it is 5:00 a.m here are your top five at 5:00 oil prices edging up again hurricane michael taking aim at the gulf. interest rates continue to spike. now at new seven-year highs. we'll lay out four reasons why you need to care. the imf slashing its global growth forecast but it's not all bad news papa john's popping on new takeover talk. and sir richard branson making big headlines this morning telling cnbc he expects to be in space in weeks not months. get ready to take off on this tuesday october 9th as "worldwide exchange" begins right now.

good morning, everybody. welcome from wherever in the world you're watching. the bond market in the united states is back open after the columbus day holiday yesterday and the higher interest rate story is back on bond yields continue to move higher earlier overnight we hit 3.25% that's a new seven-year high for the yield. look at that 3.25 new seven-year high. many on wall street say around this point or 3.5% is when we could see a hit on stocks. futures are indicated lower again. not by a lot futures are down some as interest rates rise.

many of you have been asking so let's give this the "worldwide exchange" treatment and make it simple it's 5:01 in the morning here are four reasons why you and the market need to care about the higher rate story. first, you as a consumer, it's obvious. as rates rise the cost of that debt for things like home loans, car loans can go up leaving you with less cash companies care for the same reason like your household budget, when interest costs rise, companies have to pay more for their debt so they have less cash to spend on things that benefit the economy like giving you a pay raise or building a new building or buying a tractor. the third reason, it's bad for stocks long-term theoretically because when rates are low bond income is more attractive making dividend stocks less attractive. so rates -- we have not seen that utility stocks have done well.

but if rates go up, it makes that bond look more attractive and the reason the country should care and you because with the size of our national debt at 20 trillion, even small moves in rates matter the cbo estimates net interest rate costs will triple over the next ten years and if rates keep rising we as a nation could be paying more than 900 billion per year just in interest on the national debt by the year 2028. four reasons that rising rates should matter to you let's bring in peter boockvar from bleakly advisory group. peter, no one is trying to sound the immediate alarm. it's not as if 3.25 will destroy the economy or the market. we've been higher than that before of the reasons we just laid out or others what makes you the most nervous going forward >> well, this comes after many, many years of an economy that became accustomed to extremely low interest rates

zero for seven years in the u.s., all the quantitative easing, and negative interest rates overseas so after a period of time when you get that adjustment a lot of debt has been built up that's the thing with monetary policy when rates are low it encourages you to borrow. you take on debt massive leverage took place around the world, now rates are rising and that debt is still there. >> fair enough are we talking about a multi-year story this is not tomorrow or next month. we had mohamed el-erian on cnbc this morning talking about how we can still grow over 3% in the united states for a number of years. how immediately concerned are you? >> the issue with that is that the rise in rates creates its own speed bump to an economy that as i mentioned is a credit dependent debt dependent type economy, as opposed to historic economic cycles that were more driven by inventory adjustments. a lot of the spending that consumers saw was based on savings, not debt.

>> the consumer borrowed more money because things are good. corporations in particular, something like $6 trillion in outstanding corporate debt a lot of that as we have discussed is just above junk status so when you have to refinance or if they want to issue more debt, companies will have to pay more as well. >> if you add total business debt, it's 14 trillion so that, as a percent of gdp in an expansion that's at a record high the last time it was higher was the first quarter of 2009 when everything was depressed in terms of gdp >> futures are down a bit. rates are up because the economy is good. the fed is raising rates, the bond market is shifting as well because economies are good there's a slight worry about inflation. a bit of inflation -- we use inflation like it's always a negative inflation is not always a bad thing, is it >> right especially on the wage side. wage inflation is very good for

employees. a couple years ago the profit pie going to labor, going to employees was the smallest percentage since world war ii. employees are finally experiencing a pay raise, which is great for them but it also clips corporate profit margins as lane serbor is the biggest c. the concern is if i'm a company, how will i handle that rising labor cost will i increase the rise of my products and get this wage price spiral if the company is more productive they can offset that wage gain. >> at the end of our show we do the rbi. on friday, if people missed it, we did something where from 1994 to 1996 interest rates doubled all that happened in the market is the dow gained 33%. the best gain in 40 years, and in a rising rate environment i doubt you'll think we can

