welcome back, everybody. final check on the markets this morning. futures are indicated down as they have been all morning dow futures down by 167 points following declines in the markets in asia and now in the european markets that are trading, too s&p futures down by 16 nasdaq off by 55 wolfe, it's been great having you. join us tomorrow for the jobs report, folks. "squawk on the street" starts now ♪ i feel like a million ♪ i feel like a million baby whenever i hear that sound ♪ good thursday morning. welcome to "squawk on the street," i'm carl quintanilla. david faber. this hour kevin johnson spoke to jim cramer about the company's new partnership with alibaba in china moments away futures set for a drop as the white house confirms it has asked the u.s. trade rep to consider 25% tariffs on chinese goods.

germany down 1.5%. hong kong and shanghai down 2% overnight. 10-year hangs in overnight as the bank of england hikes. futures falling off the president threatens china with bigger tariffs plus tesla's on a tear the automaker set to rally after the open this after promises of a profitable second half rocket fuel for growth in china. starbucks kevin johnson's bullish outlook for their new partnership. jim's first on cnbc interview in a few moments. this morning, futures down sharply as tradeworries work their way again into the markets. the white house confirms the president's looking to raise proposed tariffs on $200 billion worth of chinese goods from 10 to 25. it's sort of been out there in the ether. we know the market tends to absorb these headlines then sort of discount them later in the day. >> look, i think that that headline -- really i found that the idea that the white house could confirm something that peter navarro's team put out is just fanciful.

i don't think the market's that stupid i think more important the chinese said we're not going for this tit for tat we're going to stand our ground. but what's is we fear over that, we put it in the navarro basket, we sell the navarro basket, led by overweight boeing and caterpillar. it is a double inverse etf of which these sponsors made over $100 million >> i think that's carl's, not yours. >> all i have to show for it is -- i don't know -- this actual actually tie but what was interesting to me was this process of hate 'em, then i like 'em. we're in that hate day watch this shanghai composite. shanghai composite, by the way, back to levels where there was panic. it used to impact our stock market but it doesn't anymore. you talk about the all-knowing,

all-winning command economy, and they are more trouble than people realize if we are going to sell our stocks off of shanghai stocks being down a lot, which is what really happened, i think that that's plain stupid. i agree with you i think that in a few days we will forget. i still try to deal with companies and ask them 25, 25, 25, what does it mean? minimal. i think still more important was aluminum and steel did raise prices aluminum steel was meaningful. >> all right but we're 34 billion, going another 16 very soon in tariffs, and of course the possibility you have to really consider as it gets a lot more than that and a lot higher number. i mean at some point aren't there are casualties on both sides. >> yes, absoluteplabsolutely that's the nature. if you are going for intellectual property fairness, there's no other way to do it. a lot of people were fretting -- a guest was on earlier -- i don't want to say he was wrong i would say he was ill-advised what he said

but what's incredible is all the soy that we were selling to china was picked up in odd places egypt took four times the soy that it took before. taiwan took four times the soy netherlands took it. dow dupont down 96 points which is stupid. that's okay, everybody has a right to be stupid there's nothing in the constitution that prohibits it i want to point out that the soy sales were made up and we all thought that they were going to be lost. that didn't happen remember, crop protection for -- >> the overall impact on the economy seemed to be saying may not be as great as some believed, a fact we do get to a bigger and bigger number we know the chinese can't retaliate obviously at the same level given the lack of imports of u.s. goods. but they can do other things in fact i pointed this out last week and i thought it was a big deal then it didn't seem to be which is of course nxp qualcomm.

it was a big deal for shareholders of both companies but it felt to me it was a much larger implication of here's something that they can do that's outside the typical parameters of a trade war, and it does appear that the u.s. is now, in part, responding to that >> i totally agree, that is a worry. i'm struggling today over the incredible, terrible numbers of young china. are people -- do you think people just stopped eating kfc no no i mean this could be a subtle boycott. >> we heard what easterbrook said about china comps a couple weeks ago. goldman has a note saying they do believe tariffs will go higher, they believe it is in large part dependent on whether or not depreciation of the yuan reverses at a 14-month low today. >> i did like what was talked about this morning which is that you can't continually denigrate your own currency without getting inflation.

inflation hurts everybody in china. i know that there is this really all-knowing, all-seeing dialogue that we get in the media here which is that the chinese deserve command economy, nobody gets laid off, nobody suffers. if that was the case, guess what we would all be in command economies. command economies ultimately fail i don't know why china's excluded by history because it just says -- what do we say? command economies -- i remember the dialogue against when we were dealing with khruschchev and brezhnev we always thought in the end they have to win because command economy. well, guess what it was awful >> you really think there are that many similarities >> i think it's worse. >> really. >> yes because it was impossible. >> did the russians ever have 10% gdp growth the way the chinese have it or 8%, whatever it's been? ever >> no. but the russians had a lot of divisions that were meant to keep the people down more than

the chinese have in the end, the people rose up and that's what i'm talking about. i see dissension in china. i'm just saying, be a little more balanced. the chinese are not as powerful as we think. not the death of china the idea that -- >> they're going to rise up. have you noticed the surveillance society what they are able to do over there now? more than ever >> how many internal divisions does she have? >> this got deep in a hurry, guys we'll move on. meantime, tesla's up big this morning. electric carmaker reports its biggest lost in history as it attempts to ramp up production of the 3 but the company intends for that loss to be the last. elon musk telling investors his company will be profitable for every quarter going forward. holds $2.2 billion in cash what may have garnered more attention though is his performance on the call and his apology. take a listen. >> this will -- i'd like to

apologize f apologize. [ unintelligible ] been working sort of hard ten-hour work weeks. nonetheless this will not excuse it >> key bank out this morning saying it might be the most valuable apology in history. even though market cap changed overnight. >> i have to tell you, he absolutely apologized. i was like, holy cow, what is going on is this conference call a good conference call? no, it was a great conference call i know people believe this is all completely smoke and mirrors, the david blaine folks are going to be depressed today for what a lot of us feel, which is, damn, this was a good call

