day? >> every day it's interesting to watch. >> it's like the red sox yankees with you. >> hey, guys -- >> you're talking about the economy. i just wanted to mention the only piece of data we get today is a bit of a disappointment housing starts plunging 12% in june a nine-month low there they're pretty volatile, carl, but a lot of questions, you know, as we hear larry kudlow telling jim. strong economy we're looking at potentially 4% economic growth in the second quarter. how sustainable is that? are we going to see pockets of the economy? >> housing the biggest miss versus expectations in more than a decade and then, jim, you have a fresh dollar high against the yaun as -- there's a tally of worries that are being cited on conference calls and fx currency is by far the number one. >> j & j. >> i get this is the manipulation larry is talking about. it's another way the chinese are getting back at us

the only thing larry said was positive is maybe north korea hab hasn't been a problem. it's a new theme on the conference call after a nice break from about nine months, as you know, sara the dollar is bad. the dollar is bad. the dollar is bad. larry is king donald he's about low inflation and low inflation you don't have to have impressive rate hikes. i think he indicated he got in the spat he was commenting on the fed. he pulled back from that but he gave evidence there's no real need to do anything other than gradual increases and part of that is, sara, as long as we have a strong dollar you can make the case that inflation can be tame. >> right it's the following currency that drives up inflation. you can make the case, as you were making, you and kudlow, it attracts investment. it shows the u.s. is essentially winning the trade war. the money is coming in here. our markets are outperforming the dollar whether it's a safe haven or a spot of relative high growth

shows that the u.s. is where its at the problem if you're a multinational company, it cuts into revenues. i mean, it's just that simple. if you're exporting, it hurts your exports you want a stable dollar not necessarily a super strong dollar i think if you'rea ceo or a stewart of the economy >>well, if you look at csx's numbers it's extraordinary intermodal up 9. these are the numbers. this is what boom looks like i'm used to seeing most of these numbers negative people said we fired a lot of railroad workers so we're okay this is what happens when we're tough on trade, what larry kudlow said. my position here is right now

we're winning. if there's a war with china in trade, now everyone seems to acknowledge, these are the numbers that would make it so that the chinese are playing more with fire than we're playing with it. >> that may be given the respective imports versus exports. >> right that said supply chain and so many other things in terms of delaying decision making by ceos and capital expenditures i don't know, jim, i wonder whether it's early to be judging whether it's a win. >> look, i think the question is are we winning and then what inning i'm not going to disagree with you. especially if xi is entirely in transition we're going to have to do some things to hurt our own industries i mean, hurt them. not shave down numbers that's what i was concerned about. i felt less hopeful about the so-called china stocks ahead of what we're going to be earns. >> and more hopeful, perhaps, it meant 20% tariff on eu

automobiles will not occur >> that's my biggest worry. >> i know. >> and so does larry i felt good about that i'm looking forward, for once, to trade talks i thought after nato, that we were done. and i was beginning to think -- when we get 4% gdp growth, we have low inflation and we isolate china china does blink then you can see why the stock market is where it is. >> right of course, sara, many people would say would have been in tpp. that's the thing to started that off a year and a half ago. whatever it was that he took office. >> whatever larry says coalition of the willing tpp would be a nice way to do that. that ship has sailed the good news is that they're coming to the country in a week from today he's coming to have trade talks with the united states -- at least the talks are happening between the eu and potentially a

burning what could be much more instructive instru destructive. >> quickly, jim, younger can't come in and deliver proposals unilaterally it has to go back to members >>well, look, i think all i can say is when i look at so far what we've had -- >> get to rick santelli this morning. the dow is up a point or two rick, i would love to get your thoughts on what kudlow said about the yield curve. >> you know, it's fascinating because, to me, the issue with the yield curve, i've looked at 3 month to 5, 10, any permutation. but that isn't the issue the issue is policy and distortions. whether it's quantitative easing or programs like the twist the notion of our central bank using the markets to implement

policy, distorting rates, to some extent, managing rates. that's the issue it isn't what part of the curve you look at. how to explain the entire curve. investors may panic if you get small inversions between 5s and 10s, 7 and 10s so to me, the issue isn't what part of the curve you pick, it's the notion with the detorsions it would complicate matters for the fed and exaggerate the notion of balance sheet inventory. and, to that end, if we look at what is going on one week of two continues to march. here we sit now with 26 1 for 10 year it's easy this could be day 20 we're going to settle into 280 i mean sessions. actual sessions. so, you know, down close to a month we've been in one very tight range. wasn't that long ago i was saying the same thing, almost, with the same numbers. it runs a little longer in the

