it's tuesday, october 16, 2018 "squawk box" begins right now. ♪ good morning, everybody. 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. address joe mentioned you are looking at positive arrows right now. dow futures indicated up by 52 points s&p futures up by 5 1/2. nasdaq up by 31 points anything could happen. we're getting into the thick of earnings season. it's not just those three dow components, we'll also hear from blackrock and morgan stanley look what happened overnight in asia the s&p was down seven of the last eight sessions. the nasdaq and dow down six out

of the last eight trading sessions the s&p is having its worst month since october of 2015. we'll see what happens today check it out the nikkei was actually higher overnight. up by 1.25%. hang seng was flat the shanghai saw some additional losses in europe, where some of the early trading activity is taking place, it's a relatively mixed picture. ftse down by a quarter percentage point the cac is flat. dax is up. knitly stocks are up by more than 1%. trishry yields, yesterday the ten-year note ended at 3.361%. >> united coming out westernings. coming out at 3.$3.41 per share. that stock up right now up 1%.

and peter thiel is making a big bet ahead of the midterms. the republican mega donor pumped $250,000 into the trump victory committee, a fund that benefits the republican national committee as well as the president's re-election campaign according to a regulatory filing, the donation happened in july it's they'll's first donation to the fund since the 2016 election >> deal news for you twilio is buying sendgrid in a 2 $2 billion all-stock deal. this comes as part of a larger effort by the cloud company to boost its suite of communications related tools the deal suspected to close the first half of 2019. >> the business community is remembering the life of microsoft co-founder paul allen. he passed away yesterday after a long battle with cancer. he created microsoft with his friend bill gates. the two met while attending private school in the seattle

area allen left microsoft in 1983 to devote his time to philanthropy, space and tech ventures, he was also an avid sports fan owning the trail blazers and the seahawks bill gates saying i'm heart broken by one of my oldest and dearest friends adding personal computing would not have existed without him. paul allen was just 65 years old. >> new this morning, nbc news reporting that the saudi government is considering a plan to admit that the missing journalist, jamal khashoggi, was killed after entering the saudi ko consulate in istanbul. they may claim he was killed during an interrogation gone wrong. hadley gamble is in riyadh, saudi arabia with more good morning to you. >> good morning. earlier this morning we saw u.s. secretary of state mike pompeo arriving in riyadh he had a meeting with the saudi

foreign minister and he's also met today with king salman bigger questions on the hor rise nl fhorizon for this u.s./saudi relationship a lot of questions about whether this latest incident will impact not just the business community here, we've seen the stock market on a roller coaster ride since sunday but also the international business community. all of that international interest in saudi arabia over the last couple of years since april of 2016 when mohammed bin salman announced this vision for the country, this vision 2030. so much international interest even those more folks dropping out of that fii conference that is about to be held in riyadh. the question going forward is will they cancel it altogether we've been hearing resu ing rumn whether they should be going through this at this point

we heard the standard charter ceo, credit suisse also dropping out. i'm hearing why are they going on with this to begin with or is it a question of the ego of the conference a lot of questions over whether this fii conference will take place and certainly more questions remain about the disappearance and possible death of jamal khashoggi we are waiting to hear from mike pompeo in the coming hours >> hadley gamble in riyadh, thank you. we'll talk more about saudi arabia with larry fink he will join us at 6:30 a.m. his earnings we'll talk about but also one of the executives yesterday who decided to pull out of that conference >> let's get back to the markets. joining us is david bonson, and julian emanuel it's been about a week now since

we started into what is at least some type of correction. is it a garden variety correction in your mind, david >> in terms of the normalcy of moves down, 4% to 7%, it's garden variety this type of thing does happen several times a year on average. the causation here is different than what we've seen before. i vehemently disagree with the consensus view that this is fear of inflation, fear of rising rates, and it's causing equity investors to panic i don't think that makes sense most of the fear trades did well utilities went up. gold went up treasuries went up yields came own. i think there's a lot of international stuff. the fear of china's slowdown came back on a bit and then the italian bond spreads show me the european economy is still a wreck ultimately you'll see more capital flows come back into the united states. it's a legitimate question

how long can our economy rule the whole world? at some point don't we need a global growth partner? it looked like we were getting it last year we're not getting it this year >> the conclusion you come to, if you're right about what caused this, weak china, italy, is that you should be -- is that it's a case for increasing exposure to u.s. risk assets >> it's not an argument for increasing overall risk. i like the idea of being reasonably balanced and somewhat defensive, but within the risk budget, i would like emerging markets, i love the u.s., i don't consider china an emerging market >> julian, watching the coverage last week, and not really cnbc so much, but other places, just talking about violent carnage is what they're talking about we have one day, it was 3% the other day it was 2%.

those are significant percentage moves. but 800 points, then 600 points, that still sounds bigger to the investing public than it actually is. i think that is important to remember that we can instill a lot of fear with the garden variety correction >> totally agreed, we forget the dow is at 25,000 now to your point. the reality is if you look over the long-term, volatility averages to use the vix is at 19, which means 300 points day in and day out in the dow. we think the difference now between previous is that we've been wondering for about a year, year and a half what level of interest rates the market would start to care about. the market starts to care about these. >> we have not seen volatility in a long time you're basically going back quite a while before we've seen it if you look for a 1% move, it didn't happen.

>> that's true our view has been if you go back, 2017 was one of the quietest years of all time volatility reverts to the mean over a long time to us that was the end of this quiet period january and february happened very suddenly. in fact, january and february was more volatile than what we've seen in the last few weeks. so this is something that, you know, as investors we really want to sort of step back and not get obsessed looking at the day-to-day moves for us this kind of weakness is a buying opportunity >> so we will get a lot of data points a lot today. but from here for the next three weeks we'll see a lot of -- if there are fundamental underpinnings to this bull market, they will become evident during earnings season do you expect it to be good, bad? >> you'll be around 20% growth >> that's good >> everything is good.

but it's what is expected. >> is it the -- will it be 20% a year from now in comparesoe comparison >> no, with all the geopolitics, the range of commentary and the potential outcomes on earnings, you have upside and down side. you fix china in the next 6, 12 months there's likely upside to the global economy if the trade war accelerates, there's more down side stocks are telling you the range of outcomes is more volatile >> will the fed follow through on what is expected now in the chart, the dot charts? >> we prefer they take a pass. >> do you think they're getting the message? there's so much talk about it, i wonderment. >> there's a lot of talk about it given the last week when you look at it, why does

the fed hike inflation is not one of them there is no inflation except the price of oil i would argue that because the rest of the commodity complex is telling you there's no inflation, oil is actually going to be a drag on growth >> we will see what happens with oil. >> can i ask -- >> you know the story, we don't know how the story is going to play today the one you love so much >> yes if that doesn't play well, maybe oil will go up, which could mean inflation. how do you think that story will play >> how do i think the story will play >> people have said they have -- how do you settle on a story what happened? how do you settle on -- >> we know what happened what do you mean what happened >> did mbs order the hit >> i will speculate that it is very challenging for this to have been carried off without

some of these things being known. >> so what is the best way how to handle this as the united states >> the best case scenario is this was an interrogation that was ordered -- it's almost impossible to think the 15 people got on planes without him but somehow it went wrong. that's possible. now you have to decide they lied to everybody for the past week and a half about this, repeatedly so you say how do you handle it? how the president will handle is is just to suggest that it all goes away magically. >> right but knowing -- knowing it's a bad neighborhood in general over there, and things happen all the time, when do we decide that we've chosen saudi arabia recently as an ally. >> right >> to offset against iran. when do we decide this is more h haen ne

heinous than the normal state of affa affairs? >> we are still sending mnuchin for the conference we have not gotten into the arms deal we're sending him there for a conference at this point >> i'm not sure we necessarily need to change our long-term relationship with the country. i do think when it comes to our values as a country and what we represent to the rest of the world, and i wrote about this this morning, i think ceos are doing a better job representing our values right now than some of our elected officials are because i think you have to step out and say something. >> that's what i don't understand why this conference? why would we send someone to the conference >> look, i agree we do business in china. there's human rights violations there. there are bigger issues in saudi arabia long before this. you can look at this and say all of this is hypocritical. i do think at some point you have to signal that this, and this particular situation is so

heinous that i would like to think there's got to be a way to -- >> assad uses chemical weapons aga again, what do we do regime change? we can't fissix everything all e time there are parts of the world where things are happening, where it's repugnant, but sometimes it's something that we're -- it's not our fight. >> at some point we've decided in this particular instance that somehow nobody can say anything publicly >> we've gotten in trouble in the past thinking the way we -- what we've decided is right -- >> it's -- >> getting back to what we were talking about, $200 a barrel oil, that would be inflationary, would it not >> no it would drag economic growth towards recession >> so it would be recessionary >> but it would confuse data,

but it would not be really inflationa inflationary, oil would give a confused price signal. we won't get $200 price oil, but that is one metric that may be causing a higher inflation print and they are looking at data that doesn't show inflation but the dot plot indicates there will be. when you look at the whole slew of economic numbers, it doesn't add up >> no one could have predicted this, sorkin you were getting ready to -- >> i was planning to go. >> we were thinking north korea, china, all this. then the guy -- a video of him walking in to get mundane paperwork to get married, next thing you know the whole world is revolving around this bizarre. >> never the way you expect it to happen. >> but the question is whether this is a conversation we'll be having two, three, four weeks from now i suspect we won't be.

right? i'm not saying we shouldn't be but i'm suspecting we won't be >> the middle east is the middle east we'll continue, i would think, the saudis will be in -- >> they're an important part of it. >> an important ally for us probably >> so the question therefore becomes do you have to have a different policy with the country in total or is there -- or are there things you can do from a diplomatic or gesture -- >> the cynical view is we look at iran, an enemy, we talk about human rights when we have an ally with human rights problems, we look the other way. that's a problem >> the ceos not going to conference, that's a gesture don't know if you saw what happened with william morris, he is pulling up stakes saying i don't want the money that's a different decision. to me, that's very interesting >> remember your ceos pulled out of a conference here with trump. they're pretty sensitive to how

things look. >> by the way, they pulled out of that faster than they pulled out of this. >> that's what i mean. they're canaries in a coal mine. they have pr issues. they're walking on egg shells at all times. they have to be because of customers and everything else. >> julian? >> you were coming in to talk about the markets, now this is the markets. >> business and politics, the mix can be messy one of the bottom lines, we'll find out more this afternoon, is the chinese hold 1 trillion of our debt, and saudi arabia holds 170 billion of our debt. are they buyers or are they sellers? if they're sellers, that's a different problem we'll have to deal with. >> but they're not sellers in either case. they will not do it. it hurts them more than us >> saudi or china? >> both. >> julian, thank you very much for joining us david, thank you as we mentioned, earnings

just out from blackrock. earnings were $7.52 per share for the third quarter compared to a consensus estimate of 6.84. so the beat coming in despite revenue coming in slightly below estimates. we will be talking to larry fink within about 13 minutes from now. when we come back, we'll talk cybersecurity in america. john carlin has a new book called "dawn of the code war." he will join us next. and larry fink is here to talk earnings, the markets and why he withdraw from the saudi investment conference. as we head to break, a look at biggest premarket winners and losers in the dow.