expect that again. do rising rates mean bad things for stocks yes or no? >> sometimes yes, sometimes no i would say this time yes because valuations are very high >> higher than they were in the ' '90s >> the price to sales ratio is about where you were in march of 2000 you have that valuation metric, a threat to profit margins and interest rates >> '95 was the beginning of the boom, so valuations were lower they went up every year. >> exactly >> still we are watching that. today's rbi is on google >> i'll be watching. >> peter, thank you. the international monetary fund slashing its global growth forecast the imf saying trade tensions between the united states and our trading partners is beginning to hurt economic activity the imf sees global growth at

3.7%, down 0.2% from previous forecasts. however keep in mind that it's still a relatively good global number something like slicing it from an "a" to an "a" minus your other big story is china. that country's central bank making moves with its currency let's get to nancy hungerford with more. >> hi, brian that's right china's central bank, the pboc, setting the mid point of the yuan at a 17-month low the significant point here is that it went through the barrier 6.9. that's extremely close to the psychologically important 7 level which may test beijing's appetite when it comes to weakening its currency there's a delicate balancing act between authorities trying to foster stability, and there is a feeling if the yuan weakens past

the 7 mark that may do more damage to sentiment. look at the moves on the currency markets today a bit of a divergence. onshore rates, the u.s. dollar weakening here by 0.15%. when it comes to the offshore markets, the yuan weaker just barely we are at 6.9247 very close to that 7 marker. as you can see, we saw a slight uptick in thenese equity market i did have a chance to speak to several guests today at the barclays asia forum in singapore, among them david rubenstein from the carlyle group. i spoke about the move lower in chinese markets and specifically the white house view on this one. we have heard from president trump before saying the weakness in chinese stocks, the weaker growth for the chinese economy could be signaling the u.s. is winning the trade fight. take a listen to what david rubenstein had to say.

>> when the chinese economy slows down, it will effect all emerging markets and the global economy, china will have less money to buy u.s. treasury bills. i'm not sure that's a great thing. i think china is slowing down perhaps with concern about the trade dispute, but i think that will be resolved in time >> there you have it david rubenstein saying in time that will be resolved. another reminder that altogether if china growth slowdown does ripple over to emerging markets, it's in nobody's interests >> nancy, thank you. and we'll have some of your excellent interview with sir richard branson later on thank you. let's bring in isaac poole my question is very simple the chinese stock market has tanked a lot this year, is the chinese economic slowing as much

as the chinese stock market seems to be implying >> i don't think so. clearly the chinese economy is slowing and has been slowing for some time. we know authorities would like the economy to slow further. that's been something that's been on the cards for a long time now what we've seen is an increase in the uncertainty around the future of the economy. we know it will slow structurally the question is do we have a cyclical slowdown on top of that and that clearly could be driven by trade tensions with the u.s., credit problems as well. from our perspective we're moving to a point in the collapse, if you'd like, or the bear market that we've seen in chinese equities that i think it's really pricing in a far more material downturn than what we are likely to see

so we think valuations have fallen and that doesn't reflect a material change in the fundamental outlook for the chinese economy. >> the trade fight here, isaac, is getting all the attention we forget that's layered on top of a credit deleveraging cycle in china by which the country has probably never seen. which of those is ultimately more serious or more risky for the chinese economy? >> i think in the medium term the real risk is the credit deleveraging from our perspective that's a significant downside risk to the chinese economy. given there is a significant amount of uncertainty around the near-term outlook for china, that's both within the markets and from china's authorities, they've started to pull their levers to support the economy in the near-term. we saw the triple r cut on the

weekend. we think it's likely to see more tug than monetary policy and probably some fiscal support as well. and all of that increases the medium term risk to that deleveraging process for us there's a significant risk of a policy error or a messy credit deleveraging in the medium term. that's something we ought to be looking out for in the credit markets, not just in the equity markets. >> we'll find out if the peoples bank of china can pull off a fed miracle. isaac poole, appreciate it all right. still ahead, pizza and burgers on deck. it may be time for breakfast in america, but we have a lunch alert. why shares of one pizza chain are soaring this morning on takeover talk. and hitting the streets, microsoft making a big bet on ride hliaing we'll tell you what microsoft is doing when "worldwide exchange" returns.