290s i think that means rates will remain firm. i know that tax policy had distortions at the end of the last year, but moneyies are hot. it's about ready to take out some levels and be close to the highest we've seen since early february, late january of this year china big topic. larry talked about it extensively. look at the dollar still surging against the yaun of course, it's the proactive part of that is the weak yaun going back to august, since we've seen the levels and, finally, the dollar index is doing quite well the last couple of days. you know, with the 95 handle, now we've crossed over it, we're close to testing the best levels in a year. in one year for the dollar index. david, all yours. >> all right i'll take it thank you, rick. keeping an eye on the broader market not much of anything, jim. >> look at the semis texas instruments, obviously, another one of these behavioral

issues. >> yes. >> recently appointed ceo stepping down over, again, code violations. >> right to have temple back back templeton is only at 69. obviously people are short at the airlines, because people expected the numbers had to do down yuan nig united putting up some incredible numbers oil's down again so maybe we're building in and our model's too high a price for oil obviously has hurt these guys quite a bit >> does not appear to be a reaction, at least the kudlow's comments regarding china that i can see in the marketplace boeing the up, honeywell, gtx.

boeing airplanes, those are key considerations are up. >> look, you can argue on the one hand, that people are just saying, listen, the fundamentals are good, so it doesn't matter the new thesis i keep hearing is that the chinese are going to play some are arguing that xi will fold. >> i have a question about what constitutes a deal for us. if they gave us requiring you to establish a joint venture in the company. where is the line. stealing intellectual companies or borrowing it through these joint ventures, the things we have been talking about for years, that are anti-competitive the president seems to be focused on the numbers >> listen, we're going to let

you in, and notice how we gave in on zte, but we did not have any sort of quarrel already, that the authorities had to agree to let qualcomm by zte we gave up a lot, but in the end, we gave up nothing. i'm sure that president trump is sitting there stewing, that xi gives up nothing it's the haart of the deal is ta is not that much of the art of the deal >> they have got an increased sense of urgency here, and they have got a point of prove when it comes to the u.s. and that is we're moving forward without you on big free fraytra feels that simply remove a lot of tariffs, and it removes european agriculture exports

when shipping over to japan and vice versa in the beginning of this statement that came out from the eu on japan. they specifically said, we're doing this to rebuke the concept of protectionism and we continue to move forward when it comes to trade. multinational companies are left out of that. >> yeah. conceivably they are and i mean it's the front of the "new york times," they're moving ahead. >> this is where you start thinking, maybe you could say one reason is the "new york times" story, europe cultivates new partners as it's allies lose trade ties this story about old allies are off. this week could be a good week maybe what we're missing when we're looking at the china story. all of these china plays are really looking good in europe too. it might justify why the stocks aren't being hammered. >> you also made the point on

boeing in particular, they need boeing and boeing needs them >> wow, let's say china is, the heck with boeing, we'll give them all to airbus what about those people who are already ahead on airbus, they're going to go and buy bowing they spend too much time building up their military, and not enough time building up their commercial aerospace plan, which was supposed to trump everybody, no pun intended but they're way behind on that, way behind >> guys, i want to get jim's temperature on berkshire today, near a 4% move, back above the 200-day in nearly a month. it's going to be up to munger and buffet, they have $102

billion in cash that they can dip into if they need to i thought this was incredible, as to our stock, if you haven't loved this stock, you should be in another business. but i do think that if you expect that they're going nto b in there buying. i would buy it below 200 now, and i think it's goc ing to get there by the end of the day. >> big reports with ibm. and definitely next week, amazon, google >> some of the consumer names as well gsx is really strong on the rails, brushed off some of their