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companies should armor up. john carlin is chair of the aspen institute cybersecurity and tech program and chair of the global risk and crisis management team at morrison & forrester. thank you for being here >> good morning. >> let's talk about this one question that is often asked is are we winning or losing this war. what do you think? >> we're not winning, even if we are not losing more and more in terms of everything we value from businesses to consumers is digital, online and under attack it's vulnerable. >> theft of trade secrets could be as high as 6$600 billion annually if that's not the picture of losing what is >> that's just trade secrets we need to think about more and more from our cars on the road to drones in the sky to the pacemakers inside our heart are digitally connected. >> so we're vulnerable >> we're vulnerable and it will have life and death consequences >> we've been having a conversation about

vulnerabilities, relationships with other nation states, and nation states are seen as attackers in this sense. how does a company or an investor protect themselves from a nation state. >> one reason i wrote this book, "dawn of the code war," these are real cases where we have found the bad guys and they often are nation states. so we go through cases that include iran, north korea, china, russia, even terrorist groups are attacking private companies, doing things like stealing names and addresses then providing it to terrorist groups who turn that customer information into a kill list, pushed it back through twitter to the united states and said kill these people by name, by address -- >> because you're a customer of a company that did not protect your information >> absolutely. >> why >> once you accept the idea that there is no safe internet

connected system, that a dedicated bad guy, mraparticulay a nation state can get in, you start planning for what happens the day after. as we approach election security, one example that comes to mind is what the french did macron knew the russians would go after his campaign, and they did. what he did was cheap. instead of a fancy cybersecurity system, he had e-mails in the system that were deliberately not true when they stole them and released them, they said some of this stuff is fake, some of this stuff is real, i won't tell you which is which the media didn't run with this, and he won the election. >> as a consumer, should i not be sharing my information with any company? >> it's -- the world we live in is about risk. if you share your information with a company -- >> you just told me i run the

risk of isis picking it up and turning it into a kill list. nothing i do on the web seems worthy of doing business on the risk >> it is difficult to do business in the world without using the internet, without trusting people with your information. a lot of pims y times you have e compromises. as citizens if we understand what's happening, the risks, we need to start demanding from elected officials, from government that we invest more to protect us all. >> john, there's nothing you said that makes me feel better about this situation what can you tell companies and people? >> on the plus side, over a 25-year period we moved almost everything we value from papers and books, analog, to digital. that's fast. and we innovated ourselves in a way into this problem. we can innovate our way out of this problem, too. who will lead the way?

it doesn't seem the incentive is there for technology companies to do this short-term, it's not going to be convenient or cheap. >> day-to-day when i work with ceos, boards of companies, i'm seeing a change in mindset they're starting to invest in this area. they're starting to think about it as risk management. for all your audience out there, if they start looking to see which companies will be ahead of this cybersecurity curve, the market will speak and may demand change >> john, thank you very much john carlin is with the aspen institute and morrison and forrester. >> congrats on the book. >> thank you. when we return, larry fink will be joining us the company out with earnings. we'll talk market volatility and china. he's an expert there and the saudi arabia investment conference that is making headlines with ceos pulling out. as we head to break, a look at yesterday's s&p 500 winners and losers

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center, the u.s. budget deficit rose to the highest level in six years driven by a rise in government spending. the deficit rose to 7$779 billion, 17% higher than the previous year. defense spending accounted for the biggest increase. facebook wants to crack down on the spread of misinformation about voting in addition to itself exiits existing regulations on false news they are banning posts that are spreading fake information about the polling process. and it's a busy day for quarterly reports. we expect numbers from johnson & johnson, morgan stanley and goldman sachs. u.s. equity futures at this hour are up did you guys watch yesterday that was like a roller coaster again today is shaping up the same way yesterday a couple head fakes up

a couple hundred back down. back up a couple hundred these are not big percentage moves. that's what we have to get through our heads. >> it's just unusual >> only since september it's been like watching grass dry want to introduce larry fink who is here. news breaking minutes ago, blackrock out with its earnings this morning we are joined by larry fink, blackrock chairman and ceo in a "squawk box" exclusive interview. good morning to you. >> good morning, everyone. >> lots to talk to you about the company earnings per share of $7.52 that did come in above estimates. total -- tell me if i'm wrong about this n term shgsthis, in estimates for assets under management, falling slightly short of estimates so i think investors will grapple with both sides of this

how are you thinking about it? >> it's a tough quarter for the entire industry. the industry saw over 1$100 billion of outflows in equity mutual funds >> you had 24.8 billion in outflows >> we saw some real large de-risking in our index equity positions. we saw investors go from equities into low duration fixed income people ran to cash overall we had $34 billion of inflows into etfs. we had positive mutual fund inflows. it was more institutional. it was -- we saw huge movement from clients a lot of churn it was just the markets are showing that investors are confused but overall, because of expense discipline, because of how we navigated, our revenues were up 18% in our aladdin business, our

technology business. so overall it was a good quarter. i was disappointed in the net flows. but very explainable by some large de-risking >> larry, just to dig into that. you're talking about moves that happened before this most recent market it was the end of the quarter. >> but we saw huge outflows before the fall. >> so people are much more nervous. >> absolutely. i think people are -- there's a huge commentary that we're at peak earnings, that earnings can only get worse, which we can all debate that. we believe we have a couple more good quarters in earnings. but there's that view -- the view that -- i think we're hearing that in europe more than in the united states companies are having margin pressures because of rising wages, which may be a good thing for the economy, but not as good for corporate profitabilities. you're seeing modest inflation increases in certain goods some of it in the united states

because of our tariffs in terms of steel and things like that. overall you're seeing more consternation, more fear >> that consternation is that being felt -- you're talking about the institutional side or the retail issue >> it's both we did not see it in retail inflows, but institutionally there were two or three -- >> when you look at this quarter from what you can already see -- >> we're not seeing much change in attitude. we didn't see any wholesale changes. this is more -- i actually believe the last two weeks was more of a hedge fund phenomenon. we had a coupl announcements of hedge fup fund closing down in the last two weeks we did not see large outflows >> when you look at this roller coaster ride of the last week or two, what is that? do you expect -- we saw a note from morgan stanley last night, they think we're moving into bear territory here. >> almost 80% of the stocks are

in correction phase today. i don't think that's something unique you can look at most of the stocks, they're in correction phase rite noght now. >> correction is not bad >> we had a marvelous ten years. >> >> you sound like you were talking about maybe a bear phase or a secular bear phase. >> i believe the economy will remain strong. >> inflation doves say that we are not seeing the wage inflation where it's risen to a level to start worry being it. are we seeing margins affected by wage increases? >> european. >> we don't care what happens over there >> you are seeing margin pressures, it could be wages >> are there margin pressures domestically >> there's worry i didn't say the market is correct. there's worries that we're at

peak earnings and that we will see more margin pressure, we'll see some wage increases. let's be clear, the index that we see related to wages is very skewed by when elderly workers who are the highest paying people retire, they're replacing them with younger workers getting less wages much of that is masking the big wage increases in technology so we're not -- >> automation? >> yeah. there are big wage pressures in some of the big professional areas that a lot of firms have to hire. if you're in technology, you have wage increases going on there. it is being masked by this mixture of retirees -- >> do you get the feeling we're underestimating the inflationary -- >> not really. i'm not worried about inflation. >> that's the only thing that really gets out of hand, which causes the fed to go higher than the thought it would have to go, which sort of chokes the -- as

we said a million times, you don't die of old age, economic cycles we are s >> we are seeing the economy grow at 3 plus percent there's areas of difficulty ain hiring people. >> is it possible that all those things are positive? if they don't cause inflation, they don't turn into that cycle where we have to cool things off. >> sure. but the biggest risk that no one wants to talk about is the tax laws and how they changed housing affordability for so many >> in the northeast and in the blue states? >> no. no even places that have -- beyond high income tax states, we have a $10,000 cap on deductibles.

if you live in a city like a miami or a dallas, the average house there is 600,000, 700,000 most americans still have floating rate mortgages. now we witnessed about 100 basis point increase in interest rates. that will add $1,000 of interest costs. more people will be hitting this cap, that's going to impact the desirability of housing. so i think we have actually a little more bigger issues to focus on related to how the economy can perform in a rising rate environment >> that might explain the weakness in housing, it's not just supply, it's what you're talking about also >> i think the lack of affordability kicked in faster than any other time. >> you think therefore it will affect the market? >> can >> there's places where you

cannot deduct -- >> it takes time to adjust to that let's get back to the earnings we raised -- we're going at a record rate of raising assets and alternatives we've raised $16 billion over the last 12 months in liquids so we're raising record amounts for us money in alternatives we still see large interests from our clients we're in the midst of some big asset raises going on in the fourth quarter and the first quarter of next year what are o >> what are our alternatives >> could be real estate, interest rates, esg related infrastructure investments so obviously hedge funds private equities >> on the alternative subject, you folks started investing in a number of private start-ups,

sort of the technology start-ups. the ubers of the world and others has that been a successful effort >> it has, but it's not a major effort for us. we have a couple big funds that have the ability to have a small portion of their funds in illiquid privates. that's what we're doing. we have done maybe 5 to 10 different very public ones >> since you spend your time on an airplane, we have a handful of geopolitical questions, all of which will affect the market including oil and klein. giv china you were one of the executives yesterday with jamie dimon and others who decided to pull out of this conference can you tell us about that decision you had business with saudi for a long time. >> i've been going to saudi for

years and years, three, four times a year but we have an incident now that we have to be mindful of there's an unexplainable death or murder. it could impact relationships worldwide. we have to be sympathetic to this this was a big issue with blackrock's employees. this is a big issue with many clients who reached out and called so we received a lot of incoming about participation. and this is -- these are the issues around being a big, public company but you have so many constituents -- i write about this in my corporate letter. we needed to be thoughtful, mindful how to navigate this and so as a friend of the countries i wanted to do this in a way that i was trying to preserve the relationship with -- that we have and worked so long for.