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papa john's. the activist investor contacted the company to collect information. they have declined to comment. trian is one of several partners to express interest since papa john's put itself up to sale amid a bitter fight with its founder, john schnatter. schnatter still remains on the board and has a 30% stake in the company. both sides ahave been in a publi battle over who is responsible for a decline in sales nelson peltz wanted to discuss a deal with wendy's. analysts have said papa john's, which has a market cap of about 1$1.5 billion may be attractive to someone looking to focus on building a strong brand like wendy's has done papa john's shares are up more than 8% in the premarket the stock is up 7% since

schnatter resigned on july 11th. >> watching that story as well thank you, jackie. here are three more big money stock stories. shares of ppg are looking ugly this morning off more than 9% the company warning both its third and fourth quarter results will be hurt by higher raw material costs as well as lower demand from china. ppg saying costs jumped the most in two years. google reportedly dropped its bid for a massive cloud competing contract from the pentagon that ten-year deal could have been worth up to $10 billion google also shutting its google plus after a bit of a scandal. we'll have more on that all day long. and microsoft is investing in grab. the ride hailing firm is based in southeast asia. the deal will allow them to work together ton a pon a project reg ai and big data.

grab plans to raise $3 billion this year. up next, shooting for the stars. richard branson says he expects to be in space in squeweeks not months. but first, hurricane michael strengthening and taking aim on the gulf coast of florida. we'll give you the latest on the storm and the poibssle impact for those rigs in the gulf coming up. 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?

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hurricane michael a very real threat to the gulf coast and especially parts of the florida panhandle. right now hurricane michael is a category 1 storm but it is expected to intensify as it moves through the gulf evacuations are under way along the florida panhandle. it could make landfall as a category 3 storm as early as tomorrow several oil rigs in the gulf of mexico have also been evacuated as hurricane michael approaches. oil prices are rising on that. let's talk more about the energy impact and oil generally, joining us is the head of energy news at s & p global plats andy, welcome. gulf of mexico oil production about 15% to 17% of total u.s.

output these guys are very good at getting off and getting back on even in the face of a storm. how much disruption do you expect this to cause >> they're used to this, but we already started to see disruption all the indications we're getting is 350,000 barrels of crude have been shut in as a result of this storm that will be short-term. there's lots of storage in the u.s. there's no indication how long this storm will last, maybe a couple days. i think it plays into a wider picture of tightness in the market you mentioned iran sanctions looming in november. opec now pumping almost at full choke. this is a tight market i think the market is indicating that with the price at the moment prices are pushing $85 a barrel for brent. oil is a hot story >> 350,000 barrels a day is nothing to shake a stick at but

it's also 11.5 million barrels of u.s. total production, so it's very small. do we have the inventory to absorb a couple days of that coming offline >> yeah. absolutely the market can ab sword tha sorb that. you have crude in storage, there's plenty in the tank to tide the u.s. through this but it does play into the tightness story everywhere you have the saudi oil minister last week talking about the market being potentially oversupplied no one is believing that today you have prices pushing $85 a barrel people are concerned about spare capacity saudi now has dipped under the 2 million barrel a day spare capacity threshold what's pushing this? it's iran. by the end of the year another 1 million barrels a day will come off the market >> here is the question, you

know, it is a sensitive one, i guess. we keep saying iranian crude coming off the market. iranian crude will come off the legal market is there any indication at all that all iranian exports will stop we see headlines about india continuing to buy, ghost ships going around are no real destination. there's no way all iranian crude is coming off, is it >> that's right. we're already seeing this. s&p global plat sea flow data which tracks tankers, we're seeing a number of iranian tankers turning off transponders, they're no longer visible on the system. where the oil is going, it's difficult to determine i'm sure authorities will start tracking that closely. a lot of customers are pushing hard for waivers whether the u.s. administration gives that is another matter coming up to the midterms, does