tariff concerns, about how they would hit them, but not an economic worry for that company yet. >> jim, we'll see you later on, great stuff today. >> kudlow early this morning and of course david's going to be with us. we take you to billionaire hedge fund manager ken griffin with citadel. let's listen in. >> how do we reduce the amount of open orders we have, we don't want a complex derivatives portfolio. so we're thinking about counter party risk, about reducing our exposure to southern peripherals. so we're looking at content as these things unfold. >> so you're looking through these various risks, was there a surprise counter party that use picked up in the past couple of weeks? >> no, there's not our treasury team is really good

on industry risk management. the near failure of bear stearns, the default of lehman brothers, that was a huge wakeup call for the city. collateral processes are much better today their counter process management is much better today so today, for example, almost all interest rate swaps in the u.s. and europe are cleared to clearinghouses and that has dramatically reduced counter party risks. >> let's walk through some of the other headlines. ken griffin on trade, what do you make of the fight that's taking place, what do you think about what larry kudlow just said on eintinternational trade. >> the president clearly has the right mission, the united states, post world war ii,

embraced a series of trade deals, one, to help rebuild war torn europe. you need to remember that the united states got out of world war ii economically intact as compared to the rest of the world, and we were willing to use a series of policies to help the world regain its footing those were absolutely the right moves for us to make as a nation with respect to china, and opening of trade to china, the view of was that a strong trade relationship to china would bear fruit on a number of different dimensions, some of that has clearly been true. but the big picture and the president's right, over the years we have left the table with a deal inferior to our counter parties. the democrstrategy, i don't understand but i'm not privy to the strategy itself. to me it strikes me as

incredibly complicated negotiating tactics. and i do hope that the president is able to have success with mexico, with china, to set the u.s. on an equitable outcome >> do you think he's doing it right? >> i'm just not in a position to comment on that. you have to be in the room to know you know, the hamilton play, i'm not in the room, i'm not in a position to comment on it. i don't know what the relationships look like with xi at a personal level with trump for example. >> when you think of companies that are doing business with some of these companies, have you changed your exposure to them in any way? >> absolutely, this goes back to the portfolio managers have that very clear understanding in each of their companies they invest in, and their sensitivities to u.s. trade policy. so they're reacting in real time

to incremental positions fluidly. and if i look as our profitability composition, it very clearly appears that over the last couple of months, our program managers have successfully traded their positions given the unfolding trade battle that's taking place around the world but let me be clear, we as a world want to get back to a set of more stability and trade policy tariffs are incredibly damning to consumers, to companies, to capital formation, they discourage investment, they reduce productivity. the status quo, the u.s. can best absorb this as compared to our trading parties. our economy is so large and so strong, but this is not where we want to be for a prolonged period of time >> we don't want to be with the tariffs or where we are today. >> we don't want to be request the tariffs. >> so you can't be happy about the way it's all going

>> if the tariffs effect permanent change for economies to compete successfully afterno around the world. remember, apple couldn't trade in china, they sold hundreds of millions of iphones and they were made in china, but they couldn't sell in china and there's something inherently wrong with that. >> do you worry, what the administration is doing, does it put apple at risk today? >> it takes it difficult to understand where you should build your next factory. it makes it difficult to understand how aggressively you should invest in your future because a prolonged trade war with slow global growth. >> how much do you think our international relationships matter and i'll give you this morning the big headline was google, alphabet, google's parent being fined $5 billion.

you're one of google's largest shareholders how much do you look at that, both in the context as an investor and as something as part of a larger geopolitical relationship >> the google case is extraordinarily complicated. the eu, ironically has become almost more aggressive in trying to create competition than the u.s. you know, the eu for example has a whole series of mandates designed to increase the competitive dynamics between the european banks by opening everyone's bank account to a series of fintech survivors. the eu has become much more concentrateded in the last few years. there's a bit of a different between the u.s. and europe. the europeans are actually trying to increase competition on their continue innocent whereas the u.s. has become more

laze fair in in context. >> are you still for the break up the banks brigade >> i think choice creates more competition, competition creates value for consumers. remember, the functioning of our capitalist society is about creating value for consumers and changes that we make to our economy that encourage innovation, which comes from competition, that encourages companies to get a better deal, those are what we should aspire to create when we think of ark teching our economy. if you're a fan of the free market then. >> ken griffin of citadel today, and this eu fine alpha