yet we needed to be mindful of this investigation what i wanted to do was to find a way to possibly have this conference delayed until the investigation is completed we have better information, and we could do this in a non-emotional way. i did not achieve that objective. so i had to make a decision related to my relationship with the kingdom and my relationship with all my constituents it was clear i had only one choice, that was to withdraw from the conference. it does not mean we are going to run away from this kingdom we do business in 80 different countries. there are many countries where we may disagree with policies, but this one event became such a lightning rod because it's so public in nature there are many things you can do and build a commonalty, build a bridge in which you can try to

build -- i've been a life-long globalist. i'm still proud of bag globalist being a globalist in this day and age. >> if it becomes clear that king salman or mbs ordered this will you cut off all business ties with saudi arabia? >> no. >> the united states is in a similar position, 200 billion in arms sales to thwart -- >> are mathere are many businest do business worldwide, american/nonamerican our job is to build bridges, find commonalty. there's many things i disagree with in my own country and in other countries. >> people that see things in black and white, marco rubio, whom eve whomever, this should be

disqualifying for any relationship whatsoever. that's not the real world, i don't think. >> no one likes to make black or white decisions. sometimes you need to. i don't know if at this time i need to make a black or white decision >> what was the saudi reaction >> they understood keep in mind, saudi has some many -- the oil minister ran saudi aramco we're talking about the economy minister who was the chairman of one of the big banks in saudi arabia we're talking very commercially-minded leaders. and i had conversations with many of the different leaders. and they understood. they understood that -- they preferred we were not withdrawing. they would have preferred we stayed, which i understand but they understand that we have many different constituents that we have to balance out it does not mean that we are

withdrawing from the kingdom >> we've talked about what this could do to the price of oil not your decision but the relationship between the u.s. and saudi. frankly pompeo is over there right now. what do you think the right role of government is i do know also in the conversations you and steve schwarzman and jamie were having is the hope that washington could take the lead on this in a way so you wouldn't have to. the question though is if they are to take the lead, what does that lead look like? >> it's always convenient to have a government to stand up first. you know, i'm not -- i don't know the interrelationships that the governments are having with saudi. i assume they're strong, consistent >> i don't think you would want that for the u.s. to take -- do we think putin that never pushed

a button on someone? is that possible >> i'm not talking about that. >> i know. how about in china we know kim jong-un has pushed buttons. >> these are delicate issues >> you have to deal with the hand that you're given you can't change -- i don't think you would want the united states government to -- >> i don't want a black and white decision, you're right we have been really strong allies, the united states and saudi. let's be clear, to execute the sanctions against iran we need saudi to ramp up oil production. they have done that. they're almost at peak capacity now. they're trying to -- i don't know to the ultimate degree can they ramp it up more, but we are now witnessing worldwide at a time when the american dollar is very strong and we're witnessing very strong energy prices. this is one of the reasons why we're having market volatility why the emerging markets are

doing poorly getting back to blackrock's earnings we had such large divergent beta, outflows in emerging markets, down drafts in emerging markets one great statistic that stunned me, since the beginning of the second quarter, emerging market equities are down 10%, yet the s&p 500 is up 10%. a 20% divergence >> yeah. >> so having a strong dollar in front of having rising energy prices is destabilizing for the world. so we need to have proper diplomacy with saudi our hope is that energy prices drift back lower, especially if the dollar continues to be a strong currency. >> in the other category of diplomacy, the other country we have not talked about is china where this trade war and tariff war starts and where you think it ends, and who has the upper hand at this point

>> i think both countries can place damage on each other hopefully it doesn't go there. hopefully this is contained to a trade negotiation. the last thing anybody wants is a financial war. we will both be harmed by a financial war. a financial war meaning they sell their treasuries. >> you think that's a possibility? >> sure. if their economy becomes unglued, if -- i'm not saying it will there's rumors about $7 trillio of debt that could explode if they have to do a massive fiscal stimulus, they have no choice but to bring down reserves could they or would they sell u.s. assets as a defensive action against us? i would think that's going to be their last resort. i think china is just as dependent on southeast asia, just as dependent on global

trade away from the united states if -- think about the actions of selling u.s. treasuries. it means their currency rises quite a bit. that would hurt them >> you remember that expression. if you owe the bank 100 you ba, if you bank a million you own the bank it's the same with china >> i think they are trying to act reasonably i was there last week. i think they're trying to find a way to resolve this. >> in the last five years, larry, have you seen -- this was -- we talked about this this week too have you seen china sort of take a tougher statist, communist role that's what the journal in a piece was saying xi has definitely back tracked on some of the reforms that maybe were made in previous -- >> that's the claims reforms are going to be made there has been a slowdown to some of the reforms. i believe they still will continue to do the reforms and

financial services. >> are we justified in taking a harder line? >> we don't -- >> you got a lot of -- he's all over you got to walk so tenderly on all these things >> i do. we all do. >> right but business interests are -- >> but getting back to my corporate letter, why corporations need to talk about their purpose and what the values they stand for. i believe in this really incredibly transparent world thatwitnessing in a world that's so connected because of social media, it is more incumbent on corporations to really talk about who they are and what they stand for. >> can i ask about the investing world? what do you make about the rise in roboadvisers and what that's going to do to your business one way or the other >> we have one of the leading

roboadvisers hein europe and th united states. >> that you are actually going to be playing the markets? >> playing the markets, they're not going to be using blackrock. they're going to the trading platforms. look i believe the biggest problem we have in the world -- i've talked about this for years -- is financial literacy i think one of the great worries is people are frightened of their future and retirement. we need to use technology to embrace financial literacy we need to create -- maybe we have to gameify investing. using a mobility and we need to get the next generation up to speed in terms of what it means to invest in their future i think this is one of the fundamental problems the central bank's response to

the financial crisis, they only have those tools those are generally tools that will strengthen financial markets. if you look at where housing is -- housing's up but not nearly as much those who add equities did much better than those who were just having their equity in their home >> larry, just to recap your thoughts about the market. because we have a lot of people who are sitting at home, they want to hear what you're thinking about what's just happened you said the most recent weeks were hedge funds derisking >> and some hedge funds announced they're closing. >> and concerns that went on with that. but when you talk about peak earnings out there, you don't think we've hit it yet >> we believe there's a few more quarters the u.s. economy is still strong can it weaken going into the first quarter if interest rates continue to rise sure >> a few more quarters sounds very dire. >> no.

i mean -- >> for now a few more. then re-evaluate. >> i'm not suggesting we're going to fall off a cliff. as joe said, there's nothing wrong with a correction. i know we're frightened of a 10% correction and we've seen closer to 15% to 18% correction with most stocks today. pe's are lower today by three multiple points than they were in january if you like the equities when everything felt great, you have to like them more today. the market is actually adjusting to this fear the market is actually adjusting to the uncertainties maybe we are in peak earnings. maybe we're not. but the equity market is overall cheaper today. >> is there anything to the notion of murphy's law or is it ironic that you decided to take the lead on corporate, you know, accountability and being good actors. and then couple months later two

of your biggest areas of the world where you need to operate does these things putting you in a position where you have to actually live by your words. and it's like why did i say that now i've got to do the right thing in china and saudi arabia. it's like, maybe i should have waited until next year >> it's like life at home. >> it is ironic though i'm kind of laughing because you're going to be so morally -- you should cut off all business with saudi arabia immediately. >> i said i'm not. >> i know you're not it's hard for you to walk the walk for what corporations should be doing. you should do that >> i think we are doing that >> it's a difficult walk it's like a balance beam >> but if you don't talk about your purpose, i actually believe you wobble and go back and forth. i do believe more than ever you need to do this so you can withstand stuff like you're talking about. you know, these are difficult decisions. and i am not going to have

everyone agree with my actions. >> it just got a lot tougher in the last six months to do. >> i think it's getting tougher and tougher and this is one of the reasons governments are too focused on short-termism >> you know, black and white decisions are very rare. >> they've always been rare. >> it's a gray world larry fink, thank you for coming in >> thank you for your time >> you're very appreciated >> i try to be >> you're honest and i like that >> thanks, guys. when we come back, we're going to talk about more earnings johnson & johnson beating estimates. revenue also beating the street's forecast. right now that stock down by about 5 cents. we'll dig through the report with the company's ceo he will join us for a first on cnbc interview next. and another dow component in the next hour. we'll bring the results from

goldman sachs and the reaction from wall street "squawk box" will be right back. . think about all the double miles you could be earning... (loud) holy moley that's a lot of miles!!! shhhhh! ♪ what's in your wallet? shhhhh! a moment of joy. a source of inspiration. an act of kindness. an old friend. a new beginning. some welcome relief... or a cause for celebration. ♪ what's inside? ♪ [laughter] possibilities. what we deliver by delivering.