president trump want gasoline prices pushing $4 a barrel in the u.s. i guess not. iranian crude will find a way to the market, but in the large part what we're saying, analytics division is saying is 1.7 million barrels a day of crude will not be available for export by the end of this year that's pretty staggering when you look at the beginning of the year iran was exporting about 2.9. >> venezuela down 1 million barrels over the course of the year if you want to know why oil prices are higher, that's it supply meet demand andy thank you. let's check the other top news headlines including news on gasoline phillip mena has more. >> happy tuesday president trump is directing the environmental protection agency to consider allowing year-round sales of gasoline with higher blends of ethanol. the president is expected to announce the move today in iowa

where corn farmers have been hit by a slump in crop prices and that trade war with china the epa currently bans the high ethanol blend because they say it contributes to smog on hot days. kim jong-un wants pope francis to visit north korea he says the pope would be enthusiastically welcomed in the country even though north korea is officially atheist. the hubble telescope is closing its all-seeing eye for now. the 28-year-old telescope is in safe mode after a guy yo scoyroe failed on friday and on saturday the backup failed. the hubble is responsible for some of the most breath taking discoveries in the universe revealing distant solar systems and galaxies crews are confident they'll get back up and running again. who knew it had a safe mode.

thank you very much. on deck, rates on the rise again. stocks looking weaker again. and sweet dreams if you ever wanted to wake up in a house completely made of chocolate, it turns out that ick re in luck staround my mom washes the dishes... ...before she puts them in the dishwasher. so what does the dishwasher do? cascade platinum does the work for you, prewashing and removing stuck-on foods, the first time. wow, that's clean! cascade platinum.

get ready to pay more to borrow more. interest rates on the rise again. does that mean the big stock run is done?

private equity may be hungry for pizza. shares of one change are cooking on takeover talk. and an out of this world timeline wait until you hear when billionaire richard branson plans to be in space hint, it's not far off his exclusive comments to cnbc as "worldwide exchange" rolls on right now. ♪ >> can the market shake off these rates? jackie, i saw -- jackie deangelis is doing this. she's doing this >> i was doing a little taylor shimmy >> it's okay welcome back thanks for being with us on this tuesday morning. i'm brian sullivan the bond market is back over after the columbus day holiday yesterday, and with it the higher rate story is back on as well bond yields continue to move higher 3.25% on the ten-year. a new seven-year high. every time we go up it's going to be a new seven-year high. many on wall street say this

point we're up to 3.5% and that means we could still grow, but above 3.5% we might see a hit on stocks speaking of stocks, futures are slightly lower rates up, stocks down. that's been the trend lately let's talk more about rising rates and your money joining us now is managing director of capital markets. silvia, welcome. good to see you. >> good morning. >> i guess we could say the market would be irate. i apologize for that there is a real fear here. in the past higher rates have not spell doom but suggested things will slow down ultimately what is your view? >> there's two-ways to look at it rates have been rising for the last couple years, albeit slowly, and in the 2% range nobody worried about it. the economy strong, gdp growing, tax cuts, all these great

tailwinds along with strong earnings over the last year, and a bull market for the last decade but now that rates are rising, they're rising at a faster pace and investors start to freak out, they think that, well, you know, maybe i can get a higher return or a comparable return in a risk-free asset, so why don't i shift some of my positions that being said we're at a range where there is room for the market to grow corporate earnings are expected to slow next year, they're expected to be 10% versus 20% this year. so there's still some room for growth i think fear and volatility are starting to heighten for investors. >> you know, you said -- i think you said the right word, the "e" word earnings the rate story is so huge now, but we've also got corporate earnings for the third quarter about to roll out next week, and then en masse we're supposed to buy stocks based on the outlook for corporate profits. now are they looking and is there indication that