$718 million negative free cash flow okay, look there is some bad, bad free cash flow numbers but you do have 43% revenue gain gross margins are slightly positive this was the most thorough, most reasoned, most sane conference call he's ever given when you finish it, you said, wait a second, people are switching from the prius, from the accord, from the civic, from the bmw 3. they do have $2.2 billion cash on hand. people will disagree with that, because the accounting can be very fungible. general electric had fungible accounting but jim immelt was more statesman like than elon mucsk >> wait, wait. you just used his name >> did i >> yeah. >> i'm sorry about that. who's counting but i have to tell you the

accounting of ge was, i now think, as every bit as fungible as the accounting of what musk does >> lot of -- >> let me roll over and say the chinese -- my father wroshorked the chinese. he chose it. >> okay. when it comes to tesla's valuation, and the fact that they are going to potentially be a profitable company at some point, not long from now do they run the risk of actually then starting to be valued as a good old-fashioned automotive company? >> i saw the 43% revenue growth. i said to myself, now the key thing is, don't show a profit because i want to value you in sales and that's why i was more positive because now i got a 48% technology stock that puts it up there with the cloud kings. >> you can testify to an incredibly high multiple

>> you said it an incredibly high multiple. that's what's happening today. because if they don't need the money and they are going to be profitable or he says they are going to be profitable, then it is a tech stock and i've got tech stocks that sell at 100 times earnings that make nothing. >> okay. we're going to go over some of the commentary -- >> i got a discount cash flow at some point, don't i? >> billionaire, billionaire. tesla, the price $331 this morning after below $300 earlier in the week. when we come back, starbucks teaming up with e-commerce giant alibaba inking a tli inin ining. kevin johnson talks to jim in a minute >> the geopolitical stuff that's going on will continue to go on. but we are going to stay focused on the long game for starbucks in china meanwhile, futures looking for a down open. dow down three or four, s&p down

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incredibly bad numbers from china. they just announced a deal with alibaba to expand delivery service in china i asked kevin johnson if it helps solve the company's dilemma reconnecting with the chinese market >> we're going to integrate a starbucks virtual store into all of the alibaba group properties. this means that a customer that uses ali pay or t-mall or homa has an integrated starbucks virtual store similar to the app embedded right into that experience that opens up 500 million, or more, active users of those apps that will have access to starbucks. that's a significant first pillar the second is we are announcing a relationship with an alibaba group company to do delivery in china. we'll light up the first 150 for stores next month in shanghai and beijing, then expand delivery to 2,000 stores across

30 cities before the end of the calendar year. finally, we are building within a store format that alibaba built group, a small supermarket format, homa, we are building a starbucks delivery kitchen in those stores we should have up to 600 of those over the next few years. we believe this is really a transformative deep partnership that we formed with the alibaba group and we are excited about it >> okay. first, say you are a share holder of a starbucks. you've seen the starbucks trajectory in china go from high single digits to mid, to low, to minus 2. can we listen to this announcement and presume that you can get back on a trajectory of positive same-story sales numbers in china >> jim, i'll first just remind you that in china last quarter we posted a 17% top-line growth. most of the growth of transactions in china's coming from our new store growth. yes, we did have a negative 2%

same-store sales comp last quarter but if i look at what we are doing with alibaba and the digital fly wheel and enabling delivery, this is like rocket fuel for the digital fly wheel in china this will be an accelerator for our business no doubt >> let's talk about china. do you think -- do you think, kevin, that the white house is taking the right approach? are they playing a long game are they showing respect to the customers that you have at starbucks in china what do you think about the way that they are treating china >> well, jim, i step back and say, geopolitical politics unfold all the time across the world. my role at starbucks is to stay focused on doing the right thing for starbucks in every mash that we operate we're in over 28,000 stores in 77 countries so geopolitical issues that crop up now and then are not new to us the approach we have always taken is, let's be true to starbucks, let's be true to our

mission and our core values and let's do what we do well if we play the long game and play in that mode we found it to be effective for us. that's what we are going to continue to do we'll let the politicians deal with the geopolitical situation. we're going to stay focused on starbucks. >> let me give you the cliffnotes basically he says this delivery system will solve the problem they articulated in the previous quarter, thfr they'll go back to the positive not afworried about the tariff because he's affiliated with alibaba. $7 nestle's deal >> you think the social with alibaba insulates them from any sort of american pushback? >> i think absolutely. i think you needed that inoculation. i think that everybody was concerned that there are some competitors. when the yuan was very good we

talked about that china in that last comp story? you said wait a second, you mean other companies have come in and starting to do better, particularly with delivery this is a great way. in five months chinese people went from liking to go to the stores to wanting delivery they were quick to change their culture. >> i guess what starbucks gets out of this. seems like positives what's alibaba get out of it >> wow i don't understand their accounting sometimes if they get grub hub-like numbers -- by the way, square -- >> it's another perk, so to speak. >> yes >> that is offered to their users. keeps them on the platform, keeps them engaged >> on the heels of the nestle's deal, how willing starbucks is to bring in big partners >> how willing kevin johnson is

willing to undo what was done befo before remember, kevin johnson donned the apron and went into some nashville store stz as and work barista. he's got the advantage of anonymity. what's that guy doing? i've never seen him before >> if schultz runs for president -- there's been a lot of speculation about steve schmidt and did he leave the party to go run schultz's campaign -- would that be positive or negative for starbucks comps? >> it would be negative for the stock because the man would be able to sell his stock you'd be hitting that buy-back left and right >> f funny. >> i was laughing. >> yeah. >> quiet laugh >> even if it i was don rickles, you wouldn't have laughed. no, you would have laughed at rickles. >> he was pretty darn funny. you, my friend, are no rickles

more of the johnson interview on "mad money" tonight, 6:00 eastern. we have a lot more to get to this morning we will go down to the opening bell, cramer's mad dash. back in a minute