investors awaiting a barrage of earnings. this hour, goldman sachs plus cfo of johnson & johnson joins us for a first on cnbc interview. larry fink sounding off on the markets. >> i think the markets are showing that investors are confused >> we'll get reaction to his comments from the ceo of rbc and talk financials, global economy, and trade. plus alex azar as the second hour of "squawk box" begins right now. ♪

live from the beating heart of business, new york, this is "squawk box. >> good morning. welcome back to "squawk box" right here on cnbc we're live at the nasdaq market site in times square i'm andrew ross sorkin with becky quick and joe kernen look at the equities this hour dow jones would open about 67 higher right now s&p 500 looking to open up about 6.5 points higher. we also have earnings out from morgan stanley coming in above the estimates of $1.01. you're looking at that stock up now about 2.5% higher. also beating revenue forecasts blackrock coming in with its own earnings moments ago we talked to larry fink right here on set. scoring a bottom line beat with its latest earnings. earnings of $7.52 per share came

in for the third quarter beating the consensus estimate which had been $6.84 here's larry fink just a short time ago >> we saw huge movement from clients, a lot of churn. i think the markets are showing that investors are confused, but overall because of expense discipline, how weave navigated. so overall, it was a good quarter, but i was disappointed in our net flows but very explainable by some large de-risking >> fink says the firm performed well in the face of significant market head winds. also united health also beating street forecasts with its latest earnings a beat of 12 cents also raised its full year outlook. walmart reflecting the impact of

india's flipkart that will trim the forecast at 25 cents per share walmart emphasizes there is no other change in fundamentals it comes ahead of walmart's meeting. developing news this morning. nbc news reporting the saudi government considering a plan to admit that jamal khashoggi was killed after entering the consulate in istanbul. they may claim he was killed during an interrogation gone wrong and we are joined with a lot more this morning. hadley >> reporter: good morning, andrew so u.s. secretary of state pompeo landing earlier this morning in riyadh. he met with the saudi foreign minister and then headed over to meet with king salman. we understand that later in the evening he plans on having dinner with the crown prince of saudi arabia mohammed bin salman what we've seen in the saudi markets has been a roller

coaster ride currently trading about 2% up for the day. but this has been a very, very concerning story to investors i've been speaking to here on the ground of course it all plays into this broader narrative of what's going to happen next with this future investment summit larry fink there saying even though they're not going to be attending that they aren't pulling out of saudi arabia. and i think that's going to be part of the narrative we're going to hear from the u.s. government going forward because at the end of the day, saudi arabia, of course, is the country that we export the most of our weapons to. we also understand they hold about $200 million in u.s. treasuries this isn't is story that's going to go quietly into the night app lot of speculation regionally and on the ground what this will mean for relations >> hadley in riyadh this morning with a story that continues to make headlines thanks a few stocks on the move this morning shares of adobe rising the company offering bullish guidance for next year

also, j.b. hunt getting a mixed bag this morning shares up higher by 1.7% dow component johnson & johnson out with earnings moments ago. out with $2.05 revenue quite a bit above estimate i saw the outlook which was it bracketed what the consensus is for the year let's see. i think it was, like, $8.17 or something. joining us now joe wolk. joined on set by our own meg tirrell. going to have secretary azar on a little bit later which could get interesting, joe, with some of the -- i see ads. i watch it at night. maybe i'm in the demo for all

these things that seem to go wrong for the viewers of a lot of these shows i can't imagine it's that -- by the way, it's $5,000 a year to get this drug. let's talk about your earnings first though pretty good stock. 3.5% revenue gain or so? >> that's correct, joe good morning great to be with you and meg strong quarter across all three of our segments of the business. we saw consumer really turn around in a positive way a sustainable way. we launched the iconic baby franchise brands it's much more receptive to the needs of millennial moms and dads in terms of the product formulations and packaging medical devices continued with their improvement. we are on pace to get to above market growth by 2020. and pharmaceuticals, can't say enough about that division for us it continues to just generate new products in a profound way

that's transformational in the state of care. >> when we have a strong economy. a company like j&j sees huge gains based on consumers feeling more confident it feels more in-elastic but i heard people don't do certain procedures with medical devices in a slow economy. that they choose to wait on things like that do you see better results based on what we're seeing in terms of the economy? >> a strong economy is very good for our business it means people have access to care you look at the low unemployment rates we have today. that lends to having better insurance. people are more active they're more recreational. that also leads procedures as well a strong economy is certainly complimentary to our business. >> we also of course want to ask

about the news yesterday when secretary azar said they plan to have a rule that pharmaceutical companies need to disclose the list price of drugs on the screen in tv drug ads. what do you think about that idea >> you know, meg, i applaud secretary azar and the administration they're really complimenting what they set out when they issued the blueprint in may when they had a questionnaire in the pharmaceutical industry. transparent fact-based conversation is going to lead to better solutions at johnson & johnson, we've dben on the forefront we issued a statement a year ago with drug pricing that we had net price declines of 4.5% if you look at our great results this year, that's in the face of about a 6.5% price decline so transparency is nothing new to johnson & johnson we think the more we can find solutions where folks that go to

the pharmacy counter on a monthly basis and are paying higher copays than two years ago, if we could address that that's critical. >> you're okay with the administration's requirement for this the industry group is not in favor of this. they don't want to see it on the screen they'd rather have someone look it up on the website you think it should be on the screen >> yeah. thanks, becky. what's important is more information is leading to better clarity. as you all know, the list price is often not the price paid by the patient or the health care system we just want to make sure it's not a misinformation but in terms of clarity and transparency which is what we believe is at the spirit of what the administration is requesting, we're certainly on board. >> that's one of the problems is, you know, the proposal to do this highlights just how insane the -- it's really not transparent. so many different variables go into --

>> if you don't have insurance, the list price is what you pay >> it highlights that and it makes you realize, well, how could we possibly have a free market and competition when you have no idea what you're paying. so the whole thing comes home to roost. i see how you wouldn't want to put a really expensive price on it, but for most of the things i watch at night, whatever the affliction is, i'd rather have that than the side effects i got a little psoriasis here? it's better than a stroke or god knows -- >> death >> yeah. death. i watch the side effects, joe. i'm good >> we've got great medicines for all of those you just mentioned, joe. >> all right >> just more on drug prices, joe. the administration is really taking credit for what we've seen as a trend this year in pharmaceutical companies including j&j making fewer price increases. do you see this as a fundamental

shift that will be permanent in the way that drug companies price their medicines? where are we in that evolution >> i think we are further along than where we were five years ago. at johnson & johnson, we've always tried to make sure we priced responsibly even when we had research saying we were better than the standard of care. if we're not bringing value to the system, it's not a sustainable system and so we're going to continue to act responsibly and as i said, last year we had great pharmaceutical results that's 4.5% price declines last year so as long as we can keep having great innovation, we think that's the success >> it looks like pharmaceuticals beat expectations in the quarter. medical devices were behind where the street was looking for. some have pointed to that

business being one j&j should look to build. >> we look at all three of our segments on a weekly basis a number of opportunities large and small. we want to make sure it's a strategic fit. we have got the expertise to make it successful we're not, i would say, set out to give a specific composition of the pie in terms of our revenue. we want to go where value is going to be created. >> joe, how are you with the dollar and where it is now rates are headed up, it looks like will we be seeing tougher comps if the fed raises more and the dollar continues to strengthen would that be a significant head wind eventual will i >> we came into the year thinking that translational currency would add about $1.5 billion to our revenue we've seen about only 25% of that actually come through as the dollar has strengthened throughout the course of the

year i wouldn't go so far to say it's a head wind. we still have been able to raise guidance just base oddd on the underlying -- >> you say a billion that -- and a half, you got the strong economy maybe offsetting that. all companies are dealing with that joe wolk, thank you. >> thank you. >> it's great to have you on >> thanks. pleasure to be here, joe >> meg, thanks >> thank you when we come back, rbc ceo dave mckay will join us to talk about the new nafta, global markets, and interest rates. he is our special guest after this break

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welcome back to "squawk box" this morning take a look at futures dow looks it would open 80 points higher. nasdaq we'll say 40 points higher and the s&p looking eight points higher this morning. we've already spoken with larry fink about the state of the markets following last week's selloff >> there is a huge commentary we're at peak earnings, that earnings can only get worse which we could all debate that

we believe we have a couple more good quarters in earnings. but there is that view, there's a view that there is -- and i think we're hearing that in europe more than the united states companies are having margin pressures because rising wages which may be a good thing for the overall economy but not as good for corporate profitability. and you're seeing modest inflation increases in certain finished goods because of tariffs in terms of steel and things like that >> joining us right now is rbc president and dave mckai thanks for being here this morning. >> morning >> let's start with what larry was talking about. what's your best guest from what you're watching? >> from what i can see, there's a pullback more so than a backup in rates in the long end.

so as investors are trying to digest on growth, where things are growing. raising rates on the data they have i think we have to trust the fed they've got good data. same thing with the central bank in canada. we've got good data models we understand the cash flow of consumers, commercial and businesses what you can't model necessarily is the effects are around trade and geopolitical facts which confuse the situation. they're trying to digest where they're going. if you look back at credit markets, you know, investors are buying the dip which is a strong signal >> the pullback in the equity markets last week was sparked by a build in yields in the credit markets from the week before >> it was certainly as rates start to back up quickly but again, you try to digest long-term growth you see volatility into the marketplace.

but overall, i think you're seeing strong economics out there. you look at the bank results meeting expectations our results in the first three quarters of the year very strong consumers are spending consumers are paying their debt. margins are going up in the banking industry so net net we're seeing a strong economic growth and strong fundamentals out there which should encourage people that we've got a strong runway ahead of us still. >> we've heard from so many of them in earnings reports is it true you can see out about 18 months. at least get a good horizon to say there's not going to be an economic pullback coming it would show up in your numbers somewhere. >> exactly what are commercial enterprises and corporate enterprises that are investing and acquiring. they're coming to us, strong commercial growth loan growth. before the first three quarters for us

it's a very strong economy low unemployment healthy. and rates are going up appropriately to manage inflation. so net net we're seeing very healthy growth either way we're going to talk ourselves into the next cycle. >> what do you mean? >> if we keep trying to predict we have 18 months left or two months left, there's a psychological out there to be careful of >> maybe two years we don't see any signals yet trying to predict that is hard we look how consumers in commercial are behaving. it's very positive right now >> the united states is your second biggest market. 23% of your total revenue comes from here. so you must be relieved to see that there is a nafta 2.0 that's been put in place at this point. >> absolutely. i think it removes one of those uncertainties in the marketplace and overhang over trade and

investment we saw clients kind of hesitating to invest in the machinery, equipment, growth, accuracy sia acquisitio acquisitions very important to have a longer duration maturity of any type of trade agreement. if you shorten that trade maturity window, people start to think in the short-term. so we protected the sunset clause chapter 19 was very important to both mexico and canada as far as dispute mechanisms so the core elements of nafta were preserved going forward for that, there were certain trades around ip extensions which i think were appropriate e-commerce transactions across the border canada and mexico had to give. the auto component of nafta which is balanced between

canada but overall we protected that. >> obviously still has to go through congress >> absolutely has to be ratified by all three countries going forward. the devil's in the details when you start moving forward but yes, you would have seen an extension of uncertainty in the markets and would have seen a pullback in investment i think growth would have slowed for sure >> go ahead. >> no go ahead >> one thing we talked about with larry fink is the slowdown in housing in the united states. this is your second second biggest market may not have the same issues happening there. he said it's in part because of the tax changes that went into place here makes it less affordable because people can't write off as much that matters not only in the blue states and some of the coastal states, but also in big cities like a dallas what do you think about that how would you explain the weakness that we've seen in housing? it really matters when interest rates go up. >> it does it's a combination of rates and