higher rates will hurt corporate profit margins >> i think it's short-term versus long-term in the short-term we expect earnings to be strong and positive this quarter. there's a lot of sectors we like and we see investors interested in trading corporate earnings around like healthcare, for example. in the long-term, if rates increase, corporations right now have low borrow rates. they're highly leveraged they're investing in businesses. they're continuing to grow if those rates increase it will cost more to borrow money. that will affect the bottom line and we might see a pullback in corporate earnings going into 2019 and early 2020. but for now we see short-term opportunities. just to throw another idea out there, trend is your friend. i come from a levered -- inverse etf provider when there's a bull market, high beta bull funds are great to invest in. when we have a bear market, trend is your friend

inverse treasury products are great to look at there's always a place for investors to find space. >> you double and triple times the bets on korean marketstreasl you put in big bets on short-term moves are you seeing more of your clients making these two and three times levered bets against the u.s. treasury market >> we sure are i would say that since the rate hike, i happened to pull this chart up the other day over the past week, the bear treasury etf has been up close to 10% in the last week. you know, i think investors are of the view that bond prices will fall as interest rates continue to rise the fed has made it clear that they intend to keep hiking rates because the economy can withstand this we have seen flow into those etfs as well as regional banks

we have seen those flows >> a lot of people flowing the big money bet down against treasuries >> yes for sure >> next time we'll bring that up thank you very much. >> thank you very much for having me. >> let's find out what else you're talking about today it's time for the top trending stories. we can talk about space and chocolate? >> we'll talk about a lot of stuff. >> i got stuck on irate. >> you didn't like that? >> i liked it. >> to the other cnbc shows out there, i know you're watching, you can use that >> we'll let you use it. all right. richard branson says virgin galactic is closer than you think to its first space trip. here's what he told cnbc's nancy hungerford >> we should be in space within weeks, not months. and we'll be in space with myself in months not years

>> branson also said 8 out of 10 people would love to go to space if they could afford it. >> i heard his comments. great interview. do you think it's 80% of people -- if you surveyed 80% of random people, do you think they would want to go >> i would >> i know you would. >> what they eat up there, dried stuff. >> like our cafeteria. >> netflix headed to new mexico. the streaming giant is going to purchase a huge new studio in albuquerque. this will allow netflix to bring $1 billion in production to the area. there's nothing taylor swift fans won't do for her including registering to vote. in the 24 hours following swift's rare instagram vote

message, registration has gone up >> she has an impassioned fan base put it that way. >> i'm a big taylor swift fan. are they swiftees? is there a name? >> swiftee >> there's beliebers >> ever want to live like hahn sell a hansel and gretel? without the wicked witch booking.com is making your dream a reality at a cottage made of chocolate. the cottage is just under 200 square feet and was made from 1.5 tons of chocolate including the walls, the furniture and assorted knickknacks the limited engagement is booked solid. >> question, how cold is it in there? i would assume you have to keep that -- >> on the chilly side. that's okay. >> and what happens if you eat -- there's a simpson's

episode where germans said we are from the land of chocolate, and then homer bit a dog what happens if you eat part of that house is there a fine? >> hopefully not if they keep it cold, you'll burn more calories >> i like your thinking. in sports, history on the gridiron and the diamond on monday night football last night quarterback drew brees breaking the nfl'sall-time record for career passing yards surpassing brett favre and peyton manning manning's record beaten last night. the saints beat the redskins 43-19. congratulations to drew brees. in baseball, it was a blowout in the bronx during game three. the red sox were up 14-1 in the ninth inning a positional player was brought in to pitch and brock holt hit a

home run to right field. he hit a cycle for the first time in the postseason. the sox looking strong. acoming up, why shares of papa johns are moving higher. and one dow component is getting a buy rating will that lift the markets icarndfind out stk ou can be relentless.