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time for "mad dash" as we countdown to the opening bell. yesterday we talked about sprint in the mad dash. today you want to talk about its merger partner, t-mobile >> add 1.6 billion customers, 21 is quarters of win streak, two times faster growth than verizon, at&t, print asprint and

comcast combined most important, yesterday i said maybe the t-mobile/sprint deal couldn't pass muster, anti- trust. i want to modify that view >> did you hear from mr. ledger in some fashion? >> i want to modify that view. i do think that what could happen is people might say, you know what? you still need a really viable three-horse race on 5g even though t-mobile had great numbers, it is not clear to me that they can -- that they have enough firepower to go head-to-head with at&t whose stock seems to have bottomed and verizon. maybe, just maybe, there is a chance that this goes through. >> john legere is a persuasive man, isn't he? >> he is and a great singer he's singing in the halls of congress a lot >> yes, he is. does he gres dress up or still o

with the magenta he's another sacha baron cohen >> that's another story. >> it should be high >> it was well received. >> without sprint, david, $69, $70. sprint is like an anchor it is like cement galoshes >> thank you for that. we got an opening bell a few minutes from now we'll also talk about a lot of other news i'll get to an icon and tell you what is potentially going on with cigna another einhorn idea gngoi straight down. i'll have that, too. after this

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whatever this brexit looks like? obviously they're ahead of the game there johnny walker black, red, green, gold all doing well >> blue. >> meanwhile, claims were pretty good back home 218,000. we'll get factory orders at the top of the hour. the big jobs number tomorrow, adp suggests that will be strong yet again. that usually sets the mood for at least a couple of weeks >> i think that that, plus treasury auctions, are going to make it so we go the 3.1, the 3.2. tech stocks will be down again today. they are a good place to go on all this news. i like that very, very much. let's get to the opening bell and get a look at the s&p on the left side of your screen. big board today celebrating its

ipo, the chicago-based real estate service ompany. over at the nasdaq, another ipo today. [ opening bell ] prices are 15, the longer range of $17 to $19. they'll raise about $38 million. >> they've never made money. a lot of us like the product but that doesn't necessarily mean you like the stock i'm doing a lot of work on that because i'm kind of mystified about whether that's something i shouldn't be recommending on "mad money." tesla is obviously the one we'll key off of first lot of discussion about the quarter, the cash burn a little bit lighter than some were expecting $2.2 billion on hand then not dismissing out of hand the idea of a million cars in 2020 >> they would need shanghai. someone said can you do it out of shanghai? he's talking about doing 700,000

or 800,000 in shanghai the reason why you see this stock continue to climb, an outfit like goldman sachs has a sale on it, and lead with "this had a positive quarter." you don't tend to hear that. you hear nitpicking, figuring out the cash flow isn't real -- but no there are firms that are negative that i think may have to throw in the towel here after this quarter because everyone was adviced at the actual statesman like nature of musk. >> i would argue that overall narrative in the sell side research today is he's going to make the next few quarters he's going to throw everything at it to get there the longer term property building in question is more open >> what i liked about it was that he talked about the competitive nature, who's winning over about the sedan mark that everyone else is kind of and the

ka abd ka a abdicated from the sedan share whether it's just something he is saying and not doing, i think the idea that they have amazing growth cannot be avoided they do! >> so today's action is more than just -- >> this is action from people who said i want to get into a 40% grower that's not going to run out of money you have to trust him when he says that. i just found him much more persuasive last night. he was persuasive because he was not doing any gutter talk. he has these people at the end of the call which is like -- elon musk, my question is do i love you this much or is it this much elon musk just says, i think it is this much you have that in the call. otherwise it was just a regular call i think tony's too much of a

downer scott wapman reiterated that i want a worst case scenario that makes tony happy. apple's going from $93 to $193 >> for those who missed it, it was argued that apple's best days from a shareholder standpoint are in the past we'll talk about that. >> he's right today because apple's down 2.6%. >> can i have a smile somewhere? >> we spent a lot of yesterday talking about trillion dollar mark for apple it was reivised up to 207. they keep buying stock back. >> the volume restrictions keep coming back. >> it is down a bit today.

>> all of the eagles are dead. >> they haven't won a game since the super bowl the only dow xoepcomponentsa are green are coke, png, verizon. >> hmos are raising prices unbelievable that that group continues to get unscathed coca-cola quarter was pretty good the basket, the china basket, i going to take it on the chin until we forget what happens which takes us about what? >> it's never really been much of a stock or much of a company >> when public attend in june of last year, $2. revenue down 25. customers down 24. david, we had the ceo on that

day. >> it's never been -- >> we tried to press him >> we did. i had the advantage of having been a customer briefly and saw a lot of the weaknesses in the business it is one of those peter lynch model ones >> it may be meanwhile, wayfair hey, let's lose more money and have better sales. people love that wayfair is the tesla o furniture online do you use wayfair >> i don't i don't think i do it's possible something came from there and i'm unaware of it >> that's like james lane for bed bath you would think they would have a quarter depending on how much i spend there. >> take a look at this

altice europe is spending a lot of money to obtain subscribers i note this because in the letter that irwas put out, david einhorn says they bought some of this for spinoff altice usa, but that's an ugly day as you might imagine that's just not going his way. things aren't necessarily going his way. >> a little tough time >> having a tough time as is altice europe, which by the way, has nothing to do with altice usa anymore completely separate. atus is altice here in the u.s.