tax deductibility changes how much house you can buy smaller home, it changes your demand for mortgage debt in the economy. therefore we're seeing purchase mortgage activity from a unit perspective decrease double digits and you've seen the dollar volume per unit decrease because of the tax effects when you combine both, you're certainly seeing a slowdown. albeit pretty good market places when you look at the bank results. for our business, we're focused on the upper end of the market place and the high net worth customer less impact on rbc, but it would have a bigger impact for sure. >> the saudi relationship with canada has been strained this summer one of the things i know some executives who have been thinking about the retribution that took place from saudi to canada after this skirmish, the war of words effectively that became much more than a war of

words including an order from the saudis to sell canadian assets. >> yes, they did >> what is your take on what's happening in saudi right now and does the relationship with canada matter? >> well, i think we're a net importer to the east coast i think one of oufr challenges as a country is getting our oil from our oil producing region of alberta to the east coast to the pipeline we haven't been able to get approved that would diminish our relying on saudi oil as a ceo, you have to put the principles and values of your organizations first above your economic interests i think this is the case albeit still facts have to come out and i think it's appropriate to not overreact until facts come out. you have to definitely put the principles of your organization first. in this situation. that's why you're seeing them

that way it's a difficult situation for sure. >> there's a difference between canceling an appearance and ending business with a place >> right but that's the core. you have to live the values of your firm. >> it's early. >> you see major corporations cutting off all contact with saudi arabia based on this >> we have to see what the situation actually entails here. we've got a lot of speculation in the market place. >> if that were the case, companies would be able to do business in four places in the world. there would be multiple places you couldn't do business base odd then human rights violation -- >> you have to look at who you're dealing with and how they've behaved. i think that's part of being a values based and principles based organization >> thank you very much, dave we appreciate your time.

>> good to see you >> dave mckay is joining us from rbc. coming up with rising tensions in the middle east and rising oil demand, could offshore drilling be the answer to keep these in check brian sullivan will join us with that he loves going out on the field and being near oil rigs. and in reaction to the news from walmart ahead of the company's investor data, releasing some guidance "squawk box" will be right back.

rising oil demand. the iran sanctions and now tension with saudi arabia could offshore oil drilling be the answer to keeping oil and gasoline prices in check brian sullivan is in new orleans this morning where he's ready to take off for shell's largest oil rig floating in the gulf of mexico good morning to you, brian >> reporter: good morning, andrew you guys just talked about it. you talked about saudi arabia. we've been to the middle east, been to the bakken wehad a $2 billion deal in the space two years ago or two weeks ago after this industry was really just kind of left ignored. shell is about ready to launch a $2 billion product we're going to go out on one of the next biggest days.

130 miles, guys, offshore to talk about whether or not in the gulf we're going to see more investments, more capital improvements, and how much more oil and gas we can pull out of the gulf of mexico that beautiful machine behind us is going to take us. it is going to be a spectacular day here on cnbc >> hey, before you go, what kind of train dg you have to do to get ready for this >> well, yeah. okay so yesterday didn't realize how intense it was going to be basically they simulate you're in that fuselage you're strapped in, they dunk you, flip over, open a window and crawl out. it's all on the extremely unlikely possibility that our s-92 here because we're 130 miles offshore make a controlled water landing. then rolls over and yao got to get out in the dark. we learned how not to get eaten by barracuda >> wow >> reporter: a lot of investing angles, beautiful video.

we'll be out there in about two hours' time. it's going to be amazing going to be great. >> see you're glad i asked the question we had video thank you, brian good luck out there. >> reporter: sure thing. >> hope you don't have to use the training >> reporter: me neither. all right. when we come back this morning, quarterly results from goldman sachs. we'll have the reaction after the break. and later health and human services secretary alex azar is our special guest. we're going to talk drug pricing in america and much more take a look at the u.s. equity futures. been in the green all morning. dow futures now up almost 100 ints s&p futures up by 9.5, nasdaq by 42 "squawk box" will be right back. [ upbeat music ]

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turnover, is out at 10:00 a.m. eastern time as we wait through a busy morning for corporate earnings, more names are on tap this afternoon. that comes after today's closing bell microsoft cofounder paul allen has died at the age of 65. he had been undergoing treatment for nonhodgkin's lymphoma. allen was a prominent philanthropist again, paul allen dead at the age of 65. back in business news, walmart holding its investor day. courtney reagan has breaking news from the retail giant >> ahead of walmart's investor day in arkansas, the retailer putting out some updated financial outlooks the full year guidance now reflected to update that flip card acquisition the retailer had expected it would dilute earnings between 25

and 35 cents 25 cents is the dilution so the new forecast is for earnings to be between $4.65 and $4.80 for fiscal year 2020 net sales expected to grow 3%. currency for that full year, walmart also expects comp sales growth to continue to grow between 2.5% and 3%. walmart is looking for u.s. net e-commerce sales to grow approximately 35% in fiscal year 2020 and when it comes to spending, the capex level, it's going to be around where it was the last years at $11 billion it's going to focus on store remodel, supply chain, and technology now, the retailer also expects to expand the grocery pickup grocery delivery to 1600 locations by the year 2020 i spoke to brett biggs on the phone. he said walmart feels good about the things we can control and it plans to be, quote, innovating

more and more quickly than in the past year or two when it comes to the impact of tariffs, he said he's going to talk more about that today but the plan generally is to manage margin for customers and for shareholders andrew >> okay. courtney, stick around we want you to be part of this conversation joining us right now to break down the news is charlie o'shea from moody's good morning to you. you're listening to what courtney had to say. anything you disagree with >> no. i think what we're seeing from walmart is what we've expected from them the last few years they're going to keep investing. capex spend is flattening which is a positive for earnings but the investments will continue to be tactical. and that's something the company's demonstrated it's very effective at doing over the last three years since the october 2015 announcement they were going to go down this path i think net net things are about where we thought they would be. >> what do you think the stock is really worth?

>> oh, boy, andrew i'm a fixed income analyst that's tough >> i know. but i know you look at the stock. even though you pretend -- >> i don't pretend, thanks >> you know what i'm saying. what do you think of this? >> when i look at it compared to other retailers, it seems like the company's undervalued. that's just from a fixed income perspective. yes. when you see the profitability, the sales expansion, you're talking about a half a trillion dollars of revenue here. i guess the equity is half of that revenue that for retailer of that quality seems a little low to me >> does that mean amazon is overvalueed? >> i didn't say that i've said in the past that i've -- i don't know i've misunderstood, but i've had trouble with the basis for amazon's valuation in the past because it's so hard to predict where the company's going. and you can't predict quarter over quarter earnings, ebitda, revenues, et cetera, because you don't really know what the investment cadence is going to

be like. >> courtney, you want to jump in >> yeah. i was going to ask charlie about that investment cadence but for walmart they've been spending money to make acquisitions recently purchasing bare necessities. do you want them to continue to do this with cash? >> there's still capacity within walmart's existing rating for some additional spend be it on the share repurchase side or on the acquisition side flipkart chewed up a lot of that cushion, but there's still a reasonable amount left, i think, for walmart to do something that tactically makes sense and we'd be looking at the payback scenario there, how fast they could get back to kind of what we expected from a leverage perspective. but there's room there >> okay.

we're going to leave the conversation there thank you. >> thank you. >> and courtney thank you. >> thanks. goldman's out. result just hitting the wires. wilfred frost joins us with more >> hey, guys again on the surface like morgan stanley, big beat. the revenues $8.65 billion versus forecasts for $8.35 billion. investment banking very strong forecast to be $1.8 billion. came in at $1.98 billion that's up 20%. and all the other bigs were down in that core business were the out performers for this quarter. if we look into other segments, investor in lending slightly ahead of expectations. investor management slightly ahead. the trading, though, was disappointing. equities was broadly as expected

$1.79 billion. the forecast $1.73 billion but the fixed income trading was at $1.31 billion the forecast was for $1.4 billion. that's down double digit percentage that is a miss but overall this is a decent set of numbers it's up 1.3% it was up 1.3% even before these came out in lieu of morgan stanley's beat still outperforming goldman sachs shares both of these two down sharply year to date before today's trade. goldman sachs down about 15% year to date after last night's close. morgan stanley down. with these eps beats, it's surprising to see a jump in the share prices this morning. guys >> all right, wilf going to see what happens throughout the trading session thanks coming up, a new proposal by the trump administration will require drug companies to include prices in those television ads that run nonstop. health and human services secretary alex azar will join us

after the break to discuss the change stay tuned

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welcome back to "squawk box," everybody. take a look at the futures we've been building through the morning. s&p would open up by 9.5 points if we were to open here. remember this is after the s&p has closed down for seven of the last eight sessions. nasdaq indicated up by about 45 points the trump administration's unveiling a new plan that would require drug makers to disclose prices of medicine in television ads. here now health and human services secretary alex azar secretary azar, thanks for joining us >> good to be with you >> the rationale is if consumers could compare prices or have more transparency that eventually this might become more of a free market and there'd be more competition and it might put a lid on some of the price rises we've seen in recent years is that the rationale? >> absolutely.