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good morning 5:42 on the east coast in news out of washington, d.c., president trump hosting a formal swearing in ceremony for supreme court justice brett kavanaugh at the white house last night with kavanaugh officially on the bench, what is it going to mean for business and companies diana olick has more on that story. >> brian, after one of the roughest confirmation processes in recent history, justice kavanaugh was sworn in ceremonially last night and offered a message of unity >> a confirmation process was contentious and emotional. that process is over my focus now is to be the best justice i can be i take this office with gratitude and no bitterness. on the supreme court i will seek to be a force for stability and unity. my goal is to be a great justice

for all americans. >> he will take the bench today with a slate of far less polarizing issues. two case doing with violent felonies and repeat offenders, the third deals with the department of homeland security to detain illegal immigrants who have committed other crimes. there could be a decision this week having to do with executive power, specifically on a request from the trump administration to block depositions of commerce secretary wilbur ross and justice department civil rights head john gore about putting citizenship questions on the u.s. census. looking ahead, the court will have the most conservative edge in decades that could give big business and banks a break after a decade of heavy regulation following the financial crisis >> i think that this will see a reigning in of the administrative state thaties will have less power and discretion

with a court less skeptical of them. judge kavanaugh often sided with business on regulatory and employment cases dealing with the environment, technology and consumer protections in one well known ruling judge kavanaugh says the creation of the consume procedure tech shprn bureau was illegal because it was led by one person not several agencies >> do we expect some more controversial cases to make it to the highest court, daca >> probably not on this first session. we talk about everything that happened leading up to this. there have been reporting saying the chief justice, john roberts, wants to settle things down. keep the high court above the fray, which is where they want it to be so perhaps those cases would not be in the first session but could come later >> diana olick looking at the kavanaugh tenure thank you very much. time to find out what's coming up on "squawk box."

becky quick has a preview. a lot of news out there. i have a feeling the interest rate story will be on your radar. >> the great rate debate is there a couple other things i'm thinking about unemployment at nearly a 50-year low. talking about the economy here really booming, but then you start to hear things about the global economy and what's been happening. the imf downgrading its global growth picture to 3.7% from 3.9% that's the first time they've done that in two years you start hearing about the yuan rising above the 6.9 peg to the dollar we thought yesterday was the big move, but now it's above 6.9 then you hear about companies like ppg talking about what happened with earnings, warning they're not going to be making numbers, that's because prices are going up and because of the trade war, concerns about what they'll be able to sell. you add all that up, we're in october, it's a scary time of the year we have a ton of market guests

here david wessel, joe zidal. lots of things we'll talk about with them and you mentioned google plus earlier. the idea that it was hacked into we hahave reid hoffman joining s the founder of linkedin. he that has lots of thoughts about silicon valley, what some companies should be doing to deal with regulatory efforts and have you heard of third love >> is that a band? hbo show >> no. no no it's a new brand of bras >> reality show. >> new brand of bras not surprised you have not heard of it. >> a new brand of bros >> no. >> i'm telling you this because they're taking the market by storm. they're being sold over the internet they use all kinds of data to find your perfect measurements

they have 70 different bra z sizes. it's been built by the former ceo of victoria's secret and the former ceo of all kinds of places with expertise in this. we will talk with them heidi zak is the ceo we'll talk to them today >> love to hear the entrepreneur story. ask reid hoffman, it's never what you do, it's about the coverup. google will find that out today. >> yep still to come, more on higher rates what they mean to you, the markets and your money. and why private equity has to pay attention. and break out the history books. today marks a major milestone and maybe the single greatest deal of all time it's your rbi. stick around

we have an early upgrade to talk about that may help the dow today. deutsche bank upgrading walmart to a buy the analysts there upped the price target to 113 a share from 89 a share that's 13% more upside on the wmt. keep an eye on shares of papa john's today. trian fund management is considering a takeover bid for the troubled pizza chain leslie picker has more on that >> brian, that's right that report in the "wall street journal" citing people familiar with the matter said that trian reached out to papa john's about a potential takeover bid seeking more information in terms of trying to better understand what that might look like

the report was not clear if trian would be acquiring papa john's or acquiring papa john's through wendy's which they own a 13% stake in and have three board seats. with wendy's that was something they did own outright in the past, combining wendy's and arby's so they do have a history with that trian is known for taking stakes in companies that they deem to be troubled and trying to fix them by getting seats on the board and gaining influence, of course as you know, brian, this comes amid a huge battle taking place in the courts, in the media and elsewhere between john schnatter, the man who founded papa john's and the company itself, which now is running without him after he stepped down as chairman and then ceo following a huge debate over some slurs made on a marketing call >> we will picker that big brain of yours a couple more stories.

