$1.3 million at auction but was shredded by the frame right after the gavel sounded. it's monday, october 8th, 2018 happy canadian thanksgiving. "squawk box" begins right now. ♪ snoitsds ♪ ♪ ♪ live from new york where business never sleeps, this is "squawk box. good morning, everybody. welcome to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and andrew ross sorkin. as joe mentioned our guest host is cnbc contributor michelle caruso-cabrera she is here to talk about a lot of things that are happening with the markets. >> pleasure to be here. >> we'll jump right in in a minute let's get you caught up to date

on where the u.s. equity futures are. right now markets are down once again. dow futures down by 45 points. s&p futures off by 2 this comes after the nasdaq, russell 2000 and consumer discretionary future had their worst week since last week the s&p at one point on friday was down and it's the first time we've seen back-to-back pull downs. it is october. we're going to talk to people about what they think. we'll dig into this nerdy story. vix futures, the curve going into backward ation instead of contango it happened on august 21st, 2015, february 2nd, 2018 the two fridays the following mondays opened up they were down 2.9% and 4.1%.

tech stocks have sold off. it has traders thinking that the future is a little more reassuring than the immediate time frame for equities. >> 114 on the euro this morning. >> right >> things are moving on these rates. >> 20 basis points on the yield for the ten year last week which is from wednesday on. >> there's a lot of things that, you know, the ipo news, how hot that is. 84% off money. so there are some signs but then again -- >> companies lost money in terms of profitability. >> right then again, i'm seeing a lot of in the financial press, a lot of people are noting that the stocks are selling off based on higher interest rates. >> it is a strong percentage -- is it a 1% move yet totalling? >> mark -- >> nasdaq. nasdaq. >> right 1% for the nasdaq. mark grant looked at it in

percent of change for the yield. the yield is 22% higher than it's been for the average year 10 years that's coming from 1.65%. >> this is not your normal ten years, it's not. >> it's not. we'll talk much more about that in a minute. in the meantime, take a look at what happened overnight in asia. nikkei was closed for a health holiday. michelle, you want to talk about reopening. >> i'm not surprised to see the markets down so much in china because remember mike pence's speech last week, mike pence is saying it's the declaration of a new cold war there are so many things he highlighted are we in an economic war with china, you listen to mike pence, china has become isolated. more and more we're seeing

people in europe getting on board. both parties of all of the things they've been divided on, they've come together on the idea that china is a big threat. that would cause the market to fall. >> if you check out what's been happening in europe, big concern is italy continues to push its case with the e.u. italy down by 2 1/3 percentage points the dax is down by .6% cac and the ftse down by .4. stocks are off by half a percent in spain take a look at crude oil prices. up by 1.5% this morning wti pulling back to 73.59. nobel economic prize just been awarded literally minutes ago now to william nordhaus and

paul romer he won for technological integrations into long run macro economic analysis. hold your tongue, joseph. >> need we say more? >> congratulate those people. >> that's a perfect -- >> the other guy won for endogenous economic theory, which is the idea that economics -- >> perfect. >> -- what you choose to do as a country and policies matters for your economy on a morning when they've been granted the nobel, it's a time to celebrate you >> apple's top security maker aid is that they had no idea he said apple has repeatedly investigated and found no evidence for the main points of

the report published on thursday the article says super micro allowed for back door transmissions to china app apple's letter follows statements by the department of homeland security and the u.k. cyber center they have no reason to doubt the denials. blockberg said it stood by its story which was based on a dozen anonymous sources. one of apple's former senior lawyers was quoted in a reuters piece saying he called the fbi a year ago when he had gotten the call from one of the bloomberg reporters saying do you know anything about this? because i don't know anything about this i'm sort of mystified.

they've been cautious about the kind of reporting they've done over the years it is not one typically to get out on a ledge at all. >> right. >> and so -- and they continue to write the story even though these type of vociferous denials came to them before the piece came out this wasn't after the fact situation. so the whole thing is kind of mystifying. >> we'll hear more about this hopefully. >> all right glad michelle's here is there an r roll involved? >> no. >> there are some rs in brazil >> there are. >> right wing candidate. >> jaier. >> you pronounce the j in portuguese you do jaier bolsonara. >> yeah, good job. >> taking a commanding lead. i want to roll that r. >> i know, but don't >> i can't i'll hurt myself right here.

anyway headed for a second round of voting he's seen a surge after promising a crackdown on crime and for rupgs. he's squaring off against the former mayor of san paolo who's the polar opposite >> a leftist a couple of important points he won far more of the vote than was predicted by the polls does that sound familiar he came within striking distance of getting a majority. he only got a flur ralt at this. that means they have to go to a second round in three weeks so he certainly thafts doing better than the public polling. you're going to read a lot about what a threat to democracy he was. they were calling him the latest mena menace what i find astounding is people are very worried about the lack of political freedom and return

of a political dictatorship in brazil but they have been unwilling to acknowledge or realize there's been an economic dictatorship in brazil for decades. >> would you say this is an -- >> brazilians have to choose between what he's calling family, god and justice or becoming venezuela that's basically how he sums it up from the economic side of it. >> are we seeing this through our own prism here when we say that the right winger is a threat to dem cla si i would say left wingers have been -- >> historically, shu. >> -- as a result of to the stories. look at what happened to petro

the government has golden shares and the government can ultimately decide what they want to do. russo fired the former head of bali. >> how far left is he? would you characterize him, okay, take bernie sanders. is he left or right of bernie? >> he's about where bernie is. >> they call him lua. >> the reason he won as much as they did they call him a copy. >> i wanted to get bernie in there. i think he's pretty far out there. >> absolutely. absolutely remember what the basis of what they think single payer is correct, you know, the pillars of the economy. they know better. >> typical status stuff. >> which has driven out any investor coming under this. >> right

so the comparison to trump, a lot of people voted for bolsonaro despite some of the things he said not because of what he said. >> i was going to set it up between an election with a far right candidate here and bernie sanders but i wasn't sure whether to put trump in the far right. >> i'm not sure on that. he's interventionist on some things i don't like. you know me, i'm a libertarian. >> a lot of never trumpers are watching what's happened recently and they're not quite as loud. >> yeah, i know a lot of them. >> bill crystal will never come -- he's very small about this it's a triggering. go ahead i don't want to trigger anyone. we'll get to washington right now. we're going to get to eamon javers of a recap of, yes, the

supreme court nomination it triggered some on one side and after all of the controversy, dramatic senate floor speeches in the united states senate and brett kavanaugh was confirmed to the united states supreme court by a vote of 50 to 48 there were some protestors in the chamber which they did very quickly over the weekend there were some protestors in the chamber after the final vote and then those who were frustrated took to the supreme court itself to protest. a crowd gathering outside the front door court. the crowd in front of the u.s. supreme court is tiny. looks like 200 people. that wouldn't even fill the

number of problems the president is going on to say that kavanaugh is going to go down as a totally brilliant supreme court justice. this realigns the supreme court in a much more conservative way. a 5-4 conservative court cemented the president has been saying he might get one or two more supreme court picks before his term is over for now, brett kavanaugh is a supreme court justice. >> eamon, are you betting on that you said one or two more >> i'm not the president has said that. i think some of the others won't retire, but sometimes as we've seen to them, this isn't up to them demographics are harsh realities. ultimately, you know, it's not always a decision that supreme court justices get to make for

themselves >> god involved from time to time i don't know what you want to call it, climate change. >> now let's turn to michael gah tv ian i already sort of was echoing some of the sentiments rates go up. people immediately notice. we see some movement in the markets but 90% of the time rising rates do not go negative on the stock market. you mention the taper tantrum. >> yeah, we saw 32% returns in 2013 the best returns of this entire cycle. i think this is just the bond market waking up to what we've

known all along, that the u.s. economy is booming and the stock market has been reflecting that with earnings revisions and very, very strong. so i'm not at all concerned given what we've been seeing inflation, yes, it's gradually ticking up but it's not a concern yet, right so i don't see run away yields any time soon. >> mark grant is going to be on. italy, the ten year is at 3.59. >> out of control. >> yeah, right we're the same as italy. we should be -- italy should be 10%. we should be 1%. why are we both at -- you know, is that scary? but the point i'm making is that we were i think tethered to european rates, germany which is still below 1% that was helping us. sooner or later, given the 3.7% unemployment, have we ever had the ten year the same as the

unemployment right the umpt s. economy is dock so well we haven't seen wage pressure reflected in the market. if you look at the consumer discretionary standards, that's something the market is going to be paying attention to this earnings season. is that going to be a risk to affect the margins. >> trying to ramp up ahead of the holidays. >> correct >> michael is barclays no talking points. >> did you send your home work did you send anything? >> the holidays. i was out of town and i asked for notes to be sent over but i guess they didn't make it over. >> did you see any after this. >> i have a dog.

>> do you think you should get an incomplete or do you think you should fail? >> if you're grading, that's really up to you. >> you flow what, a lot of times i don't even like to read the notes because i want to find out with the viewers. >> holistically. >> and i want to show my response which elicits more information. >> doing it cold for the first time ever. you would never do that. >> no, exactly >> so 3% this year i think not -- i'm talking about gdp. >> where we are. >> we should do it we should be in the books it will be -- it will have a three handle, will it not, and we think the second half will be a sold three the data clast week includes including auts tow sales the underlying momentum is quit

solid. >> at these levels of unemployment, number one, is it a normal unemployment rate or does that participation rate make it different? >> it is tight the six-month annualized gain is now above 3% we're not convinced that this means margins are under tremendous pressure. the analysis has suggested you could probably run tight for several years like the fed is suggesting and not ignite a tremendous amount of input led price pressures. so we do think -- i agree with mark that the economy is doing well, but the risk is low. >> say there is no inflation. >> no, not for us.

we're favorable on the equity market particularly in the u.s our view is the markets are re-evaluating where the neutral is we think powell's comments about how prolonged this could be were the initial spark. we wouldn't say there was an answer if it's based on, yes, there is productivity gains, long run is better that's not necessarily a negative story for equities. we would agree with that view. >> can we still import disinflation i have the feeling that we have a domestic economy that's doing things on its own. >> right. >> can we still import disinflation from around the world? >> yeah, some. >> really? >> not a lot that's a good thing to do but it's good that we don't slow down necessarily with the rest of the world. >> right the import content is relatively low for domestic inflation we are importing some.