we think it's critical patients being pitched these medicines and asked to talk to their doctor about these drugs, that while they currently get the medical efficacy and safety concern information in the ads, they're not being told of the price the medicine they're being asked to have a discussion about. and that list price we think is part of fair balance, ought to be in the ads. that's why the president committed to proposing a regulation that would mandate prices in the ads. that's what we delivered on yesterday. >> the pushback, obviously, is going to be significant, i guess. but there are some valid points. and that is that -- i mean, what price do you put up? i mean, it'd take the commercials 30 seconds long, it'd take 30 seconds to explain who pays what and rebates -- no? >> no, no issue at all it's the list price. the pharma companies set the list price you put the list price just like on the car >> that's why they don't want to

do it. because no one pays the list price. >> they do that's the problem almost every single senior under medicare plays the list price or percent of list price. during their deductible, they're paying the list price. i'm not buying the pharma talking point that they don't matter. >> is there any way to get around this for this are they going to try to advertise in a different format, is that possible >> we were asked whether we should extend this to all forms of advertising for now it's proez poed for the tv ads but we've asked for comment on a broader scope of the regulation. >> why didn't you start with everything it clearly will push the advertising to other places. >> we'll see the comments we get. we were focused on the most

salient part and the heaviest pharma investment which is around the tv ads. >> mr. secretary, obviously transparency is a huge problem consumers don't know how much they're going to pay for so many things that they get in health care this is one proposal what other proposals are you considering to try and get at that transparency to people can really act like smart consumers and figure where they're spending their money and how >> i'm glad you asked. that's so much of the theme of our health care that the president is driving to put the patient as the consumer in the driver's seat to bring more competition to the system. that's why we've rolled out an update to the medicare dash board letting people have more insight into pharma price increases. that's why just last week a gag clause legislation that prohibits pharmacists from telling patients they can get a lower price if paying cash out of pocket. that's why we're looking at the back door, back end rebates that

aren't transparent and thinking whether those should be forward to up front discounts for the sale of the patient. it's why we're bringing price and quality transparency across the entire hospital and provider health care system. >> who do you think the problem is in this scenario? i mean, if you talk to any of the top executives at the drug companies, at hospitals, in any of these places, they'll say they're in favor of transparency what's the holdup? >> five months ago the president called for prices to be put into direct to consumer tv ads. i said, you know, pharma could adopt this tomorrow as a voluntary program. they didn't do it. so we have to go with regulation if people believe in transparency, they can actually make their prices transparent. >> would you ever think about forcing doctors on the script to actually put the price next to the drug so you actually see it? i don't know about you, i go to the doctor, they write down the script and you take it to the

drugstore. sometimes you can figure the price at that point. it's almost too late because you've already put it in >> i'm glad you asked about that because that was part of the drug pricing blueprint we're working on we think you have a right to know not just when you have the tv ad what the drug ought to cost but actually at the point of prescribing we need the tools so the doctor knows not just the list price but under your health care plan you would pay for that medicine as well as the competing medicines the doctor might prescribe. so you can have a more engaged, competitive prescription >> it's probably not the doctor's fault it's not the doctor who wins on this it's the health care plan. it's the pharmacy. it's somebody down the line getting you to fork more out of your own pocket. >> it's not the doctor's fault in terms of having the information. my home is the insurance companies who really fry to steer a patient towards one

medicine or another under their benefit design will actually develop these tools. because it's in their interest that the doctor and the patient should steer towards the lowest cost option in terms of the drug for out of pocket. that's why they designed those benefits that way. >> i don't even understand who they're designed for in those. the commercial, i don't even know what it's for they show you people, you know -- >> happy >> they're in boats, you know, husbands and wives look like they're enjoying themselves. i have no idea what it's for and a doctor has to write a prescription for it. does anybody say i want some entresto or something? is it for doctors? what's it for? it seems expensive i don't know what they're reaching they're advertising side effects most of the time >> they're trying to get consumer activation. they're trying to prompt a discussion between a patient and the doctor about a medical condition and they hope the patient will make a request for

that particular drug that's why we think it's so important that we have this transparency because we think before a patient spends money to schedule a doctor's appointment, go see a doctor in response to one of these ads, they need to know is it a drug they could potentially afford is it a $50 drug or $5,000 drug. we think that's basic fairness >> rebates i think are a big problem too. all of these companies say, look, nobody pays the list price. okay make the list price really the list price stop giving discounts back are you going to crack down on that >> we have talked publicly about our concern about this rebate system we have that creates the incentive for these extremely high and ever increasing list prices even as rebates and discounts continue to expand getting to net pricing what we instead think we ought to be considering is pulling those rebates forward to the point of sale when the patient walks in the pharmacy. let the patient get that discount when they walk in the pharmacy that's an idea worth all of us

thinking about it would be more transparent it would create a disincentive to these absurd list price includes and decrease spending at the pharmacy. >> it's really pretty amazing that, you know, with everything we've done with i.t. and everything else and this ridiculous cumbersome system we're operating under here, a doctor ought to be able to figure out exactly what the most cost effective way of treating the condition for his patient is i don't know i don't know if i want any advertising or anything. it should be a lot -- i don't know a lot more streamlined and a lot more 2018 in terms of technology and everything else, shouldn't it we've got a lot of work to do. >> we agree. i think those tools are coming i think some of the big pharmacy companies are working on them. >> a lot of middle men walking around, too, getting a cut here,

cut there. thank you, secretary azar. we appreciate your time today. we'll see what happens >> and we have a headline just crossing the wires we want to tell you about uber considering an ipo as early as the first half of 2019. that's according to a "wall street journal" report they've been talking about an ipo in 2019 for quite some time. the kpan has now received proposals from morgan stanley and goldman sachs in an effort to work on that, advise on that ipo valuing it up to $120 billion. that's nearly double uber's valuation after its latest fund range just two months ago. this is a company that still has not turned a profit with a valuation of $120 billion. if, in fact, goldman sachs and morgan stanley are correct historically when you propose you're working on an ipo, you want to suggest you can get them the highest price.

we'll see whether that is backed and can come true. when we come back, a lot more on stocks at the top of the hour, street reaction to goldman sachs' earnings back in a moment here. we perform over 50,000 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

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all right. let's take a look at stocks to watch this morning twi twilio is buying sendgrid. this is an all stock deal. it's valued at about $2 billion. that's a premium of more than

19% over sendgrid's monday close. check out symantec it was upgraded from underperform at cowan. that firm says downside risk for the cybersecurity firm is limited following the conclusion of an international investigation. that stock is up by 3.6% advanced autoparts shares are rising in premarket trading. jointly starting up an online autoparts store that will be featured on walmart.com. when we return, street reaction to goldman sachs' results. take a look right now at the stock. it is up a little over 1%. we'll talk about it, also look at the futures this hour we are in green territory. dow up close to 68 check out the 10-year note at this hour. 3.169%

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an earnings parade quarterly results from dow components united health, johnson & johnson, and goldman sachs. blackrock ceo larry fink, our news maker of the morning. >> the market is adjusting to

this fear. the market is adjusting to the uncertainty. >> hear what he makes of investor sentiment right now plus fang stocks on deck netflix ready to report after the bell we'll get you ready as the last hour of "squawk box" begins right now. ♪ live from the most powerful city in the world, new york, this is "squawk box." welcome back to "squawk box" here on cnbc. i'm joe kernen with becky quick and andrew ross sorkin if j&j has a good number, it's a dow component, dow goes up so it's a rebound day. at least this morning. up 113 rebounded friday, pulled back again yesterday after a seesaw

session. and now we're bouncing a little bit again today. obviously the break we had last week still fresh in everyone's minds when you post 850 points and then down. but relative calm so far this week, really, and we'll see. treasury yields are also well behaved. and they react in a perverse way. market goes down and then yields sort of follow the markets down as people maybe buy a little bit of safety and do a little bit of risk off. 3.16% now on the 10-year let's talk about stories investors will be following today. blackrock out with its third quarter results. that was above expectations of $6.84 a share. assets under management grew 8% year over year to about $6.4 trillion joining us earlier on "squawk box," blackrock's chairman and ceo larry fink

he said markets are cheaper now than they were back in january >> the u.s. economy is still strong can it weaken going into the fourth or first quarter if interest rates continue to rise? sure so if you like equities when everything felt great, you have to like them more today. the market is actually adjusting to this fear the market is actually adjusting to the uncertainties maybe we are in peak earnings. maybe we're not. but the equity market overall is cheaper today than it was in january. >> dow component johnson & johnson beating estimates for sales and profit with its third quarter results. strong sales of the company's cancer drugs and a turn around in its baby care business helped that company johnson & johnson cfo joining us in the last hour >> a strong quarter across all three of our segments, we saw consumer really turn around we think in a positive way. the sustainable way. we launched our iconic baby franchise brands

it's much more receptive to the needs of millennial moms and dads in terms of the product formulations and the packaging it compliments the strong over the counter medicines that we have >> and another dow component united health beat on the top and bottom lines earnings rose by 20% year over year while total revenue grew by 12%. united also raised its full year earnings forecast. that stock up by 1.8%. uber now reportedly considering an ipo for as early as the first half of 2019. "wall street journal" reporting that uber has now received proposals from morgan stanley and goldman sachs valuing the company at $120 billion. that would be double uber's valuation after its latest fund raising round just two months ago. we will keep an eye on uber. meantime, goldman sachs beating the street

the financial giant says its year to date return on equities is its highest in ten years. that stock up about 1% this morning. joining us now is investment banks and brokerage analyst at j&p securities good morning to you. as you look through the report, is there a highlight in your mind >> i think the 13% return is a standout it's third quarter, a quiet period and 13% is a great number now. i think people might pick out a couple things in the results the comp ratio was lower in very good revenue quarter expenses were, you know, under control. and 13% return on equity >> that's not a standout from some of the banks we've seen already report >> excuse me >> it's not a standout from others we seen with their reports. >> i think it's very healthy

there's clearly a question where we're at we're seeing very good results what we're looking at is stocks that are pricing in kind of a late cycle almost recessionary environment where they're a couple below compared to the s&p 500 which is essentially at historical averages. >> based on these numbers, is there anything you will change in your model in terms of how the company should be worth? >> it's a little bit low for a 13% return on equities that's one thing i think the big e -- bigger question >> what your sense is going to be in terms of the transformation of this company if you think there's going to be a transformation of this company. >> so i think something that people don't appreciate is quarter of the employees are

engineers, technology engineers. so there's a digital push on the firm and so i think that's where there's going to be growth and they've done some things kind of behind the scenes. they bought clarity money which is a digital app which to me is interesting. >> which in the old world of trading would have been very good for goldman sachs >> it's a fair point the reality is that the growth and kind of the legacy business like fixed income, equity trading, it just -- it's more muted than the past. and so i think as you're looking forward, you have to find pockets of greater growth. and the good news about goldman is they're not trying to retrofit technology into an old platform they're building from scratch on the consumer side. and i think, again, we're in the

early inning of -- >> do you think those could be the hind margin businesses they've had historically >> absolutely. the consumer side if you think about digital leveraging technologies or infrastructure not having branches being able to connect a lot of products into a digital store front, that's very high margin. if you can scale it. it's a scale game. we'll look around what that is there. >> okay. devon, thank you don't miss it tomorrow goldman's new ceo david solomon in a cnbc exclusive on "closing bell." they have their conference -- what is it innovators conference out i think on the west coast tomorrow that's going to happen at 3:00 eastern time all right. few other stocks to watch today. morgan stanley reporting