another hedge fund shutting down tourbillion capital. >> had about $2 billion in assets that fund lost about 14% last year it was found by an alum of s.a.c. capital this henl fund shuttidge fund sn was due to performance in october these fund managers see the redemption notices coming in, and then they say i'm getting x amount of redemption notices, do i wanted to keep operating these things do i need to lower my fees in order to do so or shut this thing down, go about my business and move on from this? and it's clear with tourbillion that's what he decided to do he founded who kitchen in new york it's a health food restaurant, health and wellness is a passion of his so i think he's going to focus on that. >> do i look like i go to health

food restaurants >> you go to wendy's and papa john's >> okay. private equity, they also care about rising interest rates. why? >> well, they put on a lot of debt on the companies they acquire. as you know with private equity, the model, the traditional lbo model is to take out leveraged loans that you then put on top of these companies that you acquire in order to do some kind of financial engineering to make them more profitable that's the traditional bread and butter lbo model if rates rise, the debt that you pay, the interest on that debt to service that debt becomes more expensive a recent report showed that about 6$600 billion worth or 70 of the debt outstanding in private equity firms is rate sensitive, meaning they could be effected by an increase in rates making it more expensive the companies themselves, the portfolio companies themselves

are the ones who have to pay the more expensive interest on that debt therefore that becomes a higher cost to them depleting cash flows and putting them at risk of default and bankruptcy. we saw that after the most recent period of rate increases right before the 2008 and 2009 recession. if you look at the chart you can see a huge spike in private equity backed defaults during that time period >> this is why the interest rate story is so important. it can be wonky. call it wbi, wonky but important. when interest rates were low, all these companies or interest rate firms refinanced or sold debt because like us, when you get that credit card in the mail with 0%, you refinance, eventually that runs out then you have to refinance at higher rates which eats into cash flow. >> private equity firms are in the business of doing deals.

if you see rates increase and you see the equity markets tumble, those are the values that you value against your own portfolio companies. so if you own a burger chain as a private company, you will value that against a publicly traded mcdonald's or wendy's or something that you can then assess what the values of your own holdings are if the publicly traded peers are falling amid the rate rises, that means the value of your own portfolio companies are falling as well, that makes it even harder to exit through an ipo or sale and a value that gives you and your investors a decent return >> awesome conversation as always, leslie picker. to your tuesday rbi. happy 12th birthday to the greatest single deal of all time 12 years ago today google bought youtube. the price 1$1.6 billion a price some thought at the time was pricey may have turned out to be one of the greatest bargains in history because morgan stanley says youtube is worth 160 billion

a 10,000% jump in luiovaatn. so, big deal for google. that's your rbi. see you tomorrow

good morning interest rates climbing to seven-year highs and imposing another stress test on stocks and valuations we'll talk about the impact of rising rates and whether you need to do an overhaul or not of your portfolio and richard branson says virgin galactic will be in space in weeks not months, and he will be in space in months not years. his comments straight ahead. and hurricane michael is faster and more intense than forecasters first thought. it could hit the florida hahn pannedal as a category 3 as soon as tomorrow. we'll bring you the update on

the storm's path on this tuesday october 9th, 2018, "squawk box" begins right now ♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" 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. let's look at the u.s. equity futures. yesterday a bit of a seesaw ride for the markets. the markets sold off early in the day. the dow climbed back to end in positive territory ended up by 39 points. the s&p down by one point. the nasdaq off by about 52 points >> i think i saw it down almost