>> michelle, you might be a hedge fund next time you're in here. >> no. >> you're not going to be? >> no. >> are you listening -- >> yes, i am i am allowed to own stocks now. >> no way. >> yeah. >> forgot about that she's now a contributor. >> i didn't know you could own stock. so you have a couple that you're going to plug? >> no, it's not that i'm having -- i probably could have had the discussion even when i worked here what should my exposure be normally at your age, myung age i would be 80/20 right now he says go 60/40. >> are you serious >> that's crazy. >> who's your guy? >> that's my guy. >> is he with a firm we know of? >> yeah, he's with morgan stanley. my ask to him and -- >> i have zero bonds i have 100% -- i can't own individual stocks. >> she's only 20 years old

>> for 30 years we've watched the stock market and the bond market go up together. what's to say they can't go down together for a long time this choice between stocks and bonds, i wonder if it's a false choice. >> i think they all went down for a protracted period of time. we're all in trouble if you look at rising rate environment of the first through the 1950s, early '80s, you saw stocks outperforming bonds but much less so then from the '80s through 2016 and that collapsing rate environment, the stocks massively outperformed now rates are rising it favors stocks long term it wls also depends what your t frame is they're protecting you -- >> you're not going to need that money for a long time.

>> back to your point about stocks went up dramatically. yes, they outperformed bonds if you did bonds, they went up, too. you did okay with the withdrawal of liquidity. i wonder if we have a massive number of people leaving the markets and then they both suffer >> i don't think so. earnings growth will continue. they might slow at some point and eventually there will be a recession. populations continue to grow, earnings grow, that's favorable. valuation might be a little bit high what you're doing for long-term investing, you're borrowing. historical 8 to 9% return, that should be a little bit more muted than what we've seen historically as long as you're betting on growth to continue, that's favor

achb achblt. >> it's a sales thing. >> i told you last time i was on i've been bearish. >> you should listen to him. thank you. michael and marc when we come back, talk about creative destruction there was a banksy painting that shredded itself right after it sold at auction. we have the details next right now as we head to a break, here's a look at the big epilepsy free market winners and losers in the town

what do advisors look for in an etf? don't just track an index, help me meet a client's need. is the fund built to sell or built to last? etfs are only part of a portfolio. so make it easy to explain. give me a quality fund that helps me get clients closer to their goals. flexshares etfs are designed and managed around investor objectives. so you can advise with confidence. before investing, consider the fund's investment objectives, risks, charges and expenses. go to flexshares.com for a prospectus containing this information. read it carefully. because when you want to create an entirely new feeling, the difference between excellence and mastery, is all the difference in the world. introducing the all-new lexus es. a product of mastery. experience amazing at your lexus dealer.

a product of mastery. unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today.

banksy making headlines again. when the gavel dropped a shredder hidden in the picture began to shred the art it sold for $1.3 million is worth even more now. robert frank has been digging into that story. he's going to join us at the 8:00 a.m. hour literally the second the gavel went down all of a sudden it was -- i believe banksy or somebody triggered this. there was a shredder built into the frame and it went down -- only went down halfway >> my favorite is the reaction to this woman. i can't believe what's happening. get me away from it. i didn't do it i didn't do it. >> i didn't realize. you thought frames came with shredders? >> i only saw the headlines. >> maybe it was placed in wrong. >> you don't think anybody would do it on purpose. >> i would contend to you, this

is the art the art of -- and the performance art of undoing -- >> i feel kind of used. >> we fell for it and we're running it. >> i'm not big on performance art. >> i wouldn't expect you to be a bidder. >> compared to some of the performance art i've seen, it's pretty good. >> it didn't go down. >> it's almost disingenuous, cynical. spacex successfully landed the falcon 9 rocket on the west coast for the first time ever. it launched and touched back down at the vandenborg launch site until now all of them have occurred out of cape canaveral. all of the company's landings had been on the brook ship.

market watch and mark grant will be sounding off on the fed. they're locked into a standoff with elected officials and the fed. take a look at the say who bought it. i'm ken jacobus, i'm the owner of good start packaging. we distribute environmentally-friendly packaging for restaurants. and we've grown substantially. so i switched to the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy. and last year, i earned $36,000 in cash back. that's right, $36,000. which i used to offer health insurance to my employees. my unlimited 2% cash back is more than just a perk, it's our healthcare.

can i say it? what's in your wallet? wow! record time. at cognizant, we're helping today's leading life sciences companies go beyond developing prescriptions to offering subscriptions with personalized, real-time advice for life-long, healthy living. honey? you almost done? nope. get ready, because we're helping leading companies lead with digital.

get ryour company ise're and the decisions you makees have far reaching implications. the right relationship with a corporate bank who understands your industry and your world can help you make well informed choices and stay ahead of opportunities. pnc brings you the resources of one of the nation's largest banks, and a local approach with a focus on customized insights. so you and your company

are ready for today. ♪ she could tell right away tha

i was bad to the bone ♪ ♪ bad to the bone welcome back you're watching "squawk box" live from the nasdaq market site in times square. good morning welcome back to "squawk box. stocks to watch. airbus expected to name a new ceo. they're reporting that the airbus commercial aircraft president faury will get that job. tom henders announced plans to step down. baker hughes is buying a 5% stake in the drilling of abu dhabi state oil company. valuing that business at $11 billion. it marks the first time that abu dhabi has sold part of its operations to a foreign interest ge owns 6.5% walmart teaming up with mgm to create contend for vudu. they'll be focusing on family friendly movies and shows. formal announcement expected to

come on wednesday. right now we're in the red dao up 72 points box office posting the best october weekend of all time. leading the charts super movie "venom" brought in $80 million they succeeded despite bad reviews from critics warner brothers "a star is born" brought in $41 million this is the fourth rendition in its debut weekend. >> fourth? >> fourth. >> it stars lady gaga. >> fourth. >> lady gaga and director bradley cooper boasts a 90% rating on "rotten tomatoes." i saw barbara streisand and kris kristofferson. >> i cried in the kris kristofferson one. they wreck a ferrari >> oh. >> they actually did it.

they used a real ferrari when they wrecked it. i had a lot of questions the critics loved this then i also read it's kind of what you would expect a lot of the themes some negative things about it, too, online. it's just sort of -- does it say starring lady gaga like on imdb it would be lady gaga i think madonna -- >> she was not madonna >> no, she was >> anabida. >> in shanghai, which they can't really -- >> it's lady go go >> she has a name. >> i'm looking for a movie post je jerp. >> desperately seeking susan was

madonna's first -- >> i remember that in fort lee. >> starring lady gaga. >> why wouldn't she use the name. let's talk about the markets a little bit the recent jump in interest rates hitting the equity markets last week. joining us with his read on the markets and on yields is mark grant. chief global strategist, managing director at b. riley fbr. your notes were incredible if you look at the last ten years, it's higher than it's been over the last ten years it sounds shocking but is it given how low we've been the last ten years >> becky, we have the financial crisis with the lehman brothers bankruptcies ten years ago over this time period the central banks created a gdp at $21 trillion which is equivalent

to the entire united states gdp. the only issue there is there's no offsetting liabilities, costs of doing business, so it really was worth around 100 trillion dollars on an equivalent basis and interest rates have been low which has been one of the main reasons that the economy continued to grow and get out of the recession. what strikes me now, becky, as i said in the notes you referenced, we have the congress and the president doing everything they can do grow the economy, the tax cuts, jobs bill and we have the fed, which is continual in my opinion i had otic desire to raise interest rates to get back to some kind of normalcy which never existed which is trying to slow the economy. so you've got -- >> mark, i understand your

point. isn't it great cover for the fed to go ahead and get rates back to a normalized level and maybe not have it hurt the economy at the same time? when else would you raise rates? >> becky, you can raise rates to some extent slowly over a period of time but they are raising them and raising them and raising them without any letup. >> we're at 3 1/4% on the ten year historically speaking incredibly low. >> that's historically speaking. we didn't go through this crisis until probably we went through the depression i think any economist in the united states will say what's the point? to return to a normalcy that hasn't existed you can't go back to what wasn't. >> there have been a lot of

different opinions out there last week we talked a little bit about the idea that maybe they should run the balance sheet off first and get rid of that stimulus before you raise rates. what do you think of that idea >> i think that's a much more prudent way of handling it i just think raising of interest rates at the velocity that they're raising the rates is causing a big problem. i think it's going to play out negatively i think it will be bad for earnings prime rates go up, cost of borrowing goes up, cost of credit cards go up it is doing nothing positive to help the economy grow. >> when do you think this has a big impact on the stock market >> i think we just got the swack on the top of the head people realized that the if he had was doing this, was going to

keep doing it. i think people decided this was going to be a negative impact on equities we're seeing the result in terms of equity. >> you knee, there was an article out over the weekend that pointed out that vix is in backwardation. traders are more concerned about the immediate future than next month. they're worried about equities today. we have equities open today. bond market is closed. when you saw this trend at least a couple of times in the past, two fridays, one was february 2nd, 2018, this year, one was august 21st, 2015. on february 5th when the markets reopened they were down by 4.1% for equities back in 2015 it was down 3.9%. do you think this happens again? are we in for tricky trading just in the near future? >> yes, i think we're in for tricky trading unless the fed finally comes to their senses

and say, gentlemen, we can add the equities to move up the interest rates will have a major negative impact on businesses and the economy. i think the fed is just way off base and why aren't they paying attention to what the congress or the president want to do which is try to grow the economy? >> as a result you're telling clients to do what >> i'm telling clients to use your words the equity markets are going to be tricky interest rates are likely to go higher now and it's going to be a more difficult environment to invest in. >> mark, michelle here

the fed might feel more embolden to raise rates the long end has been riding they're going to invert the curve. every time you see the ten year and 30 year move higher it gives them more freedom and allows them to do that. >> michelle, i was never that concerned about the curve going flat or even it being inverted it's just interest rates at different points in time what i am concerned about is if the fed keeps on with this, i don't think this is caused by inflation or congress or the president's economic policies. this is nothing other than these people at the fed, which is this very small group like the supreme court except they're raising rates for some kind of academic return to normalcy and i don't think there is any normalcy. >> mark, real quick. we've been talking about this trade war with china and i've been raising it.