earnings ceo james goreman says the firm is well positioned even amid the seasonal summer slowdown and walmart adjusting full year earnings outlook to impact the acquisition of flipkart. it will trim the forecast by 25 cents a share. walmart emphasizes there's been no other change. ahead of walmart's meeting with the investment community that's today and qualcomm and the ftc have asked for a delay in the antitrust ruling trying to work out a settlement. alleges that the company engaged in anti-competitive practices. so how are all these earnings playing out in the broader markets? the futures this morning have been up. dow futures now up by about 121 points s&p futures up by about 11, nasdaq up by 50 points and joining us right now to talk

more about the markets is senior vice president at schaffer's investment research. also with us senior portfolio manager in the municipal bond investment group welcome to both of you todd, let's start out just a little bit about what we heard this morning from larry fink both big institutional investors and retail investors he said right now there's a lot of fear out there but he didn't think this is a longer term pull back he doesn't think peak earnings have hit yet. what are you thinking? >> well, i think we are seeing something very similar only now i think we got a confluence of factors whether it's rising rates, trade tensions. we've got the uncertainty with the midterm elections. but last week, what we saw was

the typical post-fed blues i mean, we've been writing about this in our commentaries for quite some time. how the market tends to -- since the rate cycle tightening hike began in 2015, a month following the rate hike, the market is down on average 1% whereas when the fed holds a month later, the s&p is up about 1.5% on average. so we had that rate hike that came at the beginning of the month. we had some technical levels break. there was a lot of put open interest in other words a lot of insurance right below the market sometimes those puts when they build up, they act like big magnets. with us so close to october expirati expiration, we saw some accelerated selling as those put strikes came into play

and so i think we have a combination of technical factors, some macro factors. and finally options and being around the corners those puts, those insurance bets but a lot of portfolio insurance out there. it becomes a self-fulfilling prophecy almost. >> we'll talk more about that in just a moment. if you've been watching the yields in the treasury market, look yields came up but when we saw the markets sell down, the yields have moderated some too reflects the fact that the economy is doing well. the fed keeps tightenings as was just mentioned we seen a lot of tightenings for a number of years now. it's part of a normalization process. i think the market is struggling now with whether monetary policy normalization will tip over and become tightening.

imparting restraint on financial conditions slowing the economy and if it becomes too much then it sows the seeds of a recession. that's what we saw in the equity markets. i like to point out i think it's somewhat self-limiting stocks reacted negatively and that helped calm down the rates market >> so heeling thy self to some degree let's talk more about this the idea of the fed going too far. that is a huge debate right now. are they raising rates because they should be doing just that or are there signs that things are already under some pressure and they should take their foot off the gas? if you look at housing, that's been a huge problem. auto loans and sales in general have come under pressure on this you would think the consumer was feeling a lot more flush given some of the wage increases you've seen. what do you think is happening

>> sure. i think if you look at the fed's dash board and i would like to reduce it to their dual mandate. maximum employment, sustainable prices as defined by a 2% inflation rate inflation is at their target that's great they have to feel good about that it took years to get there it's very rational for them to drive the fed funds rate above zero on a real basis i think the fed is doing their job and doing it well. i think that's the first sign of their impact i don't think it's -- i'm sorry. i don't think it's successive just yet by any metric over history, that is not a highly restrictive policy the challenge right now is chairman powell has down played the idea that the fed knows

where it's going that introduces risk, risk premiums have to go up that's a challenge to financial assets >> todd, let's talk more about what happens next with the market if this was a strange confluence of events, that means that you're looking at this as an opportunity to buy >> becky, i think it could be a bonding process. again, much like we saw in february and march i think we are at some potential support levels the danger with that when you've been up so much is you continually draw these lines in the sand the russell is back to the year to date break even i've seen this many times on these major indices where we bound from these round numbers just as the s&p stalled at 10% year to date, the russell could well bottom here that accelerated selling we

talked about that i think was helped along by the options market, i think most of that is over and those forces could be the same forces to the degree some of these put strikes that are still out of the money as we near expiration on friday, you could have some short covering that helps could well be in play over the next week or two but i wouldn't be surprised if three weeks down the road or so we do a retest before we bottom out. but i think we're near a bottom at this point. >> all right, gentlemen. thank you very much. >> thank you >> coming up, a lot more on "squawk" ahead what to know about the power struggle in washington and how it could impact stocks and bonds. we're going to talk to peter wallison here's a look at the biggest

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leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. welcome back to "squawk box. the futures now up 145 on the dow. adding to the gains throughout the morning. other stocks and companies are reporting quarterly results. 145 points now on the dow with the nasdaq indicated up 61 nice bounce there. and the s&p up 14 or so. okay the midterm election just weeks away, but our next guest argues that the rise of the administrative state and the loss of power in congress is impacting the lives of americans in a very profound way joining us right now is aei senior fellow peter wallison he's author of "judicial

fortitude. good morning to you, peter >> good morning. >> what is the administrative state? >> it's all the agencies of the federal government starting with the cabinet agencies all the way down to the independent- -- so-called independent agencies like the s.e.c >> what do you think has happened here? >> over time congress has made laws that are broader and broader in scope they're not very restrictive and the courts have allowed these agencies to make rules that go beyond what has been authorized over the last 25 years, for example, every year these agencies have made more than 3,000 rules and regulations. if you want this in kind of political terms, one of the things that donald trump talked a lot about on the stump was deregulation and i think most people in the financial community and the

economics community interpreted this as economic regulation. but i think the people who were voting for trump were thinking that there's just too much coming out of washington that affects their lives and they have not voted for or approved so i think we have to get control of this in some way. and the book suggests that the best way to get control of it is for the courts to step in and start interpreting the statutes that these agencies are operating under. more effectively >> so that was the debate i was going to have with you you talk about the court stepping in. and i would ask why has congress failed to step in. if, in fact, these departments are making up their rules that go far beyond what congress has given them permission to do, you would think that congress should be holding them to account >> you certainly would and in fact, that's what the

framers of the constitution assume that congress would be very interested in retaining all its powers that is not how it's happened. for a variety of reasons discussed in the book, congress has allowed these agencies a lot of freedom we know that this legislation introduced in congress each year several pieces of legislation have passed the house of representatives in the past few years. but they don't get to the senate and they don't go beyond the senate. >> do you think there's a hidden motive here which is to say one of the reasons congress has not held them to account is because this is, in fact, what they actually want? >> i agree and that's in the book what is happening is congress is proposing and passing very general legislation where they don't actually have to make the tough decisions themselves and they're handing those tough decisions over to the agencies and we have to remember that the agencies are made up of people all around the washington area they are not the american

people and the agencies are issuing rules and regulations that have their priorities rather than the priorities of the american people >> you worry about a number of these regulations gone -- run amok or gone awry, whatever phrase what is the worst example of it. >> i think the worst example is what happened under title 9 of the education act which was adopted in 1972. and what that said was schools have to make educational resources available to both sexes. and that has been used by the education department to create an entire system of regulation of sexual harassment which is student to student having nothing to do with the school, but they forced into position where they have to have certain kinds of procedures, where there has been alleged sexual harassment. they've defined sexual

harassment and then punishments under sexual harassment. all of those things are too far. >> given our interest here at this table and business and investment, are there particular parts of the code, if you will, or laws that would have a significant impact on investors if they were brought to the court? >> sure. lots of things that are adopted by the agencies, by the s.e.c., by the treasury department and other major departments of the government have consequences they are right now -- the agencies are the ones that largely have the power to determine how the economy responds and how -- and the kinds of things that companies have to do in order to comply with these rules so, sure everything that they do has an economic effect. >> final one

who's really in charge here? given all the work you've now done on this book especially when it comes to our economy, is the president and his administration in charge to some degree you could argue these departments fit right under or a part of the administration therefore the things you're doing should be in line with the president. >> well, the president really has no ability to affect this. because if there are 3,000 rules every year and there have been for every year for the last 25 over 100,000 rules, it's not possible for the president or his administration to affect those. he or she will only have an ability to touch a very, very few big rules in any year. the rest rule out over the public and they have to comply with them. so congress is not able to stop it

based on laws they've been happening in the past and the only agency that can stop this, i think, is the courts and it happens that the supreme court in its new composition has an interest in this. and i think that we will see a lot more restrictions on what the agencies do coming out of this >> peter wallison, the new book "judicial fortitude" is out today. thanks for coming on >> thank you coming up, we have more stocks to watch. first check out european trading right now. stay tuned you're watching "squawk box" on cnbc

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♪ welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square among the stories front and center this morning, shares of dominos piz za taking a hit in premarket trade. revenue was short of forecasts on some disappointing seam stam

store sales in the u.s ritch allison will be jim cramer's guest tonight on "mad money. linparza being jointly created is one for pancreatic cancer treatment we will see how higher mortgage rates are affecting sentiment in the housing market association of home builders out with the market index. sentiment among the builders futures this morning have been up this morning. now up 133.5, 134 points now on the dow. s&p indicated up about 13 points the business community is remembering the life of

microsoft cofounder paul allen this morning he passed away yet after a battle with cancer he created microsoft with his friend bill gates. the two met while attending private school in the seattle area allen left in 1993 to devote to philanthropy and space and tech investments through his investment firm. he was also an avid sports fan owning the portland trail blazers and the seattle seahawks i remember walking on the field with him one day bill gates releasing a statement saying i'm heartbroken by the passing of one of my oldest and dearest friends. paul allen was 65. google ceo confirming that the company is working on an internal project to build a sensor and search app for the chinese market he says google could serve more than 90% of queries. >> when it comes to china given our history, it's a more weighted topic

our intent was the reason we did the internal project was it's been many years we've been out of the market. it's a wonderful innovative market we wanted to learn what it would look like with google in china that's what we built internally. if it were to operate in china, what would it look like? turns out we'dwer percent of ths >> google had prooecheviously ha censored version but pulled out in 2010. more of his comments are on cnbc.com faang stocks in focus today as netflix prepares to report after the close. shares of the streaming giant netflix down since the start of october. joining us now is ed lee

ed, the big question, netflix has never really recovered from the last time it reported earnings in july when they missed estimates for subscriber growth. you still look at this company, they've got 130 million subscribers. that is the envy of just about anybody out there. but missing by a million is a big deal right now what are we looking for today? >> price perfection. also the longer thesis on netflix is they're not halfway there based on the way it's supposed to be trading we're looking for 5 million more subscribers, most of those coming internationally you have to give netflix credit for offering that in the first place. a lot of companies don't get that granular. that's nice. of course, every little miss is that much more to the market it is a spread that's driving the price. you want as much visibility as