conference i'm carl qui keep an eye on capitol hill as well, the fed chairman, jerome powell set to testify before the house financial services committee today, day two of this testimony. the s&p down just a fraction on the news, whether it's berkshire hathaway or -- >> let's get you up to speed on what happened. european union fining the company $5 billion over it's android dominance. and it breaks antitrust rules. a google spokesman responding to the fine says, quote, google as created more choice for everyone not less, a vibrant ecosystem

are hallmarks of a -- we will be speaking with margaret vestager. it's been an eight-year long antitrust investigation, this is the second big fine, looking forward to speaking to her in just a few moments in the meantime, fed chairman jerome powell in the hot seat again today taking questions from the house financial services committee what can we expect today >> if yesterday's testimony of the fed chair and the senate had a taste of partisanship, today's meeting should be full flavored. the subject should be deficits and the trade controversy. powell was able to stay in his lane powell had heard that the some

people were suspending trade on tariffs. >> in general, countries that have remained open to trade, including tariffs, they have had higher trade partnerships. i think that's the empirical result >> unclear if he'll get mothre dragged into policies today. the fed is set for two more rate hikes this year. 89% in the markets now, the fed fund huge markets for september. that would be the $22.25 then we don't get that next rate hike to the 2.5, to .75 level. that's where powell says there's more uncertainty

and uncertainty, guys in terms of how all these trade disputes play out and what effect they have on the economy. carl >> steve, thanks very much for that larry kudlow was on this morning at deliveringalpha, talking about his concern about the current world trading systems. >> i have been a long-term critic of china, that's a matter of public record and i think the president is doing exactly lly the right thg here this should have been done years ago. a, the world trading system is broken the world trade organization is broken they just had this discussion at the g-7. b, the biggest culprit is china. >> we're joined this morning by chief investment strategist at charles schwab, and a cnbc

contributor, jerald burnstein. we'll get to economic growth in a moment but to say that the trade talks are stalled, largely at the hands of xi himself. how is the market supposed to digest that? >> well, i think if the market or the investors have been paying attention, this idea that the negotiations were ongoing was not borne out by in the of the facts. and i think that's a factor with which the market has had to deal and i agree with the notion that where we are right now mathematically is not a big hit to gdp, if you just look at the current tariffs, even add in the proposed tariff and do the simple ratio of gdp, my concern is more on the second order effects. animal spirits has really been a

big driver between the pick up in capital spending and in turn hiring and that to me is the factor to watch as we move ahead. >> the ceo of morgan stanley said overall consumers feel good, pockets of volatility seem to be isolated, not rolling over into the broader market. how long can that last >> i think he's exactly right on the macroeconomic effects. i mean even if you expand the amount of imports that have tariffs on them, you're looking at a small fraction of about 2.5 trillion of imports we buy every year from other countries. so if you actually look at the models on this, you're only looking at a couple of basis points and that's not bad. so if you're in soybeans, if

you're in washing machines, if you use a lot of steel in your inputs, washing machines is another good example there, of course this is going to hit you in a way that's going to hurt your bottom line and yes, there is the uncertainty, but broadly speaking, i don't think the trade war is a big macroeconomic effect i like what larry kudlow said, but i came away feeling more uneasy on trade, i don't see a plan there, and i feel like forthcoming escalation is going to deepen. >> and then there's these other side effects, the eu-japanese trade deal if i'm an american hog farmer trading with japan you've got to be concerned that they're going to take your trade -- i mean this is all -- >> not only are you -- you're

definitely correct about that and in fact if you go back to last week and look at soybean prices, what you see is a tanking of u.s. soybean prices and a commensurate increase. who do we compete with most on soybeans and international markets? we're the biggest players, u.s. and brazil on that measure, we're getting our butts kicked and when i say we, i mean soybean farmers. >> if there are bigger impacts on conflicts and planning and competiti competition, where is it showing up on the markets? >> if you look at the empire manufacturing survey, you have seen a rolling over on a six-month rolling basis on both cap-ex spending plans. i don't know if we can definitivity say it's a plan but we are at the place where