we talked to kevin warsh about it on friday or earlier in the week this idea about whether the chase niece could put more pressure on treasuries themselves do you think they would ever do that there's potentially a political view on this >> look, china can do that if it's a political move. it would cause them more problems than us there are liquidity issues china has to deal with they just lowered their bank ra rate i think china is in more difficulties than they thought i am firmly of the belief that any kind of trade tariff standoff is going to hurt them far more than it will hurt the united states. >> when is the first time you heard china selling the debt

from snus. >> i know. >> you mean the same period of time we've been waiting for rates to rise? >> no. waiting for interest rates to rise. >> mark, thanks for joining us today. good to see you. >> thank you, becky. good to see you. >> mark grant. coming up, jobs in america we're talking about the competition for delivery drivers is heating up for the holidays stay tuned you're watching "squawk box" on cnbc firmness... nine. it's how ibm services helps retailers around the world drive growth and save millions. he's very into this. yeah. is that the standard amount? yes. feels good. when your partners are obsessed with business and technology, you can put smart to work.

not long ago, ronda started here. and then, more jobs began to appear. these techs in a lab. this builder in a hardhat... ...the welders and electricians who do all of that. the diner staffed up 'cause they all needed lunch. teachers... doctors... jobs grew a bunch. what started with one job spread all around. because each job in energy creates many more in this town. energy lives here.

welcome back, everybody. right now it's time for the executive edge three out of four share streaming, shopping, mobile accounts with family that's according to a new study by country financial that includes netflix, hulu, spotify and amazon prime entertainment were the most shared followed by mobile phones and shopping accounts. more than they weren't ponying up. coming up when we return, the tight labor market has

companies competing for qualified workers. we'll explain what that means for business that story next. at&t provides edge-to-edge intelligence, covering virtually every part of your finance business. and so if someone tries to breach your firewall in london & you start to panic... don't. because your cto says we've got allies on the outside... ...& security algorithms on the inside... ...& that way you can focus on expanding into eastern europe... ...& that makes the branch managers happy & yes, that's the branch managers happy. 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 this happens you'll know how to quickly react...

welcome back to "squawk box.

the tight labor market has delivering logistics company dhl scrambling to find qualified workers. >> reporter: good morning. here at this dhl facility outside of columbus, ohio, the manager is sounding the alarm about a lack of qualified supply chain talent behind me these are the workers they're talking about. where unemployment stands at 3.4% here in ohio. that's lower than the national average which already stands at a nearly 50-year low >> we really rely on motivating employees in order for us to successfully service customers when we can't find the right associate, that impacts our ability to deliver service to customers and impacts our business >> reporter: and there is a lot of competition amazon has two facilities within a 30-minute drive of here. they've recently hiked their

minimum wage up to $15 per hour. of course this tightening labor market is making things worse for companies that need these kind of employees. here at dhl, they're trying to attract the top people they've also added a lot of perks like culture and they're letting people pick their shifts over an app to attract and retain the top people. back over to you >> before you go, so you just mentioned a couple things. is there anything else that dhl can do or will do over the next couple of months especially as they get ready for christmas season >> reporter: well, you know, they're actively recruiting on college campuses that's a long-term solution. in the short-term, they're always reviewing their compensation which includes benefits, ability to pick shifts over an app, and other things like volunteer opportunities, and opportunities for people to get involved in advancement right here in the company. we spoke to another associate here she's really grown over the time she's been here. she started off as a teacher

came here for seasonal work and now she's a manager. >> is the shortage as bad as forecast it is because here we are living through this >> reporter: well, that's what they say here. the real issue here is if they don't get enough people or the right people, this company can't grow >> frank, welcome to "squawk box. >> reporter: thank you thanks for having me >> it's good to see you. i've heard from your cousin, great things about you you know frank's cousin -- >> family will do that >> frank's cousin is our makeup artist gayle >> no way! cool >> and she does a great job. frank, you're already part of the family good to have you >> reporter: all right love you guys. have a good morning. >> look forward to seeing you in the studio soon. all right. tropical storm michael is heading towards the gulf of mexico it's expected to hit the northern gulf coast by mid-week. rick scott has already declared an emergency for 26 countkoun

counties in the panhandle. he's already part of the family. i love that. >> and your makeup is great. >> yeah. when we come back, get your portfolio ready. plus we'll talk the impact of rising oil prices on the airlines' bottom line. "squawk box" will be right back. 0 operations a year in places like this. for the past 15 years, chubb has identified ways that we can strengthen our safety measures. and today, our hospitals have some of the best patient safety records in the country. now, we're constructing new buildings that will define the future of piedmont and chubb is here, insuring our expansion. two million patients a year depend on us. and we depend on chubb.

brazil swinging right. the nation headed for a second round of voting after a far right candidate took a commanding lead in this weekend's presidential election. details are straight ahead apple telling congress it found no signs that china

planted spy chips onto its hardware details are coming up. and will higher oil prices ground airline stocks? our own phil lebeau has that story. plus all of your monday morning headlines. i know it's supposed to be a holiday, right? or something but we're here the stock market is open second hour of "squawk box" begins right now live from the beating heart of business, new york, this is "squawk box. good morning, everybody. welcome back to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with andrew ross sorkin and joe kernen our guest host this morning is cnbc contributor michelle caruso-cabrera also been watching the u.s. equity futures this morning. they've been in the red. right now the dow futures down by about 60 points

s&p futures off by 3.5, nasdaq off by 17. take a look at our headlines at this hour. apple's top security officer is telling lawmakers that the company found no signs of suspicious transmissions from its hardware or evidence of its hacking of its supply chain. in a letter to the house and senate commerce committees, apple has repeatedly investigated and found no evidence for the main points of a report that was published on thursday by bloomberg business week that article alleges the chips inside servers sold to apple by supermicro allowed for back door transmissions to china burerazil's right wing candidate taking a lead in the election he had seen a recent surge in the polls after promising a crackdown on crime and corruption

he's squaring off against the former mayor of sioao paulo and banksy paintings was gavelled off a shredder began to shred the heart when the gavel hit >> i think the art's cooler now. >> it's probably worth more because there's a performance art act in itself. let's get back to the markets. mark santoli is here >> we were pointing out just because it is october does not mean the fa-- for the skeptics o say maybe we can have a little bit more of a pullback not necessarily going to happen. but it seems like we have a handful of things coming together one is yields going up which in itself is not a bearish thi isi. you have had equity values stress tested. so stocks are about as expensive

as they've been rel ative to bonds for this cycle stocks were more routinely valued we haven't had investors accept that situation for awhile. also earnings revisions are following the normal path which means they're getting cut going into reporting season. we're struggling with that some people point to the fact companies can't buy back stock i think that's more of a placebo than anything else sometimes when that goes away, people get sick. finally emerging markets, they were a tail wind for a couple of weeks when they bounce now they're falling into a down trend again. all these facts, though, i could put them together and say guess what we've been talking about this for awhile it's been a stealth correction the average stock is down quite a bit from its high. maybe that's all we're getting right here is a bit of a flattening out period in the big cap indexes. >> going to extend and fill in this do you want to listen? do you want to stay? >> sure. >> let's get to a couple of

guests jurrien timmer at macro investments. that's in boston do you care anymore? it's interesting >> it'll be good to watch, yes >> and gene goldman at setera. so you're in -- just looking at -- and you're a thinker i wonder if you get in that position when you're thinking of all these things because you're very prolific with what you write. if you could do that for me. you heard what santoli said. i think he's saying the same thing. whether you call it an inflection point or the second derivative or whatever you want to call it, we've moved out of one phase and we're in some type of inflationary growth type regime where you get a bullish economic backdrop but a fear of inflation and rising rates and the market seems to try to find a place it needs more volatility and trading that you can't really predict as well. is that fair to say?

>> yes we're in that upper right quadrant of where the economic or market cycle is which is you have growth and inflation. in '09, ten years ago we were in recession and deflation, for instance '70s was regression and inflation. and the sweet spot, of course, is growth without inflation. that's where we had been for the last number of years now we're sort of transitioning. the way i look at it, there are a lot of cross currents. right? so earnings are booming. we have the tax cuts, fiscal stimulus, earnings season is getting under way and the consensus is 19% year over year growth down from the 24% in q2 but still obviously very, very good growth. but on the other hand, we have tightening liquidity commissions. it probably has another five to go more than the bond market is expecting. so there is upside to rates. even from these levels

so there's a tension, right? when liquidity tightens, pes come down. there's a strong correlation between those two -- >> offset by higher earnings, obviously. >> exactly >> jurrien, just trying to drill down on the inflation story. because -- so i understand second derivatives and inflection points, but what if it stays really low? what if in this case it's just -- the recovery continues, but we don't see the inflation -- i know we're seeing some wage gains. i know oil's up. but what if that doesn't happen for the next two or three years? what if this really is a longer secular story with disinflation? does that by definition mean the stock market has problems? even if there is no inflation just by the length of the economic cycle >> no. no i agree. and i think the fed actually has it exactly right right now because i just heard a -- i was

at an event a few weeks ago hearing chairman powell speak. basically he said the fed is right now hitting on both of its mandates they have stable 2% inflation. wage inflation is closer to 3% but overall inflation is around 2% and it's very, very stable what the fed is doing is they're raising rates but not so fast that it's going to derail the economy. so the fed is still a little bit behind the curve catching up to the curve. but they're not going to take the punch bowl away too quickly. because they are open to the idea that maybe the curve is going to remain dormant. that is the tradeoff between wages and employment and so as long as the fed stays at or behind the curve which is where they have been, this expansion can basically continue i mean, as the chair said, it can theoretically continue indefinitely that hardly ever happens, of course but it's inflation that forces

the fed into overdrive that's what kills the cycle. and without those two things present, this can go for awhile longer >> yeah. because if people are looking at this once in a lifetime financial issue, maybe we're not thinking about inflation globally we do -- we're no longer going to stay low and go negative, but just because you've hit that inflection point doesn't mean it becomes a problem. what do you think, gene? >> we're constructive in the markets looking for the bounce of this year first of all, as you'jurrien sa the growth is good i think from a valuation standpoint, we're fairly valued. also seasonality fourth quarter tends to be pretty good for the markets. the earnings season starts this friday had a lot of financials reporting numbers. that should be pretty good we're optimistic there also the fed is doing a great job. powell is doing a great job to indicate to the market that

slow, steady rate rises. we're looking at five rate hikes. with a value of about 3.25% to 3.5% they're notifying the market very well. potential recession and inflation. >> why are you assuming there's a potential recession in 2020? just because it's been so long >> earnings slow down. you're looking at about 9% to 10% on 5% revenue growth >> why does it slow down it's a new tax rate like it's the jelly of the month club