which is cablevision >> i recall he wanted a retraction on some of our reporting on lehman. i didn't take kindly to that what are you going to do we're still here we're still here talking. every day. >> we're still here and he's still putting up incredibly bad numbers. let's talk about cigna icon expressscripts if we can the journal reporting frankly something that -- that had been around for a while and i had heard of over a week ago namely that mr. icahn built up his position at least in cigna

the record date had already past when he was building this position which i believe is still less than 3 million shares though i don't have that fully confirmed exactly but i think that's roughly where he is less than 3 million. and the "journal" raises the idea he may oppose the deal and lead opposition to it for the august 24th vote even though he built a position to a certain extent after the record date and, well, i don't know what really happens here except that it seems unlikely that he will potentially be successful. he is carl icahn you can never count him out. it is not clear that he's really coming with guns blazing here to try to prevent this deal from occurring. but in speaking to some of the other large holders, it is not clear to me that they will support him. mr. icahn may believe he will have some support. but many then telling me, listen, first there is significant overlap in holdings of cigna and express scripts so if you are making an

argument, cigna should be paying less for express, well, it's one pocket to the other. secondly, jim, they say, listen, they're paying less than express paid for medco on a multiple basis. when you read the s4 in the background of the merger, express was citing $1.5 billion in synergies when it was already going for a high price express put out notes last night, was well received cigna's retention rate to 98% on the strength of both commercial and health plans their customers paid 1.1% more for drugs this year than last year that's half the rate of inflation. so there are plenty of people who say, i don't quite get why you would be opposed to this deal, you'll save plans on their medical bills, a high retention rate, they are being successful in what they are looking to do, a faster growing company with a

better business mix and they've put up the numbers over time at cigna. >> i loved at $175 cigna, i said this is going to work. express scripts is going to work >> you were right. >> just explained why i thought it was a good combination. cigna is a very well run company and express scripts does okay. this combination is better when this deal closed, the first true competitor. anthem, they all have good numbers but this is a great combo. >> we'll see what icahn chooses to do. my understanding is he has not made it clear to the company he is going to actually oppose. so he may be making some money anyway there are times when carl sees is being as an opportunity potentially simply to make money, not necessarily to move in full opposition

not that he won't here but let's not forget he did start -- in this case he is buying the buyer is he not playing it from that perspective. >> look, i think that a lot -- i think it is important that you distinguish, a regular press which i denigrate is saying, it is going to be a battle royal, like it is going to be fortnight or something >> we just don't know. his numbers are not that significant in terms of what he owns to -- >> is it campbell's soup like? >> that's going to be more interesting. >> what? >> i think campbell's soup -- >> you think kraft decides to knock on the door? >> i think the board is going to have -- also theentire board comes up including the durantes

board members. they own 40% or more but it bears wrachg will they really move to sell the company? i don't know the answer. they don't know the answer at goldman, their advisors, it is not clear >> the confrbs call of the year was the campbell's soup call where they fired the ceo we don't know what we're doing, let me give you a call later still waiting. >> really quick, pronounced weakness in some contoomer names today. trip, royal caribbean, kellogg just part of the broader take? >> there's a lot of competition, a lot of ships coming on trip advisor, a lot of competition. they pretended in the conferencd i loved when jim muran said he felt that mgm had a very good quarter. when you do this stuff, our second quarter came in better than expected.

i don't really understand that they came in at 21 cents i was looking for 29 cents for mgm. you don't say these things >> right when it wynn was down. >> this was one where i said to myself, steve wynn has missed here because this was execution issues >> wynn's back to november levels we did dip below 2800 briefly. morning, bob >> 4-1 declining to advancing stocks yes, trade's back but frankly we knew this whole story yesterday. look at the usual sectors hit by trade concerns material stocks weak, industrial stocks weak. on the earnings front, jim mentioned this, it is about higher costs today all of the big companies, dow dupont talked about higher raw

material costs, higher freight costs. kellogg talked about transportation and packaging costs. royal caribbean talked about higher fuel rates. clorox talks about higher commodity and transportation costs though they are up a little bit here. this is all the stuff -- the thing about the consumer companies all throughout this quarter we've heard pricing from them mostly flat clorox tried to raise prices they did packaging material costs have been higher. organic growth has generally been pressured gross margins have been pressured, too brand value has been eroding overall. it's been a tough time no wonder. look at consumer staples this year down 7%, 8%, 9%. that's a problem when you have all of those issues, particularly margin erosion. what's the major trends right now for the stock market we talked about this rotation from growth into value that was a story for about five days that trend is fairly weak. it's true, we've seen some momentum in transportations, in banks, in pharma these are value plays. but overall the sentiment in

tech still is bullish. i don't hear people abapd ndoni tech they don't want to the overall trepid is higher because when you get weakness in tech you get rotation in other ones that's why we are still hovering around that 28 level lilly's been straight up in the last two weeks ipos, i've got two behind me kirschman and wakefield. one of the biggest real estate firms in the country we've talked a lot this morning about sonos. the ceo was on earlier 13.9 million at $15. this is a kkr deal they own 22% of that of course they compete with apple and have a rather big ecosystem for apple to support

the competition right now. we're just barely off lows, carl 161 points down in the dow >> bob, thank you very much. to rick santelli at the cme group in chicago good morning to you, rick. >> good morning, carl. interesting rates post central bank meetings, whether central bank of japan, u.s. federal reserve, or bank of england last night, you always garner some volatility bank of england obviously was the most aggressive of the lot, very much expected if terms of rate increase. look at one week of 10s. we finally got our 3% close yesterday. we're sort of holding this build-up that we've experienced for a variety of reasons if you look at 521's start on the chart, third week in may, that's about the last time we settled at 3% or higher. now let's switch gears a bit and look at what happened to the 10-year guild as mr. carney raised rates start this chart right towards the end of may we can clearly see the guild has

had a heck of a ride here it is hovering just under 140 basis points when you look at the currency, pound versus dollar now, intraday, you can see rate increase or not, the pound is definitely on a downward drift if you open the chart up to september, it really jumps out at you finally, even though the dollar index for the most part is euro centric, 57% of that valuation in the dollar index in the euro part of that equation, it is still in a range but if i pull the euro out by itself beginning of july you could see how it is tapering out of its range pay very close attention to that and the slight gains in the dollar index once again testing 95 carl, jim, david, back to you. >> rick santelli, talk to you in a bit. the ceo of fitbit had strong sales of its newer smart watches give that company a bit of a boost, though shares are down 5% dow's down 167 we are right at 2800 be right back.