things are starting to get real. so decisions need to be made in the near term. even if you have a company and you believe these are negotiating tactics and this is a game of chicken and even if you believe we're going to win, you ha even if those constituents are in place, whether you listen to company conference calls during this earnings season, or looking at transcripts, we're going to start too see the actual impact of this. >> finally, jared, on a brighter note, we actually talked about gdp bei gdp, we talk about -- on the second run powered by cap-ex and

foreign trade. >> the 4.0 gdp pop in q2, because all of the kinds of accounting, if you look at the atlanta fed gdp now for example, that's where they have been posting gdp for that matter. that's an above friend growth. and if i wanted to make larry's case, i would say the gdp growth would be up 2% i know larry loves every tax cut he has ever seen but i can tell you that i think the politics are a very heavy lift for tax cut 2.0 as they should be. because at some point reckless fiscal policy has to come back on to the screen here. >> jared, what a morning of news, appreciate youhelping us get through some of it, thanks let's get back over to david who's at the deliveringalpha

coun conference in new york city. >> she just wrapped up a big panel, ceo state street global advisors, asset managers >> i would say cautious, still telling people to be fully invested but listen, years past the financial crisis, we were pushing investors to go beyond their comfort level, they were fearful about getting into the market, we said no, you got to get in now they're fearful about getting out of the market. so we're saying let's look at your portfolio, those things you took the most risk, they have been growing they are very, very comfortable, when they don't see risk on the horizon. state street global advisors, also kind of nodded their head

in agreement telling people, look, you got to look at your portfolio, because we're glooking at a potential trade war. so there's a lot of risks out there. that being said, sticking with the united states when it comes to asset allocation. their biggest concerns when they're in the risk management meetings is currencies >> no kidding? >> we're talking about today about the chinese yuan lower >> the risk we haven't talked about on the asset management side and where you deploy assets is currencies and i think that's one of the things that plays heaviest on our mind are these currency moves and they're becoming more pronounced and violent. >> i followed up, and i said are you talking about argentina and mexico

she said no, she's talking about the u.s. dollar as well. >> the only hedge fund manager on the panel, does play in a lot of situations, especially in fixed income land in particular, he said what, he's struggling a bit? >> with the fed doing what they're doing, finding special situations. >> not struggling on performance, but struggling -- >> to find deals, exactly. he has found some, but he says they're not big enough in scale to be as meaningful as he would like them to be at the moment. for example, he just bought the debt of a tile company in spain, you know they use a lot of tile in construction in spain they loaded up on a lot of debt, when times were good in spain, we're having that housing boom, and then their ebida goes down by half. and then finally the bank that

had that has started to unload i mean it's not -- he says people come to him and want to give him money, and he says i've got nothing to do with it. >> spanish housing, black stone one of the largest builders of housing in spain but for now, let me send it back to carl and michelle, thank you. >> a big show still ahead, european union regulators as you now know, slapping google with that record fine, she's going to join us next, it is day two for fed chairman jerome powell on the hill, we'll take you there as soon as he begins his q & a, dow up 1 point this morning, "squawk on the street" is back in a minute. equity trades are just $4.95.

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the european commission saying google illegally used android to cement it's dominant position in search

welcome back, commissioner, first explain to our american audience what do you think google is doing wrong? >> well, three different things actually, coming together to cement google's position when it comes to internet search first, if you were a phone manufacturer and you would like to have the play store on your device for customers to be able to download apps, the company will say fine, but you will have to take our search app and last but not least, you could not on any device have a competing android version on any of your phones, then you would not be able to use any android or google products on your phones and this of course made sort of

the android's open source sys m system >> so walk us through the punishment, how you got to that record $5 billion fine, and what you're asking them to do in terms of changing behavior >> well, the fine reflects the fact that this has been going on for quite some time, this is a strategy that has been in effect since 2011 and two of the three legal restrictions are still in effect, this is an ongoing abuse. this is very serious, this affects so many devices and of course it's a big company, so you see the turnover that comes in, this is the thing that makes this a very high fine. the thing that google has to do now, it has to stop this

behavior it has 90 days to put an effective into this infringement and this will of course free up the market to allow mobile manufacturers to use other android systems. android is open source so if you have the skills, you can go in and make an even better operating system than what we have seen already. and on average, you can have the out of box experience to enjoy other ways to of looking into the internet. >> as you know, google disagrees with your ruling, they plan to api pi -- appeal it. >> and that position will upset the careful balance of the android system we believe we have a strong case that android has brought to the marketplace and this is