>> i love the jelly of the month club >> everybody does. it's the gift that keeps on giving they win nobel prizes, sort of so how do you know that the stimulus wears off by -- i mean, it -- nothing lasts forever. and it's ban long recovery i know this must be a structural stage. not just a burst >> nine out of six economists are wrong. at the end of the day, you've got stimulus wearing off you've got rising input costs. labor, oil, like last week oil was up gas prices are up 7 cents from the weekly average that's going to affect the weekly economy too >> as rates go up. i'm worried. santoli, have you ever thought about the question -- the market

is really smart. forward looking. it doesn't need actual things to happen it just needs inflection points from the way things were and second derivative. it's the change. it hasn't gone up yet, but does it ever not hold true. and it's a false -- >> no, i think there are periods where the market gets a little bit preoccupied with the short-term stuff or mechanical influences i think we can talk about all these good things happening, but triple "b" rated corporate bonds cost you 5%. for most of the last six years, it costs under 4%. that's just a practical reasons that margins have a bit of pressure that's an offset to good stuff going on i also agree everyone believes the fed is doing a great job but they've had a concerted effort this month to try to drag the market's expectation up towards theirs next year >> right this has been about not -- by the way, it's not just about dragging up. it's about not spoon feeding the market anymore it had gotten used to having happened over the last ten years. >> they're going to a press

conference every meeting >> again, that's back to normal, right? that's trying to get back to normal >> back to the days i remember, yeah >> you prefer the press conferences or no? >> we wait for him to be done with the press conferences on "closing bell" and he's done early every time >> gene and our guest host michelle caruso-cabrera is very bearish. >> on everything. >> almost a perma-bear it's been awhile isn't the biggest risk over time being out of the markets and now she finds herself in position where she's able to invest i don't know do you have anything to say to her about staying out? isn't there more risk in that? >> the historical stat is it

goes up 10% or 11% per year. there are periods it goes up muchl more than that one thing i've been pondering is we have these secular bull markets in the '50s and and '60s there is a question whether we're in a secular bull market because we are repeating the price analog of the other two perfectly. and so i wonder what would happen and as you said, joe, if the stimulus is permanent in terms of tax cuts and we do get double digit earnings growth for a number of additional years and rates don't rise too much or the equity risk premium does come down, you can see a continuation of 10% to 15% gains in the market and, you know, this remains a very underinvested, underloved market >> what if it was all qe what if you get these massive

buyers all over the world? i'm bearish because i am frightened of the unwind of qe i watch bonds and stocks go up together for decades and i don't see why it's not possible for them to both go down you know, this whole -- i think there's this artificial construct bonds versus stocks. you can lose on both ends. >> so what i look at is that qe, the era of qe has surpassed term premiums always be getting paid for lending over the long-term you see it in a very low equity risk premium in the stock market you see it in tight credit spreads. although not unusually tight so risk premiums everywhere have come down because of qe in my opinion. so as qe unwinds -- >> you're making my case, it sounds like. >> but what i'm saying -- go ahead. >> no. wrap it up quickly

>> okay. what i'm saying is as risk premiums rise, it really comes down like i said before the intersection between earnings and liquidity. and if you can get 10%-plus earnings growth even if the pe falls. i think michelle's point is it's a valuation negative that doesn't mean it has to be a price negative >> we've been together a long time -- working together a long time >> 20 years. >> to iso i'm a little bit your senior in certain respects thanks, guys and the market was at 800 when i started in the business and it's now 27,000 so not being long, i think you've been ruined by working at cnbc because the -- no. the local news guys, there's like car crashes and plane crashes and fires and robberies and murders. and it's like you think the whole world is, like, dangerous because you're always reporting on it.

so now you're able to -- the house is not burning, you don't report what if you're out from 800 to -- there are guys that used to be on cnbc. they have no money left to manage they're writing for news sights. >> to some extent, you're right. i've been stressing what if the yield curve inverts. oh, my god the yield curve is steepening >> because you're close to it. >> enjoy the ride to 27,000. >> i know. i was in stocks for a long time. >> but now you can do it >> unfortunately john q. public is not enjoying the ride >> somebody is >> but if everybody was in, that's the worry >> that also might be bullish. you know, a lot of times it's the bag holders that get in. jurrien timmer, thank you.

both new york and boston think they own the sports nostalgia of the world. you got babe ruth up there >> gene goldman, thanks too. >> oh! gene goldman from cetera i don't know if he has comments. what do you think? >> sour grapes in "the wall street journal" about the fact new york and boston have people interested in their series opposed to colorado/milwaukee. i caught that one. >> that series is over >> and nobody noticed. >> i know. they have good beer. coming up when we return, higher oil prices, could they keep airlines grounded we'll talk about ford's move to cut its workforce. phil lebeau is going to join us. "squawk" returns with that and so much more

every investor should ask questions. is our money in the right place? what am i really being charged? and is it eating into my returns? is my advisor a fiduciary? is he always a fiduciary? a good place to start is with an independent registered investment advisor. as fiduciaries, they live by a simple rule: always act in the best interests of their clients. that's why charles schwab is proud to support more independent financial advisors and their clients than anyone else. visit findyourindependentadvisor.com

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. welcome back to "squawk box. october and november has been strong months for airline stocks the rise in oil may keep shares from flying high phil lebeau joins us with that story. >> usually pretty reliable you can count on airline stocks to move higher in the fourth quarter. it's understandable why. you're going into a busy holiday season traditionally you're going to have high load factors on all

the airplanes in the air and the airlines tend to do pretty well. for the airlines overall in the last year, they've been saying wait a second, we need that fall rally because they're struggling take a look at historically if you go over the last three to four years, this is what the stocks have done on average over the last three years when you look at the fourth quarter jet fuel, however, is complicating things. jet fuel tends to move lower in the quarter. but this year as you guys have been talking about despite the fact oil prices are pulling back this morning, look at what jet fuel prices have done since may. as they move higher, it brings up the question what can we expect from the airlines and what they say about what they expect in the fourth quarter we will hear from delta later this week. it is the first airline to report earnings. that will happen on thursday take a look at shares of delta yeah, that's a bit of a selloff there that happened since really the third week of september. and it's a pullback that people are watching but remember, historically the

airlines tend to move higher in the fall we'll see if that's the case this year. >> you have a pretty active beat every time you come on with a story, we ask you about another story on your beat we heard all this activity about ford the restructuring supposedly taking place with their salaried workforce. that stock down more than 25% this year. what's going on? >> they haven't announced the full restructuring in terms of jobs and how big the impact will be we've known this is coming for awhile that's why once this news started coming out last week that they were going to move forward with a few more details over the next couple of months, you didn't really see much of reaction from the stock. look it's no surprise, guys aside from the f-series and the truck business, name another part of ford you'd want to be part of right now. europe is struggling china's a mess how they missed the boat there is a question for a lot of people south america is not doing well. there's a question about whether

or not they shut down some of these international operations and the car business in the u.s., it's terrible. so really the f-series is the only thing that this company has going for itself and remember, they are investing heavily in autonomous drive and mobility solutions and at this point while they have a stake in ai, they're going it alone they're not teaming up with honda like general motors is or you see other automakers teaming up with tech firms for the most part ford has said we are going it alone. and a lot of people in wall street are saying give us that strategy it's more than being fiscally fit as ceo jim hackett likes to talk about give us the specifics on how you're going to monetize this mobility solutions future. and until they have that, you're going to see a lot of people sitting back saying, okay. >> do you think it's a chrysler trat ji whi strategy like long-term we'll end up partnering with a google,

partner with somebody else who will make the brains there's so many folks in silicon valley now building this stuff >> right and i think that's what worries the people on wall street. the question of can you go it alone if you are ford? yes, you're going to be working with tech companies because whenever i do these stories i hear from people at ford saying we're working with some of these firms. that's not what we're talking about. we're talking about whether or not you sit down and partner with them or they take a stake in terms of your business. or your subsidiary whatever it might be and a lot of people are worried that ford has said, we believe in the future of autonomous vehicles but they're going it alone they're making heavy investments in that area "a," will it pay off "b," are they making the right bets at the right time >> where do you put them -- if you put waymo at the top -- >> then general motors >> you put cruise somewhere near each other then maybe uber somewhere right

after that i don't know maybe not. >> it's hard to know you've got toyota working with uber they haven't been terribly revealing in terms of how far along their technology is. and then you have a number of the german automakers who are working whether it's daimler with bosh, intel working along with bmw >> so give us the top ten list where's ford >> well, i don't know if there's even ten companies truly doing it ford's near the bottom and we may get more details in the fourth quarter from them, but there's more questions than answers. that's what's holding this stock down >> okay. thank you, phil. >> you bet all right. coming up, going, going g1 oh, no going, going, gone a banksy art piece sells then

shreds as we go to break, here's the premarket movers on the dow. welcome back to "squawk box," everybody. we've been watching the futures this morning and we've seen red

arrows all morning long continuing the trend from last week right now the dow down by 67 points nasdaq down by 14. bond market is closed for the christopher columbus holiday but stock market's open. spacex lands the falcon 9 for the first time ever. it touched down to vandenberg air force base all of the west coast landings have been on the company's drone ship at sea. the box office posting its best october weekend of all time leading the charge, "venom." it brought in $80 million in its opening weekend. the sony film succeeded despite some bad reviews from critics. warner brothers "a star is born" brought in $41 million in its opening weekend. it stars lady gaga and bradley

cooper and banksy making headlines. one of the paintings auctioned off at sotheby's this weekend. but when the gavel hit, a shredder hidden in the frame started to shred the art i'm making the argument that it's probably worth more now it'll just hang there through the frame. i think it actually is kind of cool meantime, when we come back, the dollar, oil, and interest rates in focus ahead of earnings season we're going to break down what you can expect as we head to break, take a look at u.s. equity futures at this hour dow off about 65 points. back in a moment so, they say that ai is the building block of the future. super. but today you're building wind turbines. morning sir. chief, the blade isn't passing quality gate. that's why you work with watson. i detect frictional loss on the midspan. it can detect the tiniest defects from just a few images to help production stay on time and on budget. i optimized the fiberglass finish to reduce frictional loss and maximize airflow. i was also part of the maximizing.

for ai that can do more with your data, choose watson. hello. the best ai for the job.