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. >> i have not seen it like this skins i went 5 bid for half a million shares of citigroup when i got hit in 1990. this is a different kind of market and the fed is asleep >> that was jim's famous rant against the fed 11 years ago tomorrow and we know where we were 12 months after that. >> we got to keep raising

because the economy's strong. >> these are the biggest tv perm personalities and i love them. otherwise it didn't matter, because they got the actual minutes, the actual and the fed laughed at what i later said i thought it was really funny. and you know what? they were wrong. and i struggle with saying exactly how wrong they were because i'm on national tv they didn't have any sources at all, they were doing all thoset -- if hayed that talked to anybody, you would start to

realize that have 10 delinquencies and they spoke to nobody and they raised rate s 10 dimti. i know that some said that i was off my meds. ad3-518. that's my late mom's telephone number you should give her a call >> what's on mad tonight besides kevin johnson. >> we got clorox, which is always very exciting, and we got dow. look, i love the way they solved the china situation. dow plastics, plastic is still very much like a graduate. and clark's has the best growth, but let's understand each other. you need the kind of growth that's the la has.

tesla? that blue chip blue apron and blue chip tesla look, someone got to him someone got to him someone got to musk and he was a sweet and kind and good man. >> see you tonight, jim. >> that's a good note to end on. a good show still ahead, as we get some data at the top of the hour don't go away.

welcome back to "squawk on the street." some breaking news, factory orders for the month of june, up .4 on factory orders, that's x transportation if you look at the u.n. ins, they are up .7 now let's dive into what's going on with durable goods orders this is a final june read. which means we take the half month reads out, which was up .1% now comes up .8%

if we look at capital goods orders, nondefense goods aircraft shipments, shipments drape from 1% to down .7. all the numbers are positive signs, nothing negative here, but we did lose something here with the mid month reads we are hovering right over 10-year note yields. the curve's actually steepening a bit because the yields are down the long end yields are virtually unchanged. >> rick santelli good thursday morning, welcome back to "squawk on the street" at the new york stock exchange busy morning, of course tesla is in focus we're off the lows after falling 2,800 this morning >> stocks lower this morning, after trade tensions from the

trump administration threatening to double down on a trade war with china >> tesla's stock is way up on strong guidance for the rest of the year and finally apple continuing it's march to become the first company ever to be valued at a trillion dollars goldman's analyst is going to join us this half hour ceo elan musk reporting -- musk importantly was apologetic throughout the call. joining us now, two analysts that -- upgraded the stock this morning. as well as guggenheims robert sarah. good to see you both why the upgrade? was it the drama free conference call >> as they have moved to volumes and generate gross profit on the

model three, there should be a lot of earnings power on this platform it got confused with the solar city acquisition when we downgraded the stock what we heard last night was they targeted growth margins and if they're ability to deliver on that, the stock is going to go a lot higher >> you think this is a reality >> what we have seen historically is that short-term guidance has been relatively accurate it's been difficult to trust, but they're a third of the way through the quarter, the third quarter, we think there's a very good chance they hit that metric, and if they do, we think that stock moves higher. >> robert, do you agree? >> i have liked this stock for a while and frankly this set up has not changed, we have been

waiting for volume and model 3s ramp and the model 3's are ramping. as you ramp volume, which they're now doing, you should get a lot of positive leverage off that fixed space the time is now, where the economics flip to positive, that's why they're looking for profitability in the second half, we're looking for it and in '19 and '20, i think this country can be highly profitable and start generating a lot of cash it's generating cash so they can be self-funding so that's what we're just on the cusp of. >> how do you push back against all the bearish arguments about credit revenue drying up, credit cancellation rates, is that not true >> they get paid from their customers right away, and they

get terms from their suppliers, so they do have this positive working capital. secondly, they slowed down the cap x, which we think is appropriate. we think they can get up to 200,000 vehicles a year. and then the third element of this, really is just about basic organizational discipline and spending on the up x siop-x sid. that's enough for us to get positive i think they would be smart to raise some equity. we don't think they would do it under $400 million >> i know collin sees them earning as much as $19.35 in

2021 >> yeah, correct. >> where are you on that as investors try to figure out what the earnings power of this and what the multiple is >> i put a -- basically i put a 30 multiple on 20/20 and discount it back and that's where our $30 price target is. >> and collin mentioned that he thought it was appropriate that he was pulling back on cap x >> there's still spending a lot. i think they're just founding ways to be a little bit more efficient. but it's -- in a way it's kind of silly to knock the company for not spending enough now.

when normally the knock is they're spending too much. they're spending plenty. the key will be again once you flip to a cash flow of positive, you become self-funding, that's the point, because then you're spending actual money you have rather than having to keep having to go back to the market. that's the key now i think >> there are no colony of naysayers of course. they are saying the market for the vehicle is going to explode and there's going to be lots of competition from high end brands >> we're still talking about small numbers, i mean $200,000 globally is not much in our view.

>> seeing that roll through with the model x's. going do you know to $30,000 a vehicle, and $40,000 a vehicle is not going to be very profitable for them. can they get to 500,000 vehicles and at what price point. and that's going to be the next debate point on this stock. >> so aiming for a million in 2020, that's aspirational? >> absolutely, without question. elan musk has talked a good game and made a lot of promises but we still have some trust issues around this management team and the time frame they want to deliver on we don't want to back away from those criticisms. >> criticism is a part of this story, robert. david mentioned naysayers, they have big -- continuing to get burned here with a stock up 10%,

and yet you talked to some investors that are shorting this company and they have more conviction than ever they point to the accounting issues, they point to the cash burn, they point to the legal issues and some of the accusations around engineering and accounting does this go away? >> i think you have. well, air rk, a, that is the m contentious stock i have ever covered. but if you have one that's dug in and stays dug in and says there's too much competition, maybe people don't even want that many electric cars at the own end of the day and that's why it's key, i think when they start making money in the second half and then thereafter, that is an issue because their whole basis is oh,