globally and this is why we intend to appeal >> google also says, commissioner, that in fact it lowers competition, you see that in the lower prices and more choices, and by the way, the european union didn't put an emphasis that apple is a major competitor in the market with ios, how do you respond? >> first of all if you're a phone manufacturer, well, the apple ios is not available to you, because apple doesn't license it for end consumers there's competition. but if you produce phones, there's no competition you cannot just ask for the upper ooirveios. and it's not about android as such google can put in restrictions in it's own ecosystem when it comes to its own android, but not put systems in that locks it

in and that no one can do an -- this is not about apple, this is not about an detrodroiandroid. this is about google, a company that's locking down competition and disabling innovation and choice that we would all like to enjoy. >> don't we have that choice, aren't these other apps just a download away? even with the preinstalled google apps on our phones? >> you would think that for a number of different apps, i think we all download differen games or different apps that will give us different services. but when it comes to the very crucial apps, such as search or the browser, we see that we don't do that. only 1% of users have downloaded a competing search app if they have a phone where google search came preinstalled and only 10% of users have downloaded a

competing browser, if they have a phone where the google browser comes preinstalled we could, but we don't and that's why these illegal restrictions are so efficient. >> we're in the middle of a big trade fight between the u.s. and the eu, and here's the eu going again after silicon valley and this is something that the -- making it tougher to do business in europe >> well, this is protectsiing european consumers making sure that european consumers can enjoy innovation at affordable prices and these are our very basic values that the market should serve the consumers and not the other way around, this is the way we implement protection of consumers. we also enjoy when a company

produces wonderful product, which is a reason why google is big in europe in the first place, because they have products that we all like and like to use. the only thing we don't like is when they get to misuse their success and put in place illegal restrictions >> margaret, we always appreciate you coming on to discuss these decisions, landmark ruling from brussels today after the $5 billion fine. >> it was a pleasure to be with you. thank you. >> thank you very much, we look forward to your visit to the u.s. taking you to the hill this morning, the fed chair jerome powell testifying before the house financial services, taking questions from jeff hence -- >> several participants noted that their district contacts had expressed concerns about the adverse affects of tariffs and

other proposed trade restrictions on future activity and that they were not planning any new investments to increase capacity mid continue -- mid continental nail expects to go out of business by labor day, harley-davidson is moving to europe to avoid tariffs on its exports. whirlpool has seen its shares drop over 15% after trump's tariffs on steel and aluminum, washing machine and dryer prices have increased 15% in the past year as a result these taxtax -- tariffs are afft everything from bicycles to automobiles. there may be delayed negative

effect on the economy as well. while the u.s. is taking a protectionist stance toward trade policy, the rest of the world is moving forward on trade without us what long-term economic effects can we expect to see if these tariffs continue to escalate to the point of a trade war do you expect the economics of a trade war to be felt more acutely in certain regions of the u.s., and furthermore, if the fed isn't well suited to respond to a recession because of a trade war, if not, what can be done. >> i should start by quickly reminding all of us, including me, that we stay in our lane at the fed and when we talk about fiscal policy and trade policy that are not assigned to us, we try to stay at a high level and principle level. but answering your question, if this process leads to higher tariffs on a wide range of goods

and services that are traded and are sustained for a long period of time, in other words if it ends up in a -- that is not what the administration says they're trying to achieve. and again, it isn't up to us to criticize their policies in this area but countries that remain open to trade, they have higher productivity, they have higher incomes. not every group is affected positively by trade, there are groups that are hurt by trade, and all countries have learned they need to do a better job of addressing the needs of those populations but not through trade barriers and tariffs of that kind. >> well, certainly the fed does not have responsibility for trade and for tariffs. are you consulted at all when the tariff decisions were made >> no, we play no role in the administration's discussions on these. like, i imagine, just about everyone here, we hear from our