♪ welcome back to "squawk box" right here on cnbc we're live at the nasdaq market site in times square airbus expected to name a new ceo as early adds today. "the wall street journal" reporting that the airbus

president is going to be getting that job the incoming ceo will replace tom enders tropical storm michael gathering strength in the caribbean and heading towards the guf of mexico. it's expected to hit the coast by mid-week. governor rick scott has declared a state of emergency for 26 counties let's take a 360 view on markets covering oil, currencies, and fixed income all of this as we head into the new week our panel today is mark chandler he is the new chief market strategy at banek. john killduff as well. this is where all the action is emanating. what's happening with fixed incomes? is this the beginning of a real move >> for once the bond guy is popular and people want to talk to me. it's -- the only surprise is that people are actually surprised.

right? we're pulling 50 year lows so this move has been kind of expected right? we've been talking about it for several months now there's been a big disconnect between the fed and the market where they're saying one hike for 2019 and the fed was saying three. so again, powell and the committee have been talking for a long time that rate hikes are coming and the market is finally starting to believe that and the market is starting to capitulate to the fed. >> but what you're saying is kind of the opposite view of what we've seen play out in equities at this point if this is happening because we have a great economy and because unemployment is at such low levels, people should be a little more sanguine about it. people should be saying it's happening for all the right reasons, right >> you would think it's for the right reasons. obviously there are different sectors that are go different ways and the pace of it also has a change on markets. a change of sentiment a little bit. so a move of this magnitude will

cost a little bit of additional volatility you do see historically as you look at the rate hike cycles, volatility does return to normal levels as you get later into the rate hike cycle. and that's what we're seeing now. these last couple hikes are creating more volatility >> though this is different from other times. returning to these levels after the fed has been so active, s n spoon feeding the market this is different because what we're coming out of is different than what we've seen in recent memory >> i think the combination of higher rates for the markets to digest, that being said, there's nothing new under the sun. the fed has basically one way to affect the market. that's an increase in monetary supply powell will be patient, we believe. right? he has highlighted the risks are two sided. as you're pointing out, we have not seen this before correct. they're going to go meeting by meeting. they're going to look at the data and they are going to cautiously want to extend this recovery

they have no sense that they want to restrain it at this point. they're not worried about inflation. so i think spoon feeding the markets was the way you put it, not the way i put it but i think they will be cautious to let this recovery continue because there are broad swaths of the economy. >> you look at equities and currencies how would you be telling people to interpret all of this right now? >> i think the real driver for the dollar is divergence here's the good thing that happened today that illustrates this point germany reported the third decline in production. they're very far away from raising interest rates by the time they raise interest rates once next summer, the fed would have gone three or four times possibly. >> what we see in currency markets to this point doesn't sound like it's necessarily factored all of that in. i'm still surprised how the dow

is not stronger. >> i think the market is pricing in between the end of next year. the fed says there will probably be four. there's still some adjustments for them to make up. so i think the u.s. still looks like the best play in town >> and that's what you're telling investors on a regular basis? >> we could see a bit of a pullback but in general the dollar's trend is higher. >> the chinese every day reset against a basket of currencies we look at it compared to the dollar what do you think of the move they made this morning where they let it weaken they didn't go to seven. but some people were wondering if they would. how closely do you pay attention to that? does it matter >> it does matter. i think the reserve over the weekend was basically a signal that coupled with the decline in the net export orders from the pmis all point to china allowing

a weaker currency. >> is the market ready for that? >> i think that the chinese market is more or less isolated. it's really dominated by retail investors to the u.s. stock market dominated by fund managers really. >> so the previous time when we saw them weaken the currency and the markets here went a little haywire. not going to happen this time? >> not to the extend it did before i think the currency has been weakening most of this year. but i think there's hotter spots in emerging markets. hot spots that are eclipsing th sun. >> oil has been a little unique because it's got the sanctions with iran that's been the driving factor in where oil is headed we saw highs last week for wti we're down this morning by about 1.3% has all that been baked in and now you'll see a pullback? >> i think what both of these

gentlemen have been talking about is the newer factor for the oil price dynamic now. that demand is now a concern to the extent you want to cool an economy that's going to get too hot, that takes down demand. this is crushing the demand centers -- the demand growth centers for oil. we have seen now russia and the saudis step up this is an issue i was concerned about. it appears they are. and they may be doing it just as demand is starting to eastboubbt >> so you're talking about demand just on the global picture. not here in the united states. >> mostly the global picture, but to the extent these interest rates here start to work against the economy, domestically that is the intent. we'll see it here too. >> you think if we're really looking at three rate hikes in the next year, that that's going to be a situation where we say oh, no, it's going to crush the economy? >> i'm not saying crush the economy. but certainly the stock market doesn't like the prospects of it very much. it's going to start to hurt

consumers on the edges you see the airlines are already hurting from the higher fuel prices so it just starts to eat away at the edges. it starts to eat away at the incremental demand. >> what sets the real problem in your mind? >> really $4 a gallon of gasoline people at the heating oil tank, the airlines, and the truckers, they're already at $3.40 a gallon for diesel fuel >> matt, back to you your take on all of this you don't look too concerned >> i am not that concerned because the market will tell you when you're starting to make a mistake. the fed does not want to make a mistake. they want to keep this recovery going. they've been clear on that they will watch the market, take cues from the market if you look at the yield curve right now, people have been fretting that the sky is falling. that is not a concern. the 2 and 10's curve were down

for half a decade in the '90s. what would be an issue would be an inversion in the yield curve. right now there's a 75 basis point difference between the fed funds and the 2-year rate. that says the market is cool with the fed hiking another two to three times if that starts to change, the fed will dvl take notice of that again, the risk is to a potential pause in the rate hike cycle. >> the fed could continue to take away some of the liquidity by doing something that kevin warsh talked about last week he said he'd be tightening the balance sheet and getting rid of some of that >> that has been his view for awhile i don't think the current fed committee is going down that route. i think they've laid out their ideal path that they want to raise rates at the same time you can expect this to become front and center

they won't shrink the balance sheet as much as they anticipated. if anything the risk is they take down the balance sheet less than expected and keep a larger balance sheet for a longer period of time. >> matt, is that an italian tie? or an italian flag on that tie >> ireland, my friend. >> see the orange? >> shamrocks >> i thought it was a columbus day tie. >> it is not unfortunately. i was not that smart to do that. >> no. >> it was grab whatever is there. >> thank you >> all right when we come back, a lot more to come brazil's right wing candidate taking a commanding lead in the presidential election. michelle caruso-cabrera tells us what's next for the country. check out european markets at quk x"our. "sawbo returns in just a moment benjamin franklin

captured lightning in a bottle. over 260 years later as the nation's leader in energy storage we're ensuring americans have the energy they need, whenever they need it nextera energy.

♪

whether it's a big thing, small thing, or something unexpected, pnc will be right there when you need us. because when it comes to your finances, if you focus on today, tomorrow has a way of working itself out. let's get to our guest host. cnbc contributor michelle caruso-cabrera you've already -- we've briefly talked about pence's speech. and you were just talking about china again. we had kevin warsh on last week.

he was, like, talking about a long protracted period of, like, a cold war >> with china. >> and how frightening this could be i'm going to cite a piece and see what you think of it okay it was in "the new york post." all right. it was in "the new york post." it was in the opinion part but they're making the case -- and okay it just says, trump has china quaking in its boots it says it's not too early to conclude that despite the threat of retaliatory tariffs from them that they know they already lost and it goes on -- it's fairly interesting. let's read the chinese tea leaves they talk about xi's comments and some comments from communist leaders and others the stock market reaction in china. is there any chance that they're saying that he's looking for an opportunity to stand down and give into us >> xi jingping is looking for an opportunity to stand down? >> yeah. do you believe that?

>> i'm not sure i understand that it has been influenced by the writing over at aei who argues that the things that we want from china, they wcan't and won' deliver. >> it throws them off. >> exactly the unwillingness -- >> what if this hurts more >> okay. if the economic and political calculus starts to change in xi's mind that what he's sticking with 20%, 25%, sticking with the idea that with joint ventures you got to hand over your intellectual property if he starts to calculate that that threatens him, yes. you can say that generically about any leader right? i'm not sure we're there yet >> at some point they may be able to get on board with the intellectual property protections because they're going to have enough of their intellectual property that it will then make sense for them. >> isn't that five or ten years from now >> i could see them signing a deal that says here's how we'll phase this in over five to ten

years. that's the one thing to save face on both sides for the longer term, this does make sense for them. maybe there's a way to get to that position. the horse is already out of the barn at that point >> yeah. i think that's highly possible that once they decide that they have enough intellectual property, they would go along with that. but i would also say for 30 years, their ascension into the wto was based on the assumption that eventually they would move more and more toward a market economy. and they did do that for awhile. then for the last ten years and particularly under xi they have gone backwards >> this guy, he's not a post opinion writer he wrote a book called "the bully of asia. he's saying the administration in this country is using the tactics of the supreme court art of war to subdue the enemy

without fighting and that china is eager to resume talks but trump said he's in no hurry to reach a deal which means china is not sufficiently subdued is that wishful thinking >> i think it's very cliche to quote sunzu. >> why >> you can quote the bible 10,000 different ways. >> he says the art of the war meets the art the the deal it's even more cliche. >> what's the question >> the question is whether in the negotiations going the way we're going, if someone finally stands down, it's not going to be us. >> i think we have way more leverage over them than they have over us >> do you think we're going to win the trade war eventually >> what is the definition of victory? >> it ends at least whatever is happening ends el-erian says -- he gave his three things one could it blows up in our faces. the other is a status quo

improvement. and then 25% is like a gorbachev moment a new moment could be something positive for global order >> can i just say something? do you know who this steven moser guy is >> no. >> he's a pro-life activist that looks into chinese population control. >> that would make sense why a pro-life activist would be interested in the chinese population control >> that's what he's worked on. he has a political view about all of this. >> it almost sounds like you're saying he'sa nut case because he's pro-life. is that what you're saying >> no i'm saying his background and history in terms of what he's worked on is ideological -- >> his book is titled "bully of asia." so you think that the pro-life thing makes him sufficiently -- undercuts his credibility?