they can't make money. and there's this whole issue is they can make money on 100,000 cars and every time they sell a car they lose more money that's because they have been investing to date. and they're really just losing money now. >> collin rush, nice to have you here as well casino stocks getting crushed again today, wynne, mgm and caesar getting beaten in the last few hours >> an uninspiring earnings release. jim got into the nitty gritty of not only the weakness of the second quarter, but expectations for the third quarter, and he mirrored a lot of what question heard from wynn resorts, about bookings in late summer, the lack of scheduled events in july and august, and the analysts

just drilled down, they were asking, why would mgm buy back nearly 600 million stock in all this softness. >> for god's sake, you guys get so worked up about a few weeks, it's just unreal let's start with the quarter again. in may, we talked about what we saw happening. we wanted to fill some of those holes with smaller group business, we thought we could. we did not >> in fact muren says they're going to continue to buy back stock thauz they think it's quote, ridiculously under valued but that fourth quarter comp is going to be easier in the third quarter, they were up against the mayweather fought

and all of the casinos suffered because of the tragedy at man d mandalay bay. and there you can see how the stock is down today. and again, all of these casino stocks in las vegas taking a real hit and all of them mirroring is expectation for the third quarter, guys. >> yeah, it's plenty contessa. burn was an analyst for many years. now it's a long time he's been ceo. i know we had mark sorrell on for ceo. it's up a little bit today, but

a lot of people hurt in that stock as well. >> he came on yesterday and said, well, we weren't giving third quarter guidance but on the call, they set the expectation, flat for this third quarter. and today, caesar has a credibility problem, he still has a buy on it. what we saw was a lot of skepticism about what the expectation was that you would see 7% growth in the third quarter and revising that downward and all three of the ceos when they were talking about weakness in las vegas for the third quarter, they all said the first quarter would be stronger than this is not a loss vegas problem. >> what is the problem, contessa you would think 4% consumer spending just showed up in the last gdp report. everything would be going right for las vegas right now. >> mgm says look, third quarter

is always the toughest quarter it's hot in las vegas, right he said on the call today, they saw visitors choosing to go to europe this year that's something we can dive into with the las vegas visitor and convention's bureau. they're saying, look, the group bookings are set for the fourth quarter, we have a big packed events calendar, we know that will bring visitors in but caesars set expectation for 11% growth in the fourth quarter in order to make up for that growth in the third quarter. >> con testessa brewer watchingt vegas story. the opening of the show today, the markets off the low, the dow is down 114. tesla is on the pace for the

best dayin sce 2015, we're going to watch all of this when "squawk on the street" comes back are you ready to take your wifi to the next level?

then you need xfinity xfi. a more powerful way to stay connected. it gives you super fast speeds for all your devices, provides the most wifi coverage for your home, and lets you control your network with the xfi app. it's the ultimate wifi experience. xfinity xfi, simple, easy, awesome. the president threatening to double down on his trade wars with the white house. >> the president suggesting he could raise the stakes in his trade war with china he's asked his trade official about potentially doubling his tariffs on about half of chinese

products to 25%. that would effectively extend the comment period to september 5. gold man sacks says the reason why the white house is doing this is to warn china to stop devaluing its currency the yen hit a 14-year low on saturday that of course softens the blow and it also beefs up the attractive -- that's not necessarily the catalyst, that the u.s. did need stronger tools to get china to the negotiating table. they said communication is open, that the president is considering meeting with president xi, but there's a question as to whether formal talks at this point are even appropriate. we're also seeing a separate

change in the -- like minded partners joining in the fight against chesapeake bina. we saw them reach a hand shake agreement with europe in the last few weeks and a potential deal with mexico in the coming days could be another one. we know that mexico's economy minister is coming to washington and meeting with his counterpart, the u.s. trade representative there is some bullishness about the content of a deal coming together what that looks like we still don't know but mexico has made it clear they want canada to be part of that deal. the strategy now is to get these deals with allies, then join forces effectively, in what could be a protracted trade fight be china, but we'll see what that looks like and exactly how long that could be >> thank you for the update on trade from the white house take a look at shares of cushman

wakefield, a company making its market debut, opening for trading just a second ago, popping in the opening trades here almost 6% higher. let's talk more about these trade fears, because they are weighing on markets this morning. off its lows but still dealing in triple digits and here at powe have our analys david, explain, why is market in the u.s. doesn't treat this as a big economic threat? >> i think the market is taking a measure twice cut once approach to this issue and really trying to separate the signal from the noise. what happens what's been most significant is the earnings announcements we have gotten over the past few weeks is you see corporate management providing guidance in the sense that they're focussing on these

brewing trade tensions, they're not really divulging what the impact on their trade could be i think investors could be mispricing this ris. >> the reason they're not sealing the impact yet is that the tariffs really haven't gone into effect yet. just preliminary steal and aluminum >> if this worst-case scenario, if we have 10%, 25% tariffs on chinese imports, that's going to impact inflation, that's going to impact the federal reserve. but ever. >> does that make sense to you do you agree with david that the market is under pricing the risk of a trade war we keep hearing markets just think it's noise, investors just think it's the worst case can't

possibly happen here, but guess what it's going from bad to worse and the more it comes out, the more it seems the president wants it to become a reality >> i don't think a trade war, a full blown trade war is the most likely outcome the situation is like pro wrestling, the big guys go after each other, they issue threats but they don't really want to hurt each other. the u.s. administration has promised a deal. but the problem is sometimes people really get hurt china may back out, and we may not get a deal, so things could get ugly before they get better. >> i like that pro wrestling analogy. >> i wonder if you could put it in the terms of the midterms you saw this thread that we