extensive network of business contacts, a rising chorus of concern. as you pointed out, lots and lots of individual companies have been harmed by this, we don't see it in the agate numbers yet, because it's a $20 trillion economy and these things take time to show up, but we hear of many, many stories of companies that are concerned and are making investment decisions or not making investments because of this. >> have you heard any reaction at all from the chamber of commerce have they talked to you, express their concerns, have you talked to them? what is the chamber of commerce's position on tariffs >> they take a very strong position against tariffs we try to have good relations, and strong relations with the chamber. i have not personally discussed their position on trade, but i know what it is. >> do you know what specifically they were concerned about as it

relates to tariffs in a particular part of the country, agriculture, east side -- et cetera. >> the bottom line is a more protectionist economy is an economy that's less competitive, it's less productive we know that, this is the torch we have been carrying around the world for 75 years so it's not a good thing, if that's where this goes, we don't know know ultimately where this process will lead. the administration says they want lower tariffs, and i think that will be good for the economy, if we achieve that. >> thank you very much and i yield back the balance of my time >> gentle lady yields back, next we recognize the chair of our trade committee. >> as you know, some economists argue that a flattening of the

yield curve is an indication that the economy is headed for a recession, obviously with the strong data that we're seeing, we don't see any kinds of indication of a recession in the near term. but i asked you this question six months ago in our last report i asked you given the flattening in the yield curve, that short-term rates might exceed long-term rates whether there would be any plans within the normal -- more quickly to cou counter act the flattening of the yield curve. i think you indicated there were no plans six months ago. i just wanted to ask you given the fact that that yield curve has flattened even further in the interim since we last met, is there any discussion within the fomc to alter or accelerate

the balance production program in contemplation of this flattening yield curve >> thank you no, there's not. we very carefully developed and socialized the to public, the balance street normalization plan, it's running smoothly, we're not really thinking of changing, with the exception of what we have identified, ie a meaningful downturn. >> what is the fed's plan with respect to that flattening yield curve and what effect does that pose to the economy? >> let me talk about the flattening yield curve we know why the yield curve is moving up, because essentially out two years or so, really the market is pricing in its expectations of what the fed will do, plus or minus a little bit of a term trade. so we know why the trade curve

is moving up but what's the long range? take the long-term treasury, i think the whole point of the yield curve is that you can decompose that, 2.5% this year, 10-year. what's in there is a term limit, but what's also in there is an estimate of the long-term market race it's telling you something and we're listening. you've got to do a long -- whether policy is accommodated or whether it's restrictive, that is the important question, the yield curve. >> chairman, would you agree that the oversized balance sheet is putting downward pressure on those interest rates >> that jay powell will take another stab at the yield curve question saying we know why the short end

is moving up, because the fed is expected to raise rates, what's the position of the 10 and 20-year rye rate so dodging that one again also delivering his message, carl, on trade, which means we stay in our lane, long-term tariffs, protectionism makes us less excessive, but the administration says they want to get rid of that, so we're going to see if that's positive or negative on trade. >> you don't see it in the ag e aggregate numbers, and it does come up anecdotally that businesses are having to weigh a decision or two because of fears. we'll continue to monitor of course, chairman powell for you. also we're going to tayou bt

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welcome back to "squawk on the street." ual reported strong profits despite rising fuel costs. hey, phil. >> united league in the airlines higher, in fact this is the best day united has had in yearly two years. the reason it's moving higher, yes, they beat on the top and the bottom line, they also raised their full year 2018 guidance by $2 a share the big question is how do they control fuel costs it is up 41% year over year, they are not seeing any drop in

demand, it is still strong here's what he had to say this morning. >> we're seeing robust demand, atlantic has been strong, pacific has been improving, really, dmomestic with our growt plan has had good growth our team has proven that we can nimbly adjust. >> so you take a look at the airline index, it's one of the better days it has had in a long time because it's been under pressure for the last two or three months, but they're getting a bit of pop moving up 1.5%, and that's helping transports, when you combine this, along with the csx, better earnings, so a built of relief in the transports, but certainly among the airlines >> kind of feels like an echo of what delta had the other day in that their capacity expectations are at the low end of what they once said, and that adds to the open hope that the airlines

don't overbuild in terms of capacity zplt th >> they're in a tricky spot, because demand as it is, not add too much capacity. in fact yesterday you heard united announce that they're going to pare back their capacity >> there's also trade tensions i think have affected the overall sentiment around the airlines, have you heard anything from the companies, do you expect to hear more on the conference calls >> it's affected the prospective of investors, there's a concern that we could see this bleed into transportation overall, especially international routes. we heard from delta and united, they're not seeing it yet, they're concerned in that it could manifest in people not flying as much they're not seeing it yet. >> phil, thank you very much