>> no. >> i think you do. that's fine. and that's fine. i'm not surprised. anyway go ahead >> i assume what you're saying is the focus on the domestic policy related to population control is not necessarily make him an expert on their economic policy >> that's where i go with it thank you. >> that's all you know about him. >> he has a wikipedia page this is at the top of the list i'm not sure whether it's right or wrong >> we had a physicist emeritus from princeton talking about climate change and he made a comment about the holocaust that you used -- >> so going back to china. on the one-child policy in china, i saw something talking about how they're in trouble because of the men who can't find brides and there's two ways this is going to go. it's either going to be their biggest problem where those men revolt and go to the streets and throw the current system out because that policy continued for over 30 years. or the opposite will happen. those men will move to the cities, try and find jobs so

they can save up enough money to pay for the brides dowry then by the time they figure out they can't find anyone, they're in their late 40s and it'll be too old for them to change anything >> it is a horrific dilemma created by too much government intervening in their lives where does this end up i'm not sure i'm not sure this is a gorbachev moment maybe it's decades of having less involvement with china. until they realize their economy does not grow because of the decisions they have made about their economy. >> i wonder if -- and it's going to hurt both countries theore c theoretical theoretically. but i wonder if we take the pain now rather than lose by 2030 our pre-eminence in the world. we don't want that to happen, do we >> no.

when they say china is going to do this. when does state have control of anything ever actually worked? i'll believe it when i see it. >> they've been better than a lot of other examples to this point. >> they've gotten lucky. >> all right michelle is with us for the rest of the show. coming up, communication service stocks on the move dom chu is going to join us to break down what's going on looking at the newly minted sector and tell us what you need to watch into the end of the year we'll talk about that when we return something is transforming and our world.. it's the longevity economy - americans 50+ driving 7.6 trillion dollars... of economic activity every year. right before our eyes, aging is unleashing exponential growth... ...in every industry. are you ready? we are. a-a-r-p is teaming up

with business leaders and innovators... ...sparking new ideas and real solutions. so, what are you waiting for?

unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods.

simple. easy. awesome. click or visit a retail store today. ♪ welcome back to "squawk box. time now for the sector-nomics dom chu joins us he's got some of the favorites from the analyst community this morning. >> good morning, andrew. and yes, because the communication services sector is the newest of the s&p 500 sectors, taking an aggregate of not only the old telecom services sector and some technology stocks, it is now a very big al mamalgamation of the tech community

the analysts feel these stocks in that current index and that sector have the best upside. and some of these have come off of some pretty bad downturns of late check these out. dish network current target price implied a 34% upside facebook news corp. 26% upside. comcast 26% potential upside electronic arts 24% as well. i want to turn your attention to the notables as well check out some of these names. alphabet is part of that list. they currently have about 19% upside twitter, 17% netflix around 8%. disney at 5% and trip adviser one of two or three companies in this sector that have negative target prices because they've gone up and met them already right now the current target price implies a 3% downside. as we look at this new sector,

it is important to note that it took a lot of the old media companies and other internet companies from technology and discretionary. this is an interesting sector to watch going forward. back over to you >> dom, thank you very much. we'll see you again soon when we come back this morning, secretary of state mike pompeo met with kim jong-un in north korea yesterday. we'll tell you what he said after that meeting that is straight ahead meantime, take a look at the futures. stock market open today. bond market closed if ed for t holiday. s&fureofby pntp tus f aoi the nasdaq down by 1.5 "squawk box" will be right back.

will it feel like the wheend of a journey?p working, or the beginning of something even better? when you prepare for retirement with pacific life, you can create a lifelong income... so you have the freedom to keep doing whatever is most meaningful to you. a reliable income that lets you retire, without retiring from life. that's the power of pacific. ask your financial professional about pacific life today.

brazil swinging right. surprise results from the weekend's presidential race. we'll tell you how the markets are responding a banksy painting was shredded by its frame shortly after it sold at auction raising a lot of questions robert frank is going to join us with answers plus sheets and mattresses we will talk interest rates and the fed with former treasury official nathan sheets and chaos in the mattress

business after a major player filed for bankruptcy the final hour of "squawk box" begins right now ♪ live from the most powerful city in the world, new york, this is "squawk box. >> good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site i'm joe kernen along with becky quick and andrew ross sorkin our guest host this morning is michel michelle caruso-cabrera. as we said, unshackled and ready to go. overnight in asia, japan's nikkei was closed for the health sports day holiday okay markets in mainland china reopened after a week-long holiday down more than 3.5%. starting to add up you have enough days like that, actually starts being real

money. all right. let's talk about some stories that investors will be focused on today the nobel economics prize has been awarded to william nordhaus and paul romer apple's top security officer is telling u.s. lawmakers that the company found no signs of suspicious transmissions from its hardware or evidence of hacking from its supply chain. that was published by bloomberg business week. separately the department of homeland security and the uk's national cyber center both said they have no reason to doubt denials by apple and amazon. and tropical storm michael is gathering strength in the caribbean and headed towards the gulf of mexico it is expected to hit the gulf coast late wednesday florida governor rick scott has already declared a state of emergency for 26 counties in the panhandle and big bend coastal region check out shares of arconic.

several large pe firms are teaming up to bid for a the company. those firms include blackstone, carlyle, onyx corp i don't know if you remember back in the day sort of pre-bubble days there were a lot of consortium deals and whether they could actually do these things whether there was collusion involved so anyway, ten years later we're back st. louis fed president jim bullard speaking in singapore earlier this morning he said emerging markets are as prepared as they can be for change in u.s. monetary policy the fed raised interest rates for the third time this year and right wing candidate jair bolsonaro -- did i get that. >> close enough. >> taking the lead in the election in brazil you may remember him from the knife attack he suffered on the

campaign trail last month. a runoff election will happen later this month look at brazil's movement over the past week. you can see it there and joining us right now is rashir sharmar i don't know if you want to talk about this or china first. which is more important? >> i think china that's the story that's going to shape how the u.s. markets do and how the global economy does over the next few months that's because what's happening in china is sort of intriguing at two levels. one, that the economy is slowing down quite sharply i think when they came back from the long week off, they saw this weakened information on retail sales, what happened in macau gaming those kind of pointers and they figured out the economy is slowing a lot. you've got an easing step that took place on the weekend. the biggest is the fact their scope to ease is quite limited even though they ease on the

weekend, the interest rate gap between u.s. and china has disappeared. so you basically have similar interest rates between these two countries. and that's the question that many people are going to ask even within china. would you hold that. >> if you're getting the same interest rate, then you have to start thinking about the risk that comes with it >> exactly and i think that's also what we saw on the weekend we saw some data showing that capital outfitters have begun to accelerate they have strict controls. as we know in these emerging markets that the locals know how to get their money out if they really want to get their money out. will they be able to defend the exchange rate if they want to ease as well because the u.s. wants to keep increasing interest rates and china needs to decrease interest rates. >> then i go back to the issue in the article that joe raised

which is in terms of the trade war or battle that -- even cold war as kevin warsh referred to it last week, is the fellow who wrote this piece right which is to say their economy is in such terrible shape that they can't fight what's happening in the u.s. >> yeah. i mean, terrible shape as yet? i don't know but there's no doubt so far if you look at the financial market reaction, they're telling you as to who's in a stronger position to fight this battle because now the end is will this be a zero sum game or will there be a winner out of this. and my point is that this year has been a story really of how well america has done. in terms of the thing that really strikes me is one of american exceptionalism. the financial markets have never believed in it to such an extent the gap has never been this wide undoubtedly the u.s. economy is doing extremely well just now. the financial markets are richly

valued reflecting that performance. >> i absolutely believe it do you believe in it >> uh-huh. >> i've seen people make a case that there actually could be because we're a country of immigrants that decided to take risks and leave europe long ago, that there could actually be a biological component to that you know what made that case arthur brooks. >> we certainly have self-selected historically people -- >> take people that are willing. exactly. >> we were shown the chinese currency 6.9 is where they let it reset there's all this talk if they let it go beyond seven if they let it weaken -- in theory their currency should be weakening but they control it. is that a sign of war if they let it go beyond seven >> i don't think it's a sign of war, but it is a sign of weakness to me the fact will they be able to control that because i think that there's such faith in the global investment community that china can sort of control whatever they want. it's a really tightly managed economy and yet as we saw in

2016 with the stock market down happened despite their efforts to control that, that they can't control everything this is not something which is completely sort of -- >> what you just said is the core of their weakness, right? they want to control marks they want to pretend they're a market economy yet they can't actually let it happen right? i mean, it's got to be all this cognitive dissonance at a big level. >> until pretty much the next three decades, the big chinese success story was letting the state withdraw sector after s sect sector the issue is they did move towards a market economy these years. the last few years, it's been a concern. and it's showing up in the fact about their vulnerability on the story. underappreciated just how the

u.s. dollar is because of the capital controls they have in the country >> the stock market in brazil is acting as if they're going to turn towards a market based economy if this guy bolsonaro wins the runoff in three weeks do you think that's true i mean, brazil has been so statist for so long, there's so much frustration down there with the lack of economic freedom do they potentially represent something transformational there? >> for hundreds of years the nation has not gone anywhere compared to the u.s. it's the same it was a hundred years ago. can one leader come in and change this history of brazil? possibly not the short-term, there has to be some optimism. such poor governance out there, you expect something good is going to happen. i think the big story across the world which is playing out which is reflecting the brazilian

election as well is there's a massive anti-establishment wave that's sweeping the world. it's not about left or right it's anti-establishment. that's an internal index i maintain in terms of the largest democracies in the world and this year that's close to a record low despite what we say, it is a record low >> is that because nations everywhere are so divided on -- you're talking about divided nations where you're going to lose half the population no matter who wins a vote >> exactly that's a very important point. in the age of social media and stuff, divisions have increased sharply. rather than seeing this as a vote for the -- where the establishment was defined because they happened to be in par. in mexico this hasn't happened

which you've got less than power come up because it was someone right of the center. i think that's what's really going on an anti-establishment wave sweeping the world which is also now hitting there. in the short-term i expect if he does win in the second round, you will get some burst of energy whenever a new leader comes to power, you typically get that. the chilean president gave me a couple years ago when i was interviewing him, he said the long history of latin america is when things are bad, the continent turns right. when things are good, the continent turns left so i think there's also a play of that. they need to do some market based reforms because of how desperate the situation is out there. the fiscal crisis which is looming out there. but the big story across the world is massive anti-establishment wave of the popularity of the leader is down to the low 30s just now. so trump is in fact, relatively

popular. >> the brazilian riyal has just opened there's a chart of the dollar at the bottom so the dollar is weakening pretty dramatically in the wake of this -- >> tells you a little bit how the markets see it here. and the stock market where you can place it here, it's the same story. >> we actually saw -- you could look at the polls in brazil and every time it looked like bolsonaro was getting closer to a win, stocks would respond positively >> it also tells you some of the emerging markets is depressed. that in the last few days we saw that even when the lead was sort of not that much the pt candidate was moderating a stance seeing a balance take place. this market remember many of these emerging markets are down significantly in dollar terms compared to even a decade ago. this is the one basic stat i throw at people. the stock market has doubled over the last decade emerging markets in dollar terms

are still down 10% to 20% on average. there's a huge gap out here. some of these markets like brazil are in dollar terms still half their value of what they were a decade ago. so there is room to catch up if some of these countries get their act together >> appreciate it thank you. nice to see you. >> enjoyed being here as always. coming up, secretary of state mike pompeo meeting with north korean leader kim jong-un over the weekend we will speak with the former negotiator of the obama administration on what's next in the u.s.'s emerging relationship with the country and later, going to the ma mattresses mattress firm files for bankruptcy we'll find out what that means for the industry stay tuned you're watching "squawk box" on cnbc place, the xfinity xfi gateway.