you can get. third party data around app installs tells us they're probably going to get close to it anyway. so, you know, i think i know the market is leaning heavily on tech these days and netflix in particular but i would like to know more about how that international business actually creates more profits for them because it's nowhere near as profitable as the u.s. business. >> let me ask you a separate question coming up to 2019, netflix will have a newfound sense of competition or at least that's the expectation. >> at&t is coming out. >> in the form of hbo plus this warner media program that was announced last week while i was in l.a. at that vanity fair event. but also disney flux >> hulu. >> what does that look like? do you think people stick with netflix? does netflix still own that market or do you think there's a potential that people say i've watched what i want to watch on

netflix? are people in love with the programming on netflix right now? >> they are. but you bring up a good point. that's why netflix is spending $12 billion on content this year alone. through the good and bad of it, they pay for it once no matter how many times you watch it, it's already paid for. it's good for keeping you the customer once finished with that, they need something else to watch they need to keep adding more content. the way any network keeps adding more programming they need to keep spending at the same time, they've got a big head start i think at&t's new service, it's going to be hard >> there's a distinction between what i imagine these other platforms are going to try to do which is find these massive hits they're going to get into the hit business, right? because if you have "game of thrones," there are people who will subscribe just to watch "game of thrones." and maybe they'll turn off afterwards, but oftentimes they stick with it.

whereas netflix is trying to appeal to all niches >> and the niches can cross demographic lines, can cross sort of borders as well. there's a guy in england or there's a young person in california that like the same thing. that's how they see things i think anothers aspect of this which is at&t which owns more content, they're going to start roping that stuff off. this whole sort of syndicated window where it was a hit in theaters and then went to syndication and went to television, that's going to stop they're going to keep it for themselves which is going to force everyone else to keep their content for themselves you'll see a content cold war emerge netflix saw this coming. that's why they're spending so much money >> is there a way people spend back on the money or it's an arm's race >> well, i think the fact, you know, disney and at&t, they're starting out with a deep library to begin with. netflix is building their

library. i think it's going to help them. but the other side of it is from a consumer perspective, all are priced similarly. >> if they don't get the subscriber growth, is there an argument they have to pair on the spending >> you know, i've been looking for that magic number. at what point -- what subscriber number do they have to hit in order to -- >> in order to justify spending. >> exactly right i haven't gotten to that number yet. netflix hasn't told us either. but there's a number in their head there's a point at which they have enough subscribers they can sort of -- >> can i ask you about the syndication second window idea >> yeah. >> because that has always been a huge part of the economics of these programs for those that make the programs. and the idea that there's no second window, that used to be magic -- money out of thin air for a lot of these companies >> you got paid much more for the thing you got paid for right? >> right and that's how they made the

numbers work >> but that's the bad. right? so, disney, marvel's a huge franchise for them it's very popular on netflix after 2019, those marvel movies will come off of netflix once that stops, disney's making the bet that those billions that we're losing -- not losing but not getting in ref knew we otherwise would have gotten for this licensing window, we have to make it back in subscriber growth off our own thing whether for hulu or their disney flix thing you've got to give bob iger credit for that big jump he's around another two or three years. >> we managed to have this conversation and not mention amazon >> for them it's less of a core product. >> they're a player in the industry that makes everybody react to them. right?

>> one thing to look at in terms of amazon is how they might go for sports rights. so they own thursday night football the ancillary rights for streaming. when monday and sunday night football comes up for renewals and they'll talk about it next year or the year after that. how aggressive will amazon be? i think that will tell you just how important video is to their -- video as a stand alone. beyond it just being a way to sell items >> tell me again the subscribers numbers to look for tonight. >> 4.3 million in the u.s. and -- 650,000 in the u.s. and 4.3 million in overseas. more of their revenue comes from overseas than from the u.s but there's less visibility in terms of just how profitable each region might be >> thank you, ed ed lee coming up on "squawk," this wnading's upgrades and dogres stay tuned you're watching "squawk box" here on cnbc

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and earnings will improve. we had to come back for this i guess so coming up, two dow components in the health care and pharma group out with quarterly results today. street's reaction to j&j and united health. but first ads we head to break, what alex azar told us on "squawk" about drug prices in the last hour. >> the problem is almost every single senior under medicare pays the list price or a percent of list price on at least some of their drugs 47% of americans under the age of 65 have a high deductible health plan. they're yi tpanghe list price. i'm not buying the talking point that list prices don't matter. they do matter the biggest bank heist in history

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health care and big pharma in focus this morning. johnson & johnson posting better than expected earnings and revenue. also raising its guidance. united health posting better than expected revenue. also raising full year outlook joining us now is senior health care services analyst at learing partners alex azar was on earlier today the secretary talking about putting listed prices on tv. we have midterms coming up and the word is, the undercurrent is democrats used to run from obamacare or used to -- you know, that was not something they were selling. now they're using that as part of their stumping based on it.

where are we now in health care reform just overall? >> well, you have exchanges, about 10 million to 12 million people i don't think they're going to grow that much they're all subsidized members >> all subsidized. >> you have these short-term insurance plans they have approved association health plans >> that's different, isn't it? does it change anything? the landscape? >> i think 5 million-ish people are unsubsidized you might see a little bit of movement from that segment to these lower prices short-term plans, possibly. i don't know why the democrats would be using it as a way to run their election propaganda. it doesn't seem -- >> is it fear anything is taken away pre-existing conditions. >> yeah. pre-existing conditions will be much more judicial it will be if the supreme court decides to listen to the case

that texas and 20 other states are now, you know, suing on pre-existing conditions. we already have the confirmation of brett kavanaugh so it's very possible regardless of the election outcome that they eliminate pre-existing conditions i'm not sure it matters how the composition of congress will be. if the house flips, so what? >> so for companies like united health care, live goes on. >> united health care has left exchanges anyway so it's medicaid they're in medicaid. and the blues to some degree, doesn't really matter for the big five it's all about the integration of that pbm manager care asset the deals look like they're about to close medicare advantage is looking really, really good for next year and unless trump is impeached which i really doubt anything like that is happening even post-elections, until 2021 medicare is going to be very

strong and privatized. i don't see why the elections are a big deal the blue wave to some degree, you might see more medicaid expansion. i think if governor races go more blue, the house flips, that helps a little bit so that helps the medicaid plans to some degree >> so have you changed your emphasis on -- i know you had some specific -- you always talk about the same companies when you come in here what are your favorites? >> i like cigna here a lot now the deal is closing. cigna express has recovered about 75% of the lost valuations since march when they announced the deal everybody hated the deal i think investors are warming up to the deal. next year you should see good numbers. i think that their revenue growth will be better than expected not just in '19 but going forward. i like anthem very much as well. those are my two large cap picks. i like well care group and united is the bellwether the quarter was very strong. better than expected

you know, they raised guidance so those are the names and i like hca i think you should own a hospital name as well. it's a bit of a hedge against too much health insurance exposure and aca is a high quality name it is a high quality name and adaptable. >> what are the drug companies most worry about in terms of having the list prices on their ads? >> there are many small things that they have done and if you look at it, the bucket that i can see transparency, he got the d.c. change that he talked about this morning and the controversy, will they continue? >> that's a big one. >> not negotiating with big companies. >> elimination, did he say it is on firmed on the employee side >> they have been talking about it where if you are going to give a rebate it is at the end

point for consumer it is no longer going to be okay, we'll wink and look the other way and help ourselves with this and not necessarily the end consumer the happens with fast medicare there were some controversies around that. >> that's a big change cvs and express came out many are skeptical if it covers everything it is really small all finger pointing going on >> pbm's it is not outrageous. the margins in returns on capitals unless employers and small plants can do it themselves >> ana gupte, thank you. >> when we come back, we'll talk to jim cramer, a lot to talk about. the futures are in the green the dow is up at 160 points and

s&p 500 is up about 15 points. stay tuned, you are watching "squawk box" on cnbc ♪ it's the first day of school. yeah, he's so nervous. tom is letting him know it will be alright. i know, it's a big day. i'm so proud of him. gotta go. ♪

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it's my job to protect as a public safety,pg&e, keeping the powerlines clear while also protecting the environment. the natural world is a beautiful thing. the work that we do helps protect it. public education is definitely a big part of our job, to teach our customers about the best type of trees to plant around the powerlines. we want to keep the power on for our customers. we want to keep our communities safe. this is our community. this is where we live. we need to make sure that we have a beautiful place for our children to live. together, we're building a better california. the u.s. economy is still strong can it go into the fourth

quarter if interest rates continue to rise sure you have to like them more today. the market is actually adjusting to this fear the mark et is adjusting to thi uncertainty. it is cheaper today. >> that was larry fink on "squawk box" early this morning. let's get down to jim cramer i feel like we are in earnings season >> today we are. absolutely >> you know i thought larry's comment were very wise he basically says if they keep on raising, we'll not be able to pull it off. if they don't, we can adjust i am totally in that camp. they're going to keep raising rates and not pay attention. this economy is so strong that we can do anything to it and anything we want i saw you guys, you were talking

about housing is not that good and autos and some constructions weakening and loan growth is not that good. i see a situation where the feds can lay off. lar larry's positive nature is going to play out. i don't think the fed is paying attention to anything that's happening. maybe some day you will have the bat phone directly to the fed. would it help last time of the crazy - >> yeah, i was kind of, i would say jimmy fallon and i don't know -- >> you would use the phone to call and just listen to me, i probably know what you are saying >> humiliate them like they humilia humiliated me. two can play this game >> all right, jim, we'll see you at 9:00.

a couple of minutes and tonight on "mad money. i know domino's is going to be there. ritch allison. >> stay tuned, "squawk box" will be right back.

right now the dow futures are indicated up by 171 points this comes after strong earnings across the board meeti beating expectations and leading to high numbers. check things out, wti down by 37 cents. that does it for us today. make sure you join us tomorrow >> okay, hi jim, hi carl, "squawk on the street" is next ♪ good tuesday morning, i am carl quintanilla with jim cramer and david faber at the market stock exchange the dow s&p failed to hold those gains on monday. goldman sachs and black rock and unh and j&j is all beat.