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yeah, deficits are not good. and we are going to run 4% to 5% i've seen worse. i mean, many the reagan years in the beginning, you know, you cut taxes, the first orders, you lose some revenues, no question. but it's like investing in a business, you may have to borrow to make a good investment. i don't mean cash flow daily i mean a good long-term investment and i see the same thing happening now, the trump tax cuts, yes, we will lose some

revenues in the very short run i believe we'll get it back and more >> larry kudlow, economic adviser to president trump speaking with our jim cramer at our delivering alpha conference on cnbc earlier this morning defending, carl, the return of high deficits, which is in some part a consequence of the tax legislation. we should note that actually the white house's own office of management and budget quietly released those figures yesterday showing that we're surpassing a trillion dollars in 2019 that wasn't supposed to happen until 2020 and that would be 5.1% of u.s. gdp. >> right powell was asked about the impact of the tax cuts yesterday in front of the senate and said it is a little early to expect to see anything this soon from fiscal policy. but then larry went on to talk about potential for multiple stages of tax reform, potentially making the individual cut permanent >> right does that mean they will face

the political uphill battle? but those conversations are happening, which is positive the biggest news out of larry is he said the ball is in president xi's court on trade. and they have not seen a response or what he sees as an adequate response to those negotiations when the team went over to china specifically on technology transfers and intellectual property theft. >> looking for force transfer technology let's go to david at delivering alpha where this is a big conversation hey again, david >> yea, you will hear a lot of conversation behind me here as we are in a coffee break at the delivering alpha conference. the big panel with long-time value investor ed walkenheim and we many onset is less llie picker with more >> he's a valued investor managing about $7.5 billion in investments. but incredible returns over the last few decades or so he really kicked things off

talking about banks, specifically with the goldman succession he announced that yesterday with david solomon taking the helm in october. he's not concerned about the leadership changes saying he's comfortable with the deep mesh goldman has cultivated and turning to citi, talking about how shares there could be $130 per share he didn't exactly give a timeframe, but just to give you conte context, that would be 90% higher from where the shares are trading now. and then they pivoted to the conversation of autos and specifically pick-up trucks. where he feels very comfortable with the u.s. automakers and the 92% marketshare in pickup trucks take a listen. >> with all these advantages and tremendous brand loyalty, which you tend to fight in trucks compared to cars, and the type of person buying a pickup truck means a nationalist and pro-american than somebody who buys aer can, particularly the ones who buy cars on the east coast and west coast, you have a

consumer or a business product that has a brand name and has placing power and earns about 16% margins. that's a very good business. >> he's a value guy, right >> he's a value guy. >> so he sees value in the banks. we talked a lot about the low multiples, the book and the banks, and he likes ford, i guess, is that what you buy if you like pickup trucks >> that was a bet on ford, exactly. and 16% margin on pickup trucks, but he likes to make the distinction, it's not about autos but pickup trucks for him specifically >> if you hear about something else besides banks, given how close you follow that. >> it was a nice segway between wall street and main street in that conversation. >> when it comes to tariffs as well, with the 25% tariff we have on foreign pickups. >> exactly the 92% u.s. marketshare is significant. >> leslie, thank you leslie picker. sarah, over to you

all right, david we are going to continue this throughout the day we'll see you later on in the day. when we come back, we'll hear from blackstone's president and coo jonathan gray live from delivering alpha david has that do not miss it the dow is up 39, the s&p is close to the flat line "squawk alley" starts in a few moments. intelligence, covering virtually every part of your healthcare business. so that if she has a heart problem & the staff needs to know, they will & they'll drop everything can you take a look at her vitals? & share the data with other specialists yeah, i'm looking at them now. & they'll drop everything hey. & take care of this baby yeah, that procedure seems right. & that one too. at&t provides edge to edge intelligence. it can do so much for your business, the list goes on and on. that's the power of &. & when your patient's tests come back...

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