and it's strengthened by xfi pods, which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. secretary of state mike pompeo met with kim jong-un yesterday. said logistics between the next

summit between him and president trump are coming along what we're seeing now is a little bit hard to figure out, dan. and that is that there are certain reasons to think north korea would twoont get involved because of the loosening of the sanctions. but they seem to be playing hard to get there are no direct negotiations yet. and you point out they haven't even named anyone yet. >> you put your finger on it north koreans are playing hard to get it's hard to understand what exactly is underway. is mike pompeo go all the way to pyongyang for party planning purposes is this so set up yet another summit without a clear understanding of what that's going to generate? or has he actually begun the

process of making america safer? >> you make a lot of good points as to why they would be dragging their feet and historically looking at the way north korea has acted, the longer they wait and pretend their ready to do something, the more they seem to get. and it's been with this latest meeting with the president, basically the sanctions aren't biting as much as they used to >> that's a huge important point. the secretary of state has said they stayed until the ultimate day of reckoning sanctions on the books is not sanctions on the ground. and the enforcement of sanctions requires active cooperation by china. and joe, those days are over the north koreans have enough to

get by in the seepage of the net that had been surrounding them so that's a big relief for them. it's a big change for them and they -- we see the kim family playbook has shown over time step number one ramp up international tensions, get everybody good and scared. step number two, act a little more reasonably. throw out an olive branch and the world will come rushing to you. the north koreans have a word for it they call it milking the cow >> the difference is this time they actually have nuclear weapons potentially that could have a big impact on us. so how do we figure out the old playbook in the new reality? >> i think that's exactly right. we can't be willing to live in a world that allows north korea to brandish nuclear weapons, nuclear missiles at us, at our allies we have to ask ourselves are the

five countries, u.s., china, soult korea, japan, russia that historically have been most concerned and negotiated with the north koreans, are they all well aligned are they all on the same page? right now the answer is no. >> south korea at this point has different priorities than we do. they just want to -- they want peace right there. and might be an easier mark than we are and we've delegated some of the negotia negotiating. >> it's absolutely essential that there be complete transparency north korea can play one of us against the other. >> i think joe's point is i think there is a wide gap there. i'm not sure i trust president moon to be on our side as much

as we need him. >> he needs us to help get the peninsula stable -- >> that's his goal >> the question is having nuclear weapons that could potentially reach our shores takes us out of alignment with them they've always had this rush there. >> we're saying we want them to denuclearize i'm not sure that south korea -- >> i'm not convinced they care they've been at that threat level for years and years since the beginning. >> right we have two very different goals. so we can't be align eed at this point. >> even if you take the north koreans at their word, you can declare war but you can't declare peace. you have to build peace. and peace building in the case of the korean peninsula is going to require real steps by north korea to shut down and eliminate its nuclear program. the south koreans would like to put the peace horse before the

cart by declaring kim's intentions are good and we should be priming the pump by giving him things, by making concessions, relaxing sanctions. >> one of the things you point out is kim jong-un might want to not delegate someone to negotiate. he wants to deal directly with the president because he's seen the president say certain things that are the opposite of what his cap net members or advisers have said. he figures why not take it directly to the president. does he also think he could put one over on -- and is he correct he could extract more from the president? you know, in a moment of we have a beautiful relationship with letters and all that kind of stuff. does he think i'm going to get more from the president than i'm going to get from other people and is that true >> let me put it this way. donald trump learned to speak north korean in that meeting in singapore.

he came out describing the legitimate annual u.s./south korean defense exercises as provocative war games. that terminology is north korea's terminology. i think it gives a clue who's won that match >> i don't know in the end whether the end justifies the means or not but you don't think that denuclearization is going to be actual outcome of all this you don't think that's going to happen or you do >> put it this way we can't accept anything other than denuclearization. to go rushing into a summit without preparation to take kim jong-un's word for what will be done to allow the chinese to drift off the south koreans to drift off, that's not a winning strategy >> all right well, we'll see. at least there's -- japan's not looking up and seeing, wow,

fireworks. that hasn't happened in awhile at least we've gotten some things that have gotten some remains of our servicemen back. it's been a better year than the previous year for relations with north korea. >> there's a real risk, joe in consoling ourselves with the fact the the problem is in temporary remission. >> that's all it's ever been since 1950 though. >> well, unless and until we have put a real cap on north korea's program and started whittling it down, we're not making ourselves safer >> okay. danny russell, asia society policy institute vice president. thank you. >> thank you when we come back, could a shredded banksy painting be worth more than one that is intact we have highlights from one of the most publicized art auctions in quite a while that's straight ahead. stay tuned you're watching "squawk box" here on cnbc

♪

in case you were wondering, i know i was, there's been a shakeup at axalta. their ceo is resigning from the company after investigation of related to financial matters >> now you're interested >> hope it's personal. it has named robert bryant -- maybe just a tiny bit i'm wondering. robert bryant is its interim ceo. >> come on you're googiling right now. coming up, when we return, stars and villains dominating the box office we will give you the details after the break. coming up in the next half hour, sheets and mattresses.

first former treasury official nathan sheets will talk interest rates, jobs, trade, and the fed. then upheaval in the mattress business how the mattress firm bankruptcy could mark the beginning of the end for traditional mattress sales. sheets and mattresses. straight ahead on "squawk box. . oh really? thank you clients? well jd power did just rank them highest in investor satisfaction with full service brokerage firms...again. and online equity trades are only $4.95... i mean you can't have low cost and be full service. it's impossible. it's like having your cake and eating it too. ask your broker if they offer award-winning full service and low costs. how am i going to explain this? if you don't like their answer, ask agchwab. schwab, a modern approach to wealth management.

♪ good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square among the stories front and center, interpol says its president has resigned after beijing announced he was under investigation in china meng hongwei is under investigation and monitoring by china's new anti-corruption

agency and the box office posted its best october weekend of all time leading the charge, "venom." a big villain of spider-man. brought in $80 million in its opening weekend. the sony film succeed ed the critics. "a star is born" brought in $41 million in its debut opening weekend. it stars lady gaga and director bradley cooper and boasts a 90% rating on rotten tomatoes. both of these movies, i think, are going to be displaced when "first man" comes out. >> coming out wednesday? >> this week >> maybe there's a preview on wednesday. let's get to the big water cooler story of the week the self-destructing banksy painting robert frank joins us right now. we've had a lot of discussions about this i want to hear your take on why this happened, what it means >> yeah, there are a couple of

big things to point out. the point is the urge to destroy is also a creative urge. the moment his painting sold at auction and then self-destructed. it all happened friday night in london when his famous girl with balloon went for $1.4 million after the hammer fell, it started to slide through the frame in shreds. it appears we got banksied banksy posted a picture of the stunned people it suggests he might have been at the auction and triggered it with a remote. he showed how he secretly built the shredder into the frame years ago in case it was ever sold at auction. sotheby's is in discussion with the buyer over the next steps. the buyer may have the last laugh. the price of that work may be worth twice as much now that it

has become one of the most talked about moments in our history. >> i have a couple of questions about this there is some mystery to this that doesn't make sense. if he built this into the frame years ago, it has to be battery operated >> correct >> correct i don't know batteries that last that long. >> right. >> so that's one piece of it two, he has to be in the room or somebody has to be in the room to trigger it miimmediately. can't be done any other way. i have to say that i have a few sotheby's might have banksied everybody themselves >> there is a wide view they knew this is an artist frame meaning it's from the artist meaning it's technically part of the painting sotheby's cannot touch it and they also consult with the artist about how to frame it and display it if banksy said to them i need to

inspect that frame for you because i want to make sure. he might have had an opportunity to do that this painting -- >> they don't know who it is >> they don't know who the buyer is >> but they know who banksy is >> well, somebody at sotheby's might know who banksy is, they may not. but somehow the painting may have gotten to banksy or he may have gotten to it. the painting was made in 2006. it was given to somebody by banksy that person whose identity we also don't know then consigned it to sotheby's. we don't know exactly when he -- he might have done that before it even got consigned to sotheby's. >> more importantly, banksy is opposed to how high the prices are or he's finding a way to talk about it? >> the bigger picture here is this explosion in art prices has caused a backlash amongst the artists. we would think that is good for

them but the fact is much of the wealth is going to the collectors, the dealers, not the artists. there's a clash amongst artists who say you're getting rich off of us and we don't like it >> do you think this was a effort to make a statement >> absolutely. absolutely it was an effort to make a statement that it's the artists' revenge. a couple years ago he set up a place in central park, a stall where he sold pieces for $60 that then went for $20,000 that was sabotages his own market. >> so he doubled the value of this one so how is that -- how is that getting back -- >> well, some people say the ultimate prank here was on banksy because i think to your point, it will help both the seller and the buyer >> why not get it all the way there u? why'd he stop it >> right and some people say was that the

device failed? it should have gone all the way through or did you want to preserve some of it to resell. >> if we go back to the chronology he gives this painting away. >> or selling it for a low amount to somebody he knows and trusts and probably said do not sell this at auction the guy probably said i won't. that's common. >> is this in theory punishment to the person who -- >> yes >> and we don't know when he put that shredder in is it possible he premeditated this if this guy ever sells, i'm going to do this >> yes we've seen a lot of artists say only sell something on the condition that it not be resold within a period of time at auction. and they have then done that own the artists have either sued or been outspoken about what they've done this is the artist revenge saying we're not going to delet people get rich off our work anymore. i think it had the reverse effect >> you think this is worth double, triple >> the dealer tells me they've