could see more as the elections got close. does that matter >> i think the china ball will remain in the air, but i think we have had a good meeting with the europeans, nafta is back on track and i'm of the view potentially nafta could potentially be a bigger deal than our relationship with the chinese from a trade standpoint. despite the disruption in the chinese negotiation does give me a little bit of confidence that perhaps again this worst-case scenario won't materialize >> we got fresh bilaterals, but china remains out there, what would be the delta in terms of the market >> i think the delta would be flat to slightly up. obviously, this has the possibili potential to impact them more than it impacts us the scale has certainly tipped

in one direction, i think if we make progress on nafta, the market will take it in relatively good spirits. >> how are you guys feeling at pimco about whether a 4% level is sustainable >> i think 4% is probably not sustainable, but the u.s. is still on a very strong track, which is something like 2.5% to 3% is quite likely we're still seeing the impacts of fiscal easing, both the tax cuts and lower government spending also the fed can remain gradual despite the strong growth, because there really is no inflation, pce in inflation is still 2 po.3%. i don't think we should

underestimate the situation in china. if the u.s. puts higher tariffs on chinese imports, the chinese will depreciate their currency by more and that will have a global impact because of the chinese currencurrency, that woo be good news neither for developing markets nor for emerging markets. >> do you have any thoughts on how the chinese regime would move to save face? >> they don't want the economic pressure that's been propping up their economy or protecting their leadership or they wouldnwoul wouldn't because it's propping up the united states >> i think china will want to save face, so that's why i think a quick deal is unlikely i think you'll first see an intensification of the tension

so we'll probably see more tariffs on the u.s. left on chinese imports. and i think chandlina will try respond in kind initially. u.s. exports to china are much low lower. >> when starbucks kevin johnson told kramer about this move on the other side of this break dow has cut its lost losses in half welcome to the place...

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the trump administration has

proposed rolling back gas taxes and it wants to revoke the authority of california and other states that set their own stricter mileage standards the military is beginnin the painstaking examination of the remains of the u.s. war dead more than 14,000 wildfires have burned more than 300,000 acres. and ohio state has placed head football coach irvin meyers on paid administrative leave his wife new about allegations of former buckeyes assistant

coach zach smith who was fired last week. starbucks announcing a new partnership with allibaba to increase their delivery service in china >> let's say you're a shareholder of starbucks, you have seen the starbucks trajectory in china go from high single digits to mid to low to minus two. can we listen to this announcement and presume that you can get back on a trajectory of same sales -- we posted a 17% top line growth. most of the growth in transactions in china is coming from our store growth. we did have a negative 2% same-store sales comp last quarter. if i look at what we're doing now with alibaba and enabling

fly wheel and enabling delivery. this will be an accelerator for our business, no doubt >> a couple of key words in there, rocket fuel and fly wheel. >> that's certainly what they're looking for in china with those comps negative >> as he makes the point, of course, as you guys both know, it's not about constant china it's as much about store growth. but it's important it came from up 8, to down 8 a month ago. they did cite this trend in delivery and sort of getting it right. >> i keep thinking about the percentage of grocery at least that's delivery. >> a billion dollar market, it's much higher in places like the uk it was always the holy grail

now there's some major heads winds on trade and young china numbers were very disappointing yesterday. coming up, apple inching ever closer to a $1 trillion market value goldman's market analyst rod hall with what he expects for 2018 dos wn22w'do 1 apple's in the lead. and make adjustments on the fly. ♪ ♪ the ibm cloud. the cloud for smarter business. the kayak explore tool shows you the places you can fly on your budget. so you can be confident you're getting the most bang for your buck. alo-ha. kayak. search one and done.

welcome back to squawk on the street about an hour into trade and we are seeing those global trade tensions reverberate through the markets, down 116. nasdaq positive by a quarter-%, apple is higher again. second day after its earnings. take a look at european markets

which are feeling the heat ors, shanghai overnight some of the german index, the dax down 1.5%. these are export economies, their two biggest trading partners are the u.s. and china. they are squarely in the middle of these trade tensions and trade fights that's why we're seeing these other overseas markets underperform the u.s >> meantime stories of apple hit a new record this morning, still shy of that trillion dollar valuation. goldman-sachs increasing their price on the dow stock, those earnings now up around 20% for the year we have the ceo on, good to have you with us, good morning. >> thanks for having me. >> your main point was better demand resiliency unanimous we had expected especially for a

summer quarter, and it all comes back to the asps, right? >> they're really seeing good demand resiliency with a pretty good start to the year with that iphone x our asp since february has been above the street we continue to be about 5% above the street and we think they lost three new phones, the lowest price on those phones is going to be $850, we think, and you can see the average asp $724, we think that makeshift continues to drive asps higher in the back end of the year. >> and china has been such a bright spot for apple. do you think that almost 20% revenue growth is repeatable,

given some of the trade tensions and given that hrksz u -- >> we always see this in the middle of the year, hu aruaei in terms of trade, i don't expect that to affect that at this stage tim cook made some comments on the call this week that they're still evaluating this $200 billion trading partner. we expect demand to be unaffected at this stage and in china, they love big phones, so apple is launching a bunch of large screen phone this is year. we think maybe they left some demand on the table last year, because they didn't have larger screens high end phones. >> we have been spinning this

market cap trillion dollar number pretty heavy. for better or worse, it acts or could act as a cap on sentiment, if in fact they get there. >> i don't know, for professional investors, i don't know if they're particularly bothered by the market cap retail investors may be a little bit. so yeah, i suppose here in the summer, when retail close are higher, i think it's more what's going on with the earnings and what does the valuation look like >> are clients in a good space >> oh, yeah, people understand that, it's more about how fast services can grow looking forward, there have been some licensing from google that have driven some growth so a lot of analysis being done in the underlying services growth we think apple just as a data

point, we think apple has a rate on their own sub services. so they have got a long ways to go there, but then they have made the progress they have made the pretty slow so far. >> you got a neutral 200 target. what is it going to take for you to boost either of those >> we thought the people would have figured this out by now, they don't seem to have, so kind of waiting to see whether street earnings numbers catch up to us on that basis, and we'll see what happens next. >> interesting quarter to be sure rob, thanks for the time, good to see you let's send it over to dom who's got a news alert on papa john's >> so john schnatter is telling cnbc in an interview that he does not have a lot of faith in of what's happening at papa

john's or on the board also saying that he thought he told the board a few months ago that the ceo was quote, unquote drowning and needed help he also says franchisees don't believe in this leadership or this management team and i don't believe this board has the confidence to help steer this company in the right direction he does say, i'm a principal shareholder, i'm a founder and i'm a director, so i have lots of say on what's going on. go to cnbc, the full interview is on that site right now. >> after the bell this afternoon, cbs will report its earnings, certainly going to be focussing on the numbers themselves

long time ceo leslie moonves last friday detailing accusations from at least six women of sexual misconduct on the part of mr. moonves, he has not been suspended, he has not been fired what has happened late yesterday is that the cbs has told us that they are investigating these allegations of sexual harassment against mr. moonves and they have also created a special board to oversee that investigation. but, you know, it has been an interesting few days here of course i have not really spoken to really anybody both inside the country and outside, it was a surprise that the board did not suspend mr. moonves pending the outcome of

this investigation when you think of all the different stories we have seen involving the misconduct of certain people, it's been rare that the instances of behavior have been cited in a particular article. so there are many who are wondering when they're going to find more behavior from mr. moonves and what will be done about it there are also questions from the board as to why they had not undertaken this investigation sooner certainly as board members, there were no lack of rumors about this potential behavior. and of course it lines up for what is still seemingly going to be a trial in delaware about whether or not this board of directors had the right to try to issue a dividend that boosts the controlling power of its shareholders there's an argument to be made that you can -- loyalty to mr. moonves above all else and why they did not act to potentially

investigate these rumors previously or even suspend him to make the argument that they're simply in his pocket, so to speak. >> you're saying there's an argument within the building about questioning the board about a lot of problematic issues, relating to mr. moonves, a lot of the statements they made, backing him in the fight with sherry red stone, and backing him. could they still do both >> i'm surprised that mr. moonves was on the call. you also wonder and how much production work can actually be taking place at the company and what outside vendors, all the different deals they have. whether or not they're getting any push back on things. again, we'll have to see what the results are of the investigation, nobody has to prejudge, understood, but it's very curious, and again, i have not spoken to anyone who doesn't sort of question to a certain

extent why the board chose to go in the direction it did. >> it will be dramatic, it will be interesting, and you'll listen to the closing bell because we have reaction on how les moonves handles the q&a and how investors are handling all of it. just take a look at apple's market cap as it nears the $1 trillion value it's the first company to erev get there, just a few bucks away "squawk on the street" will be right back ♪ ♪

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apple inching ever closer to the trillion dollar milestone. will we get there this week? find out on trading spaces

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i would like to welcome my guest today vincent reinhart >> thank you for having me >> we have had the reserve bank of india, bank of japan didn't do anything, created a lot of volatility for basically tweaking the edges countries like china can move their currencies bank of china, almost controls in many ways where equities are trading and all of the central banks together affects global markets. is this something investors should be concerned about in the bigger picture, vincent? >> no question about it. and the first message is, get used to it, the rest of the world is bigger? and the rest of the world doesn't act the same way it used to, ie, the em has a much bigger

footprint than the major occurrences. they have bigger balance streets and they use more quite dance. why the about their rate target. it wasn't anything they actually did, it wasn't anything they voted on it was just forward guidance then the third thing you've got to recognize is there are so many different moving parts, and that emerging market economies are different than major currencies with regard to exchange rate ranges >> so what is to be done i personally think that, you know, the veil has been pierced, the credit crisis occurred when you have a crisis, you throw the rules to the wind and try to deal with it, i get it. but now are we ever going to be able to take the levers away is there any organization that could challenge or push back on

some of these newly used policy powers without breaking the independent relationship between governments and central banks? >> yes and no. when you do something, you set a precedent, it is very hard to go back, that the fed reserve doesn't like doing quantitative easing, but if we had a downturn, people would call for it to use qe, it would start to manipulate the balance sheet again. it is too tempting if you used the tool not to use it again remember that the fed reserve is a creature of congress it is governed by the federal reserve act. its structure has changed over time congress and dodd-frank has told the fed not to do things it had done previously in the crisis, particularly with regard to the discount window. we can put guardrails around central banks. and the other part to remember

is central banks tend to travel in packs maybe jay powell toning down the statement, talking more clearly will wean them away from forward guidance >> vincent, we have to leave it there. it is a fascinating discussion i would like to have you back, dig deeper into those issues thank you for joining me carl, back to you. >> thank you. when we come back, fit bit stock fading after initial pop on earnings. we talk to the ceo james park exclusively on "squawk alley." back in a minute

with the dow down 170, time for etf spotlight. bob pisani looking at flows in general in the first half. >> hello, sarah. etf flows at the half were strong, but not like 2017. 148 billion flowed in the first half of the year, respectable 4% increase far cry from last year we had roughly 240 in the first six months lower inflows are due to the

major hiccup u.s. equity is seeing inflows, 53 billion investors haven't given up the love affair with fixed income. this surprises me. 50 billion went into fixed income a large part was high yield. they love high yield and that's not surprising. the risk is not interest rate, it is credit risk. credit is holding up that makes sense inflows are not the hottest topic, it is fees. they keep dropping many platforms offer no commission trading, but yearly fees also have been dropping the average etf feed from 32 basis points in ishares to 24, and it is even lower if you look at van guard even lower cost funds are starting to cannibalize each other. it is not long before we see

zero fee etf that will be a loss used to sell people higher value services it is great news for consumers out there, but making the economy investing business a lot tougher and many big names, fed rated, franklin, legg mason are down more than 20% carl, back to you. >> bob, thank you very much. apple closing in on the $1 trillion market value. "squawk alley" starts in a minute

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