already gotten requests at $2 million or more. >> and the person who bought this -- what's their options here >> my guess is they'll sell it today -- >> wouldn't the high bidder be the person who gets control of the painting >> whoever bought it on friday now owns the painting. >> what happens if they wanted to return it what if they said this is not what i bought. >> that was the scenario friday. that's why sotheby's started discussions with them. they said we're in discussion over the next steps. i don't think they need those discussions anymore. this person is now the luckiest person in the art world. they doubled their money in two days so amazing story the art market's just bizarre. as if we didn't know that already, right >> yeah. >> robert frank, thank you, sir. >> thank you >> appreciate it meantime, while the september jobs report fell short of expectations and the unemployment rate hit its lowest level in nearly 50 years, will this force the fed to keep raising rates? that is the big question on the

table. joining us now is fixed income chief economist nathan sheets. good morning to you. i'll ask the question that we set this up with do you think they keep moving at the rate we thought? >> oh, absolutely. absolutely the u.s. economy is strong inflation is in the neighborhood of 2% objective. the labor market continues to be surprisingly robust. the fed is just going to keep moving more or less in line with that. >> was it in the 6:00 or 7:00 hour, somebody said they may be moving too fast. >> i think in this economy right now -- >> that things aren't as hot as they look. >> the only hint of maybe some softening is in the housing market and i would say there is maybe some signature of mortgage rates

that are starting to cool the housing purchases a bit. but when you look at the consumer, when you look at the corporates, when you look at the fiscal stimulus that's coming online -- >> what if i told you oil prices are going to get to a point where that's actually going to become a drag opposed to a boom? >> so it's hard to work that through. i think over long horizons higher oil prices are a net drag on the economy due to their impact on the consumer but over short horizons say in the next year or so, that may very well be stimulus for unconventional oil and for investment in that sector. >> where's the 10-year yield in a year >> so on balance right now there are more forces on the 10-year i see inflation gradually

rising i see the federal reserve hiking rates to 3.25% to 3.5% >> we're at 3.25% right now. >> but over time i think we'll see that but over a longer horizon, i think there's a case that with high debt and demographic problems, that interest rates may be back down below 3%. that's our house call. >> okay. nathan, we're going to leave the conversation there nathan sheets, pgi fixed income chief economist. when we come back, going to the mattresses online players are popping up left and right now mattress firm's bankruptcy is poised to shake up the industry even more we have analysis straight ahead. stay tuned you are watching "squawk box" on cnbc obvious.

sometimes, they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group - how the world advances. ♪ ♪ ♪ (buzzing) gather new insights, leave your data protected on-site, and put it all to work with ai. the ibm cloud. the cloud for smarter business.

the ibm cloud. i get it all the time. "have you lost weight?" of course i have- ever since i started renting from national. because national lets me lose the wait at the counter... ...and choose any car in the aisle. and i don't wait when i return, thanks to drop & go. at national, i can lose the wait...and keep it off. looking good, patrick. i know. (vo) go national. go like a pro.

welcome back, everybody. mattress firm, the largest mattress retailer in the u.s. filing for bankruptcy protection late last week the firm is fighting against a new generation of online mattress start-ups at the same time the company deals with issues joining us now is managing director at wedbush securities you told us this was going to

happen and sure enough here we are. how does this play out the immediate reaction was to see tempur sealy shares skyrocket. >> sure. they expect to emerge in 45 to 60 days with 700 or so fewer stores open. primary reason they want to file for bankruptcy production was to be able to exit operating leases that are dragging their profitability. so should emerge as a better company. however, a secondary issue for this firm is their merchandising. they have had a problem for the last year and a half that will see the tempur-pedic back in stores >> when tempur sealy's shares first skyrocketed it was because maybe they'd have other options. these two will come together, have a better position that makes you think what about

tempur sealy shares given all the other competition out there. >> no doubt about it there is some negative secular changes happening in the industry for the industry. brands still matter in the u.s temp tempur-pedic has a product which is superior to the rest out there in the eyes of consumers and they were selling $670 million worth of product to mattress firm in 2016 before they divorced, so to speak, that relationship. >> who's their biggest customer or their biggest customer they sell to now? >> their biggest customers right now are other regional chains as well as the department stores and furniture chains

so getting back into mattress firm stores even 700 fewer than now could boost sales. >> there's a couple of idiosyncratic issues with the parent company with the accounting scandal and blah blah blah but a lot of companies survive because money was so cheap for so long. to what degree even with all these issues that -- does the rising interest rate picture hurt this company? its inability. and how many more are going to be affected because it's not as easy to access capital >> they're going to be in a better position when they exit bankruptcy without these operating leases they have secured exit financing which will help them through their process. they expect to go from about negative $200 million in ebitda this year to positive $200 million in the current business plan i think there's a decent chance they get there especially if they get tempur-pedic back in their store. >> why are all of these mattress

companies if you go back 30 years, 40 years, they all go bankrupt they all file. they're constantly being bought and sold by financial players for the most part who lob debt on them. what's going on in this particular space >> well, generally speaking, it's a high margin space with good free cash flow. so it has attracted equity and financial buyers who slap on debt when you have these type of events occur, then you run into problems couple that with the secular pressures we talked about with online players taking up to 50% share from next to nothing a few years ago and there are more challenges >> so that's my final question switch long-term do you actually think people are going to show up in any of these stores? is there always going to be a need for these places or one place that's it because ultimate everybody is going to buy online >> i think there still is a need and will be a need for mattress stores we've surveyed consumers and 40% of them have an interest in shopping online. but there's 60% that still wants to feel, try, touch, lie down on a mattress

>> but how many -- in new york city, there's a mattress firm like there's a starbucks you can go on every corner you can take a. that if you want >> no doubt about it that was one of the company's problems that's why they're in bankruptcy now. that's a key reason. so we don't need nearly as many stores but there's still a need for a mattress store >> was there a creative director for the name mattress firm >> a focus group for that one. >> how long -- >> and i'm a side sleeper. firm is not good for me. >> is it a double entendre then? >> you would say mattress soft >> ding ding ding. bingo was his name-o >> you like that better than happy camper that doesn't work for -- >> mattress firm was built as a roll up. an inquisitive strategy. it was a name of one of the chains and they kept on buying

more >> starbucks you didn't name it coffee store. it's not -- you could have predicted this thank you, seth. mattress firm. anyway, what's coming up i don't know when we return, oh, jim cramer licking his wounds live from st. still early for the eagles here are the futures right now indicated down about 81. we'll be right back.

- i love my grandma. - anncr: as you grow older, your brain naturally begins to change which may cause trouble with recall. - learning from him is great... when i can keep up! - anncr: thankfully, prevagen helps your brain and improves memory. - dad's got all the answers. - anncr: prevagen is now the number-one-selling brain health supplement in drug stores nationwide. - she outsmarts me every single time. - checkmate! you wanna play again? - anncr: prevagen. healthier brain. better life.

it's no longer enough to be fast. so it's no surprise that the company that led the charge to fast, who built the nation's largest gig-speed network, is already moving-beyond. beyond wifi that just connects. to wifi that thinks about what your customers want. helping you to compete. beyond the reliability you expect. to knowing that if the power goes out, business goes on. ♪ ♪ beyond chasing down network problems. ♪ ♪ to a network that shows you when and where there's an issue. beyond clumsy dial-ins and pins. to one-touch conference calls. ♪ ♪ beyond low-res surveillance video. to images so sharp, they can help protect your business. ♪ ♪ comcast business. the company that delivers unrelenting speed in more places.

is also the company that's redefining what a provider provides. comcast business. beyond fast. jim cramer is joining us now. we are in a period here of anst of three and a quarter how far do you think this goes >> i think there is a lot of actual selling of bonds by somebody whom we don't know. i agree with mark grant. i see autos down i see housing down i see manufacturing starting to stall. long growth storing. so retail couldstall i mean i think they should not go to 3.5.

i this i the fed being locked steps is supposed to be independent. it is bad for the stock market powell's conclusion is things are wages too high when i see wages year over year being 70 cents higher, i don't know, is that what really encompasses wage too high. we sure seem to be getting a fed slow down. >> based on what kevin told us that he'll be rolling off the balance sheet than hiking rate, what did you think of that idea? >> i think he's right. >> honestly we got the wrong yield curve that does not make sense for the bank to lend cbs are just a little bit below of what they are lending at. it is a negative situation developing our country because of the fed i think jerome powell is fighting a battle that a lot of

the bears want him to fight. it is a shame. >> it is a false alarm about it or at least if it is just -- it could be a second derivative, that does not mean it is going to rear its ugly head in a big way. we are moving slowly out of the global picture it does not mean all of a sudden, it is going to be a major problem. >> we'll be like janet yellen and we'll take a look at how things are going a real slow down in the economy could occur here a slow down. then we'll have these clowns seeing stagnation and the markets going down >> we are not going to you keep on talking like this could end up with kudlow and cramer and only this time would be at the white house. >> well, look, not their fault the white house is doing everything they can.

>> stop raising rates and they'll bring you on board >> i think the president is right. i favor the chinese because they are far more of a paper tire than realized. when you look at the chinese stock market, it does matter they got a capital bare market going there. we think it does not matter because we are being elitist >> now, you are going to talk about the elephant in the room >> no, nothing no i am for arsenal we are nine straight >> okay, good. >> that's the fault. >> thank you >> coming up when we return, taylor swift gets political but how it will affect her brand and her business that story's next. let's begin.

yes or no? do you want the same tools and seamless experience across web and tablet? do you want $4.95 commissions for stocks, $0.50 options contracts? $1.50 futures contracts? what about a dedicated service team of trading specialists? did you say yes? good, then it's time for power e*trade. the platform, price and service that gives you the edge you need. looks like we have a couple seconds left. let's do some card twirling twirling cards e*trade. the original place to invest online. ♪ cal: we saved our money and now, we get to spend it - our way. valerie: but we worry if we have enough to last.

♪ cal: ellen, our certified financial planner™ professional, helps us manage our cash flow and plan for the unexpected. valerie: her experience and training gave us the courage to go for it. it's our "confident forever plan"... cal: ...and it's all possible with a cfp® professional. find your certified financial planner™ professional at letsmakeaplan.org.

you think so >> why do you say that >> marshal blackburn is pro-life and she's a lot of things that millennials are not >> thank you so much for joining us today that does it for us today. it is time for "squawk on the street." ♪ good morning everyone. welcome to "squawk on the street," i am wilfred frost with jim cramer live from the new york stock exchange. david is off today taking a look at the futures you can see